I’ve read the books and articles of a number of so-called “financial gurus”. One piece of advice that they all like to give is (somewhat paraphrased): “So long as you have high-interest debt, you should not have any low-interest savings.”

 

Their logic is that you’re losing more money on the interest of the high-interest debt than you’re gaining on the low-interest savings account. Therefore, you get more bang for your buck if you take the money you’re putting into savings and apply it to the high-interest debt.

 

This is, I’ve decided, the “logical” advice of people who’ve never had to face a mountain of debt and an addiction to easy credit. It’s “safe” advice (“safe” meaning not liable to result in lawsuits), and has the advantage of simple mathematics to back it up.

 

But, to put it less delicately, it’s also bullshit.

 

If you follow their advice, you will find yourself with what a friend of mine calls “revolving credit”. That is, in a given year you’ll pay off and re-accumulate the same amount of debt, like a revolving door. Because life doesn’t stop throwing expenses at you just because you’ve decided to cut back and pay down debt.

 

Your amount of debt will come down–a little–for 4-6 months, but then something will happen, some unexpected expense (your daughter needs serious dental work, your car’s engine seizes up, an ice storm puts a frozen tree limb through your roof, and so on), and you discover that the only way to make ends meet again or to keep getting to your job so you and your family can keep eating is to add more high-interest debt.

 

Why? Because the only liquidity you have is on your credit cards.

 

Why? Because the gurus told you to put everything into paying down debt.

 

On the other hand, if you had been putting money into savings simultaneous to paying down debt, you would have at least some non-debt-based funds to use. Any amount you can avoid re-applying to your debt load is an amount saved with an immediate payoff well beyond the nominal interest earned in the meantime.

 

What I mean by “savings”, BTW, is money in your local bank, credit union, or internet bank savings accounts, drawing from 1% (or less) up to 5% (currently; stupid Fed rate cuts). The key feature of these savings accounts is that you earn some interest on your money while still retaining rapid access to cash. That rapid access is the key to liquidity. And accumulation of savings is the key to avoiding “revolving credit”.

 

What I’m trying to say is that vowing to pay down debt is only half of what you need to actually get out of debt. The other half is vowing to saving some percentage of your income every month.

 

Neither one alone will do it (though if you’re only going to do one, I think the savings habit provides more long term usefulness). But both together will work wonders. Because as you learn to put aside money into savings, you also learn to live below your income. And that, life’s little surprises aside, will help you stay out of debt once you get your hands on that holy grail of personal finance.

 

To be fair, I have seen one book that advocates this approach, The Richest Man in Babylon by George S. Clason. That book is a collection of essays that repeat the mantra “pay yourself first” over and over again (in fact, if you repeat that enough times, you can save yourself the cost of the book). But at least the book puts savings on the same level as paying off your debt.

 

If you want to get out of debt, learn to save.

 

-David

 

I don’t know what it means either.

 

Press release I got today from Brody Condon (who I interviewed for Serious Games):

 

 

Santa Monica Museum of Art presents Brody Condon: Judgment Modification (Memling). The final work in a series of works inspired by late medieval Northern European religious paintings in current computer game visual styles. This digital animation is based on The Last Judgment by Hans Memling. While Condon’s previous work was characterized by the subversive tactics of hacking and the intervention into commercial computer games, Judgment Modification reveals his shift to composing projected moving-image installations that function as animated paintings. These non-interactive “self-playing” games run continuously like games waiting for the viewer to pick up the controller.

www.smmoa.org

 

Judgment Modification (Memling)

Dates: January 25 – April 12

Opening: January 25 @ 7-9PM

Location: Santa Monica Museum of Art, Building G1, 2525 Michigan Avenue,

Santa Monica, CA

Artist’s Lecture: The Flemish Masters and Gaming: Religious Fantasy

Transfigured, Monday February 4 @ 7PM

 

 

Machine Project is proud to present Performance Modification (Naumann) by Brody Condon. 10 performers outfitted in medieval fantasy armor re-create Bruce Nauman’s 1973 work “Tony Sinking into the Floor, Face Up and Face Down”. Performed in slow motion and combined with movements based on computer game death animations, this piece is accompanied by a high volume binaural beats reputed to induce out of body experience.

www.machineproject.com

 

Performance Modification (Nauman)

Performance Date: February 2 @ 8-10PM

Location: Machine Project, 1200 D North Alvarado Street, Los Angeles, CA

 

If you live in the Santa Monica or LA area, check ‘em out. Brody’s exhibits are usually quite interesting.

 

-David

 

 

Photographer Ken Rockwell posted an article last night: “How to Afford Anything”.

 

His focus was on how to afford expensive camera bodies and lenses, but the article has a lot of tips and tricks and strategies for frugalness and savings that I think are well worth the read for indies of all stripes. After all, accumulation is required for investment. And the fastest way to accumulate is to spend less.

 

I used to be more of a “consumer” than I am now. I tended to gravitate toward the upper end of any purchasing spectrum. I had a knack for choosing (seemingly without intent) the most expensive item available within a given category. I wasn’t stupid–I didn’t suddenly decide I had to drive a Porsche when all I could afford was a Toyota Corolla–but I didn’t exercise a lot of restraint either. Once I decided that I needed a particular item, and decided (counting current income and available credit) that I could afford it, I found it and bought it.

 

A couple of years spent walking through the grocery store, though, and adding up the contents of my cart and making damn sure the total didn’t exceed the cash in my wallet–because that was all we had, and it had better last all week–rather cured me of my price insensitivity. And helped me sort out “needs” more thoroughly from “lustful wants”.

 

A good dose of poverty, it seems, can provide a clarity that might have been lacking before.

 

On the other hand, I wouldn’t wish that on anyone.

 

The upside is that I’ve now integrated a lot of the habits of frugality that I was lacking before:

 

It helped that my wife has always been (and still is) much more frugal than I am. She’s provided a good “breaking system” for me over the years. I give her more competition these days, but she’s still the champ. A large part of the difference between then and now is that I listen to her more.

 

Spend less, save more.

 

It seems so damn simple. But it took me years to really get it straight.

 

-David

 

Because now it’s BACK TO WORK!

 

 

I’m back on Project Vee full time tomorrow. And back to my writing (still gotta finish that Nano novel). And I even start a bit of weight training.

 

Don’t you just love January? I do.

 

-David