Trying to Avoid the Debt Spiral
When we bought our first house back in 1997, one of the things we chose to do was only borrow what could be paid on one wage. At the time, we were both working, so it meant we could easily afford the repayments. We had decided never to have any other debts after figuring out that repayments to a car loan meant that we paid 3 times the original amount borrowed. It didn't seem worth it when we could save that up in much less time and pay upfront.
When we had children, I stopped working and things were tight, but we always managed to stay in the black as long as I planned ahead, budgeted to put something aside each month and didn't spend on a whim. By this time we were a household of 4, two adults and two children.
In contrast, we had friends and family with much higher incomes who were always in debt. These were households of 3 and 2 bringing in almost double what we did. So what were we doing differently?
I think the biggest thing was that we avoided the debt cycle. Not entirely, due to our mortgage, but at this point we still believed that a mortgage was a good debt. It's a debt that we've always overpaid on, to try and get it cleared early. What these friends and family had in common was that all income went straight out on debt payments, meaning that they never had the chance to save anything for contingencies or even to save on interest by saving to pay for things upfront. Insurance payments would be paid monthly and accrue interest, car loan payments which went on for years until the car was ready to be replaced, with yet anther car loan. Daily expenses, Christmas and birthdays went on credit cards, building up ever increasing payments. Then something would break down and need replacing, resulting in yet another debt.
When things got to much, their parents stepped in and bailed them out.
There was a point when I wondered if maybe we were the idiots doing it wrong. Why did we go without if family could bail us out? I guess part of it is pride and not wanting to feel like we owed something to anyone, but there's also the knowledge that when something important breaks down, we have it covered and don't have to borrow other people's things while waiting on someone else to bail us out. We can choose our replacement and not be beholden to a budget placed by someone else. We can get deals by paying upfront that we couldn't if we bought on finance... but then what do deals matter if you can still have them and be bailed out?
Okay, apart from not being beholden to anyone, I'm coming up short on reasons for sacrificing to stand on our own two feet. I guess we couldn't have afforded to immigrate to Australia and support ourselves without some money behind us. Parents certainly wouldn't have helped us out there. So maybe the reason to not get into that much debt has more to do with having more freedom.
My parents' generation wouldn't have had the option to be bailed out, so I guess we were the first generation with that luxury. Our generation was the first to start thinking that the debt cycle was the normal thing to do. Our parents could bail us out because they hadn't gotten themselves into debt that couldn't be paid. They were still from a generation which was taught to budget and not spend beyond their means. Are we now a generation who are in so much debt we couldn't bail our own children out?
This actually wasn't where I was planning on going with this post. I thought I was going to be writing about responsible budgeting and spending! What do you think? Should we be responsible if we can be bailed out?
Posted using Partiko Android
I think it's good to not get in debt, especially for cars. I made an exception with my motorbike though. I was paying $80 per week in fuel for my car, and weekly repayments on the bike were $56 which meant for the same price as driving the car I could pay off the motor bike and pay for petrol. Plus rego and insurance is cheaper so it's a real win :)
If it's something that makes you better off in the long run, then it just makes sense. If it ends up a chain around your neck, then why do it? A bike is certainly less of a fuel guzzler!
Did you get the new house sorted?
Posted using Partiko Android
Yeah and something like a house is the same, why pay rent for someone elses house when you can pay off your own for the same price.
Yep have moved everything now and I'm getting settled in nicely. It's nice to have some free time again to get back in the gym.
I have a 900 square meter block so plenty of room to home stead, will be starting today I think :)
Agreed on the rent front! Given the choice I'd still rather pay the mortgage than rent. After a while the mortgage often becomes less than rent because payments stay more or less the same, but rent increases most years. It would still be nice to be able to afford outright. ;)
That's bigger than our block! Nice find and so much potential. Tag me if you post about it, I'd love to follow your progress.
