My second major financial lesson came when I was a junior
in college. This time, no one sat me down and patiently explained anything.
This was strictly a sink or swim scenario.
As a part of my parents’ divorce agreement, my father
agreed to pay for half of my sister’s and my college educations. My mother
believed a college education was important, so agreed to pay for the other half
of my tuition, room and board. Throughout college, I worked summers and
part-time during the year, as I was responsible for paying for books (not
inexpensive, but a small outlay compared to tuition), and whatever I needed for
spending cash and to maintain a car.
After a slow start, I had finally adjusted to college
life. By my junior year, I’d begun to enjoy the upper level classes I was
taking much more than I had the preliminaries. I’d lightened my class load a
little from the recommended level so I could concentrate better. I was
comfortable, with enough money in my pocket to afford a few things for
entertainment, less than some of my peers, more than others. All in all, life
was pretty good.
I’d just finished my finals for the winter quarter and had
registered for my next set of classes in spring. As I had for each of the
previous eight quarters, I called each of my parents with a copy of the classes
I’d registered for in hand, which also served as a bill from the university. I
would forward each of them a hardcopy later. There was only a week to pay the
bill and hold my classes.
My father promised to send the money without much comment,
as he usually did. I don’t remember, but think he sent a check for his half
straight to the university. My mother, on the other hand, said something
completely unexpected when I told her how much was due.
“I don’t have it.”
I asked what she meant. “I mean I don’t have any more
money to pay for your college.”
That statement came as quite a shock to me. Up to that
point, she’d given no hint that there was any problem, any possibility of my
needing to find an alternate source of funding. The previous quarter,
everything was fine. This quarter, nothing. To this day, I don’t know what
happened. She has never given me an explanation.
And honestly, even at the time, the why didn’t concern me
as much as the how, as in how was I going to pay for spring quarter, or the
remainder of my degree. Once the shock wore off, I was angry, not so much at
having to pay that portion of the rest of college myself, but in having her put
me in a position where I had one week to figure out how.
Suddenly I found myself in the deep end of the pool.
So I sat down and reviewed my abysmal financial situation.
Even though I was working part-time and had some money in my bank account, it
was nowhere near enough. My grandmother gave me a small gift each fall, basically
beer and pizza money, but by spring that was almost gone. There was nothing
legal I could think of to raise that type of cash in a week. I’d already cut
back on meals from three to two each day to save my parents a little money. I’d
just moved into a campus apartment because it was cheaper than the dorms, which
also meant I’d be cooking for myself rather than eating in the cafeteria. That
meant food had also become my responsibility. My father wasn’t about to pay for
anything without campus paperwork attached.
I knew I couldn’t ask him for money, even a loan. He would
have told me to abandon my degree and join the Army, which had been his
preference from the beginning. His parents didn’t have that type of cash to
lend. My mother’s parents might have, but I assumed that they knew her
situation and were unable or unwilling to help (I now know I was wrong about
that). Financial aid was out of the question as my parents made too much money.
Still, I was desperate, so I went to the Financial Aid
office to see if they had any advice. Fortunately, they did. First, they said I
qualified for two government-backed student loans, one small, one large. The
smaller one was nearly automatic and able to be processed by the university.
Between that and my savings, I was close to what I needed for the quarter but
still significantly short. The second, larger loan had to be issued by a bank,
who needed financial information on both of my parents even though neither of
them was cosigning. I had my all father’s information. Which meant turning back
to my mother, who, after some convincing, came to the bank with me. I remember
her surprised expression when she learned I’d come up with an effective plan so
quickly. Regardless, she provided the information I needed which helped secure
the loan.
Disaster averted with only a couple days to spare.
That episode left its mark. From that point forward, I
became very aware of every expense as most of them were now being paid from my
account. I lived in mortal fear my father would pull his funding next. So I
slashed my discretionary spending. I learned to cook meals from scratch as it
was cheaper eating processed food. I discovered the power of buying meat in
bulk and storing it in the freezer.
