Avoiding the Downside of Saving

Like all good silver linings, saving often comes with a storm cloud. Too often, people fall into the trap of forgetting to live while they are digging out of debt. Once you get into the habit of spending every spare cent to pay down debt, retirement, or a college fund, it gets easy to ignore the present in favor of the future. The downside–or potential downside–to saving, debt repayment, and frugality is a deferred life. Whether it’s deferred fun, deferred education, or deferred personal development, it can be detrimental to you and your relationships.

Changing Reality

Changing Reality

My wife and I have had this conversation. We’re in the groove on our debt repayment. We are making excellent progress right now. Since we’ve got it all automated, it leaves us time to plan, dream and consider our options. We’ve been looking at converting a hobby into a business venture. Doing so will involve a $1-2000 investment. If we can make it work, my wife will be able to quit her tolerable, comfortable, soul-sucking job within a couple of years. If we can’t, she will still have moved her hobby into an advanced–and more fun–level. That’s a win either way, but our initial reaction is to postpone. We already know we’ll have to postpone the purchases until we’ve saved for it, because we refuse debt in all forms. Our initial reaction has been to postpone saving, effectively deferring development with long-term potential to improve our lives until our debt is completely gone.

We’ve been discussing this, off and on, for months. We have finally decided to start saving, but only when we have money that is purely extra and we’ve tucked money into all of our other savings goals. It’s not a perfect solution, but it seems to be an acceptable compromise given our situation and values.

Regardless of your situation, it is important to remember not to defer your life while you tackle your debt or savings goals.

Update:  This post has been included in the Carnival of Personal Finance.

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Budgeting Bulimia

As the President is so quick to point out, ten years ago, there was a large budget surplus.  Naturally, the government went into a massive cycle of lifestyle expansion.   That expansion, combined with lower tax revenue and a recession has brought us from a $230 billion surplus to a $1.4 trillion deficit.  That’s a bit above the trivial level.  A definite binge.

In Minnesota, there was a $2 billion surplus just a few years ago, which was obliterated by, once again, government expansion and a recession.   During the boom years, government programs were enacted with no thought to sustainability.   Nobody thought about the fact that a surplus isn’t a balanced budget, either.   We just kept adding to the budget, thinking the good times would last forever.  Another binge.

Last year, the governor of Minnesota had to “unallot” money from the budget.  He went through the budget with a red pen and struck line items until the budget was balanced, a requirement in this state.  This infuriated his political opposition.  They were not prepared for the purge.

Federally, the purge hasn’t happened, yet.  Give it time.  Excessive spending using imaginary money can only last so long.  It will stop.  The longer the binge, the harder the purge.

Families are doing the same thing. Four years ago, I got a raise and immediately bought a new car.  Binge.  Two months later, I was laid off and had to cut everything possible to make ends meet.  Purge.   Tax refunds, inheritances, drawings.  So many of these things give us an excuse to commit to long-term expenses without planning for long term sustainability.  If I inherit $5000, is that a good time to add $500 to my monthly bills?  No!  That’s an unhealthy binge.   In ten months, if the money lasts even that long, I will be forced to purge something to keep afloat.

The responsible, healthy way is the same as healthy, responsible eating.   Diet and exercise.  Spend less, save and earn more. That’s the strategy that will let you level out life’s valleys, instead of puking all over the floor.  Don’t spend every cent you see, just because it is there.  Set some aside for a rainy day.

Leave the binge-and-purge financing to the politicians.

Update:  This post has been included in the Festival of Frugality.

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Balance Your Borked Budget

You’ve got a budget worked out to the penny.  You know every dollar that comes in and every dime that you spend.    All of your bills are getting paid on time.  Then, one day, it all comes crashing down. Your budget is no longer even a reasonable approximation of your cash flow.  You’ve got no idea what’s coming in or going out.   Bills are piling up and fees are digging you deeper in debt.

