Tuesday, March 7, 2023

Financial strategies

This morning I read a finance piece entitled "A Nation's Heavily Indebted Consumers Face a Painful Margin Call." The article focused on the Canadian economy, and opened with the following paragraph:

"At the height of the Covid-19 pandemic, with his job as a delivery driver bringing plenty of overtime and the cost to borrow at record lows, James Kebe went on a spending spree. He leased a boat and an all-terrain vehicle, and when his bank offered him a bigger line of credit, he maxed it out.Then interest rates started rising at their fastest pace in generations. And because Kebe’s line of credit had a floating rate, his monthly payments soared, too. The cost of his debt has now outpaced his take-home pay by C$900 (U.S. $660) a month, leaving him with little choice but to enter a form of creditor protection that will see his toys repossessed and keep him on a tight budget for the foreseeable future. 'I've always been able to squeak by until now,' he said by phone from his home in West Kelowna, in the Canadian province of British Columbia. Now when he's at the store, Kebe says his new mantra is: 'Do I need this? No I don’t.'"

I confess I blanched with horror when I read about this man's actions. The phrase "spending spree" tends to do that to me. Why? Because we've been in debt and hated it.

During our child-raising productive years, Don and I were desperately trying to keep the woodcraft business afloat while raising and homeschooling the kids. Money was always tight, and our income was wildly unpredictable. The result? Our savings were practically nil, and we got in over our heads with credit card debt (purchasing necessities, not luxuries). It took us years to climb out of the financial hole we'd dug and start putting money away for our older years.

As a result of our earlier experiences – even now, so many years later – I have a near-pathological fear of owing money. We refuse to ever take on more debt: no auto loans, no credit card debt, nothing. It's cash all the way, baby.

Then a few days ago, I read an article by Daisy Luther (The Organic Prepper) on the subject of FDIC bail-ins.

The article was fine, but as always it was the comments which followed that were even more interesting as everyone chimed in about his or her financial preparedness efforts.

One man wrote: "Our fin [financial] advisor was against us taking $ out of our 401k and paying off our property. We did it anyway. Our peace of mind is off the charts right now."

However a critic replied as follows: "No one thinks they will get 'old' and retirement seems an eternity before it happens, then suddenly it does, some are glad. Then what will your income be? SS [Social Security] can’t meet all expenses. U.S. T-bills now can be bought below par, then 6 months or a year later mature, then take the interest, get more bonds bought at less than value reinvest. They are paying 5% now. Only ones living on SS retirement only are in subsidized housing. Muni bonds are tax free."

Later she added: "Most retirees I know have CD’s in a local bank or credit union they need money to live off interest, also in gov. bonds, muni’s. Nothing else can give an income. If everything goes digital, gold and other metals can only be bought and sold among other collectors. Stores will only take digital like debit cards. 401k’s best be in US treasuries 100%. cashing a 401k will be a big tax hit."

Hmm. Is this woman a spokesperson for government bonds and other traditional investment strategies?

These comments sparked a lively discussion between Don and me because it touches on our own financial reality. Because of the financial uncertainty we experienced in our younger years, we never put money in "traditional" investments. Instead, we've done our best to squirrel away as large a cushion as we could manage on a tight budget. However we did learn the art of frugality to the nth degree. Coupled with our long-term goal to reduce our expenses to the point where we could live on very little, we're far more comfortable than we've ever been.

This touches on one aspect of financial management few people ever discuss (or adopt): The radical concept of drastically lowering one's regular or monthly expenses as a preparedness strategy.

When we had the opportunity to purchase our new (to us) home when we downsized a couple years ago, we leaped at the chance to pay cash and have no mortgage. While it would have been nice to find a place with more acreage, we deliberately limited ourselves to properties we could purchase outright for cash. Now, having lived without a mortgage for two years, I fully understand the "off-the-charts peace of mind" mentioned by the man mentioned above. It's true.

