Did you ever feel overloaded with all this financial stuff in life? This used to be a huge problem with shipping until the 1800’s with the implementation of the Water Line mark or the Plimsoll Line. Essentially the Plimsoll Line on a ship’s hull marks that the ship is now full, and no more weight or cargo can be added to it, wouldn’t it be nice if we had the same kind of thing for our own Personal Finance Problems?
My guess is that all of us have our own Financial Plimsoll Line depending on our income, and our ability to pay off debt (as well as ability to deal with having debt), but my guess is we should all have in mind what that number is.
If you don’t have a number, the real danger is you can go well past that Financial Plimsoll Line without even knowing you were that close?
So how do you think up that line? Here are a couple of examples of how to create a Financial Plimsoll Line:
- When you buy your first house, after that happens, figure out how much debt you have the first month you own that house, or maybe even better, 6 months after you have bought the house, and say that is the line. At no time in your life will you be that much in debt ever again.
- Right now you feel you are as far in debt as you can stand, so that is your number, write it down and remember it.
- Create a number, based on your income: your line is 1.5 times your annual gross income, you will not go into debt any more than that. This does not mean it is a sliding scale (i.e. if your income goes up, the line should not be going up as well).
Sometimes all it takes is to set a limit on debt to get it under control. Set your limit today.
I love the idea. Though this like would need to be flexible, incomes change, you might have more consumer debt when you’re younger but a lot more mortgage debt when you’re older. I would say that coming up with this line would be very hard (to make it an accurate representation). With that said I liked the examples, definitely a good starting point if you want to set a limit.