What is the definition of being "financially responsible"?

[Leaper]

In the "Why is financial conservatism sometimes called 'hating poor people'" thread, there's a statement made that may explain some major philosophical disconnects, and struck me as a rich field for debate:

Originally Posted by Rand Rover

Your example is impossible. One cannot "take proper financial care for their future" and then get "wiped out" through "one episode." Can't happen.

So I ask: what is your definition of being "financially responsible" on an individual level? What do you need to do, think about, and prepare for?

[Bricker]

Originally Posted by Leaper

In the "Why is financial conservatism sometimes called 'hating poor people'" thread, there's a statement made that may explain some major philosophical disconnects, and struck me as a rich field for debate:



So I ask: what is your definition of being "financially responsible" on an individual level? What do you need to do, think about, and prepare for?

I think it starts with choosing a career.

In Pippin, the title character sings about how he disdains the idea of ordinary tasks, ordinary jobs -- when you're extraordinary, like he is, he musically explains, you have to do extraordinary things.

I mention this because I've talked to more than a few wanna-be actors, musicians, and philosophy majors who seem to think that as long as you're happy, the amount of money you make is meaningless.

Ah, what a beautiful world we'd live in if that were true. In fact, I think a responsible adult has to balance job satisfaction against money. There are undoubtedly reading-comprehensive challenged individuals who will make hash of this claim. But read it again: I'm not saying that compensation is the sole factor in choosing a career. I'm saying weight should be given to it, strong weight. It's not determinative.

Then I think people should live within their means. I don't know too many people that do that. I grew up poor. When I started making money, I continued to live a very simple life. I let money accumulate against a future storm. I think someone ought to be able to live a year at their present expenditure rate even if they lost their job tomorrow. If you say that's an impossible goal, I'm going to say that it's a fair bet you're not living within your means. I was the last of my neighbors to get cable. Right now, I drive a 1996 car. Why? Because it gets me where I want to go and doesn't have bad repair costs. I bought it new in 1996, for cash, and I'll drive it until its repair costs are excessive. Then I'll buy another car.

If you're paying interest on a car loan, you're probably living above your means. If you rely on credit for ANY purchase other than a house, you're probably living above your means.

All my neighbors have late-model cars. I have the oldest car on the block.

But I guarantee you, if some financial disaster happened to one of them, they'd whine about how unlucky they were. They'd never think, "Gee, maybe I shouldn't have a new car every three or four years."

I have a section of my basement stocked with food, potable water, basic medical supplies, weather gear, emergency money. If a blizzard stranded us at home for a month, we could survive.

There are a host of specifics that make up reasonable financial prep. But I firmly believe the vast majority of people want to live a much higher lifestyle than prudence would dictate. And if you told them this, they'd hotly deny it.

[Muffin]

What Bricker said, plus carry good insurance, diversify your investments, and never get complacent in your job.

[China Guy]

Bricker nailed it in one. Live below your means, have a minumum of one year's liquidity, buy a new car with cash, heck buy almost everything with cash except your house. Buy a house you can afford and have at least 1 year's payments in reserve.

[Happy Poster]

I don't think it's possible to be financially secure without at least 50 million in various worldwide assets. Even that is susceptible to meteor crash or accidental nuclear war or something.

To me, to be financially responsible means to be taking an appropriate level of risk with ones assets, including expected future income in that. Unfortunately that means certain careers are inherently irresponsible, including almost all genuinely entrepreneurial ones.

However, we can change that by engineering a social safety net (even with something as simple as limited liability and bankruptcy laws) so as to make some of those careers suddenly responsible. This probably upsets Mr. Rover inordinately.

Apart from that, don't buy limit down pork bellies and you should be fine.

[Voyager]

Originally Posted by Bricker

I think it starts with choosing a career.

In Pippin, the title character sings about how he disdains the idea of ordinary tasks, ordinary jobs -- when you're extraordinary, like he is, he musically explains, you have to do extraordinary things.

I mention this because I've talked to more than a few wanna-be actors, musicians, and philosophy majors who seem to think that as long as you're happy, the amount of money you make is meaningless.

Someone - I thought it was Dr. Johnson but I can't find the quote - said that the man who makes a penny more than he spends is a happy man, and one who spends a penny more than he makes is a miserable man. Fiscal responsibility is not making money per se, but making more than you spend and saving. An actor who does this is far happier than a commodity trader making five times as much - with ulcers and stress.

The rest of the advice I agree with and live by - though I have earthquake, not snow supplies here.

And I just paid cash for my new car, and it felt very good. But before we get all snooty, we should remember that not everyone can make decent amounts of money doing things that they love. People can be both financially responsible and in hardship, especially due to health crises.

