Buying freedom without spending:
Year 2008 was a disaster for Middle Income group and for investors. People lost Money, homes, jobs and their way of living. The people who had gained from investments in few preceding years saw the tsunami of debacle wiping out gins within a span of few months. However seeing the things so closely, it did make me think as to what lessons can be learned from the entire episode of collapse. I realised that the only lesson which can be learned, is to live without debts. That must sound incredulous to most. Actually there are billions of people who still do not borrow besides the other millions who are in debt right upto their nose.
The proposition that life can be lived without debts would be unbelievable to most of the people all over world. It is similar to popular notion that medicines are necessary everyday, for healthy living.
There is a general acceptance to live on anticipated incomes. We spend not only what we have but also our future incomes by way of mortgages and debts. We display our superior possessions to earn envy, but at what cost. Remember the King of pop, Michael Jackson and his balance sheet at the time of death?
What are the advantages of living in debt:
Unfortunately advantages are more psychological than practical. To sum up, these are:
1. A grand life style based on our future income;
2. Immediate fulfilment of our desires;
3. A moment of sensation of fulfilment.
It appears to me that there are more disadvantages in living this way. These are:
Disadvantages of living in debt
The first major disadvantage is Loss of leverage. We are already prisoners of our choices. Mortgages and debts entail monthly/weekly payments. These can not be avoided. There is a saying that the “cost and interest never sleeps.” If I have a duty to pay certain sum every month, can I have any leverage about the choice of work?
It is impossible to wait to find a job of choice when we can not afford to wait. Further we are forced to do the work even if the work environment is bad or changes to bad.
Secondly in case of economic debacle, like it happened in 2008, the costs of living and liability of loan goes up. Much worse if we have investments, apart from debts, its value goes down.
Third, with the Damocles’ sword hanging on our head ,we have one more worry to take care of which is an anxiety as every decision of life has to be seen through the prism of “Repayment Plan” as against what we have or what our savings are. In addition to numerous glorious ambiguities of future, we have added one more uncertainty which is certain.
Fourthly, the structure of desire is such the more it is filled, it craves more. No one could feed desire.
Living without debt
I have been always conservative on this issue and therefore never opted for any large mortgages or debts, However I ignored recurring expenses. Only about three years back I decided to reduce number of recurring bills and if possible to switch to pre-paid where ever possible. Surprisingly prepaid is cheaper here, in every thing, except pre-paid taxi. Another policy is to use Debit Card instead of Credit Card.If we mis one statement or slip for innocuous reason, it entail a small amount of debit to carry over. There is a tendency in all such Companies to charge a small sum from large number of customers. These are common grifts. No person can claim an amount in the nature of damages without approval of court. In fact one such matter was taken to the House of Lords but the decision was not unambiguous. Here in India there is nothing so far. Again one can not rush to court for a small sum, now and then.
Recurring expenses are akin to debt.
Liabilities of bills add up sooner than expected. Not to subscribe to even small recurring liability unless it’s worth is known. I had a strong temptation to subscribe to flikr for 2 dollar a month, but I postponed the decision and decided to test it for a while. Last week they sent an email that they were hacked and therefore they had to change settings of all pictures. Its safty is now in question for ever. I saved lots of anxiety and money by postponing a decision.
This constant endeavour of review of recurring expenses, was an action I saw in many of the richest people around me which made me understand that to remain affluent/rich is like standing on escalator which is going down (due to inflation). We need to move up by clinging to every penny/cent we have.
Often we accept recurring liabilities of bills only because the amount is too small and numerous such lazy decisions add up to substantial liabilities, which were unnecessary. Further the lack of time due to busy schedule keep postponing the decision.
There used to be a fax or facsimile service which is now obsolete. I remember that for two years, no fax was received. It was only then I surrendered the exclusive phone connection, after wasting huge amount on bills. The phone company (AirTel) also kept postponing disconnection on one pretext or other. until I stopped paying bills. I’d a similar experience with Vodafone, in respect of mobile. Again I took long time to switch to pre-paid. I am saving substantial amount by switching services which were otherwise wasted. Consumer loyalty is a two-way street. No point in clapping with one hand. Just because the representative of a company is very sweet in talking is no reason to continue.
Another such example is Wordspace satellite Radio who vanished with whole year of subscription pre-paid to them. There are many such examples. Mentioning of a saying is apt here ‘why buy a cow when we can buy a packet of milk when we need.’
These numerous service providers know the psychology of consumer and they will sell a new plan with a rosy picture. Never commit for anything beyond three months. I would give only 45 days. All plans have deceit built with dexterity of camouflage.
Hence my opinion is to live without or as little as possible, permanent/recurring liabilities which can not be easily stopped/switched in case of sudden change in circumstances. Secondly, if we have mortgages or debts, do not bother creating new investments, reducing debt or mortgage is best option. Let us be free from avoidable liabilities and buy back our freedom to do things we like. I do not say do not spend rather my insistance is to spend what we have and not what we have yet to earn.
Epilogue on economy.
There is one more aspect which I will not elaborate beyond few lines. Creation of large number of debts without corresponding rise in other sectors is unreal sign of development of economy. Year 2008 was clear reflection of this fact. There is no change so far to cheer up. Rather technical indicators show that volatility or fluctuations may increase. We better close the door before the horse has bolted. Let’s start reviewing the necessity of our liabilities and prove that we are mature adults and do not spend to show off.