As financial coaches, we see more people who are financially strained because of parental-guilt and trying to “keep up with the Joneses.” Financially speaking, those who try to maintain a lifestyle like their neighbors, while they are in debt, are shooting themselves in the foot making matters worse by persisting with these kinds of decisions. Trying to keep up socially, while getting out if debt is almost impossible. Making the choice to cut luxury spending and focus on your debt is the hardest part of the process.
Here are two examples. Expensive pre-school for toddlers. These types of “pre-schools” can cost upwards of $600 per week. They teach the very young how to identify shapes, colors, numbers etc. They are glorified daycare centers. But parental guilt tells us that your child must be educated before kindergarten begins, so that they are not behind when they start school. This is a fallacy but it easily ensnares guilty parents. You can teach your child all these things, just like your parent and grandparents before you did. If you are in debt, there are many other things that this money could be going towards to get you to a less stressful financial environment. As an added bonus, your child might actually learn something positive about life and money as they live through this process (and they will live through it). Once out of debt choosing a luxury like this might make sense for your child. But this is what it is, a luxury, not a necessity or need.
The second example is select sports for the late-gradeschooler through highschool. Junior might be a good baseball player on his little league team, but will he be a professional? Is the opportunity cost of your time and money worth bankrupting yourself? Sports, especially select sports, is a luxury. If you are in debt, it is hard to justify this expense. Recreational leagues or casual games are still good. Remember that the organizers of all these tournaments and camps are making money from these events. They are not running them out of the goodness of their hearts. The choice is, “Can you afford to pay for it, while trying to get out for debt?”
These are but two examples of the many that we come across in day-to-day life. The choices made, day in and day out, with where limited resources are directed have a compound impact on where you go fiscally. If you are out of debt and have a 3 month emergency fund, go ahead and choose a luxury or two, but you will bog yourself and your family in the quagmire of debt if you try to keep up with the kid’s friends and your peers when you don’t have that extra money to spend. The choice is yours. Get pointed in the right direction today.
Tim and Kathryn Gerken are Financial Coaches in Newcastle, WA. They serve their community in the greater Seattle area.
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