Posted using Partiko Android
Sorry forgot to tag you but just did my first home steading post :D
Lots of work to be done though
Household debt and mortgages are designed to keep people working long hours. Our modern economy is built that way. That's the way I see it. I think it was easier not to accumulate debt in the past - it was something that was generally frowned on until the deregulation frenzy of the 1980s. From that time, debt - mainly in the form of credit cards and mortgages - was literally sold to people on a mass market level. It's difficult not to get into debt these days. So I don't think you should feel guilty if you do ask your family for financial help - provided that they are in a position to help you. You can pay them "interest" on the loan in other ways, such as spending time in their company or helping them out. If you take on more debt from the bank, you'll be putting more money into their coffers in the long run.
A third option is to take on debt from a more ethical bank, like a credit union. The policy of credit unions is to get you out of debt as quickly as you can afford it, without hitting you with extra fees when you pay off the loan.
I didn't know that about credit unions. I really should look into changing to one.
I certainly would rather my children borrowed from us than a bank, given a choice. Only for necessities though. I don't believe in racking up debt just to have nicer furniture or the latest model of something.
I do sometimes wonder if things like debt were really designed to keep people in the workforce or whether it just worked out that way. Was it more that they wanted to keep people buying? Probably a combination of things. 🤔
Posted using Partiko Android
Yes, re-debt, I think it's a combination of both - to reduce barriers to spending, but also to "keep the labour market healthy".
Credit unions have different policies depending on the laws of the country they are based in, for example in the UK you can do online banking through some credit unions, but you can't pay other people or companies online from credit unions. I think credit unions in the US have wider powers, but I'm not sure about other countries.
What they all have in common is that they are mutually owned, by all their members. There are no shareholders trying to profit from your money.
LOL,...... if applied to the banks what would one say? Some of the same dynamics going on IMO. "Why not go for for it knowing that there is someone to wipe butts when the TP runs out?".
I prefer your approach! Obligation and 'debt' is a terrible psychological burden to carry, especially if it is to other human beings (that one is close to).
Personally, I did a big fat runner on the banks when I had to - racked up £13k odd debt (very few options for survival at the time) and then walked away from the entire game of 'credit'. I'm now forced to live within 'means' and I prefer it this way. I've lived the 'dependent' mindset for long enough to never wish to enter it again. In time, crypto will ensure this :)
PS: just came across this seemingly related post: https://steempeak.com/steem/@rycharde/we-are-all-bankers-here
What a very good point! It was the same thing done on a much larger scale, really.
The idea of debt always gets me anxious, so I've never really understood how anyone can be comfortable with it. I had a credit card once, but always paid it off at the end of the month. I tried just paying part of it off once and the interest was so high it got completely paid the following month!
I realise some people have no choice and I'd hate to be beholden to others like that.
Posted using Partiko Android
I've never had BIG debts like a mortgage (or even a car). When I did my 'runner', I realised that bank overdrafts and credit cards are low priority debt which cannot be enforced (unlike say council tax or bills). These are also numbers created by the banks out of thin air and they'll probably not only have insurance, but will have sold the debt on and will also use the figures to further cook their books - not that I need to justify my actions IMO :)......I deposited £5 as a 'one-off lumpsum paymnet" (lol) in each of 4 accounts and encouraged them to wipe off the debt as that was all I had etc. I was away from UK for six months and on my return did not engage, side-stepping phone calls and letters for a couple of years as the banks sold the debt on to other 'debt' prospectors who try their own bullshit scare stuff. I've now just got a very basic bank a/c which gives no o/draft. I know I'm blacklisted from 'loans' and 'credit cards' and this makes me really happy :) ......but then I've also simplified my life and do not desire the BIG things that money can buy. I DO however, want to live off the blockchain and believe that 2019 is the year that this will come into its own!
Did you get declared bankrupt? My uncle had that after his business failed and couldn't hold a bank account for a few years. I wonder how that would work if we go cashless.
I hate having the mortgage. I don't think I'll ever feel calm about it, but it's probably still cheaper than the equivalent rent.
