Being grateful around money and finances

Being that this is a financial planning blog and being that I happen to lean toward the overly practical (in case you hadn’t noticed), here are some ideas about being grateful around finances this season. 

The nature of money and wealth is that most people, no matter their net worth, think they are “middle class.”   I kid you not.  Those with $2 million in the bank and those with $50 in the bank all think they are middle class.  Our human nature somehow always finds someone “above” us with a greater net worth and someone “below” us.    You probably have more to be grateful for than you realize.

A fair number of people are in a “negative space” around money these days—they’ve made less than they wanted this year, they have more debt than they care to carry, they have less in reserves than what makes them comfortable, they’re worried about job security, and the list goes on.  Whatever space you’re living in—positive or negative—find gratitude.  The trick is, no matter how “well” you’re doing or how “poorly,” the trick is to be present—a simple task, but not easy.

The best ideas I’ve gotten are these:

1. Every time you write a check or pay a bill online, think, “I’m grateful I have the money to pay this bill.”  What happened in the moment before or the moment after is unimportant. In that moment, you had plenty of money to pay the bill.
    
2. Remember times in the past when money was tight and think, “I made it through that, I will make it through this.  I’m grateful for that experience to help inform this one.”
    
3. Every time you spend “frivolously,” be grateful for whatever you got and be grateful you could pay for it.  In other words, don’t beat yourself up for the frivolous purchase.
    
4. Every time you make a decision not to buy something because you “don’t have the money,” instead reframe your thinking to how you are supporting your financial well-being and be grateful for that decision.
    
5. Every time money comes your way—a paycheck, a gift, a reimbursement, a coupon you use—say a prayer of gratitude.
    
6. Every time you see money in your accounts, be grateful. 
    

When all else fails, start making lists of things you are grateful for that money truly can’t buy:  family, friends, their health and yours, joy, love, compassion, hope, this moment.  When that fails, there’s always oxygen.

The smart use of debt

Equity repositioning is nothing more than the concept of using debt wisely.  When we use other people’s money to make more money because we are making more money by investing than the borrowed money is costing us, we come out way ahead on very small margins over long periods of time.  I never advocated financial irresponsibility, frivolous spending, or unnecessary risk-taking.  To the contrary, my message was this:  Financial security is defined as having the ability to weather any financial storm or be able to take advantage of any financial opportunity that comes along.  When we tie up all the money in our homes by paying down our mortgages we are (1) forgoing the opportunity to make money on that money because the rate of return of home equity is ZERO; and (2) we are putting that money in an illiquid place that can be difficult to access.

Never has the consequence of a decision to pay off one’s home been more dire than it is now.  Lending is so tight that people can’t borrow against their homes to help meet cash-flow needs due to unemployment or illness. People who don’t have access to cash can’t buy all those things that are on sale right now, like real estate.  People who have put all this money into their homes are not only watching that money “disappear” with declining home values but they’re also kicking themselves for not having the ability to buy the house next door.  For those who did it right—they bought a house, put little down, kept other assets working for them—they are sitting in a much more financially secure place.  Ironically, these are also the folks who are getting their loan modifications approved and even having their second mortgages forgiven.

Am I glad I told clients that cash was king and to sock their money away somewhere other than their homes?  You bet.  So are they.

What to consider

     There was a great article in the New York Times not a month ago about this very topic (“Just Walk Away” by Roger Lowenstein).  If you’d like a copy, send me an email, and I’ll pass it along to you.  The author’s main point was this:  Big companies don’t hold onto bad assets, feel no shame about unloading them, and don’t worry about their credit ratings.  These companies practice “strategic default.”  Case-in-point, I just recently received an email from a company from which I buy products informing me that it was filing for bankruptcy.  It explains, “As numerous companies have demonstrated during this difficult economic cycle, using this type of legal process can be an effective way of achieving a fast and efficient debt restructuring with minimal disruption to the business.”

     So why should individuals act differently?  Why does the Obama administration ask homeowners to continue paying on their debt on homes in which the debt exceeds the value by 2-to-1?  Because it’s good for the banks, which are selling off their mortgage portfolio to the Fed because it’s a good business decision to unload as many bad assets as possible?  I don’t get it.

     If you decide to walk away from a piece of property and your mortgage obligation, you still have to live with yourself.  If walking away from the debt takes off years of your life in guilt and stress, it’s not worth it.  But if unloading the asset in a time in which banks are prepared to deal with it, why not take advantage of opportunity to put yourself in a better place financially?  Yes, your credit will suffer.  Temporarily. Yes, you will have reneged on a promise.  To this point, I thought the article put it brilliantly:  You did promise to pay, but the contract outlined specific penalties for non-payment.  “The borrower is not escaping the consequences; he’s suffering them.”  I also agree with the author that a flood of “strategic defaults” by homeowners might lead to more loan modifications by banks, which is what’s supposed to be happening.  It might “un-stick” the system, which would be good for all of us.  Consider walking away.  Talk to your accountant, your financial planner, your bank.  Get the facts and then decide.