Is There Such a Thing as Good Debt?

I was thinking the other day about debt, and I got to wondering if there is such a thing as “bad debt” could there also exist “good debt” and if so, what would be the definition of it. To come to that definition we first have to examine what makes up bad debt.

Bad Debt

If you have to take out a high interest loan from a bank, a payday loan, or charge your credit card for something that will depreciate in value to zero, that’s bed debt. Think new cars, clothes, charging for a vacation, appliances, furniture, etc. It is almost always best to save up and pay in cash for these types of things, or you will find yourself paying way more for something than what it is worth while it is constantly loosing value.

Good Debt

So using the above definition of bad debt, a low or no interest loan for something that appreciates in value, would constitute good debt. Some examples that sometimes, but not always, fall into that category would include starting your own business, paying for higher education, buying real estate, or investing in assets such as old coins or fine art.

Combination

I have to admit that in the past my wife and I have sort of combined the two by using good debt to buy items usually purchased with bad debt, such as those emergencies when an appliance goes out and we have had to buy a replacement using the store no interest financing. Maybe not exactly good debt, but it has helped in a pinch, and if paid back in full before the loan term the financing doesn’t cost you a thing.

What are your thoughts about good and bad debt?

Related Reading:

Why Government Debt Matters to You

What We Buy Used Vs New

Three Great Investments That Have Nothing to Do With the Stock Market

While considering some investing options the other day I got to thinking about the word “investing” and what else we can invest in besides money. People will talk of investing time in something, such as a project, or in a person in the form of trust. While thinking about it I came up with three very important investments that have nothing to do with the stock market.

Health
This one has to be at the top of the list, because none of the others matter without it. I think one of the main reasons we neglect our health is because we live a day to day existence, while most of the major killers tend to creep up on us over time. If I smoke today and don’t have cancer tomorrow, why not keep smoking? I never see anyone drop dead while eating fast food, so pass the fries. Most of us adopt this view point to varying degrees, and sometimes it can be a hard battle to overcome it. But it’s worth the fight because your health will be the thing you miss the most if you lose it.

Relationships
I have found that most friendships come and go over the years, but there are a few that are almost permanent, the handful of your oldest, closest friends. The same can be true with families; as members grow older and new families are started some move away while others just grow distant, but there are always those few favorites you enjoy spending time with. For the friends and family that I have stayed close to there are three reciprocating elements that make the relationships special: the ability to listen, true empathy, and a good sense of humor.

Education
While this could certainly apply to graduating from high school and earning a college degree I think being a lifelong learner is a vital part of keeping us interested and engaged in life. Whether it’s an adult education class, online degree programs, a book on a new subject, an interesting website or a conversation with a friend or stranger there are so many opportunities around us to continue learning, which in turn can help us to better understand, and possibly improve, our surroundings and our own situations. There is no better time than now to Google “skydiving classes” or “how to speak Japanese.” You just might learn something.

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How to Avoid Crisis Living

What Would You Do With an Extra 35 Hours a Week?

What We Leave Behind

How to Avoid Crisis Living

I suppose the first step to avoiding crisis living is to define what it is. From observing people I have known who either live this way all of the time or go through seemingly endless crisis cycles it is to be in a state of self-perpetuating trauma. Usually a lack of money is involved along with a lack of preparedness. While most of us go through periods when money is tight and we have to spend it suddenly, such as when the car breaks down or the washer takes a dump, it is because we have foreseen the possibility of sudden expenses or of less money coming in and have prepared for it by establishing an emergency fund. Or maybe you have learned to fix some things yourself, or you have a side skill that can bring in some extra cash. Whatever the scenario, excluding what is truly catastrophic, such as a major illness or the death of a bread winner, it can usually be handled by being prepared. Even the drastic examples of illness and death can be somewhat alleviated by carrying the appropriate insurance, but the point of this is to address avoidable crisis living and not the unavoidable tragedies that can befall us.

