In my June post entitled "Moving Forward: Part 2", I set some goals for myself. Since then, things have changed quite a bit...so I'm going to back up the financial train and set some new goals; however, seeing that I'm now married (to the man of my dreams of course...love you honey!), we need to set financial goals together. I would say, for the most part, we want the same kinds of things, so that's a good starting point. I think my husband likes the idea of working towards financial freedom so we are not completely dependent on a job for income.
One challenge to reaching our goals, in my mind anyway, is getting used to the fact that we both have to consider the other person when we make decisions, including financial ones. Sometimes my husband wants to spend money on something that I don't want to buy (and vice versa), so we have to find a way to compromise so that we can be happy in the present but still reach our long-term goals. Depending on how you look at it, I guess compromising could be either a good or bad thing, but I think it's a good thing because it requires me to consider his needs and desires. If spending money on something makes my husband happy, and we can afford it, then it's really not a big deal because I want my husband to be happy. Human relationships are more important than money. On the other hand, I think the story changes if we continually neglect our long-term financial goals just so we can satisfy our short-term desires. As with anything, it is important to strike a balance between the two, and luckily, I think my husband and I are on the same page with that.
So...as we approach our four-month anniversary, we are still (surprise! surprise!) figuring things out, including how to communicate about and handle our money together, but I believe we are doing a pretty good job. I think it's safe to say that I am a little more...ummm...shall we say...aware...of our money situation. Ok...it's probably more like obsessive, but I've always been like that, and frankly, always will be! My husband is less so...not to say he is oblivious or doesn't care. To be honest, he's probably just more in the normal category! For example, the other day, my husband admitted to me that he looks less at our accounts then he used to because he knows that I'm on top of it...that I can't go more than a few days without looking at our checking account. Well that's true...I have to know where we stand financially! Every month (actually several times a month), I update our Personal Net Worth Statement and let him know how we're doing. I made up a budget (that we discussed together) and a list of all bills and their due dates (along with iPhone reminders so I don't forget to pay any). We've set financial goals. We made a list of all debts, their amounts, payment dates, the form of payments, etc, and then I printed out receipts and bank statements showing our payments and put them in a file. Yes, I realize that may be slightly over-kill, BUT in my defense, you have to be precise with debt collectors...they have no mercy. You are considered guilty until proven innocent!
Yet despite all this, there is still much to do...like creating an estate plan (wills, power of attorney, etc), property documentation for insurance, checking our credit reports to ensure accuracy, 2011 tax filings, deciding whether we want to contribute to my husband's 401(k) plan and/or create ROTH IRA's for ourselves, and setting up a usable filing system for all our documents. Those are some of our "little" goals that need to be taken care of.
Now let's talk about our bigger goals! Here they are:
1. Pay off my husband's old debts. Done! We completed that around Christmas time...hooray! We are DEBT-FREE :)
2. Finish an emergency fund of $20,000. We have $6,000 right now so that leaves $14,000 more to go. I am estimating that we can finish that in April or May. Having two incomes really helps!
3. Buy food storage for one year. We believe it is important to be prepared for emergencies (natural disasters, job loss, etc). This is also a great way to save money because food prices, in my opinion, are going to keep rising.
4. Buy other emergency preparedness supplies (i.e. tents, camping stove, sleeping bags, etc) although we do have many things already. I figure that goals #2 & #3 will be finished by the end of the summer, if not sooner, and will require several thousand dollars.
5. Save a down payment for a duplex (or house). We are shooting for $40,000, since we want to put at least 20% down on a property priced up to $200,000. If possible, I would like to pay down the mortgage substantially, if not completely, before we have kids, since I plan to quit working full-time once we do.
6. My husband wants to complete a BS degree so we will be paying for that; however, I'm encouraging him to get excellent grades so he can qualify for scholarships going forward. If we have to pay for all his schooling, it could cost anywhere from $15,000-$25,000, depending on where he goes and how long it takes him to finish while working full-time; however, these expenses will be spaced out over the next several years so we can save up for it as we go along.
Beyond that, we want to do some travelling and buy rental properties in the future, but the goals above are what we are focusing on right now. We recognize that we have been very blessed to be able to accomplish so many worthwhile things and look forward to achieving all our dreams for the future!
Thursday, February 2, 2012
Wednesday, January 18, 2012
My Epic Blogging Failure
Well...hello there!
Ummm...so to the four readers I used to have...I completely apologize for my epic blogging failure. My life turned upside-down last summer and blogging went way down on the priority list! And although you probably don't care what happened, I want to make myself feel better, so I'm going to give you a list of excuses as to why I haven't paid any attention to my blog for six months. Here they are:
1. Work has been crazy and I taught a new class last semester that...shall we say...kicked my trash. I also got a new boss in July so that has been a transition too
2. Vacations ;)
3. I got engaged
4. I planned a wedding
5. I got married
6. There were holidays like Christmas, Thanksgiving, Halloween, Labor Day, 4th of July, ummm Columbus Day, Veterans Day, a bunch of birthdays, also New Years' and Martin Luther King, Jr. Day...the Chinese New Year...or is that coming up? Boxing Day, Black Friday...anyway there are lots of holidays during the year. It's busy.
