I know Backwards Day was last week but my wonderful dh wrote this post yesterday and I just know there are some other Works for Me Wednesday bloggers who have words of wisdom for us regarding finances. Leave a comment, we need all the help we can get!
This blog doesn’t really have anything to do with daylight savings time, although the recently-lost hour of sleep looms large in my consciousness. This afternoon Kathy and I were talking about a novel concept: saving money.
It isn’t an idea that comes very naturally to either of us, I’m sorry to say. We tend to live ‘in the moment’ much of the time, and (thanks to an excessive number of credit cards) we usually just buy something if it is not very expensive and we want it. We don’t go in for big ticket items, but the steady flow of self indulgent and other-indulgent spending is definitely not under strict regulation.
I looked it up on the internet, ’cause if it is on the internet, you know it must be true. It is sort of funny to see that there is a whole Wikipedia page on the subject of savings — I guess I’m not the only one that needed to research this strange concept.
Don’t get me wrong — we do actually do some saving. My employer matches a part of my 401(k) savings so that I’d be a fool not to put aside 5%, so I do. But apart from that, we don’t really save. We use credit to buy things we need but can’t afford, and (like many Americans) we have some considerable month-over-month credit card debt.
One of the significant problems we face is that saving doesn’t seem real, when you have any kind of debt. It doesn’t make a lot of sense to put money aside in a bank account that doesn’t generate interest, when you could pay off debt that probably costs you at least some kind of interest or fees. But once you pay off some debt, when do you decide that you can buy that item for which you are saving?
Thankfully this stuff only cost a dollar.
Let’s start with a hypothetical example: suppose you owe $5000 on credit cards, and you’re paying 6% interest on that debt. Suppose (hypothetically, remember) that you really want to save up for a new computer that costs $700. What do you do?
One school of thought is that you pay off the entire $5000, before you even think of buying anything you don’t absolutely need. “Attack debt like the cancer it is!” they cry, frothing at the mouth at the idea of debt unvanquished. While such ideas are very inspiring, they don’t really take into account the self-indulgence that probably caused the situation in the first place. When I contemplate this scorched-earth attitude toward debt, and the barren wasteland of consumerism it requires (even for a season), my spirit quails. I’m just not willing to wait that long to gratify my desire, unless I have to.
Another school of thought gives a nod to motivating the saver, and suggests that payments against debt must be made, but (once those payments are satisfied each month) allows saving toward a goal. Supposing that monthly income minus expenses netted $400, they would say, “Spend half on retiring debt and half for future savings.” All other things remaining equal, this would mean that in three and a half months you’d have paid down your debt by $700, and saved enough for the new computer as well.
Maybe Sarah should save up some money for a new hairdresser.
One problem with this is it is sometimes hard to see where the money goes, and hard to avoid dipping back into the debt that you pay off. Suppose I’m two months into my savings plan, and I’ve paid off $400 in debt and saved $400. Suddenly, you realize that you have to fix the brakes and tires on your car, which (hypothetically) costs $700. Do you:
- (a) wait to fix the brakes until you’ve saved the $700, even if waiting may be unsafe or cause further costly damage to the car?
- (b) spend the $400 that you’ve saved toward the computer, pay the rest on a credit card, and start over on your savings?
- (c) pay the whole $700 for the brakes on a credit card and leave the $400 in savings alone, since it is allocated toward a particular item?
- (d) pay the $400 from savings to the brake shop and negotiate for monthly payments (to avoid increasing credit debt)?
Not my actual cash …
Also, how do you actually handle the money? Do you put the $400 in a separate savings account, or do you go ahead and use it (until it is needed) to pay off the credit card?
Perhaps the most widely-accepted school of thought reasons like this: “Once you have a debt that is more than you can easily pay off, you might as well just buy whatever you want (within reason) and try not to let your debt get any bigger. Why get all upset about it, or deny yourself? Sooner or later, you’ll get a bonus, or you’ll sell your house for a profit, or you’ll earn more money … or something will bail you out.”
Of course, this last school of thought may be partly responsible for the massive 2.545 trillion dollar consumer credit debt currently plaguing our citizenry.
Several Bible passages come to mind:
The rich rule over the poor, and the borrower is servant to the lender. — Proverbs 22:7
The wicked borrow and do not repay, but the righteous give generously; — Psalm 37:21
Give everyone what you owe him: If you owe taxes, pay taxes; if revenue, then revenue; if respect, then respect; if honor, then honor. Love, for the Day is Near. Let no debt remain outstanding, except the continuing debt to love one another, for he who loves his fellowman has fulfilled the law. — Romans 13:7-8
I know there must be at least one or two savers out there. What do you do? What practical steps do you use to help you get control of your money? Please be gentle — remember, you’re dealing with typical American consumers, thoroughly indoctrinated in the ways of easy credit.