Maybe an example is in order to underline my point. The following is based on the actual experiences of some people I know. A couple buys some new furniture for their apartment at one of those no interest until X amount of time stores. They didn’t really need new furniture, but decided they deserved it because they had never had any before. Next they get a large income tax return and decide to treat themselves to a new computer and TV. Everything is going well and they feel pretty good about themselves, until the car breaks down. They have no money to fix it so it sits. She is able to get rides to work but he can’t and his work eventually lets him go for poor attendance. With only half of their normal income now coming in they start to fall behind on their bills. Their bank is eating them alive with overdraft fees. Not wanting to get evicted or have the utilities turned off they decide to take out some payday loans. They can’t pay off the new furniture in time and get hit with the full interest amount. There are new payday loans to pay off the old ones. The cable is turned off because of nonpayment so the new TV and computer sit useless. The stress of all of this turmoil is putting a strain on their relationship and has left them exhausted and depressed. They are fully caught up in crisis living.

The point of including the above example is to illustrate how a couple of bad decisions snowballed into a financial disaster. Because they did not establish an emergency fund with the tax return and did not adequately distinguish between needs and wants everything came crashing down.

While there will always be plenty of unforeseen little disasters that sneak up on us one of the best precautions we can take is to realize they are always lurking, ready to pounce. It has been my experience that you will never get to a point in your life when bad things stop happening to you. It is how prepared you are to handle them that makes all the difference.

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Four Leading Causes of Overspending

What Financial Advice Would You Give to Future Generations?

Does a Financial Education Matter?

Four Leading Causes of Overspending

It seems even the most financially disciplined among us can sometimes slip up and spend more than they wanted to for something. Those more susceptible to the temptation of overspending are virtually surrounded by daily possibilities. To help identify the overspending trap here are four key reasons why we do it and how we can avoid it in the future.

Credit Cards

The factoid most bandied about concerning credit card debt is that the average American carries $8,000 of it. While I don’t personally know anyone that owes nearly that much, if it is a true average there are some people in this country that are seriously drowning in high interest debt and in need of credit repair. Your best bet to avoid this trap is to just not own any credit cards. Forget the regulatory reforms offered by congress. If you need plastic money, say for ordering items online or paying at the pump, use a debit card. To opt-out of receiving pre-approved credit offers visit OptOutPrescreen.

New Cars

I have never purchased a new car. But I know many who have, and I’ve heard most all of them complain about the monthly payments, fret about the slightest ding or scratch, implement no eating or drinking inside rules, spend top dollar to have them washed and cleaned, worry about how the weather might harm it, and on and on. All that for something that can depreciate from 10 to 20 percent in value in the first year of ownership and close to two thirds in value in five years. Let someone else take the hit. Buy your vehicles gently used, but severely depreciated.

Impulse

It seems that those who buy on impulse many times will either put themselves in the wrong situation or think that it will help some kind of unfulfilled perceived need. Because of everything from the candy and magazines in the grocery store checkout lanes to the tempting advertising that surrounds us everywhere, this can be a tough one to fight. Not having the money in the first place can help (see Credit Cards above) as well as not looking at the ads, grocery shopping on a full stomach and just staying out of the department stores. If you just have to buy something to make yourself feel better or to get over the bad day you had at work try an ice cream cone over those new pair of shoes.

Keeping Up With The Joneses

The Great Recession might have curtailed many from this annoying tendency, but I’m sure not all. My opinion is it is rooted in one of the darker sides of our nature, that of coveting what others have. But usually rather than stealing what our neighbors have we go further into debt buying like items. How to cure ourselves? Try to be happy with what we already have and stop paying attention to what everybody else has. Besides, most of what you are trying to keep up with has probably sunk the Joneses deep into a sea of red.

Related Reading:

What Money Mistake Do You Regret?

Why Do So Many PF Bloggers Start Off As Financial Idiots?

Why Government Debt Matters to You

The following is a guest post by Gary Foreman, the editor of The Dollar Stretcher.

You see much in the media about federal and state government debt. Most of the reports concentrate on the big picture. How many trillions of dollars the U.S. federal government owes. Or how many billions short a particular state budget is.

But few seem to address what that debt means to the average person like you and me. How our lives are changed by the debts that our federal and state governments take on.

According to USDebtClock.org the average U.S. Federal Government debt per citizen is over $42,000. And, they calculate that the interest per citizen at $2,800 per year.

So that means that you're paying $233 per month just to cover the interest. So it's a little like you and your mate are making a car payment every month for the rest of your lives. Not to buy you a dependable set of wheels, but to pay the interest on the money that's already been borrowed in your name.

