Many who lament not being able to save any money could save millions by changing the way they buy cars. Often, a small change of habits can make huge differences, like the difference between retiring financially free or having to greet people into Wal-Mart in your later years.
In 2007 Consumer Report studied the difference between buying a new Honda Civic EX and maintaining it for 15 years, versus buying a new one every 5 years. If you kept it 15 years, you'd save about $1400 per year. (They were pretty thorough in this study, figuring in the costs of repairs, etc.) Do that for a lifetime and invest that $1400 at the market average of 10% per year and in 60 years of driving you've got $4.5 million!
Think about this. It's astounding. Just by keeping a car longer, you could save a fortune. Even if you just kept the car for 10 years instead of 5, the savings would be astounding.
One of my cars, a Mazda Millenia, has 230,000 miles on it and is running great. I can't find a good reason to trade it in.
If you want to save even more, do what I do. (Don't turn me off here...I know it's radical.) Think of a car as reliable transportation, period. Forget the image thing. Get over the peer pressure to have a car that reflects a high status - many never get over it, and it costs them millions.
Find a good, trustworthy mechanic who sells used cars that have already depreciated greatly. I bought a car last month with under 80,000 miles for $1400, including four new tires. I buy cars outright, never making payments. It runs great and I hope to get 200,000 miles out of it. But the reason it sold so cheap was that it has a big dent in a part of the car that's difficult and costly to repair. But it doesn't affect the performance of the car in the least. I have no plans to repair it.
I don't feel embarrassed to drive a car like this. I actually feel rather smug for beating the system. I recall recently speaking to a lawyer who'd been downsized out of his practice and had to launch out on his own. Money was suddently tight and he was stuck making huge payments on his exorbitant car. "I thought I was pretty smart when I bought it," he told me. "But now I feel pretty dumb."
One of the reasons that self-made billionaires Warren Buffett and Sam Walton did so well was that they were totally unconcerned about the appearance of wealth. They drove normal cars (Walton drove an old truck), especially in their early days. Their frugal, early decisions paid off over time in both their personal and business finances.
Many people could be having a lot more fun and saving a lot more money if they simply didn't have a car payment. Work toward paying off that car, save up for the next one, and get on the road to financial freedom.
Saturday, June 6, 2009
Tuesday, May 26, 2009
Textbook for Personal Money Management
I believe in getting massive input before publishing a book. The more people who read the manuscript of Enjoy Your Money!, the more I saw a theme coming in like a mantra: "We've got to get this into the schools! Every young person needs to read this book in order to learn personal finances before they get in a financial mess!"
Thus, as I continued to rewrite, I included discussion questions, assignments, riddles, web-based teacher resources - anything and everything to make it easy on teachers and captivating for students.
If you're looking for a personal financial management text (for public or private schools, home schoolers and service organizations), see the appropriate page on the publisher's site to promote it as a personal finance text.
Thus, as I continued to rewrite, I included discussion questions, assignments, riddles, web-based teacher resources - anything and everything to make it easy on teachers and captivating for students.
If you're looking for a personal financial management text (for public or private schools, home schoolers and service organizations), see the appropriate page on the publisher's site to promote it as a personal finance text.
Saturday, May 16, 2009
N.Y. Times Financial Reporter Faces Financial Ruin
He should have known better. Edmund Andrews is a seasoned economics reporter for a major newspaper. He'd covered the Asian financial crisis of 1997, the Russian economic crisis of 1998, the dot-com crisis of 2000. He warned people about risky mortgages even as the current mortgage crisis developed.
So why did this middle-aged economic expert take out his own extravagant, risky mortgage in 2004, plunging him into the depressing world of unpaid bills, badgering debt-collectors, strained personal relationships and panic attacks? Today, his house awaits foreclosure and his once pristine credit score lies in shambles, making him a poster child for "Victims of the Mortgage Crisis."
His recent N.Y. Times article describing his personal woes deserves a slow, reflective read.
