It's Not What You See, It's What's Paid for That's Important

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When people come over to “my house”, which my wife has done a wonderful job turning into our home, they are usually very complementary and say things such as “What a wonderful home you have,” or “Congratulations, what a beautiful home you have,” or, “We love your home.”

Depending on the person, I usually just say thank you but what I think every time and sometime say is this: “Thanks, I’ll let you know when it’s mine. As for now, it belongs the bank, but as long as I keep making my payments, they keep letting me live here.”

Obviously, this is a slight exaggeration, but it always proves the point and opens up a discussion into what we Own vs what you see that you think I own.

We do partially own our home, and there are many things that would have to happen for the bank to take it and us to walk away with nothing, but the lesson we need to discuss.  You don’t own it until you’ve made all the payments.  Even then, with a home or car, to ensure it continues to have value we have to put money into it.

Now what if we had to put signs on everything that wasn’t paid for – instead of a neighborhood with political signs on the lawn we had “AMOUNT OWED” on everyone’s lawn and license plate.

What if Zillow had not just the “Zestimate” of what each home is worth, but the bank information on what the amount of debt on the property is, how it was financed – 3% down or 20%, etc.

This would present a more honest assessment of where everyone is at in life financially, but instead we get to hide our own financial mess and typically we are envious of others who appear to have more.  But what if what they really have is just more debt and what appears to be theirs is actually closer to all being taken away than what you have, even though it seems like less.

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In my 20’s it seemed like it was very important to appear as though things were always getting better.  I wanted to dress nice, drive a nice car, have nice furniture at my home, etc. 

But here is what I really learned – most everyone else was putting up a facade – they were not better off – they were more in debt for the things they “owned” and that debt caused them large amounts of stress.  Stress causes illness. Illness leads to higher costs for medical treatment and potentially leads to life long conditions that require medication and lead to higher debt, which causes more stress, which causes more illness.  A vicious cycle you may never recover from.

Forget about the financial ruinous parts of this and let's focus on you – all the effort you put into learning and making yourself a better person gets thrown out.  You are not seeing the rewards of your efforts and that can lead to depression and a lack of a sense of purpose, since your efforts are not being rewarded.  It’s a slippery slope to a completely unhappy life.

So what do we do about it?

Live within your means.  Know the potentially live destabilizing effects of debt. To do this – most of us are going to have to do a financial Diary – writing down everything we are spending money on and figure out where we can reduce expenses and make more money.

1.     We also need to get over the “what we feel we deserve” and the need to have it today.  Because of the ease of credit it is easy to get what you want today while sacrificing your future earnings to pay interest to banks. 

2.     Stop rationalizing why this expense is a “must” when its really just adding to your debt load.

3.     Figure out ways to save on the largest expenses – rent and car are usually the largest two expenses.  Roommates, even if you are married with children, find a slightly larger home you can share with another family.  Always drive a used car and don’t take out loans for 7 years to pay for a car.

4.     Reducing your debt should reduce your stress = lower medical bills.  Try to use food as medicine and eliminate drug costs.

5.     Prepare your own food – you’ll be healthier and save a lot.

6.     Start working on your side hustle – and use all the side hustle money to pay down debt and then begin saving.

7.     Develop additional skills in your workplace – develop concrete ways to measure your performance, which equals value to the company and then you can use these metrics to request additional compensation commensurate with your productivity and responsibility

Resources:

Don’t forget to also listen to the podcast we did on this, You can find it here.