What happened?  More importantly, how do you get back on track?

The first thing you need to do is identify the problem. What, exactly, went wrong?  Did you lose your job or need a surprise botox injection?  Your car died or your kid developed a hockey habit?  Sports car or shoe sale?  Whatever the cause, if you can’t identify it, you can’t deal with it.  Some of the possible problems may be things that can get clubbed and buried in the backyard, while other things may be expenses that won’t be going away.    If it’s a one-time expense, you can simply refocus your debt repayment to take it into account.  If it’s an ongoing expense, you will need to adjust your other expenses, possibly in a drastic manner, to make ends meet.  You can’t know which way to go without knowing what caused the problem.

Next, commit to to making it right. Don’t leave it at a mere commitment.  Actually commit and actually do it right. Future-you is counting on you to fix the problem before he gets screwed.   This is important.  Without firm–and real–commitment, nothing else will matter.  At best, you will be treading water.  At worst, you will drown yourself in unanticipated bills.

Cut everything extra.   Every expense–whether it’s your mortgage or your maid–is a rock in your pocket, one hundred miles from shore.  How much can you carry and stay afloat?  This isn’t the time to keep paying something because you enjoy it.  If it isn’t absolutely necessary, it’s got to go.  Cut your internet, cancel Netflix, learn to shut off the lights when you aren’t using them.   Is the early termination fee less than 6 months of your cable bill, your satellite bill?  Cancel it.    You can always sign up again later.  This is the time to be ruthless.

Is there a way to bring in some extra cash?  Can you pick up a second job, or land a freelancing gig?  If you’ve suddenly found yourself unemployed, can you spend some time on being a Mechanical Turk?  Sell all of the things you don’t use anymore, or, more likely, never should have bought in the first place?  Do you have a spare kidney?

Remember, this is a drastic situation calling for drastic measures.  Your future is depending on you.  Don’t make him come back and kick your butt.

Update:  This post has been included in the Carnival of Personal Finance.

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Clearing Up Social Debt in 3 Steps

Debt can be thought of as a disease–probably social.  Most of the time, it was acquired through poor decision making, possibly while competing with your friends, occasionally after having a few too many, often as an ego boost.  Unfortunately, you can’t make it go away with a simple shot of penicillin.   It takes work, commitment and dedication.  Here are three steps to treating this particular affliction.

1.  Burn it, bash it, torch it, toss it, disinfect. Get rid of the things that enable you to accumulate debt.   If you keep using debt as debt, you will never have it all paid off.   That’s like only taking 3 days of a 10 day antibiotic.   Do you really want that itchy rash bloodsucking debt rearing its ugly head when you’ve got an important destination for your money?   Take steps to protect yourself. Wrap that debt up and keep it away.

2.  Quit buying stuff. Chances are, you have enough stuff.  Do you really need that Tusken Raider bobble-head or the brushed titanium spork?  They may make you feel better in the short term, but after breakfast, what have you gained?  A fleeting memory, a bit of cleanup, and an odd ache that you can’t quite explain to your friends.   Only buy the stuff you need, and make it things you will keep forever.  If you do need to indulge, hold off for 30 days to see if it’s really worthwhile.   If it’s really worth having, you can scratch that itch in a month with far fewer regrets.

3.  Spend less. This is the obvious one.  The simple one.  The one that makes breaking a heroin addiction look like a cake-walk(My apologies to recovering heroin addicts.  If you’re to the point that personal finance is important to you, you’ve come a long way.  Congratulations!).  Cut your bills, increase your income.  Do whatever it takes to lower your bottom line and raise your top line. Call your utilities.  If they are going to take your money, make them work for it.   If they can’t buy you drinks or lower your payments, get them out of your life.   There’s almost always an alternative.   Don’t be afraid to banish your toxic payments. Eliminate your debt payments.  This page has a useful guide to debt and how to clear it off.

Update:  This post has been included in the Festival of Frugality.

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