money, honey

Tonight I picked up a book I got from the library on a whim. It’s called something like Money Makeover (it’s not in front of me and I’m too lazy to get up); it’s one of those books with highlights and exhortations, the written equivalent of a rabble rousing preacher man at church services. Everything is broken down into the simplest form, predigested and formulated to burn the Program into your brain. Money for Dummies, basically. You can skim a book like this and get the gist.

Not that it’s wrong, mind you. I’m fairly certain from looking at the first two chapters that the premise is that debt is evil and living within your means – living on cash, not credit – is the only way to go. Which is commonsense, really. The siren call of the credit card, why pay today what you can put off till tomorrow, let’s buy everything in sight, that will just get you deeper into the hole. Everyone knows that. Sometimes we do it anyway. I was talking to a sales guy yesterday, he was here to tell us how much his central air conditioning would cost. Which in itself is financially foolhardy but oh-my-god, our quality of life this summer? Infinitely better.

Anyway, he was talking about the insanity of our local housing market, guessing what our house was worth a few years ago and what it’s worth now and only exaggerating a little. He’d seen our refi paperwork, so I told him we were just refinancing to turn an adjustable rate into a fixed rate mortgage. Financially prudent, that’s us. (Well, not really, but we try.) He said he runs credit checks on people all the time for their six-months no-interest no-payment plan and often they’ve accumulated tons of equity and then refinanced and pulled all the money back out in the form of credit lines and second mortgages. But of course they now have to pay those huge monthly bills. It’s not free money. And what happens if and when the housing market crashes or even bobbles a little? These people will have debt with no collateral. If they sell their houses then, that wouldn’t cover the note on it. Craziness. Living on borrowed time. Living in the now and saying to hell with the future.

This author is right, we can’t live like that. It’s self-destructive. On the other hand, did you know how we got this house? The one that saved our financial asses and has given us boatloads of equity? With zero down and a horrible interest rate. We took a huge gamble, in other words. For a year we paid a vastly higher monthly note than we could afford, hoping we’d gain enough equity to refinance down to something reasonable. Guess what? It worked. If we hadn’t tried, we’d still be renting. We’d have no equity at all. And that equity helps me sleep at night. If Dan were to lose his job tomorrow and not get anything for a year or two, we could sell the house and go back to renting. Live on the profit until we get a foothold again. That’s security. That’s why we own.

So where do you draw the line? How do you know when it’s okay to borrow and when it’s not? When it’s sane and when insane? Short of a crystal ball, you don’t. Not really. You just have to learn as much as you can about what you’re getting into and then try to live prudently, wisely, but not necessarily risk-free. Just take careful risks.

Then there are other kinds of decisions. Quality of life ones like the central air, which combined with a new furnace may make sense because we’re buying cleaner air, no more subtle carbon monoxide poisoning, no more asbestos in the ducts, and lower heating bills. But there are also bigger kinds of quality of life ones. Like right now we’re paying more than we can afford for Damian’s three-times-a-week private preschool. Idiotic if you look at it on paper. He’s in a non-public pre-K fifteen hours a week. (Non-public means it's technically private but the school district pays his tuition, not us.) He’s getting a great education there. But he needs this time with neurotypical children to learn how to interact with them and to build his confidence for kindergarten next year. As far as I’m concerned, it’s money well spent. It’s a tangible intangible and we’re not willing to pare it out of our budget so we can save a few (thousand) bucks this year. We’re investing in the future in this case too, just not the money kind.

It’s not like we can use this argument for everything that comes down the pike that sounds like fun. But sometimes when you want a thing badly enough, you can twist the logical centers in your brain into pretzels to make it sound reasonable. How can you tell when your arguments are sensible and when they’re not? I think sometimes you do know. Your gut tells you. Other times you have to wing it.

I’m planning to read or at least skim the rest of the book. I might glean a few tips and I know it’ll help me get into a saving-not-spending mindset, useful for Dan’s yearly work hiatus, which is coming up soon. But as with all simplistic fix-your-life concepts, there are shades of gray I know it won’t cover.

Posted by Tamar at March 19, 2004 10:42 PM