As I paid more attention and scrimped here and there, I
discovered that I ended up a little more money than I thought. When I graduated,
my bank statement showed I had one-quarter of the money from those two loans
still in savings where everyone I talked to, including Financial Aid, said I
would need to apply for a second and maybe a third larger loan from the bank.
I’d survived five quarters on that initial cash infusion supplemented by what
I’d earned working.
I attribute most of that to thinking differently about how
I spent my money. Since then, I’ve mentally divided out the items on my budgets
into three categories: Needs, Wants, and Nice-to-Haves. You can think of them
as necessities, modern conveniences and luxuries.
Needs are things I can’t live without, at least not easily
or legally. Things like rent or mortgage payments, groceries, utilities
(electric, water, trash). Necessary, in other words. On my current list, that
would include Property Taxes.
Nice-to-Haves are the next easiest to define. They are
things I could live without, and once did. Netflix and Amazon Prime would be
two examples from our current budget.
Wants fall somewhere between the two. These are things I
can probably live without with some effort but wouldn’t necessarily want to
try. The things that make modern life, well, so darned convenient. For me, with
pretty severe allergies, a lawn service falls onto that list.
Not all the categories in our budget neatly divide along
these lines. A phone is a necessity (though I have lived without one for
several months). A cell phone is a convenience. A 4G iPhone is a luxury. Some
house maintenance is a need (appliances, AC, pest control in Florida), some is
a convenience (most interior and exterior). Home renovations, improvements and
upgrades are a luxury. Credit cards are a convenience, though increasingly hard
to live without. A lot of what I pay for with them are luxuries (movies,
dinners, Starbucks), but some, like groceries, are not.
One car is a necessity for most American couples. A second
car and all the expenses that go with it (gas, insurance, maintenance) is a
convenience (a few would argue that a first car is, too). You probably know at
least one couple that gets by with only one car. I know several. I also know
people who chose to live where they can bike to work, though they still own at
least one car.
Which brings me to insurance. This is a hard one. As I
said in the previous essay, insurance as listed in our budget is not our
premiums (which are automatically deducted before Karen’s take-home pay). It
covers our co-pays and deductibles. Basic health insurance falls on my list as
a need. But it’s similar to home maintenance in a way. Some things I can put
off for a time (like painting the outside of the house, or an annual checkup),
but it doesn’t take long before I find I am only robbing Peter to pay Paul.
For us, getting our eyes checked is close to a necessity
each year (Karen once had a retina issue). New lenses for our glasses may or
may not be a convenience in a given year (depending on how much the
prescription has changed). New frames are more likely a luxury unless they are
in disrepair. Designer frames definitely are. Chronic medical expenses drift
higher on my priority list. If I had high blood pressure, diabetes, high
cholesterol, or a number of other chronic health issues, there is no question
their care would be a necessity.
When Karen was young, healthy and single, she briefly
slotted health insurance as a luxury due to the circumstances of her job. With
our age and her medical history, health insurance is now a necessity for us
both. The thing I am always careful of is saving a little now and paying a lot
more later because I ignored a problem. Spending money on dental cleanings may
seem like a convenience, until I end up needing a filling where I wouldn’t
have, or a root canal where a filling might have worked (which thankfully, I’ve
never had to).
There are no strict guidelines for me. I customize this
parsing to my individual circumstances at the time. If my job required me to be
available anywhere, anytime, a cell phone might be a necessity. If I had kids
in school, Internet would be a necessity, as would be a reasonably decent
computer. Right now, they are conveniences.
I know some of you might think that I’ve cracked a door
open and will be tempted to kick it in to justify all the things I want by
listing them as necessities or conveniences. I know a lot of people who see
their iPhone as a necessity because they can’t stand to be out of touch. All
I’ll say is that people who are serious about their personal finances don’t.
We are all adults (and if you are reading this and aren’t,
I’ll treat you like one anyway). I know in my heart where things should fall. I
may not like it, but I know. But there is no referee in this game. I am the
only judge.
This tripartite categorization is just a lens through
which to examine where we are so I can get us to where we want to be. While
it’s not rigid, it can be as unforgiving as a Roman Triumvirate.
I’m guessing you know exactly what’s coming. Simple
economics, the kind you all know, says if I am living on borrowed time, the
first place I look to save money is under luxuries.
