The Money Diet

[SoCalDem]

The WORST thing that can happen to you when a recession hits, is to be in debt.

Many people here have only really experienced the contrived "mini-recessions" that come along at the end of administrations. The "Clinton-recession" was engineered to hurt Gore..

Since these were manufactured, they were easy to "fix" in the short term, but for the whole adult-life of many people, credit ...and more specifically, the credit-CARD has been a fact of life..like eating, sleeping & drinking.

These are the people who probably got their first credit card while they were still in school (or just barely out of school).

Planning your budget without credit, USED to be the norm. Our family always used the ubiquitous "yellow legal pad". A friend of ours used the "legal envelope" method.

The by-the-seat-of-your-pants budgeting of the 80's & 90's is coming home to roost, and it sucks.

There's an old bookkeepers mantra.. "debits on the left-credits on the right"...and it's the only way to know exactly what you can truly afford.

You don't need fancy leather-bound "expense journals" brought at Borders, while you sip a cinnamon -frou- frou- half-caf- latte.. All you need is a legal pad with your REALITY expenses on the left (be sure to build-in the steady increases (we always used 15%... added the last 12 months+15%, then divided by 12)..

Then add up your TAKE-HOME pay ...do NOT count on raises, since they will surely be eaten up by higher costs..

The DIFFERENCE between these two monthly totals is what you have left to SPEND..

If that's not enough, then cutting expenses is your only REAL hope of survival.

Using a credit card to make up the difference, only ADDS another "debit on the left", and REDUCES the available spending money for you.

You CANNOT borrow your way to solvency. Our government has tried it and tried it and tried it, and even though they have the ability to create money from taxes or printing the stuff, they cannot do it...so Joe Consumer surely cannot do it.

The government always has an "out" though, that we do not have. Every 4 years, "they" get a fresh start and someone to blame.

The sad fact of life is that most people cannot afford to live the life they want to live..or the life they HAVE been living.

We have been taught to be consumers, and the life of a consumer can only be lived by people with incomes adequate to KEEP buying stuff. Our incomes have been stagnant or in decline for a long time now, but the STUFF we keep buying , only increases...in cost and availability-desirability..

When one diets, they HAVE to cut calories (stop buying stuff), but even that will not take the pounds(debt) away. There has to be exercise too (saving).

The experts love to tell us that saving is for chumps, because the interest rates are so small, but is that what's stopping people from saving? I think not.. What stops people from saving, is that they don't have anything left over to save. Every penny "left over" from paychecks is needed to debt-service..

No matter how much your take-home pay is, if you spend more (or are obligated for) than what you bring in, you are headed for disaster.

You cannot count on real raises these days. You cannot count on a stable job. You cannot count on finding a better job.

Optimism is a fundamental element in using credit wisely, and what we have been living through is anything BUT optimism. Credit spending, these days, is driven by panic, depression, and desperation.

Credit card companies know this. They know that people cannot afford to live the way they want to, and like diligent drug dealers, they are very friendly and easy when they offer you your first few "hits", but once you are into them and thoroughly hooked, they GOT you.

Americans are going to have to learn to do with less, and it's going to be painful.

[NMDemDist2]

1. I had two gas credit cards come in the mail the other day

I was shocked, thought I had closed that account years ago when I did the rest of them

it was a joy to shred them.

no CC's here :bounce:

[SoCalDem]

5. we kept ONE when we shredded all the others

We keep Discover and use it often enough to keep it active..and we do have gas cards because I hate to go inside to pay or to use my debit card with pin numbers.. but we pay them off every month.

There was a time in our lives when we did have CC debt. It was the worst time ever..

the sad thing is that with a consumer economy, when people can no longer keep the plates spinning, the whole thing crashes, and everyone gets hurt.. That;s what's starting to happen now..

Even people without credit card debt or without mortgage debt, get hit with the resulting higher prices and lower housing values.

The timing of the money-bomb was perfectly engineered to hit, just as boomers started to sell houses & downsize.

It;s not all that bad to lose value, since what you move TO, is also devalued, but the GLUT on the market, makes it all but impossible to sell the damned houses..for any price (sometimes).. We've got another 5 years or so before we bug-out, so hopefully someone will want to buy this big old house when we need to leave it :)

[NMDemDist2]

8. we done bugged

five years should be enough for the RE to stabilize at least I hope

we have one car payment to finish in 16 months then we own everything with no debt

we're socking $$$ away like mad and figure we'll buy one more car in the next 5 years and be set

:bounce:

[SoCalDem]

10. We paid cash in Jan 07 for our "last car"..

It should last us for all the driving time we have left.

My husband's going to use his next bonus (plus what we saved from this year's) to buy his "dream truck"..cash again..

