The value of living within our means

[Liberal_in_LA]

http://www.desmoinesregister.com/article/20081214/OPINION01/812140314/-1/NEWS04

The value of living within our means

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REKHA BASU • [e-mail] • December 14, 2008


For a lot of people, disposable income will be in short supply this holiday.

Judging by debt level, the size of our homes and cars, and even how we spend our spare time, our priorities have gotten out of whack. We've moved steadily away from the lessons of thrift and saving our Depression-era parents learned. We caved in to the lure of easy credit (abetted by relentless credit-card solicitations) and the "buy now, pay later" philosophy. That, in turn, helped drive up everything from government deficits to personal debt.

"Businesses, individuals, households do it," said Hira. "We all do it. Now its has been proven."

About 60 percent of credit-card holders carry a balance, which is on average $9,000 to $10,000 per household, according to Tom Coates of Consumer Credit of Des Moines. Total credit-card debt has shot up from $100 billion to nearly $1 trillion in about 20 years. According to one estimate, a $1,000 charge will take almost 22 years to pay off, and cost more than $2,300 in interest if only minimum payments are made.

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Financial advisor Suze Orman may have gone a little far when, by her account, she approached a woman buying lavish Halloween decorations in a store, and asked if she was carrying a credit-card balance. When the shopper replied yes, Orman said she had no business spending like that on non-essentials.

But you get Orman's point. The idea that by deferring payments, we could live beyond our means, helped lead to the foreclosure crisis. We've passed on to our children the sense that money has no value.

[mrreowwr_kittty]

1. Hey Suze

Consumer spending is 70% of our GDP. If it weren't for all those people "spending beyond their means" the U.S. economy would have gone down sooner. Service economy is an oxymoron.

[wartrace]

3. It isn't a service economy, its a "Debt service" economy.

We can expect that when/if this financial crisis is over our GDP will be quite lower than it was previously.

[Liberal_in_LA]

7. The article writer isn't suggesting we stop spending. He/she is suggesting we spend on what matters

Help out poor person (who'll in turn spend the money).

[mrreowwr_kittty]

13. My comment wasn't toward the article, it was toward Suze.

I get tired of these "financial gurus" whose solution to everything is "stop going to Starbucks". Yeah, that probably would save a lot of people money but what happens to all the people who work at Starbucks when everyone does that? 30 years of Repuke Trickle Down Voodoo Economics have gotten us into the current precarious situation where people spending money they don't have on crap they don't need has kept everything afloat.

[Odin2005]

36. That is the fundamental internal contradiction that makes our "post-industrial service economy"...

...fundamentally unstable and unsustainable. Something had to give, and it's giving now.

Keynes talked about this a lot, he called it the "Paradox of Thrift".

[Odin2005]

33. 70% of GDP being from consumption IS the problem

When unsustainable consumption is the only thing keeping our economy afloat something is REALLY fucked up. Manufacturing is the fundamental basis of a healthy economy. a "post-industrial service economy" is an economy condemned to be eternally sick and unstable and inflected with financial scams.

[mrreowwr_kittty]

38. Exactly. And yet so many people think we can keep that economic model and make it sustainable

I don't see Suze telling people to buy her books used or check them out from the library.

[Inkyfuzzbottom]

2. Thanks to living within my means

I was able to take a $22,000.00 a year pay cut to escape working for a raving lunatic asshole and not miss a beat. We drive used cars, shop at thrift stores and online sales, and live in a small house. My husband and I were both raised in frugal households and taught a thrifty lifestyle. We don't have all the fancy, flashy things many of our friends have but we have the luxury of being debt free and are able to pretty much do as we please. Also, we chose to go the no children route so we don't have that added expense. Many of our friends are now raising grandchildren and struggling financially. We never felt the need to "keep up with the Joneses" (or is it Jones'). We were always able to separate our wants from our needs and just stick to the needs. Just because you want something doesn't mean you need it! It's hard to enjoy a want when the realization hits that you have to pay for it! It's about time folks got back to living within their means. Do you really need those granite counter tops, 3,000 square foot house, gourmet kitchen when you don't even cook, 4 bathrooms (we have 1), 5 empty bedrooms, and all that other crap? The bummer is you have to PAY for that shit. Get a clue people, just because you WANT it doesn't mean you need it. You have to heat and cool that giant useless foyer and the cathedral ceilings in your house. Get back to basics...play outside with your children, read a book, go to the zoo...you don't need all that flashy crap now, do you?

