Making my way to Financial Independence. You do not have to live your life waiting to retire. All about finding ways to save more, spend less and live life to the fullest. A practical financial strategy will get us there. Puerto Rico for now, but soon the world.
Thursday, June 22, 2017
Do Not Let This Be You, A Cautionary Tale
These are all real. The names have been changed to protect the not so financially smart, but I am sure they see themselves. Others know someone that is in this situation. Quite easy to fall into the trap. Not so easy to get out.
Carlos and the Mini Mansion
Several years back, maybe 15, my friend Carlos received a promotion and the raise that came along with it. He did what many of us do: he ran to the bank with his pay stubs and asked "how much can I get?" and bought as much house as the bank said he could! A beautiful four bedroom, three bathroom house with a huge backyard. He lives in a gated complex nested within a larger gated community where he gets to pays two separate maintenance/security fees.
His only son is away at college and will soon get married. Carlos and his wife are now empty nesters and have no wish or opportunity to have more children. They have that huge house all to themselves.
The complex has tennis courts, a large swimming pool and many other amenities that exclusive gated communities offer. Never used them in all the years they have lived there, even though that was one of the reasons they were attracted to the complex house.
He lives less than 6 miles from work, but he must leave home by 6AM. He does not start work until eight, but rush hour traffic is so bad that if he were to leave at say 6:15 he would never get to work on time. He hits vehicular congestion as soon as he drives out of his complex. So he arrives more than an hour before he starts and buys breakfast every morning! Quite a large expense when added up.
Now they would love to sell and buy a smaller house that is also closer to his job. Something that is more suited to their needs. Problem is he can't, the housing market is so depressed that the house has lost about 40% of its original value and they can't take that big a loss.
Sad story this one, quite common today. Don't be like Carlos!
My Neighbor’s New Car
My neighbor just bought the brand spanking new latest car of his “dreams”. How long did he dream of it,? Not too long, the thing just came out. He will probably trade it in within three years for his next "dream" ride.
The real story behind this purchase and the many others before it is quite different from what has been presented. He is in perpetual competition with someone. He is special that way. Never happy with just keeping up; he has to do one better than those of us around.
Neighbor up the block just bought a new car, his old one had over had over 175,000 miles on it and was at its end. Good old Joe, everything is a competition. Within a month Joe had a new car too. He tried to explain that it had something to with gas mileage, safety or some other nonsense, but I can't remember.
This competition with everyone over everything has gone on for years. Hardly see him. Probably works close to 60 hours a week. Never gets to go anywhere on vacation; he can't afford to.
I have tried to make him realize; he needs to quit with the competition. The keeping up with the Joneses is slowly killing him and he doesn't even realize it. Nobody else pays his mortgage, car note or any other bill for that matter. So he should not care what they may think and focus on what makes him happy.
Maybe one day he will learn.
Where Did My $20 Go.
I too was once a moron with my money; I had the financial IQ of a bagel. Sure I started the 401K at work and contributed enough to get the company match, but did nothing more. One day I finally realized I needed to maximize my 401K contribution. I did a lot of stupid things before I realized they were stupid.
For one, this is what a typical workday was like. Many years had gone by before I realized my mistake.
One night, sadly, not too long ago I arrived home from work and emptied out my pockets. Keys, wallet, two bucks and change and some pocket lint were all I found. I left with $20 that morning and got home with nothing to show for it .
I decided to take inventory next work day. This is what I found:
A coffee when I arrived in the morning
Another coffee in the afternoon
Snacks somewhere along the way
That was it, poof my money was gone. I realized that I was throwing away money here. I got to thinking that I should be saving some money here.
What is the point of narrating these three sad tales of financial stupidity? More are created every day. I realized we are all guilty to some extent. I see it all the time, and if we want more out of life we need to make changes. I see the end effect of this lifestyle.
Living paycheck to paycheck or waiting for your pension or social security deposit to arrive so that you can buy some groceries does not lead to a fulfilling, happy life. Having a nice house and a good car are not bad goals. We should all aspire to own them, but this needs to be done in a financially responsible way.
My fix was fairly easy, for others it may not be so easy. I started by getting three things: an envelope, a travel mug and a food container. Took a twenty to work every day, but I also took my morning coffee with me and lunch on alternating days; Nothing extra, just last night's leftovers. Whatever cash was in my pocket went into the envelope. After week one I had $51. The envelope was the easiest way to keep count of what I was spending. Don't believe small savings add up to big money over time? This should open your eyes.
As far as having a car, we all need one, but a shiny new one that gets replaced every two or three years is ridiculous. Buy one that may be a year or two old and take care of it. This car should give you more than 150,000 miles at substantial savings when compared to a new car. A car is simply a tool, not an investment. Others consider it a status symbol, but if you cannot afford the car you drive and it is all about appearances, then something is wrong.
When you bought your house you probably did what I did. I went to the bank with my pay stubs and wondered how much I could borrow and then bought what the bank suggested, a not what best suited me. Now I need to downsize, not because I can't afford it, but because I do not need so much space and I choose to enjoy life rather than spending my time with the upkeep.
Cannot turn back time. Make the needed adjustments now. Starting today is better than next week or next month. Pay down that loan. Increase; the contributions to your 401K or your IRA. Do not have one, then open one up. Life is much better when you tell your money what to do, not the other way around. Before you go out and spend your hard earned money, keep in mind these cautianary tales. I am not a financial advisor. I hold no fancy degree and as such this is not financial advice. Seek the advice of a professional.