How about not considering credit an actual source of "spending money". As in, "FOR EMERGENCY USE ONLY". And saving like 10% of your income.

Or, how about recognizing that just because it seems like your neighbors and friends can afford X, Y, and Z, it doesn't mean YOU can, nor does it mean you're entitled to it because you "work hard".

It shouldn't be this hard to balance reality with your inner ten year old that wants a pony and wants it now.

Admittedly, I am diving headlong into debt for the first time because my pony is a bachelor's degree and I'm tired of how long it takes if I pay as I go. So, I guess, YMMV. I'm just being judgmental here.

Of course, when y'all are living within your means, you're putting less money into the economy, which is unpatriotic and bad for me. So y'all go on spending as much money as y'all can without government assistance, while I live responsibly.

But really, isn't the only way the economy is going to recover is if spending increases? Otherwise, things are going to get much worse, at least until we reach some sort of equilibrium point.

I used to be angry at the generation of people who, in the last seven years, managed to convince most of the world that they must own a house, just because "it's America". America has always been about working hard and earning what you deserve, not just getting it. I blamed the whole fiasco on the "entitlement generation."

Now, after reading this interesting article:
[www.msnbc.msn.com]
What I learned is that it wasn't really entirely the entitlement generation at fault; it was also the concept of an "ownership society" heralded by George Bush. The trouble is, back then, it was all about getting the house, not being able to pay for it. Someone should have better defined what "ownership" was, in context of the huge debts people were racking up in the false name of "ownership".

Anyway, yeah... I think living within our means is kinda being forced on us anyway now, what with the lack of equity growth in housing and the credit freeze.

@Fujikopez: As long as credit cards are thought of as "a convenient way to take out a loan that has to be paid back in a month", that should be fine, no?

@humphrmi: Maybe American families could afford to live in a house if they weren't burdened by ridiculous medical and education costs, and the costs of the ticking time bomb we call a transportation infrastructure.

Are you telling me this is a bad time to invest in leasing a sports car?

@Quatre707: Not to mention that a lot more people could afford to buy houses if they weren't priced ridiculously high based on bubble speculation.

@se7a7n7: Not if it's a hybrid.

@Quatre707: I worked my way through college, working 2-3 jobs at a time after my Dad stopped paying for it. And after I got out of school and started working my way up in my career, for the first 20 or so years, I lived in a *gasp* apartment of all things, so that I could save up for a house.

@Fujikopez: Actually, using a credit card for all of my non-food purchases is what I do - because mine gives me a cash back rebate once a year. I just got it in the mail and it is nearly $300. That's free $$ for me. The key is to pay it off every month, in other words, don't carry a balance on the credit card.

so just because my neighbor can afford a black mercedes benz, that doesn't mean i can too?

common sense makes my head hurt

@Quatre707: No one's currently burdened by the costs of a ticking time bomb we call a transportation infrastructure. I see your point, but you're talking about being able to afford something due to costs, and there currently aren't any costs, because we're not paying for a transportation infrastructure, other than our current, very, very low-cost fuel taxes.

@Pink Puppet: Well said, and kudos on the bachelor's degree. Have a shovel-I'll race you to the bottom.

@Fujikopez: Funnily enough, I've had that exact same argument with students unhappy with their grades: "My friend got a better grade on the paper than I did and I tried really hard!"

@humphrmi: I don't think the problem is everyone wanting houses, but rather buying houses way outside their means. Your first house shouldn't be perfect, especially if you don't plan on living in it the rest of your life.

@humphrmi: I think many people got suckered into the idea that with "creative" financing, they could own a house for "the same price as their apartment rent". Of course, most of these people didn't understand how this "creative" financing worked, and that they would soon be paying much more.

@crazydavythe1st: I'll agree with you completely on that - I remember seeing the ads, "why rent when you can own a house". And I'm not giving the business sector that pushed these exotic mortgages on the hapless public a pass. But my point, and my only point, is that there seems to have been a pervasive attitude in the late '90's and early '00's that home ownership was a privilege of being an American, regardless of whether you had made your bones or not. And as I said above, I think it was reinforced by the Bush "Ownership Society" that didn't consider the toll that the credit build-up was taking on our "ownership society".

@humphrmi: The dream of Americans owning their own home started waaay before Bush. After WWII we had a lot of wealth in this country. The dream sold to Americans at the time was to celebrate the country's wealth by leaving the cities and moving into brand new suburban houses with white picket fences. That ideal has become a sign of success that subsequent generations have tried to keep up with and surpass (and based on HGTV and the Travel Channel, people are getting more and more ridiculous about the kind of homes they "need.")

@Fujikopez: These are really values that you are taught as a kid, did you parents teach you that you didn't have to have everything just because your friend had it, or did they encourage you to buy what your friends had just so you could be like them or with the "in" crowd? Values that you were taught as a kid MOST of the time you will carry with you throughout adulthood. Obviously there are exceptions to that as well.

I am EXTREMELY thankful that my parents took the first approach, as the second is what is really corrupting everyone. If you teach your kid at 7 years old that its OK to buy the latest ipod just to keep up with what their friends have and continue to encourage spending throughout childhood and the teen years on whatever the latest fad is then they will grow up to be overspenders and feel like they are entitled to have whatever they want because that's what they were taught as a kid.