But here is where I’ll fool you. Unless I need money
tomorrow, I don’t cut anything yet. Placing whole items on the chopping block
is a drastic measure, one I only use in a drastic situation. Remember what I
said about austerity in the first essay? Yeah, it still rarely works long-term.
A number of years ago, a friend of mine was diagnosed with
high blood pressure. His doctor gave him two options. He could cut all the salt
out of his diet, or he could take a pill each day to keep it under control. He
didn’t do well with pills in general and didn’t like the idea of being on daily
medication for the rest of his life, so he decided to try the first option.
What he found as he tried this approach is that salt is in everything.
Processed food is the worst, followed by any prepared meal you buy out. But he
soldiered on, replacing the salt shaker on his table with mixed spices,
diligently cutting out anything with salt on the label, including staples in
his pantry like soup and bread.
I remember a conversation we had at some point when he was
in the middle of this experiment. I said that I admired what he was doing, but
thought that he was doing it the hard way. He got an odd expression and gave me
a look that said he hadn’t thought of it like that before. To him, trying to
change his habits was easier than trying to remember to take a pill every
morning. Most people would have relied completely on medication to take care of
the problem, changed nothing in their lives and forgotten about it. By trying
to cut out all his salt, my friend gained valuable knowledge about the all the
ingredients of his food. By reading all the labels, he learned about more than
just salt. That experience taught him exactly what he eats and what is in his
food.
I think it also showed him how difficult carving out salt
alone was for correcting the problem. Slowly, his blood pressure came down.
Some, but not enough. After a time, he was forced to go on blood pressure
medication anyway. Today, he relies on a more balanced, sustainable combination
of diet and exercise to keep his dose of blood pressure medication to a
minimum. As a part of that, a few of the habits stuck with him, like
substituting spices for salt whenever possible.
If I find myself on borrowed time in our budget, as we
were close to when I first left engineering, I know I will need to eventually
end up chopping away, perhaps not stopping at luxuries. But initially, that’s
not the way I roll.
For most people, cutting expenses is like a starvation
diet to lose weight, unsustainable. It’s a juggling act, temporary at best,
until they build up a little money. Then they see that money sitting in their
savings, a white-hot spot of gold waiting to burn a hole through their account.
That’s when they’ll most likely tell themselves they deserve a treat for all
their hard work and make up for anything they’ve saved by cutting out luxuries
with one big purchase. And that puts them right back where they started.
From experience, I’ve found there is a smarter way to
approach it.
You are probably thinking that this is the point where I
tell you that we lived in privation for years in order to save money. Be
prepared for disappointment. We lived simply, but didn’t sacrifice every
luxury. In fact, rarely did I feel deprived. Saving is like dieting in that
way. If you go for crash starvation, you are more likely get frustrated and
binge because you feel you deserve it. If instead, you opt from a slower,
steadier reduction in calories that has a few treats built in, you are more
likely to change your habits and keep off the weight you lose.
In college, that translated to three luxuries: beer, pipe
tobacco and coffee. None of them did I have every day. Most I could only afford
once a week. Take coffee. Back then, I didn’t have coffee each morning (I
didn’t pick up that habit until almost a decade later). Breakfast during the
week was something quick, easy and cheap, cereal and juice, something I could
get on the go. But every Sunday, I spent a little time making myself a full
breakfast, bacon, eggs, a bagel with butter and honey, yogurt on occasion,
juice and coffee. Not just any coffee, but one (at the time) I thought of as
premium, International Coffee with chocolate. I know, by our standards today,
that’s not exactly exciting and probably a toxic hazard, but when I sat down
with my mug every Sunday morning, it was decadent. Certainly better than
anything my friends drank.
It was a similar story with beer. Instead of buying
whatever was on sale the cheapest each week, I sprang for a six of Heineken
when I went shopping once a month. Knowing that when it was gone, it was gone
allowed me to savor each bottle rather than just pounding down a can or two
until it killed the flavor (if whatever was on sale actually had flavor, which
it usually didn’t).
