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Tuesday, May 29, 2012

Checks and Balances

Well, I know that it has been pretty much a year -well just shy of it- since I have last posted. Heh, it is not for lack of material that has crossed my mind, but rather a myriad of excuses ranging from loss of interest in blogging for a while to general busyness to outright laziness on my part. I'll just go ahead and say it: My bad.

So generally, I have been waiting on the outcome of the hotly debated laws and such that has had everybody's tongues a wagging since I started this blog [probably even longer!] and I have weighed my two cents in previously, but let me approach it from the following angle: a simple story. A parable, if you will.

There was once a young man who was just graduated from college. He knew he had only about $400 in his bank account and that his current job only earns him about a net $2000 a month [to keep it simple, we won't address taxes], and that his existing budget was as follows:

$900 for Housing - he opted to rent because his credit is not quite good enough for a home loan as far as he is concerned. "A house can come later. I can always move if the rent gets too high and I won't have to pay for maintenance on this small place. Maybe in the future when I am ready to settle down and my credit is better."

$200 on average per month for basic utilities not covered by his rental agreement. "That's not so bad," he thinks, "I will just have to remember to shut everything off to keep the costs down. It is more environmentally friendly that way."

$200 on average for food, because he can't stand the thought of eating another meal of undercooked Top Ramen one more night, so he decides to cook for himself. "Okay, it isn't so bad as I could expect if I were to eat out all the time."

So that is so far $1300 from his paycheck. That is one tight budget. This is just on basic basic needs, not covering new clothing, travel expenses, and other secondary expenses. This leaves him $700 to deal with that. Fortunately, he still has his car that he got when he graduated back in high school and it still works. He would love to get a new one, but for now it will do. He only drives to and from work, in order to save on gas since his car is not one of those new PC cars that use alternative energies or energy efficient power consumption. In fact, it is a pickup that gets only about 18 miles to the gallon. That and it has a tank that is about 35 gallon capacity. He winds up using all of that in a given week and waits to fill up when it is getting on the "E" line. Gas prices being what they are, fluctuate pretty heavily given the market and other reasons [That is another story for another post]. However, on average, where he is, he can expect to be paying for is about $3.45-4.00 per gallon. So, with a 18 gallon tank he's paying about $62.10-72 per week! Assuming the worst case scenario, he budgets for himself a gas budget of $312 [$72 x 52 weeks/12 months]. WOW! That is a lot of money just to drive an older vehicle, isn't it? However, it only makes sense when your credit still isn't that established and you can't afford to buy a new used car! At least so he reasons. Either way, he makes do with what he has.

The young man is now left with a whopping $388. Well, that's not a whole lot, but it leaves some room for tithing, which is something he has been taught to do since he was a kid. For those who are not familiar with the term it can mean a couple of things. It all depends on how you view donating to your church or house of worship, it can mean something as simple as just putting a little bit of cash in the offering plate at church [to help them pay for the church's various expenses and ministries] or it can be the literal version of 10% of your income being gifted to the church [for same said reasons]. He is from the school of thought that does this literally, gifting to the church he grew up in and attends each Sunday a tenth of his income. That would be $200 in this case, for those of you who didn't already guess. Leaving him with a big fat $188 to work with. "That's not so bad!" he decides and it works for a while.

Some months he ends up with left over gas money and he starts to treat it like a windfall. It is, in a sense after all, extra money he didn't know he had. However, the sneakier bills that nobody told him about start popping up. His truck breaks down, so he has to get it fixed. $500! That is well over his original budget! So, what does he do? Well, he could do a few things:

A) He could open a credit card to deal with the repairs.
  • Pro: It is paid off all at once as far as the repair shop is concerned; it can help him to establish his credit
  • Con: It is a looming debt until paid off completely; He will now have to pay more money because it is borrowed and therefore interest is required on top of the original debt.
  • Additional Comments: Credit cards and loans can be good things IF and only if you pay them off as quickly as possible. Any late payments will hurt you more then it will help you in the end by lowering your credit score and making you less attractive to those who you need to borrow money from or even desire to be employed by.
B) If he has been chucking money at all into his savings, he can just pull what he needs from the savings account.
  • Pro: It is paid off immediately with no interest to be repaid; There is no risk to your credit.
  • Con: You will not have that money in your savings account to build up interest in your favor; It will take a while to recover the money in the savings account - easily 5 months or more.
  • Additional Comments: Depending on how much your car is worth and how old it is, it will be worth dealing with up front. You will have to be more conscious of your savings for a while, forgoing extras like eating out and such to repair your savings.
C) He could do a combination of both A and B, allowing him to build credit and pay it off immediately, therefore looking more valuable to future creditors, employers, and sales persons.
  • Pro: It addresses the need for credit, and the need to reduce the amount of costs required; It has the best of both options.
  • Con: You are still taking from your savings; If you forget to take that second step and immediately pay it bad from savings, you are going to get slapped with the finance charges.
  • Additional Comments: If you opt for this route, you will need to take care to keep a copy of your payment towards this in order to have evidence of payment. You will also need to ensure that you pay the creditor as immediately as possible so as to avoid the finance charges. If you have a loan or credit card that has high interest [which if you are starting out, then you will] then you might want to do this option. If you have a credit card that automatically charges you interest regardless if you paid before your bill, then you will still get stuck with the interest - but only for that single month if you pay that interest off immediately [but this is less common these days].
Now, if he can handle his expenses of this wisely, being inexperienced and only having the advice of those who have gone before him and the advice of the financial advisers on tv such as Howard Clark and all the advice he could get from magazines. Then, why can't the government do the same? Okay, granted, the money and costs they are dealing with are much broader with farther reaching consequences, but that doesn't change facts. If we were to free wield our own budgets and spend money we do not have, then we would wind up in jail for so much fraudulent checks and deep in debt beyond our means. This is why it is very important to consider all of these things as a lesson in personal and national budgeting. It is all about a matter of Checks and Balances.

For every minus, there must be a plus on the other end. For every cost, there must be a payment. And for every desire, there must be a prudent review if it will be worth the price. It doesn't matter, here in America, where you are from, how old you are, how young you are, or even what your ethnicity is - despite what you may have been told in the past. This is a nation where you have the power to become anything, start with nothing and become rich, and live in relative security that your freedoms will not be infringed upon.

In my final note I wish to say a few things. May we all remember the heavy cost that is paid for our freedoms. Let us not squander it, let us treasure it. Pray for our troops, support them, and honor them by respecting their sacrifices.

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