Vanessa asks on a GRS post:
I always thought the first rule to getting out of debt was to stop digging, but maybe not? And aside from a few bagels, it doesn’t seem like Honey’s lifestyle has been too compromised. Makes me wonder why I budget so strictly, when I could have a little debt and perhaps be a lot happier.
Why are people so negative and critical about someone else’s progress? Consumer debt and mortgage debt are completely different. You have to live somewhere and owning your own home even if you’re paying off a mortgage means you have an asset to your name, renting just means you can be kicked out at any time by a temperamental landlord. Either way you’re paying to live there so why not pay off your own home instead of someone else’s if you have that opportunity?
It’s about managing risk. A house can trap you unless you’re willing to foreclose on it. If you already have a good portion of your income stuck in debt-servicing you’re in a very vulnerable state when there’s a job loss or relocation.
In addition, Kasia shows a fundamental misunderstanding of the housing market. Purchased houses also have a part you’re “throwing away”– mortgage interest, taxes, insurance, and maintenance. In our case, the taxes and insurance alone is 1/3 of our mortgage payment, and of course the interest part is the bulk of the payment when you start with a new mortgage. On top of that, houses tend to create lots of regular “emergency” expenses (pipes break, trees fall, water-heaters die etc.) that the landlord takes care of when you’re renting.
When you have lots of consumer debt that you’re servicing, a house can add enormously to your risk because it’s a large required monthly expense whether you’re living there or not. Things may be fine if you can just sell the house when times are bad, but bad times often mean it’s difficult to unload your house, even at a loss.
Living beyond your means is a precarious balancing act. Everything is fine until an emergency that’s too big happens and/or you run out of credit, and then you’re trapped. But if you’re ok with foreclosure and bankruptcy, then well, sure, why not live on the edge? Of course, if you’re high income, you may only be able to restructure debt in bankruptcy, not completely discharge it.
So to all those who are thinking, “why am I making sacrifices when I could just live like ‘Honey Smith’ and be happy?” It is an alluring thought, it really is. And there’s some probability that they’ll make it ok without bankruptcy or foreclosure. But the majority of people who try this are going to end up in bad shape.
So Vanessa– don’t give up. Being able to spend like ‘Honey’ does without debt and with an emergency fund and with savings feels great (even if you don’t actually do the spending, the ability alone is nice), and it’s worth the sacrifice. The sooner you start, the smaller the sacrifice you have to make and the quicker you end up with financial freedom.
And Kasia, ‘Honey Smith’ is not a good person to look to for financial advice.