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I was amazed and overwhelmed by all of the great feedback you shared with me after last week’s column. My blog was filled with your wonderful anecdotes, advice, and even a little good-hearted admonishment (Okay, maybe I did overestimate Mr. and Mrs. Median’s taxes a bit, guys!).
The depth of your comments and the wealth of knowledge were just terrific. And since you put so much effort into sharing with me, I want to highlight some of your points in today’s column, along with my own thoughts.
By reviewing everything that was said over the past week, I came up with five simple rules that I think will help all of us get through life a little wiser, wealthier, and happier …
Rule #1: Start Budgeting!
Sure, it seems like a real pain to track all of your regular expenses. And it is at first. But listen to what Bill had to say:
“I have always kept a monthly record of everything I spend and it has been an eye opener. I suggest everyone do it. I track dining out and grocery, utilities, insurances, health care etc. and it helps me stay in budget, particularly with these times. Besides monthly costs, I have divided my expenses into quarterly (real estate/estimated federal taxes) and yearly (auto/home insurance), as that helps me monitor my cash flow much better. For those that think this tedious, it actually becomes rather fun when you set goals and attempt to meet them. It also makes decisions about buying things very easy. If you are out of budget, then the answer is simply ‘no.'”
Bill’s right! My wife and I track our household expenses with a simple Excel spreadsheet. It takes a little effort to save our receipts and tally everything up, but what we’re left with is a greater sense of control over our lives. And though a budget seems confining, it is actually the key to financial freedom.
But HB says the art of budgeting is nearly lost today:
“All I can say is ‘Amen.’ I am a Financial Adviser and I see what you are addressing more often than not. After a real look at cash flow, ‘real wealth’ has been squandered on lavish remodels, flat screens, expensive vacations and luxury autos. When you look at the historic ratios of income to purchases, it really puts things into perspective.”
Ray, another professional in the field, echoed HB’s experience and outlined how he helps people take their financial pulses …
“As a Financial Advisor in the 403(b) market I must say your numbers are on target. In fact I would go a little further. When I meet with a client I go thru a budget worksheet. The purpose is to find out what their cash flow looks like. In addition to the most common expenses that you touch on – my worksheet also includes childcare expenses, credit card payments and personal expenditures such as going to the barber/hair salon, clothing, laundry and dry cleaning, charitable and commuting expenses. I would then have the client subtract their net income from the monthly expenses to arrive at their monthly cash flow. Once this is put on paper most people are surprised at the amount that goes out each month.”
So if you haven’t done a budget in a while … and if you don’t have a clue what your real monthly outlays look like … I suggest you spend an hour or two getting back on top of your finances.
Once you find out where you stand …
Rule #2: Formulate a Realistic Plan
Tracking your expenses is one thing. But the more important part is establishing realistic parameters for your life and your investment portfolio.
Bonnie shared her inspirational story:
“My husband and I planned our lives and future before we got married. We agreed on no debt, bought 70 mostly-wooded acres in the country for cash, built our own little house with our own hands for cash as we earned it, saved every penny we could. After 30 years, we are well-off and retired. People need to plan and to live by their own ideas and ideals, not worrying about what their neighbors think. It takes guts to do so, but that’s what freedom is all about.”
I think Bonnie’s right. So many people are out there chasing the appearance of wealth that they’re not actually accumulating anything but DEBT.
Fortunately, Katy sees this mentality changing right before her eyes in California. As she puts it,
“Thankfully, everyone I know here is hunkering down, and changing their lifestyle. Savings has gone up, and we are all paying down debt. We’re all scared that taxes are going to jump (local, state, and federal) because LA and CA are both close to bankrupt and the Treasury doesn’t seem that far behind.”
According to the latest U.S. saving rate figures, Americans are exercising more restraint than they have in the past. That’s great news, and I hope the trend continues.
Of course, no matter how much planning and adjusting you do in life, conditions are constantly changing. That brings me to …
Rule #3: We Have to Be Flexible
A number of you told me how sudden illnesses or job losses drastically altered your financial standing … in some cases overnight. And as our country is beginning to remember — economic prosperity ebbs and flows. Booms never last forever.
But if we approach our financial lives with flexibility — and if we prepare for darker days when the sun is still shining — we’re far more likely to survive and thrive.
