• Like a bad penny, debt always turns up…

    unless we change how we interact with money, of course!

    The Bad Penny is dedicated to two pursuits: getting out of debt and staying out of debt! It recognizes that frugality and caring for our planet go hand in hand, and that our unsatiated need for stuff is hurting us in so many ways.

    Easier said than done!

    Disclaimer

    I am not a finance professional. I write about the world as I know it, and my advice may not be the best course of action for you! Please seek qualified advice for your particular situation.

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Maxed Out!

I just finished watching Maxed Out – a documentary about predatory credit card lending. Or, as Jay Antani from stated on the review site I linked to: ” a Dante-esque descent into a distinctly American form of Hell.”

If you haven’t seen it, I’d recommend you check it out from your local library. It was interesting, although I think I enjoyed “Super Size Me” a bit more, at least from an entertainment standpoint.

As with any documentary, I’m careful to keep in mind that the film is not an unbiased source. And there were portions of the movie that were obviously edited to provide the greatest emotional and logical response. But I think the importance of a film like this lies deeper.

“Maxed Out” really focused on the credit card companies and how the government has failed to protect the consumers adequately from irreputable lending practices.

But what they only hinted at was the other half of the problem – we have become accustomed to getting what we want when we want it. We don’t want to wait, and we don’t want to consider whether or not it’s a smart purchase. It’s so easy to just drive down to the local Walmart and get whatever we want. If it’s not at Walmart, it’s on the internet. And if we don’t have cash? No problem. Just charge it!

When we get to the root of consumerism, it’s this exact mentality that destroys our financial freedom – not the credit card companies. They are definitely a problem, and there is no doubt in my mind that predatory lending practices take advantage of consumers. But when we start to look at our own behavior, it’s easy to see that the desire to have things – to store up for ourselves – is what very often puts people in a position to start thinking of credit as an acceptable means to acquire. Obviously, there are also people who had no choice but to finance necessities – medical care, car repairs, etc. But what I really want to concentrate on is the “Acquisition Mentality” so many of us have. What can we do to combat it?

I don’t know when I started thinking as if I deserved and should have every little thing. That if I am bored, an acceptable way to pass the time is to go to the mall and shop. I don’t think it was my childhood, because we simply couldn’t live like that. But somewhere between my teen years and today, I started to believe that it wasn’t a big deal to use credit for every little thing I didn’t have cash for – and that’s exactly what the credit card companies want you to think.

It’s been hard to change that mentality. I can finally say that shopping for entertainment, especially at the mall – holds little allure for me. And I believe that change came when I started really thinking about my wants and needs. Do I need it? Or do I want it?

When it comes right down to it, I need very little. I need food. I need water. Shelter, and clothing. Heat during the winter. If I have these things, I’ll survive. There are other things that are needs, but just barely – I’ll survive without them, but they really do make life more pleasant – toilet paper, shampoo, hot water. A computer with internet access. These are my priorities if I have to make a choice.

And there are lots of things I want – junk food, or a new outfit. A new car, or curtains for the dining room. Those come last.

But the funny thing is that when I start to think about each item I want to get and try to decide whether it’s a want or a need, more and more I find myself deciding I don’t even want to buy the things we don’t need – for the most part anyway. I want to wait until we have more money in the savings, or we pay off a credit card. I’d rather make do with what I have. I don’t want to buy on credit anymore. I want to own it free and clear. I don’t want to be “Maxed Out” because I’ve bought things I think I need when really I need to get out from under the thumb of other, richer people and corporations.

To close, I wanted to share something that happened in a conversation between me and a new friend of mine. I really respect her and her husband – they don’t do things conventionally, and their choices often go back to a poem I quoted in my very first post:

Use it up,
Wear it out,
Make it do,
Or do without.

My friend came up to me after church on Sunday and showed me a rash on her hand. She was wondering if I knew what it was from. I didn’t, but I asked her if it itched, and if she had tried hydrocortizone cream for the itching. She said, yes, it did itch, and she had tried using a baby wipe on it to see if the alcohol would kill the itch. She didn’t want to have to buy a tube of hydrocortizone.