We loathe car payments, and are willing to wait....

We have NO choice but to save..

My husband never worked anywhere that offered a pension plan, so all we have is what will be in our 401-k, my Ira, our CDs & my piddly $300 pension (but I am 6 years younger than he is)..

So for a few years there, we will be getting only his SS & whatever the 401-k nets us..

We will HAVE to be debt-free and have no monthly housing expense..or we will be sunk like the Titanic..

[NMDemDist2]

12. we may not go fully cash, but no more that a 2 year note on the last car

same with us on pensions, but we're maxing out the 401k at work

[margotb822]

2. A good lesson for Republicans

Seriously. They have gotten by too far on credit and its about all used up.

Personally, I find it necessary to have a credit card. Not necessarily in case of emergency, but for things like plane tickets, which are expensive and have to be bought well in advance. Also, my SO was just going through a job transition and took a significant pay cut for months. The credit card helped us get through and now we are paying it off. (A good motto: Don't put it off, pay it off!)

Also, a hint for people with decent credit: Call your credit card companies and ask if they can lower your interest rate. Chances are, they can. I called and got my rate reduced 1.5% on one card and 2.5% on my other. Every little bit helps...

[eridani]

21. Another hint--if you use credit cards, get them from a credit union

For savings, credit unions offer better interest rates than regular banks, and their credit cards have lower interest. I have 6% interest on one and 8% on the other. And if you ever fail to pay the balance monthly, the interest goes into paying the interest on your savings accounts.

[gateley]

3. Thanks - and forwarding this along to all my friends and family.

I don't mind doing with less -- we've had way more than we needed or wanted for so may years -- but I don't want to have to do WITHOUT.

[IowaGirl]

4. I really have a lot of concerns for young people

today. When my husband and I were in college, we went mostly through school without a credit card. We finally did get a credit card for gas that was to only be used in emergencies. We never got the cool new stuff. Now everybody has to have the latest tech gear no matter whether they have money or not. I really don't have much sympathy for these credit card companies when the young people they sucker into signing on are forced to default. I just feel sorry for the kids who are just starting their adult life under a cloud.:-(

[Warpy]

9. When I came of age in the 70s, credit cards were being handed out

to college students. It was a little more difficult to get one if you were a working stiff who didn't have a great income, but not much.

I didn't succumb until 1985. In 1991, when deregulation came in and all the junk fees and the insistence on paying a ridiculously low monthly minimum came in, I smelled a scam and got rid of it. I was right.

I've lived with debit cards since the early 70s. I keep one account for the debit card in case it gets hacked so the thieves won't get much.

But gawd, it was hard seeing everybody around me going to Europe and driving new cars and wearing new clothes and living in nicer houses.

People are so unrealistic about debt because of those damned cards they're now charging their mortgage payments, taking $1000 at 6+% and turning into a debt at 18%-30% but reducing the payment on it to $100....for the next 30 years. It's making a short term solution into a long term problem. Soon, all their income will be used to service that plastic debt and they'll be living out of a food pantry...if they still have income.

The subprime loan debacle is creating a market shudder. When the plastic credit bubble pops--and it will--that will be the avalanche.

[SoCalDem]

14. At least, back then, the credit LIMITS were realistic

I still remember when we got our first BankAmericard..the credit limit was $500.. They were marketed as EMERGENCY cards...not day-to-day expense cards..

If you give a recent grad who NEEDS everything..a card with a $5k limit, they WILL spend $5k (or close to it) ..

[pengillian101]

31. .At least, back then, the credit LIMITS were realistic...

I've had a JC Penny credit card for 30+ years with the initial limit of $250. Never got to that limit without paying it off. They never raised it - I never asked.

Paying off debt in full each month feels really good. I was in debt hell for years, so I get it.

[DemReadingDU]

19. I went back to work in 1981 after my kids were in school full time

Things were tough in the 70's. Spouse worked construction and there was no work. He was on unemployment and I was a stay-at-home mom with 2 pre-schoolers. We only had 1 car. I was going to school at night for computer programming.

After I started my job, the first thing I tried to do was get a credit card.

The bank told me I hadn't worked long enough and to come back in 6 months. Six months later, I was told I didn't make enough money! I was making $16,000, fairly good salary for my area as a computer programmer for that time. Apparently, I didn't have any credit to my name either.

I then went to local department store and bought a bicycle using 90 days same as cash to establish credit. Finally, I was able to get my credit card, limit was $500.

Fast forward to early 90's. My kids are 18 years old. They are sent credit card applications in the mail. Just sign up, and it was theirs! They didn't need to have a job nor any credit. I was shocked.

