Our society is experiencing a significant wake-up call. Credit, once considered necessary for purchasing, has become a four-letter word: Debt.
I don’t believe that credit is necessarily bad; credit can be a good tool if you understand how to use it. Yet, the misuse and misunderstanding of credit as well as living outside your income are detrimental to your finances to say the least. Wanting and buying things that you can’t afford will lead to enormous difficulty and hardship in the long run.
You can live happy and fulfilled on a small income if you redefine what makes you happy. If “stuff” makes you happy, be sure you make enough money to buy that stuff. If you are having trouble paying bills, please, don’t buy any more stuff. I realize this is common sense, but when it comes to stuff people tend to forego common sense for that quick thrill of ownership.
I realize this is not easy. The first step to financial peace (to borrow a term from Dave Ramsey, the financial guru) is to look truth in the face. It’s okay—it might not be pretty at first but I assure you, facing the truth about your finances is essential to living well on a small income and being debt free.
We weren’t always debt free. Once we owed thousands of dollars, on what I considered to be “essential” purchases (they weren’t). The wake-up call for me was when we received ten grand as a gift, and had to hand over eight grand toward our debt. I couldn’t even remember what we bought with that eight grand. Some might consider us lucky to get such a wonderful gift and we were, but I was overwhelmed by the fact that I couldn’t use that gift for us. We had to pay Mr. Bank for stuff that was probably sold at the last yard sale for a few bucks. Boy, that burned me up—most of our gift, gone as soon as we got it. I never wanted that to happen again.
As it happens, I decided to read Dave Ramsay’s book “Financial Peace Revisited
I want to help people understand that “stuffitis” is a serious disease, but once treatment starts it can be cured. Again, this was not easy. You must have discipline on the road to Debt-Freeville. For us, while other people were putting pretty new household goods and shiny new cars on credit, we were driving around in one old car and “making do”. It’s not always fun or pretty at first to make do. In fact, it’s harder sometimes to not keep up with the Joneses as it is to keep up with the Joneses.
But in the end, you will be the winner–this I promise you.
Here’s why. We don’t have stuff as expensive as the Joneses but we don’t have the Joneses debt either, and we have everything we need. It is an extraordinarily liberating feeling to face the truth, meet it head on, stick to your plan and in the end, not owe anyone for what you enjoy. Now, other than our mortgage, we are debt free because we make it a priority not to spend money, but to save money. Our family lives essentially on one income (less than 50,000), we have two children, one a teenager so you can imagine how much he eats and wants. We have a small mortgage on a home, 40% of it in equity and we own three 10-year-old vehicles, no car payments. We have a 401K and a credit score of 813. We do have a credit card that we use to secure reservations and that’s pretty much it. We also tithe a portion of our income because I believe that whatever you give to God you get back two-, three- and sometimes five-fold (and I plan on writing an article called “The Mystery of Tithing) which will make you shout, “no way, that could not happen!”, but it did).
Keep in mind, even though technically we have one income, part of my job is to significantly reduce our expenses. In essence, everything I save becomes “tax-free income” for us. Let me illustrate. Let’s say person A makes $20 an hour and decides to stop and pick up groceries. Person A doesn’t have time to budget so she just throws everything in her cart and her total comes to $198, plus tax. Keep in mind person A does not really bring home $20 an hour, as a portion of her income is taxed both federally as well as by her state. In reality person A makes approximately $16-17 an hour, minus any additional withholdings.
Now let’s look at person B. She takes her time to find the best deals and in 20 minutes has her grocery sale, loss leaders, deals and coupons all set. Because of her diligence she saves almost 50% off Person A’s order, for a total of $110 and a savings or “earnings” of $88. Person B therefore has an hourly “income” of $264 (20 minutes of work totaling $88.00). Also, the tax on $110 is less than on $198, so there’s a built-in savings (or earnings) of sales tax not withheld on the $88 she saved. Finally, her savings is income tax-free, and therefore the income is all hers; none of the income you “make” saving money is taxed by the government. Consider that for a moment!
Multiply this scenario weekly, then exponentially by applying it to all your other financial purchases, and you will find that person B “makes” quite a bit more than you could ever imagine just by saving. It takes work, effort and a sharp eye; Yet, it is rewarding, fulfilling and best of all—it keeps your finances on track.
When you start to realize the income potential in saving and not spending, the concept becomes a significant part of your life and your finances. This is great news. Once you get in the habit (for spending is a habit) of saving, you will take that and run with it. The more you save the more you “make”. The less you spend the more you “make”. These are simple but profound conclusions.
There are so many wonderful ways to get what you want at a discount—I could speak volumes alone on this, and now there are a plethora of books, articles and tips on how to get what you need for much less. There is no longer any reason to keep up with the Joneses; let them have their debt and their worry. You’ll have something worth more than stuff—a peaceful, debt-free life. Now, that’s priceless.
