When I am not writing about personal finance and consumer debt, I knit. Something about the gentle rhythm of yarn and needle calms my spirit and unwinds my brain.
Because all knitters make mistakes, tinking is a required skill for those who take the craft seriously. It doesn’t take too many oversized sweaters or undersized hats to figure out that the smallest error at the beginning of a project can produce disastrous results if not found and promptly corrected.
Money is a lot like knitting. By some miracle all knitting consists of just two stitches: knit and purl. Likewise, with money you have two options: spend or save. And who among us can say they have never made a financial error?
We all make mistakes but the secret to staying out of the red is correcting the little mistakes before they lead to disastrous results. In both money management and in knitting, the more you practice the fewer mistakes you’ll make. And, the more success you’ll enjoy.
If you’ve ever found yourself in the red—overdrawn, in debt, spending what you haven’t earned yet—it is likely that you didn’t land in that position overnight. Rather, it was a series of small uncorrected mistakes that over time escalated to the crimson condition.
As a college freshman, I made the mistake of thinking I could get away with spending money before I actually had it. The first time I dared to write a check for more money than I had in my account, I was nervous. But I figured with any luck my next paycheck would get to the bank before the one I was about to write—a chance I was willing to take.
Actually, my little plan worked perfectly. My paycheck did get there first and no one was the wiser. So, I pulled that stunt again and again. I got caught from time to time, but cleverly concluded I wasn’t really overdrawn—I was just under-deposited.
In time, I moved my antics from my checking account to a bevy of credit cards. I allowed myself to believe that as long as I could get away with it, it was okay to spend now. And pay and pay later.
Here’s my point: I didn’t start out in the red. But that one small mistake repeated over and again led to debilitating debt that changed my life. Had I corrected my thinking early on I could have saved myself from the disastrous results that were to follow.
Many people, in fact the majority, aren’t in particularly serious financial trouble. They flirt with the red zone from time to time, teetering between red and black and spending all that they make. For them being in the red is more of a mindset that keeps them from making financial progress.
Take buying a house, for example. Pushing to get the biggest house for which you can qualify, rather than a home you can comfortably afford is to have a kind of “in the red” mindset. Buying a brand new car with six years of payments would be more of a red way of thinking, rather than opting for a late model used car with 36 more comfortable payments. Feeling entitled to the biggest and the best without regard for the financial toll that decision will make is to think in the red.
Here are some practical ways to change your attitude from red to black.
Instead of accepting every credit card offer that washes up in your mailbox, shred them. Don’t look at available credit as additional income. If you carry a revolving balance on a credit card, picture it in red until it reaches $0 and turns black.
These days with so many ads and creative financing options it’s easy to think of your home’s equity as an ATM machine from which you can pull cash. That is definitely red thinking. The goal of homeownership is to amass 100% equity so you own your home free and clear. Home ownership: black. Mortgage: red, no matter the amount or the interest rate.
Waiting is a concept we are careful to teach our children. Too bad so few of us practice what we teach. Simply doing nothing—waiting—is likely the most efficient way to change your mind from red to black.
Wait to spend your tax refund until you actually have it in hand. Ditto for the next commission check or bonus. Let it sit in the bank for a while. Savor the feeling of being in the black.
Thanks to the consumer credit industry, waiting to buy until you can pay in full has become socially archaic. But so what? Patience is a virtue. Waiting builds character.
It’s good for the soul.