7. I trained for and ran my first half-marathon (woohoo!)
8. I moved
9. I was lazy
10. I was forgetful
Ok some of those excuses are pretty lame and actually inexcusable; however, it's a new year, and I have decided to make my blog a priority again. It's something I enjoy doing, and I like to think that one day somebody will email me just to say how much my cyberspace ramblings actually helped them. Uhhh...yah right!
At any rate, blogging definitely helps me remain accountable and focused, even if it's just to myself. So this entry is just to get me going again...it's not for any readers who I hope may still be out there!
Ummm...so to the four readers I used to have...I completely apologize for my epic blogging failure. My life turned upside-down last summer and blogging went way down on the priority list! And although you probably don't care what happened, I want to make myself feel better, so I'm going to give you a list of excuses as to why I haven't paid any attention to my blog for six months. Here they are:
1. Work has been crazy and I taught a new class last semester that...shall we say...kicked my trash. I also got a new boss in July so that has been a transition too
2. Vacations ;)
3. I got engaged
4. I planned a wedding
5. I got married
6. There were holidays like Christmas, Thanksgiving, Halloween, Labor Day, 4th of July, ummm Columbus Day, Veterans Day, a bunch of birthdays, also New Years' and Martin Luther King, Jr. Day...the Chinese New Year...or is that coming up? Boxing Day, Black Friday...anyway there are lots of holidays during the year. It's busy.
7. I trained for and ran my first half-marathon (woohoo!)
8. I moved
9. I was lazy
10. I was forgetful
Ok some of those excuses are pretty lame and actually inexcusable; however, it's a new year, and I have decided to make my blog a priority again. It's something I enjoy doing, and I like to think that one day somebody will email me just to say how much my cyberspace ramblings actually helped them. Uhhh...yah right!
At any rate, blogging definitely helps me remain accountable and focused, even if it's just to myself. So this entry is just to get me going again...it's not for any readers who I hope may still be out there!
Friday, June 17, 2011
Moving Forward: Part Two
Step One: Establish Financial Goals
My financial goals have several time frames. The long-term goal is to be financially independent which means I will have a passive income stream each month greater than my monthly expenses. I have chosen December 31, 2027, (sixteen years) as my completion date.
Will I achieve it by then? I don’t know. Probably not…but I decided I may as well put it out there and try! If I am 80% of the way there by my target date, I will be very happy!
To achieve this goal, I have several underlying goals which are:
In addition to these lofty goals, I would also like to travel a bit between now and 2027. I am estimating I will need a total of $10,000 to do this. My completion dates will vary depending on when I actually travel, but I will save up the cash before I go on any particular trip.
Writing down each goal, estimating dollar figures, and determining completion dates makes the magnitude of my main goal of financial independence seem nearly insurmountable! To say that I feel overwhelmed right now would be an understatement! This is going to take a tremendous amount of money and dedication on my part over a long period of time, but I also believe it will be worth it. Either way, the time is going to pass. I may as well have something to show for it when it’s over! Furthermore, who knows what opportunities might arise which could speed up the process?
Alright, now that I have completed step one in the financial planning process (check!), I will move on to step two which is to evaluate my current financial situation; however, seeing that this post is already a bit lengthy, I will postpone this discussion until next time. Stay tuned!
My financial goals have several time frames. The long-term goal is to be financially independent which means I will have a passive income stream each month greater than my monthly expenses. I have chosen December 31, 2027, (sixteen years) as my completion date.
Will I achieve it by then? I don’t know. Probably not…but I decided I may as well put it out there and try! If I am 80% of the way there by my target date, I will be very happy!
To achieve this goal, I have several underlying goals which are:
1. Finish my 12-month emergency fund of $20,000 by July 31, 2011. I have been working on this goal for awhile now so I already have $16,000 saved. Since I have several extra income sources this summer, saving $4,000 by then seems realistic.
2. Buy 5-6 duplexes, triplexes and/or 4-plexes and pay off the mortgages on each one by December 31, 2026. These properties will provide me with the passive income I need each month to allow me to retire early from full-time employment.
a. Save a 20% down payment for my first property by June 30, 2012. This property will probably be a duplex in which I will live in one unit and rent out the other. I am anticipating the amount will be $30,000 - $40,000. I plan to use a 15-year fixed rate mortgage to purchase the property.
b. Pay off the mortgage on the first property by December 31, 2016. This will require me to divert every available dollar I have towards paying the mortgage off early.
c. Save a 20% down payment for my second property by June 30, 2017. The actual dollar amount will depend on what real estate prices are at that time.
d. Pay off the mortgage on the second property by December 31, 2020. I will live in one unit of the second property and use income from both properties to pay this property off sooner than the first.
e. Purchase up to four additional properties with cash by December 31, 2026. The more properties I own mortgage-free, the faster I can accrue the cash to pay for the next one.
f. Establish funds for each property which will cover approximately 6 months worth of expenses by December 31, 2027. This may be $6,000-$8,000 per property.
