Tuesday, March 15, 2011

Living below your means

My parents were fairly frugal. So am I, though my husband would occasionally disagree (but only because he is exceptionally frugal!). We have never had the need for conspicuous consumption and instead have saved or otherwise invested much of our discretionary income. What does this have to do with preparedness? It goes to one of the fundamental steps in preparedness: being debt free. If you review my 'Prep 101' page, or that of many other preparedness blogs, this is a common thread. You cannot be truly prepared if someone else owns your house or car.

Our home is significantly smaller and more modest than those of our 'peers,' and well below the maximum mortgage we could have gotten. We drive older cars. One is 21 years old, the other is 10 years old, and we have a newer truck that is used only when needed. We do not have a pool (think wet money pit), hot tub, club membership, etc. We wait until a technology has come down in price significantly before we buy a new ... whatever. My husband does not have a cell phone. I have one, but it is old, cheap and with minimal minutes. It is for safety and emergencies. We have a dog, but that is one of our few luxuries. We eat well, but usually at home. As a result, we pay extra principle on the mortgage, which is almost paid off after 15 years of a 30 year mortgage. We decided rather than refinance, just accelerate. Most mortgages have a clause that ensures no penalty for paying off early. By paying extra principle early, you get the tax deduction AND save years of interest later.

Figuring out how to live below your means when you are accustomed to living above them can be tricky. The process requires really paying attention to where your money goes. Using the Debtors Anonymous spending record process can be a real eye-opener and great tool toward understanding where your money goes. You start by writing down every cent you spend for several months, and tallying and reviewing by categories about every 2 weeks. This is not guess work -- you need to carry a small pen and book to write it down as you spend. DA has a great 'tally sheet' that I have not been able to find this on the web, so you may need to find a meeting to buy a copy -- it will probably cost the price of copying it. The first time I did this I found that I spent a lot on clothes and little on entertainment -- all dressed up and no where to go!! By looking at how much you spend and where it goes, you can make choices about which habits can be changed to start living first WITHIN your means, and then below them.

If you do not own your own home, and especially if you live in a cost prohibitive area (like San Francisco), I suggest the following steps:

1. Really determine your disposable monthly income level using the above process. Part of this is getting a better understanding of your WANTS versus your NEEDS. Examples: Do you really NEED to buy lunch every day or could you brown bag most days? Do you really NEED to get your nails fixed for $100+ per month? Hair dyed for $80 per month? Does you teenager really need ...you name it?? How about that vacation -- is it actually a real source of usable cash?

2. Start a credit union savings account. I mean one that is NOT associated with checking or other source of easy use. Start making regular deposits. Put your TAX REFUND in it, unless it is needed to pay off credit cards (the ones you have otherwise STOPPED USING) and student loans. Think of this as your HOUSE fund.

3. Start looking for a piece of land. It should be outside any major metropolitan area, be near water, possibly a few nice trees, and capable of supporting a garden. If you want to be on the grid, it should be near power lines. Extending lines very far is really expensive, so think this one through. Also, think acreage, and not on a main road.

4. When you have enough saved up, buy the land. Welcome to your new vacation spot!!

5. Put that vacation money/disposable income toward some type of basic structure. Doesn't need to be fancy, but could be a place to come if your rental location becomes unusable, you get laid off, etc. You could start with a used motor home or 5th Wheel (these get really cheap when the price of gas goes up!!), YURT, or a garage or house kit (Sutherland's has these) and go from there.

This is essentially what my husband and I did 15 years ago, living well below our take-home pay even then. Since then, all but three of our vacations have been at our 'other place.' We now have fruit trees, a well, a small home with a nice porch (the porch should have been our first structure -- we love it!!) and a small garden. It is our refuge in good times and bad. We are now even thinking of retiring there!

1 comment:

  1. You have a great outlook on life,and very good advice for all who will listen,keep up the good work! Blessings jane