As we’ll see in this series, the key to stress-free finances is to live not within your means but under your means. Your goal is to live comfortably on less than you earn. Preferably, on lots less. If you’re bringing home, say, $3,000 a month, you would like to live on $2,000 or, at most, $2,500.
It’s not very difficult. The strategy is to determine what you really need and what you want, and then pare back the junk and the services to a level that’s as close as you can get to the need level, within reason.
I say “within reason” because I don’t believe it’s necessary to live like an anchorite to stabilize your finances and keep financial worries under control. Nor do we have to live like robber barons to be comfortable. What we’re looking for is a happy medium. To find that, you quietly engineer your expenses so that your cost of living is significantly less than your income, and then keep those costs as steady as possible—or even cut them—as your income rises.
The surest way to cut regular, unavoidable costs is to pay off debt and then, once free of it, to stay out of debt by never charging more than you have coming in during a specific period. At first, this strategy may require you to increase outgo, as you pay more than the minimum toward charge cards, student loans, and auto payments. But keep the faith: obviously after a time you’ll get this albatross off your neck, and then the amount you were paying toward it will no longer be going out the door. You have better things to do with this money; namely, saving it for a rainy day, for the kids’ education, and for your own retirement.
The second, surprisingly effective strategy is to pursue a minimalist lifestyle. Look around you: how much sheer junk do you own? Do you collect doodads that have their own collection—of dust? Does your closet shelter clothing that you haven’t worn in a year or more? Are the shelves groaning under decorator items waiting for you to dust them? Got an extra phone, computer, television, pair of skis that you really didn’t need in the first place? Subscribing to 110 premium cable channels when in fact you mostly watch only a dozen, or mostly rent movies? How many times this year did you use that boat in the side yard?
Exercise Number One: lighten your load! Declutter the house and the yard. If you’re not using something, if it decoratively collects dust, or if serves no urgent purpose, get rid of it. Yard-sale it, Craig’s-List it, e-Bay it, donate it, recycle it!
As a first step, this process makes you feel amazingly liberated. Just getting rid of the junk makes your home look bigger and brighter, frees you of a bunch of stuff to take care of, and leaves you feeling about ten pounds lighter. Speaking of your home…
Right-size Your Home
If you’ve not locked yourself into an underwater mortgage, consider this fact: A house or apartment should suffice to fill your needs and only your needs. No extra rooms are needed. No empty basements need apply. All you need is enough space for you and your family to occupy.If you’re buying, try to avoid spending on more square feet than you need. With real estate still running upwards of $90 a square foot, one extra 10 x 10 “sun room,” “hobby room,” or “guest bedroom”can cost you $9,000. Or more. Plus tax. Plus insurance.
Houses that fit are back in style, and they were coming back long before the recession hit. Take a look at Sara Susanka and Kira Obolensky’s books on the not-so-big house for some ideas on how inviting and comfortable a human-sized dwelling can look. And if bungalow size is larger than you need, Little House on a Small Planet, by Shay Solomon, Nigel Valdez, and Frances Moore Lappe, will inspire a wealth of ideas about how to build your financial and spiritual wealth by living in the right space.
Rent, Don’t Buy
Consider renting instead of buying, at least until you can save up more than 20% of a house’s purchase price. By now most of us have come to understand that all the persuasive palaver to the effect that renting is pouring money down the drain and the mortgage deduction offers us all some vast tax advantage is just so much hooey. Too many Americans watched their money flow down the drain, all right—after they purchased homes guaranteed to increase in value with mortgages costing far more than they could afford when they lost their jobs.
Renting has several sterling advantages:
First, most of the time you’re not responsible for repairs. New homebuyers are often shocked to learn how much homeownership actually costs, once all those trips to Home Depot are factored in. Roof repairs, plumbing repairs, mold abatement, dead tree removal: yike! Let the landlord pay for it—he can take it as a tax deduction.
Second, renting gives you mobility. Consider the number of people who can’t pursue job offers in other cities because they’re locked into mortgages for more than their homes are worth. Renters can move pretty much any time they please.
And third, because a renter saves money on maintenance bills, your overall shelter costs are lower than a homeowner’s. Stash the savings in an investment account.
Select a Safe but Not Extravagant Neighborhood
Look for homes on the outer fringes of upscale areas. Often residents share the better schools of their more affluent neighbors but not the prices of the larger, gaudier homes. Before renting or buying, check the local crime reports. Google “Crime Reports” plus your city or state, or try CrimeReports.com.