Yes I understand not every parent does this, but in my area a vast majority do.

@WorldHarmony:

I agree with the HGTV thing. The more that people see others ripping out perfectly good kitchens, because they are "dated" (maybe 10 years old), and a couple that can't cope with their 1700 sq ft. townhouse because they now have 1 child (not joking here), the more that people think that this is acceptable behavior. They look around their own home and feel inadequate because their house is "dated".

Recession: Caused by stupid people who were Entitled to what they wanted.... right now. The number of people in this country who have no common sense has reached critical mass. There is an explosion coming. The fuse is only lit right now.

@humphrmi: There is also the issue that wages have stagnated while the cost of living goes up. So we have been losing wealth at a considerable rate for the last 10-20 years. Now add that with a ratcheted up expected standard of "living" in the last 10 years. Instead of simply having a home as a sign of making it, having a 3000 sq foot McCastle took the place. Same goes for iPods, $500 hand bags, $300 shoes or the expectation of eating at a restaurant almost every night.

The entire scenario of less wealth, higher cost of living and these new "have to" ways to spend more money is a recipe for disaster. Sure if your smart you see these new "have to's" for what they are but too many people don't.

If we want to improve spending to keep the economy going we need to make sure people are paid what they should be and the cost of core living expenses are in check.

@Repossessed_Posse_Pirate: Yea but those people who gave me crap for not having a brand new overpriced sports car, weekly salon visits and expensive designer everything are now losing their homes and pretty much everything else including their jobs.

I find it amusing that what I have been doing for years is now in vogue and the people hassling me about being sensible are in the worst of the trouble.

@humphrmi:

The dream of owning the place you live in has been alive for even longer than what other people suggest (like WWII). If you were to dare ask people from ANY time and place of the world where people would rent, you would find few people that wouldn't want to own. That's because, even today, renters are generally treated as second class citizens (Don't believe me? Try to play loud music at 2 am every few nights and see the difference: Both owner and renter will pay police fines, but the renter is likely to lose where they live, too).

The difference is that today's generation has noticed that someone in their family owned a home, be it parents, grandparents, cousins, someone. And, asking them about how they got it makes it sound easy (even when they are trying to make it sound difficult), because back then it was easier. Houses generally cost about 3 - 4 times a decent single earner salary, and with 25% down (which was the general idea back then, and not impossible to come up with), you'd simply be giving one weekly paycheque a month to the bank. And you'd be pretty comfortable with just one person working in the family, assuming their job was at least of average pay.

Just before the housing crash, it required 2 people with far above average incomes to get a house within 3 - 4 times their income, and with the usual downpayment at the time (1% - 5%) the bank would be clawing back 4 to 6 of their weekly pay cheques a month to keep the interest at bay.

The question is, what has fuelled this? In my opinion, the homeowners of the previous generation bought them to fund their retirement. They expected a ridiculous profit from their houses. Everyone else learned they deserved such a ridiculous profit as well. And you end up with a lost generation.

How much you want to bet the next decade in the US (and elsewhere!) looks and feels a lot like the lost decade in Japan?

I say elsewhere, because it's like this even where I live. I live in a relatively average city in Canada, and house prices average $400,000 (and that is TODAY, after the crash). In this city, that is 9 times the average wage. A very small 2 bedroom house that doesn't require major repair will cost at least $200,000 -- still 4.5 times the average wage.

House prices need to come down a lot further to meet what our parents paid. In this city, that $400000 house will need to be $300000, and that $200000 house will need to be $150000.

Either that, or inflation needs to boost wages an incredible bunch without affecting housing at all. One or the other.

To me, living within your means is exactly what the CNN piece said it was: it's living within the boundaries set by your income. It's purely subjective whether it's financially responsible because you're not saving any money, but you're not going into debt either, I suppose.

Living below your means is saving money every month, whether it's $50 if that's what you can afford, or $1,000. Saving money is the key, the amount is not set in stone.

As a side note, I know people who have saved their whole lives only to die before they get to spend it.

The recession was caused by stupid people overborrowing and smart bankers overleveraging. Let's be clear though: it's way more the latter than the former.

@mgy: My Aunt and Uncle have said this quote for as long as they've been alive. They own 2 houses 2 cars a boat and have 2 kids who've they adopted (aka paid for). They're not rich their not poor, they're happy

"what good is money if you don't spend it. You can't take it with you when you die."

on the other hand my step father is the cheapest man in the world he still drives a 1998 Mazda B series truck with 150k miles and it's second set of tires (first set lasted 100k how? no clue). He has about half a million saved up in stokes bonds and various other accounts. he won't even touch that money what he's going to do with it I still can't figure out.

Luckily i got both ideas stuck in my head so I save money but then spend it on the things that matter most to me and my wife.

@Coles_Law: Thanks~

It just seemed more fiscally responsible to go into debt, which still feels like a crazy concept to me. There's a huge call for the field I'm going into, and it won't be going away based on long-term trends. Otherwise, I'd still be flailing in a panic.

