Why die rich? Frugal Fascism

Sep 242008

Bear with me on this one. It’ll make sense in a short while.

I’ve been doing a lot of reading of debt management and personal finance websites over the last couple of days. One of the recurring themes is that of frugality. All of the websites that I read offered great advice on how to cut down your spending and live frugally.

To me living frugally is one of the key components in any debt management plan. If you do not make the effort to live frugally then you will struggle to ever be clear of debt.

When do you stop?

Some of the websites that I read were quite zealous about their promotion of frugal living. I have to say that I admire their passion. The more frugal you can live the quicker you will payoff your debts. That is a simple fact.

But something struck me as not quite right. I began to wonder how do you cope long term?

If the goal is to pay off debts then what happens when you reach that goal and the debts are paid off? How do you live? Do you continue to live the frugal life? Do you allow yourself some small luxuries?

At what point do you stop being frugal?

Never?

I was afraid that you might say that. Living frugally forever seems to defeat the purpose. Ok you may have had a bad experience with debt and you never want to experience it again. I completely understand. At the same time do you want to live the life of a monk for the rest of your life? All the while you squirrel away your money into some savings account never to be touched?

On one of the websites I read the comment

“If you act poor and live poor then you may as well be poor”

I think the point the poster was trying to make is that there is very little difference between acting poor (in this case extreme frugality) and actually being poor. The fact that you may have massive savings means nothing; you are still living a restricted lifestyle.

Frugal Fascism

Don’t misinterpret what I am trying to point out here. I will say it again; in order to get out of debt you need to become more frugal. However there comes a point when extreme frugality borders on neurosis. Take the example of Hetty Green.

Taken from wikipedia

“Henrietta “Hetty” Howland Robinson Green (November 21, 1834 – July 3, 1916) was an American businesswoman, remarkable for her frugality during the Gilded Age, as well as for being the first American woman to make a substantial impact on Wall Street.”

“Green was mainly interested in business, and there are many tales (of various degrees of accuracy) about her stinginess. She never turned on the heat nor used hot water. She wore one old black dress and undergarments that she changed only after they had been worn out. She did not wash her hands and rode an old carriage. She ate mostly pies that cost fifteen cents. One tale claims that she spent a night looking around her home for a lost stamp worth two cents.”

When she died in 1916 ‘an estimate of her net worth was around $100 – $200 million (or $1.9 – $3.8 billion in 2006 dollars),’

I admit that Hetty Green is an extreme example but I am trying to point out that just because you have had a bad experience with debt doesn’t mean that you have to let it ruin the rest of your life. No I’m not saying that you should take more debt on to live a better life. What I am saying is that once you have repaid your debts then you need to co-ordinate your life goals with your financial goals and look for balance.

Balance is the key

If you want to retire with plenty of money then you will need to save hard while you are working but the does not mean that you have to live like a pauper. A balance needs to be struck between what you want to achieve financially – both now and in the future – and the other goals in your life that require money.

Getting out of debt is a huge financial goal and its one that I recommend that everyone pursues with vigour. That said once this goal is achieved it is time to look at your life from both a financially responsible point of view but also from the point of view of someone who is not afraid to go after what they really want in life.

A good dose of frugality in any financial situation is always recommended but what is to be avoided is the situation where the mentality has moved from one of frugality to one of simply being poor.

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Fires and foreclosures – not the smartest way out of debt

Jul 072008

Faced with foreclosure people will do allsorts of things to stay afloat. The need is real and pressing especially with the bank breathing down your neck. They say that desperate times need desperate measures and I couldn’t agree more. However the line has to be drawn somewhere and I think the line has to be drawn at illegal acts such as fraud and arson.

There has been a worrying trend forming in the last year or so. Anecdotal evidence suggests that some homes that have been up for foreclosure have been torched by their owners. Recent media reports suggest that while no hard evidence exists of a link between the rising foreclosure rates and the increase in the number of arsons there is a feeling that the two are strongly connected.

Arson – why would some one do it?

Simple really they can see no other way out of their debt or the ways that they do see will take too long and be too hard for them. They look on arson as the easy option. One little fire and puff my debts go up in smoke. They hope that the insurance company will pay out on the burnt down house and the money can then be used to solve their financial problems. If only it was that simple.

Some people adopt the attitude that ‘If I can’t have it then no one else can have it either’. This is the attitude of someone who is both desperate and angry. Both emotions that I can understand and relate to but I could never condone burning down a house to get back at someone or to solve your debt problems. Its just plain wrong.

Fire investigators can spot arson easily – what makes their job easier is if there is a big ‘for sale’ sign at the front of the house. Straightaway whether they admit it or not they will be thinking that it is another case of arson.

There are a few other telltale signs that the fire was as a result of arson. If pets and expensive electronic equipment were removed at the time of the fire then it can be obvious that something suspicious was going on. Some people stop paying all their bills except their home insurance – if this doesn’t scream arson then I don’t know what does.

Generally speaking people who do start fires do so out of desperation and do not cover their tracks very well. As a result the chances of getting caught for arson are very high.

Not only does arson NOT solve your debt problems it could also ruin your life. Aside from the very obvious dangers that come with playing with fire you could end up spending a long time in prison if you get caught. The simple fact of the matter is that you will get caught if you burn down your house or burn out your car. The police and fire investigators aren’t stupid. They spend all their working lives investigating crimes like arson and fraud.

The ironic thing is that a lot of people think that insurance companies will just pay out to avoid the costs of having to investigate and the hassle of bringing someone to court. This could not be further from the truth. It is in the best interest of the insurance company to investigate each suspicious fire. The reason is simple – if they set a precedent of not investigating fires then everyone will start doing it. Insurance companies need to be seen to be tough when it comes to fraudulent claims and arson.