But just because we don't have a mortgage doesn't mean we've eliminated frugality. Yes, we've spent the last two years spending money buying things to turn this property into a homestead – lumber and other construction materials, fencing, and of course our plumbing woes last fall – but that's spending, not monthly expenses. We've continued whittling down our monthly expenses with a "how low can you go" attitude. If the financial bleep hits the fan for us, we can exist on as little as $800/month. If we were completely strapped for cash, we could drop that to about $500/month, possibly less.

Right now Don is receiving a very modest amount of Social Security. I won't be eligible for Social Security for another couple of years. However you can bet we'll keep our living expenses within the range of our anticipated income from these sources.

What did the critic above write? "Social Security can’t meet all expenses. ... Only ones living on SS retirement only are in subsidized housing." Excuse me, but that's baloney. One of the reasons we've whittled down our expenses (including having no mortgage) is to be able to live comfortably on Social Security, or far less if need be.

So what about the strategies mentioned by the critic above? Should we invest in T-bills and other financial opportunities? In our book, no. We don't trust the government not to mismanage itself into insolvency. The repercussions of a government-orchestrated financial collapse are vast and far-reaching, and it means the death of not just Social Security, but all the fancy T-bills and other financial vehicles this woman touts. What will she do once she can't withdraw income from her investments?

In the event of a financial collapse, everyone will be in the same boat regarding economic hardship, and traditional investment strategies may no longer apply. When and if this happens, everyone will have to cope as best they can. But those who are used to living low on the hog at least won't be faced with owing money on things they can no longer afford, or feel deprived when they can't go on a "spending spree."

In other words, considering our past, I feel we're in about as solid a financial position as we can manage, despite our lack of "traditional" investments. (You might say we "invested" in frugality.)

Perhaps a question to ask is this: Are your finances in line with a preparedness lifestyle? Is your lifestyle and spending habits in line with preparedness? Are you financially prepared to lose your job or weather an economic downturn?

The whole idea of financial preparedness is being able to handle, to the best of one's ability, economic blows ranging from the personal (job loss) to the international (a worldwide economic collapse). While we can't make much of a difference on the international platform, there's a lot we can do on a personal level to prepare.

My $0.02.

30 comments:

  1. shame this isn't taught in schools or by parents, we have lived this way since 1986 when we paid off our first home which had14% interest rate and said never again! love reading your blog thanks for sharing

    ReplyDelete
    Replies
    1. 14%?! Holy smokes, and I thought the current 7% was bad!

      KinCa

      Delete
  2. We've always lived frugally and were fortunate to live a rural lifestyle, that provided us with all of our own meat, some vegetables, and all the rhubarb, raspberries and crabapples a person could want. We invested in our own stock market---livestock, ha ha. Raised more than we needed and sold the rest. The job never did pay a lot, so I calculated that my husband could quit his job at 50, and we could do odd jobs, as well as selling stuff at the farmer's market once a week for 20 weeks. Right now, thirty years later, the pension pays more than he ever earned, medical is free (except for eyes and dental). We moved to a better growing climate on smaller acreage, raise a few chickens and rabbits and consider ourselves truly blessed.

    ReplyDelete
  3. For me a spending spree is $20 at the thrift store! Now, we are in our late 70s and live on 2 SS & 1 tiny pension. The real question is can I live on the 1 SS if hubby dies? Yes I can even tho I'll have a small mortgage - actually the same I would pay in subsidized apartment housing. I know what my food would cost, how much water & electric I would use & can estimate what my taxes would be. We've made pretty much all the reductions in spending we can - even that once a month eating out can easily be dumped, and that pint of ice cream can go too altho that might bring some tears.

    ReplyDelete
  4. No offence but we share similar frugality traits.

    Was once in debt being nibbled to death by many small cards (remember when JC Penny and Sears Cards were cool?) and got them paid off the hard way including a side job outside the Army.

    But as a history buff and having family stories about the Great Depression as well as the German side of the family in Weimar Germany a thought.

    In America many a family lost the home and farm to Bankers on the Courthouse Steps over taxes. Grapes of Wrath homelessness and such. No serious inflation but near total lack of paying jobs.

    Many families took in other family members to keep them from becoming homeless. Those "Lucky" enough to have a JOB kept the tax man away while everybody worked (often not for cash but food) to keep the family fed and warm.