Here are some of my takeaways:
1) Rather than taking comfort in "what everyone else is doing" or "what many experts are saying," don't make big financial decisions without thinking them through dispassionately and rigorously.
Warren Buffett's mentor, Benjamin Graham, put it this way concerning investing:
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." (The Intelligent Investor, revised edition, 2003, p. 524).
2) Get plenty of objective wise counsel, particularly on issue where emotions may hijack our reason.
Mr. Andrews had tons of information available to him. But emotions (e.g., "I'm in love and must find a decent place to live!") can bias information to serve its purposes. I recall, I believe it was a researcher, saying that if you torture the data enough, you can make it tell you whatever you want it to. When we want something badly enough, it's human nature to torture the figures to make them tell us, "It's okay to buy the house."
3) Before you flaunt the tried and true rules of thumb, make sure you're truly an exception.
So what are some tried and true rules of thumb for home buying? Unfortunately, when the mortgage crisis was brewing, the rules of thumb changed. From one blog a couple of years ago:
When mom and dad bought their house 40 years ago, the rule of thumb given to them was that you could afford to purchase a house up to 2x your salary. That's if you put down 20% and don't have other significant debt. (They were neither making car payments nor repaying student loans.)
Crown Ministries suggests this rule of thumb: "Purchase/rent only if payments – mortgage, taxes, insurance, utilities, phone, and maintenance – don't exceed 38 percent of your net spendable income."
4) Don't assume "Best Case Scenarios." Always consider "Worst Case Scenarios."
Mr. Andrews knew that his salary would only cover the new house payments and his alimony payments. He assumed that his partner could land a good enough job to pay for everything else in their lives. What if she didn't land a job? What if she didn't land a good enough job? What if the job doesn't last? What if there's an economic downturn? What if emergencies happened?
Typically, Americans are overconfident about their investments, their abilities, and their future. Don't let your overconfidence lead you to over-borrow.
Other insights from this story?
So why did this middle-aged economic expert take out his own extravagant, risky mortgage in 2004, plunging him into the depressing world of unpaid bills, badgering debt-collectors, strained personal relationships and panic attacks? Today, his house awaits foreclosure and his once pristine credit score lies in shambles, making him a poster child for "Victims of the Mortgage Crisis."
His recent N.Y. Times article describing his personal woes deserves a slow, reflective read.
Here are some of my takeaways:
1) Rather than taking comfort in "what everyone else is doing" or "what many experts are saying," don't make big financial decisions without thinking them through dispassionately and rigorously.
Warren Buffett's mentor, Benjamin Graham, put it this way concerning investing:
"You are neither right nor wrong because the crowd disagrees with you. You are right because your data and reasoning are right." (The Intelligent Investor, revised edition, 2003, p. 524).
2) Get plenty of objective wise counsel, particularly on issue where emotions may hijack our reason.
Mr. Andrews had tons of information available to him. But emotions (e.g., "I'm in love and must find a decent place to live!") can bias information to serve its purposes. I recall, I believe it was a researcher, saying that if you torture the data enough, you can make it tell you whatever you want it to. When we want something badly enough, it's human nature to torture the figures to make them tell us, "It's okay to buy the house."
3) Before you flaunt the tried and true rules of thumb, make sure you're truly an exception.
So what are some tried and true rules of thumb for home buying? Unfortunately, when the mortgage crisis was brewing, the rules of thumb changed. From one blog a couple of years ago:
"Northwest Community Credit Union says 1.5 times your gross annual income:
If you and your spouse have a total income of $50,000 the general rule would be that you shouldn't borrow more than $75,000 for your home.
CNN Money says 2.5 times:
The rule of thumb here is to aim for a home that costs about two-and-a-half times your gross annual salary.
Washington Mutual Bank suggests anywhere from 3 to 5 times:
In retrospect, no wonder Washington Mutual went down.As a broad generalization, most people can afford to purchase a house worth about three times their total (gross) annual income, assuming a 20% down payment and a moderate amount of other long-term debts, such as car or student loan payments. With no other debts, you can probably afford a house worth up to four or even five times your annual income."
