We are finally beginning to get a little bit of positive economic news. In his testimony to the House Budget Committee Federal Reserve chairman Ben Bernanke said that while the economy is still on a downhill slope, it is contracting at a slower rate. Financial markets are sluggish but showing a trend toward something approaching normal. The housing market has shown signs of bottoming out. Some major banks are slowly raising money and are not depending as heavily on government loans. Bernanke predicts that while our recovery will be slow, we might see some growth by the end of the year. What qualifies as good news today is very different from what would have been considered anything approaching good even a year ago, but we will take what we can get.
The U.S. might be beginning to move itself onto to the right track or at least moving down the wrong track more slowly, but it is still faces a terrible quandary. Several economists agree on the need for government expenditure to pull us out of recession. It stand to reason that if we don’t invest in infrastructure, prop up some of the larger corporations and financial institutions, and repair health care and other systems that have sucked us dry, we will be seeing another Great Depression. On the other hand, all of this spending will increase the deficit which, thanks largely to the Bush administration, is already way out of control. Bernanke warned that the the growing deficit would discourage investors and spoke of the need for “fiscal balance.” This means that the government needs to perform what seems like an insurmountable task . It needs to spend money but figure out how to reduce the deficit. In his comments Bernanke was referring to the country as a whole, but this is the exact same problem individual consumers are facing. We have more need than ever, especially those who have lost jobs, and at the same time so many of us are racked with debt. The return to fiscal balance and responsibility begins with each one of us.
This didn’t happen to us overnight. In simpler times most people earned an income, bought the things they needed, and put a little money away each month into a savings account. Maybe they invested in Blue-Chips. Maybe they saved up for a down payment on a house and paid for the remainder with a standard 30-year-loan. A few decades go we somehow became possessed. We started thinking magically when it came to personal finances. We didn’t care whether or not we could afford something. We made stupid investments in start-ups without really doing the research, thinking of how rich we were going to get. We went to Las Vegas. We applied for credit left and right and became willing to pay exorbitant interest rates. We bought the things we wanted without saving for them, and they weren’t just little things. Instead of settling for modest houses, we bought mansions and filled them with expensive furniture. All right. Maybe not all of us did all of these things, but a good many of us did at least one of them. Master Card, Visa, and our greedy banks exacerbated the situation by telling us what we were doing was perfectly sound. Now we have realized far too late in the game that we are in deep doo-doo.
Even if you did some of these things right, you may be suffering consequences. My husband and I bought our house the old fashioned way but have hardly any equity due to sharply falling prices, yet we consider ourselves to be lucky. So many people, through no fault of their own, now find themselves jobless, homeless, or can’t pay their medical bills.
So how do we pull ourselves out? The solutions to our individual problems are as complex as the one our government faces. Obviously, it will depend on the individual circumstances. Some will have to reorganize their lives completely. Some people will have to work longer and harder. Some will have to declare bankruptcy. Many will be forced to start from scratch. However, there is one thing all of us will be forced to do unless we are very rich. We have to change the way we think about money. To put it even more simply we all have to become cheapskates. Becoming a cheapskate is not as easy as you might think, but it is based on a very simple premise. You have to spend less money than you make. This means buying what you need and saving to buy the things you want. It means that you have to keep track of everything you spend. It means that you have to stop using credit cards unless you can control your spending enough to pay the balance every month. It means you will have to plan your purchases so that you find the best quality goods you can afford at the cheapest price. It means that if something breaks you will have to live without it until you can save the money to replace it. It means that you will have to admit it to yourself and others when you can’t afford something. It means saving every extra penny you can scrounge up to pay for necessities down the road.
In my twenties I became aware of the need this the hard way. I became mired in credit card debt, and it took a very long time to climb out of it. After that I became a cheapskate, and I am proud to say that I’m getting better at eat each day. I buy last years three-dollar sweaters and recycle aluminum cans. My new blog, The Weekly Cheapskate is meant to discuss some of the things I have learned. Sometimes it’s a little embarrassing, but it’s helpful that being cheap is no longer the stigma it once was.
Here’s what being a cheapskate does not mean. It does not mean that you have to eat potatoes and beans every night. It does not mean that you can never take out a conventional loan to buy a car that you need to get to your job. When I was a kid, we had this man in our neighborhood that walked the same route everyday, wore the same clothes all the time, collected all the recyclables in the neighborhood, and grumbled about everything. He never vacationed anywhere. If anyone reminded me of Ebenezer Scrooge it was him. I don’t know what he ate for dinner, but it was probably gruel. One day when he was pretty old, he moved away and we found out he was a millionaire who owned acres of land in the Midwest. He had saved all his life, but did he have a happy life? The need for “fiscal balance” also applies to our own personal survival.
So let’s all be cheapskates with fiscal balance, and there is something even more important that we can do. Let’s teach our children fiscal responsibility. Let’s either tell them not to use credit cards or show them how to use them responsibly. Let’s stop buying our kids everything they want right away. Instead we will give them chores, allowances, and piggy banks. Let’s impress upon them that being happy and kind, not rich, is what is most valuable in life.
Image courtesy of quirkypixel.com
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