Pause for a moment and imagine something. Imagine you start making drastically better decisions with money. You still spend money, but with different amounts on different things. And the success of those decisions is obvious. That’s a nice idea, Andrew, but how do I get there?
Well, you almost definitely started paying for things in full, up front.
Here’s how I got there from here.
Most people believe they need credit. They might be right, but let’s think about it before we assume it to be true.
Imagine a family has a mortgage on the house and two car payments. They refinanced student loans at a low interest rate last year, and they pay off the credit cards every month. They live on less than they make, although just barely.
Does this family need a good credit score?
When you don’t have money, everything is appealing. From nice clothes to souvenirs to a newer car — it all screams at you, “You want me! You need me!” The question is: Does it get easier to avoid materialism as you get better at handling money?
As you gain financial discipline, the power of “stuff” seems to fade slightly. After flexing your “no” muscle for months and years while you live on a tight budget, you will likely find it easier to resist the temptation to make superfluous purchases.
You no longer see purchases as a way to become happy. Instead, you begin to see purchases as forfeiting hard-earned money for an object. You are no longer blind to opportunity cost — the “cost” of choosing one option instead of another.
Understanding opportunity cost means thinking long term, big picture.
True or False: “Renting is throwing your money away.” You’ve heard it dozens of times, and now it’s time to analyze the truth of this statement. (Scroll down for the answer.)
There is nothing wrong with owning your own home. I will do so eventually. But only at the right time, for the right price, and with the right information.
When buying a home is done well, it is wise. When done poorly, home ownership is sad. It leaves the homeowners house poor, meaning they have very little cashflow for other responsibilities.
It bums me out to see people get the big house of their dreams only for it to become a a ball and chain, holding them back from more important goals. (This is also why I can’t be happy for people who buy a brand new car they can’t afford.)
I’ll even go as far as to say this: If you aren’t sure you are ready to buy a house, you should rent (cheaply) by default.
If you rent for a season, you can learn the area, save up for a big down payment, and fully understand the cost of home ownership.
Not sold? Keep reading.
A month ago, I was riding the motorcycle to work. “Might even make it on time,” I thought. While pulling away from a stoplight a couple miles from home, it felt like the bike was suddenly out of gear. Like the clutch was disengaged. There was a disturbing grinding sound just beneath and behind me. No matter what I tried, the bike was coasting to a halt.
How are you supposed to respond to negative turns like this? Normally I kick and scream and whine and get frustrated.
I parked the bike and got a ride from a friend. It had to be towed. Six hundred dollars and three weeks of sharing the main vehicle with wife, I had a new final drive connecting the driveshaft to the rear wheel. Friday evening, I was thrilled to pick it up — only to quickly get another “opportunity” to choose my response.
On Monday, before leaving work for the day, I saw two silver dots in the rear tire. Most likely a construction staple, but the head had already worn away, leaving the two studs. Not just one puncture, but two. Sheesh again.