For a family of four it's like having two new cars stolen from your driveway. If you're a car salesperson those are two cars that you can't sell because the customer can't afford them. If you're an autoworker, those are two cars you don't get to build. Government debt takes money out of our pockets that could otherwise be spent and create jobs.

Maybe your taxable income is low. In fact, maybe you don't pay any taxes at all. So why should you care? You're not going to be paying any of that interest. That's for someone wealthier than you.

Well, you're affected, too. Every time that you go to borrow money you'll pay more because you're bidding against the government. That's right. The government borrows its money from the same places that you do. So you have to outbid them to borrow money for your mortgage, car loan or credit card account. Instead of borrowing at 8% you'll need to pay 9 or even 10%. And, the more they borrow the worse it gets.

You don't need to pay taxes or borrow money to be affected by government debts. If you benefit from any government service you can look forward to cuts in that service. With more of the government budget going to pay for interest, there's less available to pay for roads, school lunch programs or any other government services.

So what should you do now to protect yourself?

Expect to see government look to save money in all areas. Be prepared to receive lower benefits on government programs. That includes Medicare, Medicaid, Social Security, even government pension benefits. You may be fortunate and not have your program cut. But, you'd be foolish to think it couldn't happen.

The next obvious step is to pay off any debt you currently owe. That eliminates the need to compete with the government to borrow money. Plus you'll have more flexibility so you can adjust to a changing financial environment.

Also, be prepared for inflation. Unlike you and I, the government can print more money. That allows them to repay their debts in cheaper dollars. However, there is a cost. An increase in the money supply will cause prices to go up. And, we'll have inflation.

Some argue that government debt doesn't matter. They say that the government doesn't ever really have to pay back debts. Government can carry it forever. And, maybe that's true. Up to a point. But just like your family budget, if you want to be able to keep borrowing money you absolutely must make your interest payments. Even if that means that your family can't pay rent or buy groceries.

The same thing is true for the government. At some point the government won't be able to pay the interest due and still perform essential government services. According to U.S. Controller General David Walker, within 12 years the largest item on the federal budget will be interest payments.

You may hear the argument that the government can't quit spending in a recession - even if they have to borrow the money being spent. That ignores the simple fact that every borrowed dollar increases the amount of interest that we'll pay next year and every year thereafter.

Someone might say that this article is political. It's not meant to be. Debt doesn't care which political party creates it. A dollar of debt created by either party will have the same effect on you. A state or country can't continually spend money it doesn't have. Any more than you or I could.

I'll leave it up to you whether you want to contact your elected reps and tell them to balance any budget they're responsible for. But, I'll admit that paying for two non-existent cars that aren't in my driveway isn't very appealing. And thinking that my children and grandchildren will be paying for them too is even less appealing.

What Would You Do With an Extra 35 Hours a Week?

The last place I worked at had a lot of hard core TV watchers. The talk around the water cooler (actually the lunch room table, since we didn’t have a water cooler) would always include what had been watched the night before. When the subject would come up I pretty much was left out, half listening to excitable talk about plotlines and shows I had never watched. These people were pros, and if they were home the TV was almost always on and they were watching it for hours and entire evenings at a time, night after night.

I’m not some kind of an anti-TV snob; I will plop down from time to time and mindlessly watch reruns or spend an afternoon cheering or booing pro football games. Truth be told we got basic cable so that we could get better reception of our NFL games in the fall and winter. My wife likes the news shows like 20/20 and Dateline and will, when she remembers to, try to catch an episode of CSI or Glee. So we do watch TV, but it is usually not our first choice when deciding what to do. My guess is we watch around 2 to 5 hours of TV a week.

Years ago when TV was getting popular part of the population accepted it as a novel and exciting part-time diversion from the hardships of the daily grind, a way to sit back and relax for a while. Others saw it as a mindless waste of time, a destroyer of character and family traditions.

There is no doubt which viewpoint won. A recent Nielsen report states that, on average, Americans watched roughly 35 hours of TV each week. That staggering amount of time just spent being entertained is almost equal to working another full time job.

Maybe people that are stressed out because they are pressed for time and can never find enough hours in the day to get everything done should reexamine what they do with those 35 hours a week. Turning off the TV could be a life changing step.

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Center for Screen-Time Awareness

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What Financial Advice Would You Give to Future Generations?

I got to thinking recently what ancestors of mine would think about the U.S. economy and the overall personal finance situations of the population.