[wartrace]

6. I am looking like a freakin genius right now.

I bought my humble home with a large down payment and a five year mortgage. I saved the down payment by living in a run down rental trailer for ten years. It is only 700 sqft on 15 acres BUT it is paid for. I have no debt at all & live well below my means. If I become a victim in this downturn I will be ok.

I put up with comments from people about my "tiny house" and "living in a shack" over the past few years. I have been looked upon as "poor" by the meter reader (he mentioned something about it one time) although I make twice what he does. Those people who made fun of my "shack" are now sweating the economy because they might be living under a bridge in the next few months. Sure, they had a nice big house on an eighth acre lot in a "good" neighborhood even though one bump in the road would throw then out on the street. I would rather have a lifetime of security than a few years of "the good life".

Now it is my time to "show off". I have no worries about being laid off. I sleep like a baby every night with no worries about the things to come. I know I will be OK.

[Liberal_in_LA]

9. It wasn't until the real estate crash in 2007 that I realized that the

folks living in McMansions with granite counter tops and an Escalade in the garage were totally immersed in debt... their wealth was an illusion. I too prefer my security over granite counter tops.

[wartrace]

15. There is a term - "the aspirational rich".

They aspired to be wealthy but didn't actually have the wealth. They made the difference up with easy credit.

[Inkyfuzzbottom]

17. AMEN

I live on 10 acres. Isn't it nice? Grow your own veggies and if times get tough you can alway put a cow out there and then use it for meat. I haven't had to do that yet, fortunately, I tend to make everything a pet and I don't think I could eat a cow after I raised it.

[wartrace]

26. I have a "solution" to the pet cow problem.

Trade cows with a neighbor. I am putting in a chicken coop this spring & plan on eggs/fresh meat. I don't believe I will grow fond of a chicken.

[Inkyfuzzbottom]

29. Good idea, in theory

However, I know the neighbor's cow quite well. They bought Rosie with the intention of raising her and then having her butchered. That was almost ten years ago! I babysit Rosie and their horses when they are out of town... ;)

[Liberal_in_LA]

40. 10 acres is huge by LA standards. We live hundreds to the acre

[Fireweed247]

37. 15 acres is heaven

I don't care what size house you have as long as you are warm and fed and have the freedom of owning your own land...you are set! Good thinking! Now how about letting some DUers set up camp there :rofl:

[wartrace]

39. Sure!

There is a small farm next door that I had been interested in buying that has since been put in foreclosure. It has two huge tyson chicken barns on it which would be a great source of protein if we could fill them with chickens. It will be eggs for breakfast every morning & chicken every night for dinner. There is 68 acres of land with it. I bet we could pick it up cheap when they have the auction!

[Fireweed247]

45. Man, that sounds really cool!

Maybe we could start a DU commune fund...

[InkAddict]

32. A holiday gift to you - it's all I can afford.

BTW: Are you one of the last four Shakers? The fat lady sings.

http://www.youtube.com/watch?v=OoHoupIi3ik

T'is the gift to be simple
T'is the gift to be free
T'is the gift to come down
Where we ought to be
And when we find ourselves
In the place just right
T'll be in the valley of love and delight

When true simplicity is gained
To bow and to bend
We will not be ashamed
To turn, to turn will be our delight
Till by turning, turning
We come round right

Also, a gift for those of you that "want" nothing. Needed knowledge about the gift...

http://www.americanmusicpreservation.com/shakermusic4.htm#notsosimplegifts

[wartrace]

4. Cash out refinancing has fueled the economy for the past eight years.

Now that home values are falling and credit has been tightened we can expect less consumer spending to the tune of 2-3 billion dollars a year.