When mom and dad bought their house 40 years ago, the rule of thumb given to them was that you could afford to purchase a house up to 2x your salary. That's if you put down 20% and don't have other significant debt. (They were neither making car payments nor repaying student loans.)
Crown Ministries suggests this rule of thumb: "Purchase/rent only if payments – mortgage, taxes, insurance, utilities, phone, and maintenance – don't exceed 38 percent of your net spendable income."
4) Don't assume "Best Case Scenarios." Always consider "Worst Case Scenarios."
Mr. Andrews knew that his salary would only cover the new house payments and his alimony payments. He assumed that his partner could land a good enough job to pay for everything else in their lives. What if she didn't land a job? What if she didn't land a good enough job? What if the job doesn't last? What if there's an economic downturn? What if emergencies happened?
Typically, Americans are overconfident about their investments, their abilities, and their future. Don't let your overconfidence lead you to over-borrow.
Other insights from this story?
Tuesday, April 28, 2009
What's It All For?
Most money books give advice on how to amass wealth, but fail to ask the deeper questions:
In Enjoy Your Money, I argue that most of us are searching for deep and lasting happiness. To see if that's your ultimate goal, do this little dialogue with Socrates (substitute your financial goal for the "Corvette" and substitute your name for "Bob"):
Socrates: Give me one of your financial goals.
Bob: I want a Corvette by my 35th birthday.
Socrates: Why do you want a Corvette?
Bob: Because Corvettes are super fast and look cool!
Socrates: And just why do you want something that's fast and cool?
Bob: Because people would look up to me and respect me.
Socrates: And why do you want people to respect you?
Bob: Because if I could get people to respect me...I suppose they'd want to hang around me.
Socrates: And why do you want people to hang around you?
Bob: Because if people wanted to hang around me, I'd be happier.
Socrates: So, you want the Corvette because you think it will make you happier. In other words, if you knew that buying a Corvette wouldn't make you happier, you wouldn't buy it. Right?
Bob: Right.
I think Socrates would tend to lead us back to happiness as one of our ultimate goals no matter what our financial goals may be, which helps us to clear away a lot of fog and simply ask the question, "How can I be a happier person?" Attaining certain financial goals may indeed make us happier. Others may not. We'd do well to think it through.
Fortunately, Psychologists have done some pretty extensive studies to try to narrow down what makes some happier than others. Interestingly, once we've crawled above the poverty line and have basics such as food and shelter, just making $5000 or $10,000 more per year doesn't do much for our happiness. What does?
In part, psychologists have found that giving people are happier people. Those who seek hardest for wealth in itself are less happy than those who seek hardest for the welfare of others. I noticed that today, as I was inexplicably down this morning. With my mind distracted by life's heartaches and troubles, life looked grim.
Around noon, a neighbor knocked on the door, leaving a card. In it, she thanked us exuberantly for a little act of kindness we did last Saturday. Having just found out that her husband was recovering from a stroke, my wife and I walked over to find him trying to fix his lawn mower. I asked what we could do to help and he suggested that it would take a couple of hours for him to pick up all the pine cones left from the winter, so that he could mow.
No problem. I asked David and Paul, my 15-year-old twins, to come over and help out our neighbor. It took a bit over an hour. While we were picking up, another neighbor saw us and asked if I was making extra money (which wouldn't be beneath me, I might add). I told him about the stroke and he said, "after you get the pine cones picked up, I'll do the mowing."
To us, it was no big deal. To the family reeling from an unexpected blow, it meant the world. And hey, what could be a better memory to build with my kids?
So we brought a bit of happiness to a struggling family. In return, they gave us a deep feeling of fulfillment. Even now, three days later, their card pulled me through a downer morning.
So my answer to the "what's it all for?" question involves serving others. Is one of your long-term goals "to be the greatest possible assistance to the less fortunate by using my God-given gifts and abilities?"
