With the Greek crisis reaching some form of resolution, at least for now, I thought it would be good to look at what lessons we can all learn from this to avoid similar pitfalls ourselves.
Don’t spend more than you can afford.
This is the first rule of financial planning. Relating back to Greece, first they must stop producing deficits so it can then begin reducing its mountain of debt. Everyone knows at some point there will be more debt relief in some way or form, but as an individual in the UAE this is unlikely to be an option, and so any debt will need to be repaid.
Avoid debt.
This seems obvious, but it is best to avoid being in debt in the first place. But for many years, more loans, debt servicing and debt rollover were an afterthought in Greece until the debt load became so huge no one was willing to lend to them anymore. On a personal level this is likely to be credit card debt rolled into a personal loan, and then the credit card maxed out again — a dangerous cycle that needs to be stopped. Aim to live debt-free and pay off the mortgage before you retire and you won’t go wrong.
Have a plan and stick to it.
In financial planning, we try to come up with a sensible plan to achieve each client’s goals. But the plan does no one any good unless it is implemented. As we do with investment portfolios, we review them at regular intervals and rebalance as necessary to adhere to the agreed asset allocation plan. Without implementation, plans (or laws) are useless.
Always have a Plan B.
It is evident now that the new Greek government never had a credible Plan B in the negotiations with their creditors. As a result, they were forced to accept what is commonly accepted as a humiliating deal for yet another bailout. In financial planning, true financial independence means having good options available to us at critical life moments. The Greeks were left to choose between the worse and catastrophic options as the bad and very bad options were no longer available.
Do not burn bridges.
The Greek negotiating strategy was disastrous. They managed to alienate almost every single member of the Eurozone and then eventually asking them for another multibillion-Euro bailout. It is foolish to alienate your colleagues — you never know when they might be assessing you for another job or promotion in the future.
Actions have consequences.
And so do votes. The Greek voters elected their leaders to govern, and they were not able to deliver on their promises. When a country is not governed well there can be consequences. And this can be the case with your money. If you pile up credit-card debt and personal loans, fail to plan for your retirement, it is likely that you will face consequences at some point in the future.
Change is hard, but necessary.
When something is not working in your personal financial situation, it is best to take immediate corrective action because a delay in making a change may make the effects of the eventual change even more dramatic and painful. For example, if you have a problem overspending on your credit cards, it is perhaps best to cut them up; if your job is damaging to your health you may want to find another one. But Greeks are finding it extremely difficult to change their ways. No real reforms have taken place yet. The terms of the third bailout are still full of higher taxes and very few spending cuts. At the end of the day, you are responsible for your own destiny.
— James Thomas is Managing Partner, DeVere Acuma