What would I have done? I would have driven to Walmart just to pick up a little tube of cream! What a difference! And yet, she found a solution that worked just as well (even if it did dry out her hands a bit) and didn’t have to pay a bit extra or make an extra trip.

Now, if I could just always think more creatively!

And how does it relate to the movie I watched tonight? Well, it really doesn’t. But it does have a lot to do with my thoughts after finishing the movie. Our debts inevitably come down to our own decisions about what we want and need. Sometimes it’s absolutely necessary. But so much of it is from buying things we don’t need! What gets me most when I think about this, is that often we think we do need those things!

It was a reminder to me that I need to think more and buy less!

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The Best Gifts

Coming home from grocery shopping last night, I noticed a package on our porch.  I’m sure it had been there at least a couple of days – at one point I thought I heard a car door and then someone on our porch, but when I peeked out the window I didn’t see anything or anyone.  Turns out the UPS guy put the white package right under the window and didn’t let us know, and with all the snow against our white house, it blended right in!

We opened it up to find three presents from our good friends in North Carolina – one for each of us.  Our friend had made beautifully quilled pictures for my husband and me – mine a beautiful saying about mothers with a blue floral design, and my husband a brown and white saying (we still haven’t figured out what it is, but I’m convinced it’s Hebrew!)  Knowing this friend, she put a lot of time into not just making these pictures, but in researching quotes and likely a little Hebrew so that the gifts would be perfect.

Gabe got a brand new coloring book with really nice toddler-sized crayons with one flat side to prevent rolling.  He was ecstatic!  New crayons!  New coloring book!  He spent the rest of the time before bed taking his crayons in and out of the box.

Our friends have even less free money than us.  Between massive medical bills and high insurance premiums because of their medical history, they don’t have much to spare.  Things are getting better for them, but they’re still really tight.   But when it comes to giving the perfect gifts, they always do.

Why?  Because they are creative.  I don’t mean that they do crafts, although the wife does.  I mean they are thoughtful and open-minded about gift giving.  They don’t try to buy the most expensive present, thinking it’s the best because it’s the most expensive.  They take the time to figure out what is important to their friends and build on that.  And even though the last time they saw our son he was just over a year old, they realized that now he’s almost two.  It’s easy to forget when you don’t see people for a while!  For a one-year-old, these gifts wouldn’t have been very appropriate.  But for a two-year-old, life’s simple pleasures include a brand new coloring book and crayons!  And it probably cost our friends $3.

The last few Christmases I have tried to be like my friend.  The year I was pregnant with my son, we had no money for gifts.  I collected all the fabric I was saving (why?) and made five patchwork quilt tops – two queen-sized and three full-sized.  Yes, I had a lot of fabric! I stuck batting or even old blankets in between a sheet backing and tied the quilt with yarn from my stash.

They turned out beautifully and we gave them to each set of parents, each of our siblings, and we had one left over. I surprised my husband with the last one (he thought I only had enough material for four quilts.)   It was an especially special gift to my mom because I used fabric scraps from things she made for me as a child – like a dress she sewed for a play I acted in during sixth grade.  This was the only gift we could give our families that year, but they are used and loved.  My in-laws and my husband both use the quilts on their beds, and my parents keep theirs downstairs in the family room for wrapping up in while watching TV.

Gifts don’t have to be expensive to be wonderful.  In fact, some of the most expensive gifts I’ve gotten ended up not getting used at all – because they didn’t fit us, our home, or our style.  I’m sure many of you agree – the perfect gift is one that fits your personality and one that you’ll use!

Money Marriage

I’ve read that one of the biggest challenges for any marriage or partnership is money. If you are married, that comes as no surprise! After all, money is one of those things that permeates nearly every aspect of our lives.

Even after being married seven-and-a-half years, my husband and I still fight about money – usually when one of us doesn’t like the way the other spent it! In fact, it is because of this that we’ve laid some ground rules I think are important for any couple:

1. Allowances. Each month we each get a portion of the paycheck for our own discretionary spending. We can spend it on anything we want, and the other person isn’t allowed to say a word about it. In the past we haven’t had much money, so it’s been $40 a month. Lately, we’ve had even less, so we are currently getting $20.

