This is part 4 of the “Dig Yourself Out of Debt” Series, published every Thursday. Surfing old posts? You can catch up on Part 3 by clicking here, or view every post in this series by clicking here.

I think it is fair to say that the world loves us to spend money. This in itself is not an issue; spending money keeps the economy revolving, keeps people employed, goods being manufactured and exported and taxes incoming. The problem begins when we start to spend money that is not ours.

Throughout this “Dig Yourself Out of Debt” series, we have worked to pay back money we owe to others because we have borrowed at some point – or at lots of points – in our past. It may have helped pay for home renovation, holidays, a new car or two, or just lavish lifestyles that our incomes did not support alone. In effect we were spending more than we were earning, and taking on debt to cover the difference.

If we are to stop ending up in the same position after working so hard to pay off the debt we are in now, a true shift in perspective is required. Much like when people “go on a diet”, this gives the false impression that at some point the diet will end, and everything will be great. For a while it is, but the weight soon starts creeping back on as we return to old habits. A chocolate bar here, an extra meal out there. Before most dieters know it they weigh more than they did before they started.

Those who succeed over the long-term where weight loss is concerned never went “on a diet”. They engaged themselves in a change of lifestyle. They did not delude themselves that at some point their being good will come to an end and they can return to their old ways. They decided to change their relationship with food and exercise forever.

Getting out of debt is not a short-term fix. It is not a short temporary hardship – it requires a complete monetary rethink, much like a person who maintains successful weight loss changed their entire lifestyle. Live according to your means, not up to your expectations. If your net (take home) pay is £850 a month then you need to realise that a lavish lifestyle is just not yours to be grasping. Until we acknowledge this reality we will never break our spending addiction.

Any attempt to live like you earn 3x the amount you do will simply end up returning you to a mountain of barely serviceable debt. Spending this will make you no happier than if you simply had not even bothered trying to delude yourself and others in the first place.

With that in mind, here is my ‘Debt Psychology 101′.

Stop keeping up with the Jones’. Our society places an artificial need and desire to “one up” our neighbours and social peers. If your next door neighbour drives a Mercedes, then your ‘need’ to go out and buy a Lexus is niggling away at you day in, day out because we don’t like being perceived as inferior to others. Does your friend have an iPhone 3G? How many times have you wanted to go out and get yourself a 3G S to get one better than him?

Appearance is not everything. Your neighbours may have two Mercedes and a Land Rover Sport on their driveway, but they have likely sunk themselves into debt servitude to do so as I highly doubt that they have gone and purchased them outright, especially in the current economic climate. They will be saddled with debt from their desire to put out a perception of wealth that is as hollow as a malteser. It might appear hard on the outside, but it’s full of holes on the inside. Their income may be significantly higher than yours, but it is likely their debt is significantly higher as well. Side-by-side, you are probably better off than they are.

I drive a 7 year old car that I could replace with something newer if I wanted to give out a better appearance of my financial position.  I keep driving my old car because it does what it is supposed to do; it is cheap to run and all the time I hold off buying a new car, I accumulate real wealth (or do not sink myself deeper into debt). Either is a good thing.

Celebrate real wealth. What would you rather do? Give the appearance of wealth, or have wealth? One of the best life lessons I have learned from my journey to become debt free is that consumerism is not all it is cracked up to be, and I have disconnected myself from that lifestyle completely.

I appreciate what I have already, and use it to the best of its ability. Yes I would like an iPhone, and if someone offered me one for free I would take it as there is no denying – it is good technology. But I do not desire one, and I certainly will not be buying one even after I am debt free. Why? Because I do not need it. Yes it would increase my friends’ perception of me and my financial position, but I do not care what others think of my financial position. I would rather know that I am financially secure, than give out that appearance.

Beware the power of advertising. For our entire lives up to this point and beyond, we have been and will continue to be barraged by media advertising anything and everything, and all saying that “your life will be better with Product X” or the fact that “the 2009 Product X is significantly better than the 2008 Product X and anyone who has not rushed out and upgraded yet is poor, stupid, or a combination thereof”.

One prime example is L’Oréal: “Because you’re worth it”. Really? If I do not buy this product then someone else is worth more than me?