What’s the alternative?

There are always alternatives to arson for profit. If things are so bad that you are considering arson then I think that bankruptcy is by far the lesser of two evils. Bankruptcy may set you back a couple of years in terms of your financial situation but arson can send you to prison. I know which one I would prefer.

Be safe in the knowledge that if you do burn down your house or your car that you will get caught. The simplest thing to do is to rule it out as an option and focus on something that will solve your problems. Talk to your lender. See if they can do anything.

If your lender can’t help you then research your options online. There are thousands of people facing the same difficulties as you are. There are hundreds of solutions and viable ways out debt. This website contains many ideas on how to eliminate your debt and the internet is filled with great ideas to help you. So I say start researching and learning how to get out of debt legally and put those matches away.

Competitions – a fun way out of debt?

Jun 182008

Crazy as it might sound but that plan might just work. How often have you heard this phrase said in movies or in TV shows? Well how about this for a crazy idea – try clearing some of your debts by entering competitions to win prizes. Then either keep and enjoy those prizes you win while saving yourself the money it would cost to buy them or sell the prizes for cash.

Let’s be clear, I’m always looking for alternative ways and ideas to reduce debt. I will consider almost anything that is legal. Any ideas I have or come across I will pass on to you. I think a lot of people’s minds are closed to new and unique ways of doing things and as a result they get caught in the vicious cycle of trying to change behaviors that are firmly entrenched while getting frustrated at the lack of results. To me entering competitions is a novel way of at least trying to do something about your debt.

Too often I hear from people that they just don’t have the patience or willpower to tackle something as boring as their finances. It’s true that personal finance can be boring but so can brushing your teeth. I still brush my teeth a couple of times a day though. Entering competitions is a fun and exciting way to maybe win a little extra money. Think of it as a way to brighten up your debt freedom journey.

Entering competitions when times are tough is not something new. During the depression events called “Dance Marathons” were held in local halls. These were dance competitions based on endurance. The idea was that couples would dance for days in the hope that they could last the longest and win the cash prize. For more background information on Dance Marathons click here.

The best way to think about entering competitions is as a hobby. There is absolutely no guarantee that you will win something but entering competitions serves two purposes. The first is that you feel like you are doing something about your debt that you are taking action and moving in the right direction, although at a slow pace. The second is that it offers hope. If you enter a competition there is always a hope, no matter what the odds are, that you will win a prize. It is this hope than can help you through the dark days of your debt. You have to be kind to yourself and give yourself hope – however small.

How to do it?

There are competitions going on almost everywhere you look. The newspapers, the local store, the radio and of course the biggest place to find competitions is the internet. Set aside sometime each week to enter competitions. If you have children then this will be a fun way of spending time together as they can help you stuff the envelopes with tokens and offer suggestions for tie breakers.

While the cost of entering competitions online is usually free. Competitions where you have to send your entries via post cost money in the form of stamps and envelopes. This is something you need to be aware of. While the cost of entering competitions may be negligible it will eventually add up. So what I recommend is that you set yourself a competitions budget. Yes I know the dreaded ‘B’ word, but at least time it is in relation to having some fun!

Why bother – no one ever wins?

This is the key point. The vast majority of people never win because the vast majority of people never enter the competitions in the first place. How do they ever expect to win if they don’t enter? Reduce it down to simple maths and probability. The more competitions you enter and the more times you enter each competition the higher the probability of you winning something. It is a numbers game.

One of the main reasons people tend not to enter competitions is that you actually have to do something. You might have to complete a tie-breaker or you might have to collect tokens. For a lot of people this is too much hassle for something that may or may not pay off. What I say to this is that you have to make at least some sort of effort and if you are honest the effort involved in entering most competitions is minimal.

Above all else have fun.

You may not win anything but as someone once said “it’s the taking part that counts” and just remember that you have to be in it to win it. J

Debt Free – Starting from where you are

Apr 072008

Do you really have a problem with Debt? The simplest rule of thumb to decide if you do is to take the stress test. The stress test is simply this – when the word ‘Debt’ is mentioned in general conversations do you feel your level of stress increasing? If yes then read on – if no then I suggest you find out why you are on this website but not yet stressed about your debts.

The real problem with Debt is that it’s not a sudden thing. It’s more a case of the frog being slowly boiled to debt in a pot of hot water than being dropped into a boiling pot of water and then jumping straight out. Mortgage aside – I’m sure that if some one said to you when you were fifteen – you are going to grow up into a responsible adult with a mountain of debt you would have said straightaway – no thanks!

Commitment

Ah the C word – yes it’s almost like a marriage. You are effectively married to your debt…until debt do us part. Well the sad fact is that the majority of relationship break ups are caused by financial problems. With Debt you can’t always up and leave the relationship. Yeah sure you could file for bankruptcy but then the shadow of your debt will still follow you around for years to come.

So you are effectively committed to your debts whether you like it or not. That’s the unfortunate reality of the situation. Your creditors have you. They own you.  It’s not nice to hear it being put like that but that is where you are starting from. You are effectively a slave to your debts and to your creditors. Each morning when you go to your ‘Wonderful’ job keep in mind that you are in fact going to work for creditors and they are laughing at you all the way to the bank.

Does this upset you? I sincerely hope it does. The reason why is not because I like making people feel bad but because you can harness the good from these negative emotions.

You have two choices – let the anger and frustration at your situation grow into despair and inaction or you can use your and anger and frustration as energy to push you to tackle your debts.

The cause and effect principle

If you do decide to tackle your debts the actions you take now will have a long term positive effect on your life. If you do nothing and let your debts continue to mount then you will pay the price in the long run.

Pay the price now in terms of discipline and action or pay the price later in terms of despair. Your call.

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