Reading entrails is popular at this time of year. Most stink already. Others stink in the future. There are pronouncements about China, the Middle East, Europe and Russia. There are predictions on oil prices, interest rates, and stock prices.
Some make interesting reading. They intimate that events there, or here, will affect us this way, or that way. So we should do one thing, or another.
Entering my 40th year of watching this predictable circus, I’d like to make a suggestion: Don’t pay any attention.
What’s the alternative to a world full of witless predictions? Live in a world of personal doing. Here’s a list of 5 things we can actually do to influence our lives. The emphasis is on how we live with the money we earn. The closer our actions are to home, the better. The more specific and concrete, the better.
Spend less than you earn. Start now.
The most enduring American myth is that you can borrow your way to wealth. Fortunes made by borrowing, when they get to exist at all, tend to be momentary. They can disappear overnight, as millions of home flippers can testify.
The way to build security and wealth is to spend less than you earn. Unfortunately, spending less than we earn isn’t a natural event. It is a willed event. We are surrounded by offers of more, better and deserved. Our society is predicated on our spending as much as possible. Indeed, if you want to imagine a truly terrifying future, think about what would happen we all saved as much as we are supposed to. Of course, that would never happen.
Saving is a true act of will. No doubt there are Fortune 500 executives who have money “left over” at the end of the month, but that’s not how it is for the rest of us. Save first, spend less, and you’ll be far ahead of the game.
As observed in a recent column, there are about one million people who make their living by telling us how to save. The unfortunate result is more spending for them, less growth and security for us. Today we can invest our savings at annual expenses under one-tenth of one percent. That means advisers must show us how their expensive and complicated method of investing will beat simple and dirt-cheap.
Avoid debt when possible.
Just because you are an upstanding citizen with good credit doesn’t mean you should borrow all the money lenders would like you to pay interest on. For them, lending is a good business. It is such a good business that they will lend to you even when your credit is poor or ruined because— surprise— it’s still a good business.
For most people, borrowing is just a way to obligate future income and have fewer spending choices. The only “good” debt, if that is possible at all, may be a home mortgage because it gives control of an asset that may appreciate over long periods of time.
Keep cars longer.
One of the best ways to reduce consumer debt is to own a car longer than its payment book lasts. Owning a less expensive car for a long period of time is even better. The difference in monthly payments between a $25,000 car and a $50,000 car is about $500 a month. Invested at 6 percent, that payment difference would accumulate to $500,000 over 30 years and nearly $1 million over a 40 year working career. That’s more than most people accumulate in a lifetime— accomplished in one decision.
Reach for experiences, not things.
We often buy things because we hunger for the experience they represent. The result is a world filled with things seldom used, while we work to pay for them. Think pleasure boats, weekend cars and other toys.
In fact, we can have the experiences we seek without the financial burden of ownership. Here’s a personal example: Over the last 10 years I have chartered sailboats in California, Florida, Maine and several other places. The cost: less than a nice hotel room. The experiences have been great. The total cost has been less than the annual cost of renting a slip for the same boat.
It’s the doing that floats our boats.