How not to be terrible at saving money
Every blogger has to write an obligatory post on how they cut corners to get out of debt and accumulate wealth.
Here is how I do it.
I'll start of by saying that any success I've had with saving money is 99% attributable to my wife. She is Chinese and grew up in Taiwan. She has no formal training in investments or finance. She has never read a personal finance book in her life. But she came from a family and, to a certain extent, a society that frowns on debt.
As you can read in my original blog post, she freaked out when she realized I had $32,000 in student loans and several credit cards in my last year of college.
The sad thing was, I didn't really need the loans, I just wanted some extra money to live a little larger. I was on a full scholarship, and had a job in the dorms that gave me free room and board (Yes, I was stupid). One of the many reasons I married her was her attitude towards money and her ability to keep me straight.
She insisted we got out of debt immediately, and we did. While still in college, we paid off the $32,000 in student loans, and paid off all credit cards. This was done by both of us taking extra jobs, or hustling, as I believe it is called in the PF world. This frugal living also allowed us to pay off our $280,000 mortgage in six years. One of the greatest accomplishments I've ever done.
We have always been able to maintain a high savings rate by eliminating unnecessary expenses. We are TOTALLY against keeping up with the Joneses. The Joneses might seem to have some great stuff, but their financials suck!
I want to share my experiences trying to save money in different aspects of life. It allowed for a decent savings rate that has allowed us to do pretty well. We could have cut back even further, but this is where we felt comfortable.
If your goal is to live in a nice house and throw expensive house parties for your friends at your expense, while remaining poor in all other aspects of life, then buying a big house is the right thing to do.
In all seriousness, this is where we make our biggest mistakes. It's the American dream of owning a house. We like a big front yard, massive backyard, built in barbecues, pool and terrace, lots of bedrooms and bathrooms, and gorgeous, large kitchens. We love two-car garages to house our beautiful, brand new shiny SUVs and luxury sedans.
The conventional wisdom is, if you rent you are throwing money away. If you crunch the numbers based on your personal situation, the opposite is often true.
Homeownership kills you on maintenance, HOA fees, property taxes, and mortgage interest. The illusion that the tax write off makes this a better deal is just that, an illusion.
There are only very specific circumstances where it makes financial sense to buy vs. rent when you look at it purely economically. For instance, if the rental market is expensive, house prices appear to be rising, and you plan on living in the same place for the next 10 years plus.
I'm in the military. I have lived nine different places in the last 16 years. It makes zero sense for me to buy a house.
Get the smallest, cheapest house to meet your family's needs. I can't emphasize this enough. It should be a house that could become a great rental, should you decide or be forced to move for some reason. By the way, huge luxury homes do not make great rentals.
I had a friend who asked my advice where and what to buy in D.C. He was a fellow military member who was about to promote, and was ready to spend that extra money!
They had no kids, and no plans to have any. I recommended a small, 3-bedroom townhouse close to work. I recommended they buy as cheaply as they can, to free up the extra money in case something unexpected happens. I also pointed out they should buy something that could become a rental when they move. In the end, they got excited with how much they pre-qualified for and maxed it out with a 4000-sqare-foot new-construction dream home.
Too bad he never got that raise, and was forced out of the military unexpectedly. He now works overseas and takes a HUGE loss each month on it as a rental.
This is common in the D.C. area. You can rent a brand new house and let your overextended landlord cover the difference in the mortgage payment. Great for the renter, no so good for the landlord.
I'm going to say this with the benefit of hindsight bias. Buying a house in Washington, D.C. was actually a poor investment.
If you crunch the numbers, you will see this to be true.
I see a lot of potential to waste money on furniture. This is especially true if you are still in debt, and have a low income. We have never wasted money on expensive, or even normally priced furniture, even up to today.
If you get a good deal when you buy used furniture, you can recover a lot of that money someday by selling it on Craigslist or some other way.
Throughout our lives, we have bought furniture for function, not for fashion. Buying used or getting a great deal was the goal.
When I was stationed in Guam with the military, there was a hurricane that devastated the island. It caused water to leak into the warehouse that had the merchandise from the furniture store.
For some strange reason, the military decided to sell any item that was in a box that got even a little bit wet for 75% off. We stocked up on all the furniture we would need for the next 10 years, and even bought a few extra items as an investment. Over the years, we've sold all of it off for a profit after getting years of use out of it.
Buying used furniture on Craigslist or on some local community Facebook page has saved us thousands of dollars over the years. IKEA is great, but you'll save money buying it used and assembled.
I remember buying a dining table at K-mart for $99. We used it for about 8 years, and then sold it when I was overseas in Japan for $200.
Cars cost a fortune! Cars, next to houses, can be what eats up most of our incomes. This also means that car expenses are one of the main things that keep us from saving and investing money. Cars keep us poor. Don't let your cars do that! Before I talk about what I've done, I'll mention what I've asked others to do in the rare case they asked me for financial guidance.
Some people will often think they are doing what they can to save. If you have two (or more) new/newer cars financed, you are making a huge financial mistake! How about his and hers Harley Davidsons on top of that? Maybe a boat?! THIS COSTS YOU A FORTUNE!
There are hordes of websites devoted to ditching cars and switching to bikes and local transportation. You'll save more, you'll be happier, and you'll be healthier.
Even if you owe more than your car is worth, you are better off in the long run selling it, paying the difference out of pocket, and getting into cars you can afford paying cash for. To do even better on that, consider getting by on one or no cars. Move closer to work. Work from home. Figure it out. It's worth it in the long run!
Do I have authority to write this stuff because I've always been financially brilliant when it comes to cars? Yes, of course! Here's a good example.
When I was in college and still dating my wife-to-be, I got bored one day and went to a car dealership to look for a reasonable car to buy. The dealer sweet-talked me into a Shiny 300 ZX Turbo with T-tops. Hell yeah!
Only $4,995. I asked about the funny noise it was making. He said the car hadn't been driven for a few months, and the noise would go away when the car gets warmed up. AND I BELIEVED HIM!
When I came home and surprised the wife-to-be with our awesome new ride, I was disappointed by her lack of enthusiasm. I got mad at her for not sharing in this moment with me. I reminded her the car was for US! She reminded me that she didn't drive stick shift. I think I probably knew that and just didn't care.
Long story short, I bought a black leather jacket and got a ticket in that car the first day on the road. A few more tickets in the weeks following. I ended up lucky to find someone to buy it for $1,000 a few months later when the transmission and electronics died on it. The inside of the car made Night Rider look like nothing (before the electronics died).
That was a stupid mistake, but once in a while I do something right. The 1980 Honda civic that I bought my first week of college for $600, I sold when I graduated for the same price. My wife said it looked like Mr. Bean's car. I'm not exaggerating when I say the water pump literally fell off the vehicle as it drove away. Timing is everything.
I've spent the rest of my life (so far) making what I think are smart choices with cars. I hunt for good deals on used cars that have great resale value with the intention of not losing any or much money when I sell it down the road. Toyota and Honda cars and SUVs have worked for me. This frees up more money for savings and investment.
It's better if you buy a good used car and hold it long term, but I'm in the military, and this is not always possible.