A great, great grandfather from my mother’s side of the family was a successful self-made businessman who raised cattle. He was so involved in his business he would even ride the train in one of the cattle cars from Iowa to the Chicago Stockyards, to assure they arrived safely and so he could deal with purchasers face to face. He took up smoking cigars to cover up the smell as he rode with his cattle.

My grandmother on my dad’s side lived a very frugal life, making do with what she had, conserving her resources and always planting a vegetable garden.

My mom’s dad worked as a bank teller for very little pay during the depression and beyond, moving his family to where the work was. He slowly climbed the ranks and finally retired as president and chairman of the board of a small town bank.

If they could I wonder what kind of financial advice they would have for us today. I imagine they would all have something to say about the enormous federal deficit and government bailouts of huge corporations, along with questions about how it happened. On the home front the fact that 37 million people currently are receiving food stamps, the personal savings rate was recently in negative numbers and that there were over one million bankruptcies last year might raise some eyebrows.

While they can’t comment, we can. What do you think about the way things are going, and what advice would you give to future generations? Before I gave any advice I think I would first have to offer an apology.

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Is It Tougher To Save Money Or Make More?

Does a Financial Education Matter?

Do You Give to Panhandlers?

The last place I worked at was on the outskirts of downtown, close to some railroad tracks and the river and just a couple of blocks away from a homeless shelter. I was there for over 18 years and it was a traffic corridor for the homeless. They passed by following the tracks, or on the way to the shelter, or heading back to camp along the river.

There were around 35 of us in the building when I started and due to attrition and technological advances our numbers by the end had dwindled to less than 20. If we were outside or had the warehouse overhead doors open we could observe the stream of bedraggled humanity ebbing and flowing along the corridor. They would usually travel alone, sometimes with all of their earthly belongings in a pack and other times just searching for cans and bottles to redeem for the deposit. Some kept to themselves, others would wave or nod as they passed while a few it was obvious had entered a different, distant state of being.

Once in a while one of them would approach asking for a cigarette or money. Some of my coworkers would always dig to find what was requested while others never gave a thing. Before I quit smoking I would usually be willing to hand out a cigarette if requested but I rarely gave money, as the ones asking were usually inebriated and I didn’t want to contribute to their condition. Every now and then a sad story would come spilling out before they asked for what they were wanting and that would serve as more of a connect for me. To be told a tale of woe face to face by a fellow human being who is obviously suffering would usually get me to digging in my pockets to offer some kind of relief.

Thinking back on those times got me to wondering how others respond to these requests. Do you give to panhandlers?

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Giving to Charities 

A Gentle Reminder

A few days ago I made arrangements with a buyer to pick up some old 45 rmp records I had for sale on Craigslist. I had suspected by the sound of the man’s voice that he was elderly, and when he pulled up to my house and got out of his car the shock of white hair and stoop in his walk confirmed it. I greeted him in the driveway and handed him the records. As he was looking them over I remembered that when I was giving him directions to my house he seemed very familiar with the area. I have had a long time interest in the history of where I currently live, which is close to where I grew up. There are the ghosts of coal mines and brickyards and clay pits. Icehouses, shacks and little houses used to dot the landscape of the river, along with crumbling landmarks of the past that still linger. I decided to ask the old man a question about one of them. He didn’t know for sure what used to be in the area I was wondering about, but said he knew a lady that lived in a little house on the river close to where we were talking about. And that was all it took. For the next solid hour as we stood in my driveway the floodgates of his memory burst open and out poured his recollections of the area and the people who lived there.

His name was “Bud” and he was discharged from the Army in 1946 and drove a cab part time until the 1950’s. He didn’t mention what else he did for a living after that, instead preferring to delve into earlier times. While listening to Bud recount his childhood experiences I began to notice a reoccurring element of contentment and even happiness. Although his family lived with very little he never considered that they were living in poverty, or that they were even poor. They had food, shelter, and each other. What else was needed?

His uncle lived in a little house on a hill overlooking the river that had no running water or electricity and there was an outhouse in the yard. Every day the uncle climbed down the hill to fill a pail of water to cook and wash with. Bud, as a little boy, got every toy he ever owned from this uncle, who was friends with the local junkman. The junkman salvaged and fixed the broken things he could that were dumped in his junkyard, and all of the repaired toys went to the uncle to be passed on to Bud.

