“The moon belongs to everyone. The best things
in life are free. The stars belong to everyone. They gleam there for you and me.
The flowers in spring, the robins that sing, the sunbeams that shine… they’re
yours; they’re mine. And love can come to everyone. The best things in life are
free.”—DeSylva, Brown, and Henderson, “The Best Things in Life are Free,” 1927
“The best things in life are free, but you can
give them to the birds and bees. I need money. That’s what I want.”—Gordy and
Bradford, “Money (That’s What I Want),” 1959
Money and me
For whatever reason,
I’ve always been good at earning, saving, and investing money. I find it
interesting and fun, and I’ve spent my life learning how to do it better.
Still, it’s important to
note that I grew up in a financially insecure household with a low income in a
very rural area in a depressed region.
I’m not saying this to criticize
my parents here, because I genuinely believe that they did the best they could
with what they had in every way. We always had enough and I learned a lot about
self-sufficiency and hard work. My parents were deeply ethical and charitable
people who passed those values on to us. Plus, I grew up in a forested mountain
paradise, so of course I wouldn’t change any of that. To me, all of this is
much more valuable than any financial inheritance, and I am eternally grateful
for it.
I’ve found that people
with my background go one of two ways: They perpetuate this cycle by making
poor choices OR they become quite frugal. I chose the frugal path, but with a
twist. Rather than live a life of grim restraint, I live quite joyfully
I’ve started with a word
about my upbringing because it’s important to note that I’m self-made.
Otherwise, I’ll get a lot of “easy for you to say” comments when instead it’s
more of a “if I can do it, you can do it” situation.
This is my philosophy on
money, and it has served me well.
Ethics are everything
There’s a difference between
being frugal and being cheap.
The frugal person cheerfully
finds ways to spend less money, usually through hard work and sacrifice. The
cheapskate saves money off the backs of other people.
For example, a frugal
person might choose to save money by hosting a potluck for friends rather than
going to an expensive restaurant. A cheap person goes to the expensive
restaurant but skips out on the bill, sticking her friends with the tab.
This behavior takes the
form of dishonesty large and small: accepting charity when you don’t truly need
it, falsifying insurance claims, pirating music or movies, and engaging in
questionable romantic behavior because your partner gives you something of
monetary value.
If we make money but
lose our soul, we’ve gained nothing and lost everything.
I testify that I’ve
never met a person who amassed a fortune through dishonest means and was then
able to enjoy that fortune in the company of loving family and friends. When
you look at it this way, the price of honesty is very small.
A shift in perspective: Make it a game
If you feel deprived,
you will stubbornly resist your own attempts to make positive changes.
The only way to avoid
feeling deprived is to change your definition of luxury and fun.
Clothes
and shoes
I play a game with
myself: I consider whatever outfit I’m wearing, and I calculate how little it
cost. “I bought the shoes from eBay for $5, and I bought the dress at Goodwill
on 99-cent day. Not bad!” My appearance is important to me, and I like to look
nice. Plus, I’m a professional woman who must dress a certain way for work. If
I can economize here, most people can. I get my clothes from a variety of
sources: my friends and I get together and share our castoffs. I shop at thrift
stores, casually stopping in and browsing perhaps once a month. I haunt eBay,
particularly for gently-worn or never-worn designer shoes. Occasionally, I
swing by the clearance rack at Target for end-of-the-season 70-percent-off
deals, which is where I got my most recent bikini for one dollar.
I daresay that anyone
who sees me walking down the street would say that I am well-dressed in
flattering clothes in current or classic styles.
Fun
Similarly, my friends
and I often see how much fun we can have without spending much money. Some
recent examples: I swam under a full moon in the Gulf of Mexico with my friend
Blake while we laughed and talked about philosophy. Friday, my friend Tommy and
I will walk through the pumpkins at the nearby farmer’s market and visit our
state museum next door. My friend Laura and I cooked a meal together and
watched a movie that I checked out from the library, and I’m planning a trip to
visit my sister soon. All of these are inexpensive or free and they’re fun and
memorable times. That’s not to say that more expensive things can’t be great,
too, but they’re not absolutely necessary and can be treated as an occasional
splurge.
