Accountable - A Torah Guide to Fiscal Responsibility
Dealing With Debt
You've fallen into the soup, so to speak, and you've got no idea how you're ever going to climb back out. You allowed bills to go unpaid or you paid them with credit cards whose balances now seem beyond reach.
Remember: paying a bill with a credit card when cash is short doesn't solve the problem. You will still be on the hook for the full amount - plus interest charges at rates as high as 28%. The very LAST thing you want to do when money is short is to push the debt over to expensive credit cards!
You used credit to purchase appliances or cars and now face heavy payments each month. You sometimes don't answer the phone in the evening because you're afraid it's a financial institution calling. You often can't bring yourself to even open your mail.
Sound familiar? It needn't continue this way. Plenty of people - frum families facing the same kinds of pressures that confront you - have won back their lives with hard work and discipline. You can too. It's a simple matter of making correct choices.
Beating the Deficit
First, stop the bleeding. Eliminate your deficit.
Just to make sure we're all speaking the same language: you have a deficit when your regular expenses are greater than your income. While debt is the total amount of money that you currently owe banks, utilities and relatives. If, say, you earn $3,000/month and spend $3,500, then your monthly deficit is $500 while your debt total will rise by another $500 each month.
To do that, you will have to sit down and draw up a detailed budget. You will carefully list all your sources of income and, in a different column, all of your expenses. ALL of your expenses. Do you buy danishes for Shabbos each week? List it. Do you take the kids to a restaurant once or twice a month? List it. That urgent out-of-state flight last month? Figure out how often you take such flights during a year, divide the total cost by twelve (to get a monthly rate) and list it. The new smart phone? All together now: list it.
You've now got two columns of figures. Go ahead, add 'em up. The odds are that the "income" total is lower than the "expenses" total (if it's not, the odds are that you've left out some expenses). There's no way that you're ever going to get anywhere in dealing with the mess until you can at least bring those two totals together. In other words, either reduce your expenses or increase your income. Or better yet, both.
But where do you start? The reason you took on these expenses in the first place was because you needed the goods and services that they bought. The trick will be in carefully redefining the word "need."
You need kosher food everyday for yourself and your family. You need to protect yourselves from cold and rain. You need clothes so you can go about your daily activities free of the shame of nakedness.
But, at the root of it, that's about all you really need. Everything else is stuff you want. Now, of course, there's usually nothing wrong with wanting things and many of those things are quite reasonable; things normal people living in our day and age cannot really be expected to do without. But it's important to properly identify and characterize your various expenses: "this is what I need and this is what I want."
As we said before, every purchase is a choice. As you look through the items in the expense column, which are "needs" and which are "wants"?
Do you really need two (or three, or four) expensive cell phone contracts?
Is the car loan more than you can manage...should you get rid of the car and buy something simpler, smaller or a bit older? Could you live for a while with only one car - if you've got two - or no car at all (renting cars dozens of times a year - to do your big weekly shopping, or for family trips - can actually be cheaper than owning one. You can also explore joining a car sharing cooperative)?
Can you provide tasty and nutritious meals using less meat or other expensive ingredients?
If you do keep your car, could you walk more and drive less? I personally walk ten minutes to the minyan where I daven rather than drive. During the course of an average year, I will thereby drive around 500 miles - or three tanks of gas - less (which is besides the health value of all the exercise I get). By carpooling when possible, combining shopping trips and buying more things on line, you can save many more tanks of gas!
I think you get the picture (you might also want to read the chapter "Second Income" from my book, "Working With Torah" on ways to reduce expenses). Here's the overriding key principle: never (ever) spend more money than you earn. Put it all on paper. Keep eliminating expenses until you've balanced your budget. Let nothing stop you.
But what about those things you can't control? Some things really are "off the table." What about yeshiva tuition, which can hardly be called a choice and certainly can't be ignored? Ok. We'll leave yeshiva and Bais Yakov tuition out of the discussion. But I don't think there are all that many other items that deserve a place in that class.
"But what about the bar mitzva we're making in June? What about our daughter's seminary year? What about her chasuna? What about supporting her future husband in kollel?"
