Mile Post 370

Mile Post 370
Mile Post 370

Wednesday, January 6, 2016

Debt, Economics and Math

A Physics Professor I had about 30 years ago once told me, "Economics is simple.  If your income is less than your out go, your up keep will be your down fall."

When we live beyond our means, we're usually trying to impress somebody (who doesn't give a damn) with money and things (that we don't have and can't afford) gaining neither the satisfaction or respect of the person we are trying to impress.   

Yes, it hurts like hell to admit that you can't (or even better,  haven't) live(d) within your means and now you're in debt.  But, generally, debt is only a symptom of a larger and more basic problem, overspending.  

As someone who has received budget counseling and has passed the knowledge that he was given on to others who have asked about it, here is the Real Deal:  Overspending/Debt is like Alcoholism or even type II Diabetes when looked at as a disease.  It is only when you accept the FACT that you're sick that you can actually decide to do something about it (I seem to remember a friend who once told me an Asian Proverb:  "When the student is ready (to learn), the teacher appears.").  

However, overspending/debt, like alcoholism or even type II diabetes, is also generally a "self-inflicted disease."  It's an addictive behavior, similar to Alcoholism.   Generally, when you understand 1) That you can control it and 2) That you don't have to live like that, you start to gain control of your life.  I'm not saying that life will be simple or that it will be easy to dig out of debt.  

Although we had never bought anything fancy or even new, we had revolving debt.  We had some revolving debt and had just purchased my wife a new(er used) car.  Then she got pregnant with Our son (surprise!).  After having Him, she had a miscarriage and we decided for her to stay home (it was the right decision).  She had our daughter about 1 year after the miscarriage.  I knew this change in our lives from DINCs (Dual Incomes, No Children) to being parents, on a single blue collar wage, would require readjusting our budget, but put it off.  We were going in debt at the rate of $1600/month.

When we finally did something about it, to dig our way out of debt, I immediately stopped contributing to my 401K plan (I was at 15%), and let a life insurance policy that I could no longer afford go.  We liquidated what little we had of my wife's 401K (maybe $2000-4000 total).  Then we lived with a VERY RESTRICTED Austerity Budget.  For a while, I even worked 2 jobs (my part time job was in the tire shop at the local warehouse club).

As I eventually got promoted from Blue Collar to White Collar and slowly my pay began to rise.  At last, my college degree was used to qualify me for something other than manual, semi-skilled labor.

It took about 10 years for us to "dig out," paying down the debt that we had after the kids were born and My wife stayed at home to raise/teach them.

Some people (and I am one) will struggle with debt for the rest of their lives.  But I understand the propensity for me to overspend and have learned to check it.  I have and always will have a problem with overspending, even if I don't go back into debt.

We recently bought another car - it was the right time and correct decision, as it would have cost us more to fix the 1992 Chevy Lumina than to buy the 2001 Buick Century.  With the inflation (that, according to the government, we haven't been having), we went backwards about $10K in the past 6-1/2 years.  So, we are now back to austerity again, working toward financial freedom.

So math wins!  As it will be with Detroit, like Cleveland before it and Washington, D.C. after it and probably even with the nation.  

Math ALWAYS wins.  So, it's better to face the facts sooner, rather than later.  Or to put it as a friend of mine would say "If you're in a hole, stop digging."

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