5 Lessons I Learned About Personal Finance From the Greek Debt Crisis
It’s been a tough couple of years for Greece.
As much of the world leaves behind the 2008 recession, the cash-strapped Mediterranean nation is still struggling to become solvent. And in the last couple of weeks, Athens has been getting the side-eye from the rest of the European Union over its inability to pay its debts.
As the dust settles and it looks like Greece will get to stay in the EU clubhouse, individual consumers can take a few cues from Greece’s Olympic financial fail. Here’s what the Greek debt crisis taught me about money management.
1. Be Honest About Your Financial Situation
As the EU digs into Greece’s financials, they’re finding that officials were playing some pretty sophisticated shell games with the books. The government was underreporting its debt, presenting its finances as much healthier than they were.
Whether you’re applying for a loan or keeping up with the Joneses, exaggerating your assets sets you up for a fall.
And it's not just the neighbors and the creditors you might be fooling. Are you being honest with yourself about the state of your accounts?
I roll my eyes now, but I only started using a budget once I was on firmer ground financially. When I was living paycheck to paycheck, I just tried to spend frugally and hoped for the best.
Facing the actual numbers around my finances terrified me. But if I’d forced myself to look at what was coming in and where it was going, I would have had the information to make better spending choices and maybe even set some savings goals.
2. Live Within Your Means
As Greece learned, there are always creditors willing to give you money, whether you can realistically pay it back or not.
It’s up to you to just say no to unwise loans and irresponsible spending.
Those credit card offers will keep filling your mailbox, even with three maxed-out cards already in your wallet. And that home loan you just got approved for? It’s likely way more than you should responsibly take on.
When I was house-hunting, I was approved for a mortgage that would have worked out to a monthly payment of more than 50% of my takehome pay.
After a few hours of drooling over a whole new world of options on Zillow, I cooled it with the McMansions and clicked back over to the condos. I realized no one is looking out for my financial health except for me.
3. Never Pay Just the Minimum Balance
As it turns out, this isn’t the first time Greece has been bailed out by the EU. In 2010, Europe handed Greece more than 240 billion euros, or about $264 billion at today’s exchange rates.
Now the EU is wondering what happened to all that money. It seems that most of it went toward paying off interest and debt instead of boosting the economy.
Paying only the minimum balance brings you no closer to paying off your debt. And, depending how much you owe, you might only be covering the interest without chipping away at the principal.
Remember your first credit card? I got mine in college and quickly racked up a few thousand dollars in meals out and new outfits.
When my first statement came, it seemed like magic when they only wanted $25 at the moment. But when I calculated how long it would take to pay off if I stuck with the minimum balance, it was years. And that’s assuming I stopped using the card.
A couple of months of extra waitressing shifts later, I paid off the balance in full. (The card is still open though! It’s my oldest source of credit, so it boosts my credit score.)
4. Make the Hard Choices
Even after Greece faced defaulting on its debts, the country continued to resist austerity measures meant to get its budget under control.
No country wants tax hikes, just like no consumer wants to give up cable or move to a cheaper apartment.
But sometimes getting our finances under control means cutting back in areas we’d rather not so we can reach our goals. So scale back on that wedding, start carpooling to work or scout out ways to save on utilities.
5. Watch That Credit Score
With all this financial hubub, Greece’s reputation as a viable place to invest has slipped significantly. Lack of investment hampers the nation’s ability to grow its economy and recover from the recent downturn.
We all know a bad credit score affects your ability to get a loan. But it can also negatively impact your job search or even be cause for a landlord to pass on your rental application.
Keep tabs on your credit score and avoid any situation that could negatively affect your rating.
My partner learned about credit the hard way when he went to apply for a loan. He didn’t have any credit cards, preferring to only spend what was in his bank account.
But, as it turns out, no credit history is bad credit history, and he ended up with an interest rate far higher than he expected.
Whether you’re running a nation of 11 million or a household of one, some financial guidelines remain the same. (Also, let’s send some good vibes in Greece’s direction.)
Your Turn: What are your basic guiding principles when it comes to money?
Lyndsee Cordes is a writer and editor in Washington, D.C.