I’m hoping that by this point in your life, even within this consumer-driven, credit-dependent, give-me-now environment, you’ve at least heard the idea to “live within your means.” Don’t downplay it as simplistic and old school. Don’t ignore it. Don’t delay in doing it. Act now and set good patterns of spending less money than you earn, and keep doing that.
Recently Lydia and I made a couple hard decisions that would allow us to live beneath our means. We purchased a house with a fair market value approximately half or even one third of what some of our friends purchased who earn similar money. Did we have to do this? No, probably not. I’m sure the bank would have approved a much larger loan, but we chose to have a mortgage payment that we could easily afford and one that wouldn’t strap us for cash at the end of the month. Sure, the house is only 1,000 square feet, but it’s plenty large for what we currently need as a family.
The second decision, and this was even harder, was to sell my Subaru Legacy GT. I purchased the car soon after landing my job at Bare Financial, and took out a loan to pay for it (a foolish, foolish move since paying interest for a depreciating asset just about never makes sense). I was assuming future income, which was another foolish move. We made the decision to sell the Legacy and downgrade to a much less luxury-type car. In fact, amidst the Great Recession it took over six months to sell and we just completed the transaction recently. Without depleting our savings, we’re now only able to afford a car approximately 1/8th of what we paid for the Subaru since we’re only using cash, and in the meantime are surviving on one car. I don’t say this to brag, in fact, it takes a fair amount of humility to even admit that we can’t afford to purchase another Subaru outright in cash – but there’s a time for everything.
Just be smart with your money, Jack. Build up a cash reserve of savings. Live well beneath your means, spending significantly less money than you earn. That’s good stewardship, and that’s how you can avoid being a victim to uncontrollable global recessions that put the squeeze on households (and companies) who grew far too reliant on credit and loans. Till next time, Jack.