Blogs are supposed to be short, because generations of American children raised on Dorling Kindersley pictures-and-blurbs books have no ability to concentrate on anything for more than a few seconds. We live in Attention Deficit World, it seems. But that’s not true, is it? People are quite able to concentrate for long stretches to play and win video games. People still watch entire movies; they don’t routinely walk out halfway through. They can still read long paragraphs, and follow arguments that take more than a sentence or two to develop.
So here’s my latest thought about personal finance, inspired as usual by events in my own life. Recently, I obtained some freelance work, a very encouraging thing in such a depressed year. Then I broke my ankle. The costs associated with the injury will absorb all the profit from my work, even though I have excellent insurance coverage. I could look at this with dismay and frustration, thinking that bad luck dogs me, that I can never get ahead financially, and so on. Or, I could be grateful to have extra income just at the moment when I incur involuntary extra expenses. It’s the old “the glass is half empty” versus “the glass is half full” dichotomy. How do I decide which response to choose?
Widen this question to the financial situations of millions of Americans right now. We can choose to feel completely at the mercy of random bad luck, or we can decide that we are the happy recipients of good luck. The system is corrupt, and we haven’t got a chance. Or the system is silly, and we have to make our own chance. If bad things happen, maybe they’ll be followed by good things. Someone loses a job, but gains time with the children, which strengthens previously strained and distant relationships. Or someone in the family has to take on a job who didn’t previously, and gains self-esteem. Pulling together as a team and planning finances together brings spouses closer. Ceasing idle spending sprees helps a person regain control of common sense about money. Even stopping the much-maligned latte habit gives someone a chance to learn the difference between following a fashion and fulfilling an important personal need. These are all good things: Improved relationships with other people, with oneself, and with money, plus the opportunity to decide on one’s own what is important.
Sometimes, life pulls us up short, and demands that we examine the rationale behind our choices. I wouldn’t say that breaking an ankle per se is a good opportunity to examine my financial plans. But it certainly reminds me of mortality, of the consequences of behavior, and of my constant opportunity to shape my own future. I knew, for instance, that a house with stairs wasn’t going to be practical in old age. But I bought it anyway. Now, as I struggle around on crutches, I’m getting a preview of how difficult life in this house could be in the future. Will this play a large part of my thinking about whether to stay in this house and put in ramps and an elevator, or move to another place that has no stairs? You bet. Previously, it was only theoretical, as the future always is. But since injury temporarily makes me as fragile and helpless as an elderly person, I’m getting an unexpected tryout. And a wake-up call. The next time I go looking for a house, I will treat its livability in old age as a deal-breaker.
Drag this back to the financial situation we face today. The economy has tanked to a frightening degree, as we all know. But most people have jobs and many are doing well. No matter where we are on the spectrum right now, this is our opportunity to think seriously about taking whatever steps we can to ensure that we have sufficient income to live comfortably. In my case, that means actually going looking for freelance, rather than sitting at home and hoping it will come to me like manna from heaven. Which we all tend to do when we get discouraged, when we think that no matter what we do, we can’t get ahead. Maybe I won’t get ahead of the medical bills that will soon pour in. But I’ll be even. And I will have had the benefit of the shakeup in my expectations, the confounding, if you will, of my belief in my robust good health. Stuff happens. There are steps I can take to make sure more of the same bad stuff doesn’t happen, or that the consequences are less severe, and that I will be okay regardless. Life is filled with possibility, and on the whole I believe that it’s a good thing that we’re not all just on an endless treadmill.
Wednesday, April 22, 2009
Thursday, April 9, 2009
Why You Can’t Get Out of Credit Card Debt
No, it’s not what that radio ad says, that “the banks won’t let you.” And no, it’s not the unfairness of a system that allows your creditors to charge you any amount of interest they please, and to change the terms of your agreement with them completely at whim. And no, it’s not because there’s a secret that “the banks don’t want you to know,” as a television ad states.
You can’t get out of credit card debt because you refuse to change the way you spend money.
It’s like the jokes about fad diets. “Eat less, exercise more” really does the job. It does cause people to lose weight. But that’s just not sexy and silly and weird enough. People are suspicious of such simple advice. There must be something wrong with a diet if it doesn’t involve a pill, or a drink, or a regimen of strange food.
So, too, people like to fool themselves that getting out of debt is complicated, that “the system is rigged” against them, and that therefore, their honest efforts to end their debt are being thwarted by some Evil Empire of greedy bankers. Sure, it’s true that banks are jacking up their rates these days, even as the cost of money to them has gotten lower as the Federal Reserve has dropped the prime rate. But banks have also extended so much easy credit to obviously uncreditworthy customers that in the end the score may be even as more and more people default. I don’t care about the banks’ profits. Let’s talk about why you aren’t getting out of debt.