The pipe was limited to a bowl a week, two if I was
feeling indulgent, a smooth, light tobacco called Fog Cutter (Black Cavendish)
from a shop several miles away. I’ve never found anything quite like it since,
though I’ve sampled any number that were close.
Those three luxuries always had me looking forward to the
weekend, and savoring them when it arrived. During that year and a half, I
never felt myself wanting. In fact, I felt quite content. There’s a
psychological principle at work here. You won’t miss what you already have (you
may want more of it, but that is a somewhat easier impulse to control).
The one other luxury I allowed myself was books.
Paperbacks, mostly fantasy or science fiction. They were mostly metered out
from gift certificates received at Christmas or my birthday. Or borrowed from friends
or the little library I’d helped start for the science fiction club on campus.
The power of the need, want and nice-to-have system for us
comes not just in budgeting and cutting back.
It comes in evaluating every purchase we make. Do we Need this or just
Want it? Or will it just make us feel good for a little while as a
Nice-to-Have?
A friend of mine in college
had a great expression, “If you had everything in the world, where would you
put it?” I’ve found that question to be useful in evaluating purchases. Do we
have a place to put it? Will we actually use it, or do we just like the idea of
having it? Will it just sit on a shelf
taking up space until we give it away in the next closet cleanout?
Another question we end up asking is, do we have to buy it
right now, or can it wait? Is what we have currently a serviceable solution?
Are there alternatives or upgrades we haven’t thought of?
Again, I am not saying we try to pinch every penny until
it bleeds. We don’t. What we are trying to do is make rational decisions not
submit to impulse buying, which is very easy to do.
Let me give you an example. Of course, it involves gaming.
Last year, I reacquainted myself with wargaming which has
been a hobby and pastime since I was around 16. Wargames in general take up a
lot of table space. Depending on the game, they can require a surface 3-5 feet
long. That’s bigger than our dining room table. I’ve had a 3.25’ square game
table for a long time. But in the past year, I saw a number of fellow gamers
post links to dedicated, custom built gaming tables. The problem is, custom
means built-on-demand which translates to around $3000 with a 4-6 month wait.
But they are recessed, felted, have covers, drink holders, all the bells and
whistles. Some even come with outlets and USB charging station.
Now as much as I enjoy gaming (to the point people have openly
questioned my game purchases, lifestyle and psychological stability), I cannot
justify spending $3k on a table. And at 3.5’ x 5’ I’m not sure where I’d put
it. That’s big enough that I’d have to dedicate a room which requires a major
house rearrange. But a couple of my recent purchases would not fit on our
existing gaming table.
Karen and I talked and came up with a few options. First,
I could have her build a table from scratch. She is handy with tools and has
built us bookshelves and cabinets in the past. I have full faith she could do
it, and for a fraction of the price. We even know a guy who could set us up
with some beautiful exotic wood.
Option two was to purchase a new dining room table. We
recently found ourselves at Goodwill and spotted a perfect candidate. A 3.5’ x 6’
surface of thick, chunky planking bound with iron. $350. The only problem would
have been that I’d have to hire 4 day-laborers and a truck at Home Depot just
to get it in the door. But still a bargain. We could have willed this table to
Karen’s nephew when we died (he is also a gamer). It would have lasted at least
that long.
Option three was Karen’s. Buy a 4’ x 4’ piece of 1/8”
plywood, varnish it and use it as a table topper when we need it, storing it
against a wall in the library when we don’t. Total cost, including varnish,
brushes, wood, and non-skid rounds to keep it from sliding, under $20. Home
Depot would even cut the wood to size for us (we wanted it as wide as the
current game table just longer).
That’s the option we chose. A $20 solution to a $3k
problem. And when we picked up a game without knowing that it required an extra
9” of space? I took the leftover piece of plywood, cut it, varnished it,
devised a support system from aluminum support slats and cobbled together
blocks, and voila. An even bigger table.
Extra cost? Maybe $5. And if we need something even bigger (I am eyeing
a game with a 4’ x 6’ map, don’t judge), we can do it again with a larger piece
of wood and still not even approach the $350 of the middle solution.
