Why I Don’t Really Notice the Economic Downturn

Financially, I may be a little better off this year than last year. I am not bragging, or gloating, because I know it could be fleeting, but I am stating the reality that living frugally and financially sound has its benefits. However, before I begin this post, let me say that the main reason I am doing okay is that I have a job. No amount of frugality would make up for a lack of a job, so obviously frugality has its limits, but I think my point remains the same.

Let me provide a few details of what I am talking about. I started getting into finance in 2002. I just got out of graduate school, and had little money, and few job prospects in the area where I grew up. I could have moved across the country, but I was tired of being away from any meaningful support network. I started subbing, and I also learned I had to save money in any way I could. One of the first things I did was conserve energy whenever possible. I turned the thermostat down in the winter, and up in the summer. I began hypermiling to save gasoline, before the term was even widely used. I refused to buy a big car or SUV when everybody else was getting into them. I shifted most of my excess money into high-interest online savings accounts, instead of relying on local bank accounts with paltry returns. I lived with my parents for a few years, saving thousands on rent, and when I did get an apartment, it was a nicely-sized cozy place, not some expensive condo I could hardly afford. I opened quite a few credit cards, but promptly paid them off, getting them mainly for the rewards (yes, I make money off of credit cards). I have always bought generic if possible, and shop at Aldi for most of my groceries these days. When we bought a house last year, we bought one that we could afford, choosing the one that was built solidly, with a newer roof and furnace, and that was in a nice neighborhood 2 blocks from my work. I buy most of my books, music, and furniture used.

Now, I may seem cheap, but I really am not. I buy things when I really want them. I give money to charity, and allow myself to do all sorts of fun things. Here is how I view it: I save money on certain things so that I can have money to do the things I really want to do. For example, I keep the house at 64 in the winter so I pay less money to the gas company, because I would rather use that money for books, family things, or my Y membership. The 40-50 dollars I save each month on energy pays for my Y membership.

Again, I am not bragging, but rather pointing out that I have done for years what many Americans are now being forced to do: be financially responsible. This is why I personally hardly notice the bad economy, because I am not going from the “high life” to something closer to reality. I have been responsible for years. In fact, I am doing a little better this year because energy prices are significantly lower. Maybe the real issue is that I never truly felt the benefits of the recent boom. For example, I didn’t borrow against an over-valued home. The only real thing I notice is that my mutual fund is about where it was when I opened it. Not cool, but it hasn’t really affected me.

This crisis was caused in part by Wall Street, and in part by poor government policies, but folks, we residents of Main Street had a major role in this too. Quite frankly, I think we don’t know what matters any more. It used to be that the people in a house were what mattered, and as long as a family was together, a house was truly a home. Now, it is the house itself that matters, and without a big house, life has no meaning, so people bought houses they knew they couldn’t afford, and mortgage brokers seemed more than willing to give them these shaky loans. Now that people are defaulting on these loans, some are shocked, truly shocked. Shocked? Please. Basic, sound financial principles tell us that someone making 30,000 a year cannot afford a 500,000 house. My basic sense tells me not even to look at a house that costs 1/3 of that! The same is true of credit card debt. Do the credit card companies try to squeeze us dry? Yes, and I am happy new regulations are coming. However, do the companies come to our home and make us use their cards at gun point? No. What is the best way to get back at the credit card companies? Don’t use their cards, or if you do, spend within your means so you can pay off the cards without interest. I have a great relationship with my credit card companies: I don’t pay them interest and they pay me rewards.

So basically, making sound, financial decisions for the last 6 years has allowed me to weather this current downturn, and given me the tools to deal with bad economic situations. I may not be making millions of dollars investing in bubbles during the booms, but I am better equipped to increase my wealth slowly over time.