Food
I rarely eat at
restaurants (unless it’s a special occasion), and I enjoy cooking at home. I
grew up on fresh fruits and vegetables that we grew ourselves, so I’ve
continued that simple lifestyle into my adulthood. I thrive on a healthy diet
of soups and similar foods, the ingredients for which I buy on sale at the
grocery store or grow myself.
You may not think you
can grow your own food in the city, but I’ve got planters on my balcony where I
grow tomatoes, peppers and herbs. I trade these with nearby friends, who supply
me with fruit, vegetables, herbs, etc. My close friend Tommy has a large enough
yard for a substantial garden. I supply my years of gardening and food
preservation experience, while he supplies the land. We both supply seeds,
plants, and labor, and as a result, we get home-grown produce and home-canned
soups, sauces, salsa, etc. It’s quite satisfying and fun. Where there’s a will,
there’s a way.
Americans tend to eat
much more than they need. If you are overweight, you can train yourself to eat
less food. Once you get used to it, it’s not that hard, and the results in your
health will be immediate.
My two most important
tips to save money on food: 1) Prepare simple meals at home and 2) Eat less.
Vices
I do not smoke, drink,
use drugs, gamble, etc. A wholesome life and a frugal life are closely
interconnected. All of these things are bad for your health and/or wellbeing,
so you can improve your life while you improve your finances. I also do not own
a television, although I am required to have wifi for work and I do
occasionally watch movies on the internet.
I realize that all of
this makes me sound odd and repressed, but I promise that I’m a light-hearted,
spirited person, and I spend my time laughing and having satisfying
conversations with my friends, pursuing my many interests, volunteering, dancing,
exploring, playing with my dog, thinking, traveling, reading, walking in the
woods, taking photos of birds and mushrooms, doing yoga, and in general as my
good friend Marshall Mahone says, getting my kicks on the straight and narrow!
That’s the difference: If
you see the frugal path as one of white-knuckled deprivation, you won’t follow
it, but if you view it as a fun choice and an interesting puzzle to be solved,
you will.
The locus of control
One of my greatest
frustrations is this: Whenever I make a positive statement, someone often tries
to shoot it down—and they do so by arguing from the position that things are
awful for them, that they’re unlucky and powerless, and that there’s nothing
they can do to change things.
This astonishes me. I
don’t understand why anyone would choose to believe that positive change is
impossible. I suppose it’s a defense mechanism, because it’s safer to fail to
try than to try and then fail.
Whatever the reason, I
urge you to break this catastrophic self-defeating habit if you’ve got it. Do
whatever it takes, because it will change everything for you. To change your
perspective, it’s helpful to consider a concept that psychologists call the
“locus of control.”
If you’ve got an
internal locus of control, you believe that most things are your
responsibility, while those with an external local of control believe that most
things that happen to them are the result of outside factors. For example, a
person who wants to be thinner might say “I can’t lose weight because I’ve got
no time to cook, I drive by several fast food restaurants on my way home from
work, and I’ve got no money to join a gym.” A person in the same situation
who’s got an internal locus of control will say, “I’m not losing weight because
I’m eating too many calories. I’m not making time to cook, I’m driving by fast
food restaurants and I’m not exercising self-control when I stop at them, and
I’m making excuses for failing to exercise.”
Why is this self-blame
game the better choice? If you acknowledge that a problem is your
responsibility, then you accept that you’ve got the power to change it. And
what power that is!
The above dieter with an
external locus of control will continue to practice bad habits and become
unhealthier, while the dieter with an internal locus is much more likely to
make time to cook, take a different route home (or bike or walk!), and find a
way to get some exercise. Hopeless is instantly transformed into hopeful.