[taught_me_patience]

28. It's estimated that heloc and cash out refi

money added over a trillion dollars to the economy over the last 3 years. You bet consumer spending will be hit hard - probably 200-300 Billion per year.

[ayeshahaqqiqa]

5. I've always lived within my means

fat lot of good that has done as far as the global economy is concerned.

[wartrace]

8. But it is great for your personal economy, isn't it?

To not be buried under a pile of debt is real freedom.

[InkAddict]

21. Don't you see that that same person is buried under the debt that

policy made, even if they have none of their own - specifically, Repuke global "free market" policy that put other nations' people ahead of our own. Oh heck, they didn't even worry about that except as "new markets" for making new debt (that was never, ever about their "freedom." What a crock!

[ayeshahaqqiqa]

23. Yep,you got it right

said it better than I did, but this is what I meant.

[wartrace]

25. We ALL are under that pile.

It helps not to have personal debt piled on top of that, doesn't it?

[ayeshahaqqiqa]

22. How free is that

if the world economy goes bust? Yeah, I'll put in a garden this spring, and continue to work on becoming energy independent at home, but I have a feeling that things are going to be terrible for everyone.

[wartrace]

24. "If"????

The economy is officially "busted". Those who don't have a pile of debt on their backs will be far better off than those who do.

[ayeshahaqqiqa]

27. World economy in the process of busting

and what will happen next is not going to be good for anyone. Wouldn't be surprised to see mass die-off of population, mass displacement and a breakdown of law and order. Don't see this as in any way beneficial to anyone--and those without debt will only hang on to what they have as long as someone stronger and meaner doesn't take it away from them.

[wartrace]

30. There is nothing that an individual can do to stop it.

Yes, it is going to get nasty. It is teotwawki (the end of the world as we know it). I remember posting earlier this year about buying a years supply of freeze dried food here on D.U. and the various responses I received. Many thought I was foolish. I am sleeping a little better at night knowing I have that food as a last resort.

[InkAddict]

42. How so, if they also have no job?

[wartrace]

43. Nobody will be able to kick you out on the street.

A large garden & some chickens? A rabbit hutch? I suspect those people will be better off than those who are highly leveraged. I find out tomorrow if I am still employed. I have a one in six chance of being the one let go & I will sleep fine tonight.

[Runcible Spoon]

10. Yeah, OK, I guess I should have lived within my means and not gone to college.

Fucking $75,000 albatross around my neck for the foreseeable duration of my life. :evilfrown: Of course, I have 0 credit card debt, but that's not very comforting to me...

[Merlot]

11. I'm really sick of this sh*t!

Wages and the stock market have stagnated since 2000. Our gov't pushed us into a consumer economy, held us hostage to high gas prices, and we're supposed to beat ourselves up for it?

Many people never got all the goodies, never had the fancy stuff. For some people living beyond their means is as simple as filling the (old) car with gas and buying groceries. And now we're all supposed to listen to how "bad" we've been for buying "non-essentials?????" I

Medical insurance, gas, food, health care, education are just some of the non-essentials that most people have to charge. Once again the gov't is trying to blame people instead of policies.

[mrreowwr_kittty]

41. But....but.....

You could have gotten the no-frills generic ramen instead of the Top Ramen with the shrimp bits, ya know! :sarcasm:

Seriously, I know what you mean. Like I said upthread, it's kind of inconsistent to admonish people not to spend in an economy that depends upon consumer spending (whether for essential items or not). This doesn't seem to faze the DU Former Starving Grad Student Turned Savvy Investor Brigade to come along and lecture us foolish peons while basking in their own fiscal purity.

[Greyhound]

12. If even a large minority of people "lived within their means", the economy as it exists

will collapse. This is part of what we're seeing right now.

Oh, and Suze Orman is nothing more than a huckster for Suze Orman.

[rucky]

14. How do we know what's being charged are all non-essentials?

Here's a scenario...

