Debt!

Posted: February 23, 2011 in Deep Thoughts, Happiness, Personal Finance
Tags: , , , ,

America is a country of debt. Both the government and the population are in debt way over their heads. Both problems threaten to unravel our way of life if we continue to ignore them. America was founded on the principle of freedom, and the participation of the people in determining the way the country will be run. Each person has the freedom to live their life as they see fit and often that is beyond our means. As far as our government, we choose the governement. We can elect representatives that promise to balance the budget, or we can (and usually do) elect someone who promises to either give us more without raising taxes, or more often the person who promises to cut taxes. So these problems with debt cannot be blamed on anyone or anything except ourselves. We are the masters of our own personal and collective fate. I’m going to focus on personal debt in this post, but almost everything I discuss can also be applied to our collective (government) debt problem.

The normal thing to do when faced with a problem like debt is to try to place the blame for it on some circumstance beyond your control. For instance, saying I’m in debt because “My divorce was costly and I just wanted to continue to live my life.” or “I wanted to help my kids (or other family members or friends) and it built up without me realizing.” or “My wife/husband was/is a spend thrift and out of control.”. This implies that it was out of your control. There are circumstances that can lead to debt that are “out of our control” to some degree, but even things like medical expenses and unemployment can be anticipated to some degree and planned for. In general, debt can be blamed on one thing, living beyond our means in small or large ways. Pulling out the plastic for things you want, not need, or need but never planned for. You ask, “how can the fact that I got very sick be blamed on living beyond my means”. In some cases I believe this is valid, if you have never had a good job, never had money to burn, then there may have been little you could have done. But if you had a great job for years and didn’t save, or decided to go with the less costly health insurance, or none at all, then you chose to live beyond your means. Good health insurance is not available to all at a reasonable cost. People gamble that they will stay healthy and of course some people will lose that bet. I really don’t want to make this a debate about whether anyone is in debt for reasons they could not avoid, so I’ll say that it can happen. I just don’t want to give myself or anyone else an easy out to avoid taking personal responsibility for personal finances, just because there are some people affected by unavoidable circumstances.

There are no short cuts or easy solutions to getting out of debt. You have to have a plan and work the plan. You can’t have a plan to gamble your way out of debt, either in Vegas or on Wall Street. That is not a plan, you have no idea if or when it will work. In fact, if you are deparate enough to consider gambling your way out of debt, you will probably take greater risks and when you are gambling that will work against you. You are most likely to end up in an even worse situation. You know you have a plan if you know the month you will be out of debt (Dec 2012 for me). Otherwise, you don’t have a plan.

I hadn’t used programs like Quicken for years. Online access to my accounts had made that unnecessary, but Quicken has a great debt reduction planner. You can download all your account balances and transactions, then use the tool to determine when you will be out of debt. It will even give you the optimum way to pay off your debt without paying any more money each month. Quicken can help you look at all your monthly expenses and “what if” scenarios where you lessen your monthly spending and apply the freed up money to your debt. When people live beyond their means it includes things like an unaffordable mortgage/rent, high utility bills, gold plated cable, internet, and cell phone plans, and usually a lot of spending for convienence. In most cases there are things that can be done that can make huge differences in routine monthly expenses. A tool like Quicken can answer the question, what is the affect of this spending on my debt reduction. I found it fun to see my “out of debt” date move closer and closer.

Don’t set up a plan you cannot execute. If you don’t leave enough money to live, yes live a full life, you won’t be able to stick to it. You want to get out of debt as quickly as you can, but don’t stop living your life. In order to stick to your plan and live your life, you have to live within your means. In fact, because you lived beyond your means, now is time to find things you love to do that are well within your adjusted means. Hiking, camping, running, walking are all free to very inexpensive. If you love plays, dining out, travel, and other less inexpensive activities find ways to do it on a budget, it doesn’t make it less fun to spend less, if you live near a major city there are lots of local living deals available. I love a bargain as much as I love anything. I’m going to Kauai this spring for about 400 dollars for a week per person including airfare, rental car, and lodging. I actually could have done it for as little as 275 per person, but the extra money will add a lot of variety to the trip. All the lodging is right on the water, so inexpensive doesn’t have to mean living with less.

Debt is a drain on your ability to live a full life. So make a plan that you can stick to. Live your life to the fullest, but never forget that you have a goal, a goal that will make it possible to live an even fuller life.

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