The following is a guest post by Jacob, a PhD student in financial planning.
Have you ever noticed that the way you “should” do things, according to societal norms, is often the most screwed up backwards way to find success at anything?
Consumerism is especially bad in our first world environment. Society encourages you to buy things you can’t afford. It’s cool to buy the latest, the greatest, and everything in between. The media outlets all promise eternal happiness if you’ll just keep up with the Joneses.
Here is some common financial advice that blows my mind:
- A new car is a good investment to avoid repair costs. Financing one at 0% interest every 2-4 years actually saves money in the long run.
- Clothing prices are representative of quality. If you pay more, you’ll look better and they clothes will last longer!
- You have to buy nice things to get ahead in a career, and generally in life. If you don’t spend money, you’ll fail to impress potential employers, clients, and everyone else who is constantly scrutinizing your lifestyle choices.
- Eating out is a way of life. Everyone does it. The whole experience is worth more on a dollar per hour basis than the required cleanup/cooking time of a home cooked meal.
- The stock market is a complete mystery. The individual investor has no way of competing with those big hedge funds and money managers. Consequently, the individual is far better off leaving his money with a mutual fund manager.
- The stock market is wildly inefficient and professionals who pick stocks often do far better than the individual. The PhDs running the research and stats have a huge advantage.
Is anyone else blown away by the madness of these ideas? Follow them and you’ll be a poor slave your whole life. A slave to credit cards and paychecks and stress.
You’ll be one of the 95% who just can’t seem to get ahead in life. Retirement at 65 might even seem difficult, despite a huge paycheck in a country with unlimited amounts of waste that can be leveraged by the savvy individual to spend even less.
What I’m trying to say is this. Blaze your own path in this life. Learn to be resourceful. Embrace all of the opportunities available that enable you to live much more of life on far less money.
To begin with, make it your life’s mission to avoid popular media folk tales and the INSANE financial habits that consume most Americans. Forget about the Joneses. Forget about name brand nonsense. Forget about instant gratification. Forget about your pride and just starting doing life in a way that makes financial SENSE.
It’s not a one size fits all sort of proposition. But the common denominator is always related to spending less. Once you realize the power of saving first and consuming second, life starts to get a little easier.
First, the debt disappears, then the opportunities start rising. We knocked out $19,000 of debt in our first 9 months of marriage and still found a way to sock away enough to max our Roth IRAs and the required amount for a 401k employer match.
Now, we’re swimming in the positive cash flow of our middle America jobs, and trying to figure out the next steps of our plan.
If you’d like to know our secrets, start with this list of ways to avoid winding up broke and miserable:
- Never purchase anything that can’t be paid for in full (except a house)
- Use cash back credit cards and pay them in full each month
- Never buy new items if they can be found in good condition on Craigslist
- Sell the crap you don’t use on Craigslist
- Never pay retail for clothes
- Look at thrift stores and garage sales
- Cook homemade meals with ingredients that you purchased on sale
- Learn the art of price matching each week
- Never eat out to fit in or because “you deserve it”
- Eat out to celebrate (very occasionally)
- Never allow peer pressure to influence a financial decision
- Always try to influence peers to become better savers
- Never buy something out of compulsion
- Always buy out of necessity
- Never buy something without doing research on the price of viable alternatives
- Spend the time and find the deals
- Never buy something to impress someone else
- You’re the one who has to pay for it
- Never buy an item that won’t be used
- Always sell what you haven’t used in the last year
- Never buy a new car or take out a loan for a car
- Cash, always. Let someone else eat the bulk of the depreciation
- Never buy Cable TV
- Cut the Cable Cord and watch shows online for free
- Avoid financing an undergraduate or graduate degree with student loans (Yes, some professional degrees are exempt from this rule)
- Work hard in high school and undergrad, find scholarships, and live at home if you can
- Never take financial advice from someone who makes a living selling loaded mutual funds
- Open an account at Vanguard or Motif Investing and choose your own investments
- Never stop tracking your financial situation, portfolio, and spending habits
- Get a free account at Personal Capital
Now keep in mind, this is my list. I could go on and on, but I would rather you make your own set of financial rules! Please let me know what you come up with in the comments section!
Author Bio: I’m Jacob, one half of the Cash Cow Couple. My wife and I enjoy teaching others how to live an abundant life on a very modest salary. We are attempting to spend less than $12,000 in our first year of marriage because we enjoy a good challenge!
We are actually doing quite some of these things you have mentioned here. And it helps us stay off debt, travel where we love and save money for the future. Wonderful advice.
It would be nice to save enough one day to retire early and just travel the world 🙂
Okay, I agree with most, although I also like to live a little too… I would alter a few of yours to say – Never purchase anything you cannot afford at the present time. Never look to future earnings as a way to pay for something today. (except for a house of course, but even that you need to make sure you can afford it based on current earnings/income! and secondly, in some cases a quality education, that teaches you a skill and or guarantees a profession upon completion – ie. welder, electrician, dentist, engineer, lawyer). And for me and what I tell others, the MOST IMPORTANT to lead a financially responsible life – Never spend more than what you have coming in – always, always live on less then what you have coming in. I have an issue with #9 – if you are unemployed, take the time to learn what is necessary to impress in an interview! Do not short change yourself on this ever! and for me personally, I only ever buy new cars, but my caveat is that I drive manuals, and I drive them into the ground… I do not like inheriting others problems, and… Read more »
Nice points on those exceptions. Life is often more complicated than a set list of rules, especially when you throw in things like estate planning or investing. I wish I knew how to drive a manual too. It sounds more fun than an automatic. There’s a whole generation of young people today like myself who will never experience driving a stick shift, probably out of laziness lol.
We certainly live our lives by a number of set values. No new cars, live well within our means, save like crazy, eat at home a lot, don’t spend like money is going out of fashion. Sometimes we may indulge in a little spending, but it’s usually based around needs rather than wants and even then it’s paid with money we have, not on credit.
Living within our means is the only sustainable way to achieve our long term financial dreams 😉 Some people take for granted what we use regularly like high-speed internet, but it’s actually a luxury that many people in developing countries can’t afford, or otherwise don’t have access to.
not sure if it is applicable but I have a very very very wealthy family friend that once said, “I was weird until I became rich and then after that people just called me eccentric”
“There’s a whole category of people who miss out by not allowing themselves to be weird enough.”
― Alain de Botton