Thursday, August 4, 2011

Will Simply Making More Money Solve All Financial Woes?

Extra money will always help you reach your financial goals. That is, if you are already doing a good job with the money you already have. These images are from the July 30 episode of the Suze Orman Show on CNBC. You can download a video podcast of the show for free from iTunes

The person who called in to Suze Orman's Can I Afford It? segment brings home $200,000 per year with her spouse. She was calling to see if she could afford private preschool tuition of $25,000 for her two year old child. Look at all of the debt they have:
  • $599,000 10-year interest only mortgage
  • $106,000 5-year adjustable rate mortgage
  • $214,000 worth of Home Equity Line of Credit loans
  • $29,000 left on a student loan
  • $29,000 left on cars
  • $5,000 in credit card debt
I am not writing this to attack the caller but to argue against the assumption that all will be well if only we all had more income. If all we are going to do when we get more money is buy a bigger house, a better car, better clothes, upgrade all of our electronics, and use the increased income to qualify for more credit to purchase it all, then the raise is going to be meaningless. However, the person who currently lives on less than he makes by following a monthly budget, saving for future purchases as opposed to playing the "payment game," saving for emergencies and retirement will upgrade his lifestyle modestly and continue his old habits when he receives more money. That person will ultimately be more successful in the long term.  Jesus in the Gospel of Luke sums it up well:
"Whoever can be trusted with very little can also be trusted with much, and whoever is dishonest with very little will also be dishonest with much."
Luke 16:10 (NLV)

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