Today’s post is from Julie who is a certified coach and physician. Julie is passionate about helping people to make better choices to live simply and live well. Learn more at Choosebetterlife.com and get her 5 Step Guide to Clear the Clutter to jumpstart your transformation today!
“You need a budget,” they say. “Stock up on sale items,” they say. So now you have a budget that you update 27 times a day and a basement full of cereal and soup in flavors you now hate and clothes and shoes that you thought your kids would grow into–but forgot about until they grew right through them. And they don’t have much to say about it.
You’ve done what you were supposed to do and you’re worse off than when you started. Your credit cards are maxed and you’re stressed and frustrated. As anyone would be. As you should be.
Let’s bust these 5 financial myths so you can make better choices, spend less money, and make more progress.
Create a Budget
Yes, a budget can be helpful, but not the typical budget that arbitrarily assigns a dollar amount to each spending category until the money’s gone. Instead of ending with $0, start with $0.
You have to budget like a pro and question everything, even the basics. There are no right or wrong answers, but asking the questions is priceless.
- Instead of assigning what you currently spend on groceries and restaurants to your food budget, ask yourself what your family’s goals and values are. From there, determine what you
- Are you trying to improve your health? Do you currently eat out several times a week or buy mostly prepared foods? Are you willing to cook at home more often?
- Do you buy a lot of single-serving packages? Are you willing to divide larger bags into Ziplocs on your own?
- Do you always buy name-brand products? Are generic substitutions acceptable to your family?
We used to eat out all the time, but now we find fun new recipes to make together at home. We enjoy this more than going out and feel healthier afterward too.
- Can you pay down your mortgage to eliminate the cost of private mortgage insurance?
- Can you refinance to lower your interest rate?
- Can you renegotiate your rent in exchange for doing some of the home maintenance or lawn care?
- Are you willing to move to a smaller apartment or one without the amenities that you hardly use?
When we found our home, there was a nearly identical house only 1 mile away that also had a clubhouse and community pool. Saving 25% on the house and 65% of the HOA fees was more important to us than those amenities.
- Are you willing to install landscaping that requires less water and maintenance?
- Do you always run a full load in the dishwasher and washing machine?
- Can you install a programmable thermostat?
- Can you add extra insulation or seal around doors and windows to save on heating/cooling costs?
Our electric company sponsored a home energy audit and discovered that our builder ‘forgot’ to insulate part of our attic. Now we have a cooler house and use less electricity. Plus, even though we weren’t the original homeowners, the builder split the cost with us.
- Do you still need a landline if all your family members have cell phones?
- Have you compared internet service providers or asked for a discount lately?
- Do you really watch enough cable or satellite TV to justify the cost? Would you get just as much enjoyment from Amazon Prime, Netflix, and Hulu for 1/3 the price?
We cut the cord on our TV nearly two years ago. Success! Now that cell phone manufacturers are legally mandated to unlock their phones when requested, we took the phones we already had and loved to a different service provider to save 75% a month!
Shop the Sales
If you need something and are actively searching for it, then, by all means, take advantage of a great sale or learn how to Shop Like a Ninja. But if you’re considering buying something just because it’s on sale, you’re better off passing it up.
Remember that soup and cereal in the basement? And those outgrown clothes? It’s easy to stock up so much that you forget what you already have and end up wasting both the items and your money.
Ask yourself the following questions:
- Is it on my shopping list?
- Do I already have this (or something similar that will do)?
- Do I even need or want this item, or am I just excited by the novelty and discount?
- If I need something like this, is this exactly what I want? Will I have buyer’s remorse that I didn’t get a different version or different color instead?
- Is this something we use so infrequently it would be better to borrow or rent if we need it?
Five years ago we needed a wheelbarrow to move some sand and dirt in our backyard. Luckily, we realized ahead of time that if we bought one we wouldn’t have a good place to store it, so we rented one for 20% of the sale price. It seemed expensive at the time, but we haven’t needed it again and are glad it isn’t cluttering our garage now.
You Deserve It
Of course, you deserve a break and a treat every now and then! But buying things for yourself also means that you pay for those things eventually, so stick with low-cost rewards when possible.
In Your Money or Your Life, Robin teaches that you’re really trading your time for your stuff. I like to think about my first job– hostessing at the Olive Garden. I made $6.15 per hour before taxes, social security, and medicare was deducted. Now, whenever I’m not sure if I should make a purchase, I divide the cost (don’t forget to add sales tax) by $6 and ask myself it’s still worth it.
