Getting Back to Basics

I don’t think there’s ever been a time in my life when I took money for granted. Maybe being born at the tail end of the Great Depression meant that some of its lessons rubbed off on me, somehow. However it happened, my attitude toward money has always been pretty much the same, whether I had a lot of it (comparatively speaking), or very little. It’s useful, but not all-important. There are a lot of unrecognized advantages to having grown up at the lower end of the economic scale. At least they’re advantages if out and out grinding poverty didn’t traumatize you to the point where money did become the be all and end all.

When I hear these tales of woe, I’m often tempted to give a big “Well, boo hoo!” But I don’t. I think about the lives people lead, how hard they work for “stuff.” All that stuff doesn’t even make them particularly happy, but it’s a catastrophe when they lose it. I feel a twinge of pity, but I’ll be darned if I let them see it.

Paying off your smallest debts first isn’t the best choice when it comes to pure dollars and cents, but it can have beneficial psychological effects. The worst part of owing money to several different sources is that making real progress in becoming debt-free can seem impossible. If you have only so much extra to supplement your regular monthly payments, it’s hard to see where it can make a real dent.

The traditional recommendation is that you pay off the biggest debts first because they’re the ones that are piling up the interest charges. But quite a few financial advisors recommend getting the smallest ones out of the way first. If the biggest debt is going to take years to eliminate, the money you sink into it seems as if it’s going down a dark hole because the balance hardly budges with each payment. With a small debt, you can not only see real progress, you know that before long, you’ll have one monkey off your back.

When that happens, you can put the normal payments for that one, plus whatever extra you’ve been throwing in, to work on the next smallest. You’ve now increased the amount you have for those payments, and that debt will shrink even faster. Working from the small end means that every time you pay off one debt you have that much more to pay towards the next smallest one. It also gives you more choice about where you want to put the extra dollars. Once you have enough to make a difference, you can split it up and chop away at both ends, adding some of it towards the largest bill. One way to give yourself a good feeling about that big load at the top is to add the amount of the monthly interest to what you’re already paying.

Because the reward center of your brain responds more positively to accomplished goals than to small improvements, each debt that you get out of the way gives you an encouraging boost that helps you stick to the plan. Instead of staggering under a weight that never seems to get much lighter, you’re dumping one load after another. That psychological hand up could make the difference between being debt-free as a reward for your hard work, or giving way to frustration and despair, and plunging into bankruptcy and all its unpleasant complications.

I saw an article in the New York Times today that highlighted for me the degree to which people have lost basic skills, including the skill of spending their money wisely, and of thinking their way through problems to a sensible solution. I’ll be writing about that article in more depth another day, but its lessons are relevant today. It was about a couple that decided to try to live on $1.00 a day for food. The article didn’t say whether the dollar was for both of them, or whether they each had a dollar to spend, but in a way, that doesn’t matter. If you live in America, even if you get food stamps, you have more than one dollar a day for food, so the experiment was unnecessarily extreme to start with, and highly unrealistic.

More important, the couple didn’t have the skills to manage a very basic diet, and the month they spent on it was so miserable that they were overjoyed to leave it behind. Did they learn anything from their experiment? I doubt that they learned anything that would be of value to them in the future. Making tortillas from scratch every day after work only teaches you that making tortillas is hard work.

If you’re going to change your lifestyle, there are two simple rules to follow: 1. Do it gradually. You don’t learn how to eat more cheaply (and sensibly) by plunging into a near-starvation diet. 2. Learn the necessary skills first, if you can. If you have to learn them as you go along, that’s the best possible argument for going slow. Learn one skill and put it into practice before going on to the next. Learning and using new skills is supposed to improve your life, not make it worse. If it’s making you more miserable, hungry, and confused, you’re doing it wrong.

So far, this blog is probably giving the impression that my idea of getting back to basics is entirely about scolding people to change their way of thinking. Not so. I practice what I preach, but I admit that I had a great head start, growing up the oldest of four kids, with a father who was usually working one or two side jobs to supplement his teacher’s salary. We had our own home, thanks to the G. I. Bill, but there was rarely any money left over from meeting basic needs, so I learned to pinch pennies very early on.

For some reason, growing up comparatively poor rarely bothered me. Maybe it was because television advertising hadn’t yet created a culture of conspicuous consumption for the average person. Spending money on expensive non-essentials was still mainly for the wealthy. And it probably helped that I was an introverted loner who spent enough time observing my school mates to realize that I didn’t want to be like them.

Being able to make my own clothes was a matter of pride, and having a father who was crazy about gardening and horticulture meant that I learned a lot without even knowing that I was learning anything. Both of those areas of knowledge served me well over the years, along with the many skills that I picke up, sometimes from necessity, but mostly because learning to do for myself was always an interesting and worthwhile challenge.

All of that means that I’ve always felt kind of sorry for people who can pay other people to do things for them. They don’t have the pleasure of a job well done, or pride in knowing how to do something that takes skill and effort. But pity has given way to dismay with the realization that a country full of people who don’t know how to do anything for themselves except the job that they’re paid for is a country in trouble when the economy slips more than a notch or two. That’s what we have today: a country in trouble.

So scolding, and nudging people to think, has to be a good part of what this blog is about. But there’s no point getting you to think and then not offering any ideas about what the next steps might be. Lots of folks are feeling pretty wobbly these days, and need a helping hand till they’re steady on their feet. That’s what I want this blog to be — a helping hand.