Keep Transportation Costs within Reason
If you’re a couple, possibly you can get by with just one car. One person might car-pool to work, or one might drop off and pick up the other during the morning and evening commutes. By all means, if you’re lucky enough to live in a city with decent public transit, use it!
But if the adults in the house each really need a car, why buy new? Excellent late-model vehicles can be had at very reasonable costs—let someone else pay for that outlandish first-year depreciation. Once you’ve driven a new car off the lot, it’s an instant used car, anyway. Insurance and registration costs are lower on older cars, making them a much better buy for anyone even faintly interested in building wealth.
In considering the cost of a place to live, keep in mind the cost of commuting. Gasoline, upkeep, and wear and tear on a vehicle are real costs to living in the suburbs. One Lifehacker writer reckons that over ten years, a 40-minute commute—considered by many to be within reason—will set the driver back $125,000. You can figure it out for yourself with this handy calculator. Though a more centrally located home may cost more than a stick-and-styrofoam number halfway to the Timbuktu, the expense of commuting may outweigh the higher rent or mortgage. And the savings in time and stress provided by a shorter commute are huge.
Note, too, that a car for a teenager is really not a need. Let the kids wait until they can afford the payments and the insurance (to say nothing of the speeding tickets) before they take off on wheels.
Where does it say you have to wear Ralph Lauren or Banana Republic to work? Attractive, generic clothing is to be found at Penney’s, Target, even Costco. If you’ll feel just too, too humiliated appearing in public in anything less than Armani, try shopping in upscale thrift shops. I just found my second St. John outfit at My Sister’s Closet. Looks like it was made for me! The store is awash in designer labels for men as well as women, ranging from professional attire to dressy and casual.
Select Friends Who Live Modestly
High-living peers exert an outrageous amount of pressure on us to spend more than we need: eating out, shopping at unnecessarily expensive stores, traveling to places we don’t need to go, driving expensive cars we don’t need to drive.
I used to hang out with a woman who had a million-dollar appetite. Even though her present husband was a mid-level bureaucrat, she still lived as though she were married to the one who owned the thoroughbred ranch in Kentucky—yeah, the place where she once entertained Queen Elizabeth II. This lady liked company as she made the rounds of Saks and the various boutiques she favored. Just being with her in a store virtually guaranteed that I would buy a new Eileen Fisher or some such…even as I knew very well that 99.9% of the places I went did not require me to surface in a designer costume. I exaggerate not: after a couple of these shopping junkets, I developed the habit of returning everything I bought a day or two later!
Today I prefer the company of people with more common sense.
Eat Great Food—at Home
Cooking is not very hard. Neither is shopping for food. Even if your idea of a home-cooked dinner is something that comes out of a microwave, dining at home is many, many times more economical than eating out. And nine times out of ten, you can prepare a meal that’s far superior to what you can get in any but the most expensive restaurants.
Last night I had prime sirloin tips (purchased at Costco at a dollar less per pound than the choice ribeyes), scalloped potatoes, glorious corn on the cob, a glass of very palatable wine, and a bowl of fresh strawberries. The whole meal cost about what one glass of Cabernet would have run at the sort of place that serves prime beef sautéed in butter. You understand…I eat like that every night. And I live on less than 30 grand a year.
Resist Filling Your Life with Junk
Who doesn’t need this…and this…and this…?
Imagine having to take care of it all!
And imagine the cost, over time, involved in collecting all that junk. He who restrains himself wins the jackpot.
Do It Yourself
Some of us are handier than others. But most people can drive a nail or turn a screwdriver. Changing the oil in your car is not nuclear physics. Neither is sewing flat-panel curtains or replacing a toilet handle. Try to learn how to do at least some of the things around the house. The savings can be significant.
Sometimes, too, one discovers the truth of the old saw that if you want something done right, you should do it yourself. When I was employed, I could afford cleaning ladies. Occasionally I would hire them. One wrecked a parquet floor by applying undiluted Murphy’s Oil Soap with a janitorial dustmop. Another pair created several weekends of hands-and-knees work for me when they smeared undiluted Simple Green all over 1860 square feet of tile, thinking they were mopping. Gerardo the Yard Dude, who handles physical work I can no longer do, has a sidekick who breaks parts of the irrigation system and then, to stay out of trouble, hides the parts so that I don’t find out about it until some plant dies.
The frugal life is a lot less stressful than the heedless one. You end up with less real estate to clean and maintain, less junk to find places for and keep clean, better food, nicer clothing, cheaper wheels, fewer messes created by other people, less debt, and more money.
And as they say…money isn’t everything, but it sure beats whatever’s in second place.