I loved hearing about the varying ways you’ve approached life, and the changes you’ve personally made.
For example, Ken said,
“Downsize by moving to a rural area, for instance. Get rid of the car payment just for starters. Grocery shopping — go in the middle of the week and only buy bargains and/or sale items. The only meat I buy is fillet Mignon and organic chicken breast when they are marked down. I don’t pay taxes and refuse to do so, legally.”
Now, I’m not sure how Ken is avoiding taxes, but as I’ve noted before … there are plenty of legal tax-shelters available to us all.
Meanwhile, John is taking a different approach by living a simple, city life …
“Maybe if more people would live in the city, own just one car, and ride transit, they could save the money they would have spent on the car payments, gas, insurance, and maintenance for retirement. It’s worked great for my wife and I.”
The idea here is that you can make changes in your life in response to what gets thrown at you. And it’s never too late to get started or to try something completely different.
In fact, many of you told me that you were tired of “keeping up with the Joneses.” Hence …
Rule #4: Think Outside the Box!
I think DoctorM summed it up best:
“If Mr. & Mrs. Median have any ‘problems,’ it is with their wish list. We all want vacation and toys now, and bountiful retirement later. But it is a balancing act, and what most of us lack is a tool that we can use directly to tell us how to balance today’s wants from tomorrow’s (when we want to retire.) We always have options, tradeoffs and substitutions available to us.”
No question about it. There are a million and one ways to go through life. And I was amazed to hear some of your tales off the beaten path. Listen to what Rob did:
“I saw the writing on the wall before the bust – and took a job in Saudi Arabia. For the past 16 years I’ve legally avoided paying Federal income tax (the ‘expat’ tax exemption of $85,000). Not owning a house in good ol’ Connecticut dropped me off their income tax radar too. Since then I’ve been able to put close to $800,000 in the bank.”
And he wasn’t the only reader. Alfred says,
“Sold my Dallas house of 24+ years in Dec. 2004 and moved to my house in colonial Mexico. Sold that place and bought a 6,500 sq. ft. 4-story with world class views on the Eastern mountain in the centro of San Miguel de Allende, GTO. Our annual property taxes are $432 vs. $19,000 in Dallas. We have a housekeeper and gardener and no longer pay (any) income nor U.S. property taxes. Expat retired life is wonderful!”
Meanwhile, some of you are just plain moving to the country, not out of it! Get a load of Stefanie, who proves that prosperity is possible even on a small income:
“Who cares how fast the Joneses rush towards bankruptcy! My daughter and I both have incomes below the poverty level in this country. We save close to $1,000 per month. We just bought 15 acres in TN, cash … people can save if they stop looking to the Joneses for guidance.”
JC sums it up as well as I could:
“Lots and lots of Americans are smart enough to have figured out that the system in which we live will work for you, but only if you do not go with the flow and do not listen to and follow conventional wisdom (which seems always to be wrong in the long run).”
Lastly, no matter how bad we think our individual situations might be, it’s important to remember that we still have it pretty darn good compared to a lot of people. That’s why I’m suggesting …
Rule #5: Be Thankful!
If you’ve ever visited a third world country, you’ve probably seen real poverty first hand. Heck, potable water is a luxury in some of the places I’ve been to!
And in case anecdotes aren’t enough, here are a couple statistics that bring the point home:
- More than three billion people — half the world’s population — live on less than $2.50 a day …
- At least 80% lives on less than $10 a day …
- And the richest 20% of the world accounts for 75% of global income.
It’s important to remember that we still have far more opportunity than most.
As Matt told me: “Americans are paid well, and the median family has plenty to live on. Our problem is that we are not satisfied with the amazing blessings we have.”
Right he is!
So let’s do the best we can with what life throws at us … continue to budget and plan … and never lose sight of all the great people and pleasures we have in our lives.
By the way, if you didn’t see your comment mentioned here today, don’t think I’m ignoring you … you had so many great questions that I plan on devoting plenty more space to the specific concerns you raised in my next few columns.
One message that I got from you loud and clear was that you want more information on these all-important personal finance issues. So stay tuned and keep that great feedback coming!
Best wishes,
Nilus
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