Even people in
difficult, apparently hopeless situations have got SOME control. I’ve been in
those situations many times, but I was able to turn things around by wielding
whatever power I had, meager though it may have been.
The best way to change
your perspective here is to develop a new habit. Whenever you find yourself
thinking a negative thought, instantly reframe it into a positive thought. For
example, “I can’t save money because my salary is too low” might become “I’m
not saving money in part because I’m not making enough money. I’ll talk to my
boss about how I might change that, by taking on extra responsibilities or
signing up for additional training.”
At first, you’ll need to
do this a thousand times a day, but your thinking will change if you stick with
it. Before long, it’s a habit, and then it’s who you are!
Less is less
If you spend any amount
of time in thrift stores, you’ll be stunned at the sheer volume of stuff that
Americans buy but never use. Holiday stuff, decorating stuff, clothes that don’t
fit, so much stuff! The industry group Self Storage Association tells us that
one in ten Americans rents offsite storage, supporting more than 50,000 storage
facilities with yearly revenues of $38 billion.
Nobody needs to tell you
that we all own too much stuff, though. If you’re like most Americans, you may
not be able to park your car in your garage, and your closets are filled with
clothes you don’t wear.
This means that you
bought all of that stuff, and perhaps you paid for it with a credit card on
which you paid interest.
A better way is to adopt
a minimalist approach: No matter how many outfits you’ve got, you likely wear
the same few garments day after day. You may pay for hundreds of television
channels but watch only three. Your house may have rooms that you see even less
frequently than the gym where you’ve got a membership but don’t visit.
Here’s a radical idea
that you’ll find surprisingly easy: Cut all of it out. You can live in a
smaller space, get rid of the TV entirely, stop paying for memberships and
subscriptions you don’t use, and commit to owning a few garments and shoes that
are high-quality in classic styles.
The Wall Street Journal
recently reported that Americans spend $1.2 trillion annually on items they do
not need and seldom use. Much of this is bought with a credit card, which means
that they’re paying interest on it, too.
We’re bombarded with
messages that tell us that we’re lacking and that we’ll be happier if we buy
more products. This is false, and we all know it. With a little mindfulness, we
can stop buying into it.
All debt is bad debt
If you cannot afford to
pay cash for it upfront, you cannot afford it.
Now, some bad debt is
worse than other bad debt, but debt should generally be viewed as dangerous and
should be entered into with great care if at all.
Mortgage
debt
If you’re committed to
live in a certain place for five years or more and the housing market and
mortgage rates are favorable, it makes sense to buy a home. A home can be a
good investment (but isn’t always), and you’ve got to live somewhere. Not many
people can amass $250,000ish in cash in a few years’ time, so most home buyers
must go into debt to buy a house. It can pay for itself and even provide a
little retirement income, but even so, this debt is still only “OK” debt and
should be considered with skepticism.
Because it’s such a vast
topic, I won’t spend a lot of time on home ownership. My philosophy is this:
You can live in a smaller home than you think. The smaller the home, the
cheaper to buy, heat, cool, maintain, insure, etc. I try to live in the
smallest space possible, and I always find that I’ve got plenty of space.
There’s no need to have a formal dining room if you serve two meals per year
there, and why have spare bedrooms if you seldom have house guests? In short, I
try to consider my daily needs rather than my occasional inconveniences. If you
de-clutter, you’ll have all the space you need.
If you’re wondering
whether it’s better to rent or to buy, start with this article and calculator
from The New York Times: https://www.nytimes.com/interactive/2014/upshot/buy-rent-calculator.html?abt=0002&abg=1
Student
loans
I am often surprised
when people describe student loan debt as “an investment in yourself” or even
“an investment in your future.” This is a calamitous overgeneralization. In
fact, student loan debt can be very bad for some people and acceptable for
others.