In addition to these lofty goals, I would also like to travel a bit between now and 2027. I am estimating I will need a total of $10,000 to do this. My completion dates will vary depending on when I actually travel, but I will save up the cash before I go on any particular trip.
Writing down each goal, estimating dollar figures, and determining completion dates makes the magnitude of my main goal of financial independence seem nearly insurmountable! To say that I feel overwhelmed right now would be an understatement! This is going to take a tremendous amount of money and dedication on my part over a long period of time, but I also believe it will be worth it. Either way, the time is going to pass. I may as well have something to show for it when it’s over! Furthermore, who knows what opportunities might arise which could speed up the process?
Alright, now that I have completed step one in the financial planning process (check!), I will move on to step two which is to evaluate my current financial situation; however, seeing that this post is already a bit lengthy, I will postpone this discussion until next time. Stay tuned!
Wednesday, June 1, 2011
Moving Forward: Part One
I’ve been thinking about two things today…my progress towards financial freedom and the half-marathon I’ll be running in September with my best friend. Let’s be clear: I’ve never run anything like this before. The length of the race is only 13.1 miles, but sometimes it feels like it may as well be 1,300 because the actual distance is a bit overwhelming for somebody like me. As a result, I’ve been asking myself something all day: how do I actually accomplish this fitness goal?
The Planning Process
Even though I’ve never done it before, I actually believe that I can do it...somehow. I mean others have done it before me, and I’m not in that bad of shape. Perhaps the first question to ask is whether I’m willing to do it. My will is the key. I have to decide that it’s what I want to accomplish. So step one to achieving a goal is to write down what I want, which is, in this case, to run a half marathon in September. Check. That was easy!
The next step is to evaluate where I’m at right now by collecting some information. What am I eating? How far am I running? What’s missing from my exercise routine? Do I get enough sleep? If I don’t know the answers to these questions, I need to keep a log book where I record my behavior. The key here is to be brutally honest. Guessing or “fudging the numbers”, so that I look like I’m doing better than I actually am, will only hurt me in the end. I have to accept where I am right now. It’s the quickest and most effective way to improve my situation.
The third step is to create a plan to reach my goal by deciding what I need to do between now and September to be able to complete the half-marathon. Fourth step: Just Do It (the plan)! The last step is to periodically re-evaluate my progress and make adjustments to my plan so I stay on track.
If you haven’t already guessed, these five steps can also be applied to my financial situation. It’s called the financial planning process. Easy right? Well, it’s certainly easy to talk about, but like most things in life, it’s easier said than done.
Overcoming Obstacles
With anything, however, there will be bumps along the way. Let’s go back to the half-marathon. I already know I have several challenges to overcome if I’m going to complete all 13.1 miles in a timely manner. One barrier will be keeping my motivation up to train and eat right each day. Like anything, the daily grind can get old after awhile! One idea I have to stay motivated is to reward myself when I reach smaller goals, as long as they do not set me back in my progress. Another strategy that helps me is to hold myself accountable to another person for my choices. That’s where my best friend comes in. If she knows what I am working on and when my deadlines are then she can follow up with me and keep me honest. Sometimes just the idea of telling another person that I didn’t do what I was supposed to do is sufficient motivation to just do it!
Another challenge to my success is that I’ve never done something like this. I have some general ideas about what I need to do but no specifics. I’m pretty ignorant when it comes to fitness and health. I need to educate myself, plain and simple. Luckily, I already know other people who have done this before who I can glean insight from. I can learn from their mistakes! In addition, there are plenty of resources at my finger tips on the Internet, in the library, etc. where I can learn more. In reality, ignorance isn’t actually a good long-term excuse here!
The last challenge that I’ve thought about is time; however, if I really value accomplishing this goal, then I will spend the required amount of time no matter what comes up. On the other hand, it’s easy to spend my time and resources on other things, often unintentionally. This is definitely going to require some self-discipline. I will have to plan my time so that I accomplish the most critical things first. Also, I can’t try to do it all. Some things will undoubtedly fall by the wayside, but if I do it right, the most important things will get done, and I won’t care that I’m not doing the other things.
More to come…
This post will actually come in three parts. In the next post, I will be sharing some of my financial goals and re-evaluating where I am financially (steps 1 and 2 from above). The third post will include strategies for how I plan to accomplish those goals. I will also address specific challenges to my progress and offer ideas on how to overcome them (step 3).
The Planning Process
Even though I’ve never done it before, I actually believe that I can do it...somehow. I mean others have done it before me, and I’m not in that bad of shape. Perhaps the first question to ask is whether I’m willing to do it. My will is the key. I have to decide that it’s what I want to accomplish. So step one to achieving a goal is to write down what I want, which is, in this case, to run a half marathon in September. Check. That was easy!
