Saturday, March 13, 2010

the deficit generation

You know what's weird? ...I'm up. It's 8am, it's Saturday, and I'm awake (alright Adulthood, now it's getting personal). I suppose I could have kept on sleeping - I have a natural gift for going right back to sleep on days like this. But as I lay in bed I heard my brain start saying crazy things, like "Just try it." Well, truth be told, I've never "just tried it", when it comes to getting up early on a sleep-in day for no reason. But here I am. I tried it. I've got my Tazo Awake tea steeping in one of my favorite mugs (I have a thing for mugs), and I've got Jill Paquette crooning me softly from my laptop speakers. It's sunny. Oddly enough, I'm a lot less bitter about being "up" than I thought I would be. Huh.

The reason I'm here with you so promptly is that while my brain was thinking of ways to dare me out of bed, it was also thinking about....wait for it... finances. At 8am. I even drifted off to sleep for a moment while I was fighting the decision to awake fully, and had a wee dream, in which my friend Lavonne was asking me questions about the cash budget. That was the kicker - it must be time to blog more about money.

Recently (sssh), I was having a conversation with friends over tapas. They asked me about budgeting, and what was this course I was taking, anyway. Much to my delight, it was they who asked the questions - it was they who showed interest. Did you know that I have yet to meet a person under 30 who is not interested in what I'm learning? This tells me something: despite the high cost of education, there is an area in which we as a generation have faced some serious lack of direction. That area is personal finance.



For some of us, we were taught well by our parents to save for a rainy day (wise advice!). Still others of us were taught by our parents, a little less directly, that it's important to enjoy life; that as long as you can 'afford' the payment, you can sign your name on the lease. There are still others of us who were taught nothing, and therefore, taught everything.

But even for those of us who've had the most practical advice from our parents, I daresay even we have more to learn about how we spend & save our money. I know this, because as a generation, we are in debt. Serious, serious amounts of debt. According to The Wall Street Journal, 70% of Americans are living paycheck to paycheck. That means 7 out of 10 families on your street—your friends and neighbors—are only one paycheck away from disaster.

7 out of 10 of us!! Go outside and stand on your street. Count ten houses. Put three aside. The rest of them are in serious financial trouble. Again, this is an American statistic, but there are Canadian figures too that are just as frightening. This article, stating that the average Canadian household debt is at now at a record high, has shocked and saddened me the most so far. This sentence, I think, sums up everything I want to say, everything I have been learning, and everything I want to change:



“For far too many, there is too little income, too much spending,
too little saving and too much debt.”




...Debt. Did you know that "Debt" is a very new thing? Think about your Gramma. In her generation (less than 100 years ago), debt was something only the worst of sinners had to their names. To owe even $5 on your house meant you were shunned from the neighborhood and likely, the church. They only ever had a cash budget. They lived within their means and bought it when they had the money, and never before. Next, think about your parents. A booming generation, in more ways than one. Television, radio, magazines & all other forms of media ran laps around their predecessors from the time your parents were young to the time when they were  buying houses and cars and having babies. This allowed product marketing to become a viable career - and a convincing new tool for consumer spending; but I need it, want it, have to have it. If you could market well, you could set yourself for life. The very first Credit Card was invented in 1950. Our parents were some of the first to embrace debt as a way of life. They started to trickle their debt in slowly - and by the time we came along, debt was normal and saving was a quickly dropping item on the national priority list. So then, think about us. Where does a generation go, when they started out thinking that debt was inevitable?

To buy anything, we turn to debt. When we want to go to school, when we want to buy a car, when we want to buy a house, when we want to buy a TV or a couch or a kitchen table; when we renovate our houses or go on vacation, the majority of us turn to debt to do it. Sometimes, we even go into debt to buy dinner or entertain ourselves. We use credit, because that is what credit is for. We get loans because we have to. Right?

 0% financing! No money down! Buy now, pay later!
The problem with this philosophy is that we are intensely ill prepared for LIFE - 7 out of 10 of us, you may recall. Gramma's advice to save for a rainy day is wiser than you think - because the rain is coming. Did you know that each one of us will encounter a significant negative financial event in any given 10 year period? What this means: emergencies happen. Emergencies that disability insurance and life insurance and car insurance can not prepare you for. But the funny thing about a financial emergency is that if you have the money to pay for it, it stops being an emergency. If you simply save and budget wisely, you'll be fine. You'll be in the 3% of our continent who are prepared.

But who is teaching us these things? Who is sitting down with us and teaching us how much freedom comes from a good budget? (yes, I said freedom. that was not a typo!). Who advises us on how to prepare for job loss, serious illness, household emergency renovations (flooding? emergency furnace repair? roof leak?). Maybe, just maybe, you are the one person who's parents had an Emergency Fund. And maybe you have one too. Guess what though - you're almost entirely alone, because the rest of us don't have that. In fact, I daresay most of us reading this are thinking, "Emergency Fund? Why? What for? I could just use my Visa!!"


