Act Your Wage

[5010]

Is the philosophy of "acting your wage" universally good? Many of us begin our adult lives in a process of growth. It seems reasonable to me that taking debt to increase growth would improve our chances of attaining a higher income. But then later on, so many find ourselves regretting those previous choices to use debt.

The ease of credit and borrowing makes it possible to enjoy the lifestyle of others who are possibly doing the same. This can entice us into living beyond our means and becoming addicted to the higher level until the reality of pay-back slaps us in the face.

So it seems to me that using debt only for growth is just a nice theory that doesn't pan out in reality except for few individuals. But still, that indicates to me that "acting your wage" is not universally good, just commonly good.

Later in life, once we've established our skills and are commanding a good wage, is there any benefit to living beyond it? I don't think so. Maybe you know otherwise.

Personally, I've been implementing Dave Ramsey's "Total Money Makover" to fix the excesses of my past. This philosophy attacks debt by baby steps that focus more on psychology than mathematical perfection. You begin by stopping acrual of debt, then setting up an emergency fun by stopping all investing, selling all non-vital assets (garage sale/ebay usually), downsizing expensive vital assets (usually replacing expensive house/car with older but useful ones), and working an extra job if that's what it takes (usually delivering pizza). Then you set up a frugal budget (usually budgetting cash into envelopes labveled for specific needs, allowing a little "blow money" for your sanity) and organize debts from smallest balance to highest, then holding everything but the smallest at minimum to pay off the smallest as soon as possible. Once you are debt free (including the mortgage!), you then increase the emergency fund to several months, start investing in things like college (if you have kids) and retirement by at least 15% of income, and then you can go ahead and adopt a more expensive lifestyle as long as it fits within your budget without any debt.

What other systems/philosophies of finance do you know of and how would you compare them to this?

Discuss... ?

[belverron]

I think there's a difference between using borrowed money to invest in your future and using it to pay for your current lifestyle; the first can be sensible.

[kubedawg]

Well, considering everyone is different, that would be a reason to say this quote shouldn't apply. However, there has to be a generalization made at some point because there ae so many people. Like, what age should one be allowed to drive? And if it were up to the parents to decide, then would the penalties for getting yourself in a car wreck be different than if we were to set the age limit to 16 or 18?

aww crap, I only read the thread title, and misread it thinking it was "act your age"...

[Vee]

governments encourage that sort of debt - and then say it was your choice to do it

nevermind the fact at the time you were too naive to know the full ramifications due to your age and life experience.

Mind you they often say the opposite with public debt and call it a deficit but that's just an excuse, much like a surplus is an excuse for underinvesting in infrastructure.

Fact is govts don't care if you're in debt, it means more money ultimately in their pocket and they don't see themselves as public representatives but more of a corporate entity which is why the classical liberals complain about the State and govts don't care if interest rates and the like go up and you end up in poverty because it was your choice.

Nevermind the fact no one bothered to provide you with the education on the subject - say like the government. They're too busy looking after their own self-interests instead of the peoples.

[5010]

I think it would be great if my gov't was designed for financial discipline, but I don't know how such a design would work. Should one running for any public position that authorizes spending be required to release their credit report to the public? Do you think the huge US debt has put the gov't under too much control by underwriters? Perhaps it's a subtle control kept out of public eye? Of course, a lot of it is finances by the public when we buy savings bonds and such, but I'm guessing there are some bigger financiers that are more directly involved.

When I was going through public school, there wasn't anything on personal finances in the curriculum. I think it should be something taught as a math course at elementary school after the basic operations are taught. They should also teach time management in elementary school and students should be using organisers by the time they get to high school. If I had learned these basic things at that age, I would have been much better off later on. When people reach the age where they can earn wages, they tend to lack the knowledge an discipline on how to budget the income. So bad habits start from the beginning.

Are curriculums any better now? I don't see it. Maybe private schools are doing better in this area. I know parents should be filling in the gaps left by the school system, but a lot of parents don't have the knowledge or discipline themselves.

But maybe we're getting too far off topic. The main thing I wanted to explore here are philosophies of financial wisdom. Maybe we should bring up the social issues in another thread?

[brien]

Quote by: 5010 Is the philosophy of "acting your wage" universally good? Many of us begin our adult lives in a process of growth. It seems reasonable to me that taking debt to increase growth would improve our chances of attaining a higher income. But then later on, so many find ourselves regretting those previous choices to use debt. The ease of credit and borrowing makes it possible to enjoy the lifestyle of others who are possibly doing the same. This can entice us into living beyond our means and becoming addicted to the higher level until the reality of pay-back slaps us in the face. So it seems to me that using debt only for growth is just a nice theory that doesn't pan out in reality except for few individuals. But still, that indicates to me that "acting your wage" is not universally good, just commonly good. Later in life, once we've established our skills and are commanding a good wage, is there any benefit to living beyond it? I don't think so. Maybe you know otherwise. Personally, I've been implementing Dave Ramsey's "Total Money Makover" to fix the excesses of my past. This philosophy attacks debt by baby steps that focus more on psychology than mathematical perfection. You begin by stopping acrual of debt, then setting up an emergency fun by stopping all investing, selling all non-vital assets (garage sale/ebay usually), downsizing expensive vital assets (usually replacing expensive house/car with older but useful ones), and working an extra job if that's what it takes (usually delivering pizza). Then you set up a frugal budget (usually budgetting cash into envelopes labveled for specific needs, allowing a little "blow money" for your sanity) and organize debts from smallest balance to highest, then holding everything but the smallest at minimum to pay off the smallest as soon as possible. Once you are debt free (including the mortgage!), you then increase the emergency fund to several months, start investing in things like college (if you have kids) and retirement by at least 15% of income, and then you can go ahead and adopt a more expensive lifestyle as long as it fits within your budget without any debt. What other systems/philosophies of finance do you know of and how would you compare them to this? Discuss... ?

