This is the first day of a new year. Many of the problems we faced in 2008 had to do with credit. Some of the things I’ve written about during the course of the year had to do with our travels to Spain and Peru. When you see other countries deal with credit by comparison to the United states it makes things much more clear. We live a life style based on buying today and paying tomorrow.
Here in the United States we can afford anything. If you work hard and pay your bills you can have everything, and anything. In most other countries you need to be a politician, doctor, or lawyer to drive a Subaru and live in a big house. In the United States a two income family can do that. If you have a good job you can have almost anything. This has been especially true in the past five years. Credit ran like water to every household in America. The bigger problem is that this financial system was exported and readily adopted elsewhere in the world. The people in Peru have Visa Cards and don’t leave home without American Express.
You may recall news reports in 2001 talking about people in Peru living on a $1.35 per day, about $400 per month. In China it’s about the same. These are the “emerging market” that our financial markets have been leaning on. The theory was that if each of the over a billion people in China spent $1 a day that was over a billion dollars a day to tap into. This theory was promoted at a tech seminar that Bill Gates attended and he’s the one that made the comment about wages being about $1 a day.
As ridiculous and sad as the financial markets are it’s even harder to believe that the stock market went along with it. We are seeing that there are many people who have pushed the stock market to incredible heights with lies, false data, and extremely wishful thinking. Some of those stock market mavens are going to jail. Even more sad is the number of people who bought into the stock market through IRAs, 401Ks, and company directed pension plans. There are a lot of examples that I could use today because I talk with people two of three times a week who made these risky investments believing they were safe.
Most of the investors I talk with regularly are cash people. They buy things with cash. They are all land owners and own the land free and clear or as close to free and clear as makes sense. A gentleman I was talking with the other day has a hundred thousand dollar loan at an adjustable rate of I think he said 4%. He said he couldn’t pass up the money and he was looking at a property to buy, but decided not to. He’ll travel instead, and yes he has a hundred thousand dollars in the bank to pay off the debt or else he would have never taken the money.
All that being said let’s talk about you. Maybe you have consumer credit debt or a mortgage. Many people are talking about foreclosure or bankruptcy because they are losing jobs. God Bless those people and my hope is our system works the way it’s supposed to. We are supposed to be able to walk away from most debt and start over. That’s what makes America great. We can risk, lose, and start again. Risk is what makes profit. If you are afraid of the risk you remain forever in a holding pattern. I talk about owning your own business and making financial investments on tangibles. Those things are high risk. Leveraging properties is high risk. What makes America great is that you can take those risks without physical consequence.
It’s only money. You borrowed and now it’s time to pay it back. Some people take a second job and dedicate that job’s income to debt. Many people I talk with who are in that situations share rent or rent rooms. You’re not home anyway so why not. A couple with children can work a schedule with an in house sitter, or make arrangements for shared child care. If you have one child you can handle six, it might even be fun. Stop spending money and start making it.
It’s a simple economic principle to make more than you spend. A woman I know started knitting while she watched TV in the evening. During the day she waited tables and in the evening she knitted. She started knitting with silk ribbon one time, I think, I don’t remember why. Knitting is not what I do, but remembering she sold her ribbon knits to a store struck me as a bold move. It’s an example of hope that I will clarify was easier for her than it may be for you. She made enough to save money. She lived with a boy friend, she was always frugal, and when she started she was just passing the time. Your situation may be far different, but there is hope.
The income is the first thing. Getting to where you can live well is an important step. By well we each have a different point of view. I love to work. The day to day problems are a challenge. Owning a business for me is a great reward. That gives me fun and joy. Being out with a team of workers, laughing about nothing, doing the best job possible, and getting paid for it, it’s unbelievable to me. Even when I had a job, which I look at as a vacation, it’s a great thing to go in, do the very best possible, do more than anyone ever expected, and get paid. You may get tired, bored, or discouraged, but what else are you going to do unless you have the money to do it.
Second is to live within your means and save money. We all look at Wal Mart, or Costco as some experience in our lives. It’s very hard for me to see the saving at those big stores. I go in for a gallon of milk and spend fifty bucks on stuff I don’t need. For a long while I went to a restaurant supply store once a month and bought pasta, tomato product, cheese, spices, and oil at wholesale. I would pay cash and no one ever questioned me. During the week I bought fresh every day on my way home from work. I went to the local grocery and bought meat and vegetables. It seems like a lot of bother but I bought what was on sale that day. You’re spending the time waiting to go to work anyway, so why not?
Shared rent and buying cheap stuff sounds kind of boring. As Americans we find this reprehensible. Just living to work and working to live seems horrible. We are programmed to think this way. Let me ask you this, because it occurred to me when I was in my twenties, where do you have fun? Drinking in the bar, going to car shows, or maybe seeing a sports event people have told me are fun. Spending time with friends or maybe being alone doing things you enjoy like reading a book. We all have an answer. Money isn’t everything. …… The truth is that no matter what you like it costs money…….
Getting to a system of cash is imperative if you ever want to have money. Getting rid of debt is tough, but getting to pay cash for everything is pretty much impossible. Our entire system has been geared toward higher and higher prices. In the coming years prices will be coming down. At the same time the demand for wage earners will increase. That’s a post for another time, but take heart, getting to cash will be easier from now on.