The question that arises here & now pertains to the 70% of us who live for that cheque. What do we do? How do we save, if everything we make has already got someone else's name on it? That's to come, my friends. For now, a project - if you dare (you should do this, and not just because I said so). Pull out your bank statements for the past few months and categorize all of your spending by month; if you stick mostly to credit cards, then pull those statements out too. Tally up your eating out, groceries, gas, car payments, debt payments, giving/tithing, saving, starbucks visits & coffee store purchases, and unknown "what did I do with that $20 withdrawl, anyway?"s'  - you're going to need your calculator for this one. And a big red pen, and some tape. Write the totals in big red pen, and tape it somewhere you'll have to stare at it for at least 3 days.

Why oh why would you do this? Why would I suggest you look backwards? Well, it wasn't a specific instruction from Sir Dave (that I recall), but I am of the mind that I can't very well go forward if I don't know where I've been. And I've learned that the gap between what I thought I was spending and what I was actually spending had grown quite large (yikes); I daresay, you may come across a few surprises of your own. I reasoned that I couldn't very well make a plan for my money without knowing what my old, non-productive plan had been. I actually got really industrious with this - and pulled my bank statements from all of 2009. I considered it an act of penance for my unwise money management...and a signpost marker, for where I'd never go again.

This isn't an easy task; it's slightly painstaking and it could wind up being a heavy-handed smack from reality. But you should do it anyway. Do you know how much you are overspending what you make? Scrap that - do you even know how much you are spending, at all? Do you know how much you pay out in interest payments and fees? How much unplanned spending do you do in a given pay period (and goodness gracious, a given year)?

I loved what Dave had to say about budgeting, a few lessons ago. It was along the lines of "if you don't tell your money where to go, you'll end up wondering where it went." While he applied this principle to a forward thinking budget, it has implications for what we've done in the past, too.

How in control of your finances are you? How willing are you to re-learn, to re-consider what you "know" about personal finances? For those of you who (like me) have gotten themselves into a bit of a pickle over the years, know that your road to Financial Peace won't be a walk in the park. It might actually be really hard! For example, I've just realized that even with diligence, it will be 5 years before I'm debt free. That feels like a really long time to me.

But then I think, that before I made this plan and before I paid any attention to my finances, my payoff date was almost 20 years away. So what changed between now and January? I didn't win a million dollars, I didn't get a pay raise, and I didn't inherit any windfalls. The only thing I did was make a plan - and subsequently cut down my payoff time by 75%. I am making my money work for me instead of wondering where it went. Because of this, that sunshiny day of total freedom is closer than I ever thought it could be. It won't be easy, but it will certainly be worth it.

Taking this course has taught me so many things. It has completely shifted my financial paradigm. But add to that: it's made me pretty steamed, that we've become a people enslaved to our money, and unprepared for the days ahead. It's changing with me, friends - but I think we could do a lot more damage together. I wonder what it would be like, to have an entire community living without any debt?


related afterthoughts: like no one else


If you can name ten people under 30 (that you know personally) who are not in any amount of debt whatsoever (mortgage free, student loan free, credit card free), I am sending you a free Laurell CD. I honestly don't think this exists anymore...maybe in a rare, counter-cultural community...perhaps?

2 comments:

Anonymous said...

I am loving your revelations here. My husband and I got in a small amount of debt after we were married to pay for him to finish school. That year of debt was like living with a black cloud over our heads. We scrimped and saved and had it gone in a year. Such a great feeling! There was another time we knew we had an expensive summer ahead of us so we took on a paper route to cover the extra costs. We ran it for exercise and I actually lost 15 pounds in the process. Good stuff. We stopped the paper route when it was no longer necessary.
My husband recently lost a good job he had worked hard for but it was ok-- we had the money for him to take a course from a local college and pursue a goal of his to have his own side business. He started a new job in a completely different field and he was able to purchase the several new tools he needed. Debt free, all paid in cash.
We are not swimming in cash, we don't go on annual vacations, we don't have closets full of designer clothes. I am a stay at home mom and I'm sure my husband would be considered just middle-class as far as his salary is concerned. We buy vehicles with cash, pre-owned of course. We are under 30 with two little kiddies in a nice home and two vehicles. We have great friends, a great church, fun family adventures in camping and road trips, delicious meals and the odd Starbucks here and there. All with no debt.
Life is beautiful.
Sorry, that was a really long comment.

afterthoughtcomposer said...

:) never apologize for leaving a comment - long or short, I love 'em! Thanks for being so honest with your situation - I am positive some of my readers will be able to relate to and then be inspired by your story! In fact, every story I hear like this just makes me want to try harder...so thank you :)
a.