My hobby is personal finance. I love it like other people play and watch sports or participate in other activities. It's funny though because it really doesn't change. Sure there are little tricks here and there but for the most part it's pretty simple and basic. Save, get out and stay out of debt, live below your means and think rationally before you spend. Then why is it so hard for so many? This is what perplexes me and keeps me going. I believe part of the reason's are misconceptions about money and work and allowing our emotions to rule our spending. Lets' explore some common misconceptions.
Misconceptions about the road to financial freedom.
1. You will have to live an austere life of doing without.
2. It will be painful to do without.
3. It will make you so different from the norm that you will feel embarrassed to be alone in a world of people with nice things.
4. It's a hippie dirty life.
5. You have to make a lot of money to avoid debt.
6. You have to make a lot of money to save.
7. Your kids (or you) will be made fun of for not having what others have, such as a 10 year old not having a new cell phone.
8. I'll be left out of doing things with people.
9. Simple living is for old people or lazy people and wasn't that a thing my grandma did because she lived through the great depression?
10. What's wrong with having nice things if I work hard. Don't I deserve it?
Now lets talk about the remedies and the why's. First of all the why is because you are a slave to the lender when you are in debt and you are not really rich just because you have nice things. Less than 1/3 of the population has savings for retirement. Something is going on here and you can't see it on the surface.
Remedies:
1. You simply make choices and think consciously about your spending. I spent money on my nails and beauty treatments yesterday because it is becoming sandal weather. However I had done without for months because it was sock weather. You simply think about what is most important before you spend. You do without one thing to put emphasis on what is important to you.
2. It is so empowering when you have a goal and you know that you are simply doing without things that won't really bring anymore quality to your life. Do you really need another pair of jeans, shoes, etc...If you do then buy them but if you are shopping for sport ask yourself if working an extra twenty years is worth it.
3. Most people are only concerned with themselves. They don't notice or care if you drive an older car or live in a modest home. They probably don't notice what you wear either. For years I dressed my kids from Goodwill with a few things here and there for Lands End or the Gap (on sale). My kids looked adorable and no one knew the difference. I had a system of buying used clothes from my friends who spent way to much on fancy clothes their kids could wear for one month.
4. I am so grateful that my parents and grandparents taught me this valuable lesson. Many times in my life my parents were struggling. They were divorced and remarried but at times we lived in trailer homes, drove old cars etc. However our homes were always immaculate. My parents planted flowers. If something broke they fixed it. Our cars were older but spotless. There was never any trash laying around. The house was clean and we had garden fresh food. Our yards had flowers planted and were always mowed. At one time apparently we were on Food Stamps for a few brief months, I never even knew. It wasn't said but it was modeled to me that no matter how little you had you took pride in it by taking care of it.
5. I am certainly not perfect here but I have learned the hard way. I've been in and out of debt several times in my 46 years. I've also had a bankruptcy in my twenties. What I have done is look at myself and the habits and choices that got me into that trouble. Paying interest is the opposite of saving money. The poor get poorer because they are constantly paying more in high interest in late fees. Here is a simple example. You get a $5000 tax return and you have no current debt. You make $30,000 a year. You take that tax return and you spend $2000 on toys and crap you don't need. You then go to get a new car and put the $3000 down on a $30,000 car (which is fairly average these days). You likely have a payment of about $450 a month for the next seven years. Or you can take that $5000 and buy a good used car and have no payment. The following year you get another tax return and you sell your car for $4000 buy another car now for $9000 and you have a nicer used car. During this time you take that money you would have spent on car payments and save. Say you save $5000 over the course of 4 years (about $100.00 a month) and you are only 25 years old. By the time you retire you will have turned that into over $150,000 with compound interest (see below).
* Now I want to confess here there are always "It depend's moments" and those depend on your personal situation but that is the point (life is about choices). This is my story.
I put a huge down payment on a new car a few years ago. It was a cheaper car than what I could afford and I chose to do this a few years after my divorce. I travel for work and my other car was having mechanical issues (I had paid it off in three years making less than $32,000 a year), it had terrible gas mileage and I had a horrible problem with it hydroplaning every time it rained (no matter my tires). When I went to purchase a car I chose one that was less expensive, got great gas mileage and was all wheel drive. I did the work before hand and my insurance was the same, my gas bill was cut in half (actually more) and I feel so much safer now driving in bad weather. I will have it paid off by next year (in 3 years). The security of safety was important to me as a single person. I chose this debt at a low interest to buy the security of a safe vehicle to travel in. It is the only debt I carry besides a mortgage, and if things go as planned that will also be paid off in four years.
6.You have probably heard stories of little church ladies who worked in cafeterias and died and left a million dollars to some charity. It does not take a lot to save. Please do yourself a favor and research the magic of compound interest. If you live within your means and take care of what you have anyone can save. A $1000 with triple in 20 years with the magic of compound interest. It's the emotions of the human that get in the way by spending more than they make. Many regular folks retire well by using this method. My ex husband and I took advantage of his retirement plan at work and never took the money out, this was incredibly beneficial to us. Every time he was given a raise we were increasing our savings. When we got divorced I received half of our savings. Now I had been only a part time worker as I was taking care of our four kids ninety percent of the time. After the divorce I started working two jobs. I've continued to put $100 into that account a month, not what I want but it is something. My focus has been on being debt free, holding on to the savings I have and working more and building up my Social Security. In a few short years by the time I am fifty my fiance and I should be able to both go part time or cut back as our bills will be small and we should still have enough to max out IRA's to the full capacity.
7. If people make fun of you or your kids feel they are doing without then make sure to discuss the value of what real friends are. Find people who think like you and instill the values that are important to you into your kids. Make sure to not use words like "We can't afford that" or "we are poor". We want to instill in children that riches are not found in material goods but in relationships and that frugality buys the freedom to choose how you spend your time. If you do not have to work two jobs you can spend more time taking your kids to the park and playing games. This is what they will remember.
8. Find activities that are free or low cost. Choose friends that enjoy the same kind of life as you. When I was younger I started a book club on Voluntary Simplicity. We all shared what we had. Found things to do that were cheap and enriched our lives. We had many potlucks and movie nights. It was not uncommon for me to have twenty people in my house for a potluck and a viewing of a movie like "Low Impact Man". I will treasure those memories forever. Now I have a new book club on Voluntary Simplicity where we meet at the library once a week. It is the highlight of my week and keeps me grounded.
9. Frugality buys us the freedom to have experiences like quality relationships and the ability to travel. Debt puts us in the work mode and extends the hours we have to work to pay our bills. Is it worth it?
My grandparents worked nine to five jobs. They had no debt and much to my surprise when they passed away they left mom and I a pretty nice sum of money. I had no idea they had it. We took glass back to the store to get a nickle. We watched every penny. They had a fishing cabin and went to visit realatives in Houston and Mexico every year. They had a full life but they made choices in life and boy am I glad I had that example.
10. Choose a few nice things and make them stand out. If you have clutter and many things you don't need the nice things get buried. It is better to spend a little more on quality that to buy a bunch of cheap junk. The point is to have more quality and better quality of life with things you enjoy rather than an austere life or a cluttered life that feels like a burden.
So simply put. Save. Don't have debt. Live within your means. Value people and animals over stuff. Take care of what you own. Value your time.
Love and Light,
C
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