I'm able to pick up pine cones. What can you do?
As Albert Einstein once stated concerning life's meaning:
"The life of the individual has meaning only insofar as it aids in making the life of every living thing nobler and more beautiful." (Albert Einstein)
Meaningfulness...and happiness, today's scientists might add.
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
- "What am I doing all this for?"
- "How do I define success?"
- "Precisely what am I trying to achieve by bettering my personal finances?"
In Enjoy Your Money, I argue that most of us are searching for deep and lasting happiness. To see if that's your ultimate goal, do this little dialogue with Socrates (substitute your financial goal for the "Corvette" and substitute your name for "Bob"):
Socrates: Give me one of your financial goals.
Bob: I want a Corvette by my 35th birthday.
Socrates: Why do you want a Corvette?
Bob: Because Corvettes are super fast and look cool!
Socrates: And just why do you want something that's fast and cool?
Bob: Because people would look up to me and respect me.
Socrates: And why do you want people to respect you?
Bob: Because if I could get people to respect me...I suppose they'd want to hang around me.
Socrates: And why do you want people to hang around you?
Bob: Because if people wanted to hang around me, I'd be happier.
Socrates: So, you want the Corvette because you think it will make you happier. In other words, if you knew that buying a Corvette wouldn't make you happier, you wouldn't buy it. Right?
Bob: Right.
I think Socrates would tend to lead us back to happiness as one of our ultimate goals no matter what our financial goals may be, which helps us to clear away a lot of fog and simply ask the question, "How can I be a happier person?" Attaining certain financial goals may indeed make us happier. Others may not. We'd do well to think it through.
Fortunately, Psychologists have done some pretty extensive studies to try to narrow down what makes some happier than others. Interestingly, once we've crawled above the poverty line and have basics such as food and shelter, just making $5000 or $10,000 more per year doesn't do much for our happiness. What does?
In part, psychologists have found that giving people are happier people. Those who seek hardest for wealth in itself are less happy than those who seek hardest for the welfare of others. I noticed that today, as I was inexplicably down this morning. With my mind distracted by life's heartaches and troubles, life looked grim.
Around noon, a neighbor knocked on the door, leaving a card. In it, she thanked us exuberantly for a little act of kindness we did last Saturday. Having just found out that her husband was recovering from a stroke, my wife and I walked over to find him trying to fix his lawn mower. I asked what we could do to help and he suggested that it would take a couple of hours for him to pick up all the pine cones left from the winter, so that he could mow.
No problem. I asked David and Paul, my 15-year-old twins, to come over and help out our neighbor. It took a bit over an hour. While we were picking up, another neighbor saw us and asked if I was making extra money (which wouldn't be beneath me, I might add). I told him about the stroke and he said, "after you get the pine cones picked up, I'll do the mowing."
To us, it was no big deal. To the family reeling from an unexpected blow, it meant the world. And hey, what could be a better memory to build with my kids?
So we brought a bit of happiness to a struggling family. In return, they gave us a deep feeling of fulfillment. Even now, three days later, their card pulled me through a downer morning.
So my answer to the "what's it all for?" question involves serving others. Is one of your long-term goals "to be the greatest possible assistance to the less fortunate by using my God-given gifts and abilities?"
I'm able to pick up pine cones. What can you do?
As Albert Einstein once stated concerning life's meaning:
"The life of the individual has meaning only insofar as it aids in making the life of every living thing nobler and more beautiful." (Albert Einstein)
Meaningfulness...and happiness, today's scientists might add.
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Friday, April 24, 2009
Ramsey Reflections, Part 5
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #6: Three Things to Do If You're Losing Hope
1 - Get up! Take action! Get moving!
Don't wait for Congress or the President to rescue you. There's a great place for you to go when you're broke: to work! If you don't have a job, talk to everyone. Think creatively, be proactive.
2 - Don't participate in loser talk!
One survey found that your income will likely be within 10% of your closest friends. Some have "The Spirit of Eeyore" upon them, because they sit around moping with their loser friends.
