Land of the Broke

Are you serious — really serious — about getting your finances in shape? Ready to begin relying on a financial plan, rather than blind luck or a momentary whim?

Are you dedicated to dumping all debt?

If so, then put your mental body armor on. Because you're about to be an outcast.

It's simple: Not everyone can make that hard, 180-degree turn to successfully rein in their family's spending. (That is, of course, a big first step toward building your financial Brick House.) Aside from the necessary planning, reading, and organizing, there is even another battle awaiting you. This subtle battle will be waged against society at large. It will be waged against your family and friends and coworkers. This struggle centers on seeing our material-centric world for what it is, and dodging a prevalent mindset in our culture today: You must overcome the high-consumption / easy-credit mentality.

Sometimes it appears as if modern American culture (as well as others throughout the world) was largely built upon a catchy advertising premise. It's one you'll almost certainly recognize, and since the advertising companies are blue-ribbon exceptional at doing their jobs, you'll probably start to visualize lots of endearing images and fun-to-have stuff the moment you read these words:

For everything else, there's Mastercard.

It's not that we're trying to single out the folks at Mastercard, or Discover, or any of the other credit-card purveyors. They are just businesses, out to earn a profit, and the fact that so many of us carry around empty purses and wallets says these guys are scary-good at what they do. But read that slogan again. It says a lot. A whole lot. Those five words strip away a lot of fluff. They speak to the heart of a debt-reliant culture. How reliant? Wrap your brain around these figures:

• Sixty-two percent of Americans report that they are saving and/or investing. However, more than 40 percent of all Americans save less than 5 percent of their annual household income. Sixteen percent save 5 and 10 percent. Only nine percent save more than 20 percent of their annual income (Jean Chatzky, You Don't Have to Be Rich (Review), 2003).
• In his book The Total Money Makeover, Dave Ramsey cites the Wall Street Journal as reporting that 70 percent of Americans live paycheck-to-paycheck. He also cites a poll from Parenting magazine which found that 49 percent of Americans could cover less than one month's expenses if they lost their income. A 2010 survey from CareerBuilder found that nearly 8 in 10 respondents reported living paycheck to paycheck. Also in 2010, CNBC told us that nearly 30 percent of $100k/year earners were in the same boat.
• In early 2010, the Employee Benefits Research Institute's annual Retirement Confidence Survey reported that 54 percent of workers surveyed said they had less than $25,000 in savings and investments. As noted in my Money Musings blog, 27 percent of workers report having $1,000 or less in savings.
• According to CardTrak, in 2007, the median amount of credit-card debt carried by Americans was $9,900. Sixty-one percent of phone-poll respondents said they revolved (carried over) debt from one month to the next.

What does all this tell us? Well, for starters, poor spending habits (and nonexistent savings habits) are as pervasive as stormclouds in a springtime Kansas sky. Credit cards and revolving debt are now regarded as necessities, staples of everyday life, the everybody-uses-them tool for propping up shaky money frameworks and shiny social appearances. How else, in a country whose median family income is $61,521 (in 2008 dollars) (Source: Economic Report of the President - 2010, Table B-33), could we see $75k-$100k households carrying debt loads of $9,000 per person?

Ah, but we're an affluent society. We want stuff. And a multitude of lenders are all too happy to give it to us. Mastercard, Visa, Discover, American Express . . . and even your local credit union. "The Dog Days of Summer are headed our way!" advises a credit union in this center-page ad. "Go ahead! Live it up! Borrow $2000 for 12 months ... as low as 8.5% A.P.R."

Live it up, indeed. And then proceed to pay it down — with money you haven't even earned yet — assuming, of course, that all goes well.

Of course saving money is hard . . .

We barely make enough money to cover our bills, so just how exactly are we supposed to save any of it? Many of us will earn staggering sums of money over our lifetimes. If, say, the Buckcatcher household earns $40,000 per year, and they earn precisely that amount each year from age 30 to age 70, then at the ripe old age of 70 a total of $1.6 million will have crossed their hands. In a capitalist society, that means the Buckcatcher household is the equivalent of a mighty tasty, three-layer, cream-frosted-with-a-cherry-on-top Financial Cake. And everybody wants a piece:

And that's just within the next fifteen minutes. After that, you only have to worry about any business with an OPEN sign in the window.

Yes, Virginia, in this war, you're just a wee bit outnumbered.

. . . Because debt is so easy.

Take a look around. Store windows use neon colors and big block numbers to encourage payment plans. Glossy mailers from Citibank and Capital One flaunt preapproved credit lines. Auto dealerships are loath to quote prices in any form other than Your Low Monthly Payment. The cleanest, most well-maintained businesses on the modest side of town are the payday-check-cashing establishments.

Can you do what it takes to walk away from all this?

No, really. Be honest with yourself. Can you walk away? Because, judging from the statistics above, it has become painfully apparent that very, very few of your peers can. Chances are that your closest friends and family members are as wrapped up in the consumer and credit cultures as anyone. Ask them for advice on becoming financially independent, and you'll likely get blank stares, twitchy fingers, and maybe the phone number of someone "upline" in an MLM (multilevel-marketing) enterprise.

There is only one way out, and that involves mindfulness of The Big Picture. How much money is passing through your hands? How much of it could you be keeping and using for things that truly matter to you now?

You must work hard, develop world-class self control, and, above all else, you must plan. Success means that one day soon you can turn the slogan on its head:

For everyone else, there's Mastercard.