I read an article on MSNBC.com this week about how people are not paying on their homes and voluntarily entering foreclosure so that they can save money. The gist of the piece is that these people have simply decided to stop paying on the home and use the money for doing more fun things in life. To quote the article, “Foreclosure has allowed them to stabilize the family business. Go to Outback occasionally for a steak. Take their gas-guzzling airboat out for the weekend. Visit the Hard Rock Casino.”
I understand that there may be times when you have to stop paying on the mortgage. But that should be only after all other avenues of saving money and decreasing expenses have been exhausted. In other words, before you stop paying on the mortgage, you ought to have stopped eating out, sold the airboat, and stopped going on vacation to (and wasting money at) the casino. But the people in the article aren’t doing that. Knowing that foreclosure proceedings will likely drag on for years and they’ll be able to stay in the house for a while, they’re simply deciding to stop paying on the home that is dragging them down and use the money for other things. Never mind that their credit will be trashed going forward; they’ll worry about that later.
The thing that bugs me the most about this piece is the smugness exhibited by the people profiled. They aren’t sorry or ashamed about what they’re doing. Some of them feel like the banks created this mess and they are sticking it to the bank by not paying. Some feel that since the house is worth so much less than they owe, they shouldn’t have to pay. Others just feel that the money can be used for other things, so why not? They are unapologetic and unconcerned. The attitude seems to say, “I’m doing a smart thing by not paying on this house. I’m saving money, still living the high life, and making ends meet without having to endure any hardships. I’m a financial genius.”
Which got me thinking: There are things in personal finance that you can be proud of, and things you should be ashamed of. To be successful long term, you need to understand the difference. You can be proud when you save money through legitimate means. For example, when you use coupons within the terms of the offers and you cut $50 off your grocery bill, that’s something to be proud of. When you doctor Internet coupons, slip expired coupons by the cashier, or don’t comply with the terms of the offer, you should be ashamed.
When you earn extra income from a part-time job or freelancing and you pay the proper taxes on that income, you can be proud. When you take cash under the table and cheat the tax man, you should be ashamed. If you legitimately need government assistance and you are granted that assistance, there’s no shame in that. There is shame, however, in gaming the system and acting needier than you are just to get a free handout. Almost any area of personal finance has a dark side. You can commit fraud or engage in unethical behavior in almost any transaction. But you shouldn’t be proud or smug about having done so.
Saving money in unethical or illegal ways will catch up to you eventually. The people who aren’t paying on their houses won’t have a good financial future, no matter how smart they seem right now. Once their credit is trashed, where will they live? I’ll be a long time before they can get another mortgage (if ever) and most landlords won’t rent to someone with bad credit. They won’t be able to get a car with a loan. They’d better be saving all of those mortgage payments because they’re going to need a whole lot of cash to get through life. Even small things like coupon fraud can catch up to you eventually, in ways you may not realize. If you get caught, you may be banned from the store. Even if you’re not caught, coupon fraud results in higher prices at the store, stricter coupon policies, and even the refusal to accept any coupons. That will cost you eventually. Big fraud schemes like insider trading, and the recent Wall Street shenanigans will land you in jail.
People who are successful save and make money in ways that they can be proud of. They may not get rich fast and they may have to endure some hardships in order to get ahead, but once they achieve success, they don’t have to fear that someone can take it away from them. They may not have the money to go to Outback or run their powerboat today, but neither do they have the nagging fear of financial ruin or jail hanging over their heads. So those of you who are acting all smug about your efforts to outwit the system should watch out. That smugness will likely come back and bite you later.