Just a few generations ago there were people who could not know about texting and cell phones, computers and cable TV and all of the other things we busy ourselves with today. Bud is a gentle reminder of a people who lit lamps while cooking supper, felt in their bones the weariness of hard, honest work while living lives that rang ancient, simple and true.

What Money Mistake Do You Regret?

Not too long before the Great Recession hit I was looking for another mutual fund to invest in. I had been reading about how well the markets in India and China were doing and decided to look into a global fund, thinking that would add a little more diversity to my portfolio. I finally settled on one and was happy with my decision…until a few months later as I watched its value drop by two thirds. Most of my other investments were cut in half, but the global fund really hurt. I didn’t cash out, though, keeping in mind a loss is only a loss on paper until you do. I still own it and while it’s slowly regaining value I still regret the timing on that one.

Another recent mistake I made was the result of doing nothing. We noticed after a heavy downpour a little water was seeping through a wall and part of the ceiling of a first floor bedroom. It didn’t happen every time it rained, just during the really heavy rain storms, and after it happened a few more times I called a roofer. He looked around and couldn’t see anything obvious until he put his finger all the way through a rotted window sill right above the leaky bedroom. It was like a sponge and once it was full it started passing water through into the house. I ended up replacing the second floor windows with new but from the time they were ordered until they were installed it continued to leak into the bedroom, adding to the damage. We ended up having to replace the ceiling and repair the wall. The damage would not have been as bad if I had done something when we first noticed the leak, instead of stupidly wishing it would go away.

Sharing our money mistakes might help others to avoid doing what we have done. Or maybe not, but at least we can get it off our chests. What recent money mistake do you regret?

Why Do So Many PF Bloggers Start Off As Financial Idiots?

A while back I wrote a series called Focus On that gave brief reviews of personal finance and frugal websites and blogs. While researching the sites I included in the series, and many others that I didn’t include, I would always look at the profile page to learn more about the site and writer. Most personal finance and frugal living blogs are written by individuals, and as the series progressed and I read more and more bios one rather curious similarity became apparent: around half of these people were deeply in debt.

The usual story given was a lack of financial control early in life, sometimes coupled with huge student loan debt. Then, heroically, came the turning point. A light bulb suddenly went on and the decision was made to climb out of the debt hole they had dug for themselves. That was followed, of course, by blogging about their efforts.

The first few versions of these stories were inspiring, but after a while the frequency and similarities of their tales of woe and redemption struck me as mildly disturbing. Why do so many good personal finance bloggers start off as financial dumb asses?

I think there are a couple of reasons. One is a lack of financial education. Another is there is always a segment of the young, emerging generation that wants everything now, damn the monthly payments, whether they have received an education on how to handle their money properly or not.

I am glad so many of these bloggers had the awakening they did and are now warning and instructing others on how to avoid the bad decisions they made. Maybe the next step could see them banding together and pressing for some kind of financial education at the beginning, at home and in school, before the screw ups happen.

Related Reading:

A Changing Relationship with Money 

Does a Financial Education Matter? 

What We Leave Behind

My Maternal Grandmother wrote four little books about her genealogical background, her childhood, coming of age and raising a family with her husband. One episode she wrote about was her Grandpa teaching her how to drive a car, even though she was a girl. He laughed every time she hit the curb, encouraging her to continue. I can picture the scene, and that memory and many others she wrote in the books have been preserved and passed down to future generations.

Grandpa wanted his granddaughter to succeed, and she did; his desire fed and assured hers. His encouragement made enough of an impression on her that a lifetime later, as an old woman, she made sure to write it down.

While it is necessary to discuss finances, and smart to be frugal, sometimes it is worth a moment to set those issues aside, along with all of our drama and problems, and ponder something most of us don’t give much time to. The day will come for all of us when our possessions are dispersed and our money belongs to others. When that time comes I hope we have left behind something much more valuable.

Will The New Frugality Last?

At the end of every recession since World War Two Americans have discarded their forced frugality and rediscovered their appetite for spending. Companies began hiring again, production and purchasing of consumer goods increased and everything returned to normal. So there is really no reason, historically, to believe the end of The Great Recession will not witness the same kind of recovery, right? That could very well be the case, but for that to happen this recession will have to experience what all of the others did; namely, an end.