    In Germany Hyperinflation made the stored money in bank accounts and indeed your daily paycheck nearly worthless. Plenty of jobs but the stories of folks racing to the store to spend their paycheck before the prices rose again are not fables.

    https://www.goodreads.com/book/show/8567383-when-money-dies

    Worth reading.

    I am carefully watching how Congress responds to the current "Loss" of the COVID emergency EBT funding.

    If they throw our tax dollars (aka more US Debt) at it we will stagger into Hyperinflation as that's what Germany did. But if we don't the food riots are going to make the LA Riots look like an old style slapstick show.

    What to do to protect your family could be a full thread.

    But remember the TAX MAN will get his pound of flesh and the Banks always get their payments. So have the coin of the realm to pay them. Homelessness is not a option.

    ReplyDelete
  5. We have been debt free for over 12 years,
    Our income is SS. We are fine.
    Getting to be debt free is THE most thing to do.

    ReplyDelete
  6. We are also debt free. I say this over and over again - to be free in America is to owe no money to anyone for anything.

    ReplyDelete
  7. Why we are not terribly frugel we are debt free. That is the main thing to try to achieve. Owe nothing to anyone!

    ReplyDelete
  8. Like you, we struggled with expenses and debt when our children were young. Not from fancy trips or big tvs, but due to living on one income and paying Christian school tuition. We're moving to our new-to-us much smaller home on much larger acreage in weeks, and the thought of being mortgage free (already paid off the cars and still have some 0% interest credit-card debt) is giddying. We'll also jettison the suburban cable bill, lawn-care bill, water/sewer bill, toll-tag bill, etc. Both my husband and myself are eligible for SS but have chosen not to take it because he's still working (soon to be remotely) and at our current income level taxes would take most of it. We'll reassess in a few years.

    ReplyDelete
  9. In the late 1980s, I graduated with a degree and debt. I figured about half the debt was 'good' and had gone for actual tuition, books,and a needed surgery and recovery. The other half of the debt was stupid decisions made at the time. In hindsight, I think havinga debt load at that age was almost as valuable as the degree. I paid off the debt over six long years throwing everything I had at it and vowed not to ever go into debt again. Over the years, I did take on some debt in car loans and mortgages. The car 60month car loans were always paid off within a year. And, I set the goal to always be able to live on 70%of my income. Today, I am debt free and manage on SS and a small pension. Although I had always dreamed of being mortgage free and owning my own residence outright, I never achieved that goal. But I am now living in a senior's housing complex that is both affordable and gives me the supports I now need as a single lady in her late60s. Looking forward to reading other comments. SJ now in California

    ReplyDelete
  10. A relative called a few months back and was so desperate that they were going to just quit their job and declare bankruptcy because they couldn't pay their bills and eat too. He had one loan for $2300 that had a 33% interest rate and a high monthly payment that was mostly just interest. So we loaned him $2300 to pay it off and with his tax refund he was able to pay most of that back to us and the loss of that $121 a month payment allowed him to buy food and still continue to pay off his other debts. After he gets the full amount to us paid off we will help him with the next worse debt.

    ReplyDelete
  11. I don't mind debt if it can be paid off tomorrow and I'm making more off the principal than the interest charges. Otherwise, it's usually a trap for the mathematically illiterate.

    ReplyDelete
  12. 18 years ago we left a large city in Florida and moved to a small town in Southern Illinois buying a smaller house on a good sized property. We do still owe a bit on our house with a low fixed interest rate but have no other debt. We've been working on stashing as much cash and making extra house payments. It's getting really scary out there and I'm so thankful we moved when we did so we could get settled.

    ReplyDelete
    Replies
    1. I live in Southern Illinois also. I’m in the Shawnee National Forest area.

