The Economics of Simple Living: Less Debt, More Life

It is popularly said that “Money is the root of all evil.” But, Dear Reader, I can unequivocally state that money itself is not evil.  Having money does not make you a bad person.  Rather it is the pursuit of more and more money, the lusting after money; greed that produces deleterious effects in people.  Greed is the root of evil.

Money is just another tool to be used in bartering with others for what you need.  It simplifies the process of life by offering a universally accepted medium of exchange.  Instead of trading eggs for flour or firewood for meat, you trade your efforts in your area of expertise for money, then trade the money for the things you need to support yourself and your family.

Using money as a bartering medium is far more convenient than exchanging physical goods, especially since so many people these days produce no physical goods.  I’d say the vast majority of American citizens support themselves as service providers not goods producers.  They may be Payroll Administrators in a corporation, or County Tourism Directors, or Network Administrators in a hospital, or a cook in the local grammar school, or even a laborer in a factory that does produce goods, such as furniture.  But at the end of the week, they are not paid in sofas and chairs.  What a good thing *that* is!

Where the whole thing falls apart is the point when folks decide they must have more than they need; when needs get confused with wants.  When they get greedy.  Do not misunderstand me; there is nothing wrong with having nice things and living comfortably.  One does not have to live in abject poverty to be a “good” person.  But when the accumulation of money and things becomes one’s life’s focus, that person becomes enslaved to that pursuit.  That person becomes addicted to getting more, no matter how much he or she already has.  That person devalues the things and the people already in their lives to pursue getting “more”.  And that is very dangerous indeed.

Living On Credit

The credit card is perhaps the most seductive financial tool invented by mankind.  The basic premise is OK; it allows you to make payments on something over a period of time so that you may own it now instead of having to save up for it and buy it when you have the money.  But the interest fees that are charged often mean that by the time you’ve paid the debt off, it will have cost you double the purchase price.  And living on credit to get things you want and can’t afford can and very often does dig you into a financial hole so deep you cannot get out.  And these creditors are happy to let you do it.

Young folks, if you have not yet dug your own pit of credit card debt; DON’T!  Having a credit card is often essential to establishing credit toward getting a loan for a home or a car.  If you must have these things, get a credit card and use it for small purchases like groceries or clothing and pay it off each month.  Do not let it build up.

Experienced folks, if you find yourself struggling with credit card debt, call your credit card bank and attempt to negotiate with them.  Most are perfectly aware of the effects they can have on people’s lives and, while perfectly happy to let you be crushed under the load of your debt if you so choose, will often offer some relief if you just ask.  Be persistent but polite.  They may make getting to the person with the authority to help you difficult.  Do not make threats you are not willing to back up with action; such as filing for bankruptcy.  They know that discharging legitimate debts is far more difficult now than it once was and empty threats will only harden them toward you.  Programs vary from bank to bank and depend on your amount of debt and payment history.  Ask what they can do to help you get your balance paid down.

Slay the Small Dragons First

It often seems sensible to attack the largest dragon (or debt) that is causing you grief first – since it is costing you the most money in interest – and worry about the smaller ones later, but it actually works out better to attack the smallest one first.

Make the minimum payment possible on all other debts and throw everything you can at the smallest debt.  It will be the easiest to pay off quickly.  When that one is toast; throw all the extra funds AND the regular payment on the now deceased debt dragon at the next smallest debt.  As each of these is eliminated, the sword you have to fight the bigger dragons also become larger, thus far more effective.

Living Debt Free Simplifies Life

I speak from experience.  We were able to go from being in a pit that was tens of thousands of dollars deep to being completely free of credit debt in about two years.  Had we not taken this initiative, we would have been paying on those debts for the rest of our lives.  Now the only debt we have is our mortgage, and we’re working hard on getting that too paid off so we can be completely debt free.

Nothing else simplifies one’s life more than knowing that the only regular bill that has to be paid is the monthly electric bill.

If you too want to reduce or eliminate debt in your life, check out the books below.  I especially like Dave Ramsey’s book; The Total Money Makeover, but the others are good too.

 

The Four-Letter Word That Isn’t

The word ‘budget’ is for many people a dirty word; something they’d rather not speak of or think about.  But, if you are to effectively manage your money so that you have what you need when you need it, a budget is essential.  Basically, all a budget is, is a list of how much money you can count on to come in during a specific time; weekly or monthly, and how you will divvy that money up to pay your expenses and savings.  As long as more comes in than goes out you are living within your means.  If not, you need to seriously look at your expenses and make cuts or find a way to increase income.  The books mentioned above go into recommendations on how to allocate funds and set up an effective budget.  I do not intend to try to teach a class on financial management in this post, just to toss out some pointers that will get you thinking.

I like to think of a budget as a discovery tool and guideline, not an iron-clad contract.  Working out a budget often shows up areas where you are spending more than you realized on things that are frivolous, or at least less necessary than other things.  But do not throw up your hands in despair if you cannot keep to the budget each month; things happen, unexpected expenses come up, you do not control the entire Earth. (Do you?)  Use it as a guideline, shift things around a little as you use it.  It’s there to help you not shackle you.

Pay Yourself First

It is highly recommended that each payday you take 10% (or as close to it as you can) of your net income and tuck it away in savings.  This is not hoarding; this is just being smart.  Having a nest egg tucked away for use when an emergency arises or as a retirement fund seed is just smart planning.  By taking your savings out first and paying the bills on what’s left, automatically and without thinking too much about it, you force yourself into smart money management.  If you do it the other way around and tuck away what’s left after you pay your expenses, you will rarely save anything.  The money tends to get frittered away.  But save first then spend what’s left and you will be surprised how much better it works.  You will find ways to make the money stretch, or to cut expenses, *and* build a buffer in savings that will keep you from having to skip paying a bill one month because the car broke down.

The Dangers of Immediate Gratification

The biggest impediment to our financial stability is the idea that whenever we feel we want something, we should buy it… NOW.  If the funds are not available, use credit to borrow them.  Worry about paying for it later.  When this notion becomes a lifestyle, that person is headed for disaster.  The idea of disciplining one’s self and saving up for something desired is repugnant to some, but is has advantages.

There have been a number of times that I have decided I wanted something, didn’t have the funds and set about saving for it.  Before I got there, I decided I didn’t really need it after all.  When the desire did remain, the item I bought meant more to me for having been a challenge to acquire.

Where Are Our Life Values?

The bottom line, to use an accounting term, is that we need to look at what is important to us in life and make that our focus.

Sometimes we can get caught up in the idea that making three times more money than we need is good because we can express our love for our family by buying them everything they could ever want.  But if earning that money means you are absent from your family most of the time, this is counter-productive.  I’ve seen this happen many times, and in nearly every case the family was much happier when the hard driven family member backed off and focused on spending some quality time with the family instead of showering them with gifts.

There are many, many simple pleasures of life that are available to us for little or no cost.  If we but step back, see them, enjoy them as we travel life’s path instead of saying, “When I get (insert amount) dollars saved up I will retire and take life easy.”  Too many people who take this route don’t live long enough to enjoy the fruits of their labor.  Would it not have been better to simplify, refocus, and enjoy the life that was right there for them every step of the way?

I’m going to wrap this up by leaving you with another old saying; “The richest man is not the one who has the most, but the one who needs the least.”