[Voyager]

Originally Posted by China Guy

Bricker nailed it in one. Live below your means, have a minumum of one year's liquidity, buy a new car with cash, heck buy almost everything with cash except your house. Buy a house you can afford and have at least 1 year's payments in reserve.

Buying everything in cash is not the right thing to do if you have a credit card with no fee, which pays a rebate in cash, and which you never, ever carry a balance on. Why should I pay cash and lose money?

[ShibbOleth]

Originally Posted by Bricker

Then I think people should live within their means. I don't know too many people that do that. I grew up poor. When I started making money, I continued to live a very simple life. I let money accumulate against a future storm.

Not blasting you, Bricker, just curious - did you grow up in public housing on government assistance? Or out in the country with no electricity and running water? Or just no spare money? I'm interested to know how poor "poor" is? I think it might make an interesting thread to see how you've hauled yourself up by your own bootstraps.

It sounds like your past may have greatly influenced your present. You're obviously a very bright individual, and I'd say from your other comments that you tend to be overly cautious, not that there is anything wrong with that. Where did you learn how to generate wealth and to be financially austere? My experience is that most people who come from very poor backgrounds don't have a clue how to dig out from that. They have very bad role models, some see making it to next week or next month or next year as success, and don't really tend to think about or plan for the future. This is true even with a lot of people who are middle class, and even some people that have managed to accumulate apparent wealth, only to make very ignorant investing mistakes and lose it all.

If everyone lived similar to you, though, I think our economy might be beyond stagnant. No finance companies, a trickle of new car sales, etc. Especially given where we are now as a society. I do agree that most people tend to live beyond their means, some vastly so, some just by a bit.

Also, in your world, only the wealthy could afford to become poets, playwrights, musicians and actors. To some extent this was true in the past, so I suppose it could work again in the future.

[China Guy]

Originally Posted by Voyager

Buying everything in cash is not the right thing to do if you have a credit card with no fee, which pays a rebate in cash, and which you never, ever carry a balance on. Why should I pay cash and lose money?

let's not be literal. Credit cards as a cash management tool are fine, even short term cash flow tools, etc. Pretty dumb for financing a colledge education, that kitchen remodl and the dream european vacation.

yes, it's MUCH easier to be fiscally prudent making 6 figures.

I think people who grew up poor or have faced extended desperate econommic circumstances are a lot more careful to have a reserve. I wouldn't willingly return to those days and having $100k in the bank gives me a certain amount of peace.

Shibboleth - the US and global economy would adjust perfectly fine to a lower conssumption level.

[Aspidistra]

Funny thing about philosophical disconnects. My personal financial philosophy is pretty similar to Bricker's. We've got about 2 years income saved up at the moment, never borrowed for anything except a house, hate being in debt even for that.

But as far as political philosophy goes, this really leads me to quite the opposite end of the spectrum. I know it's possible to live a comfortable prosperous life voluntarily choosing to spend a lot less than my peers, and I have very little patience for people on 6 figures wringing their hands about the horrors of high taxation and how terrible it is to have "their" money (which they wouldn't be in a position to earn at all if it weren't for the whole structure of society around them) being used to support their society. I also know that life is random, and shit happens, and getting the money to deal with some things is simply impossible for a lot of individuals to do by themselves. Getting cancer, for instance. Or providing good care for a severely handicapped child.

I'm all for strong social programs. UHC rocks. The State school system likewise. I don't think that's at all incompatible with believing in personal financial responsibility.

[ShibbOleth]

Originally Posted by China Guy

Shibboleth - the US and global economy would adjust perfectly fine to a lower conssumption level.

I think that it would eventually adjust but that the transition would be particularly rocky. Anyway, it's not the most realistic scenario, people already have a lot of bad habits that won't easily go away.

[Manda JO]

I think it looks different at different ages. For one thing, for women, especially, there is the whole biological clock thing going: you are already supposed to wait until you have a college degree and an established career before you start a family. If you add "wait until you have no debt and a year's regular expenses in cash and have made inroads into a 15 year mortgage", I don't think many women could start a family before 35 unless they married very well--I mean, we are talking about a standard in which only people of significant income early in life can have children responsibly.

There are other reasons, as well, that financial responsibility is age-sensitive. For example, if a 25 year old with no dependents were to live off their savings for a year and flirt with real poverty in order to try to start their own business, it would be very different than if a 55 year old single parent with 3 kids in high school did the same thing: the 25 year old can afford to go out on a limb because even if it breaks, they're young enough to handle the fall without harming others. For the 55 year old, a financial wipe-out carries much heavier consequences and should be more carefully avoided.

[Try2B Comprehensive]

Originally Posted by Bricker

I mention this because I've talked to more than a few wanna-be actors, musicians, and philosophy majors who seem to think that as long as you're happy, the amount of money you make is meaningless.

Ah, what a beautiful world we'd live in if that were true.

