How We Think About Money : Part 1

Today I canceled a credit card. It was as if the heavens opened, and a dove descended from the sky.... and voice boomed "Well done, my good and faithful servant!" Canceling a credit card has got to be one of the best feelings ever.

This particular card was the first US credit card I was ever accepted for, 4 years ago or so. I had originally opened it to build credit here in the U.S., and it carried a limit of on $500, so I figured there was only a limited amount of damage I could do with it. Haha. Well, of course, over the course of the following few years I maxed it out more than once. It did serve its purpose, however, as it helped get my credit to a point where I bought a house last year.... Which was one of the ultimate goals of this whole credit-building endeavor.

Since then, though, my thinking on a few things has changed. I read a book (and then several more) by an author named Dave Ramsey.... and he fundamentally changed the way I think about money, relationships, debt, credit, and so many other things.

For instance, with the cancelation of this credit card today... I did something that flies in the face of conventional wisdom. You see, credit reporting bureaus look at several things to determine your credit score. They look at how much debt you have, how much available credit you have... Basically the difference between your balance and your limit on credit cards, lines of credit, etc... They ALSO look at the length of time you've had those relationships in place. So, by canceling my Capital One credit card today, I've basically severed my longest lasting credit relationship, and that will likely affect my credit rating negatively.

Now, here's the thing. That doesn't bother me one bit.... and I'll explain that with a question...

Why do we have such a reverence for the almighty credit score?

Why is it that we fuss over this little number held by three companies that we don't even have any direct relationship with? Why are we willing to GO INTO DEBT in order to improve this number, by opening credit cards and financing purchases? It's because a good credit rating gives you access to things you wouldn't have access to with a poor rating, right? .... And what is the primary thing a good rating gives you access to? Borrowing money!

So wait.... let's get this straight. We're encouraged to open credit cards and accumulate some "manageable debt" as young as possible, in order to establish a good credit history, so we can borrow MORE money when we're older? Tell me that isn't the plan!

There has got to be a better way to live!

..... and I really do believe there is. Since this fundamental shift in my thinking about money, Jess and I have really buckled down and gotten in control of our financial situation. We made a monthly budget, and use cash in envelopes to set physical money aside for each area (groceries, gas, fun, clothing, etc...)... We've also started aggressively paying off debt, and developed an emergency fund. Essentially, we started paying closer attention to our spending, and started planning our our spending instead of just swiping the card whenever we need (or want) something.

The basic idea behind Dave Ramsey's thinking is this: Take aggressive control of your financial situation, and sacrifice NOW in every possible area of life, in order to secure financial peace for your future.

The truth is that many of the things we spend our money on are NOT things we need, or need immediately. Avoiding debt this aggressively means we can't have everything we want as soon as we want it, but ultimately I believe it leads to a less stressful and captivating lifestyle.

Now, I realize houses aren't exactly easy to buy in cash, and that is one exception that Dave Ramsey talks about, although he's a big proponent of putting 20% down, and doing a 15 year fixed term... but that's another blog!

There is so much more to think and talk about with regards to this whole subject, and I will likely write another blog at a later date that continues many of these thoughts (hence the "Part 1" in the title).

I'm interested in your thoughts on the issue!

Also check out daveramsey.com for more information on financial peace and living debt free!

Jonathan