If you've been reading this blog for more than two seconds, you know that I'm an advocate for spending less than you earn. So when I saw this article on living within your means, I just had to post on it. Here are the key thoughts from the piece:
I definitely inherited some of [my parents'] caution [about minimizing debt], but I don't think it's unwarranted, even if we never again face [their] economic disaster of the 1930s. Consider two rational fears: Unemployment and illness. Between 2000 and 2003, nearly one in five workers was laid off from a job. For those with only a high school education, it was about one in four, according to research from Rutgers University. Meanwhile, a Harvard study released earlier this year found about half of all bankruptcies in 2001 resulted from expensive illnesses. Three-quarters of those who declared bankruptcy had health insurance at the onset of illness.
Or think about two other factors: College costs and retirement. Last year college tuition rose at double the rate of inflation, and the average student graduated with $15,500 in loans, according to the College Board. What's that going to look like in 15 years, when my youngest starts college? Meanwhile, among women 35 to 55 years old, between one-third and two-thirds will be impoverished by age 70 due to inadequate retirement savings, according to research by the National Endowment for Financial Education and the AARP. Given the rise in longevity in the U.S., that could be a long stretch in the poor house.
But it's not just fear that keeps me living within my means. It's a profound respect for opportunity. Being debt-free is like going to college: It takes discipline and effort. You don't know exactly where it will lead, but you trust it will open many doors. The decision I made at 20 to stay out of debt gave me the power to change my work life in my late 30s, to balance career and family in a way that made me happy. Debt is a dead-end road that narrows your options in life.
And unless you're an expert in denial, living within your means is essential to your mental health. According to a survey by credit counseling firm Myvesta.org, about 40 percent of people with problem debt reported symptoms of severe depression. (By contrast, studies have shown that 9.5 percent of the general population is clinically depressed.)
I recognize that it's counter-cultural to preach the virtues of living within one's means. The rise of easy credit, cheap auto loans, interest-only mortgages, and the like have allowed Americans to improve their standards of living substantially over the last few decades by borrowing from the future.
And why expect average Americans to live within their means when their government won't? In October, Senator Tom Coburn, a freshman Republican from Oklahoma, had the wisdom to suggest Congress eliminate some pork-barrel spending -- including $450 million for two bridges in Alaska -- and redirect some of the money to rebuild the damaged bridges on Interstate 10 outside New Orleans. This is what any sensible family would do. When the boiler explodes, you cancel the new windows and spend the money to fix the problem. Common sense being in short supply on Capitol Hill, the provision was defeated by a vote of 86-13. With role models like this, it's no wonder some people think living within your means is for suckers.
A few thoughts from me:
1. I am certainly an advocate for this philosophy. I've been debt free for eight years or so. It's wonderful to be freed from monthly payments, worries about creditors, and so on.
2. It took discipline to get debt free. We spent far below our income, saved all gifts and bonuses, and started a side business to pay off our mortgage early. It took years to do this.
3. Money is not an issue we fight over in our house -- there's no need to, it's not a point of stress like it is for many. Imagine what it would be like if there were no arguments, quarrels, or hurt feelings over money in your house.
4. Once you get debt free, I encourage you to really start to give and help out those less fortunate. It's a privilege to do so and you'll get much more out of it than you sacrifice.
5. For a few more of my thoughts on this issue, see these posts:
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