March 19, 2004

money, honey

Tonight I picked up a book I got from the library on a whim. Itís called something like Money Makeover (itís not in front of me and Iím too lazy to get up); itís 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 itís wrong, mind you. Iím fairly certain from looking at the first two chapters that the premise is that debt is evil and living within your means Ė living on cash, not credit Ė 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, letís 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 itís worth now and only exaggerating a little. Heíd seen our refi paperwork, so I told him we were just refinancing to turn an adjustable rate into a fixed rate mortgage. Financially prudent, thatís 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 theyíve 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. Itís 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 wouldnít 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 canít live like that. Itís 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 weíd gain enough equity to refinance down to something reasonable. Guess what? It worked. If we hadnít tried, weíd still be renting. Weíd 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. Thatís security. Thatís why we own.

So where do you draw the line? How do you know when itís okay to borrow and when itís not? When itís sane and when insane? Short of a crystal ball, you donít. Not really. You just have to learn as much as you can about what youíre 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 weíre 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 weíre paying more than we can afford for Damianís three-times-a-week private preschool. Idiotic if you look at it on paper. Heís 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.) Heís 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 Iím concerned, itís money well spent. Itís a tangible intangible and weíre not willing to pare it out of our budget so we can save a few (thousand) bucks this year. Weíre investing in the future in this case too, just not the money kind.

Itís 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 theyíre not? I think sometimes you do know. Your gut tells you. Other times you have to wing it.

Iím planning to read or at least skim the rest of the book. I might glean a few tips and I know itíll help me get into a saving-not-spending mindset, useful for Danís 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 wonít cover.

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

Speaking as someone forced into cash-and-carry by a bankruptcy (I now have a credit card, but if I don't pay off the balance regularly my rating will stay in the toilet where I put it) I'd be really cautious about that AC project.

The whole discussion also reminds me of this week's Village Voice cover story, "The Ambition Tax "( While the piece is pitched to 20somethings, the picture they paint is pretty familiar to us all.

Posted by: Chris at March 21, 2004 05:19 AM

Chris, we are being careful. Very careful. Weighing the financial issues involved. Doesn't mean we shouldn't do it, though. There are some strong plusses. And we're not going to end up in bankruptcy over this.

Posted by: Tamar at March 21, 2004 09:34 AM