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"Out of the overflow of the heart, the mouth speaks."

Poverty Like Riches March 24, 2010

Filed under: Cents and Cents' Ability — camcat888 @ 1:30 pm
Tags: , , ,

For the first time in many years, Americans across the board are experiencing tough financial times.  Very few households have gone unaffected by the economic recession, and most have felt at least moderate discomfort.  While no one wishes for suffering, it is always interesting to observe people’s reaction to it.  It’s often been said that there is more to be learned about a person’s character during hardship than during prosperity, and how very true that is!  When it comes to money, however, those whose response is disciplined and resourceful are usually those whose hardship will seem negligible or go unnoticed altogether.  Here’s why.

What you do with your money during times of plenty is much more important than what you do with it when things get tight.  Not that you can’t mitigate the damage an economic downturn has on your life, but consider this:  you likely could have prevented the effect by the way you lived before times got tough.  Take this illustration.  Mary enjoys food.  During fall and winter months, she doesn’t get out to exercise and on holidays like Thanksgiving and Christmas, she overeats.  In the fall and winter, her additional pounds are neatly concealed under bulky sweaters and corduroy pants.  But come spring and summer, Mary loves to wear cute tank tops, short shorts and of course, the swim suit!  Every time March rolls around, Mary panics and goes on a crash diet that lasts until October.  She cuts out pretty much anything with taste and works out to the point of exhaustion.  When fall returns, she’s so disgusted with water and rice cakes that once she tucks away the warm weather clothes for the last time, she “rewards” herself with an unhealthy, undisciplined off season of pigging out and lounging around.  For Mary, this could end in a multitude of health problems and even an untimely death.  Hopefully everyone can agree that Mary could save herself a lot of grief, punishment and pain by balancing her eating and exercise habits year round.  Sure, she’d have to cut back on her big turkey dinners in the fall and winter months, but she’d also be able to eat like a normal person the rest of the year!  

Although life and death may not be at stake, it’s still very dangerous to manage your finances like Mary manages food.  And whether or not you realize it, you may be doing just that:  I was.  Our household has two incomes and compared to many of our peers, we were living well within our means.  Some friends turned us on to a new financial “diet” they had started and they raved over its results.  We were quite curious, so I started by adding up – item by item – how much we had spent on various things over a two-month period.  YIKES!!!  I began desperately searching for what we had to show for all the money we’d gone through, and I couldn’t put my finger on one single thing.  We’d blown way too much on groceries, dropped an inordinate amount of money eating out, and wasted ridiculous sums on “stuff” that I couldn’t even identify (curse you, Wal-Mart!)!  Keep in mind – we weren’t hurting for money.  On the contrary, we felt we were doing pretty well for ourselves.  So you don’t have to be bouncing checks to have a problem.  We discovered that we needed to develop healthier financial habits or we would end up with rubber checks. 

We dug in, and the first thing we did was (you’re not gonna like this) cut up ALL of our credit cards.  Listen, people:  plastic is nothing but T-R-O-U-B-L-E from start to finish.  We weren’t card addicts by any means, but we had them and used them just like everyone else does – when we wanted something that we didn’t have money to pay for.  Gosh, when I put it like that, it even sounds dumb!  Ever heard the expression “good things are worth waiting for”?  Well, 21st century America has forgotten that.  Lots of people I know defend their credit card usage with “I always pay it off right away” or “I just do it for the Frequent Flier Miles.”  I must ask, if you “pay it off right away,” why couldn’t you have used money instead of credit?  And if you are trying to get FFMs, fine.  But I’ll pose another question:  what happens when there’s a technical glitch and the CC company doesn’t receive your payment on time?  If you’ve ever read the fine print, you know that they can rip you a new one for a late payment even if it wasn’t your fault; if you’ve had any amount of dealings with CC companies, you know these glitches happen often.  As a result, they jack your interest rate or slap you with a fine – or both.  How are those miles looking to you now?  If you lose your job or have some other financial setback, your trip to Europe is probably on the back burner.  If you hadn’t used the plastic, the worst you’d suffer is the disappointment of a postponed vacation.  As it is, not only are you not going on your trip, you’re sinking deeper in debt due to penalties and interest on lines of credit.  Don’t be foolish enough to say it won’t happen to you, since right now it’s a grim reality for millions of Americans who thought the same thing.  The bottom line is this:  the CC company doesn’t give two peas in a bucket about your dilemma, and they shouldn’t – you gladly accepted their loaned funds with a full understanding of the risk involved.  Simply put, you gambled and lost.

I almost overlooked another very common excuse for gambling with plastic:  emergencies!!  That could be the silliest, most worn out excuse given for keeping just a card or two.  In this great age of convenience, there are few places one can go (domestically, at least) where an ATM cannot be found.  So if your idea of an “emergency” involves being stranded without access to your bank account, I’d take the odds on that versus the risks of a CC.  No, I doubt that’s what you had in mind.  You’re thinking about the car needing a new transmission and you needing $5,000 to pay for it.  If you don’t have emergency savings within easy reach, that’s a sign of poor financial habits; if your financial habits are poor, you’re likely to fall into the trap mentioned in the previous paragraph.  Pretty soon, you’re debating whether to make the car payment or the overblown CC payment for the car’s transmission.  If it sounds like suffocation, that’s only because it is.

Hopefully I’ve sold you on renouncing CC’s altogether like we did, but that’s only half of the solution.  After cutting up every non-debit card in the house (it’s kind of like sky diving – you just have to jump), we began budgeting.  Is budgeting a daunting task?  Absolutely!  Is it critical to financial health?  Absolutely!  It’s a trial and error process, for sure, but without the trial, all you have is error.  We had identified our money pits and now we had to set sensible limits, particularly in those areas.  Start off strict until you find the balance and can give yourself some slack.  If budgeting is completely foreign to you, I highly suggest you check out a guy named Dave Ramsey:  he’s never met a financial nightmare he couldn’t vanquish.  It is certainly distressing that so many American families have been rendered jobless and even homeless by this recession, but to believe that these families had no part in their undoing is to overlook the deeper root of the problem plaguing our country.  We are such an affluent nation that we’ve forgotten how bad famine can really be.  Let this downturn be a wake-up call for us to change the way we spend during feast.

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