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Get Out of Debt Now

April 2, 2009

One of the things that seems to plague people the most these days is personal debt. And look at the examples they have to follow. Our own government is trillions of dollars in debt, and every year they set a budget that they know going in has more debt built into it. Everything that you see on television tells you to buy, buy, buy. Never mind if you can’t afford it; just charge it. Our whole economic philosophy is just one big Ponsey Scheme. The only way to keep the economy going is for everyone to keep buying, whether they need to or not. What was George Bush’s advice to the country after the 911 attack? “Go shopping.” How sad is that? I read a good quote somewhere. It said, “Most people spend their whole lives working at jobs they don’t like, to buy things they don’t need, to impress people they can’t stand”. Sad, but pretty true. We have allowed advertisers to convince us that if we don’t have whatever they’re selling, that our mates won’t love us, our children will feel neglected, and our friends will think that we are losers. They are drawn to our insecurities like sharks are drawn to blood. And poor pitiful us, we believe them, and we pile up mountains of debt so that we will feel worthy. Well, no more. Now is the time to make your own personal Declaration of Independence. Quit being motivated by your insecurities and start putting an end to personal debt. No, you won’t be helping the American economy. But, it’s already in the toilet anyway, placed there by the escalating consumerist policies of the last 50 years. It’s time to thumb your nose at the economic experts, and start helping yourself. If this sounds appealing to you, read on and I will outline my plan for developing your economic independence; and by the way, unlike your friendly financial adviser, I will tell you right now that financial independence does not mean being rich.

Step One – Learn Patience
When I was a kid, television was in its infancy, had been around less than 10 years. I remember how I used to wait and look forward all week to Saturday morning, because that was when I could get up and watch Hop-Along-Cassidy, Lash LaRue, Roy Rodgers, and all of my other favorite TV shows. What do kids look forward to on television now? Answer: nothing. If they want to see something they Tivo it, or order it from pay-per-view, or just scroll through the 150 channels they have until they find it. They totally lose the joy of anticipation. If a kid wants a toy, they don’t visit the toy store every Saturday for three months looking longingly at the object of their desire, and going over in their minds how much fun they will have when they finally save enough allowance to buy it. They just badger their parents into pulling out the credit card and going deeper into debt.

We, as a nation, no longer have any patience. We want it now, and the advertisers, the banks, the economists, and our national leaders all assure us that we can have it now. Here’s the truth, and you should make these words the preamble to your economic declaration of independence, IF YOU CAN’T PAY CASH FOR IT YOU CAN’T HAVE IT NOW.

Well, you say, how can anyone buy a house? No one can save up that much money. I must, respectfully, disagree. When my wife and I moved to our farm we bought a used trailer. It was 8 x 32 feet. We paid $500 dollars cash for it. It was no mansion, and it wasn’t the house we wanted to live in, but it was what we could afford. I worked at my job, and each week we would set money aside. In the evenings we would draw house plans, and read books and magazines about houses, and talk about what we wanted our house to be like. When we saved up enough money, we’d go and buy building materials. We had to save for a long time to get the slab poured. This was our single biggest one-time expense. After that, it was buy a little lumber every week or two and start framing up the walls. We did nearly all of the work ourselves. I won’t go into all the details, but seven years latter we moved into our new three-bedroom dog-run style country home; and the day we moved in, it was ours. You may say, “Seven years! That’s a long time to wait on a house.” Well it is a long time, but at the end of seven years we owned our home. For most of our friends it was another 23 years before they had their houses paid for; that’s if they didn’t move into a newer, bigger house and assume a newer, bigger mortgage. Over the years we have had economic down-turns, job losses, and unexpected expenses; but it has always been a comfort knowing that our house is ours. And by the way, we also saved about $70,000 dollars in interest payments by paying cash for our home, so patience can pay off in the long run.