But there are philosophy majors &etc who make a lot of money, study and/or do art, travel and all that. Why not be happy and have money?

It really is that beautiful of a world! Ask these guys:

http://www.youtube.com/watch?v=QetPB...eature=related

Overall I agree with you, Bricker. Live within one's means, plan, save, keep your car. Yes, yes. (yes!)

In fact, I think a responsible adult has to balance job satisfaction against money. There are undoubtedly reading-comprehensive challenged individuals who will make hash of this claim.

Just want to point out it is reading comprehension. I agree that grown adults should recognize that people get paid cash money to do things they otherwise wouldn't. For instance if they were millionaires. But (work != party) !=* (a person isn't happy). That's all

* I mean doesn't necessarily equal

[Rand Rover]

Looking just at investment, the most basic aspect of financial responsibility is not putting all of one's eggs in one basket. That is what I was getting at with the quote in the OP.

[Wesley Clark]

IMO, it is pretty much impossible to be totally financially responsible unless you have truly reliable disability insurance and health insurance. A major disability or illness can wipe away decades of hard work and savings. However, I don't know how feasible it is to find a program that you can rely on when you actually need it.

Another aspect is learning how to buy/do things cheaply. Knowing how to get what you want/need while spending as little as possible is just as important as earning more than you need.

So that is my view:

Find ways to get the best deals possible on everything
Save more than you earn
Have good back up plans in case of an emergency or major setback

[Bricker]

Originally Posted by Voyager

Someone - I thought it was Dr. Johnson but I can't find the quote - said that the man who makes a penny more than he spends is a happy man, and one who spends a penny more than he makes is a miserable man. Fiscal responsibility is not making money per se, but making more than you spend and saving. An actor who does this is far happier than a commodity trader making five times as much - with ulcers and stress.

Sure. I said "wanna be" actors, though, in the sense of:

"What do you do?"

"I'm an actor."

"Oh, really? Which restaurant?"

[Rand Rover]

Originally Posted by Wesley Clark

Save more than you earn

Any tips on how to accomplish that legally? (I assume you meant "spend less than you earn" or "save more than you spend," or something.)

[Bricker]

Originally Posted by Voyager

Buying everything in cash is not the right thing to do if you have a credit card with no fee, which pays a rebate in cash, and which you never, ever carry a balance on. Why should I pay cash and lose money?

Of course. Net payments within a 30-dayish grace period counts as "paying cash" for the purposes of this discussion.

[Rand Rover]

Originally Posted by Bricker

If you're paying interest on a car loan, you're probably living above your means.

I find this attitude bizarre. Some people have an almost religious aversion to taking out a loan to buy a car (and if they are Dave Ramsey follows, you can drop the "almost"). They love to proclaim "I pay cash for cars." Well, good for them. They also pay cah for car repairs and maintenance, both of which are typically more expensive in a car that one can pay cash for.

I prefer to think of "owning a car" as an operating expense as opposed to thinking about the cost to acquire any particular car as a capital expenditure. So, I'm willing to pay some amount per month to own a car of a certain level. If I decide to up the level then I'll pay more. If I were to pay for it in cash, then I would just be pushing all those monthly payments to the first month. If I bought a really old used car, then more of that amount would go to repairs than would go to the cost of the car.

So, anyway, bottom line is, I have an amount I'm willing to pay each month for "owning a car," just like there's an amount I'm willing to pay each month for "eating lunch" and "having cable." The particulars of how that amount is spent are not that important to me. And I think the religious devotion to not having a car loan is ridiculous.

[Bricker]

Originally Posted by ShibbOleth

Not blasting you, Bricker, just curious - did you grow up in public housing on government assistance? Or out in the country with no electricity and running water? Or just no spare money? I'm interested to know how poor "poor" is? I think it might make an interesting thread to see how you've hauled yourself up by your own bootstraps.

I don't think I want to go into huge amounts of specific detail. No public housing, but we were almost certainly eligible for government assistance. My father was dead set against such things, and we did not avail ourselves of it.

It sounds like your past may have greatly influenced your present. You're obviously a very bright individual, and I'd say from your other comments that you tend to be overly cautious, not that there is anything wrong with that. Where did you learn how to generate wealth and to be financially austere? My experience is that most people who come from very poor backgrounds don't have a clue how to dig out from that. They have very bad role models, some see making it to next week or next month or next year as success, and don't really tend to think about or plan for the future. This is true even with a lot of people who are middle class, and even some people that have managed to accumulate apparent wealth, only to make very ignorant investing mistakes and lose it all.

I don't know. My dad obviously had a great deal of influence on my views about the value of self-sufficiency. What I "learned" boiled down to: don't spend what you have today, because you never know if you'll be able to get more tomorrow. That doesn't seem like such a complicated rule, frankly.