Take me for instance. I
had a generous merit-based scholarship to law school. Plus, I had saved some
money prior to attending, lived like a pauper during, finished a semester early,
and worked as much as I could through school. Still, I had to take out $50,000
in student loans to cover the exorbitant price of tuition, fees, books, living
expenses (again, pauper-level), and time away from a full-time job to attend
school and study for the bar for three years. I suffered from incredible
anxiety over this debt the entire time I was amassing it, but in my case, it
was the right thing to do. My first job out of law school paid exactly twice
what my top salary was before I went to law school. Plus, becoming a lawyer
changed my life in every way. It is hands-down the best decision I’ve ever
made. I cannot imagine my life without it, and it would have been a grave
mistake not to do it. After law school, I worked extra document-review jobs and
dumped every spare dollar on the principle and paid off my loans in no time.
All’s well that ends well, but I am the exception.
On the other end of the
spectrum, we’re bombarded with horror stories featuring a hapless student that
took out hundreds of thousands in debt, has deferred payments, and now owes a
king’s ransom for a relatively “useless” degree. Here’s the latest one I’ve
seen, and it’s a doozy: https://www.wsj.com/articles/mike-meru-has-1-million-in-student-loans-how-did-that-happen-1527252975
Worse still are the
for-profit colleges that allow students to rack up thousands of dollars in debt
while awarding truly fraudulent degrees that don’t allow the student to get a
job in his or her field at all.
One helpful resource
comes from the Department of Education. This material discusses the true cost
of a college education and rates various colleges and degrees by their “gainful
employment” potential. In other words, will the cost of the degree pay for
itself? Start here, but browse the other pages for related information, too: https://studentaid.ed.gov/sa/about/data-center/school/ge
Because of my
experience, I am not one of those people who coldly advises people to avoid
college if you can’t pay upfront or to get a degree that you don’t really want
in the hopes that you’ll be able to get a well-paying job. If you don’t want to
be a chemical engineer or a registered nurse and you lack the aptitude, you
won’t be successful no matter what the jobs pay. This is poor advice disguised
as sound advice.
So what do you do? I
think you may be forced to go into some student loan debt in some cases. I
think it’s wise to mitigate this by finding creative ways to pay for college.
Seek work-study programs, choose a cheaper but good quality college, go to
junior college the first two years, try to get a scholarship, etc. You may
choose to join the military or agree to work in an underprivileged area once
you earn your degree. Of course, you’ll have a job to help with costs. Perhaps
you’ll move to a state that pays for college for its residents who meet certain
requirements, such as Georgia or Tennessee. One woman I met sold her eggs to
pay for college, and I suppose men sell sperm. (Your more g-rated pal Robin
Kathleen sold her blood plasma to help pay for law school. I drew stares and
snickers from my fellow donors, because I was the only person reading a massive
Evidence text as I lay pumping. As my uncle used to say, when you’re poor,
you’ve gotta be tough. This was one of those times.)
For some inspiration,
this fellow paid off nearly $100,000 in Harvard MBA debt in seven months. It’s
one man’s anecdotal experience, but it’s worth reading for inspiration as he
blogs in detail about his various sacrifices and creative yet legal moneymaking
ideas. https://nomoreharvarddebt.com/2011/08/
This goes against all
conventional wisdom, but that doesn’t mean it’s a bad idea: Don’t go to college
at all. As my friend Tim says, if you don’t think it’s worth the money, don’t
spend money on it. If you don’t want to go to college for a specific reason,
why do it? Go to technical school instead, or start your own business. This is
an interesting interview with a CEO who embraces this philosophy and can get
you thinking about this radical idea: http://www.mrmoneymustache.com/2013/02/07/interview-with-a-ceo-ridiculous-student-loans-vs-the-future-of-education/
While I’m a big believer
in education, a formal college education is not for everyone. Some of the most
intelligent, intellectually curious people I know did not go to college because
they love to read, explore, and talk about ideas, while some of the most
closed-minded people I know did go to college.
Credit
card debt
This is always bad debt…
pretty much the worst debt and can be fairly classified at the bottom of the
debt cesspool with payday loans and car title loans and other gosh-awful ideas.