When you go on a diet, you promise yourself that you won’t eat a whole list of forbidden foods. These foods may be actively bad for you, or they might just be too much food. For instance, many people would argue that a piece of toast as part of a healthy breakfast isn’t bad for you per se. Yet dropping off that one piece of toast and its accompanying butter, jam, or whatever saves hundreds of calories and is an easy way to diet effectively. Take this analogy into the financial realm, and the issue is that many of the items you buy with a credit card are not necessarily bad for you, but they are too much to be charging if you want to lose debt. For example, if you buy gasoline, it’s not bad; you need gasoline to perform your life’s ordinary tasks such as getting to work or to school or to stores. But if you owe money on your credit card, using a credit card to buy the gasoline amounts to voluntarily paying as much as 30% more for the gas. That’s crazy. Most people know not to do that with gasoline. They pay cash, or use a gas card that they pay off in full every month, or a debit card.
But they don’t seem to know not to keep buying other items that they could do without, and they use credit to buy. It’s easy to get into debt with a credit card, because it allows you to buy things you actually can’t afford. Once you’re in debt, it’s easy to get out of debt: You go on a money diet, a term that is so apt and analogous to dieting that Richard T. Case wrote a book with that title propounding a dieting system to reduce debt. I haven’t read that book so I can’t comment on the details of his plan. By my definition, a money diet consists of two parts, just as a diet does: Part one is to stop eating junk food (stop buying junk). Part two is to eat far less than you need to survive (make drastic economies) so your body must make up for the difference by using up fat (so you have extra money each month because you bought less, allowing you to pay down the debt faster).
And that’s it: Buy less, pay down more.
You say I must be joking. It can’t be this easy. There must be something complex, some secret the banks don’t want us to know. No, there isn’t. If you live above your means, stop. It’s that simple.
But many of us don’t stop, do we? Like the body’s famous (and possibly spurious) set point, we have a set point for our lifestyle. Most of us keep using debt to shore it up when we should change our lifestyle to match our money situation. I’ve talked about this before. Committing to a more lavish lifestyle than we can support with cash means permanent credit card debt.
High finance charges make it more difficult to pay the debt down, just as a low-burning metabolism from too many nights on the couch makes it difficult to lose weight. But these ills can be overcome if you truly intend to get out of debt or lose weight. By the time you get into serious credit card debt or serious overweight, you feel trapped. But you are only trapped by your behavior today and tomorrow. You can get out of debt regardless of the banks’ often unfair tactics. Just as you can lose weight even after you have injuries, body systems failing, and so on. All it takes is the will to buy less, and pay down more.
But you don’t stop using the credit cards. In your mind, every purchase on them is a necessity. Breakfast would not be complete without a piece of toast. Yes, it would. But that’s why you can’t get out of credit card debt.
You can’t get out of credit card debt because you refuse to change the way you spend money.
It’s like the jokes about fad diets. “Eat less, exercise more” really does the job. It does cause people to lose weight. But that’s just not sexy and silly and weird enough. People are suspicious of such simple advice. There must be something wrong with a diet if it doesn’t involve a pill, or a drink, or a regimen of strange food.
So, too, people like to fool themselves that getting out of debt is complicated, that “the system is rigged” against them, and that therefore, their honest efforts to end their debt are being thwarted by some Evil Empire of greedy bankers. Sure, it’s true that banks are jacking up their rates these days, even as the cost of money to them has gotten lower as the Federal Reserve has dropped the prime rate. But banks have also extended so much easy credit to obviously uncreditworthy customers that in the end the score may be even as more and more people default. I don’t care about the banks’ profits. Let’s talk about why you aren’t getting out of debt.
When you go on a diet, you promise yourself that you won’t eat a whole list of forbidden foods. These foods may be actively bad for you, or they might just be too much food. For instance, many people would argue that a piece of toast as part of a healthy breakfast isn’t bad for you per se. Yet dropping off that one piece of toast and its accompanying butter, jam, or whatever saves hundreds of calories and is an easy way to diet effectively. Take this analogy into the financial realm, and the issue is that many of the items you buy with a credit card are not necessarily bad for you, but they are too much to be charging if you want to lose debt. For example, if you buy gasoline, it’s not bad; you need gasoline to perform your life’s ordinary tasks such as getting to work or to school or to stores. But if you owe money on your credit card, using a credit card to buy the gasoline amounts to voluntarily paying as much as 30% more for the gas. That’s crazy. Most people know not to do that with gasoline. They pay cash, or use a gas card that they pay off in full every month, or a debit card.