If everyone lived similar to you, though, I think our economy might be beyond stagnant. No finance companies, a trickle of new car sales, etc. Especially given where we are now as a society. I do agree that most people tend to live beyond their means, some vastly so, some just by a bit.

Maybe so. But what of it? Similarly, if everyone lived a carefree, profligate lifestyle, the world would be constaly on the brink of ruin. I prefer to live as I live, and I don't agree that those that live more loosely deserve to have their mistakes covered by society (i.e., MY) tax dollars.

Also, in your world, only the wealthy could afford to become poets, playwrights, musicians and actors. To some extent this was true in the past, so I suppose it could work again in the future.

Yeah. Indeed, only the wealthy could afford to be public defenders, a career I enjoyed but couldn't afford to keep doing. That's life.

[Bricker]

Originally Posted by Rand Rover

I find this attitude bizarre. Some people have an almost religious aversion to taking out a loan to buy a car (and if they are Dave Ramsey follows, you can drop the "almost"). They love to proclaim "I pay cash for cars." Well, good for them. They also pay cah for car repairs and maintenance, both of which are typically more expensive in a car that one can pay cash for.

I prefer to think of "owning a car" as an operating expense as opposed to thinking about the cost to acquire any particular car as a capital expenditure. So, I'm willing to pay some amount per month to own a car of a certain level. If I decide to up the level then I'll pay more. If I were to pay for it in cash, then I would just be pushing all those monthly payments to the first month. If I bought a really old used car, then more of that amount would go to repairs than would go to the cost of the car.

So, anyway, bottom line is, I have an amount I'm willing to pay each month for "owning a car," just like there's an amount I'm willing to pay each month for "eating lunch" and "having cable." The particulars of how that amount is spent are not that important to me. And I think the religious devotion to not having a car loan is ridiculous.

I bought my last car new, for cash. It's unclear to me how that choice, at least initially, would create more repair costs than buying the same car for credit.

Since 1996, the year I bought the car, I guarantee you my repair costs have been far less than the interest I would have paid on a car loan. Sure, the amount is non-zero, and that's the amount I'm willing to pay for "having a car." But my requirement for a car doesn't include "new" or "flashy." So what am I paying for if I replace a perfectly useful, serviceable car? The moment my repair bills start getting high, sure -- that car's out the window.

[Happy Poster]

Car loan debate beautifully touches upon that old perv Modigliani and the life cycle hypothethis.

I have a great suspicion that Mr. Rover is familiar with the latter (and that both of you are familiar with the former). Perhaps Mr. Bricker could familiariese himself with said hypothethis?

I am not saying I agree with the thing myself - for sure it is correct, but then I am not so sure how it important it is to be correct/rational... but then I am no economist; I live in reality (not too much this evening mind; rather drunk).

[RickJay]

Originally Posted by ShibbOleth

I
If everyone lived similar to you, though, I think our economy might be beyond stagnant.

Nonsense.

Supply and demand are two sides of the same coin. If people were more careful with their money, you might not have people buying $1500 plasma TVs on 22% credit cards, but you'd also have fewer bankruptcies, less money wasted on interest payments, more money invested in business, more stuff bought in cash in the long run, people buying more permanent things and fewer things with no lasting value, and so on. It'd be easier for the government to raise tax money to pay for infrastructure, too. Bricker's 1996 car is, let's be honest, an extreme example - you can be fiscally responsible and not drive a 14-year-old car.

It's worthwhile to note that there's not a shred of evidence that the glut of consumer credit in the last 30-35 years has led to more economic growth than was previously the case. The pervasive idea that people have to keep buying shit at Best Buy to make the economy grow is economically illiterate.

Also, in your world, only the wealthy could afford to become poets, playwrights, musicians and actors.

I'll have to tell my sister and brother in law that they have to give up their careers as actors, since they're not wealthy. Except, the funny thing is, they're living within their means. So apparently it can be done. How about that.

[ShibbOleth]

Originally Posted by Bricker

I don't know. My dad obviously had a great deal of influence on my views about the value of self-sufficiency. What I "learned" boiled down to: don't spend what you have today, because you never know if you'll be able to get more tomorrow. That doesn't seem like such a complicated rule, frankly.

Thanks for your responses. So I take it you learned this from your father. By any chance is he old enough to remember the Great Depression? Is he old enough to have been working age during those times?

[Blalron]

Do whatever is possible to live within one's means.

I'm about as liberal as they come, but the poor are often their own worst enemies when it comes to finances.

$4 daily lattes. $6-a pack cigarettes. Carbonated sugar water. Alcohol. Cable TV. Dining at restaurants regularly instead of cooking. Sending their kids to school with "Lunchables" because they can't be bothered to take a few extra minutes to pack something cheaper. Designer clothes! A new car.

If you're making minimum wage and don't have any savings cushion saved up, there's no earthly reason why you should be buying the aforementioned things.

