I know many of my faithful readers could probably give us all lessons on frugality! Many of you are just so good at making a dollar stretch. I sometimes find it hard to talk about this issue because most of you know that my husband is a doctor. Money just isn't a concern for us like it is for many others, and everytime I write about how we should spend less I get nasty emails telling me that I don't know what I'm talking about and I should just shut up. So I often steer clear of the subject.
But I'd like to add my thoughts anyway today, and please don't send me nasty emails!
First, a little context. I grew up to a single mother in a lower-middle class home for most of my life. Her jobs got better as time went on, but we were never well off. So I learned the importance of working and saving as a teen, and I knew that if I wanted to go somewhere on a trip or if I wanted to buy something big I'd have to pay for it myself. And I did.
When we married, and started having children, Keith was still in residency and making hardly anything at all. The banks were willing to lend us tons of money based on future earnings, but we didn't take out loans. We lived in an apartment (many of his classmates bought houses with no money down), and we didn't have a car. I shopped at second hand stores. And during those years of his residency we managed to save a fair amount for a downpayment, so that when we bought our first house we didn't borrow the whole amount.
The banks would give us $450,000 for a house based on his projected earnings, but we bought one that was 1/4 of that in a regular middle class neighbourhood with lots of kids. It was marvelous! We lived there for nine years until we paid it off and bought a slightly larger home, still in a primarily middle class neighbourhood. Very few doctors live around here.
I'm not saying this to toot my own horn; I'm just saying this because I do believe we've practiced what we preach in this area, at least. The one area we spend too much on is travel, having taken the kids on a whole bunch of missions trips, but I think that has lasting impact.
Anyway, here's the other reason I'm saying this: because we have consistently lived below our means, we've managed to save a lot of money so that my husband can conceivably cut back on work in the near future and we could potentially go overseas for a few years for ministry. I still don't know if that's where God will lead us, but the main thing for us is that we have the option.
And that's what living below one's means does for you: it gives you options. You aren't tied to a job you hate in the same way because you have a buffer. You can pursue more dreams. You can take some time off. You can give more away.
And living below one's means has very little to do with income and a lot to do with attitude. You wouldn't believe the number of physicians in our social circle who are close to bankruptcy. They make a ton of money and they're not saving it or treating it responsibly. Just because one makes a good income does not mean that one spends it well.
I ran across a few statistics a while ago that I think are quite interesting about the difference between millionaires and non-millionaires. The long shot? Most millionaires don't buy really expensive things. They're millionaires because they buy regular stuff. The people who buy the expensive stuff are people who are trying to LOOK like millionaires, not people who actually are.
* Eighty-six percent of all prestige or luxury makes of motor vehicles are driven by people who are not millionaires. * Typically, millionaires pay about $16 (including tip) for a haircut. (this must be for guys!) * Nearly four in 10 millionaires buy wine that costs about $10. * In the United States, there are nearly three times as many millionaires living in homes with a market value of less than $300,000 than there are living in homes valued at $1 million or more.
When we live below our means, we're able to save more and eventually be worth more, which gives you options. When you live beyond your means, then you're committing yourself to having to earn a whole lot of money to pay off that debt. You're limiting your options.
So wherever you find yourself today, with whatever income, remember to live below your means. If you do so, you'll be acting more like a millionaire than you think! And you'll be helping yourself immeasurably!
Every Friday my syndicated column appears in a variety of papers in Canada. Here's this week's, about the credit crunch. It's from a Canadian perspective, but I think it's still relevant for all:
Let’s fast forward twenty years. My husband and I are living in a bungalow as a concession to my bad knee. He’s still not bald, so he’s the envy of all. And we still have two daughters.
Let’s imagine that one is married, stable, and living in a modest house while saving much of her income to launch a business. The other daughter dropped out of university to travel around the world and find herself. Mission accomplished, she returns home with dreams of starting her own organic goldfish farm. And she wants a large house suitable to her new role of a legitimate businesswoman.
Hopefully in twenty years my husband and I will still have the courage to slam our wallets shut. But let’s say we lose our minds and lend this daughter our life savings. A decade later, when she inevitably loses the house, guess who’s going to be bailing us out? The daughter who was trying to live responsibly all along.
That, in a nutshell, is what happened in the United States last week. It all started in the early 1990s, when Congress, under Bill Clinton, declared more loans should be given to those who don’t have a stellar financial footing, and offered banks incentives for being generous. All these new mortgages created a housing bubble, tempting speculators. Lenders launched subprime mortgages, which sounded ideal for the first little while, but soon became killers when the interest rate increased. These subprime loans went from comprising 2% of all loans in 2002 to 30% in 2006. And then the bottom fell out.
In effect, banks were subsidizing organic goldfish farms at the expense of those who were waiting in the wings, refusing to take risky loans. Investment firms bought these paper-thin mortgages, and soon even financial stalwarts were buried up to their necks in bad debt.
Canadian banks are much more conservative when it comes to lending, but we’re going to feel the impacts here, too. And it all stems from our culture’s insatiable demand for easy money. We think that everyone should have access to credit, and comfortable lifestyles, and large screen televisions as soon as they exit the womb, rather than having to scrimp and save like generations did in the past.
It can’t last. We can’t keep living paycheck to paycheck, paying off one credit card with another, or rolling our credit card debts into our mortgages whenever they come up for renewal. At some point all of this credit is going to come crashing down.
The media has been blaming the mess on greed, but I think it’s also plain old laziness. On those financial reality shows, profiling people who have been buried in debt so long that the red ants are gathering, the story is always the same. They spend thousands more each month than they make, and they don’t even realize it. They don’t count pennies; they just go to the ATM to extract more twenties.
In these shows, the solution is always the same, too. Cut up the cards, and make a budget. Divide your money into jars for each budget category, and then pay by cash. It’s hardly rocket science. That’s how smart financial people have been living for generations. Jars and cash aren’t anything new, but they’re still the best route out of a financial mess.
A friend of mine was once facing a credit crunch, and she and her husband sent their VISA into exile. They wrapped the card in a Ziploc bag, and then placed the whole thing in another Ziploc bag filled with water, which they then banished to the back of their freezer. It’s still usable, but it’s going to take a lot of thawing out before they can get to it. No more impulse purchases!
As I write Congress is trying to stop the bleeding. Maybe it will work; maybe it won’t. What we really need, though, is for our whole society to start using the jar system rather than handing over the plastic. Let’s live in reality, not fantasy. Fantasy crashes, and next time it crashes, it’s going to be even worse.
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About Me: I'm a Christian author of a bunch of books, and a frequent speaker to women's groups and marriage conferences. Best of all, I love homeschooling my daughters, Rebecca and Katie. And I love to knit. Preferably simultaneously.
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