The next step is to evaluate where I’m at right now by collecting some information. What am I eating? How far am I running? What’s missing from my exercise routine? Do I get enough sleep? If I don’t know the answers to these questions, I need to keep a log book where I record my behavior. The key here is to be brutally honest. Guessing or “fudging the numbers”, so that I look like I’m doing better than I actually am, will only hurt me in the end. I have to accept where I am right now. It’s the quickest and most effective way to improve my situation.
The third step is to create a plan to reach my goal by deciding what I need to do between now and September to be able to complete the half-marathon. Fourth step: Just Do It (the plan)! The last step is to periodically re-evaluate my progress and make adjustments to my plan so I stay on track.
If you haven’t already guessed, these five steps can also be applied to my financial situation. It’s called the financial planning process. Easy right? Well, it’s certainly easy to talk about, but like most things in life, it’s easier said than done.
Overcoming Obstacles
With anything, however, there will be bumps along the way. Let’s go back to the half-marathon. I already know I have several challenges to overcome if I’m going to complete all 13.1 miles in a timely manner. One barrier will be keeping my motivation up to train and eat right each day. Like anything, the daily grind can get old after awhile! One idea I have to stay motivated is to reward myself when I reach smaller goals, as long as they do not set me back in my progress. Another strategy that helps me is to hold myself accountable to another person for my choices. That’s where my best friend comes in. If she knows what I am working on and when my deadlines are then she can follow up with me and keep me honest. Sometimes just the idea of telling another person that I didn’t do what I was supposed to do is sufficient motivation to just do it!
Another challenge to my success is that I’ve never done something like this. I have some general ideas about what I need to do but no specifics. I’m pretty ignorant when it comes to fitness and health. I need to educate myself, plain and simple. Luckily, I already know other people who have done this before who I can glean insight from. I can learn from their mistakes! In addition, there are plenty of resources at my finger tips on the Internet, in the library, etc. where I can learn more. In reality, ignorance isn’t actually a good long-term excuse here!
The last challenge that I’ve thought about is time; however, if I really value accomplishing this goal, then I will spend the required amount of time no matter what comes up. On the other hand, it’s easy to spend my time and resources on other things, often unintentionally. This is definitely going to require some self-discipline. I will have to plan my time so that I accomplish the most critical things first. Also, I can’t try to do it all. Some things will undoubtedly fall by the wayside, but if I do it right, the most important things will get done, and I won’t care that I’m not doing the other things.
More to come…
This post will actually come in three parts. In the next post, I will be sharing some of my financial goals and re-evaluating where I am financially (steps 1 and 2 from above). The third post will include strategies for how I plan to accomplish those goals. I will also address specific challenges to my progress and offer ideas on how to overcome them (step 3).
Wednesday, May 18, 2011
Just Like Dorothy
About two years ago, my sister-in-law asked me to host a workshop on personal finance for her women's church group as part of a larger seminar on providential living and self-sufficiency. Since my segment was towards the end, we only had about 20 minutes left, so I decided to open it up for questions from the audience instead of giving my planned presentation.
One lady with blond hair, probably in her early thirties, asked me how to get out of debt. I suggested a couple of tactics and several resources to which she could refer to for more details. She quickly responded that she had already tried those things, but they didn’t help because she and her husband were still in debt. She enumerated several challenges to her situation and explained to me why those ideas wouldn’t work.
Of course I listened…but probably not very nicely (I’m sure there was an eye roll or two in there). When she finished, she asked me again for an answer to her problems. She seemed like Dorothy asking the Wonderful Wizard of Oz to wave the magical money wand and make her debt go away so she could go home to live in continual financial bliss. I didn’t respond right away because I wanted to be sure I should say what I was thinking. Yep…I did.
“Look,” I said, “I understand that you find yourself in a very challenging situation, but there is no magic spell to make money problems go away. No matter what the tactic is that you employ to eliminate your debt, the fundamental issue is your desire. You have to want to get out of debt more than anything else…or it ain’t gonna happen! I guarantee that there will always be something else to spend your money on; there will always be another bill to pay. You have to make this goal your number one priority. That is the only way to get out of debt...and stay out.”
I don’t think I made many friends that night...but it’s what I believe. Paying off debt, and continuing to live without it, is challenging. That’s no surprise. So, just as I told Dorothy, we have to want it more than anything else; if we don’t, there will always be something that will keep us from achieving a debt-free lifestyle. Furthermore, in the actual story of the Wizard of Oz, Dorothy, not the Wizard, possessed the means to return home on her own, but she had to choose it. Likewise, we are the sole answer to our money problems. We’re the ones responsible for making poor choices with our money; however, it is also true that we can make wise choices with that same money. It all comes down to priorities.