[ShibbOleth]

Originally Posted by RickJay

Nonsense.

The collapse of the credit industry in the USA wouldn't cause some problems? American Express, GMAC, Citigroup, Chase, et al would disagree with you. Note that I'm not saying that the credit industry is good for the country, just that it would be a MAJOR adjustment if suddenly everyone started acting responsibly. Not to mention the collapse of most colleges and universities as people only went to schools that they could afford. In the short term, it would be catastrophic.

[Wesley Clark]

Originally Posted by ShibbOleth

The collapse of the credit industry in the USA wouldn't cause some problems? American Express, GMAC, Citigroup, Chase, et al would disagree with you. Note that I'm not saying that the credit industry is good for the country, just that it would be a MAJOR adjustment if suddenly everyone started acting responsibly. Not to mention the collapse of most colleges and universities as people only went to schools that they could afford. In the short term, it would be catastrophic.

That is actually a reason we aren't recovering from the recession. People went from a negative savings rate of about -1% to a positive rate of about 4-9% because there is no economic security.

So now a plan is to increase exports, but consumption in places like China isn't too good either.

Short term its going to do damage to consume less (consumption is about 70% of the economy). However what other aspects of our society and economy are there aside from consumption?

http://www.hoover.org/research/facts...s/4931661.html

Personal consumption accounts for 70 percent of gross domestic product.

The gross domestic product (GDP) is the generally accepted measure of the size of the national economy. It is the sum of investment, personal consumption, government spending, and net exports. Personal consumption, at 70 percent, is the largest component of GDP. Other components of GDP include
–Investment: 17 percent
–Government spending: 19 percent
–Net exports: –6 percent

How is government spending different from personal consumption? Much of government spending is on health care & pensions.

http://useconomy.about.com/od/grossd...Components.htm

The remaining 30% of GDP that is not for personal consumption is in two categories. The first is business investment, such as software, business equipment, and manufacturing (16%). The second is government, which is 20% of total GDP. State and local government produce 12% of GDP. he Federal Government produces 8% of GDP, and two-thirds of this defense-related. (Updated December 20, 2009)

I really don't see the difference. It seems business consumption (at 16%) is just another form of consumption. And a good deal of government spending goes to consumption anyway, just consumption of health care and pensions for the elderly (which they use on food, clothes, health care, etc).

So what is left? Personal/business consumption and the infrastructure to be able to engage in consumption (scientific R&D, transportation, education, military, police, etc) seem like the only areas of the economy.

[dre2xl]

Originally Posted by ShibbOleth

Note that I'm not saying that the credit industry is good for the country, just that it would be a MAJOR adjustment if suddenly everyone started acting responsibly.

I think at my height of financial irresponsibility, I was paying nearly $2000/mo in interest. Is the economy really better served by that $2000/mo going to Amex, VISA, Citibank student loans, and various banks, than to actual purchases?

[Rand Rover]

Originally Posted by Bricker

I bought my last car new, for cash. It's unclear to me how that choice, at least initially, would create more repair costs than buying the same car for credit.

Since 1996, the year I bought the car, I guarantee you my repair costs have been far less than the interest I would have paid on a car loan. Sure, the amount is non-zero, and that's the amount I'm willing to pay for "having a car." But my requirement for a car doesn't include "new" or "flashy." So what am I paying for if I replace a perfectly useful, serviceable car? The moment my repair bills start getting high, sure -- that car's out the window.

By paying cash for the car, you gave up the opportunity to earn a return on that cash. That return could have been higher than the interest you paid on the loan.

If you wait until repair costs get high to sell the car, you may not be able to sell it for much. You may be able to sell it for more if you sold it sooner (and pay less in repair costs to boot).

[Happy Poster]

Originally Posted by dre2xl

I think at my height of financial irresponsibility, I was paying nearly $2000/mo in interest. Is the economy really better served by that $2000/mo going to Amex, VISA, Citibank student loans, and various banks, than to actual purchases?

Think about it this way.

That 2k you were paying off a month... that was coming, ultimately, because you were making purchases with it at one point. So the capital was allocated from doing nothing, to going through the financial institutions to you, where you did something with it (bought crap), then gave the capital back at interest.

Ain't that great

Edit: This is a really fucking important point. I want to make this clear.

THE ENTIRE POINT OF THE FINANCIAL SERVICES INDUSTRY IS CAPITAL AND/OR RISK ALLOCATION

The money (capital) was sitting around doing nothing. It went to you so you could spend it. In return, the owners of that money got it back with a wee bit on top from yourself, gladly paying for the privilege of having spent it then.

[suranyi]

Originally Posted by Voyager

Someone - I thought it was Dr. Johnson but I can't find the quote - said that the man who makes a penny more than he spends is a happy man, and one who spends a penny more than he makes is a miserable man.

