Here’s some remarks aimed primarily at young couples or maybe anyone who is not on Social Security yet, and you might file it under do as I suggest not as I did.
It’s all about how to handle money.
What makes me an expert? I’m not. But I have a life time of frustration to look back upon and can see the error of my ways.
I realize most who even bother to read this will soon forget it or reject it outright, but I have nothing else I want to do at the moment so here goes:
Definitely create a household budget. You don’t need a computer program for this. What you do need at the minimum is a pencil (pen) and paper.
Write down your unavoidable expenses.
Housing – (rent probably, but a mortgage payment of course is the same thing – you don’t own that house until the lender gets paid off.).
Utilities – Where I live, if you don’t keep current on your utilities the city actually has the power to evict you.
Food – you have to eat, but the good thing here is that you have wide latitude on how much you have to spend.
Clothing – This is difficult. Not everyone has the same clothing needs, but again, you have wide latitude on this as well. The best you can do on food and clothing is see what you are spending now and then arbitrarily cut back a few percentage points.
Transportation – I will assume here that you will depend upon a personal vehicle. If you have convinced yourself that since there are two of you you need two vehicles you’ve already fallen in to the money pit trap. My advice is to make one vehicle work for you until you get financially secure enough to expand if need be. If I sound unrealistic, then you probably don’t want to read any further. Good luck! But on that transportation, count everything – fuel, tires, general upkeep, and payments if you are buying a vehicle on time (but if you are, I think you’ve already gone wrong, but that can be debated).
Now that you’ve added your expenses comes the easier part. Add up your income. There is no getting around it, your expenses have to come out below your income. In no case should one, even temporarily, try to live beyond his or her own income.
And the best piece of advice I have ever heard is from an extremely shrill and annoying infomercial when the idea of buying property for nothing and then flipping it was in vogue (maybe those ads still run). But the sage piece of advice was this:
“Watch what the poor people do, and don’t do it!”
Poor people always live beyond their means. They do things like go to check into cash and pay a thousand percent interest to borrow on their next paycheck or their next welfare check.
Up until recently banks were sending out guaranteed approved credit card apps willy nilly. So poor people, and soon to be poor people, just charged it all to the max, thereby eliminating any chance they might have had to get out of the financial hole.
The lesson here is don’t buy on credit. Don’t buy on time (same thing). Always, always, buy cash. If you don’t have the cash right now, guess what? You don’t need whatever it is right now.
This may sound pathetic, but some of the happiest moments in my life have been when my wife and I bought something for cash. A few years ago we bought a new clothes dryer. Paid cash. We had something we needed at the time and no worry over how to pay for it.
For my whole life prices have been driven upwards because merchants have pushed credit to induce customers to overspend creating a bigger and bigger demand (well until recently). If everyone paid cash, prices could be kept more in check.
So for instance, how does one purchase a home without taking out a mortgage (borrowing)? You don’t. I’m thinking the idea that everyone should want to invest in a home was a false notion all along. It does work for some. But rent is a straight forward deal. I pay you the money and I get to live in your house as if I owned it, but I don’t have to worry about the upkeep. If you, the landlord, do not live up to your end of the bargain, I move. If I don’t live up to my end, you evict me.
Houses can be a good investment (well in the past), but they require tremendous upkeep (money), insurance payments and taxes. Think of all the things one could do with the money that is sunk into a house. Sure you get that mortgage deduction (but even that is threatened by the need for tax revenue), but that is a kind of slight of hand. You would not need it if you did not have all those extra house buying expenses and had a lower rent payment. It’s kind of like not claiming deductions on your payroll tax throughout the year, thus lending your money for free to Uncle Sam and then pretending you are getting some type of windfall when you receive your refund. Congratulations, you’ve loaned out your money for free. I guarantee no one, but maybe your folks or a rich uncle, is going to loan you money for free. You just flunked introduction to business or consumer finance.
Buying a car is a subject all in itself. There are many ways to look at this, so I think I will address that in a future post.
And here’s something: you might say that you have to buy certain things otherwise you will not be able to keep up with your contemporaries and you will not be happy. I’m sorry, you may have a neurosis. You probably need counseling or better yet, snap of it, or just ignore all of what I have said and again, good luck!
Just as you need to get a handle on your income and outgo, you need to above all sock some money away in some type of interest bearing account that pays you compound interest. Just read up on the basics of compound interest (even if you are math challenged). A lot of unsophisticated people have made a lot of money over the years because they understood the benefits of compound interest. And this savings is a way of making continued earnings on your money and is a safety net should you lose your job. It is not a Christmas Club.
And it just keeps coming to me. If you are still young enough, you owe it to yourself to learn a skilled trade or profession or better yet, both. Don’t relegate yourself to unskilled or semi-skilled worker status. Skilled people are always able to demand good compensation (or at least better than what everyone else is getting). And don’t let yourself get stuck in a profession where your worth is measured in a totally subjective manner (a journalist, an artist). And in this day and age you have to have broad knowledge and be flexible and maybe even continue your education or training on the job.
Not everyone can do all of this. And not everyone can be financially secure and secure in themselves either. But maybe you can.
If you are single, I would suggest checking out the military. If you are already married, no. The ancient rule in the military was that you did not get married until you attained career status. They should have kept it (I know, these days a lot of couples are in the service together – can’t see that one). While the military is fraught will peril, so is life in general. Do your own research. Do not depend upon recruiters. Unfortunately they are pressured into at the minium stretching the truth and too often into outright lying.
I would talk to career military persons, the more the better. And go for the top. Be an officer or warrant officer or at least strive to make it to the top of the NCO ranks. But you have to accept the military way. It is not the civilian way. Be honest with yourself. The military offers great opportunity. It offers great peril, as well (you need to realize that even if statistics are with you, you have to be willing to lay down your life for the cause). So it may not be for you. You also have to realize that you cede many of your personal rights to the military. You will be under the Uniform Code of Military Justice. You might want to take time to study that and read some history on how it’s been applied before you sign on the dotted line and raise your right hand.