Then, 5 years ago, my company that I had worked for 20 years, outsourced my job to India and Mexico along with thousands of others. So we are back to living frugally, don't go on vacations, pay off bills quickly to avoid debt, drive old cars.

Having no debt, spouse and I will be ok during a recession. But I worry about my kids who are in their 30's now. They have good jobs, but living thru a recession will not be easy for them.

[femrap]

18. Debt is the new slavery....the PowersThatBe want

all college kids to be in debt so when they get a job, they will be OBEDIENT and do as they are told. They hold the fear of 'firing' over them.

I talked to a college kid today working at Trader Joe's....he is going to a private school and is in HUGE debt. Why? If you can't afford a private school, why put yourself in debt? When I went to college, a private school was out of the question. It was a State school....that didn't bother me.

I had to beg for credit...I got my first job out of college as an engineer and was traveling on business. My bank wouldn't give me a VISA...it was when women couldn't get credit. My college buddy got a credit card and HE made half I did. So I went in and made a scene and got the credit card.

I don't feel sorry for the kids today...they're caught up in consumerism...and they will learn. I worked with some college kids this past summer and they laughed at me for bringing my lunch...After my lecture on vending machines, corporations, chemical food, health, and lack of brains...they were agape and saucer-eyed. One young woman said,'Wow, I've never met anyone so against da man as you.' I told her da man will kill ya. Do not listen to da man!

[CTyankee]

6. I have always done the yellow pad thing but you could also put it in

an Excel document. It would be cool to do that so you can see in an easily understood pie chart how much of your income is going where!

What is also good about the yellow pad is that you can easily spot the items that you have choices over, such as clothing, personal grooming services/items, entertainment. And you can seriously look at ways of reducing the cost of those areas such as insurance.

[SoCalDem]

7. The yellow pad always exposes your folly too..

It always "works out" on paper :rofl:


In real life it doesn't :)

[Warpy]

11. I got fancy and used Quicken for a few months

and every soft drink and pack of gum went into it. I saw where the money was going and I saw what needed to be cut down or cut out.

It was a good idea to do it just to see where I was pissing money away. I stopped and started to save more.

[SoCalDem]

13. I use the $100 bill method

If I have nothing but a $100 bill, I find myself saying NO..a lot..

There's a psychological barrier (to me at least) in breaking a $100 bill for a couple of dollars' worth of stuff..

It USED to be (breaking a $20) :rofl:

[CTyankee]

16. And that's why people hate it, too! The reality is too much for them! n/t

[spoony]

15. See I thought the money diet was when

the dollar falls so low that it won't buy any food and its only remaining value is as roughage for your digestion.

[femrap]

17. In a way, this financial downturn could

be the best thing that happens to Americans because they just might realize that Material Possessions are NOT the source of Happiness. I am sick of our Consumerism. Why do people want a huge house when there are only 4 people in the family? And maybe people will start to have a respect for Mother Nature...she is quickly running out of provisions.

I fear that there will be an escalation in the violence of our culture if this 'downturn' is more like a Depression. But Americans, especially the males, love their violence. Now they just may see it first hand and it WILL NOT BE LIKE A VIDEO GAME.

A comeuppance is headed to American and its people. Get your attitude adjusted and start to downsize accordingly. Start to focus on what is really important in your lives. Get a bunch of board games, playing cards, books, etc...could be you'll need to entertain yourself for awhile.

[SoCalDem]

20. The only problem is that we are so entrenched into a service economy

that as people stop buying (or being ABLE to buy), other workers along the chain will get laid off, and so on and so on..

Every pebble causes bigger ripples..

and we are mostly dependent on others for much of our daily lives, so people cannot just retreat to the farm and grow their own food..

When you cannot pay rent/mortgage, you get tossed out.

when you cannot pay your car loan, you lose the car

when you cannot pay tuition, you get kicked out of college

when you cannot afford insurance, you get sick and sicker and eventually may even die from lack of care

when you have no money and no transportation, it's hard to find food & shelter.. ask any homeless person..

[femrap]

23. It's very important to form small communities....

so to survive. Remember the 'Hoovervilles?'

You describe what a Depression is....a downward cycle.

Manufacturing may come back...people will have to make things for themselves.

[renate]

22. yep... except there will be some genuine suffering in the meantime

People will indeed (I hope) learn that material possessions don't bring happiness. But there's that magical cutoff line--on average, $50,000, although that's probably close to the poverty line in San Francisco and close to wealth in Muskogee--where income really is correlated with happiness. Once you don't have to worry about putting food on the table and the other basic necessities, it's true that money doesn't have much to do with happiness, but if you do have to worry about your kids (or yourself) going to bed hungry, money really does matter.