But they don’t seem to know not to keep buying other items that they could do without, and they use credit to buy. It’s easy to get into debt with a credit card, because it allows you to buy things you actually can’t afford. Once you’re in debt, it’s easy to get out of debt: You go on a money diet, a term that is so apt and analogous to dieting that Richard T. Case wrote a book with that title propounding a dieting system to reduce debt. I haven’t read that book so I can’t comment on the details of his plan. By my definition, a money diet consists of two parts, just as a diet does: Part one is to stop eating junk food (stop buying junk). Part two is to eat far less than you need to survive (make drastic economies) so your body must make up for the difference by using up fat (so you have extra money each month because you bought less, allowing you to pay down the debt faster).
And that’s it: Buy less, pay down more.
You say I must be joking. It can’t be this easy. There must be something complex, some secret the banks don’t want us to know. No, there isn’t. If you live above your means, stop. It’s that simple.
But many of us don’t stop, do we? Like the body’s famous (and possibly spurious) set point, we have a set point for our lifestyle. Most of us keep using debt to shore it up when we should change our lifestyle to match our money situation. I’ve talked about this before. Committing to a more lavish lifestyle than we can support with cash means permanent credit card debt.
High finance charges make it more difficult to pay the debt down, just as a low-burning metabolism from too many nights on the couch makes it difficult to lose weight. But these ills can be overcome if you truly intend to get out of debt or lose weight. By the time you get into serious credit card debt or serious overweight, you feel trapped. But you are only trapped by your behavior today and tomorrow. You can get out of debt regardless of the banks’ often unfair tactics. Just as you can lose weight even after you have injuries, body systems failing, and so on. All it takes is the will to buy less, and pay down more.
But you don’t stop using the credit cards. In your mind, every purchase on them is a necessity. Breakfast would not be complete without a piece of toast. Yes, it would. But that’s why you can’t get out of credit card debt.
Wednesday, April 1, 2009
Broke Like All the Rest
Why is it that I happen to have no extra money just now? Now, when it’s a buyer’s market for cars? Now, when there are rock-bottom-priced real estate deals to be had? Now, when vacations, elegant restaurant meals, high-end clothing, and more are super-discounted? This is so frustrating. I’m missing many gilt-edged opportunities to get a lot for not a lot.
I remember about ten years ago, at the top of the tech boom, I also had no money and thus no way to invest in the tech stocks that were going crazy and producing amazing fortunes. But I was able to get a job, in fact, several jobs. During the tech boom, we were nearly at full employment. Companies were begging for workers. Anyone who could walk and talk at the same time could get hired. It didn’t matter what you looked like, what your experience was, or if you had a bad attitude; there were jobs for everybody who wanted to work. Maybe not great jobs, but employment nevertheless. So I worked. And my debts got paid off.
Only later, when I owed nobody a dime, did my credit card companies start sending me offers for balance transfers at zero percent interest. Where were they when I needed them, when I had a lot of credit card debt and would have been grateful even for a lower APR? And now I’m back to being done with a debt again, and the zero percent offers are arriving again when I don’t need them. Because I’m certainly not going into debt to take advantage of all the great deals around. I guess my caution proves that I am no capitalist at heart, but I don’t like thinking of my credit cards as my own venture capital line of credit. It’s too close to home. The whole idea of indenturing myself again to a credit card company makes me uneasy.
As it is, although I’m not in debt and my home isn’t in foreclosure, I’m feeling kind of miserable over money. I’m feeling broke. And I have been wondering why.
Today it dawned on me: We’re all in this together. That’s the answer. Regardless of how well I manage my finances, I can’t get business that isn’t out there. My opportunities for income have shrunk, in concert with the gloomy economic situation in our country. Realizing this makes me feel a little better. It’s not just me. It’s all of us.
But I realize that I can’t just sit here and be a victim of this massive economic downturn. Sure, I’m leaving my few dollars of retirement alone to recover from the stock market crash. But I can do more. I can look for more work, do new kinds of work, sell stuff that I don’t need, and do jobs myself that I might otherwise pay someone else to do—with the mythical dollars that, currently, I don’t have. Or, I could look for new ways to economize, so I can use the money saved to employ people who are currently hurting more than I am for income. I also could volunteer to stay with an elderly person to give the full-time caregiver some free respite care. I’ve got the time, so why not? I could make and deliver a meal to a family that is finding it hard to buy food lately. If that seems too much like Lady Bountiful, I could spread a little of my small amount of available cash around at local yard sales, thus helping my neighbors in a manner that cannot bring offense to their pride. I might even pick up some items I could resell for a profit.