Those are all choices. There is no halachic or moral requirement to spend beyond our means on such events (on the other hand, you DO have a halachic and moral obligation to the individuals and institutions from whom you choose to borrow money). For thousands of years, Jewish children made their way through such important life experiences without financially crippling their parents. Bar mitzvas and chasunas can be simple. Some people choose to make them expensive. Others choose differently. Learn to make decisions based on what's right for you and your family, rather than on what you think neighbors expect of you (in fact, many of your neighbors might secretly be hoping that you will provide them with an example of a more rational approach to spending). Or in other words, learn to use the good, sound mind and common sense that God gave you.
It's about priorities. Sure, lavish simchas are all nice enough, but giving in and choosing them might mean a great deal of suffering down the line. Weigh the benefits against the cost: how will losing your car or house or credit rating affect your ability to raise the rest of your family the way you'd like? How will failing to pay back the money you owe other people affect their lives? How will financial collapse affect your sense of self-worth in your community? And what about your standing with God (Who doesn't think much of people who borrow knowing that they will likely be unable to repay)?
If you have managed to apply everything we've discussed until this point, then you should celebrate having successfully balanced your budget. Your debt is no longer growing. Go out and get yourself an appropriate treat. A long, cool drink of water from a public fountain, perhaps.
Seriously though, you should take pride and pleasure at every step of your financial recovery. Gaining control over your life (even while acknowledging that it's really God Who is in charge) can be an exciting and deeply satisfying experience. While the appropriateness of feeling joy over the purchase of a new designer suit or sheitel may be an open philosophical question, there should be no equivalent guilt for feeling good at real spiritual accomplishments - like protecting your family's future.
In other words, this process is actually fun - and the kind of fun that's unspoiled by guilt!
Beating the Debt
Your next step is to get to work paying down your actual debt - and to make sure that you never again fall into the same hole. Here's how you could make it work. You will first make a list of all the various types of loans that you have outstanding (not including your primary mortgage, as that's really beyond the scope of what we're trying to do here). It might look like this:
Credit card A $5,000
Credit card B $2,500
Bank overdraft $800
Washer/dryer purchases $950
Car loan $9,450
Money borrowed from parents $7,500
Now, each month, take every single penny that's left over after you've accounted for all your needs (and the minimum payments on all of your loans), and use that "extra" money to pay off debt. Which debt first? While there are different opinions among experts, it seems that you will usually be better off tackling those loans which carry the highest rates of interest first.
So, based on our example above (and assuming your parents don't mind waiting), you would probably spend the first months of this program knocking off the outstanding balances on your two credit card accounts, followed by the car loan, the amount still owing for your washer/dryer set, the bank overdraft and finally, what you owe your parents (which we'll assume is interest-free - all this assumes, of course, that your credit cards are the loans costing you the most in interest, then the car loan, etc).
This process might well take years. But as long as you are making steady progress, you're moving in the right direction. Every single month that you are able to record a lower "total" amount of your debt, is a month closer to your goal of stability and freedom!
Preparing for Big Expenses
In very simple terms, coming face to face with attractive items for sale is the trigger that causes people to accumulate the most debt. Hopefully, by now you will have developed the mind-set that can protect you against the impulse to purchase all but the most critically necessary items. They're not the problem anymore. It's those items that are critically necessary that we will now have to address.
What happens, for instance, when the car you really do need breaks down and getting it back on the road is going to cost $3,000? Or what about unavoidable medical bills? Or a coming simcha (even simple weddings cost something)?
The way things used to work in your life, you would simply find some available credit (like a high-interest credit card), shrug your shoulders helplessly, and "cover" the expense by waving a wand and watching it magically transform into debt. But now you know exactly where that leads and you don't want to go there again. On the other hand, you do have to pay this bill, right?
Here is where planning ahead is crucial. Once you are largely free of debt (besides your mortgage), you should carefully put some money each month into a separate bank account - your emergency fund. Once the balance of this account has grown to equal a few months worth of expenses, resist the temptation to touch any of it in all but the most dire circumstances. Did the car you rely on die an early death? Lost your job and have to go some time without income? That's dire enough to dip into the emergency fund. But make sure to replace it as soon as you can.
Now, besides your emergency fund, you should also set aside money for big items you know are coming like a (simple) chasuna or your next car. The goal is to have the cash on hand to cover most of the foreseeable expenses that we might encounter...and therefore, most importantly, to avoid falling into destructive debt once more. This takes enormous discipline and resolve, not to mention a workable income level.