Before I lost my job of 18 years over two years ago it seemed that at least half of my coworkers had taken out home equity AND 401(k) loans to buy new cars, go on vacations and to remodel their houses. When the subject of credit cards would come up there would be an almost proud comparison of who had the most debt. I would garner an occasional snicker or pitiful look when I would mention having very little debt and no loans, as if I was too stupid to know what I was missing out on.

What my coworkers were doing seems to have been pretty common all over the country. When both the housing and stock markets collapsed what remained was all of that loan debt. Personal debt is at around $14 trillion, or around $125,000 per household. For this recession to end as the others did consumer spending needs to rise and companies have to start hiring. No increase in spending because of massive debt loads means no new hiring, and that will continue to be a huge roadblock to an end to this recession.

So will the new frugality last? My vote is yes, whether some like it or not, it’s here to stay for awhile.

Is It Tougher To Save Money Or Make More?

As I have been struggling recently to both make and save money I got to wondering which was tougher for me, and for others. A person must, obviously, have an income before any saving can begin. Before I lost my full time job over two years ago both making and saving money were locked into auto-pilot. When I received my annual raise I would increase my savings account direct deposit accordingly. Most of my coworkers would talk about something they would now be able to buy, such as affording a new car payment, or to throw more money at a credit card or other bill, or increasing a service such as going to a more extensive cell phone plan or bumping up to the next cable TV plan. Rarely was there any mention of saving anything at all. Being locked into the consumption culture made it much tougher for them to save.

When I lost my job I decided, because I had saved some money and received a generous severance and transition package, to try to make money outside of the usual boundaries; namely, not working for someone else. I had dreamt before, like many others, of striking out on my own journey of self-employment. I had read many accounts by others about their struggles to make it on their own and a reoccurring theme was how long it takes and how hard it is. In the back of my mind I always thought there was a little self-aggrandizing going on in making it sound so hard. Two plus years into my money making experiment I have to tell you they are not exaggerating at all.

When you work for someone else everything is already in place for you to begin your job, from the actual building to tax withholdings to a weekly schedule and the tools you need to perform your duties. Strip all of that away, including automatic raises and savings plans, and imagine having to build up and create all of it yourself. It’s intimidating, frustrating, and occasionally, when everything goes right, one of the best feelings you will ever experience.

As for which is tougher for me now, saving money or making more, I have to say my focus is entirely on making more and there is no savings plan. I don’t make enough to save any. So currently it is tough to make money and nearly impossible to save any. But I’m working on that.

Has the Great Recession and the “new frugality” changed your money making and saving habits? Which is tougher for you: to make more or to save it?

Does a Financial Education Matter?

U.S. Senator Patty Murray (D-WA) has sponsored a bill, The Financial and Economic Literacy Improvement Act of 2009, that would “provide $250 million in grants annually to states to support teaching financial literacy in grades K-12 and at 2-and 4-year colleges.” Ben Bernake is all for financial education. The Federal Reserve Bank and Visa Inc. continue to promote Money Smart Week. The CARE Program provides free personal finance literacy programs in all 50 states. Almost half of the high schools across the country mandate a consumer economics class. McDonald’s is now teaching money skills to their 500,000 employees, as is Domino’s Pizza. (Their partner is Visa, who has admitted to some “light promotion.”) Professor Lauren Willis doesn’t believe any of it does any good and thinks more government regulation is the solution.

With all of this going on almost one third of high school seniors have credit cards and over half have debit cards. In the last 10 years bankruptcy has risen 96% among 18 to 24 year olds. One in five Americans believe the best way to get rich is to win the lottery. Most of us don’t have budgets and don’t check our credit reports. We all are aware of the mortgage meltdown and the foreclosures surrounding us, and every person reading this knows several families that live paycheck to paycheck.

With so many opportunities to learn how to get it right, why do so many of us screw up our finances so badly? The answer seems to me to be the same reason sex education doesn’t keep teens from having sex: we do it because we can and it feels good at the moment. Go ahead and rack up that credit card, you deserve it, and you won’t have to see the bill until next month anyway. What difference will a few hundred dollars more make? Buy all of those toys to fill up your garage and impress your neighbors. The bigger the house the better and you can always read the fine print on the mortgage application later. Budgets are not sexy and who wants to read through those boring credit reports.

