Friday, July 24, 2009

View from the sticks

I was working with and talking to the co-owner of the shop I work in yesterday when he happened to mention that he had just found out that he had come in to a small five figure inheritance from his grandmother. I just listened as he wondered what he could do with the unexpected windfall. Should he buy this or that or the other thing?
This went on for a while and I did not say very much, then he asked me what I would do with it. I think what I said surprised him.
What I told him was I thought he should either stash it away as an emergency fund or use it to pay down debt. Then when he wondered why I told him my thoughts on personal finance.
I told him that I am completely debt free and have been for almost a decade. That I do not buy anything unless I can pay for it up front. That when I do buy something I buy the best I can find and pay the extra cost because the item usually works better and lasts longer.
I told him that being debt free is a state of mind and a lifestyle choice that takes discipline and practice but in the end is much less expensive and much less stressful that the debt driven life we have been taught is normal.
Being debt free brings freedom and many more choices. I told him that if I was in debt I would not have been able to retire at 49 and take up a much lower paying job that I enjoy very much. When you are in debt you are on a treadmill and cannot stop moving. The bigger the debt the faster the treadmill goes. If you lose your job or get sick you are in danger of very quickly losing everything that you worked for.
It was one thing to take on debt as a normal lifestyle choice when jobs were plentiful but it is quite another to do it in an economy where jobs are still going overseas and the unemployment rate is north of 15% like it is here in Michigan. He listened to what I had to say but I am not holding my breath that I convinced him. All our lives we have been told to buy things right now on credit, with easy monthly payment plans. Why wait? Enjoy it all now! Keep up with the Joneses!
An alternate lifestyle of pay as you go and healthy reserve cash has its own rewards and is well worth pursuing. Start where you are, but at least start and I guarantee you will not regret it.


Sarah Sofia Ganborg said...

What you write here is not only common sense, but also very good advice and really everybody should practice it!

But unfortunately there are also exeptions. And I absolutely hate that because things should really work the way you wrote in your post, life should really always be like that, that when you are a good and decent person and work hard, you get rewarded, but it isn't always like that.

Here is my story:
in spite of growing up in the suburban and most expensive area of town (the American sector of Berlin)I spent the first years of my life under severe suppression, just to find out at my seventeenth birthday that I had been robbed of everything: houses gone, accounts emptied and the family destroyed.

Without any possessions at all and no support of any kind I had to see to survive from then on. So what would you have done? I had just turned 17, still at school, but not old enough to sign the contract for a flat or to receive social security, but too old to received any other support from the state and my parents wanted me dead.

I had an accute need for water, food and shelter and no means to get it. it's a whole lot more difficult in the city, you can't just sleep in a tent and drink from a stream...

So I did what I thought was the best thing: got married and had a child. But I married for love, not for money and so there was nothing else we could do but to loan money for the most basic needs and for a house.

Living in Denmark you can't just get a job and pay off your depts. With more than 50% taxes you would be paying forever, while you have nowhere to live. But if you buy a house... all of a sudden you can take the interest of the tax.

So we bought one house, did it up and sold it and so on. We never got lucky, never made the profit we should have made, but we had always budgetted so carefully and had done so well on the renovations that we always made a profit. Never the fortune we should have made because something always happened, we got cheated or the market collapsed, but because we had always invested so much work into the houses, the value/evaluation always went up.

Today we're still not dept-free, but the dept is on the house with the house contantly increasing in value. While most houses have lost a lot of their value, ours has gone up half a million kronor during the financial crisis.

So this is also not the the lifestyle I had been planning on. I had always thought, I would never ever get into dept and would buy a small house with savings and then a bigger one... but had we done that we never would have made it.

Meanwhile we also had to see to that our sons got a good life, we homeschooled one of them, we gave them good educations (skills that we taught them on how to survive the alternative way in a world where things don't work the way they should...)and moral values.

They had a good childhood and are still living here and will continue to do so, since our farm consists of 6 different buildings, so there's enough space for everyone to have his own house and business.

Bottomline is: although what you write in your post is how it optimally should be, you can't always count on it in an insane world. You've only got one choice and that it to go with the flow, judge every individual situation in p.t. and be flexible in every possible way - and ethical and stick to your goals and targets.

ExRanger said...

Hi Sarah Sofia Ganborg,
I agree with you that it can be difficult to do what I wrote about especially staring out on your own in life. I was around forty years old when I did it. Our society conditions us at an early age to look at credit and debt as normal. That it is not only OK to want everything right now, it is looked on as normal.
Most people look on me as somehow weird and strange when they find out how i live but I do not care. It works for me.
All I can say is that no matter how long it takes, try to get there. It is both less expensive, less stressful and you have more options in life to choose from.

Sarah Sofia Ganborg said...
This comment has been removed by the author.
Weaseldog said...

That's good advice you gave.

We're seeing a convergence of forces in finance.

The S&P P/E ratio is up to 723. 14 is healthy.

The Chinese are selling off treasuries to buy physical assets.

the US Treasury is holding record breaking auctions and foreigners are staying home, forcing the Fed to buy the treasuries.

We learn that the bailouts really started in 2007 and that $23.7 Trillion has been doled out so far.

Trucking companies are going bankrupt again for lack of goods to haul.

The best thing the Gov can say about unemployment is that sometimes it's not quite as incredibly horrible as they expected. It's merely really, really horrible.

Goldman Sachs' (bailout welfare whore) trades now comprises 40% of the NASDAQ. And they admit to using flash orders to front run trades, but insist that this illegal activity is ethical. Meanwhile the SEC looks for another Martha Stewart to go after.

If it weren't for the bailouts, the market likely would've crashed already. All that's holding it up is the increasing speed at which the money presses are running at.

While almost everyone is laying off and cutting expenses to the bone, the IRS is hiring and expanding.

Yeah, get out of debt if you can.