The current discussion about money and downsizing and so on reminds me of when gas was around $2 a gallon and we were all "well, the bright side is that global warming will slow down." When there's essentially no time to adjust, the higher prices just cause hardship because there's no infrastructure to absorb the blow, or in the case of the economy, no time to downsize before people are kicked out of their houses outright.

The "more more more" years weren't good for anybody, not in the deeper sense--but the "less less less" years are going to cause some serious pain.

[femrap]

24. Very serious pain...yes &

most of the pain will be on those who don't deserve it. And I believe violence will escalate. My mother was a child during the past Depression, but she lived on a farm so never went truly hungry. Those living in town, did.

Now...no one lives on a farm. I fear for our nation and those who are at the below the poverty line...and that number will increase so dramatically.

I see very little to be hopeful about...very little. Let me know if you see something positive in the future of our country.

[gollygee]

25. I thought this was going to be a food diet - as in "don't have money, can't buy food - eat less -

lose weight" LOL

But yeah, good advice!

[OmahaBlueDog]

26. I know he works for FOX and I know he's kind of a religous nut..

..but Dave Ramsey has been beating this drum for years now. He has urged all Americans to get their finances in order through a whatever-it-takes approach to debt elimination. His goal is foor the new status symbol in the US to be a paid-off home, instead of a Mercedes in the driveway.

[SoCalDem]

27. Not everyone needs a paid-off house..or can afford one.

Many people live their entire lives without buying a house.

The Post WWII era pushed home ownership because the concrete/asphalt, rubber, construction, auto industries NEEDED home ownership in the new suburbs to make them profitable. All those new roads OUT of the cities mandated affordable housing for all the new families that were forming..

It was a new phenomena. Until then, "family homes" were the norm.. Many generations shared the same home, and since we were still very rural, parent-farmers, just expanded their own home or built another one on their land for the married kids..

Young people did not really EXPECT to own their own homes, until the VA and GI-Bill benefits came along..

Remember too that MOST young men were vets, so a whole swath of the population , all of a sudden became home-owners.. That was a FIRST..

But it set a precedent.. we were all sold on the idea that each successive generation should do better than the one before it..

The inequity of the tax structure, in regards to deductions make many people think they have to buy a house, in order to get enough deductions to soften the tax blow..

People USED to get a renter's deduction without having to file a long form..

If the first $50K of income was exempt from federal taxes, or if a renter's deduction was re-instated, a LOT of people would happily go back to renting..

[El Pinko]

29. In areas like California, renting is actually much cheaper and more sennsible than buying.

People who bought 10-15 years ago when prices were more sane are in good shape, and thanks to prop 13, their taxes are low, but anyone who's not a multi-millionaire buying a home in the market in the years 2003-2010 must be crazy.

The credit crunch will squeeze at least another 25% out of median CA home prices before this thing is done. There are tons of examples of homes in CA that are being offered for both rent and sale simultaneously, where the rent is fully HALF of what the mortgage payment would be. Buying in the rust belt of flyover country may be a good idea, but even in some of these areas, there will probably be some depreciation.

[El Pinko]

28. On an individual basis, this is obviously the best route to financial security, however...

...if the majority of Americans do this belt-tightening, stop with the credit cards and home equity loans and frivolous spending, it will cause a huge economic contraction and the loss of millions of jobs.

And no amount of belt-tightening will help people for whom there are no jobs.

Wealthy investors watching their stocks and dividends fall will look for other investments and further slow growth.

I agree with you in principle, but without a serious effort by government and corps to replace the millions of good paying jobs that have been shipped overseas, our economy will be a basket-case without all the personal debt/consumer spending.

Clinton did nothing about the debt/consumer economy or the flight of good jobs, and was basically just 8 more years of Reaganomics, but we were fortunate to have a tech explosion in the nineties. I hope Obama will be different than Bill Clinton in this respect.

[SoCalDem]

30. Pretty soon, it will all be moot anyway..

When people can no longer afford to buy, they will have to stop..Sooner or later the credit card companies will have to shut the credit off..

This is the folly of a "consumer economy-service economy"..

As long as we are all just swapping earned-money for imported cheap stuff and paying each other to tend to our needs..waitressing us, doing our nails, hair..washing & fixing our cars, babysitting our kids.etc, it only "works" as long as we can all afford to pay for these services.."Services" are the FIRST things that get cut out..

When your gas tank sucks up all the "extra" money, getting your nails done, or hitting a bucket of balls at the driving range..well they become things of the past..

We no longer produce the stuff we use.. We have to BUY everything..and as we earn less an less in "real dollars", the stuff has to get cheaper and cheaper..and the staffs required to market, stock & sell it...smaller and smaller..

we are contracting..and every contraction makes it worse.