I’ve got a credit card,
and I use it for convenience, but I pay off the balance every month and
absolutely no one should ever do otherwise for any reason whatsoever. If you
have credit card debt, you cannot afford whatever you’re buying with the credit
card and should consider getting rid of the card entirely.
The most recent data
from the Federal Reserve show that Americans now carry about $1 trillion in
credit card debt at any given time, with $687 billion carried over
month-to-month. Experian calculates the average credit card debt at $6,348, on
which consumers pay an average annual percentage rate (APR) of 15.54, paying
$104 billion in interest and fees, an increase of 35 percent over the past five
years. This does not include store credit cards.
That sounds untenable—because
it is. It may be easier to think of it this way: If you buy a Nintendo Switch
at Target for $300.00 on a credit card with an APR of 15.54 and pay only the
minimum payment, it will take you 24 months to pay for the Switch, which has
cost you not $300.00 but nearly $350 including interest. This means that you’re
paying much more than you thought, and you’re still paying for an item long
after it’s obsolete. This is madness.
Speaking of minimum
payments, if you pay only the minimum payment, you may be falling behind rather
than paying off your debt. For example, if you charge $1,500 on a card with 18
percent APR and pay only the minimum payment (about $37 per month) without ever
charging another penny, it will take you more than 13 years to pay the balance,
which is the original $1,500 plus $1,792.52 in interest—more than the amount you
charged. Many personal finance sites suggest paying the minimum balance plus
$10 per month. I disagree. You should instead pretend that you are on fire and
must do whatever it takes to put out the fire before it consumes you. Sell
things. Sell everything! Get a second job. Rent out spare bedrooms. I’m dead
serious. Do whatever it takes.
Bankrate.com has a
series of helpful calculators that will help you pay down your debt, including
this one that gives a sobering look at the true cost of paying the minimum payment:
https://www.bankrate.com/calculators/managing-debt/minimum-payment-calculator.aspx
Car
loans
For parts of my adult
life, I haven’t had a car at all. I walked, biked, and occasionally took public
transportation everywhere. This is much easier than you think. The comedian Steven
Wright joked that everything is within walking distance if you’ve got the time.
I own a car now,
however, because it makes sense for me. Most people probably find a car
necessary, but I still think you should consider doing without. Cars are more
expensive than you realize when you factor in the cost of the car, repairs and
maintenance, insurance, tax, tag, title, inspections, etc., and we’re living in
the age of ride-sharing and other innovations. Just think about it. If you’re
in serious financial trouble, this may be one extreme idea to consider.
If you find that need a
car, you should try to save up the cash to buy one outright. If you cannot
afford to do this, it’s a sign that you cannot afford the car you want. The
good news is: The car you want is far more expensive than the car you need. The
Dodge Ram pickup is one of the top-selling vehicles now, with its base price
tag of $32,000, towing capacity of 7,250 pounds and gas mileage of 16 mpg in
the city. I regularly see these idling in traffic, not towing or hauling
anything at all. Less is more.
Here’s how I buy a car:
I research like a madwoman. I find out which cars are the most reliable and get
the best gas mileage. I also briefly consider which cars hold their resale
value, although I usually drive a car for many years so I don’t give this
factor much weight. Once I’ve chosen the model, I start looking for cars. I buy
used cars that are two or three years old and are semi-low mileage. This way,
I’m getting a fairly new car while someone else has paid the depreciation. Now
that I’ve got a very specific type of car in mind, I locate the used cars in my
area that meet this description. Perhaps I’ll consult AutoTrader, Craigslist,
CarMax, etc., although this changes from year to year and from region to
region. Your sources will vary widely, but look around. Now, it’s time to shop
and haggle. Because I’m paying cash, I can haggle with private sellers and see
where that gets me. To be honest, I’d rather take a beating than do the
shopping and haggling part of this process, but I tell myself that a few hours
of agony result in years of savings, so I grin and bear it.
