Wednesday, January 16, 2013
My parents never had much money, but they were good with what they did have. And they passed their wise habits onto their kids. They tried, anyway. At one time, I worked in a loan department at a credit union. Eye-opening experience. And I have always been in charge of our household budget. We could be tens of thousands of dollars in credit card debt or I could be running a money-laundering operation, and my husband would never know it. He is an engineer, so his mind tends to be on more lofty things. Hopefully, I am a person of good character. Also -- I really don't understand money laundering well enough to actually do it. I suppose I could find a partner...
Anyway, for what it's worth, these are some things I have learned along the way about the green stuff.
"Live within your means," my dad always said. It's hard to do this sometimes. Especially if relatives, friends, and neighbors are not doing so, because you might start to feel deprived. If everyone around you is going skiing -- even if they're putting it on their credit cards -- you might feel left out of the party. Especially if you were invited to go along. But, you might end up happier in the long run if you are able to pay off that credit card each month. So, if you want to do something fun, go ahead. But, only if all the rest of your bills are covered and you have enough actual cash on hand to pay for it.
I am not saying that all debt is bad. It has been my experience that a mortgage is acceptable. But, it should be a mortgage that you can actually afford to pay. My dad always advocated home ownership. But, not because your house could serve as a piggy-bank. His reasoning was that rents go up over time, and end up being unaffordable to people as they age. He told us kids that we should buy houses and get them paid off before retirement, so that we would have secure homes. He had seen too many elderly people struggle to pay the rent, even on small apartments. Now, will my house be paid off before my husband retires? I am not sure. But, I have worked to keep the payments modest so that we will (hopefully) be able to afford them, even as we get older.
A reasonable car loan is probably also not a terrible thing. It all depends on where you live, and how much you have to drive. I have driven klunkers before -- many times. But, that only really worked out if I was just driving around my relatively small town and my parents were available to give me and the kids a ride home in the likely event that I broke down. I had more than one experience of myself and my three little ones riding in the cab of a tow truck enroute to the auto repair shop. Not incredibly fun. So, if you have children and if you need to drive a fair amount and if you can afford it, get a decent car. Even if you have to have a loan. You don't have to drive the best of the best, though. A modest car is usually the healthiest on the budget. Also, you don't feel so crappy if it gets dinged in the parking lot. Now, though, I must make a confession. For a while, I drove a fire-engine-red Ford Mustang convertible. I do not regret it. And, someday, I hope to get another one.
Student loans. A biggie these days. The government-backed ones are pretty good deals. But, I would stay away from those private loans. When you start reading the fine print, they are damn scary. And think about it. What are your reasons for going to the college or university you want to go to? Is there a more economical way to get the result you want from your education? Think these things through carefully before making your decision. It may very well be worth it to you to go to a more prestigious (a.k.a. expensive) school, but you'd better be sure before you take the dive. Because you might be paying for it -- in both cash and lifestyle -- for a long time to come.
And those credit cards? It is fine to have one or two. Beyond that, I don't see the point. And pay them off, each and every month. You'll be glad you did. This is something I learned when I worked in that loan department. I used to run the credit checks. Wow! And I realized that, often, the people who looked richer were actually poorer, and vice-versa.
This is how I have, personally, used my credit card. I only have one. I put the gasoline on it. I use it for things like airline reservations, hotel reservations, and internet shopping. BUT, before I use it for any of those things, I make sure that I will have the actual money in the bank to pay it off at the end of the month.
But, you might say, what if I have necessary expenses that I need to put on my credit cards that I will not be able to pay off each month? If you are a young person, just starting out, this is what I would suggest you do before this situation occurs. Because, once it occurs, it is a bitch. My parents always advised us kids to live at home for a while after college, while we were working, so that we could build up a healthy amount of savings before striking out on our own. I found that this financial "boost" my parents gave me has been of inestimable value in my life. I would advise parents -- if they can -- to do this for their offspring. In the long run, it will pay off for you. Your kids won't become that of the "boomerang" variety and there will be much less chance of them calling you for financial help as the years progress. Although, for this to work, parents must be VERY CLEAR that they expect their children to use this time at home in a fiscally responsible way -- appreciating it for the gift that it truly is. A kid doesn't get to live at home, taking advantage of his parents' generosity, while simultaneously "living it up" -- with fancy vacations to Monte Carlo and shopping sprees to Neiman Marcus. Hell, no. And, dear young people, once you "fly the coop" of your familial home, make sure you have a solid understanding of what is "necessary" and what is "optional" concerning possessions. Think about what you really NEED vs. what you WANT. It is easy to confuse the two. And it can be fun to get by with only the "bare necessities of life." It can be a game, of sorts. I know of a family in which the dad, for a period of years, earned a very modest income. His wife was a SAHM, though. They lived in a little apartment, with no furniture, except for camping cots on which they slept. They were actually able to save some money, and they ended up buying a nice home for themselves. But, it took a lot of discipline. Instead of looking at it as an onerous task, though, they made an adventure out of it. And their philosophy of delayed gratification went a long way toward helping them achieve financial security.
Concerning newlyweds? My parents' financial philosophy proved to be quite wise. This is something they repeated with regularity all during my childhood. They believed that the young couple should pay all of their bills solely with the husband's salary. Yes, young people. Even if that means a "hot date" is the taco shop and Netflix and "going out for coffee" is a thermos of Folgers on the park bench. Folgers is really not so bad if you use 8 HEAPING (vs. level) tablespoons to 12 cups of water, as my daughter has recently taught me. ( To think I have been needlessly suffering all of these years...) The other half of my parents' equation was this: The wife should work full-time until a baby arrives. And ALL of her salary should be dedicated to savings. My parents never went in for the idea of a wife without kids not working, or only working part-time. To go along with this, though, they always believed the husbandly half of the couple should do just as much housework as the wifely half. And my father never failed in this regard. Even as I was growing up with a SAHM, I saw my dad do plenty of household chores -- thoroughly and cheerfully. Why did my parents advocate these things? It was because they strongly believed in a mom being home with the kids. And their experience was that the above practices would facilitate that. If you are a young couple who aspires to have the mommy be at home, the above practices will put you in a position where that dream has a much better chance of becoming reality. And you will lower the odds that you will end up putting your necessary expenses on credit cards after the new mom leaves the workforce.
Let me tell you, though, my father was NEVER a cheapskate. And he told the three of us girls, repeatedly, of the importance of being a generous person. Being frugal does not equal being cheap. Since he was self-employed, he would look at his bank account at the end of each year and donate a good amount of that to charity. If a friend visited from out-of-town, that friend would be treated to a very nice dinner -- either cooked by my mom with quality ingredients or at a restaurant, if he could afford it (even if it meant stretching the remaining dollars a bit that week). My parents were also known for the parties they threw for special occasions -- with wonderful food and drink. And they did this with great cheer, not resenting the expense. But, never spending money they didn't actually have, either. And how could they afford these things? Because of the habits they practiced the other 95% of the time. A pretty good trade-off, I would say.
But, when it comes down to it, the most important piece of financial advice I ever heard my father utter was this:
"IF YOU CAN FIX IT WITH MONEY, IT'S NOT A PROBLEM."
And when I see all of the troubles in the world that truly cannot be fixed with money -- spiritual suffering, mental illness, physical infirmities, broken marriages, strife between peoples -- I realize what a true statement that is. So, whatever your financial situation, if your problems can be fixed with money, you are blessed. I don't mean to sound all "high and mighty" here, either. This is something I have had to remind myself of many times throughout my own life. It can be hard to remember, when things get tough. But, it is worth remembering. Thanks, Dad...