Dear Jessie: Live Beneath Your Means

Along with the Golden Rule, I believe living beneath your means is the most important thing you can do in your life. This may seem like a simple statement to you, always spend less money than you make, but you might be surprised how many people can’t or won’t do this one simple thing.

If you make $50,000 a year, and you spend $75,000 per year, (please don’t read these numbers literally, I’m using them for simplicity) can you see a problem in your future? I’ll write to you later about debt and credit cards; just realize most debt is a really bad idea. Don’t try and keep up with your neighbors, focus solely on your finances and limitations. If you’re making $35,000 a year and driving a $40,000 car you are living above your means.

Now, if you made $75,000 and only spent $50,000 last year, saving and investing the remaining $25,000, you are living a life to be proud of, especially if you do this every year. Making more money per year, by a raise or a second job, doesn’t mean you should spend more. If you suddenly found yourself making $90,000 next year instead of $75,000, you should save/invest the extra $15,000. That would be $40,000 a year instead of $25,000 saved.

Let me give you another example. As you might have noticed, Janet and I bought a three bedroom (one of which is yours!) two bath condo (both of which seem to be yours) recently and you may be wondering why we did such a thing. The major reason is this: we believe in living beneath our means. Our condo cost $85,000 and we paid cash for it.

Janet and I could have bought a bigger, much more expensive house and used the $85,000 as a down payment. A lot of people would have done that and borrowed the rest of the money from a bank, in the form of a mortgage, making payments to the bank for thirty years. Having a big house (or expensive car) is only impressive if you’re not drowning in debt to own these things.

You are very young and retirement might seem like a long way off (especially since you haven’t even started working yet!) but it’s not. Trust me: one day you’ll wake up in your forties or fifties and look around at your life. If you haven’t prepared for retirement, and you should start now to make it easier, then you haven’t lived beneath your means. Don’t wait until you’re near retirement age and realize you haven’t saved any money for the future.

I’ve seen people who haven’t prepared financially and it isn’t pretty. Think before you spend money on frivolous things. Realize you are only on one step of your journey; a vast and varied journey through life. Prepare for this by saving and investing in your future. Money can be a great source of security or a wicked shackle dragging you down into the depths. Choose wisely.

Love,

Mom

Advertisements

Leave a comment

Filed under Advice to kids, Letters to Jessie

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s