Friday, March 15, 2013

Living Below Your Means

We've all heard about or know people who live beyond their means. A house that's a bit more than they can afford, a couple of high-end new vehicles, mom gets her hair and nails fancied-up about $200 worth a month, etc.  They are always stressed out trying to make ends meet.  Some of them lost sleep, their homes or more in the last few years. The current state of the US and global economy can't be helping the stress level there. 

The concept of intentionally 'living below your means' is a way to avoid that trap. It is a frugal lifestyle that means you can be prepared for everyday life and for the emergencies that may come your way. You can have money left over at the end of the month! How do you live below your means when the messages we hear every day are that we NEED certain things or are ENTITLED to others -- at our expense, of course. Better yet, some messages state that we absolutely DESERVE their product...Oops, I let it slip. They are trying to sell you their PRODUCT. You aren't entitled to it, you don't deserve it and you sure don't need it.  They need to sell it to you to get your hard earned cash for themselves.

Remember, the cash you earn is the translation of your time and energy into a form that you can trade for stuff.  Living below your means allows you to enjoy the fruits of your labor, have what you need and ENJOY life, not be stressed out about it or owe big chunks of your future life for stuff you don't need.
Here are some ideas about living below your means. First, pay cash for stuff like cars and groceries. Yup no credit or financing for these. Save up for a car. When you fork over the dollars from your savings or investments, it's like real money.  You'll probably choose the RAV4 rather than the Escalade. It's much easier to save up and then part with $20K than $60+K.


You also save THOUSANDS of dollars in interest.
Financing is more like 'funny money' -- but it is obligating a chunk of your future to work for the financing company to pay the interest and principle. Don't do that.  Ever hear the term 'debt slave?'  Here's an example of the long-term savings: A $20,000 car at 5% interest for 5 years costs you an extra $5,667 in interest.  That Escalade with the same terms will add a whopping $18,420 to the cost of the car. Unless you have a low price deal AND 0% interest, don't even think of financing a new car. Instead, drive your car for years after it's paid off while saving up for the next, gently used one.  We tend to drive ours until the cost of a required repair exceeds the blue book value of the vehicle. A 20 year old car needs a new head gasket?  Time to look for a replacement.

How about where you live? Rent a place that allows you to save money until you have enough saved for the 20% down on a house. You don't want to get stuck with mortgage insurance.  It's much more expensive than saving for the 20% down. Do the math to decide if it really makes sense to buy at all.  If you do buy, explore how long you want to finance the home. Shorter term means less interest to the mortgage company. A 20 year mortage versus a 30 year mortgage can save you $30,000 for every $100,000 of the loan value.

We took out a 20 year mortgage and paid extra principle when we had any cash to spare. Don't fall for paying an extra month's payment each year.  They are still getting every cent of the interest. When you pay extra principle, you are reducing the real, high dollar interest. Check out a mortgage calculator that shows how much of each payment is principle and how much is interest. Use one that shows the entire life of the loan and educate yourself! Paying extra principle when early in the loan life saved us over $10,000 in interest during the high-interest, low-principle phase of our payment schedule. Once the interest is less than 10% of each payment, you can also opt to stop paying extra principle if money is tight. We paid off the mortgage in 12 years by adding an extra $100 in principle each month, more when we got raises or a tax refund.  What a great present to your family it is to actually own the house your live in, rather than wasting your refund or annual bonus on frivolity. That $10K in saved interest can go toward your next car!

When you qualify for a mortgage, most realtors only show you houses at or above the maximum you qualify to buy.  Shoot for about 60% of that amount and don't go over 75%.  Don't sign up to be stressed out in this economy!

OK, no that you have a home and car that are affordable, what else can you do to live below your means? Ladies, your hair and nails are naturally beautiful. Learn to file and put clear polish on your nails. Find a cut that allows you to grow your hair out and put it in an attractive low ponytail, braid or bun. Don't spend money on a tan that will damage your skin and will later require you to buy more expensive treatments to make you look younger!! A little powder, blush, mascara and lipstick lets your true beauty shine through. (See Trish McEvoy site for classic make up looks, not necessarily to buy her product )You will look very classic, more professional and have more in your savings. If you are unmarried, an additional benefit is that you are more likely to attract a solid, stable mate when you look like a thoughtful conservative woman. My personal experience is that guys who like flashy high-maintenance generously-painted women aren't necessarily the best choices for life partners and fathers. I've seen too many of them abandon their families when the paint wears thin and the going gets tough.

The next item is WARDROBE for both work and play. Two pieces of advice: First is NEVER pay retail. Second is learn about classic styles and colors, and only buy classics for your work wardrobe. Being a current fashion maven is expensive, wasteful and only impressive if you're in the fashion biz.  If you want to look 'au courant,' buy this year's blouse to wear with your 5 year old classic black or navy suit. A great place to buy work and play clothes is Sierra Trading Post (I've gotten some beautiful suits and dress shoes for work at well below retail there). Sign up for their e-mail deals to save more. I buy my play clothes there and get great bargains on good quality clothing that lasts for years. Another place to look is consignment shops near expensive neighborhoods. When I lived in San Francisco in my late 20's, friends and I ventured up to Marin County and found fabulous deals on expensive, gently worn clothes for our work wardrobes. If you want more insight into classic work wear, this is a great overview.


Vacations and hobbies are another area for living below your means. Look for nearby vacation spots or even working vacations with non-profit organizations.  Some will provide you with lodging for your efforts. Visit local landmarks. Find a rural community and learn about the lifestyle and local natural environment. If you must travel, rent a modest cabin or stay in clean local Mom and Pop hotels rather than the large expensive chains.  Check out the Trip Advisor website to find inexpensive but nice lodging.  If you go to a tourism destination, go right after the seasonal rates change to a lower fare. A few years ago I went on a retreat the week after the rates went down. It saved me 40% (and I got a free room upgrade which made it more like 50% savings) and nothing was different from the previous week except the price and the date. By choosing a place that was within half a day's drive, I also saved a bundle versus flying somewhere else for a similar experience.

By now, you're getting the concept. Start to extend this thinking into all your spending habits. It may be nice to shop at Safeway, but the same stuff is up to 20% less expensive at Target (if you have one with a grocery section).  Do you really need fresh cherries in January, or can you get some fruit that is on special because it's in-season? Do you really NEED the coffee that's $12 for 12 ounces, or will the 2+ pound can for $7.99 brew well enough? When I was working, breakfast was a peanut butter and jam on whole wheat sandwich en route to the office. It did the trick and was about $1 a day less than high protein cereal and milk. (Easier to eat while driving, too!)

Repeat the above for 20 years and you'll have bought a modest home, have reliable transportation and stretched your income to pay for preparedness supplies, more education for yourself and your family and you'll be the least-stressed family on the block. You'll have savings (prudent reserve) to cushion the blow of those little emergencies in life. You'll also have explained and taught these frugal concepts to your children. What a great gift it is to live below your means!

5 comments:

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