I have two types of debt. Only one personal for a home mortgage because it is tax deductible. I pay off all credit cards at the end of the 30 day cycle. I encourage my kids to do the same to establish credit. People must have credit in the American society today unless how else could they afford big ticket items like homes, cars, and adult "toys". Even if I can afford to pay cash, I use a credit card and once again, pay in full at the end of the month. If I purchase a refrigerator, and I can take advantage of a 24 month no interest "loan", I do it, even if I could pay cash. This is because I get to bank my money and collect interest on it while paying off the interest free loan. Automobiles, boats, and other "adult toys" are financed with home equity loans that are once again, tax dedcutible. The danger to this is that they are collaterlized by your home but the interest is dedcutible. If you finance these things through a bank, the worst that can happen is you hand the keys to the car back to the bank, they don't forclose on your home. You must be absolutely sure of your income if you finance through home equity loans. I further encourage savings in money markets and CD's and other "safe" investements, as well as retirement plans. If you are self employed use the SEP. (Self employed pension)

I also encourage sensible business loans but in doing so recommend that one form a corporation to protect oneself personally. If your business goes belly up, Chapter 7, you can walk away and protect your personal assets. I think it best to lease as much of ones assets as one can in certain circumstances because you can write off the monthly charges whereas anything over $100 in cost must be depreciated if you own it.

In business, it is best to seek the counsel of finance and tax experts.

[5010]

That's a good philosophy, Brien. What you say about equity loans is true and I avoid them because one never knows when hard times will hit.

So I take it you set a budget to make sure you're able to pay the balance each month, right? Do you keep an emergency savings fund too?

[brien]

Quote by: 5010 That's a good philosophy, Brien. What you say about equity loans is true and I avoid them because one never knows when hard times will hit. So I take it you set a budget to make sure you're able to pay the balance each month, right? Do you keep an emergency savings fund too?

Oh yes, emergency funds also. Enough to cover most of the mortgage if business goes south. But I have been working for myself for over 15 years and have planned accordingly.
I am preparing to downsize and semi retire. Pull all of my equity out of my Connecticut property and move south. Buy a home for cash and bank the rest. Continue my business but picking and choosing what I wish to do and not to do. Sailing, surfing, diving, and living the good life near the Atlantic ocean in SC. I may even take up golf::rolleyes:

But I have vowed never to wear powder blue pants, a white belt, black & white, two tone wing tip golf shoes, a golf association shirt with a white snap cap. Ahhhhhhhhh:eek:

[tivodan1116]

Quote by: brien I pay off all credit cards at the end of the 30 day cycle. I encourage my kids to do the same to establish credit. ... In business, it is best to seek the counsel of finance and tax experts.

Just so you know, you might want to seek some yourself. Carrying no balance on your credit cards actually makes you look less favorable to a lot of lenders (because they make no money on you). I prefer to carry a small balance on a couple of low-interest credit cards (less than $200) because I see the cost of that interest as buying me a higher credit score/rating.

Of course, carrying a very large debt load will lower your credit score faster than anything.

In terms of credit/money philosophy, I tend to listen to Suze Orman. And her philosophy is that debt is not inherently bad, just as saving is not inherently good. The totality of the situation is what's important.

[brien]

Quote by: tivodan1116 Just so you know, you might want to seek some yourself. Carrying no balance on your credit cards actually makes you look less favorable to a lot of lenders (because they make no money on you). I prefer to carry a small balance on a couple of low-interest credit cards (less than $200) because I see the cost of that interest as buying me a higher credit score/rating. Of course, carrying a very large debt load will lower your credit score faster than anything. In terms of credit/money philosophy, I tend to listen to Suze Orman. And her philosophy is that debt is not inherently bad, just as saving is not inherently good. The totality of the situation is what's important.

Just so you know, you might want to seek some yourself.

I know what you are saying but I have no problem whatsoever in credit, finance or in money management. I didn't say I didn't carry any debt. Just no credit card debt. My net worth usually gets me what I desire. I do not pretend to offer anyone any advice because everyone's case is individual and different. No offense, and with all due respect, you don't need to tell me to seek financial advice because I have done rather well for myself so far in my 55 years. I work independently, own my own business, have a very strong annual income, and a very respectable net worth. I guess I am doing something right.