Saturday Morning Personal Finance Musings

personal finance musingsThere 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/


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31 Responses to Saturday Morning Personal Finance Musings

  1. SavvyJames says:

    Agreed that one act (e.g. getting a cheaper cable TV package) is not a panacea for curing financial problems and attaining wealth. The best path to wealth accumulation? If I had to boil it down to two overarching – connected – actions, they would be spend less and save/invest more. Simple to say, harder to do for some.

    If I was advising someone on one concept to understand it would be time/compound interest. If someone truly understands how powerful compound interest can be, they would find a way – multiple ways (e.g. reduce cable, use coupons, turn down the thermostat, etc.) – to reduce their expenses and commit that money to saving/investing as soon as possible.

    • Green Money Stream says:

      Absolutely James. Spend less, save more. It is easy to say and clearly difficult for some to put into practice. The best step for spending less may be to take those small steps. Make your coffee at home, it won’t kill you. Then maybe prepare more meals at home and so on. I think too many of us have gotten “off course” in this regard.

      And the concept of compound interest in savings is always an important one to learn.

  2. Good morning Stream. I think the little things are important….though less for the dollar amount they save…..and more for their ability to train our brains to change our spending habits. Five dollars here and there can really add up, but a more important benefit is achieved when we start observing where and how we spend money. Do we spend impulsively and frivolously, for instance?

    I have Andrew and Ryan’s posts included in my Recap tomorrow also. I think they have started an interesting discussion. Have a great weekend

    • Green Money Stream says:

      Hi Bryan, thank you for stopping by. I absolutely agree that the little things are important especially from the perspective of changing our views about consumption. I live my own life with the philosophy that reducing expenses is a necessary by not sufficient condition for me to achieve financial freedom. Through this blog I try to relate that concept to readers.

      I look forward to your post tomorrow!

  3. I love this post! I agree that nowadays more people have lifestyle that is actually beyond what they can afford to pay because of the influence from the media. I also agree that cutting down budget won’t make you rich, but it helps us to have such mindset that will make us more conscious about our spending and in the long run helps us accumulate wealth.

    • Green Money Stream says:

      Thanks! I know, it seems like there really are more outside forces at work that are influencing us more than ever. We’re constantly pressured to buy “luxury” items for ourselves to prove to everyone that we’re successful.

  4. Thanks for the mention! Ah yes upscale spending…it’s like a disease that has spread to many here. I know a lot of people who make the same comments that your aunt made when it was suggested that they cut some expense from their budget. They think that it is a need, not a want. They can’t seem to fathom life without those items. The formula to accumulate wealth is relatively easy: spend less + earn more. I find spending less is generally easier to accomplish in the short term…earning more is excellent, but might take a little longer and more work.

    • Green Money Stream says:

      It’s generally more within our control to cut expense rather than increase income, or at least, it can have a more immediate effect. But you are right, a large part of the problem is changing people’s perceptions of “need” vs “want”.

  5. You’ve hit on some good points here. I think that one of the reasons why its so hard for people to get ahead is they just don’t realize how much expenses are adding up on them. It can be just a lack of paying attention. At the same time, you can’t give up everything in life either. It really comes down to deciding what you value most, and making priorities. I’m committed to living below my means and investing, but I do have a few things I really like to do, and I don’t plan on giving them up. But I have cut out a lot of expenses over the past year by removing things that aren’t so important.

    • Green Money Stream says:

      Thanks! I completely agree that people don’t usually realize just how much all the little things add up. Which is exactly why everyone should track their spending. It may be scary, but knowledge will help with the empowerment to make changes.

  6. NZ Muse says:

    For me it’ll be investing and hopefully real estate (starting with buying our own place, and maybe rentals later) except for the tiny hurdle that the property market here is just insane and I’m not sure how we’ll ever get in.

    • Green Money Stream says:

      I still hope to add an investment property to our portfolio. Probably not for a couple of years though as it just doesn’t fit in to my schedule right now. Starting with buying your own place is probably a good idea.