You may think I jest, but the next time you see advertising of any sort, disconnect, step back, and really analyse what it is saying about whatever is being promoted. Once you start to see through this, your consumerist nature diminishes and you find more money appearing in your bank account at the end of each month.

Less is more. I am happier now than I have ever been at any point in my life. That is despite the fact I am getting divorced, despite the fact I am in debt, and despite the fact I acknowledge my job is potentially at risk. Why? Because I have got off the carousel of consumer debt accumulation and started to appreciate what I do have. I have my health, I have family and friends, and I make what things I do buy work that much harder for me. These days I am much more content with a library book or a DVD from my LoveFilm subscription than if I went and splashed out on a DVD boxset every week.

Some people are naturally frugal courtesy of their upbringing. I was a spoiled child if I am honest, and I paid for that later on in life by believing I could still have everything I wanted now, even though it was not supported by my income. When I was married the situation just became even worse.

If this sounds like you, and the reason you got into debt was simply spending more than you earn courtesy of consumerist desires, you can undo that. It is possible to change; I am living proof of that.

Of course this does not take into account the other reasons of being in debt. Sometimes, you are just down on your luck and circumstances conspire against you at the worst possible moments. Only you can decide which one is really the reason you are in debt if you are.

Identify your own reasons, spell them out, and work on changing your lifestyle accordingly. Providing you live by a simple mantra, debt will never be a problem again:

Live according to your means, not up to your expectations.

• My Financial Meltdown: Part 1
• 10 Economic Predictions for 2010
• Could You Live on Half Your Income?
• Personal Recessions
• Job Front Update

I’ve become fascinated by the long term cost of things of late. I suppose this is merely a natural progression in a personal finance journey; you are no longer content to know just what things have cost to date, but what they will cost you in the future, too. Of course no one knows what will happen in the future with any degree of certainty although two outcomes remain a given: you’ll pay taxes, and die at some point.

Beyond those two cheery thoughts, a little artistic license may be required.

As I was driving to work yesterday evening, a thought started buzzing around the fringe of my consciousness. “Just how much have I paid for this car in its 6 and a half year life?”. As many personal finance bloggers have mused in the past, cars are expensive. They are even more expensive on a finance ‘deal’.

I realised I could probably answer my question with a reasonable degree of accuracy, as I keep all documents relating to my car since purchase no matter how small. I promised to add it all up and find out, If I remembered between the thought coming to the surface and getting back home.

This afternoon I dug out my “Car Expenses” docket and opened up a new Google Spreadsheet to start typing in numbers.

I drive a 2003 diesel Ford Focus 5-door hatchback and this is if I am an honest, a superb vehicle. It’s extremely efficient if driven right (currently 67.5mpg according to its computer), still looks great, can haul anything I put in it, and is extremely comfortable and reliable.

Unfortunately, these are the only good things about my purchase.

When I first bought it at age 19, I wanted “the best” – after all, my consumerist desires had been nicely nurtured by the salesman and two decades of advertising exposure – so I went all out. I had metallic paint, supaguard protection inside and out, the highest trim level (Ghia), a 6-disc CD changer, 115 bhp engine rather than the usual 100 and so on and so forth. The list of ‘extras’ goes on for miles.

In total the “there and then” purchase price would have been £16,209. Not too bad for a brand new reasonably  specified vehicle, even in 2003 money.

Purchase Mistake #1: Unfortunately, that wasn’t what I paid. When I first bought the car, I had £8,000 in savings to put towards a new vehicle. In hindsight I could have got a lesser vehicle – still new – for that alone. The purchase price of the car I wanted was £16,209.01 which meant I needed to source £8,209 from elsewhere. I probably found the necessary 1p in my pocket to save getting that on finance also, so £8,000 needed to be financed. The place I bought the car was all too keen to sell me their finance package and looking back it wasn’t a bad deal: 6% APR over 3 years.

Purchase Mistake #2: I thought I could do better. I telephoned my employer who ran an assisted purchase scheme for new car buyers. The headline rate is 3.5%, so I signed up to get my missing £8,000 and made up the difference that way. However, 3.5% is not the APR, that’s the flat fee per year. The APR which I subsequently found buried in the small print) is 7.5% if taken over 3 years like I did. Adding the arrangement fees and paperwork costs on top, I paid nearly £1,000 over the purchase price to borrow that £8,000. The only good point about this loan was the payments were taken from my gross wages, meaning the money was taken before my income tax and national insurance payments were calculated.