It’s not a lot of money, but it’s enough that we don’t feel deprived if we want to buy a soda when we’re out and about or more yarn for me!

2. The $50 rule. Any time we want to buy an item more than $50 out of the household budget, our rule is that we have to talk to the other person. There are some exceptions – if I’m buying a lot of groceries, for example. Or paying bills.

This has been very helpful to make sure both of us know what is being spent! In fact, it has come to the point that we discuss nearly every purchase that comes out of the family budget – groceries being the exception, again.

3. The 24-hour rule. Along with discussing expensive purchases, we buy very little without waiting 24 hours to do it. Many times, by not buying an item on impulse, we’ve saved money – we waited until the item went on sale, or we found a better price elsewhere. We’ve saved the most money when we’ve realized we didn’t really want to buy it after all!

4. Read contracts closely and be picky about wording. In the past couple years, we’ve had several companies who didn’t keep up with their end of the contract. One of these companies gave us a terribly written contract that we signed. When they didn’t do the work, it ended up costing us, although we did get about 60% of our money back. The rest is reflected as about $1000 in credit card debt, plus interest for the past 3 years. If we had refused the shoddy contract for a better one, we may have been able to get it all back.

There are other important considerations, too, that aren’t specifically rules for the household :

1. As young(er) adults, we realize we’re not going to have everything our parents have, and we don’t expect to. We have old appliances, old hand-me-down cars, and Walmart clothes. Our parents have spent years building up a quality wardrobe and maintaining their appliances so they’ll last. Not to mention they’ve been working in their fields for years, so they make a lot more than us!

We can’t expect right off the bat to maintain the same standard of living on well less than half of what one of them makes! (Incidentally, this was very hard for us to understand early in our marriage. Thankfully, we didn’t manage to run up debt then!)

2. We need to continually plan for the future – paying down our debt, saving for big ticket items (instead of charging them) and saving for retirement and college.

I’m sure there are more, but I can’t think of them right now. Anyone else have some ideas for this list?

The Disappointment of Debt

In my December Progress Post I mentioned I was disappointed that between new purchases and payments on our credit cards, we’d only managed to pay off a positive amount of $600, especially because that’s basically the minimum payments on our four credit cards. Several of you commented to me that I shouldn’t be disappointed, because $600 is a lot. One person even took the time to calculate that at $600 a month, we’d be debt free in three years!

I’ve been thinking about that a lot. Really, I’d just love to see this debt disappear. To suddenly win the lottery or some other lump sum of money – to pay it all off and raise my net worth from a dismal double negative number to something that at least doesn’t appear in red! (The sale of our previous home will help that, too, of course!)

But would that change the way I interact with money? Probably not. In fact, coming into enough money to pay off our debts may be the worst thing I could have happen to me.

Paying off this debt is a learning process – not a punishment. And the time it takes to pay off this debt may very well be proportionate to the amount of time it takes for me to realize that having the debt paid off is not what will make me content with life.

So part of me is still very disappointed that it will take up to three years to get out from under our credit card debt. To be honest, that part of me was shocked that this couldn’t get done in a year, although it is a rather unrealistic part of me. It’s even harder to think about the fact that my student loans are the same amount as the credit card debt, and our mortgage is 4 times that size! (Can you tell I’ve become accustomed to immediate gratification by the fact I want it done now?)

My practical side is starting to see that this is a great opportunity to be forced into doing something good for me – something I want to do, but would never accomplish on my own without some kind of coercion. Each step we take is one more step along the right path – a path toward financial and material freedom.

Talk about baby steps! Sometimes the fact that I am waiting until I go out to run my weekly errands to get an item I want instead of going out just for that item is an accomplishment (there’s that immediate gratification being nipped in the bud.) Other days it feels great to find a new way to repurpose an item to fill a need, or to know the value of hard work.  Other days, it’s a struggle for me to not be depressed at the hole we’ve dug ourselves.

So I’ll keep on going, because this path is a long one. Thank you to everyone who has encouraged me and reminded me that I am accomplishing quite a bit!