      Delete
  13. Something I learned from you years ago was what a tangible asset was. I don't have many, but they have brought a significant amount of peace of mind for me. My pressure canner, my freeze dryer, my solar generator, and my slowly growing pantry and skills. My flock of chickens and my garden. Little by little I'm working to acquire skills and tangible assets while I still have a good job and save what I can as well. No credit card debt, no car payment but we do still have a mortgage for the foreseeable future (thankfully it is a very low and fixed rate). We plan to have it paid off by the time we are of retirement age.

    KinCa

    ReplyDelete
  14. Last week, I read and judged the Young Authors books at the school where I worked. It’s a fun time for myself and two other retired teachers. We received a surprise this year. We were given a $15 gift card to an ice cream shop and a $50 Visa gift card. I can’t decide what to get. I’m trying to think of something practical, but my husband is encouraging me to get something frivolous for myself. I honestly can’t think of anything that I want. This is the kind of person I am. I buy things because they’re needed, not because it’s something that I want. This has made it possible for me to live free of debt for more than a decade. My daughter-in-law commented on the beautiful, new dress I was wearing last week. I thanked her and told her that it was at least seven years old. Seeing my mother mismanage money her entire life and having experienced the consequences of this, I decided at a very young age to live my life differently. I married a man who felt the same about spending as I did. I’m glad I did.

    ReplyDelete
  15. Patrice I believe you are spot on in your financial approach, without bondage we get to experience true freedom

    ReplyDelete
  16. Just because you have money doesn't mean you should waste it. I am frugal always have been. That is the reason I am debt free, own the home, no mortgage, drive a 15 yr old car with 40M miles that should last me until I am gone. There is a lot of peace of mind, no debts, just normal utility bills and groceries. Most important, I do not know anyone by the name of Jones. I only have to buy what makes me happy!

    ReplyDelete
  17. When my daughter was young, I was a stay at home mom. I worked very hard to live well within our means. My husband spent money on his hobby (an antique car) and we gave a tithe to our church. One of the men in my husband’s office asked him where he got his outside income since there had to be one to allow us to do the things we did. My husband proudly said that we didn’t need extra income since I was a good money manager. We couldn’t save a lot but didn’t go into debt. When I worked again, we saved money, paid off a mortgage quickly, and paid for our daughter’s college above her scholarships.

    ReplyDelete
  18. I think the younger generation needs to be reading these testimonials. They probably won't have social security, but tangible assets instead of rent should be their first moves financially. Many of them are building Tiny Homes, and there are a lot of companies building them too. Financial freedom is a strong basis for all other freedoms and fortunately a lot of younger people see these small starter homes as part of that path.
    Who knows where we'll be in 10 years, or 5, or even two.
    But skills, means of self support meaning gardening and such, and a secure place to lay your head at night will be needed as long as we're in this life.
    Gen. 8:22. While the earth remains, seed time and harvest, cold and heat, winter and summer, and day and night shall not cease.

    ReplyDelete
  19. I agree with this completely, my husband and I were just discussing the other night what it would take to live on per month for just the basics because a neighbor had told him they withdraw $5000 per month for their living expenses. After quickly figuring our monthly bills (minus the car payment) we came down to about $500 per month. Based on the current amount I pay for the car, we should have that paid for in less than 2 years. Peace of mind will come when it's paid in full.

    ReplyDelete
  20. You and Don are such a HUGE inspiration for me and my husband. Spending less is always an option!

    Money-related question: what do you feed to mr. Darcy? Our dog passed away a little overayear ago, an we are planning on having a new one. Meanwhile, I have developed my cooking skills so, that there will be almost zero "slaughter waste" for the dog. Our previous dog ate that and then some dried commercial dog food, those "pellets" (I dont know what they are called in english), but now we eat all that slaughter waste ourselves. And eating nothing but commercial dog food isn't really healthy, our dog was always best when she didn't eat that at all.

    So, what mr. Darcy eats?

    ReplyDelete
    Replies
    1. We feed him a variety of dry dog food called "Nutri Nuggets." We also don't hesitate to give him meat scraps, which needless to say he adores.

