Humberto Cruz, contributor
For years, I've had this reputation of being 'frugal' - although 'not wasteful' would be far more accurate. Yet I can go around the house and point to waste.
For example, the more than two dozen music compact discs in my collection I never liked much and never listen to anymore. Two polo shirts, worn once, that have hung in my closet for years.
A dozen books I bought to fulfil membership agreements that gather dust unread. Even the computer I am using to write this column is loaded with expensive software I'll never need.
For all the wasteful items on my list, I realise now I've traded five months of my life.
That's how long it would take me today, after taxes and work-related expenses, to earn the extra money I would already have if I had not spent it on things I don't use, and had invested it instead.
If I had, I would have this extra money for things I actually use and enjoy.
That's the main lesson I took from the Life or Debt: A One-Week Plan for a Lifetime of Financial Freedom by South Florida resident Stacy Johnson.
For those struggling to get out of debt, I highly recommend Johnson's book. But even if you have no debt, you can benefit. Johnson devotes 45 pages to '205 Ways to Save', such as buying Christmas decorations in January when prices are cheaper, and avoiding expensive extended warranties on appliances.
"That turned out to be a much bigger part of the book than I expected," Johnson said.
Still, the main thrust remains how to control expenses, get rid of debt and stay out of debt. Once you conquer debt, you can "pay yourself" and invest the money you no longer need for interest payments.
"I think this is a topic that will affect many more people," said Johnson, a former stockbroker. "My experience is that for every person who has money to invest, there are 20 who first need to pay off their credit cards."
As the book says, "Becoming wealthy has almost nothing to do with income or investment know-how. Accumulating wealth comes from avoiding debt, living below your means, and investing sensibly and consistently."
And investing sensibly "couldn't be simpler," Johnson contends. His preferred way, and one I also favour: Just put in the same amount of money into a broadly diversified stock index mutual fund every month and hang on for the long term.
Johnson's debt-busting strategy is also what I've advocated for years. Keep track of all your expenditures, so you can decide which ones are worth it. Eliminate what you don't need or is not a priority, and pay down your debt. Finally, invest the money you are no longer wasting in interest payments.
Simple? You bet, as my wife, Georgina, and I can personally attest. But simple is not necessarily easy "because it requires a new way of thinking," Johnson said. You have to put a priority on what's important to you and ignore the siren call of marketers and advertisers telling us what we must do and buy.
"Our willingness to trade our lives for things we don't really want or need comes as a result of moneylenders and other advertisers pandering to basic human nature," Johnson wrote. "But you may find that what brings you the greatest joy involves very little money, maybe none at all." Or, as he says, it may require a lot. The key is to know what you really want so you don't spend money needlessly.
While I strongly agree with Johnson's overall philosophy, I quibble with some of the details. Johnson suggests you destroy your credit card to get your spending under control, and that you pay off first the debt that requires the smaller number of payments so you can wipe it off the books faster. I recommend learning to use credit cards intelligently so you reap the rewards, such as interest-free use of your money until the bill is due and possible rebates. I also favour paying first the debt with the highest after-tax interest rate, for the highest savings.
"If you are a person with discipline, you don't have to do everything exactly the way I've suggested," Johnson acknowledged. "The bottom line, as far as I am concerned, is to realise the things that really make you happy, and how you can become financially free."
From the South Florida Sun-Sentinel.