@mamalicious: We accidentally were charged $50 in interest this year on our card because I didn't pay off the whole amount in time. Given we've earned about $200 so far in cash just for using it, I'm not going to complain. :) We put everything we can on our card and pay it back at the end of the month.

IMO, whether savings is truly a necessity for you depends on your living situation. If you have assets you could liquidate in an emergency or family resources you could call on, etc. - then maybe it's not so necessary. My parents drilled "better safe than sorry" into me as a general principle for living and so I've always felt that having a nest egg was a necessity just like food and shelter. But I have to say my additions to that nest egg have slowed down once I built it up to a certain comfort zone. Then I started buying more toys!!! Yay! (Never really wanted a pony)

Living within your means can cut down on stress related to uncertainty in our lives. I don't worry too much about jobs and paying bills since I save and now have approximately 1-2 years of essential living expenses saved up. I'm by no means a hermit or a rich man either, just cut back on no-essentials years ago only to find out that I didn't need them.

@urabl: Technically, if you pay off the credit card in a month (without incurring any interest or finance charges) you're not actually using credit.

@Pink Puppet:

That's a different kind of debt altogether. Think of it as an investment in yourself and you'll feel better about it. It's not like you're buying a house you can't afford or a giant tv because you're pals have one.

I lived in a crappy, small apartment while I lived in California (then again, most apartments in the San Diego area are microscopic anyway), even though I could afford a bigger pad. So I saved and saved, and now that money will go to all the jackasses who lived outside their means...awesome.

@baquwards: Even worse, I saw somebody on one of these shows rip apart a really cherry 50s kitchen to "update" it for a flip. I winced as they took a sledgehammer to those funky Populuxe cabinets and appliances. "Nooooooo!!!!!!" Don't DESTROY them! eBay them, for God's sake!

@leprendun: Gah! I get that from my students all the time. "But I worked really hard on my paper, why didn't I get an A?" Hm, maybe because you're graded on quality of results, not quantity of effort.

@Skankingmike: What's he going to do with that money that he has stashed away? If you're lucky, he's saving it in case he has unforeseen medical or other personal maintenance costs toward the end of his life, so that you or the state won't have to pay.

@magic8ball: Sounds a bit like me...I've got the money to do more, but it doesn't give me pleasure. I'm bored with traveling alone and realize that I can't expect my nieces and nephews to pay for my nursing home.

For some people, knowing it's in the bank is a greater pleasure than spending.

@jenjen: But it's also possible to watch a nest egg drop to half or less as has happened to some in today's market. Add a Madoff in there and you can get left with almost nothing. It seemed safely squirreled away at the time, but life is full of surprises.

@snowmoon: I find an austere lifestyle can be good for the soul. Walking even though you can afford a cab; keeping the heat down in the winter, even though you can afford to blast it; catching a free performance at the local college rather than paying for full price tickets. When I was unemployed for parts of 3 years, I actually increased my net worth by finding ways that didn't make me think about the cost at all. I learned a lot and had a great time.

@HurtsSoGood: Heh. My counters are chrome-edged formica and I've got a pure Sputnik light fixture. I wouldn't dream of updating it. (Plus those damn cabinets are build like rock.)

@crazydavythe1st: Davy, An economy based on consumption is unsustainable.

For the economy to recover, we need a recession. The government wants you to prevent that from happening because it would be painful. Amiable goal, but they're creating a larger financial crisis while doing so.

The economy needs to be based on savings and production. We need a re-allocation of human and financial capital, and that's a recession.

How hard is it to buy good quality stuff that will last. I still wear clothes that are a good ten or fifteen years old, I have three TV sets - all Sonys, the newest built in 1992 that work just fine. Who needs all the latest gadgets? The early adopters pay more an get buggy products.

Plus I believe if you want something save up for it then buy it. It makes the eventual purchase much sweeter when you do it.

@MooseOfReason: There's a typo in there. In the second paragraph, it should say "government wants to".

Sorry about that.

@floraposte: Hence I submit, The Entitlement Society.

I've got the counters and edges and cabinets that came with my house. A house, the down payment for which, I saved up for while renting an apartment for 11 years. I lived in apartments owned by racists and slumlords. During that time, I worked enough jobs to pay off my school debts and had two kids. Meanwhile, I bought a couple of computers, two cars, and a vacation property in Wisconsin. No debt.

I guess I hate my counters and edges.

The funniest thing I cannot grasp is that you MUST live NOT within your means (that is, use credit cards etc) if you ever plan to apply for mortgage or car loan. I would suggest that highest FICO scores be assigned to those who have a credit file for some time with no derogatory information (like late bills, bankruptcies, etc) but do not use credit cards. It is obvious that such people are perfectly capable of planning their finances and living within their means - thus being most reliable in terms of repaying their secured loan (be it mortgage or car loan).

@urabl: To all those saying "But I pay it off every month!": Well, it works for some people, but as a whole American society has a hard time actually following through with responsibility. I've just dumbed it down to a safe level. We all know people who were planning on paying it off every month and then ended up with several thousand dollars on it and not being able to do so.

Of course, articles like these on the Consumerist are like peaching to the choir, no?