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Mybudget
Lessons from Greece
By Tammy Barton

Greek Piggy BankUnmanageable debt can creep up on anyone. It can happen to low income earners or high income earners. It can happen to businesses and companies. It can even happen to entire nations.
I was recently reading about the financial situation in Greece and it highlighted that the basic principles of money management are the same whether we’re talking about individuals or nation states.
Greece has tried to trim their budget through a range of cost-cutting measures, including cutting the pay of public employees. If you or I find ourselves with unmanageable debt, we must also start with cost-cutting—create a budget which minimises your expenses so you can divert more money to debt reduction. For individuals and countries alike, this may include debt renegotiation to make the payments more affordable.
But Greece is now in a position where they can’t trim their budget any further or renegotiate their debts to be more affordable—and they still don’t have enough money to meet their commitments. When you can’t reduce your expenses any further, the next option is to find ways to increase your income. In Greece’s case, they’re looking at producing income by selling some state-owned assets. Unfortunately for Greece, this is a little like taking an engagement ring to a pawn broker. Knowing you need fast cash, the broker is likely to offer you a rock bottom price—certainly not the true value of the article.
Meanwhile, Greece is also hoping to take out more loans so that it won’t have to default. Those loans, if they eventuate, are likely to come with unattractive terms because Greece represents a high risk to lenders. This is the same for an individual seeking a bad debt consolidation loan—the loan may provide some immediate relief, but the loan terms may lead to more long-term financial difficulties.
Of course, the situation in Greece is more complicated than I’ve described here, but we can draw important lessons from it for our personal approach to money management:
  • Create a workable long-term budget
  • Live within your means
  • Minimise your debt
  • Save for a rainy day
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