My father used to caution us kids against consumerism: “Look around you; most people never have enough money. When they make two dollars, they spend four. Me and your mom, when we make two dollars we spend 10 cents.”
I must admit that daddy’s teachings went against what I learnt in school. Our society encourages “spending other people’s money” – “leverage”, they call it.
Here we are in 2009, scratching our heads. What happened? Is this “leverage” thing not all it’s cracked up to be? Should we have been more prudent? Maybe it’s time to go back to basics. In that vein, I propose establishing some fiscally healthy habits:
1. With all due respect, Daddy, I can’t make two dollars and spend only 10 cents. I do think that I can get by on about 50 cents though. Instead of Gucci and Cartier, I opt for a no name brand. Instead of eating out, I cook in; it’s healthier anyway and a lot less expensive. I buy it in bulk at Costco and shop at the Farmers’ Market. I get good quality at discount prices, because I pay attention…
2. I know I can afford a much larger and fancier home than this, but why spend the money on it? Instead, I’d rather use that money and buy some other homes, rent them out and let them pay for themselves.
3. If I don’t have 20% to put down on a home, I’ll wait until I do. I don’t like paying PMI, nor do I like other people taking care of my property taxes and insurance (escrows). When I buy a home I make sure I have enough money to pay all expenses for at least six months, just in case I have a hard time renting it. Better safe than sorry.
4. When I volunteered at the shelter I met several people who had lost everything because they didn’t have health insurance. I don’t want that to happen to my family, so I pay my premium every month automatically by direct draft.
5. I don’t want to be late with my mortgages, so my properties all get paid automatically as well. Just for good measure, I have it set up to draw more principal than required, so I can pay them off faster. It is amazing how much of a difference it has made.
6. Some of the money left over after my 50 cents allowance go to paying taxes with regularity. Some of it goes to my retirement accounts; I’m not going to be 29 forever, you know… The rest gets saved in order to buy more Real Estate. I believe in what I sell and I set a good example. How can I advise other investors, if I don’t invest myself?
7. Setting limits and staying within my means is not easy. I make choices every day. I want both shoes? Too bad! I’ll buy the pair I like and need the most and it better be priced in the two digits; no Gucci there either.. I’d love to fly first class. Too bad, it’s not in the budget! I’m just lucky to be able to travel, and I remind myself of that fact. Fancy hairdressers, manicures, spa treatments? Yeah, that would be nice, but I never have the time for it anyway. I don’t smoke or have any other unhealthy habits, I eat clean and I exercise. No fancy spa or doctor treatments can give me what those good habits can…
Learning Fiscal Discipline is a process, but one well worth the prize: independence from worry. “Taming your money” will give you peace of mind and will allow you to make better choices. I think Daddy would be proud…
I’m sure I may have missed some fine points. If so, please bring them to our attention! I would love to hear from you about the healthy fiscal habits you have developed!