Prudence… A Passing Fad?
When we look back on previous generations, we often associate them with the fads, fashions and technologies that accompanied them. Take Generation X for example, as adolescents we spent Friday nights at the roller rink, listened to .38 Special and the closest thing we had to reality TV was the News. A few years later while Gen X matured and the roller rinks were closing down… something else was happening. Without warning, like in a science fiction movie, dangerous alien forms of plastic had invaded our culture, taken control of our practicality and systematically began snatching away our financial stability. Fighting for supremacy, living in codependency and feeding off one another for survival, Generation X and the Credit Card Revolution had taken flight.
I often think back to when I was a child and how my father, a blue collared civil servant, would go about making purchases. He had a system. It was a common practice used by the Baby boomers and every generation before them. Now-a-days, to the MTV Generation, this method of obtaining goods and services is just something they touched on in school, primitive backwards thinking and the kind of thing you would only find etched in prehistoric cave drawings. Do you know what this process is called..?
It’s called… SAVING.
That’s right, despite what you’ve bee conditioned to believe, it is not illegal to purchase something when you have the money to pay for it. And believe it or not (Here comes the real shocker)… It is also possible not to buy something you currently can’t afford (even when it means not keeping up with the Joneses). Honestly… ask yourself… when was the last time you actually saved for something?
Growing up the youngest of three in a lower middle class family, I would often hear things like “Money doesn’t grow on trees, “There’s nothing wrong with your old jeans.” and the ever timeless “No!” Nothing was worse than being on the checkout line of Woolworth’s asking for something (for the third time) and having your mother belt out (loud enough for the rest of the line to hear) that “We can’t afford it”. As a child, it was downright embarrassing.
I spent countless unbearably humid, hot summer nights lying helplessly in bed beneath my breezeless window with my sweaty body sticking to the sheets staring at the ceiling listening to the torturous hum of the air conditioning unit in my parents room above… I remember angrily tossing and turning, thinking how cheap they were for not getting us central air. You know what? He wasn’t being cheap… Dad was being smart. We couldn’t afford it. Therefore, we didn’t get it. Those rules haven’t applied here in Credit Card Nation for quite some time.
An unfortunate but accurate alternative name for Gen X would be the Abusive Credit Generation. Over the course of twenty five years, finance companies had reversed the natural order and mindset of the average American consumer by replacing healthy saving habits with toxic debt. Why save money when you can have everything you want right now for one low monthly payment.
As a nation, people lost sight of their growing debt balances, mounting compound interest and grew too comfortable making bare minimum monthly payments. Instead of saving, people were playing credit card roulette.
Before long, Gen X’ers, now in their prime, had started families of their own and were fast becoming happy home owners. After a lifetime of conditioning, the average American consumer who brought home $30k a year was spending $35K, those making $100k were spending $130 and so on… Everybody was comfortable subsidizing their incomes with credit.
Just in the nick time, while credit limits were maxing out and folks were starting to feel the pinch of snowballing, not so small anymore, minimum payments… along came the ‘Housing Bubble Fairy’ who slipped a whole new bag of debt building tricks under Gen X’s pillow. The housing bubble then opened the door to a whole new breed of predatory lenders that thrived on the ‘not afraid to get in over your head’ crowd.
The world had become a great place. Since home prices would always appreciate 20% a year, lenders were giving loans to any idiot who could sign his name. And for those who were lucky enough to buy their house ahead of the boom, they were convinced to get rid of any pesky home equity (that was just sitting there doing nothing anyway), and transform that into debt. Now the game of credit roulette could continue. Home equity was soon being used to pay off irresponsible credit card balances (freeing you up to charge more unnecessary crap), buy new cars and make colossal home improvements. Nobody cared that their principle balances were rising 10% a year when the value of your home was always going to go up 20%. Big mistake.
Surprise surprise. The housing bubble burst, credit is tightening and as we head deeper into recession folks are coming back around to the concept of saving. Unfortunately not everyone had the luxury of gently waking up to a cool morning breeze and chirping birds. A large portion of the population had fallen asleep at the wheel, drifted into the wrong lane only to be violently awakened by the heart pounding air horn of an oncoming semi-trailer truck.
Unless you can predict the future, the sooner you start saving, the better. Shit happens. You could wake up tomorrow and find out you need a new boiler, lose your job or get side-swiped by an unexpected, uncovered and costly medical expense (not to mention retirement). Worst case scenario – you’ll get better sleep lying on top of a nice fluffy emergency cushion than you would a crunchy stack of credit card bills.
Whether your in your 20’s, 30’s or 70’s, here’s some good news… since “tomorrow is the first day of the rest of your life”, it’s not too late to get time on your side and start saving – now. But, before you can begin to save, you’ll need to focus on unhealthy habits. Start by cutting up those credit cards, plug leaks in your frivolous spending and begin shaving expenses. Once you’ve tightened up the ship and battened down the hatches you need to quickly get yourself into a routine and start put money away regularly. Even if you start small and increase your savings whenever possible, your on the right path. In the perfect world, you should be saving 80% of any income above your water mark. In other words… If you make $30k a year and after paying for all you basic needs (rent, mortgage/rent, utilities, groceries and other necessary monthly expenses), your left with $5k, you should be saving $4k or 80% of your above water number. Where you put and what you do with that savings depends on your investment prowess, risk tolerance and overall position in life. However, if you’ve really clamped down on your spending, trimmed expenses and still can’t manage to get yourself into regular savings groove, then you need to take a good look around. You’re probably living above your means and need to make some real difficult but necessary life style changes.
You’re other option is to keep signing up for those high interest credit cards), take out a third ‘interest only’ equity loan against your rapidly depreciating home and use those funds to buy some highly speculative financial stocks on margin.
You don’t have to be Warren Buffett to understand that the best way to increase your odds for having enough money tomorrow is to start planning and saving today.
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