Fribble

THE FRIBBLE
Friday, November 5, 1999

The Down Side of LBYM

By Roger_Vine@tivoli.com

LBYM -- living below your means. There's lots on the message boards about this subject, and rightly so. LBYM is a cornerstone of Foolishness. Without it you'll be running to stand still, squandering all the skills you acquire here at the Fool just to equal the negative returns of the interest on your debts.

I see you're yawning, bored already. These things we know. But what you may not know is that there's a downside to LBYM, something which makes it very hard to do long-term. Let me explain.

Debt has become central to modern life. Buying a home and equipping it, getting a decent car, schooling your kids, taking a satisfying vacation -- all these things are hard to do without debt, very hard. Much of the advice -- good advice -- on the boards is about economy in small things: buy toilet tissue in bulk, wean yourself off Coke and onto tap water, that kind of thing. The bad news, the tough love, is that those things won't be enough. If you're serious about your financial goals, you're going to have to cut back on the big stuff, the standard-of-living stuff. Why? Because to save money for investing you'll have to stop taking on new borrowing. Finding the forty-thousand bucks for that Ford Expedition was easy with high-interest debt; now you'll have to save for it. In practice you won't be buying it this year... Or next year... Or the year after. Tough.

A few years ago I was driving a brand new BMW coupe. Very cool, I thought. Of course, I didn't actually own a single BMW wheel-bolt. Then I went self-employed.

Overnight, like Cinderella in reverse, the BMW changed into a GM Geo. Now wait a minute, this materialistic car stuff is nonsense, right? That Geo wasn't half the comedown you might think -- perfectly good transport. The hard part, the point of this Fribble, was the reaction it caused. I got pretty sick of laughter and pity, of colleagues whispering about demotion, of friends asking if I'd hit hard times. Here I was finally taking charge of my finances, taking the first step on the road to financial independence, and everyone thought I'd gone broke.

Now, years later, I've achieved the first of my goals. I'm living debt free. No car loan, no mortgage, no credit card debt, no E-Z payments, no overdraft. Free. So do I feel great, do I feel free? Well, actually no. The problem is that whilst I may be wealthier than I've ever been, in better financial shape than most, I look and feel relatively poor. Since the BMW went, my standard of living has gone into the deep freeze. My friends have moved on to bigger homes; I still live in the same small one. My colleagues drive new luxury cars; I have a three-year-old Nissan. My wife wants a new bedroom suite -- sorry, not this year. Right now, with all my debts paid off, LBYM is the hardest it's ever been. I know that eventually the tables will have to turn; the laws of compounding will reward my restraint. But for now I have to be patient.

For living below your means sometimes means living at a permanently lower standard of living than your peers. That's the downside. Like the Foolish Four, LBYM is a deeply contrary thing. It's going against the tide of consumerism. Fun at first and fruitful in the end, living below your means can make life seem dowdy and unfashionable in the mid-term.

So if you're starting out paying down your debts, good luck. Like a marriage, the rewards will come, but so too will some very rough patches. The boards are full of LBYM tips, so here's mine. On a foul English autumn day like today, wash your car in the rain -- you'll get that valet shine at a fraction of the cost. With the money you save and some Foolish investing you'll be able to buy that Expedition for cash... 20 years from now.


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