  7. “we’re also keeping up with the Kardashians”

    Clever. Yes, in this day and age everything has to be extravagant and over-the-top on tv and other forms of media. And, as unfathomable as it may be, it absolutely does impression people (sometimes even if you think your guard is up). Not to speak poorly of my wife, but she loves the Kardashians and never misses a show. Drives me crazy, such poor role models.

    • Green Money Stream says:

      I know, we are just bombarded with the extravagant on tv. It makes me worry most for younger viewers. It can be fun to watch those shows as long as you keep it in perspective.

  8. Kay,
    If people focus on finding game changers as they do in finding ways to fund an emergency fund than they would be farther ahead. You have t be comfortable with the level of risk you’re willing to take.

    • Green Money Stream says:

      That’s a great point, Charles, and I agree. I do wish I had done things differently in my past but I can’t focus on it now. I do know that I am risk averse so I would work harder to find just the right investment property. If my criteria are too harsh, there’s a good chance I may never find it. I’m doing the best I can with my investment strategy for my own level of risk.

  9. I was thinking about the coffee issue just last night. I typically fall into the camp that not buying a latte isn’t going to have a huge impact on your finances long-term, but then I thought about it and it really can. Not only can it save a lot of money year-over-year, but it’s also a proactive step that people can take towards saving money that likely will lead to other proactive steps.

    • Green Money Stream says:

      That’s exactly how I feel. It’s not just one step, like coffee or cable, it’s what can happen when you start to change your entire perspective on spending. You start to cut out a lot more unnecessary spending and that’s when the savings really start to grow!

  10. Peter says:

    We got rid of cable all together and it’s paid dividends not just in finance, but overall quality of life. Without 1000+ channels, I’m saving so much more time and my kids are more active than ever before. It use to be like 8-10 channels when I was young, but it’s just ridiculous how many channels there are now.

    • Green Money Stream says:

      That’s great! I completely agree. We get about 10 channels over the air with our antenna. Who needs more than that? It’s just enough to zone out with every now and then, but we don’t watch much TV and I don’t like my son watching it. You can get so much more done without the TV.

  11. debtdebs says:

    It’s is so freeing to let all that go. It really is a paradigm shift.
    Oh I so need to cut the cable still…. baby steps …

    • Green Money Stream says:

      Once you start spending less you really do get used to it. We bought a $30 digital antenna so we still get a handful of basic channels free over the air. It’s more than enough for us.

      • debT debS says:

        Kay – If you have the info, can you share the make and model of your digital antenna? Research from here in Canada show prices from $50 to $189 so far. Thanks so much xo

        • Green Money Stream says:

          Hi Deb, we just bought a GE model 34763 bar antenna from Walmart. It was $29. It’s pretty basic but enough to get us about 15 channels. We also have Netflix. Hope that helps!

          • debT debS says:

            Yes, thank you Kay! Will pass that info on to The Irishman. He tried making one himself the other day with butterfly clips and not sure what else (he searches for stuff on the internet too) but no joy! I wasn’t surprised. We’re working our way up to dumping cable and doing Netflix. I just need to figure out how I’m going to get my LITTLE COUPLE fix on TLC. Love that show!

  12. Thanks for the shout out Kay. In all honesty, I think a hybrid approach is probably the best, between focusing on game changers and cutting out Starbucks. You can’t take advantage of game changers if you don’t have any money to do so. And cutting cable won’t make you rich by itself, so it really is a combination of the two, IMHO.

    • Green Money Stream says:

      I agree with you Ryan. A balanced approach is best and hopefully I get that point across in this blog.

  13. Great post! I do believe it’s both cutting expenses and earning more. I don’t think it comes down to the infamous latte though. I think its more about the bigger expenses that we should be most concerned with, like your aunt and her cable. Nothing against cable, except if you’re having problems with retiring because you don’t have enough money. Some people just aren’t willing to change.

    • Green Money Stream says:

      I agree that the balanced approach is certainly best. It does seem that sometimes people who have money problems refuse to make seemingly small changes (like cutting cable) that could legitimately help them.

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