I overheard a conversation yesterday. The part that caught my ear was, “That’s back when we were living the good life, ha, ha.” I know the person who said this. Let’s call him Terry. Terry hasn’t seen any obvious economic trauma in his life. His job was never threatened. His house is not in foreclosure. Yet, his comment suggested that life for him used to be better than it is today. I had to know why.
After joining the conversation and prying a bit, I discovered Terry to be living a very good life today — in fact, a better life than he used to live. He and his wife recently took a cruise vacation, bought a car, and finally purchased a large screen TV. According to Terry, the prices were so low they couldn’t resist. They paid cash for all of it.
So, if Terry and his wife are living so well today, why would he refer to a previous period as “living the good life?” It turns out to be a way of acknowledging that times are tough for many people today. He didn’t want to say “Yeah, things have changed for the rest of the world, but I’m living good.” That would seem callous. Yet, it is people like Terry who can help the economy recover. If there is a consumer, there is a reason for manufacturing, warehousing, transportation, sales, and banking.
But not everyone is in the position to help the economy. Many people are being asked to cut back on their work hours, or even work some days for free. And people are still losing jobs they want to keep.
Let’s look at a person who is now earning only $.85 for every dollar he earned a couple of years ago. Let’s call him John. John can tell you about “… back when we were living the good life, ha, ha.” There’s a very good chance John and his wife were spending more money than they were earning … back in the good life … before the economy changed their lives. They probably nudged their credit card balance up a little bit each month, or they periodically refinanced their house to “take out a little of the equity.” When the economy soured for them, they got hit with three punches at once.
First, John’s employer asked him to cut back his hours. (He was one of the “lucky” people who didn’t lose their jobs outright.) John’s take-home pay dropped, however.
Second, all of a sudden, credit got tight. John and his wife couldn’t let their credit card balances increase any more. The interest rate on their credit card debt was increased by the bank. Their credit limit was lowered. And they couldn’t get any more equity out of their house.
Third, they found out how important it is to pay down debt. Today, they have to make bigger payments on their debt, even though they have less money coming into the household.
For John and his wife, yesterday does look like the Good Life. However, if they can pay down their debt and learn the basics of living within their means, they could be on their way to an even better life than before. I know that sounds trite. But look at Terry, the person who started me thinking about the good life. He and his wife could have been borrowing money and living beyond their means — but they weren’t. They had been saving money when others were living off their credit cards.
When the economy turned sour, Terry had money in his retirement plan. He and his wife had a large amount of money in savings for emergencies. They called it their “rainy-day sunshine fund”. They hadn’t refinanced their home since they got the 15-year mortgage at 5% over five years ago. And when they did refinance, they didn’t take out equity from their home.
I’m sure you thought Terry was making piles of money to be able to afford the cruise and a new car in this economy. But that’s just not the case. He and his wife live in a fairly small house to keep the taxes, utilities, and maintenance costs low. They bought the new car a couple of years earlier than they were planning to because of the great deal. Their old car was only eight years old.
The good life happens when you live within your means. When you do that, you can think about your money rather than worry about it. And what about John and his wife who got the triple-punch from the sour economy? They’re well on their way to the good life. They will be able to get out of debt. If they’re smart about it, all the money they use to make payments on debt will eventually start going into a retirement fund and an emergency fund. And the next time the economy sees a rainy day, their story will sound a lot more like Terry and his wife going on a cruise.
James W. Stone – As a Mechanical Engineer (University of Kentucky,