Take-home pay: $2500/mo (about $38000/yr pre-tax salary)
Mortgage: $900
Gas: $250
Phone: $60
Electric: $150
Health Insurance: $400
Auto Insurance: $100
Gasoline: $50
Food & Incedentals: $300
Other Utils: $150

Balance for non-essentials (or your credit-card bill): $140,

or less than 5% of your take-home pay for non-essentials, DAYCARE, emergencies, cable/internet, etc. That's assuming you're not putting any money away for retirement.

Play with the numbers if you like, but there is little room for much else.

[InkAddict]

19. Now, let's assume your refrigerator crashes and burns....

Can you run out and get another without credit? Even used? So much for living beyond one's means...Course, I'm sure your neighbors would share their freezer space until you could afford to buy one cash, not! Do many of us not even know those neighbors names?

[scarletwoman]

31. Exactly that happened to me -- my refrigerator gave up the ghost.

I was able to immediately buy a new refrigerator with cash, because I've always kept a savings account so that I'll have money at hand for just such contingencies.

I have always refused to own a credit card, I live very simply so that I can put money away. I saved money for two years to be able to afford to buy my computer. I was raised by Depression-era parents and I took their lessons -- about thrift and saving and only buying what you can pay for in cash -- to heart, and have always lived by those principles.

The real problem is that people are not being paid a living wage. If they were actually being paid fairly for their labor, they wouldn't need to keep using credit cards to make up for wages that don't stretch far enough to cover their expenses.

sw

[MadHound]

16. The trouble is that even those of us who lived within our means our going to get dragged down

After all, we get to bail out those corporations, industries and individuals who did live beyond their means. In fact we're getting hit already as our property values go down, taxes go up, and jobs disappear. We're all going to take a hit on this one, a massive wreck where greed ran into stupidity.

[PassingFair]

20. Yep, the tidal wave takes out EVERYTHING on the beach.

Whether you built it up on stilts or not.



We live within our means, own our 10 year-old cars (which won't last forever),
live in a tiny ranch (which has lost 1/3 of it's "value") and don't carry
credit card balances (we currently have health care, but if I lose my job,
and it COULD HAPPEN ANY DAY, we won't).

I don't care HOW frugal you are, if you don't have
half a million in savings right now, one illness can
WIPE YOUR FAMILY OUT financially.

We are living in VERY precarious times.

[InkAddict]

18. Perhaps, but who or what has taught a lot of our children that people and our

environment have no value; and just how does one teach that when there are so many kids who have REAL experience that that is more the case, i.e., Mom/Dad have NO JOB (sometimes, in spite of good education and skills; no home and/or, worse yet, security within and/or outside that home; no healthcare. Money's value is confirmed in what it can purchase, and the "free market" has certainly done a good job "investing" in our collective well-being. :sarcasm:

The United States of the World be damned! Greedy, corrupt American leaders with twisted ethics have collectively lost their minds but our money, and made our educations and experience of service worthless, seized our homes and security, and made us all SICK!

It was they that did not even bother to look for value in the monies they spent by running two sets of books - one for themselves and one for everyone else.

And we let them walk, fly around in their private and sponsored jets, torturing people and depriving the innocents and not-so-innocent alike of their lives and livihoods. BAAAA HUMBUG!

[Odin2005]

34. Consumerism sucks.

Consumerism has been actively cultivated by business elites since the 1920s in order to manufacture demand and thus keep the dynamics of scarcity required to keep Corporate Capitalism functioning

[killbotfactory]

35. The cost of living has been going up, and wages have been stagnant

Instead of paying people more we have been extended cheap credit. On top of that nobody has any job security and our healthcare situation is a disgrace, meaning people can go from being able to live within their means to being in an unescapable hole virtually overnight. That makes it a little difficult to live within your means, unless that means living in a cardboard box and never buying a thing.

[wartrace]

44. Wait until the Government "bubble" pops. 50+ trillion dollars- YIKES!

Seriously. Over 50 trillion dollars of unfunded social security & medicare obligations. What happens when people wake up & understand they will not get any help from the government NOR will they receive a social security check in their old age.