Beyond Debt-Free: Getting By in the New Economy

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For most Americans, the pinnacle of financial independence centers on some vague notion of living debt-free. This debt-free life comes either through amazing feats of financial discipline during our working years, or as a final hard-won reward in retirement. But with an economy in turmoil, the specter of increased taxes looming as state and federal government deficits mushroom, and jobs becoming more and more temporary, is living debt-free even enough anymore?

We all know the pitfalls of consumer debt, and we all strive for that sweet moment when we make our final mortgage payment. But beyond the fundamental lessons of living debt-free, how can we leverage our work, our income, and our knowledge to truly stay ahead of what appears to be an ever-more precarious financial curve? I assert that becoming debt-free is just the first in a series of steps necessary to survive in the new American economy. Here are some other points to consider:

1. Ruthlessly Examine Expenditures

Face it: Putting the credit cards on ice isn’t enough anymore. We can work to avoid debt night and day and still be hit with some unforeseen event that levels our plans. A layoff, an uninsured medical emergency, or an accident can put us back at square one (or worse) financially. Staying ahead means saving more, and saving more means carefully examining every expenditure we make, becoming savvier to nefarious marketing influences and plugging the leaks in our financial lives. Ask yourself: Is this purchase essential? Does it support my larger financial efforts, or is it simply a black hole?

2. Activate Your Passive Assets

We work so hard to afford our homes and cars, but really put no demands on those assets themselves. Why shouldn’t our largest purchases be income-producing capital investments too? As most people’s biggest purchase and highest monthly expense, homes should be put to work. Is there a room you can rent out? Could the basement or attic become a permanent separate rental unit? And your automobile — would a truck serve you better and let you accomplish more (and more cheaply) by avoiding moving or delivery expenses? Could it become a means to launch and support a small side business?

3. Leverage All Types of Capital

Capital comes in all shapes and sizes. Living beyond debt-free means appreciating and leveraging social capital (your professional network, your friends, and your neighbors), knowledge capital (your skills and expertise), and time capital. How can each of these help you add to your income or reduce your expenses?

4. Rethink Industry and Marketing Forces

America runs on consumer spending, and most consumer spending is fueled by debt. Understand how the house of cards is built and carefully step away from the card table. Though the larger economic forces at play may be unchangeable, understanding how to not get caught in the worst of it is the key to success. Simplify your life where you can and become an ambassador for simplicity and frugality for your friends and family. Recalibrating expectations during birthdays, holidays, vacations, etc. can go a long way toward a saner and smarter financial existence.

5. Differentiate Needs and Wants

Reevaluating your ideas about needs and luxuries (sometimes ruthlessly) is probably part of what helped you become debt-free in the first place. Continuing to separate needs vs. wants and keeping your eye on the larger luxuries of freedom and security is still key.

6. Become a Micro-Entrepreneur

You are more than your day job. Your skills and time can be leveraged in new and creative ways to add to your income and help you be less vulnerable to the whims of larger economic forces. What skills from your primary job can be applied as a free agent part-time? What talents do you have that might translate into freelance work?

7. Embrace Independence and Local Interdependence

In an economy built on consumer unrest and dissatisfaction, independence and self-sufficiency are subversive concepts. Realizing how little you need through careful examination, thoughtful consideration, and efficient living is nothing short of revolutionary. Try growing a portion of your own food — it’s local, organic, and virtually free. Share it with your neighbors. Learn to lend and borrow; return everything in better shape that you received it. Turn your neighbors into friends, and see how much we all already have and how independence (and friendly interdependence) can create small liberations.

As we adjust to life mid-recession and realize that the economy is much more fragile than most of us ever understood, debt-free living may become the newest marker of success and a baseline for even more personal financial security. Though harder to attain, maybe this marker of restraint, financial mindfulness, community engagement, and simple living will be how we forge ahead and collectively change the industries and practices that brought us to the edge.