I’ve made a commitment to myself to not borrow money, but it’s still a struggle sometimes to live that way. I have to guard my thoughts and actions continually by remembering what my priorities are and being honest with my intentions. I can’t rationalize why I should do it “just this once” because it’s a slippery slope back down into that I’m-deep-in-debt-and-completely-broke-again hole. I’m not saying that I will never, ever borrow money again. That’s probably not realistic, but I can achieve the life that I truly value sooner by keeping my priorities straight.
Each person and situation is different, and we each need to do what we think is best for ourselves, even if that includes borrowing money or delaying complete debt repayment for a time. It is not inherently evil to use debt. I’ve used it. Just about everybody has used it. It’s a part of life. But it’s also something that I need to remain vigilant about, or before I know it, I’ll have set the life I really want aside for what appeals to me right now.
One lady with blond hair, probably in her early thirties, asked me how to get out of debt. I suggested a couple of tactics and several resources to which she could refer to for more details. She quickly responded that she had already tried those things, but they didn’t help because she and her husband were still in debt. She enumerated several challenges to her situation and explained to me why those ideas wouldn’t work.
Of course I listened…but probably not very nicely (I’m sure there was an eye roll or two in there). When she finished, she asked me again for an answer to her problems. She seemed like Dorothy asking the Wonderful Wizard of Oz to wave the magical money wand and make her debt go away so she could go home to live in continual financial bliss. I didn’t respond right away because I wanted to be sure I should say what I was thinking. Yep…I did.
“Look,” I said, “I understand that you find yourself in a very challenging situation, but there is no magic spell to make money problems go away. No matter what the tactic is that you employ to eliminate your debt, the fundamental issue is your desire. You have to want to get out of debt more than anything else…or it ain’t gonna happen! I guarantee that there will always be something else to spend your money on; there will always be another bill to pay. You have to make this goal your number one priority. That is the only way to get out of debt...and stay out.”
I don’t think I made many friends that night...but it’s what I believe. Paying off debt, and continuing to live without it, is challenging. That’s no surprise. So, just as I told Dorothy, we have to want it more than anything else; if we don’t, there will always be something that will keep us from achieving a debt-free lifestyle. Furthermore, in the actual story of the Wizard of Oz, Dorothy, not the Wizard, possessed the means to return home on her own, but she had to choose it. Likewise, we are the sole answer to our money problems. We’re the ones responsible for making poor choices with our money; however, it is also true that we can make wise choices with that same money. It all comes down to priorities.
I’ve made a commitment to myself to not borrow money, but it’s still a struggle sometimes to live that way. I have to guard my thoughts and actions continually by remembering what my priorities are and being honest with my intentions. I can’t rationalize why I should do it “just this once” because it’s a slippery slope back down into that I’m-deep-in-debt-and-completely-broke-again hole. I’m not saying that I will never, ever borrow money again. That’s probably not realistic, but I can achieve the life that I truly value sooner by keeping my priorities straight.
Each person and situation is different, and we each need to do what we think is best for ourselves, even if that includes borrowing money or delaying complete debt repayment for a time. It is not inherently evil to use debt. I’ve used it. Just about everybody has used it. It’s a part of life. But it’s also something that I need to remain vigilant about, or before I know it, I’ll have set the life I really want aside for what appeals to me right now.
Monday, May 16, 2011
A Tale of Two "Millionaires"
How can you tell if somebody is a millionaire? Do they drive expensive cars? Have large homes in exclusive communities? Work in lucrative career fields?
Some do...obviously. Yet the typical American millionaire does not, according to the book The Millionaire Next Door by Thomas J. Stanley, PhD, and William D. Danko, PhD (ISBN: 0-671-01520-6).
Allow me to tell you a story...actually two stories of two very different "millionaires".
Story #1
Once upon a time there was a beautiful girl who was attending high school. She was smart, funny, athletic, charming...just all-around amazing! Okay enough about me...the point is I had this guy friend who lived in a very expensive part of town. His house, by most standards, was HUGE! His parents drove expensive cars, and their home was nicely furnished. In my mind, they were RICH.
My family, on the other hand, was struggling. My dad had been out of work for two years and wouldn't find a full-time job for another year. As soon as I turned 16, I started working part-time after school just so I wouldn't have to ask my parents for anything. My older siblings, now adults, were all working and living at home so they could help pay the rent. My mother worked full-time to provide some income and health insurance, but since she didn't have a college degree and only limited work experience, she wasn't qualified for any high-paying jobs. We lived on whatever income we could muster up, a variety of loans, and charity. Needless to say, it was stressful for everyone. So when I saw my friend's family, I knew they were rich. I assumed that nobody would buy things like that unless they had the money to pay for it.
One day my friend and I were talking about buying something, and I told him half-jokingly, "Oh you can afford it! You're rich!"
In a serious tone, he replied, "Actually...I'm not."
I said, "Please...I've seen your house and everything. I know what cars your parents drive. You guys ARE rich!"