Now putting this in context. We Needed a bigger game table
if we wanted to play certain games (again, don’t judge). I Wanted the iron
bound, oak table we saw at Goodwill because it would last a lifetime and a half
at least (and looked like an iron-bound dungeon door laid on trestles). A
dedicated, custom, covered, mahogany game table would have been a Nice-to-Have.
Could I have afforded it? Yup, right out of my personal account without even blinking
hard. But did I want to?
The funny thing is that because we put our own
imagination, labor and love into the topper, and it matches our existing office
furniture, we value it more than we might have the custom gaming table. Maybe
because only part of that would have been a solution to a problem. The other
part would have been a status symbol.
Which brings me to perhaps the point of this essay.
Keeping up the Joneses. We all feel it, and do it to one extent or another. We
all want to brag we have the biggest, best, or shiniest toy. Yeah, we are all
just kids at Christmas comparing our haul with our friends as if it describes
our value.
But the thing is, that endorphin hit doesn’t last. It
never does. In fact, it’s more likely that peak leads to a trough later down
the road. And to get that same high feeling requires bigger and “better” status
symbols to share.
For me, financial independence comes by recognizing and
managing that psychological urge. Note I said managing, not eliminating. First,
I don’t think it’s possible. Second, I think it’s counterproductive to try.
Third, we all Need things that make us feel good, or special, or unique. All of
us. It’s in our DNA.
Again, when I was a kid, Izod polo shirts were all the
rage. You might remember them as having the little alligator sewn over the
breast. They were the status symbol worn by the preppies at my school. My
mother couldn’t afford Izod. But, oddly, Sears had a knock-off whose name I
don’t remember. Instead of an alligator, it had a dragon sewn on the breast.
Ok, Sears, I get it, but DRAGON! How cool is that?! I was the only kid remember
wearing them, and proudly so. That little dragon said more about me than any
cloned alligator ever could have. I owned it and in doing so made it my own. No
one dared make fun of me, at least to my face.
Which brings me to the final point of this essay. Every
now and then, I look around, usually in the lead up to a hurricane but not
always, and pick out exactly the things I couldn’t live without. I don’t mean
the necessities like food, shelter and clothing; I mean the items that if I
lost, I would mourn and not be able to easily replace. I mean the things that
if I were to become a refugee that I would want to take with me.
Now I know that seems extreme, but it’s a useful mental
exercise. It tells me which things I own are truly important to me. (Obviously,
for the point of the exercise, I don’t mean living things like Karen or the
cats, or ephemeral things like memories. I mean physical stuff).
A friend of mine grew up in a military family, which meant
as a kid, he and his brothers moved around a lot. The US military is a
no-nonsense organization. They don’t give their people a whole bunch of
shipping space when they move personnel around. So my friend’s father laid out
to each of them exactly how much room they had to bring their personal
belonging each time they moved. In general, it was about the size of a
footlocker. Most of us who remember being kids packing for a trip remember how
devastatingly hard it could be to part with anything we owned, even for a short
time. Imagine having to cull all of your belongings into the space of a
footlocker every 2-4 years. He had to make the choice or his father would make
it for him.
Anyway, the one thing my friend consistently chose to fill
his space was comic books. He hauled those things all over Europe and beyond.
Obviously, he valued them enough to take up precious space in exchange for
other things he had collected and also valued. And in the end, because he had
sacrificed for them, he likely valued them more. I suspect so as he still tells
the story some fifty years later. They are integrated into his personality and
unique profile though I don’t think he still has them. What matters is that
they were important to him at the time.
Which is the final lesson for me. We are not cast in
concrete; we adapt and evolve like oaks. Just because I valued something twenty
years ago does not mean I have to value it still. Times change, as do people,
their tastes and their priorities. It’s ok to let that go. But more on that in
a future essay.
So, for me, when I lust after that shiny, new Nice-to-Have,
I have to ask myself, if I only had so much space to evacuate my life, would it
make the cut? For the many things I’ve wanted over the years, and some I’ve
bought, the answer was sadly, no. A lesson I continue to learn as I swim deeper
into this life.
© 2019 Edward P.
Morgan III
