Back to Basics: Getting Your Financial House in Order
“Interest never sleeps nor sickens nor dies; it never goes to the hospital; it works on Sundays and holidays; it never takes a vacation; it never visits nor travels; it takes no pleasure; it is never laid off work nor discharged from employment; it never works on reduced hours. . . . Once in debt, interest is your companion every minute of the day and night; you cannot shun it or slip away from it; you cannot dismiss it; it yields neither to entreaties, demands, or orders; and whenever you get in its way or cross its course or fail to meet its demands, it crushes you.”
— J. Reuben Clark
The average American household is living in a similar manner to our government — off of borrowed money. We are replacing our future needs for our present wants. With the average consumer debt reaching around $10,000 per household, it has become an epidemic in the United States.
There are many good sources on the internet and elsewhere for how to get out of debt. Such as performing “plastic surgery” on your credit cards by cutting them up; paying off the higher-interest credit cards first; or getting a second job and using that income only to pay off your debts. This is all good advice, but if we get out of debt what’s to say we won’t jump right back in?
There is a good friend of mine who at the young age of 18 got caught up in wanting to have the best things that life had to offer. This is not a bad thing in itself. However, he wanted these things now without making the required effort to work and save for them.
The idea that he at 18 could get credit cards to support his lifestyle was the perfect solution. He progressively charged more and more on his various cards until they were all maxed out. It got to the point where he had to seek help from his family in order to get out of his situation. It took him nearly 10 years to pay off his debts using many of the tips and techniques that are offered by financial advisers.
Not long after, he got married, bought a home and began to fall in the same trap again. He figured that since he was older, had a home, and made significantly more money than he did as a kid, that he was entitled now to some of the nicer things – again without saving up for them. After about two years, he was mired down in debt again – over $20,000 this time. This young couple was literally living paycheck-by-paycheck causing considerable strain on their relationship.
After consolidating most of his debts, as well as paying some off with a home-equity loan, he continued in the same pattern until they were $50,000 in debt. Stretched to the limit and nowhere to turn, they declared bankruptcy a few months ago. Occasionally I still hear him talk about the “latest” thing he’d seen that he wants. Will this pattern end?
Many share the same burdens that my friend shares. It is only after they are in a dire situation do they seek, out of desperation, to temporarily change their patterns. But these are only band-aid solutions. What they need is to live by principles – economic constants that are true no matter what the situation of the economy or their income may be.
Here is a list of them:
- Live on less than you earn. There is no way that you can earn more than you could potentially spend. If you look around you’ll notice it’s not the amount of money that one earns that brings peace of mind, rather the ability to control it. It is said that “money can be an obedient servant but a harsh taskmaster”. The key to spending less than we earn is simple – it’s called self-discipline. Are you in control of your circumstances or do your circumstances control you? Those who structure their standard of living to allow for a little surplus are in control.
- Learn to identify your needs from your wants. We live in a wonderful free-market society which allows us the opportunity to purchase so many different things. Part of the challenge is making the sacrifice to temporarily put off what we want now to what we need later. This means making decisions for the long term. Oftentimes, when we decide to hold-off on a particular purchase, we realize that it is not something that we want anyways.
- Develop and live within a budget. Budgeting and financial management don’t have to be overly complicated. However be sure that the four bases are covered: First, allocate enough to cover the basic provisions (food, clothing, etc.); Second, for home equity (ie. the mortgage); Third, for savings and various health and life insurances (ideally you should have an emergency fund of at least 6-months worth of expenses). And finally fourth, for investments. Only after if there is money left over should you buy those wants.
- Show integrity in all of your financial dealings. Financial integrity is a dying principle. Whether it’s “stuffing” your time sheets to make an extra buck to lying about one’s profits (in the case of the Enron scandal), ethical economics needs to become a priority. There are so many now seeking the easy way out by declaring bankruptcy and thereby placing their debts on someone else. There are others who are living off of the system when they’re entirely capable of working. These seemingly ‘small’ decisions multiplied over a number of people can impact the entire nation. It’s up to every individual to learn and teach others about the need for integrity.
Each of us has the power within us to make the decision to live these principles. I know that as we seek the courage to get our own financial house in order that our lives will be blessed with security and happiness.
- Posted in Financial Preparedness
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