The Peanut Butter Cup Problem

Just after Halloween, I bought 2 bags of Reeses Peanut Butter Cups. The fun size.

Why? Because they were half off. And I like the taste of Peanut Butter Cups.

Most of them are still sitting in my pantry – along with the Halloween candy my two-year-old got from trick-or-treating.

Gabe Trick or Treating - Halloween 2007

The thing is, as much as I like the taste of that candy, it makes me feel sick afterwards. The sugar in it makes my blood race and my stomach feel strange. Yet I keep buying it, and eating it!

Shopping is a lot like that candy for many of us. It’s exciting to buy something – exciting to imagine the “taste” of our selection when we get home.

But if any of you are anything like me, it’s easy to buy things that aren’t good for us – things we don’t need.  That we might even not use, even if we think we will.  Some of us even go so far as to buy things we don’t even want – simply for the sake of the purchase. I’m sure many of my readers can all relate me when I talk about the shirt we thought we would love that we never wear. Or another magazine subscription we don’t have time to read. What about the healthy box of granola in the pantry that routinely gets passed over for the chocolate puffs?   We feel ill that we aren’t using the items, but we ignore the fact that those items are in our house the next time we want a taste out at the mall or the grocery store.

The thing is, the “sick” feeling isn’t just from the fact that it’s sitting in your house, unused and unwanted. It’s because of the money you wasted on that purchase.  It might even be because you are still paying it off and accumulating interest in the meantime!

The only solution I can think of to my Peanut Butter Cup Problem (PBCP) is simple hindsight: I shouldn’t have bought them. Yes, they are delicious, but it doesn’t take long before I feel ill from the sugar, and it’s just not worth it. Will I remember that the next time I want to purchase Peanut Butter Cups at half off? Hopefully. Probably not. 🙂

Take the next step: The next time you want to make a purchase, ask yourself if it will make you “sick” in the future. If it will, don’t buy it!

Is Wealth Hereditary?

I’m currently reading a book that talks extensively about how our attitudes affect the way we spend our money. The book reads like a “get-rich-quick” manual, but so far has some good points. I plan on reviewing it here when I finish, so you can decide for yourself.

According to the author, the way our parents handled money has a lot to do with how we handle money. Obvious, yes. But what I thought was interesting is that the author took it a step further and mentioned examples of people he met that mentally handled their money completely differently than their parents – but had the same end results.

For instance, the author himself talks about how his father’s wealth came in cycles – he invested in a venture, and for that time, the family was dirt poor. They would stay poor for a year or two as the venture developed. After some time, the father would sell the venture for quite a bit and the family would have more discretionary money than they needed. Eventually the money would run low and the father would mortgage the house once again to invest in another venture. And the cycle would repeat.

What did the son (our author) learn from that? Not simply to invest in ventures, and to mortgage the house to do it. He learned that wealth came in cycles. Money could not be permanent.

The author infers that a lot of the erronous ideas our parents “taught” us are based on the limited understanding we have as children about the motivation behind adult situations such as finances . The author misunderstood a complicated situation with a simple interpretation of the events, and it permeated his beliefs about how money works.

So, with the author’s premise, a child who grows up watching his parents refuse to give to charity because they simply have nothing to give might grow up to be scrooge-like – even if he or she has millions of dollars. The child didn’t understand the motivation behind his parents’ actions – just the behavior.

According to the author, the reasons why some people never make it rich is simply because they have the wrong idea about money – and even that some people subconsciously sabotage themselves. I’m trying to decide whether or not I believe these premises. I’ve been thinking about my own childhood experiences with money and trying to decide if I might have gotten the wrong idea as a child, since obviously I’ve had issues with using money (and credit) irresponsibly.

I don’t think that my parents were a bad example when it came to money. I know they were frugal because they had to be, and that they worked their way up through the ladders of societal wealth to where they are today. I now know – after talking to them about this blog – that they were in a similar situation when they were younger, but I didn’t know it at the time.

But is that why I spend money like I have done and do now? Even if my behavior is very different from my parents? I don’t know. I’ll have to think about it some more and come up with an answer for later.