Example #2. I just bought a new/used truck. My old one had 160,00 miles on it. My new truck cost $10,000. I paid cash for it. Where, you ask, did a poor country boy come up with cash to buy a vehicle? Well here’s my approach to buying vehicles, and the nice thing is, you only have to exercise patience the first time you buy one. Save your money and buy a used car that you can afford, then set up a bank account and start making a car payment to yourself every month. It doesn’t have to be as big as a regular car payment that you would make to the bank because you’re not paying any interest. You could put aside something like $300 a month, and at the end of four years you would have over $14,000 dollars to spend on a new vehicle. And, if anything should happen in the meantime, no one is going to repo your vehicle. Just a little more peace of mind in a stressful world. I will have to admit that I had to fudge on this a little last year. My son needed a new car to go off to college in, and a friend of mine had an almost new car that they were offering at a really good price. It was a little more than we had put back and so we had to finance part of it. It ticks me off every month when I pay that note knowing that the bank is making money off of me. My philosophy is that I make money off of the bank.

Step 2 – Know Where Your Money is Going
Make a list of all of your expenses for a month. House payment (if any), car payment (if any), insurance, 1/12 of you property taxes, gasoline, utility bills, estimated grocery bill, etc. Now write down how much your take home pay for a month is. Compare the two figures. If you are like most folks, you will find that about a third of your paycheck has disappeared without explanation. Eating out at lunch, buying a soft drink and candy bar everyday, making impulse purchases, buying a new piece of clothing when the closet is already full, spending $20 to see a movie that will be out on DVD next month; it just sort of disappears. Now, I’m not telling you that you should live like a monk. I like to go to a movie every once in a while, and I consider the occasional 6-pack of beer a good investment; but we’ve got to rein in some of that disappearing paycheck. What I would suggest is that you take half the difference between what you bring home and what your known expenses are, and have it automatically deposited from your paycheck into a savings or money market account. It’s fairly painless that way because you never see the money in the first place. Try it for a couple of months and see if it has any major impact on your life style. You can always go back and lower or raise the amount that’s deducted. I bet you will be surprised to find that it doesn’t really make all that big a difference in how you live, and you will be surprised to see how quick your little account will grow.

Step 3 – Avoid the Credit Card Trap
Some people can handle credit cards, and some people can’t. If you have nerves of steel, and can avoid the siren song of the advertisers, carry a credit card with you. There are some places that you have to have one. Renting a motel room or a car is just about impossible without a credit card. I personally use a credit card for buying gasoline because I feel that it helps me keep better track of my gas consumption, but I try to use cash for everything else. Market research shows that credit card purchasers spend about 18% more than cash purchasers; that’s why the banks and merchants want you to use them. If you do use a credit card, it is imperative that you pay your full balance every 30 days. Carrying an unpaid balance on a credit card will cost you interest that would have landed a banker in jail for loan-sharking in the old days. If you can’t control your credit card spending, then don’t carry one. Leave it at home and only take it out of the drawer for a specific purpose, then put it back in the drawer after you’ve used it. If you can’t handle that then cut the thing up and get professional help; you’re problems go way beyond financial management. If you do have a credit card, I would suggest that you just have one. Mastercard and Visa are accepted almost anywhere, and if all of your spending is reflected on only one bill it will make it easier to keep track of what you are spending and harder to fool yourself about how much you are spending.

Step 4 – Invest in Preparedness
If the bottom should fall out of society I would rather have a year’s supply of food than a $100,000 in the bank. I’m not saying that you should cash in your 401-K and buy MRE’s. I hope to retire someday, and I have a retirement account that I hope to get to spend, but I want to be prepared if things should go unexpectedly sideways. It doesn’t have to be painful. Couldn’t you keep wearing your old watch and buy a generator (and a lot of other things) with the money that you were going to spend on that new Rolex. How about investing in a good food storage program instead of that new set of golf clubs. Just be sensible and try to maintain a balance between living in the world as it is, and preparing for the world that might be.

Well, that’s my program. It may seem kind of out of place to you on a blog about survival, but I think that being financially independent is an important part of preparedness and self-sufficiency. I hope that some of what I’ve written here will be of help to you.

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