Friday, September 4, 2009

I think humans as a race were smarter a few hundred years ago.

"Neither a borrower nor a lender be,
For loan oft loses both itself and friend,
And borrowing dulls the edge of husbandry."


-Polonius, Hamlet


"The rich rules over the poor, and the borrower becomes the lender's slave."


- Proverbs 22:7


I'm not ashamed to talk about money publicly.  Or more specifically, my money and how I spend it.  I won't proselytize but I'm perfectly comfortable discussing my finances.  That definitely was not always the case.


The first quote I posted was one I often heard from my mother growing up.  The only problem was she usually stopped after the first line.  The second and third lines are the ones that really make the case.  "Husbandry" refers to an act of conservation, and in the financial realm it means saving.  To borrow is to truly dull the effects of saving, if not entirely negate the concept.


Usury, in its original application, is the practice of loaning money and charging interest.  Later, it came to be known as charging a higher interest rate than the law might allow.  It is a concept that I became fully aware of in the last 2 years as my wife and I made a decision to follow a different financial plan.


We entered college with very little knowledge regarding personal finance, quickly obtained credit cards, and even quicker accumulated debt.  Not a lot in the grand scheme of things, but for having no income it monumentally stupid.  Our most dubious purchase was a $300 Adirondack chair, hand painted in a Jimmy Buffett theme, purchased at the Woodland Arts Fair.  It is still a beautiful chair, but looking at it reminds of how ignorant I was.  And because of that, I don't find it to sit all that comfortably.  By the time we paid off the card, I'd guess we paid $1000 for that chair.


Our first stop as a married couple was down to the bank to consolidate our credit card debts and cancel the cards.  So from the age of 20 on, we've lived without credit cards.  It's just how we live.  It wasn't easy. It wasn't convenient.  But we got by.  Looking back, I don't really see how though.


But even after paying off the cards, we still hadn't made a conscious change in our philosophy with money.  We simply didn't use credit because we knew we were unable to use them wisely.  There was no greater principle guiding us, purely self-preservation.  That wouldn't come until later.


Through our first years of marriage while we had a daughter and were still in college, we made full use of the federal student loan program.  We received some grants, but we almost always took the full disbursement of the loans offered as well.  We used that money to prepay rent through the semester.  It seemed like worthy spending choices at the time.  After all, it got us by.  Today, these are our only debts aside from our home.


At the ripe old age of 28, I discovered Dave Ramsey on the radio.  I'll try not to make this an infomercial, but to say that it was an awakening would be an understatement.  His use of scripture wasn't what convinced me, though I clearly like and subscribe to the principle in Proverbs 22:7, it was the sheer sound of joy from all the people who were proclaiming their freedom from debt.  I wanted that.  I'm fully aware that he's peddling common sense, and in that respect he is no different from a Tony Robbins figure.  But at the same time, I guess I had lived my whole life assuming that debt was normal.  Just because I'd sworn off credit at age 20, debt as a way of life was still what I expected. 


More powerful than anything Dave said, was what his callers had to say.  I could relate to every single one of them about the crushing feeling of living paycheck to paycheck.  I realized that how we managed our money meant that no matter how much income we had, we would always live paycheck to paycheck.  When a caller said he made $150,000 a year and still was worried about money and making ends meet, I learned something useful about money management.  Our spending controlled us, not the other way around.  The only advantage we had on the folks calling Dave was that we only spent what we made.  But dammit, we spent it all!


Over the last two years, we've developed a pretty strong, well disciplined budget process.  We save vigorously; roughly 25-30% of our net income each month depending on that month's planned expenses.  Every dollar is spent on paper; even the money saved is designated for something, usually up to 10 things we are simultaneously saving for.  We know which expenses are our downfall and try to build ourselves in some wiggle room.  We're now in charge of our spending, and the results have been pretty staggering.  We basically started with no savings, like most Americans.   My goal, if I can keep a working jalopy for the next 2-3 years, is to walk into a dealership and pay cash for a new car in 2012.


On the whole, I don't mind my student loan payment and my mortgage payment.  In that respect, we diverge from the path Dave sets out.  We could be taking that 25-30% of our income and paying down those debts, but the truth is, I've become so tired of living without a safety net that I want to build that up sufficiently before tackling those debts.  It would take upwards of 3 years to pay off both of our student loans if saved nothing during that time.  Just too much can go wrong in 3 years.  But all in all, we finally feel like we are winning the money game, and in some ways we feel "rich" in our ability to go do something if we want to because we've made decisions that enable that. 
On this front, there may be significant news to share this afternoon.  I'm trying not to get my hopes up, but I've got my fingers crossed.

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