Saving Money, Feeding the Pig, Etc.

I just heard a radio commercial for FeedThePig.org, a financial literacy web site that emphasizes financial literacy. The ad began by noting that Americans spent more than they earned last year. The ad also emphasized the need for savings. Well, the good news in my life is that my credit card debt is around $2K and dropping. All the other debts are obligations that stand a good chance of being paid off by the end of next year, including car, student, and personal loans. I might actually be ABLE to save cash, not just via the 401(k).

Of course, saving money is damn near a losing proposition, partially because the value of the dollar is dropping like a stone, and partially because interest rates keep dropping, which is great for people strapped with home loans they couldn’t afford in the first place. However, when interest rates drop, the rates bank offer on savings accounts also drop. So right now the incentives in the market are such that credit is easy to obtain while saving money is nearly impossible unless you’re a flawless wheeler-dealer on the day-trading set.

Feed the Pig’s three financial basics include:

Always spend less than you earn

Avoid splurging

Invest the rest  

Sounds simple, but they left out a few. For instance, you need to invest FIRST, meaning take money out of your paycheck for investing (or savings) and then spend within the limits that are left. The magic number I’ve always heard for investing is 10% of your pay. I started at 6% until I could afford the 10%. But jeez, you’ve got to start somewhere. But do the important, then the urgent, then the optional: invest, then pay for bills and groceries, and then use what’s left over for fun and games.

Of course, once you invest in stocks or put money in savings, you need to restrain yourself from not selling those stocks or dipping into savings to pay for your basic expenses. And if you ARE doing that, then you need to look at your lifestyle: are you going out several times a week? If so, cut back to once a week or once every two weeks. Your friends will understand. If they don’t, maybe you need some new friends. You can also find outings that don’t cost money. Or AS MUCH money. I myself have a taste for beer and books. As I’m trying to pay down my Visa and save for a serious vacation in ’09, I had to sacrifice the beer, which is much more expensive and less healthful than books. As the web site says, spend less than you earn.

If you spend your life making the minimum payment on your credit cards, you’re hosed, and you will be hosed for as long as it takes to slowly bleed to death. So skip the bars a few weeks and put that money toward your MasterCard. Oh, and one thing that also reduces stress and concentrates your debt relief efforts is to consolidate your credit cards into one, preferably the one with the lowest interest rate. Your credit card company usually sends offers for lower interest rates on balance transfers. You’ll be down to one payment, which will most likely be higher, but it might also awaken you to how much trouble you’re in if you make the minimum payment on a half-dozen credit cards. Oh yeah, and speaking of credit cards, pay off and close store-issued credit cards (Macy’s, Nordstrom’s, whatever). That’s just an open temptation to go forth and splurge.

Oh, and here’s a wacky idea: stop spending. Say no to yourself. Or say “yes, if” (as one of my former bosses liked to say). And the if would be, “Yes, but only if I can afford to pay it in cash or on a debit card without starving that week.” It’s a temptation, too. There are thousands of gadgets, foods, beverages, games, clothes, and other junk that we are encouraged to buy. I don’t know how to stop mass consumerism. I only know how to stop individual consumerism, and that is to develop a simpler lifestyle. And if worse came to worst, I’d even give up the bookstore and try the library. If I end up really liking a book, I’ll save up for it later.

Debt consolidation also works for student loans, though you can only do that once. I dropped my rate a full percentage point when I consolidated mine. The rate dropped another percent by paying on time (amazing!).

Agencies of the U.S. government (Department of Defense, NASA, etc.) are having one hell of a time hiring kids out of college because, in addition to doing criminal background checks, they also do credit checks. No, that one marijuana joint won’t kill your chances for employment, but the $20,000 Discover bill in addition to $50,000 in student loans will, especially if you’re making the minimum payments or missing payments.

The sad part is that all of this isn’t rocket science. The level of financial education in our country is atrocious, and responsibility is now apparently a quaint habit. Hopefully I’ve done my bit to raise the bar a little.