Read "Who Moved My Cheese?" Our cheese has been moved. We've got to start thinking different. Be a reader. Keep learning.
3 - Learn to Give Again
Give extra during difficult times. If you don't have money, give of your time. Serve the homeless, serve soup at the union mission. Visit someone in a nursing home. The more you give hope, the more hope you'll receive.
Thanks, Dave, for an inspirational, fun-filled, hope-filled evening!
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Ramsey Reflections, Part 4
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #5: Don't Fear
Your faith in God should keep you from fear. If a spirit of fear pervades our lives, we're paying too much attention to the news and not enough attention to our heavenly Father. Dave's wife reminded him of this one day in New York, when Dave allowed the depressing talk of others to get him down.
But faith and work must be kept in balance. As someone said, "Trust as if it all depends upon God; work as if it all depends upon you."
Once upon a time, a person came to visit a beautiful ranch and commented to the owner, "How blessed you are that God has given you this wonderful ranch." To which the owner replied, "Truly, I'm blessed. But you should have seen it when only God had it."
Some of the greatest companies began during recessions or depressions. Dave listed several, including Hobby Lobby and Microsoft, encouraging us to keep working and innovating. Don't be immobilized with fear!
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Takeaway #5: Don't Fear
Your faith in God should keep you from fear. If a spirit of fear pervades our lives, we're paying too much attention to the news and not enough attention to our heavenly Father. Dave's wife reminded him of this one day in New York, when Dave allowed the depressing talk of others to get him down.
But faith and work must be kept in balance. As someone said, "Trust as if it all depends upon God; work as if it all depends upon you."
Once upon a time, a person came to visit a beautiful ranch and commented to the owner, "How blessed you are that God has given you this wonderful ranch." To which the owner replied, "Truly, I'm blessed. But you should have seen it when only God had it."
Some of the greatest companies began during recessions or depressions. Dave listed several, including Hobby Lobby and Microsoft, encouraging us to keep working and innovating. Don't be immobilized with fear!
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Ramsey Reflections, Part 3
Continuing reflections on Dave Ramsey's Town Hall for Hope...
Takeaway #4: It's a Great Time to Invest!
For the long term, that is. As far as stocks are concerned, it's like K-Mart is running a blue-light special on stocks. We don't know if they'll go down further. We don't know when they'll come back up. But for the past 100 years, they've always bounced back, and buying them when they're so far depressed is a good idea.
Don't buy gold. Sure, it's gone way up recently. But don't buy it while it's so high. Some buy gold because they fear that our currency might be in danger and that we'd have to return to trading gold. But the last time people went to trading gold after an economic setback was during the Roman Empire.
Real estate can also be a great investment. You can get great deals and the interest rates are lower than they've been in decades.
But don't invest if you don't have the money to invest. In his early years, Ramsey went from controlling over $1,000,000 of real estate to losing it all. Six months later, a friend sat him down, told him to quit whining and take responsibility and move on. He did.
More next blog...
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
Takeaway #4: It's a Great Time to Invest!
For the long term, that is. As far as stocks are concerned, it's like K-Mart is running a blue-light special on stocks. We don't know if they'll go down further. We don't know when they'll come back up. But for the past 100 years, they've always bounced back, and buying them when they're so far depressed is a good idea.
Don't buy gold. Sure, it's gone way up recently. But don't buy it while it's so high. Some buy gold because they fear that our currency might be in danger and that we'd have to return to trading gold. But the last time people went to trading gold after an economic setback was during the Roman Empire.
Real estate can also be a great investment. You can get great deals and the interest rates are lower than they've been in decades.
But don't invest if you don't have the money to invest. In his early years, Ramsey went from controlling over $1,000,000 of real estate to losing it all. Six months later, a friend sat him down, told him to quit whining and take responsibility and move on. He did.
More next blog...
This post by J. Steve Miller, author of Enjoy Your Money: How to Make It, Save It, Invest It and Give It.
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