Purchase Mistake #3: In 2005 I got married, and so that we could set up home together having started with nothing, we took out a £15,000 loan over 5 years. Included in that was some consolidation of our existing commitments and operating capital on top. I paid off the loan from work, and rolled it up in this loan instead. Now my car would have been paid off in 1 more year if I’d kept the original repayments going, instead I had just extended them for another 5 years at 9.9% instead!

Purchase Mistake #4: In 2009 I filed for divorce. In order to restructure my finances to help get me debt free more quickly, I paid off the remainder of this loan and a few others with one super-loan from my bank for £10,000 at 8% over a further 3 years (although my intention from day 1 was to pay this off inside 12 months). This wasn’t a mistake per se, but does theoretically mean that 6 years after taking delivery of the car I am still paying for it and could do until 2012, almost 9 years after driving it off the forecourt!

So far, purely courtesy of finance costs, arrangement fees and interest my £16,209.01 car has actually cost £22,962.09 – nearly 30% more than the original price of the car.

Put another way I would be debt free right now if I had not taken out my car on finance. My net worth is at August’s calculation -£4,951.49 so I’d actually have almost £2,000 in the bank, instead of still owing others money.

I then went a step further and totaled up my insurance, road tax, servicing and other car-related expenses such as my annual diesel spend and played around with the Google Spreadsheet graphing toys to produce the following:

As we can see the Total Cost of Ownership goes down year on year from the point of purchase to about 3 years in, and then climbs rapidly. In 2003 (year of purchase) it cost me £1,771.71 excluding the down payments. In 2004 that dropped to £1,597, and in 2005 it dropped again slightly to £1,587.89. 2006 saw my servicing costs rocketing courtesy of crash #1, but lowering insurance premiums saw the TCO continue to drop slightly to its lowest point of £1,461.60.

Mistake #5: From that point onwards though, it has year on year cost me more and more to own the car. I began to neglect the servicing schedule. As a couple, our financial issues began to really cause a lack of disposable cash. Non-essential spending was cut to a bare minimum and there just was not enough to service the car beyond the absolute essentials to keep it running.

2007 saw fuel prices start to get noticeably more expensive as well so despite spending less than I should have been on maintenance, TCO went up to £1,814.35. Since then, fuel prices seem to have only one long-term direction: up. At this point I had not really correlated that keeping the car serviced and driving sensibly actually reduced my fuel bill…

2008 continued much the same as 2007 but problems were building up with the car thanks to the reduced love and care it had been given over the past 2-3 years. A further crash in the icy weather stored up further problems towards the end of 2008 that could only be put off very temporarily. My marriage came to an abrupt halt, and I saw the light.

2009 consequently became very expensive for servicing. I had to have 3 years worth of remedial work done, crash damage fixed and the 100,000 mile service performed, which is a big deal in a diesel Focus (timing belt change). As a direct result of this, the 2009 servicing cost is the highest to date but does follow the general rule that “the longer you own a car, the more expensive it becomes”. You can see from 2009 my fuel cost reduces despite higher prices, as I made an effort to drive more sensibly.

Mistake #6: The cost of my insurance dropped every single year by always shopping around for the best deal, but I wasted money here as well. I had always opted to pay over 12 months rather than paying for my insurance in one go. This is all well and good for budgeting purposes, but not too good for balance purposes when you consider the typical APR for doing so is 27.9%! I have paid £320 over 5 years just for choosing to pay monthly instead of annually for my car insurance. I corrected that error of judgment in 2009 as well.

The total expenditure of owning my car from new, crashing it twice (minor damage to my own vehicle only – no insurance claims), servicing it and keeping it fed?

£32,146.28!

• My Financial Meltdown: Part 4
• Dig Yourself Out of Debt: Spend Less Than You Earn
• Is Debt Worth It? Does It Matter?
• My Financial Meltdown: Part 3
• Dig Yourself Out of Debt: Avalanches and Snowflakes