I’ll confess that I
financed the car I’ve got now. I could have paid cash for it, but I got a
really good rate on a car loan that was much lower than the returns I was
getting on my investments, so I financed it. That’s the only reason I’d finance
a car, other than desperation.
Earning money
I deeply enjoy earning
money. It has always given me a feeling of self-worth and satisfaction.
Because everyone’s
situation is different, it doesn’t make sense to go into detail with career
advice.
Two things I’ve observed
over the years: 1) Most people work hard, so if you’re going to be working
hard, you should try to be paid as much as you can. That’s one reason I became
a lawyer, and I’m not shy about saying it. I wanted a steady job that fit my
interests and abilities and paid well with good benefits. When I was visiting
my law school to decide whether to accept the scholarship offer, I emerged from
my hotel shower and switched on the TV. The want ads scrolled on the local
cable channel, and the city was offering an assistant city attorney position with
a rather impressive salary and benefits. As I stood there, nude and dripping on
the carpet, I mentally put that salary possibility on the “plus” side of the
decision tree. I believe you should work hard and earn your money honestly, but
you should always know your worth and get it. 2) Unless you’ve got a solid idea
for a business, you can’t beat the power of a steady wage. I’ll never forget
when I got my first real paycheck. It was $52, but I couldn’t believe how much
it could buy! Many people are always chasing entrepreneurial schemes, but for
my money, it’s hard to beat a weekly paycheck with benefits.
I always diversify by having an additional stream of income on the side (now, it's writing and running my law practice), but my day job is my focus.
Investments
As with career advice,
this is too large and too individual a topic to go into detail here, but I’ve
got a few rules that I live by:
1) Only invest in things
you understand.
2) It is probably not
necessary to get someone else to help you invest unless you’re very wealthy or
have some other special circumstances.
3) It’s also not
necessary to move money around very much or to constantly check on it. I pick a
simple investment strategy, set it and forget it. Day trading, penny stocks and
similar schemes are foolish.
4) You can safely
disregard much of the advice of popular personal finance gurus. Much of what
they say can be helpful, but they are unable to tailor their advice to
individual circumstances, which renders their generalizations useless. For
example, they give rather tame advice when a more radical approach might be in
order for folks who are in financial peril (such as the above-mentioned “pay
$10 more than the minimum monthly payment” advice that’s so prevalent).
5) I use vanilla tools
such as no-load mutual index fund (I recommend Vanguard). I do not invest in fads
such as gold, bitcoin, or other such frauds. When our neighbors bought emus and
told us that they would be millionaires because emu oil, meat, and eggs would
become very valuable, my dad wryly commented that, in the 1950s, it was
chinchillas. Every year, we’re told that the financial markets and government
are in danger of becoming unstable and we need to put our money in whatever the
person is selling. Whenever someone is trying to get me to invest in something,
I remember the chinchilla.
6) Don’t give your money
to other people, such as a boyfriend, girlfriend, or adult child. If you are vulnerable
to this pressure, that’s all the more reason to put your savings into somewhat inaccessible
places (such as that mutual fund), which will give you a cooling-off period to
remind yourself to say no.
The “treat yourself” myth
Probably once a week,
someone in my life wonders whether I’m depriving myself because I don’t spend
money on certain things.
The opposite is true. I
feel less deprived and more “pampered” because I know that, if I lost my job
tomorrow, I could live from my savings for several years. I don’t lose a wink
of sleep due to financial concerns.
Plus, I enjoy learning
how to do things for myself and then doing them! I am quite adept at giving
myself artful pedicures that rival any I could get at the nail salon, and I’ve
performed some fairly advanced repairs by following free internet resources.
Still, I am quite girly
and I do enjoy a few luxuries. As with everything else, they’re treats rather
than daily occurrences. The best things in life are free.
To me, there is no
greater luxury than the certainty that I can take care of myself.
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