Understanding Debt: Good & Bad Debt

Being smart about debt is vital to having a healthy flow of funds into wealth creation. A diet of bad debt drains your financial health, but good debt can help keep finances fit for the future.

Before you can work out which debt diet you are on, or if it is a mix of the two, make sure you understand the difference between good debt and bad debt.

Good debt

Good debt is debt that over the long term can help you create more wealth. It does this primarily by giving you the financial capacity to invest in assets that have the potential to grow in value, like shares or your house. It could even be a student loan that funds university studies which can help increase your earning power in the future. Some good debt can be even better when your borrowing costs are tax-deductible, reducing the overall cost to you.

Bad debt

So-called bad debt usually ends up being channelled into non-wealth creating uses. It could be through car loans, personal loans or credit cards used to acquire short-term goods that are likely to depreciate, or to meet everyday expenses.

It can be easy to let debt take on a life of its own. It is also just as easy to view it as a priority and take the time to keep it in check with a few simple strategies.

Five strategies to keep debt in control

• Budget – Lock in a budget that’s realistic, practical and one that you know you won’t have too much trouble sticking to.
• Consolidate debt – Don’t just think about what’s good about your debt profile and what leaves you doubtful. Reorganise it by bedding down loans with low interest rates that are easier to pay off. Make sure you check the period of the new loan first – you may end up paying more over the long term. Also, resist the temptation to tap into any credit cards or overdrafts you eliminate with your debt consolidation.
• Regular automatic payments – Set up direct debit, or automatic payment plans that can gradually whittle away your debt.
• Pay cash – Where possible, use cash to buy things. It can make you think twice about whether you really need it.
• Write down what you spend – When you see it on paper, it might shock you into channelling your cash elsewhere.

Your debt questionnaire

Getting the right system in place is often simply a case of reassessing your attitude to debt. Here is a quick checklist of questions to get you thinking about how healthy your relationship to debt is:

• What are your financial circumstances?
• How do you and your partner view money?
• Can you shift from being a spender to a saver?
• What do you want from your money, long term?
• Is it time to minimise bad debt?
• Can you repay debt more quickly?
• Are fees from credit card reward schemes costing you money?

Managing debt is all about making debt work for you, not against you, and recognising that it’s not too difficult or time consuming to reassess your approach and change it.

If it’s all too daunting, my money coaching can help you to enact a workable plan.

The work / life myth

It may come as no surprise to you to hear that full-time working women are finding it more difficult to achieve work/life balance than men. Nor will the fact that the problem's actually getting worse come as much of a shock..

But you may be surprised to hear that both men and women are donating, on average, an additional 17 days a year to their employers, due to the work they're taking home.

The ability to work from home was supposed to increase the amount of time we have for other things. And recent Australian government policy changes were supposed to help ease the pressures on women, at least a little. So what's gone wrong?

According to the Australia Work and Life Index survey, released by the University of South Australia's Centre for Work + Life, full-time working men are reporting similar levels of "work-life interference" to 2007 (when the study commenced), while full-time work women say the level of interference has increased.

The study, based on a randomly selected group of 2887 working Australians, found that the level of dissatisfaction women are feeling about their amount of work/life balance has increased over the last five years from 16% to 27.5%. For men, the level of dissatisfaction has remained the same.

The gap between the amount of hours we're working and those that we'd like to work is the largest in the study's history, with women reporting they're working 8.7 hours a week more than they'd prefer.

The intensity of work has increased too. Almost 70% of women reported feeling pressed for time, up from a 2008 figure of 63.4%. Meanwhile, 41% of full-time working mothers said they'd prefer to be working part-time.

As for working from home, we're not necessarily doing it to for the sake of flexibility, and it's happening largely on an unpaid basis. More than half of full-time working women reported to taking work home. For both genders, around half of the work we're doing from home is unpaid. According to the research, the result is that we're donating an average 17 days a year to our employers.

Often, putting in the unpaid hours is motivated by catching up, with 70.5% of respondents reporting this, while 63% said it's because they "have too much to do".

So at a time when we're talking about flexible work more than ever, and when we have the technology and know-how to make flexible work a reality, what's going on?

According to the report's authors, while Australia's policy environment has adapted to there being more women in the workforce, such policies have not transformed to the higher level of workforce participation by women. "Women are stretched in light of this partial adaption which leaves them very busy on the work and home fronts," they wrote.

Indeed, policy advances like paid parental leave, the ability to ask for extended parental leave and changes to the Fair Work Act appear to have done little to ease the pressure on full-time working women.

And as the report authors also note, if we're really serious about improving the workforce participation of women all the while sustaining fertility rates and responding to the aging population, much more work on the policy front is needed, while a workplace culture that better appreciates flexibility and the right to a life outside of work must also be supported.

Right now, we're building a workforce that attempts to provide equal opportunities to women, but one in which women can only access such opportunities if they're willing to make greater sacrifices to their work/life balance than what's required from men.

It's a workplace that's still stuck in the last century. Or perhaps even the one before.

We need a significant cultural overhaul of the workplace in order to ensure it better reflects the greater participation of women. Flexible work needs to become the standard, rather than an option for those brave enough to request it. And it needs to be accessed equally by men and women, by parents and non-parents, by leaders and those starting out in their careers.

Parents also need to better recognise and utilise the policy changes available. As the study finds, many parents do not even know that they have the right to request flexible work. Around a fifth of workers (mostly working mothers) are requesting flexibility, according to the study, that's about the same amount as before the right to request such flexibility became law.

As for the added work we're doing from home, the ability to work from our home offices and smart phones should help our work/life balance rather than hinder it.

There's something fundamentally wrong.