He was quiet for a moment, looked down, and then sighed like he was just caught in some sort of lie. When he looked up, he told me that the truth was his family was practically broke. His parents couldn't afford their house, cars, or lifestyle, and he didn't know what they were going to do because they owed so much money. He called their life a "sham".
My jaw dropped. I learned at that moment that just because somebody "looks" rich, it doesn't mean that they are. Debt allows us to pretend that we can afford things we actually can't. We are borrowing money to buy something because we don't have the cash to pay for it.
Story #2
Sometime later, I was driving home from my grandpa's house with my mother. During our visit, my grandfather told us about a trip he was planning for him and his wife. They were going someplace exotic for two months, and ever since I could remember, they had taken trips like this 2-3 times every year.
My grandfather lived in a very modest, paid for, three-bedroom house in a blue-collar neighborhood. It was your typical "grandma" house that probably hadn't been re-decorated in 30 years. There was an older, well-cared for Jeep Cherokee parked in the driveway, and I remember riding in the back of their 1970's station wagon as a little girl. Every time we stopped by, grandpa's wife would tell my mom about the great deals she found at the local discount store on things like Tupperware and shoes. They did have a very nice RV parked in the driveway, but besides that, the word that came to mind when I thought of my grandparents was frugal.
Anyway, as we drove home that day, it finally occurred to me that grandpa must spend a lot of money on trips every year. I asked my mom how much she thought they cost. She guessed $20-30k for the two of them.
"What?!" I exclaimed, "How is that possible? How can they afford that?"
Slightly confused, my mother looked at me for a moment before responding, "Uhhh honey...grandpa's a millionaire."
"How can he be a millionaire?" I asked incredulously, "Have you seen where they live? They clip coupons for crying out loud!"
She didn't answer immediately so I thought about this unexpected revelation for a minute before asking, "Well, how did he become a millionaire? He certainly didn't inherit it. He came from a family who worked in the local mine for decades. He came from practically nothing." My mother said that when he came home from WWII, he went to college on the GI Bill, worked hard as an accountant, and managed his money well so when he retired, he had a lot of it.
Later when I read the The Millionaire Next Door, I thought about these two experiences. My grandfather was the typical millionaire next door. His money habits of saving and investing made him wealthy, not living an extravagant lifestyle like my friend's family.
I've learned that looking rich and being rich are two different things. Often when we look rich, we are not. As soon as a job is lost, a medical emergency occurs, or something else throws us off-balance, the financial house of cards comes crashing down. I believe the real test of wealth involves asking myself an important question: if something like that happens, will I be worried about how I'm going to pay for things? If the honest answer is "no", then I'm probably doing alright. If the answer is "yes", then maybe I need to re-evaluate my money habits.
The truth is our habits are ultimately just a reflection of our values. Am I more concerned about my financial well-being or what I think my family or friends think of me? When we live to impress others, we only end up dissatisfied with ourselves. It's a no-win situation. The flip-side is that no matter what our current situation is, we can choose to be wealthy today by realigning our financial values to match those of a "typical" millionaire next door.
I mean...come on...if my grandfather could do it, what's stopping the rest of us?
Some do...obviously. Yet the typical American millionaire does not, according to the book The Millionaire Next Door by Thomas J. Stanley, PhD, and William D. Danko, PhD (ISBN: 0-671-01520-6).
Allow me to tell you a story...actually two stories of two very different "millionaires".
Story #1
Once upon a time there was a beautiful girl who was attending high school. She was smart, funny, athletic, charming...just all-around amazing! Okay enough about me...the point is I had this guy friend who lived in a very expensive part of town. His house, by most standards, was HUGE! His parents drove expensive cars, and their home was nicely furnished. In my mind, they were RICH.
My family, on the other hand, was struggling. My dad had been out of work for two years and wouldn't find a full-time job for another year. As soon as I turned 16, I started working part-time after school just so I wouldn't have to ask my parents for anything. My older siblings, now adults, were all working and living at home so they could help pay the rent. My mother worked full-time to provide some income and health insurance, but since she didn't have a college degree and only limited work experience, she wasn't qualified for any high-paying jobs. We lived on whatever income we could muster up, a variety of loans, and charity. Needless to say, it was stressful for everyone. So when I saw my friend's family, I knew they were rich. I assumed that nobody would buy things like that unless they had the money to pay for it.
One day my friend and I were talking about buying something, and I told him half-jokingly, "Oh you can afford it! You're rich!"
In a serious tone, he replied, "Actually...I'm not."
I said, "Please...I've seen your house and everything. I know what cars your parents drive. You guys ARE rich!"
He was quiet for a moment, looked down, and then sighed like he was just caught in some sort of lie. When he looked up, he told me that the truth was his family was practically broke. His parents couldn't afford their house, cars, or lifestyle, and he didn't know what they were going to do because they owed so much money. He called their life a "sham".
