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.
If you can get by without incurring any new debt, you will make progress. It sounds like you are doing the right thing and, even though it is tough, will be turning the corner soon.
So your future, future self will be happy with the decisions you’ve made to sacrifice current consumption to reach longer term goals. Sounds to me like a very mature, responsible approach to personal finance! Best of luck.
I borrowed my my future self 5 years ago and I am not a fan of it now. You leave your future self responsible for your past mistakes. Not a good way to live.
I absolutely see it the same way, in that I think about the lifestyle of the future me more than how I’m living now. After all, when we’re older, it would be a lot less fun to work – much less possible to do so.
I think that it’s commendable to avoid putting things on the card when possible. I think, though, that it can be okay to borrow against your future self, if a) it’s necessary and b) you go in with eyes open.
When we had a large bill that savings wouldn’t cover (savings that we’d already had to plunder twice that year), I had a talk with future me. By which I mean that I projected the stress level of the full debt going on the card vs killing savings (again) and still having some debt on the card.
In the end, I decided the former had a better outcome. As a depressive who’s also the only cook and the CFO for the family, I have to keep from feeling overwhelmed and stay functional or our financial position goes downhill quickly. So, after carefully weighing the impact on both present and future me, I chose the one that had the best chance of a positive outcome for both. .
Granted, this was short-term. It wasn’t thousands that would take years to pay off. But I do think that it goes to prove that there are times that it’s okay to borrow from yourself. As long as you’ve had a long — and, above all, realistic — talk with yourself.
Wow, good job on making the ends meet even though you guys have a low income. It means you got through the whole ordeal or managing your finances when you need to. I wish you more luck now that things are going pretty well. Keep it up.