By Paul Rowland
ACCORDING to Eurostat, on average every man woman and child in the Republic of Cyprus owes more than €65,000. How can we reduce this appalling legacy to the next generation?
Managing debt (budgeting) should be a normal part of our normal day to day lives, and the first step is to honestly assess our financial situation. This means calculating income and expenses then listing assets and debts. If there is surplus income and assets exceed our debts, fine. Or is it, are we certain? In a recession, rich or poor, the maxim has to be; stop wasting money!
An example; we all know that electricity is expensive, especially in Cyprus where it is hand crafted by EAC employees, and is amongst the very highest in the EU. The good thing about electricity is, we – the consumers – are in control, and can switch it off! Leaving lights on and heavy appliances, especially air conditioners, running unnecessarily is just giving money to the EAC for nothing. For people who are bad at budgeting, a good idea is to set aside, on a daily basis in cash, the amount you spend on electricity (base it on the last bill). This achieves two objectives. Firstly, you are reminded every day how much your electricity costs which is bound to reduce your consumption, and secondly when the bill arrives you can meet it.
This principle also works well for businesses. A few years ago the manager of a foreign bank in Cyprus sent a weekly reminder to each employee telling them how much the bank spent on electricity the previous week. After six months, consumption had fallen by 25 per cent. Why? The employees made the connection between saving money, profitability and their pay packets.
The opportunities to save money are endless, neighbours or families pooling resources and bulk purchasing dry groceries and always looking for discounts and promotions. This newspaper has a section on “Daily Deals in Cyprus”. As the recession bites, more and more businesses will join to offer discounts. They have to, they need the cash. Car sharing to commute, even for short distances, makes sense. Think of the savings on fuel, parking etc and the environment benefits as well. Two people sharing halve the cost, four people, etc.
Making savings will make us individually and collectively more efficient, and, in turn, enable us to become more productive and hopefully reduce debt. The salvation of the Cyprus economy is having a thriving private sector not dependent on the state or borrowing.
Government spending cuts are not all bad news. For example, the UK has been in recession and practising austerity since 2009 but, in the past year for every one state job lost, five were created in the private sector. This proves that when cuts are made in the unproductive part of the economy (the state sector), enterprise and growth are boosted in the private sector.
Reducing spending requires a degree of sacrifice and discipline. However, self discipline makes us feel more in control of our lives at a time when the recession defines us and how we live. We are more careful about our lifestyle and spending because we know the future will not be easy as it was over the past two decades.
Paul Rowland is a founder member of a European consultancy for asset protection and debt management, and former senior executive in international banking in the Channel Islands. [email protected]