I believe you're thinking of Charles Dickens' quote from "David Copperfield:

"Annual income twenty pounds, annual expenditure nineteen
nineteen six, result happiness. Annual income twenty pounds,
annual expenditure twenty pounds ought and six, result misery."

[suranyi]

Originally Posted by Bricker

I think it starts with choosing a career.

In Pippin, the title character sings about how he disdains the idea of ordinary tasks, ordinary jobs -- when you're extraordinary, like he is, he musically explains, you have to do extraordinary things.

I mention this because I've talked to more than a few wanna-be actors, musicians, and philosophy majors who seem to think that as long as you're happy, the amount of money you make is meaningless.

Ah, what a beautiful world we'd live in if that were true. In fact, I think a responsible adult has to balance job satisfaction against money. There are undoubtedly reading-comprehensive challenged individuals who will make hash of this claim. But read it again: I'm not saying that compensation is the sole factor in choosing a career. I'm saying weight should be given to it, strong weight. It's not determinative.

Then I think people should live within their means. I don't know too many people that do that. I grew up poor. When I started making money, I continued to live a very simple life. I let money accumulate against a future storm. I think someone ought to be able to live a year at their present expenditure rate even if they lost their job tomorrow. If you say that's an impossible goal, I'm going to say that it's a fair bet you're not living within your means. I was the last of my neighbors to get cable. Right now, I drive a 1996 car. Why? Because it gets me where I want to go and doesn't have bad repair costs. I bought it new in 1996, for cash, and I'll drive it until its repair costs are excessive. Then I'll buy another car.

If you're paying interest on a car loan, you're probably living above your means. If you rely on credit for ANY purchase other than a house, you're probably living above your means.

All my neighbors have late-model cars. I have the oldest car on the block.

But I guarantee you, if some financial disaster happened to one of them, they'd whine about how unlucky they were. They'd never think, "Gee, maybe I shouldn't have a new car every three or four years."

I have a section of my basement stocked with food, potable water, basic medical supplies, weather gear, emergency money. If a blizzard stranded us at home for a month, we could survive.

There are a host of specifics that make up reasonable financial prep. But I firmly believe the vast majority of people want to live a much higher lifestyle than prudence would dictate. And if you told them this, they'd hotly deny it.

I chose a very lucrative career, so that nowadays I make a very high salary. I have no debt, and my family lives very comfortably. If I lost my job, we could easily last a year without changing our lifestyle appreciably.

However, in order to get to this position, when I was in college I needed to take out student loans. For me, they were definitely worth while -- I was able to pay them all back within five years of starting my career.

[Rand Rover]

The student loans I took out for law school will remain outstanding for the next two decades or so. I consolidated them for 30 years at 2% interest. At that interest rate, I'm not paying them back a day before I have to.

[dre2xl]

Originally Posted by Angry Lurker

The money (capital) was sitting around doing nothing. It went to you so you could spend it. In return, the owners of that money got it back with a wee bit on top from yourself, gladly paying for the privilege of having spent it then.

Uh, yeah, I made the rich richer with my own irresponsibility and they are happier for it. I understand that. That wasn't the question I asked. Was I really better serving the economy unable to muster the self discipline to save up a few months for crap and consequently paying for crap several times over in interest, then, than now, when I can just walk in the store and buy crap because I saved up for it? It seems, at worst, a wash -- instead of taking my money in interest payments and investing it however they like, the bank can take my savings and invest them however they like.

[Bricker]

Originally Posted by ShibbOleth

Thanks for your responses. So I take it you learned this from your father. By any chance is he old enough to remember the Great Depression? Is he old enough to have been working age during those times?

My dad was born in El Salvador, but I'm sure the Depression was felt world-wide -- and certainly El Salvador was not then and is not now a wealthy country anyway. But he was not really working age during the Depression; he was born in the mid-1920s. He was certainly old enough to see and internalize what extreme poverty was, though, and I guarantee you that what he had, growing, up, was REAL third-world, dirt floor, no electricity, no running water-type poverty.

[Bricker]

Originally Posted by Rand Rover

By paying cash for the car, you gave up the opportunity to earn a return on that cash. That return could have been higher than the interest you paid on the loan.

Yes, that's true. But there was no guaranteed investment I was aware of that paid as high an interest rate as I was getting. I could have rolled the dice, and in 1996, I probably would have won.

In 1999, though, probably not. I'm not a financial genius, so I stick with what I know. If someone else's skill set allows them to make more money by buying a car with a load and reliably investing the cash they would have spent, great. I don't have that skill set.

If you wait until repair costs get high to sell the car, you may not be able to sell it for much. You may be able to sell it for more if you sold it sooner (and pay less in repair costs to boot).

