For the last three years, my husband and I have had a very low income, well under the median income level of the average American family. This was a result of my decision to launch a freelance writing career and my husband finishing his Ph.D.
We live in the suburbs of Chicago, so living expenses aren’t low. Simply put, we couldn’t live on what we earned the last three years, which is why we incurred credit card and student loan debt and went through our $12,000 emergency fund.
Things Should Be Looking Up, But. . .
Now, however, the tide is changing, and our income is increasing. My husband has a post-doc position, and my freelance business is growing.
We now are almost at the median income level of the American family in 2009, which was $60,088 according to the U.S. Census Bureau. While this should afford us some comfort financially, it doesn’t because we are still cleaning up the financial mess from the past.
Preet Banerjee, author of the website, Where Does All My Money Go, in a recent speaking engagement, classified the ability to incur debt as the bank allowing you to borrow money from your future self. As he says, “One day you will be your future self, and you won’t be happy.”
This is where we are at. Three years ago when we took on student loan debt and credit card debt, we were borrowing from our future selves. The selves we are now, and as Banerjee says, we aren’t happy.
Avoiding Mistakes of the Past
My husband and I both feel that we are in an important phase of our financial life. If we can get through this period of paying down debt and growing our income without incurring any more debt, we should be in a comfortable financial position a few years from now, ideally debt free and with an even greater income.
However, that means a few more years of struggling now.
For instance, we are facing $2,000 in car repairs, and we just don’t have the money now. A few years ago we would have put the expense on our credit card, but we refuse to go that route anymore. Instead, we are scrimping and saving for the repairs, and meanwhile, I’m trying to walk rather than drive to buy us more time until we need to make the repairs.
I find it a bit humorous that credit card use allows people to fool themselves into thinking they have more money than they do.
Using credit cards now would help us float through for another year or so until our income increases greatly, but we won’t do that again. We are living on what we earn and paying down debt even though it isn’t a comfortable process. We are done borrowing from our future selves.
Banerjee puts it succinctly when he says, ” Think of borrowing money today as negotiating a pay cut with your future self.” He also asks, “How much money do you want to pay to spend your earnings earlier?” i.e. pay interest on borrowed money?
Our answer is clear. We aren’t going to negotiate any pay cuts with our future selves. We are struggling now, so our future selves can have a more comfortable life.