Thus the capitalist is reborn. I don’t have to think like an employee. (I haven’t actually been an employee for years, so it’s about time.) Getting away from the employee mindset means not sitting around waiting for a job to drop in my lap, or for the economy to get better without me. It means being creative, going looking for opportunities, hustling. Not constantly reading depressing stories about how the economy has tanked and everything that is being done to rescue it is wrong.
Granted, this isn’t a great time to make a fortune on eBay. But it might be an excellent time to write another novel and submit it to a publisher. Or to do something else. Whatever I do, I want to use some of the energy I’ve been wasting--wasting reading and talking and thinking about how bad the economy is--to try to improve my own personal economy. Or at least my karma. Maybe things will only get markedly better for me in terms of dollars and cents when things get better for everyone else. But I’m not going to sit around and feel confused and miserable anymore. I’m going to take action to try to improve my economic situation. And my attitude.
Now, I’ve got my own personal recovery plan.
I remember about ten years ago, at the top of the tech boom, I also had no money and thus no way to invest in the tech stocks that were going crazy and producing amazing fortunes. But I was able to get a job, in fact, several jobs. During the tech boom, we were nearly at full employment. Companies were begging for workers. Anyone who could walk and talk at the same time could get hired. It didn’t matter what you looked like, what your experience was, or if you had a bad attitude; there were jobs for everybody who wanted to work. Maybe not great jobs, but employment nevertheless. So I worked. And my debts got paid off.
Only later, when I owed nobody a dime, did my credit card companies start sending me offers for balance transfers at zero percent interest. Where were they when I needed them, when I had a lot of credit card debt and would have been grateful even for a lower APR? And now I’m back to being done with a debt again, and the zero percent offers are arriving again when I don’t need them. Because I’m certainly not going into debt to take advantage of all the great deals around. I guess my caution proves that I am no capitalist at heart, but I don’t like thinking of my credit cards as my own venture capital line of credit. It’s too close to home. The whole idea of indenturing myself again to a credit card company makes me uneasy.
As it is, although I’m not in debt and my home isn’t in foreclosure, I’m feeling kind of miserable over money. I’m feeling broke. And I have been wondering why.
Today it dawned on me: We’re all in this together. That’s the answer. Regardless of how well I manage my finances, I can’t get business that isn’t out there. My opportunities for income have shrunk, in concert with the gloomy economic situation in our country. Realizing this makes me feel a little better. It’s not just me. It’s all of us.
But I realize that I can’t just sit here and be a victim of this massive economic downturn. Sure, I’m leaving my few dollars of retirement alone to recover from the stock market crash. But I can do more. I can look for more work, do new kinds of work, sell stuff that I don’t need, and do jobs myself that I might otherwise pay someone else to do—with the mythical dollars that, currently, I don’t have. Or, I could look for new ways to economize, so I can use the money saved to employ people who are currently hurting more than I am for income. I also could volunteer to stay with an elderly person to give the full-time caregiver some free respite care. I’ve got the time, so why not? I could make and deliver a meal to a family that is finding it hard to buy food lately. If that seems too much like Lady Bountiful, I could spread a little of my small amount of available cash around at local yard sales, thus helping my neighbors in a manner that cannot bring offense to their pride. I might even pick up some items I could resell for a profit.
Thus the capitalist is reborn. I don’t have to think like an employee. (I haven’t actually been an employee for years, so it’s about time.) Getting away from the employee mindset means not sitting around waiting for a job to drop in my lap, or for the economy to get better without me. It means being creative, going looking for opportunities, hustling. Not constantly reading depressing stories about how the economy has tanked and everything that is being done to rescue it is wrong.
Granted, this isn’t a great time to make a fortune on eBay. But it might be an excellent time to write another novel and submit it to a publisher. Or to do something else. Whatever I do, I want to use some of the energy I’ve been wasting--wasting reading and talking and thinking about how bad the economy is--to try to improve my own personal economy. Or at least my karma. Maybe things will only get markedly better for me in terms of dollars and cents when things get better for everyone else. But I’m not going to sit around and feel confused and miserable anymore. I’m going to take action to try to improve my economic situation. And my attitude.
Now, I’ve got my own personal recovery plan.
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