Sunday Philosophy: Frugality

Every Sunday I write a post, usually lengthier and meatier than others, that details a bit of the thoughts and ideas that I believe in and try to live by. I try to relate a bit of the roots of conservatism, our nation’s founding principles, and stuff that just plain makes life better.

Benjamin Franklin advocated thirteen virtues that he believed, if strived for, would help an individual live a happy, successful life. These virtues were temperance, silence, order, resolution, frugality, industry, sincerity, justice, moderation, cleanliness, tranquility, chastity, and humility.

Recently, radio and TV host Glenn Beck has been advocating for a return to the spirit of these fundamental values as part of his 912 Project, and that’s an awesome thing for each American to consider. This article will focus on one of those values: frugality (or thrift).

From the housing bust to our national trade deficit to Cap & Trade to health care to the looming bankruptcy of Social Security, Medicare, and other social programs, we as a country face a lot of challenges. And because of that, a lot of us have recently begun to reconsider our own relationships with money. A lot of people have lost their jobs. A lot of people are underwater on or have lost their homes. A lot of people have accumulated a lot of debt over the years, and are now faced with a personal financial crisis all their own. And since the prospects for the national economy in the near-future don’t seem altogether bright, it’s time we started facing reality, understanding money, and taking responsibility for ourselves instead of hoping that either the “good times” come back or Barack Obama sends a new bailout our way.

So let’s take it from the front. At some point in the post-war years, corporations, the media, advertisers, and the government stopped considering Americans as citizens, and we instead simply became consumers. The transition from the gold standard to the debt standard meant that the primary way to create wealth and grow the economy was for the government and businesses to create debt. Initially, this was a fairly safe bet since debt was issued only if people had the means to repay what they borrowed, plus interest. But the government, as the government always does, meddled with the system and destabilized it. Politicians, thinking it was unfair that only people who could pay back their debt should be able to get access to money they didn’t have, relaxed lending standards and made credit available to people who clearly couldn’t afford to pay back their debts. Companies became willing to take on more risky clients, figuring that they’d lose some money, but over the long run, enough people would be honest that they’d be able to turn a profit.

So providing access to simple and easy credit to basically everybody allowed us as a nation to all live beyond our means. A credit line of $5,000 meant that you could spend $5,000 that didn’t exist anywhere on things you would never have bought with your own money. Shouldn’t that have set off some alarm bells right there? Probably, but so it goes. I fell for it, you fell for it, but here we are. The show must go on.

So, yes, here we are. You have a mortgage, a car payment or two, a credit card bill, a department store bill, a gas card balance and a student loan. Maybe more. And it’s all debt: you bought something you couldn’t afford at the time, and now you owe somebody the initial cost of the item plus a bonus for every day you’ve owned it but haven’t paid for it. Go back to Benjamin Franklin’s list. Which of his virtues describes THAT state of events, Missus or Mister Patriot?

If you’ve stuck with me this long, then you’re either a responsible, thrifty human being or you’re a realist who’s brave enough to face the facts, admit your mistakes and start rebuilding your life, so that for the rest of it you can actually pursue happiness and enjoy liberty. So here’s the plan:

1. Starting today, spend less than you earn. It’s as simple as it sounds, but it may be a really hard thing to achieve. Depending on your current lifestyle, the expectations of a spouse or your family, if you’ve recently lost a job, or a million other reasons, it could be a really difficult thing to do. But this is an unavoidable fact and ignoring it is unsustainable. We all have a duty to do this.

2. Start paying off your debt. Once you’re living below your means, use whatever you have left after covering your basic needs to get you out of slavery again. If you need help coming up with a plan, get a copy of Dave Ramsey’s Total Money Makeover, or one of countless other personal finance books that cover this very topic. Pay off your smallest debt first, then add the amount that you would have been spending on that payment to the next smallest debt and pay that one off, etc. This is called the Debt Snowball method. For more information, check out this blog post by Trent Hamm at http://thesimpledollar.com.

3. Build an emergency fund. Initially, this might be 1-3 months’ worth of living expenses. If you lose your job, need to replace an engine in your car, or who knows what else, your first response today might be to charge it to your credit card and Add to your already-depressing pile of debt. Imagine the feeling of (dare I say) liberty that would come with knowing that you have enough cash available for those unexpected problems or events. Knowing that you won’t be paying for the next 15 years for that emergency refrigerator replacement purchase you would have otherwise put on your credit card.

Really, that’s it. There are a thousand variations and strategies to approach these issues, but those are the rules. Following these rules is how you build wealth, get out of debt and prevent from indenturing yourself to the credit companies. This is freedom. Sit down, take a deep, long look at your finances, be honest with yourself about where you are, how you got there, and what you need to do to change things around.  The individual rights we share come with individual responsibilities, and being smart and effective with your money is one of them.

More Information:

• http://www.thesimpledollar.com/ and http://www.getrichslowly.com. These are two of the best blogs about personal finance and coming to terms with debt. Trent and JD are inspirational, clever writers. You don’t have to do everything they suggest, but consider how you might roll their ideas into your own financial strategy.
• Money Advice from Benjamin Franklin’s “Way to Wealth”