Behind the headlines about banks and bailouts are the doings of the ordinary people who are most affected by tight money. Cutting back is a rock that ripples throughout the pond, and the ripples are beginning to make the news.

Thrift stores doing well and worrying

A New York Times article about boom times for thrift stores reveals that while more people are shopping at thrifts, the new frugality is also a problem. “…the same economic woes that are sending buyers their way are causing donors to hand over fewer items, so that many stores are running low on inventory.” Long-time thrift store patrons probably never imagined a day when their favorite shopping spots might run out of stock. But thrift stores depend on donations, and when too many people have second thoughts about giving away perfectly good clothing, the shelves and racks are going to empty out.

Where do the clothes go if they’re not going to the Salvation Army, Goodwill, and other thrifts? They’re either staying in the closet a bit longer, or replenishing thin wallets when they’re sold on eBay and Craigslist. Don’t wait too long to do your thrift store Christmas shopping.

What’s the matter with kids today?

Instead of putting beans in their ears, they’re more likely to have their fingers in their ears, refusing to listen to parents say “no” to their requests for the latest toys or most popular brands of clothes. According to another New York Times article , the more affluent the family, the bigger the shock when teens find that they’re included in the family retrenching.

Most teens have little concept of where their family’s money comes from, or where it goes. They just know that they can usually have whatever they ask for. Worst of all, most of them have never worked and don’t know how to manage the money they’re given or the credit and debit cards they’ve been using so freely.

The family dramas are tough on both parents and children, and the battles are going on all over the country. Welcome to the real world, kids.

On the road

Finally, we learn that the sky-high cost of gas last summer had benefits and costs. According to MarketWatch , Americans drove 15 billion fewer miles in August than they did in August of 2007. And now that prices have dropped, they’re still hopping onto public transportation in record numbers. That’s a huge savings in gasoline consumption, and it probably reduced air pollution in urban areas, but there’s also a downside. Highway and bridge projects depend on gasoline taxes, and when people are driving less, there’s less income for those projects. Secretary of Transportation Mary Peters says that’s a problem, but she’s also aware that gas taxes aren’t necessarily to best way to fund anything. ” ‘We pay for transit the same way we pay for road and bridge projects — with federal gas taxes,’ she said. ‘Relying on the gas tax is like relying on cardboard to keep the rain out — the longer you use it the less it works.’ “

If you grow up in a family with very limited financial resources, there are two ways you can go as an adult: you will make the getting and spending of money the center of your life, and base your self-esteem and self-valuation on how much of it you have. Or you will have learned to appreciate its value so that you can use it to enrich your life rather than let it control you. Two very different relationships to money, and two very different interpretations of “learning the value of money.”

It’s possible that those two different approaches can also be true for people who’ve grown up with so much money that they take it for granted. But being able to take something completely for granted usually means that you fail to appreciate it or understand its true value. It’s a simple fact of human psychology that we place more value on what we’ve worked for than on what we’re simply handed, almost as a matter of right. Money that you’ve worked for represents your skills and the investment of your time. Money that is handed to you represents the work of others. It has little value aside from what you can spend it on.

If you’ve grown up poor and you work for your money, you understand its importance; you understand the fear of its loss and the possibility of sliding into real poverty. You understand what it means to others like yourself and you can empathize with them, and try to work for a society in which no one needs to fear going hungry or losing their home. If your money is handed to you, what you fear is having less to spend on the luxuries that you feel are your right. You have no understanding of what it means not to have enough for the most basic needs.

The real value of money is what it tells us about ourselves if we have the courage to listen.

Today’s post is a follow up to Building Solid Foundations

Sticking to the job of paying down your debts is as much psychological as financial. When you can see your debt load shrinking at a satisfying rate, it may encourage you to scrimp a bit more and find extra dollars to speed up the process. Even if you don’t want to cut back every month, the progress you’re making can give you a great motivation for looking more closely at your expenditures and finding things that you can eliminate without any real suffering.

Most people don’t realize that a lot of our outgo is based on nothing more than habit. You get used to having something on a regular basis and can’t imagine doing without it. It’s true that there are some things you really can’t do without. In addition, if you eliminate everything that enriches your life, the loss will merely contribute to your sense of impoverishment and your unhappiness. But if you can adjust your vision and see that “used to” isn’t the same as “have to have,” then cutting out or cutting back isn’t such a deprivation.

Take the time to think about what your life was like before a particular “used to.” And then take a close look at it. Has it improved your life in any significant way? Is it doing something for you, or allowing you to do something, that really can’t be done, almost as easily, in some other way? What would you really be missing, and for how long, if you gave it up? Remember, “getting used to” works both ways. Giving up something starts a process of getting used to being without it. Eventually, you wonder why it seemed so important, and why you thought you couldn’t live without it.

The process can be made easier if you can find substitutes, or find real reasons to cut back. Buying your favorite brand of coffee by the pound and brewing your own instead of paying through the nose for the single cups at the coffee bar allows you to continue your enjoyment at lower cost. And maybe the process of making that change will jog your brain, and you’ll realize that you’re really drinking way too much coffee. Now your jangled nerves and your overall health give you some additional motivation.

When necessary changes have a positive impact on your life they are easier to deal with than when they’re based solely on dollars and cents. That can make a big difference in how you view “used to” and “can’t do without.”