How did we get in this mess?

I’ve been thinking about this credit crisis for the past few months, and I have concluded the root of our problem is dishonesty.

Solomon wrote about this subject in Proverbs 30:7–9: O God, I beg two favors from you before I die. First, help me never to tell a lie. Second, give me neither poverty nor riches! Give me just enough to satisfy my needs. For if I grow rich, I may deny you and say, “Who is the LORD?” And if I am too poor, I may steal and thus insult God’s holy name.

As a nation, we haven’t been forthright. The government, including the Federal Reserve, fostered conditions that created a real estate bubble by keeping interest rates low and by encouraging banks (through Fannie and Freddie) to extend loans to people with questionable ability to repay the loans.

People should be our first priority – not money. Corporations wouldn’t have created loans that people couldn’t afford if they were concerned about people first instead of money. However, lest we lay the blame on institutions, let us not forget that many individuals have been telling lies. As a nation, we need to start doing what we should have been doing for years: downsize and live within our means. Many won’t have a choice as credit becomes more difficult to get. Credit card limits will start shrinking and don’t be surprised if they shrink down to nothing.

Finally, it is time to be safe and sound.

While the recent rescue package probably helped us avoid The Great Depression II, we are still in for a long treacherous road ahead. In August, consumer borrowing contracted by 3.7 percent. According to the Federal Reserve, this was the first time borrowing slowed down since January 1998.

In the past, consumers have gone shopping the moment the sun came out. But this time may be different. Market researchers trying to divine the consumer psyche are picking up signs that attitudes are changing. Booz & Co. recently conducted a survey of nearly 1,000 households. Among other findings, 43 percent of respondents said they are eating at home more and 25 percent said they were cutting spending on hobbies and sports activities. In both cases, most said they’d continue doing so even when the economy improves. In the same way that prices at the pump have prompted many Americans to trade in their SUVs for small cars, the collapse of home values and 401(k)s will make consumers think twice before hitting the mall. While this won’t help us recover quickly, I believe it is best in the long run.

Solomon wrote this in Proverbs 21:6: Wealth created by lying is a vanishing mist and a deadly trap.

That’s just what we’ve done. We have created a false sense of wealth. At some point, our overspending had to come to an end. This goes for individuals and the government alike.

So how do we get back to living within our means? It’s actually pretty simple – live a life that suits you.

Do not live to impress others. Do not live trying to fool yourself into thinking your status makes you who you are. Live comfortably for your situation, and everything will be OK.

If you are always spending up to or above what you earn, you will never increase your net worth no matter how much you make. What you own, what you drive, where you live, what your job is or where your kids go to school should not be important to anyone else but yourself.

Your money and your lifestyle are yours and yours alone, and you should never let other people dictate how you live. People who should be driving inexpensive cars are driving BMWs, and people who should be renting an apartment, “own” $500,000 houses.
Eventually this “Keeping up with the Joneses” is going to catch up with us.

Living below your means does not mean just cutting out pizza once a week or buying fewer lattes. It is an overall way of life, to live below your means. It means that your experiences, not your bank you account, shape who you are.

Fighting the urge to participate in the mass consumerism is a choice that allows you to live below your means. Why work 70 hours a week in order to afford that big house? Sure, you can afford it, but isn’t there something you would rather be doing with your time? Would a smaller, more affordable house make you happier, because it would free up some of your time? Just because you make a high salary does not mean you need to spend it all.

Let me ask a simple question for those of you that have been living this lie. How’s that working out for you?

At some point, we will come through this difficult economic time. Sometimes you have to put up with the rain in order to enjoy the rainbow. The question is will we go back to the ways that helped get us in this mess in the first place, or will we finally learn our lesson?

Steve Scalici is a CFP with Treasure Coast Financial. Steve can be heard each weekday at 8:35 a.m., 12:35 p.m. and 5:35 p.m. on 88.1 WAY-FM. You can contact Steve at [email protected] or 772-600-1053. Steve is a registered representative of INVEST Financial Corporation. The opinions expressed in this article are those of the author and not necessarily those of INVEST Financial Corporation.

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