There have been some great posts this week discussing some personal finance bloggers’ philosophies when it comes to advising readers who are seeking a better financial picture. Charles, Andrew, and Ryan have contributed with particularly good posts. Andrew asked if personal finance bloggers are pound foolish by giving out advice that is common and seemingly generic to readers. The line that spoke to me in his post was “No, cutting cable television may not be a panacea for all financial problems. But we have to start somewhere.” I completely agree with this. Ryan expanded nicely on this in his post discussing the classics of personal finance and how small changes, like cutting cable or making your own coffee at home, can add up to larger savings.
Charles was making the case for those who are looking to build wealth to invest in “game changers”, like real estate. His post provides real steps that younger readers especially can take to start building wealth now. When I read a post like this I often look inward and come away thinking about what I “should have” done at a younger age. I could have bought an investment property at 28, like I was considering. I bought a real estate investing book in 2002 that espoused the benefits of buying rental properties with “other people’s money” (OPM). The theory was that as long as you had a positive cash flow each month after paying what was owed for any loans, you were golden. I loved the idea and started researching properties to buy. But when I met my husband he was much more cautious about buying a rental property. He would say, “You’ll always be fixing something that broke” or “You might end up with a dead beat tenant.” So I tabled the idea and focused on buying my first house instead. I did well on that first house. It was a cute 1 bedroom townhouse – about 900 square feet. I bought it in 2004 and sold it 3 years later for a 40% gain. It was right before the market crash, so the timing worked out. Since we were just married, we rolled the gain into a bigger home and began a short stretch of lifestyle inflation. If I could have picked Charles’s brain at the time, he might have advised me to keep the townhouse as a rental. Then we would have looked at more modest homes to move to and my real estate investing path would have begun.
Would this have been a better path? I’ll never know.
Necessary but not sufficient
What I do know is that I can’t change where I’ve been, but I do have control over the choices I make now that lay the groundwork for the path I take from here. This is why I am one of the personal finance bloggers who advocate for reducing expenses as a necessary, but not sufficient, component of wealth accumulation. I’ve written about cost containment in expenses related to groceries (here and here), cell phone plans, landline phones, and in raising kids. All of these things are no brainers to anyone who spends some time reading personal finance blogs. But we all know just by looking around at friends, co-workers, and family members, that there are so many people for whom these things might as well be rocket science, because they just ain’t figuring it out.
I have an aunt who is a perfect example. She complains all the time to us that she can’t retire until she’s 70. She’s miserable working but can’t afford not to. Meanwhile she walks around with $300 handbags. Suggest that she cut her $200 cable bill and the response is “I like to watch my shows.” Now, she may be beyond help. But I know there are readers out there who want to make a change and I’d like to give them some easy ways to do that.
The problem is not that you’re trying to keep up with the Joneses, it’s that you’re trying to keep up with the Kardashians.
Did you know that the average size of a new home in the 1950′s was about 1,000 square feet? And that the average size of a new home today is more than 2,300 square feet? I think we all know that the size of the American family has declined during that period. 60 years ago people were comparing themselves to their neighbors, the Joneses. Chances are they worked at the same or similar job as the Joneses and if the Joneses bought a new Chevy then they might be inclined to do the same. But now with so much information available literally at our fingertips our frame of reference has expanded significantly. We’re not just trying to keep up with the Joneses, we’re also keeping up with the Kardashians. It’s not just the shows that my aunt likes so much that influence her, but also the commercials. Rather than advertisers focusing an ad for a luxury item on high end readers of Forbes magazine, they can immediately reach a larger audience with a Super Bowl ad. That ad is viewed by a much more diverse group, many of whom can’t afford a Mercedes SUV. But the seed is planted and the need for upscale spending is perpetuated. If I can’t afford the Mercedes, I’ll at least get a Nissan SUV.
My hope through this blog is to at least reach some people who will recognize that they can break the cycle of upscale spending. Not only can they break the cycle and reduce spending, but they can begin to accumulate wealth. Vicki Robin and Joe Dominguez laid out steps to financial freedom. Largely through cost cutting measures and prudent investing they show the path to financial freedom. I believe it’s possible for all of us. But we won’t make it if we continue the cycle of work to spend that our culture is caught in. How many hours do you work to pay for the cable bill or for your car payments or for the gas in your car so you can commute to your job so you can pay the cable bill? Do you feel like you’re running on a giant hamster wheel? We can all make choices right now that will affect where we go from here, regardless of the choices we made in the past. One of those choices might be as simple as making your coffee at home, rather than subsidizing Starbucks and its attempt to persuade you that you are buying a cup of a luxury lifestyle rather than just a cup of coffee.
By refusing the coffee alone, will I reach financial freedom? No. But by refusing to buy into a culture of upscale spending, I think I’ve got a good shot.
What do you think is the best path to wealth accumulation?
Photo courtesy of Michelle Meiklejohn/ Freedigitalphotos.net