My jaw dropped. I learned at that moment that just because somebody "looks" rich, it doesn't mean that they are. Debt allows us to pretend that we can afford things we actually can't. We are borrowing money to buy something because we don't have the cash to pay for it.
Story #2
Sometime later, I was driving home from my grandpa's house with my mother. During our visit, my grandfather told us about a trip he was planning for him and his wife. They were going someplace exotic for two months, and ever since I could remember, they had taken trips like this 2-3 times every year.
My grandfather lived in a very modest, paid for, three-bedroom house in a blue-collar neighborhood. It was your typical "grandma" house that probably hadn't been re-decorated in 30 years. There was an older, well-cared for Jeep Cherokee parked in the driveway, and I remember riding in the back of their 1970's station wagon as a little girl. Every time we stopped by, grandpa's wife would tell my mom about the great deals she found at the local discount store on things like Tupperware and shoes. They did have a very nice RV parked in the driveway, but besides that, the word that came to mind when I thought of my grandparents was frugal.
Anyway, as we drove home that day, it finally occurred to me that grandpa must spend a lot of money on trips every year. I asked my mom how much she thought they cost. She guessed $20-30k for the two of them.
"What?!" I exclaimed, "How is that possible? How can they afford that?"
Slightly confused, my mother looked at me for a moment before responding, "Uhhh honey...grandpa's a millionaire."
"How can he be a millionaire?" I asked incredulously, "Have you seen where they live? They clip coupons for crying out loud!"
She didn't answer immediately so I thought about this unexpected revelation for a minute before asking, "Well, how did he become a millionaire? He certainly didn't inherit it. He came from a family who worked in the local mine for decades. He came from practically nothing." My mother said that when he came home from WWII, he went to college on the GI Bill, worked hard as an accountant, and managed his money well so when he retired, he had a lot of it.
Later when I read the The Millionaire Next Door, I thought about these two experiences. My grandfather was the typical millionaire next door. His money habits of saving and investing made him wealthy, not living an extravagant lifestyle like my friend's family.
I've learned that looking rich and being rich are two different things. Often when we look rich, we are not. As soon as a job is lost, a medical emergency occurs, or something else throws us off-balance, the financial house of cards comes crashing down. I believe the real test of wealth involves asking myself an important question: if something like that happens, will I be worried about how I'm going to pay for things? If the honest answer is "no", then I'm probably doing alright. If the answer is "yes", then maybe I need to re-evaluate my money habits.
The truth is our habits are ultimately just a reflection of our values. Am I more concerned about my financial well-being or what I think my family or friends think of me? When we live to impress others, we only end up dissatisfied with ourselves. It's a no-win situation. The flip-side is that no matter what our current situation is, we can choose to be wealthy today by realigning our financial values to match those of a "typical" millionaire next door.
I mean...come on...if my grandfather could do it, what's stopping the rest of us?
Thursday, May 12, 2011
How Our Financial "Education" Keeps Us Poor
The second day of every semester, right after I've bored my students with the mundane details of syllabi and endless reading and homework assignments they'll be "happily" doing, I ask them to think about their feelings and experiences with money. We discuss societal values related to personal finances...lament the never-ending stream of advertisements attempting to part us with our hard-earned dollars, the virtues of planning ahead for unexpected emergencies, and most importantly, what our own experiences with money have been.
I think it's critical to consider what values and attitudes we've adopted from our families, friends and society at large. Since birth we've taken for granted how the world works...how money works...how it should be handled and what it is used for. This in turn affects our choices and attitudes towards money when it comes our way, often subconsciously.
Personal finance is NOT taught in traditional education. Sure I teach an elective course in college, similar to other institutions of higher learning, but how many students actually take a course like this before they graduate? Not many. There have also been some efforts to incorporate personal finance classes into high schools and junior highs throughout the country, and it's a step in the right direction, but ultimately, the topic of money is taught in the home, in the media, in everyday life, and often by individuals or groups who know little about how it works, or worse, by those who financially benefit from dispensing their "knowledge" and "advice" to the masses.
Even so-called "personal finance" classes like mine, in my humble opinion, can be tragically flawed and self-serving to those sponsoring such programs. A bank or brokerage firm who provides a retirement planning class is, no matter what the company says, doing it primarily for their own benefit. They are offering the class to obtain clients. These firms may very well be concerned about financial education, but because of their position, they are inherently biased in what advice they give. This is acceptable as long as the students are educated enough to realize where the information is coming from; however, I've found that this scenario is usually the exception rather than the rule. Furthermore, even "unbiased" teachers or organizations often regurgitate money "truths" they've bought into because they don't know any different. I believe they are genuine in their efforts to teach correct principles, but because of their own lack of financial education, they end up indoctrinating others into a belief system that keeps people struggling with their finances.