If you choose to use your current hourly rate rather than what you made in high school, don’t forget to factor in the expenses that go with your grown-up job:
- Education costs and student loans
- Years of deferred income
- Uniforms/work clothes
- Travel time as well as wear and tear on your car
- Professional licenses, dues, and continuing education fees
- Time spent working off the clock and answering phone calls and emails on nights and weekends
- Your computer, phone, and office supplies that the company doesn’t provide
- Food you grab on the go
- Housekeeper or gardener
- Opportunity costs like missing important events because you’re at work
- And you still have federal and state taxes, social security and medicare taxes, and sales tax.
Your true hourly wage is a lot less than you think.
Finally, while some people can work 24/7 and love it, most of us can’t. We either don’t have the opportunity or we don’t have the stamina.
Think about the last time you came home after a long, hard day. What would you have said if someone asked you to stay and work a double shift? Is your response even fit for print? What about your last day off? What would you have said if someone called at 5:30am and asked you to come in and work that day? Would it have been worth it to have an extra latte or a fancier car?
Even if I had the opportunity to work as many extra hours as I wanted, at some point my body, mind, and spirit would say “Enough!”
Sometimes your ‘treat’ is passing up the purchase so you don’t have to work as much.
It’s Good Debt
Student loans and mortgages are traditionally considered ‘good debt’ because they have the potential to create value. Some advisers also include other real estate loans and borrowing money to invest it. They’ll take out a $50,000 car loan at 0.9% and invest that $50,000 in the stock market hoping to earn 10%.
But it’s still debt. It still must be repaid, and it still has a risk.
What if you get in an accident and aren’t able to finish school? Those student loans won’t disappear.
What if the housing bubble bursts (again) or the stock market tanks (again)? Your loans will still come due.
Your payments, even on value-creating items, still affect your monthly budget and decrease your flexibility. If you get laid off or take family or medical leave, your payments continue. If you hate your job and want to start your own business, you can’t because you’re still beholden to your creditors.
Debt = Insecurity = Fewer Options = Stress
And if you get behind, those creditors can take your house and your car. They can sue you. They can harass you, your family, and your employer and may even cost you your security clearance and your job. Does it still seem like good debt now?
I took out mountains of student loans and a couple of mortgages over the years. I was lucky to finish school, but some of my classmates did not. One of my houses sold for a profit, but the next sold at a loss that dwarfed that profit. Lesson learned.
Buying is Always Better Than Renting
Let’s talk about more than wheelbarrows. Doesn’t everyone want to own a house?
Many renters feel as though they’re throwing their money away. And they are. Sort of. But so are homeowners. Not all of the monthly payment on a home goes to principal– there’s interest, insurance, and property tax too.
Besides avoiding these expenses, renters also enjoy many other benefits.
- When the roof leaks, the hot water heater bursts, or pretty much anything else breaks, it’s someone else’s responsibility to fix and pay for it.
- The renter doesn’t have to take time off work to be home during these repairs when the work crews may or may not actually show up.
- Renters often live in less square footage than homeowners, which means they spend less time cleaning and less money on utilities.
- Living in a smaller space also limits the opportunity to accumulate clutter.
- Renters have flexibility. If they want to move to another city, they don’t have to worry about selling a property in a buyer’s market or unintentionally becoming long-distance landlords. If they lose their jobs, they can downsize more quickly and easily than homeowners.
- Renters don’t have to pay 6% commission to a real estate agent.
- Renters insurance is much less expensive than homeowners insurance.
- If the carpet gets worn out or the walls need new paint, the owner typically shoulders the burden.
- Renters aren’t responsible for keeping a property up to code and keeping the style updated.
- Renters are usually able to move so they don’t have to put up with living in a property during extensive repairs or renovations.
- Many rental facilities have nice amenities such as a pool or gym.
The main commonly touted benefits of home ownership are that you can build equity and that your mortgage payment will never increase. These are both true but incomplete statements. It’s also possible to lose equity if the neighborhood or housing market deteriorates, and non-mortgage costs–
Another benefit of home ownership is that your hobbies are chosen for you. You will either spend a lot of money hiring help or you will learn to love cutting grass, blowing leaves, trimming bushes, fixing leaky toilets, changing air filters, unclogging drains, and complying with all of your HOA regulations. Yippee!
My husband and I do enjoy (most of) these things and we’re pretty handy, but if you’re not interested in learning and don’t know or care what the difference is between a Phillips and a flat-head screwdriver, then home ownership may not be ideal for you. Some days the idea of renting seems like bliss.
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*Part of Financially Savvy Saturdays on brokeGIRLrich, A Disease Called Debt and Femme Frugality*