Even with all of the personal finance educational opportunities that abound, sometimes it takes a little disaster to shake us up and make us pay attention. Every pregnant teen knows precisely what caused their condition, as does every credit card holder with a monthly carry over balance. Does more education keep either scenario from happening? Does a financial education matter? Only if we allow it to.

A Changing Relationship With Money

I wonder how your relationship with money has changed over the last two years or so. Mine started to change when I lost my job in July of 2007 and the paychecks stopped. After over 18 years in corporate America I made the somewhat scary decision to walk away. I received a generous severance and transition package, while my wife continues to work full time at a job she (mostly) likes. We fortunately had paid off our mortgage earlier and had been saving the same monthly amount since then. We owned all of our vehicles and had very little debt.

With us financially secure enough, and with my wife’s blessings, I set off to find out if I could make money without a job. After trying a hauling endeavor, selling on Craigslist and through consignment I decided this was the time to pursue a lifelong dream of writing. What that decision has lead to, so far, is much pleasure and little money. At the old job the ratio was often little pleasure and adequate money.

How much money I earn today is entirely dependent on my own efforts. No matter how hard I worked before, my hourly wage did not change, and a paycheck for exactly the same amount was deposited into my account every two weeks. It didn’t matter if I was dragging on Monday, super productive on Wednesday or ho-hum on Friday, the paychecks continued. Once those disappear you either try to find another job or get creative.

I was preparing supper for our dog recently, shortly after I had checked my Google stats and earnings for The Buck List. I asked my wife how much we had paid for the 50 pound bag of dog food. When she told me I added up the yearly total and remarked that the money I currently earned annually from the blog could support feeding the dog. We both laughed, but it struck me that this is now how I relate to money: compartmentally, from need to need. While we have always lived a pretty frugal lifestyle, the last few years before loosing my job could see us spending $20 or $40 recklessly here and there with zero impact on our budget. Not so today.

I have become much more willing to do menial tasks for cash because they supplement my meager income and break up my writing days. That $20 to $40 recklessly spent in the past has become goal amounts for odd jobs. While we are both currently happy with this new relationship with money (or old, if we consider the first few years of our marriage) we would both like to see the money float up to the level the joy is at.

I feel blessed to have this opportunity to be able to pursue a longtime passion and to try to make money doing it. This experience has reminded me of the difference between making just enough money to scrape by and of making such an excess that you are able to both save and splurge.

Related Reading:

Can You Turn Your Hobby Into Income?

Offer Your Services for Barter or Cash

Politics and Personal Finance: What Can One Tell Us About The Other?

I have wondered from time to time if our political persuasions influence our personal finance decisions, and vice versa. I suppose one could consider which develops first. People who grow up poor by necessity have to focus on food and shelter needs, generally not caring about politics unless adults around them link their situation to uncaring politicians. Growing up in better than poor conditions
might lead to an earlier awareness of politics because basic needs are covered, but whether or not that influences good personal finance habits I have no idea.

My Mom was a lifelong Independent and Dad (who once actually lived in a tarpaper shack as a kid) a lifelong Democrat. Both were very careful with their money, paying off the credit card bills in full each month, keeping an emergency fund, and so on. Dad has almost always voted for Democrats, while Mom could be all over the place. Both liked Clinton. I don’t know what political affiliation my maternal grandfather had, but I remember the old retired millionaire banker (who also grew up poor) being appalled at the deficit Reagan was running up at the time. My brother, who is pretty tight with his money, switched parties last year and caucused and voted for Obama.

I have known people from the left that expect the government to address most every human concern that exists as a “right” but would reject most of those same notions as help they would ask for themselves. I have known people from the right that advocate the least amount of government “intrusion” in our lives as possible and then, when their financial situation changes, are the first in line to take advantage of as many government goodies as possible.

So what can one tell us about the other? In my experience, not much. It seems regardless of political persuasion people will save or not, budget or spend freely, rack up those credit cards or leave them hidden in the freezer. We can carefully guard our own resources while not caring about how the government spends our neighbor’s money. We can also take the government to task for all their “earmark” spending while at the same time buying more house than we need and amassing debt for luxury items.

Seems old Walt Whitman was onto something when he wrote, “Do I contradict myself? Very well then, I contradict myself. I am large, I contain multitudes.”