True, but around here, a car that runs is worth something, especially if you can speak Spanish to conduct the sale. I'm comfortable that when I sell it, I'll get enough back to make the decsion worthwhile.

[sinjin]

Originally Posted by Rand Rover

The student loans I took out for law school will remain outstanding for the next two decades or so. I consolidated them for 30 years at 2% interest. At that interest rate, I'm not paying them back a day before I have to.

Talk about sucking on the government tit. Welfare queen.

By the by, we have also lived a quite conservative fiscal life and have a nice chunk of change saved up, no debt except the mortgage which is not even 1/2 of $3400, and buy everything with cash these days*. However, unlike Bricker and Rand, I know people who have done the same things only to end up at 55 laid off with no prospect of getting another job** with health care benefits ever again, except maybe at Walmart or Home Depot. They did all the right things and now are trying to hang on, not one year, but 10 years until they qualify for medicare. Oh and some of them have kids in college and some still have kids in HS. Wow was that bad planning or what?

*Back in the day, when we were just starting out, we lived from month to month like so many in the world and America. Bricker, you say you started out poor. How did you get by as a young person? How many years did it take you to get to the point you are now? What were your options if you or one of your loved ones fell ill?

**Engineers one and all. Yeah stupid us, we should have all become lawyers.

[Rand Rover]

Sinjin, you say that as if I have ever said anything bad about "welfare queens." If you think I have, you are very much mistaken. I think it's perfectly OK for someone to take whatever the government wants to give them, even if I think the government shouldn't give that in the first place.

[RickJay]

Originally Posted by ShibbOleth

The collapse of the credit industry in the USA wouldn't cause some problems? American Express, GMAC, Citigroup, Chase, et al would disagree with you.

More people living within their means would not cause the "collapse" of the credit industry within any realistic scenario. Even if we start genuinely encouraging fiscal responsibility, you're not going to have a nation of Brickers. I'm making car payments - zero percent interest car payments, mind you, but someone's making money off it somehow. There's always a market for credit even if people aren't using MBNA to buy flatscreens.

And I'll disagree with the notion that borrowing money for school is fiscally irresponsible; all evidence I have ever seen on the matter demonstrates that money spent on school pays off in spades. To my mind, fiscal irresponsibility is largely found when people buy things that do them no good with money they do not have. Education pays off.

Anyway, money that is not spent doesn't disappear under a mattress; it's usually put into banks, who lend it and invest it, and in the long run it does just as much good as if the person saving it had spent it all on iPods and Olive Garden.

[sinjin]

Originally Posted by Rand Rover

Sinjin, you say that as if I have ever said anything bad about "welfare queens." If you think I have, you are very much mistaken. I think it's perfectly OK for someone to take whatever the government wants to give them, even if I think the government shouldn't give that in the first place.

Nope, just calling a spade a spade.

[Rand Rover]

Originally Posted by sinjin

Nope, just calling a spade a spade.

OK. The government offered cheap financing for education, and I took it. That fact doesn't alter anything I've said, or make me a hypocrite, or anything like that. I invite you to make a really shitty argument to the contrary.

[sinjin]

Originally Posted by Rand Rover

OK. The government offered cheap financing for education, and I took it. That fact doesn't alter anything I've said, or make me a hypocrite, or anything like that. I invite you to make a really shitty argument to the contrary.

In another thread you posted this:

Originally Posted by Rand Rover

elucidator and Der Trihs, do you think it would be OK for you to knock down your neighbor's door and take what you want from them? Or do you think that that would be a bad thing to do?

So it was OK for the government to knock down your neighbor's door and take their money and give it to you for your education. Do you think that was a bad thing to do? What's the dif?

[Rand Rover]

How about you read post #38 of this thread again and get back to me.

[sinjin]

Originally Posted by Rand Rover

How about you read post #38 of this thread again and get back to me.

So you're just an opportunist? Spade.

[Voyager]

Originally Posted by China Guy

let's not be literal. Credit cards as a cash management tool are fine, even short term cash flow tools, etc. Pretty dumb for financing a colledge education, that kitchen remodl and the dream european vacation.

Good. I was just modifying the advice from "never get a credit card" to "never pay interest on a credit card" which is what you appear to have meant.

Shibboleth - the US and global economy would adjust perfectly fine to a lower consumption level.

We'll see. But I think managing a downward consumption trend took political will that the Bush administration didn't have.

[Voyager]

Originally Posted by Rand Rover

Looking just at investment, the most basic aspect of financial responsibility is not putting all of one's eggs in one basket. That is what I was getting at with the quote in the OP.

In the current mess lots of baskets had cracked eggs. Oddly, my father, out of a hatred for taxes, wanted all his money in municipal bonds, and didn't want to hear about diversification. (He's 94 now, so not investing for the long term.) He did pretty good - much better than my diversified portfolio. You never can tell.

