3) Live Within Your Means
My mother never had any money. She was always “a little short.” She regularly overdrew her checking account. It got to the point where she developed a peculiar relationship with her bank’s managers. They knew her on a first name basis, knew she was pretty harmless if frustratingly intractable, and frequently forgave her fees out of pity.
Mom had this trick she’d play every month — her little gamble. She received a fixed income from Social Security disability and was always flat broke several days before her next deposit arrived. She knew that if she wrote out a check to the grocery store, or any other business, that it could take as long as three days to clear her account. So she would routinely start spending her money three days before it was in the bank. Then she’d keep spending until it was gone.
Needless to say, having such a poor financial role model coupled with a complete lack of economic education through public school set me up for some pretty horrific decisions as an adult. I remember receiving my first paycheck from my first job and thinking only of what I could immediately go out and buy with that amount of money. That was bad enough. The catalyst for true disaster was applying the same attitude toward credit.
While most of my class was heading off to college, I went straight into the workforce and got an apartment with a co-worker who was no more responsible than I. We were both moving out of our parents’ homes and focused primarily on what kind of social opportunities that freedom presented. When pre-approved credit offers started pouring it — as they tend to when you’re young and dumb — I saw it as free money. Why wait to furnish our new bachelor pad? Why wait for a dream home-theater setup? Why say no to the best stuff now? I have no greater regret than those early financial decisions, the consequences of which haunt me to this day.
I remember the moment I first realized how ridiculous consumer credit could be. I had purchased a computer on credit several years prior and had mindlessly sent in my minimum payments month after month. One day, about the time the computer became obsolete, it occurred to me that I should be pretty close to paying it off. When my next statement arrived, I took the highly unusual step of looking at it and discovered that I had indeed paid an amount far surpassing the original principal… and still owed an amount equal to the original principal. I was shocked! How was such a thing possible? How could I still owe when I had already paid more than the original purchase was worth? It seemed somehow unfair that I could owe so much, after having paid so much, and all for something I could no longer use.
This was the manner of my economic education — the school of ignorant screw-ups. Had I known at the start of my adulthood what I know now, I could have positioned myself to be much better off.
Unable to change the past, I now focus upon the present and the future. I resolve to not only live within my means, but to put my savings to work through investment and teach my sons the financial lessons which no one bothered to teach me.
A 2009 study by the Pew Economic Mobility Project indicates that the choice to save improves the odds of generational prosperity:
Children of low-saving (i.e., below median), low-income parents are significantly less likely to be upwardly mobile than children of high-saving, low-income parents.
Seventy-one percent of children born to high-saving, low-income parents move up from the bottom income quartile over a generation, compared to only 50 percent of children of low-saving, low-income parents.
It should go without saying. Yet it doesn’t. Live within your means.