Let me give an example of how a common money "truth" actually keeps people struggling. For the last hundred years or so, debt has become a natural part of life in the United States. Most people today assume that it is not realistic, or even desirable, to live completely without debt. As a result, we worship the almighty credit score, bow down to the demands of creditors, and spend our lives working to pay for our purchases long after we've thrown them away. This idea that debt is normal, or at least certain types are desirable or always necessary, has enslaved an entire population. We work hard every day just to give away most, if not all, of our compensation...not just for a few years...but for a lifetime!
The home mortgage is the perfect example of this. I'm not saying never buy a home or borrow to purchase one. I am saying that we are fed a myth from birth that this way of life is normal and to expect something different is unrealistic...or even undesirable...when the truth is the United States became the wealthiest nation in the world because the citizenry and government mostly did NOT borrow money to finance things, including homes. The myth is that wealth is built by purchasing a home...and always with debt.
Now I realize I'm generalizing a bit here, but I'm trying to point out a cultural phenomenon I've observed since I was very young. I too was caught up in this idea because I didn't know any better. My well-intentioned "money teachers" (parents, friends, teachers, etc) didn't know any better either. This "truth" was taken for granted. Yet I have come to believe that our cultural worship of the "home mortgage myth", as I call it, is keeping many individuals from financial freedom. It's not the only thing, but I believe it is a significant contributor to keeping the masses under the thumb of employers and creditors. What if everybody paid cash for their homes or paid them off much sooner than fifteen or thirty years? Financial problems certainly wouldn't cease, but I think many people would lead lives with much less stress and greater happiness because they would have more control over their income.
Sure I could be wrong, and every person has the right to decide how they will live their life, but I have found that eliminating debt from my life and creating sources of passive income, so I'm not dependent on a creditor or an employer's good graces to live my life, makes ME happy...
but to each their own!
I think it's critical to consider what values and attitudes we've adopted from our families, friends and society at large. Since birth we've taken for granted how the world works...how money works...how it should be handled and what it is used for. This in turn affects our choices and attitudes towards money when it comes our way, often subconsciously.
Personal finance is NOT taught in traditional education. Sure I teach an elective course in college, similar to other institutions of higher learning, but how many students actually take a course like this before they graduate? Not many. There have also been some efforts to incorporate personal finance classes into high schools and junior highs throughout the country, and it's a step in the right direction, but ultimately, the topic of money is taught in the home, in the media, in everyday life, and often by individuals or groups who know little about how it works, or worse, by those who financially benefit from dispensing their "knowledge" and "advice" to the masses.
Even so-called "personal finance" classes like mine, in my humble opinion, can be tragically flawed and self-serving to those sponsoring such programs. A bank or brokerage firm who provides a retirement planning class is, no matter what the company says, doing it primarily for their own benefit. They are offering the class to obtain clients. These firms may very well be concerned about financial education, but because of their position, they are inherently biased in what advice they give. This is acceptable as long as the students are educated enough to realize where the information is coming from; however, I've found that this scenario is usually the exception rather than the rule. Furthermore, even "unbiased" teachers or organizations often regurgitate money "truths" they've bought into because they don't know any different. I believe they are genuine in their efforts to teach correct principles, but because of their own lack of financial education, they end up indoctrinating others into a belief system that keeps people struggling with their finances.
Let me give an example of how a common money "truth" actually keeps people struggling. For the last hundred years or so, debt has become a natural part of life in the United States. Most people today assume that it is not realistic, or even desirable, to live completely without debt. As a result, we worship the almighty credit score, bow down to the demands of creditors, and spend our lives working to pay for our purchases long after we've thrown them away. This idea that debt is normal, or at least certain types are desirable or always necessary, has enslaved an entire population. We work hard every day just to give away most, if not all, of our compensation...not just for a few years...but for a lifetime!
The home mortgage is the perfect example of this. I'm not saying never buy a home or borrow to purchase one. I am saying that we are fed a myth from birth that this way of life is normal and to expect something different is unrealistic...or even undesirable...when the truth is the United States became the wealthiest nation in the world because the citizenry and government mostly did NOT borrow money to finance things, including homes. The myth is that wealth is built by purchasing a home...and always with debt.
Now I realize I'm generalizing a bit here, but I'm trying to point out a cultural phenomenon I've observed since I was very young. I too was caught up in this idea because I didn't know any better. My well-intentioned "money teachers" (parents, friends, teachers, etc) didn't know any better either. This "truth" was taken for granted. Yet I have come to believe that our cultural worship of the "home mortgage myth", as I call it, is keeping many individuals from financial freedom. It's not the only thing, but I believe it is a significant contributor to keeping the masses under the thumb of employers and creditors. What if everybody paid cash for their homes or paid them off much sooner than fifteen or thirty years? Financial problems certainly wouldn't cease, but I think many people would lead lives with much less stress and greater happiness because they would have more control over their income.
Sure I could be wrong, and every person has the right to decide how they will live their life, but I have found that eliminating debt from my life and creating sources of passive income, so I'm not dependent on a creditor or an employer's good graces to live my life, makes ME happy...
but to each their own!
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