[curlcoat]

Originally Posted by Aspidistra

But as far as political philosophy goes, this really leads me to quite the opposite end of the spectrum. I know it's possible to live a comfortable prosperous life voluntarily choosing to spend a lot less than my peers, and I have very little patience for people on 6 figures wringing their hands about the horrors of high taxation and how terrible it is to have "their" money (which they wouldn't be in a position to earn at all if it weren't for the whole structure of society around them) being used to support their society. I also know that life is random, and shit happens, and getting the money to deal with some things is simply impossible for a lot of individuals to do by themselves. Getting cancer, for instance. Or providing good care for a severely handicapped child.

I'm not getting the difference here. If you work, save and plan ahead, even cancer or a severely handicapped child can be paid for by oneself rather than expecting that society will pick up the tab. Both of my inlaws & paternal grand parents all died of cancer and all paid for the deductibles, co-pays and all else themselves, even tho none was even close to rich. Like Bricker said, if you aren't spending more than you earn, you will have a cushion to fall back on should something happen. If people would quit expecting that "the government" or "society" will cover for them, we will all pay less in taxes and be more able to take care of ourselves.

Originally Posted by Manda JO

I think it looks different at different ages. For one thing, for women, especially, there is the whole biological clock thing going: you are already supposed to wait until you have a college degree and an established career before you start a family.

I didn't do the child thing so I'm probably missing something obvious here, but if a woman plans on having children, why is she getting a college degree and an established career first? She is going to have to leave that career and not use that education while raising the kids, isn't she? Unless she plan on raising the kids in daycare, at which point I do wonder why she had them in the first place.

I mean, we are talking about a standard in which only people of significant income early in life can have children responsibly.

I'm not sure that's a bad thing. I know that having kids is a strong drive in most people, but I also think we as a society need to get beyond the idea that anyone who wants to have kids can have them. And if they can't afford to raise them, we'll pay for it. That is getting very expensive, and it can't be good for the kids themselves.

Originally Posted by Rand Rover

They also pay cah for car repairs and maintenance, both of which are typically more expensive in a car that one can pay cash for.

Huh? We paid cash for both of our vehicles and neither has ever cost us in repairs as much as a monthly payment would. Maintenance you are going to have to pay for whether you are making car payments or not.

If I were to pay for it in cash, then I would just be pushing all those monthly payments to the first month.

You are also avoiding all the interest payments.

So, anyway, bottom line is, I have an amount I'm willing to pay each month for "owning a car," just like there's an amount I'm willing to pay each month for "eating lunch" and "having cable." .

If your personal income and savings are high enough that you can afford to pay for everything, including your monthly car payment, for a year with out having a job then there is certainly no problem with you paying interest on your car purchase. However, most people buy cars on time because they cannot really afford the vehicle they want and the only way to get it is on time. This is how people get eaten up in leases as well.

I think it's perfectly OK for someone to take whatever the government wants to give them, even if I think the government shouldn't give that in the first place.

"The government" isn't paying for whatever it give you, you know...

[Voyager]

Originally Posted by suranyi

I believe you're thinking of Charles Dickens' quote from "David Copperfield:

"Annual income twenty pounds, annual expenditure nineteen
nineteen six, result happiness. Annual income twenty pounds,
annual expenditure twenty pounds ought and six, result misery."

Thank you, that is it. My memory was so far off on the words that Google did not help.

[Voyager]

Originally Posted by Bricker

Yes, that's true. But there was no guaranteed investment I was aware of that paid as high an interest rate as I was getting. I could have rolled the dice, and in 1996, I probably would have won.

In 1999, though, probably not. I'm not a financial genius, so I stick with what I know. If someone else's skill set allows them to make more money by buying a car with a load and reliably investing the cash they would have spent, great. I don't have that skill set.

FYI, when I was buying my new car a few weeks ago, Toyota quoted a 9.9% interest rate. When they saw my credit rating (they had to run a credit check to believe that our check wouldn't bounce ) they knocked it down to 5.5% I don't know of any safe investments that get that kind of return these days.

I carefully tracked repair expenses, and compared them against the equivalent of monthly payments. I switched when the repair cost went above my threshold. I wound up donating it. I'm with you. Plus, unless you are burning lots of gas, the carbon footprint for a new car is a lot greater than an old one getting reasonable mileage, and mine was getting 25 - 30 mpg until the end. So I'm with you.

[Cat Whisperer]

Originally Posted by curlcoat

<snip>
I didn't do the child thing so I'm probably missing something obvious here, but if a woman plans on having children, why is she getting a college degree and an established career first? She is going to have to leave that career and not use that education while raising the kids, isn't she? Unless she plan on raising the kids in daycare, at which point I do wonder why she had them in the first place.
<snip>

The myth of modern women having it all is dying a very hard, slow death.