      - Patrice

      Delete
    2. I also have a golden retriever, like Mr Darcy. I switched her food up about a month ago. She now gets about equal portions of dry kibble (purina Pro plan) and half intentional table scraps - always a cooked egg, some pureed vegtables and then true table scraps from my cooking. And a teaspoon of olive oil daily. Her energy level is through the roof and her coat is glossy. SJ now in California

      Delete
  21. My dad was a young man in Germany during that hyperinflation. He would tell us horror stories how people were actually putting money in wheelbarrows to go to the store to buy a loaf of bread. If someone had enough money for street car fare to his job in the morning, it would have doubled or tripled by afternoon.
    He would always buy US Savings bonds after he came to this country because he said if they were ever worthless, the whole country would be bankrupt, too. We are just about there now. Cash will be worthless, so invest in real assets. Real estate, food, precious metals, implements, etc. Taxes will escalate to the point where they will be unpayable. A paid off mortgage will be the least of your worries, if it is not a fixed rate. I am resentful of our government because we saved and were frugal all our lives; paid off our mortgage and pay our credit card in full every month, etc. We drive old vehicles that are also paid for. So now our govt is driving us into bankruptcy, except the fat cats will get fatter.

    ReplyDelete
  22. My husband and I are not counting on SS being around when we retire - due to gov't mismanagement, the program is already a Ponzi scheme, and unless benefits are drastically reduced while SS taxes are raised, AND assuming we don't see double digit inflation, the amount we'd receive won't amount to beans. We've planned for that. Our largest concern is paying off the farm mortgage prior to retirement, so that we will either be able to afford the property tax payments after retirement and can keep the farm, or so that we can sell it and use the cash to purchase a smaller property in an area with a lower cost of living. Some of this depends on where our children end up (we are strongly encouraging them to get the heck out of this state), because our final option is dividing the property and selling 10 acre plots (the smallest subdivision allowed in this township due to zoning laws) to reduce our tax burden while allowing us to remain here. This would seriously mess up the hunting though. We'll see what happens...

    ReplyDelete
    Replies
    1. Anonymous - I totally agree that SS has been a Ponzi scheme from the beginning. It troubles me that so many plan on surviving for 20-30 years solely on money they most likely would not have saved or invested themselves. That does not mean I approve of the government taking it, but a goodly portion of what people receive is not 'their' money. My husband and I are both eligible but have not put in for any at this point, and fully expect there will not be enough when and if we do. And no, since my husband does not work for the government or a large corporation, he has no 'retirement.' That is why moving and paying off our new property's mortgage in full is so vital to our future. Between that and other savings related to the move, we hope to save enough to live on for a few years, so my husband does not have to rely on his long-term 'retirement plan' of 'work until I die.' No one owes us anything, and we do not choose to rely on Roosevelt's scheme.

      Delete
  23. Patrice, just because you can now live off $500-800/month, doesn’t mean you always will. My parents retired some years ago, financially secure with no debt but relatively low income. My father had a series of severe strokes. The last year, my mom, 2 of my brothers and I took care of him (the 3 of us have full time jobs though). We were unable to keep up with the care though and when my mom became incapacitated, we had to hire in-home care. That pushed the costs to over $4,000/month JUST FOR THE CARE, and not considering other expenses. My parents did not plan for something like this and can’t afford it. Even living frugally with no debt can mean financial disaster when ill health and aging happens.

    ReplyDelete
  24. Patrice, I fully agree with you and most people who commented, but there is an adjacent subject that as a parent I feel is very important. We are now retired with all of our 6 children self supporting adults. When they were growing up we talked to them and tried to explain our beliefs about being frugal and how to save money. They were given a small allowance when grade school aged and as teens were given a larger amount, but were then required to pay for their own clothes and social activities. We live on a farming acreage and they were required to milk cows, feed and care for other animals and to do their share of the household chores and cleaning. The teens were disciplined by an agreed amount of time chopping and stacking wood for the wood stoves. They were taught that after high school, if they wanted to attend college or training for a career, they would pay 1/2 of the money required and we would pay the other half. They had jobs during their high school, instead of playing sports and saved that salary to pay for their future. We always believed that parents should be teaching their children to be successful adults. It has worked for our family and we are proud of how they have turned out.

    ReplyDelete