| Finance

And yet, we find ourselves paying this month, for last months, last years, or even decisions made many years ago to spend, or purchase, or acquire some asset or experience. Because some portion of this month’s earning is already committed before its receipt, our options are immediately narrowed for enjoying life, funding worthy charities, and providing for our future.

Our personal household debt is growing. Young thirty somethings now owe more on their two car notes than their parents paid for their first marital house. The average consumer debt, that is debt that is owed for assets that are declining in value is estimated by some to exceed $30,000 per household. I think the number if probably wrong. I think the actual number exceeds this amount for many households.

What happened? When did debt become so fashionable? Why do families have such a tolerance for debt service? Where is this trend taking us, as a society, and as families? The answers to these questions could fill many books, but one thing is true. We are in debt, and it is getting worse!

There are at least four contributory factors. There are probably dozens of minor factors that reinforce the Big Four:

We have a hole we try to fill. We utilize spending, purchasing, and rewarding ourselves to address a deeper need for meaning that goes un-addressed. Our alienation from our family, our community, and ourselves often manifests in trying to acquire things or experiences to “prop” us up and substitute for a depth of meaning we never experience in the shallows. Jesus matter of fact statement that a man’s abundance does not consist in his possessions was true then, and it is true now. In fact the inverse may be true. The more we have, the more distractions we have, and the less life we have.

The Easy Payment Plan. The Business Community has learned the secret of selling goods, and services to a consumer without sufficient savings to make the purchase: An affordable monthly payment credit plan. The true cost of credit is four fold: The pre-tax cost of the item. The after tax cost of the item. The additional cost afforded by a payment over time contract. The lost opportunity cost of what might have happened if the purchase had not taken place. And how easy does easy feel, two three or four years into the contract?

We do not have a plan for allocation of our life’s income. Many items that are debt laden were impulse purchases. Any well thought out plan, well documented would have precluded the purchase. In the absence of a plan, someone will rush in, and make a proposal of their plan. A person or family without a plan soon defaults to someone else’s agenda.

We buy the asset, when what we truly want is the experience. There is a financial health rule of thumb that states: if you cannot utilize the asset you are thinking of acquiring more frequently than the cost of renting or leasing would justify, you should never buy the asset. Why? There are four costs to an asset acquisition: The displaent of the cost of the capital. If I buy a boat or an RV, or a vacation home I have displaced working investment capital to make the acquisition. There is the wear and tear cost. Depreciation is not an esoteric tax concept. It is a statement of reality that reflects a law of thermodynamics. Things in use become less valuable. The cost of owning and insuring the asset. If I own it, I must pay tax on it, insure it, and utilize part of my life to worry about it. And last but not least, the cost of maintaining the asset for current and future use. I am not against great vacations in land or sea yachts. In fact, I am on record as stating that everyone should take great vacations each year. For the little bit of time you can actually utilize such an asset, the wisdom is always on the leasing/renting, and return it when you are done.

Catholic Online Finance is dedicated to equipping and assisting families in the practical and successful stewardship of their financial lives. Reducing or eliminating the burden of debt is a great step in the direction of a happier life. We have several articles planned for Dealing with Debt, overcoming the reasons for utilizing debt, and the practical steps for getting out of debt.

Can you imagine a lifestyle in which the majority of your income for the month is not already allocated before it is received? It is possible. It is doable.