If love to know how you go with living off the blockchain. It would be good to know it's doable for those living minimally or in struggling countries.
Posted using Partiko Android
I had considered going bankrupt but when I looked into it, decided against because (1) it cost £700 odd that I didn't have (2) depressing paperwork and red-tape. It would've meant of course that I could restart the credit game after less than a year, but I just wanted OUT.
I was fortunate that the DSS letter stated that it could be used to open an account, and on the strength of that I was able to open a basic no frills a/c with the Cooperative Bank :).
A cashless society would exclude and disadvantage many. I use cash wherever possible.
Once Steem climbs into double digits (Fiat value), and/or when the financial crisis hits (pushing crypto values up), we should all be able to look forward to a greater level of financial independence and security. Would be wonderful if you could pay the rest of your mortgage off with a few hundred Steem or less - may it happen.
That would indeed be wonderful!
I also use cash wherever possible. It's much easier to budget and monitor what you've got when its tangible and all too easy to overspend when it's not. Going cashless would hurt the the most vulnerable.
Posted using Partiko Android
Very well said @barge
You nailed it.
Dear @minismallholding
Great choice of topic. It's so sad seeing people around us slowly falling into spiral of debts and turning into modern slaves.
Lack of awareness is a real problem of our society.
Based on my life experience, writing down expenses and using cash helps a lot. Most people pay with credit cards and they do not keep records of their spent money. Which is a huge mistake.
That's true. But your parents could purchase property within "normal" price. Then people start taking morgages and it already pushed prices of properties to super high levels. We add investors etc. So in many ways we have it worse. And generation that will come after us will be really doomed. Those who will be born without any assets will have super hard life.
Excellent question.
Lovely read.
Yours
Piotr
Very true. Since the WW2 we've had a kind of inflationary pyramid scheme going for our economy. It started our with each subsequent generation having things easier, but now we're on the downward slope. We had things easier than my parents to start with, but things are crumbling.
My parents were born into rationing, but have gone into a comfortable retirement. We were born into better times, but retirement keeps moving further and further away from us. My children are going to be struggling from the start.
I think my parents got the best time slot, because they missed the war and got to see things improve through their life.
Using cash definitely makes you a better at budgeting, but now they want to go cashless.
Posted using Partiko Android
thank you for another amazing comment @minismallholding
You're right. They will struggle if you won't pass them any valuable assets.
Our generation doesn't have it so bad either. Especially if you can work online and move to any cheap and comfortable location.
But future generation will have it really difficult.
yours
Piotr
Great summary about what´s going so wrong is so many households.
For a lot of people, more money would not solve their problems.
They get more, they spend more. Ending up in a situation where nothing can be put aside for tough times...
That is so true. More money means more spending for many. It's like having a bigger house for all you stuff only to fill it up with more stuff. A never ending cycle where we always want a bit more.
Posted using Partiko Android
The whole reason I want my mortgage paid is so that I can stop this bloody life of labouring for this stupid system. Kinda ironic. But we bought a place half as expensive as nearly everyone I know so we can do it whilst everyone else is still paying theirs off. We did sacrifice living by the sea.. we live half an hour inland.. but we have 5 acres so...
Where did you come from originally?
Posted using Partiko Android
Half an hour inland isn't too bad considering, although a place near the sea would be wonderful.
We're from England's East Midlands. Between Derby and Nottingham. We arrived in SA in 2008. Time flies!
Posted using Partiko Android
Oh I brought my English hubby over in 2007. It does fly indeed! Half an hour is nothing when you are saving 600 k.
Posted using Partiko Android
And he's Luton born and bred but spent 17 to 29 in Brighton, then we spent 6 years in Dorset/Somerset.
Posted using Partiko Android
So you've sent quite a while there yourself. Did you meet your hubby over there?
Posted using Partiko Android
Yes, met him at a party near Bath. And yes, it felt like home for a good long while. I am not sure I'd move back though, not with the current state of things!
Posted using Partiko Android