Post of the Day
October 4, 1999
Living Below Your Means
Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light.
If you don't like long posts, skip this one for sure.
I've been following this board for several months now, and have seen quite a few people get into cat-fights with each other regarding the meaning of LBYM. Seems that LBYM to one person means something vastly different to others. Quite often, it turns into a discussion of morals, other times, simply different ways to save money or to be a cheapskate. To me, LBYM means something far different, and far more wide-ranging. Frankly, many of the discussions seem silly and/or petty to me. Because of this, I thought I would devote some time and effort to crystallize my thoughts on the subject and attempt to provide some definition to the subject. Whatever follows here are my personal opinions, and I make no judgments about people who have different ones. I'm just trying to provide some framework for a reasonable discussion.
Ultimately (to me, anyhow), LBYM simply means making do with, and learning to be happy with what you earn (or less), nothing more and nothing less. I like to look at our household as a business. In a business, you earn revenue and you have expenses. If you spend more than you earn, you usually end up taking on debt. Same in a household. Almost all activities need to be geared towards generating more income (revenues) or reducing your expenses (especially if saving money is important to you). In a business, you decide what to reinvest your profits or excess capital in...same in a home. This is LBYM.
I've done a lot of reading the past few years. The Millionaire Next Door and The Wealthy Barber are two of my favorites, and they tie in with LBYM well. I've also read some interesting articles on how many people are downscaling or simplifying their lives by "getting out of the rat race", and subsequently earning and spending less. Whatever makes one happy is what one should strive for, but in the end, LBYM is about learning to live happily within their particular income level without becoming a slave to their Visa card. Once we go beyond that, we are pretty much talking about specific strategies to accomplish LBYM.
|"The single greatest money-saving strategy I've learned over the years is when you run across something that you are sure that you just have to own, just wait a little while."|
I don't really care to get into strategies for increasing your income, because I think it's easier to save money as opposed to making more, so I will talk a little about some of my feelings and strategies for keeping expenses at bay plus some LBYM tips of my own.
(1) The single greatest money-saving strategy I've learned over the years is when you run across something that you are sure that you just have to own, just wait a little while. This sounds dumb, I know. I used to go into music stores and other places and find all kinds of albums or CD's that I had to have...and I bought them. I've learned over time, though that if I just write down the item that I think I want and think about it for a few weeks, quite often the desire to own it subsides. Quite often, the books I think I need to own start to turn into good candidates to borrow from the library.
(2) One positive side-effect of waiting to purchase an item is that it often goes down in price if you wait, or you can get it on sale. This goes especially for high tech gadgets. I like to wait until a company comes out with their new version of whatever it is I "have" to own. Many times you can get the original version (often with the original bugs worked out) for far less money than the new version with more bells and whistles that you probably don't need or won't use.
(3) We make big bets on things that really go on sale, especially if you use the item a lot anyhow. When something you use goes on sale at a really good price, we buy lots (and I mean lots) of it...sometimes a year's supply. A couple of weeks ago I bought about $150 worth of laundry detergent (the people at the store thought I was nuts) and saved about $90 in one shot.
(4) We try to base our buying decisions on value instead of price. I believe in Warren Buffett's saying that "Price is what you pay, value is what you get.". I'm a firm believer in paying a little more for something if I think that long-term it might end up costing us less. My Honda, for example. We paid a little more for it in 1990, but we also have spent less than $1,500 in repairs since that time. I'm sure that our total cost of ownership is far less than if I had bought a Yugo back then.
|"Some people have this intense desire to try to do it themselves all the time, even at the risk of having to pay someone to come back later and do it correctly. I think the term for this is penny-wise and pound-foolish."|
The same goes for people that we hire to do things for us. I'm the most unhandy person you'll ever meet. My idea of fixing things is to call someone. I'm a firm believer in developing long-term relationships with people that do good work and then sticking with them, even if it costs a little more up front. You never know when you might need them to do you a favor. Reputable people, even if they cost more, are more likely to be in business the next time you need them to do warranty work, and they are more likely to have done the job right the first time. Cultivate relationships with these people, but treat them how you would like to be treated. Don't nickel and dime them...it will come back to haunt you if you do.
Some people have this intense desire to try to do it themselves all the time, even at the risk of having to pay someone to come back later and do it correctly. I think the term for this is penny-wise and pound-foolish.
(5) We try to take care of the stuff we already own. My nine-year-old Honda has 104,000 miles on it and is still going strong. Although some of it I'm sure is due to the fact that it is simply a good car, we have also never failed to have the oil changed at the recommended interval (or sooner).
(6) Gain extra value by complaining effectively. I posted about this recently LBYM post #24443. If you think you've been taken advantage of, complain, but do it rationally, intelligently, and have your facts in front of you.
(7) Use rebates and coupons. Rebates take time to fill out and coupons are hard to keep track of, but they are usually worth the effort.
(8) Constantly strive to cut expenses. Look at your monthly expenses, all of them. There is rarely one that can't be cut in some fashion with a little effort.
(9) As in a business, you need to decide what kind of investments to make with excess money. Is it saving for college? A computer for your kids? Sending the kids to a private school? Trips to museums? As in an investment in a business, many will pay off somewhere down the road. Spending money now may be better than not spending that money. Note: Much as taking on a reasonable amount of debt is a valid company strategy to fund growth or alleviate short-term cash-flow problems, I also feel that it can play an important part in a LBYM existence if used prudently. The same way a company might take on debt to finance it's growth, a family might take on a manageable level of debt to finance it's own growth, be it for a computer or a family vacation or whatever.
(10) Above all, remember...
"Every day do something kind, something foolish and something brave. Life's a hoot. Enjoy it." (I stole that from someone, although I can't remember who it was or where.) People sometimes seem to forget that you only live once. Like Raggmopp said the other day, something to the effect that "no one on their deathbed ever regrets not spending more time in the office.". If you don't have a little fun, enjoy your kids, family and friends, what's the point of LBYM?
I welcome comments and/or further discussion.