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I don't have a lot of money. Like many of you, I've spent most of my twenties struggling to make ends meet and find financial success. I know first-hand what it's like to be up to my eyeballs in debt, live paycheck to paycheck and try to survive on a case of Ramen Noodles.
But I do believe that I manage my money well. When something is scarce, it's only natural to want to protect what little I have.
Cash may have been a rarity in my life, but I'm not complaining. I can actually say now (though I couldn't say it always) that I'm grateful for the years of financial hardship. Sometimes the most valuable lessons in life are learned outside your comfort zone. Being broke has taught me how to better manage my money so I can actually meet my financial goals. Sounds cliché, but it's been a blessing in disguise.
That's not to say poverty is a requirement for acquiring good money skills. Anyone can learn to be a good steward of what he or she has -- whether plentiful or lean.
What I've learned
1. Know your priorities. My husband, Jeremy, and I joke that our decorating style is the "refugee motif." We make do with whatever we can get -- as long as it's free. Our furniture may not match, and we still shudder when we think about the green and orange flowered sofa we had as newlyweds. But new furniture wasn't a priority when we were struggling to pay our utility bill. We learned early on how to prioritize and to sort our needs from our wants.
Some financial decisions are easy: Pay your rent instead of blowing the money on a big-screen TV, for example. Others are tougher. One year into our marriage, we got a tax refund of $300. Do we take a match to the sofa, save our pride and use the money to spruce up our pitiful apartment? Or do we buy a window air conditioner and save our sanity on those 100-degree days? We opted for the air conditioner, and I believe that decision saved our marriage. (You try getting along with someone when you're overheated and irritable!)
Years later, we're still facing difficult choices, only with greater financial consequences. Having a clear sense of our priorities and being able to label our needs and our wants is helping us make life's tough financial decisions. (See Tough Choices for more guidance.)
2. Debt is a vampire. I had never been in debt until I got married. My husband had a credit card he had used to pay for textbooks. Plus, he had an auto loan on a car that, incidentally, kept breaking down. (There's nothing more frustrating than paying to fix something you don't actually own.)
I soon learned how debt can steal your money. We'd make the minimum payments but never seemed to make much headway. We finally resolved to put every extra dime toward the credit card to be rid of it once and for all. We eventually paid it off, and we sold the car for a more-reliable model.
Since then, neither Jeremy nor I have ever carried a balance on a credit card, and we saved religiously to buy our last car with cash. I remember my dad telling me that the only things worth going into debt for were those that appreciated in value: a home and an education. Anything else will suck you dry. Lesson learned.
3. Have a cushion to fall back on. Car repairs, unemployment, funeral and wedding airfare, tax bills, medical bills, insurance rate increases, moving expenses -- these are just a few of the surprises I've dealt with over the past few years. If you're living paycheck to paycheck, these unforeseen costs can derail your finances in a hurry. But if you're prepared, you won't have to sell your financial soul to the aforementioned debt vampires.
For a few years after college, I didn't have a cushion at all. Jeremy was in medical school, and we were scraping by solely on my entry-level journalist salary. Unexpected costs forced Jeremy to take out more student loan debt than we would have liked -- we'll be paying for those costs for decades. We never wanted to be in that situation again, so we started stashing a little money in a savings account. We started with only $25, which slowly inched up to $200, $500 and finally a comfortable $1,000 and more.
Whenever I have to raid the account, I pay myself back as quickly as I can. Trust me, it's so much better making those payments to myself and earning interest on my money than paying a company that charges me interest. See Build Your Financial Foundation to learn more.
4. Set goals and tune out peer pressure. I don't care much what other people think of my finances -- I've gotten used to being the cheap one. But sometimes I get jealous of friends and family members who seem to be so much better off than I am.
Meanwhile, my husband and I are comfortable, but no more. We have a well-laid financial plan. On several occasions, though, we've been tempted to scrap the plan in favor of the good life right now. No one else is suffering. Why are we?
We've learned to compare us with us. Whenever we start feeling sorry for ourselves and wondering why everyone else is passing us by, we look back at from where we've come: our newlywed days in that tiny one-room apartment and our jobs as janitors scrubbing toilets. We tune out the peer-pressure static, count our blessings and stay focused on our goals. Besides, for all we know, the success we see in others may only be a façade. The only thing we know for sure is the state of our own finances, and we're staying the course (see Young and Restless for Success).
5. Small sacrifices add up to big rewards. This was a financial lesson I first learned in high school, and it has paid off in many ways since. My junior year, I had to pay my own way when my biology class took a trip to San Francisco. I saved what little I could from my after-school job as a grocery bagger and worked odd jobs around the house for a few extra dollars here and there. I looked for little ways to cut my spending. For example, I started carpooling to school and borrowed a dress from a friend for a dance instead of buying one. All those nickels and dimes added up and, after four months, I had the money. And I had a great time on the trip.
My husband and I employed the same principle when saving for a house. We made the little daily sacrifices necessary to live on only one paycheck so we could save the second paycheck for our down payment. After three years, we reached our goal. See Save Money on Practically Everything for ideas on how you can cut your own spending to pocket big rewards.
6. The size of my bank account doesn't matter. I think peace of mind and security are two of the greatest gifts you can give yourself and your family. Although financial independence is one of my main goals in life, it's certainly not what I value most. Money comes and goes, but my relationships with family and friends are lasting -- and much more fulfilling. For one thing, my husband and I have grown closer as we struggled together and were forced to depend on each other -- perhaps more so than if we'd lived in the lap of luxury.
These are blessings no amount of money can buy.
POSTED BY: Matt (October 16, 2008 05:14 PM)
I've learned quite a bit from your article and appreciate the sacrifices you have made to be responsible with your assets. The one thing that I did not hear you say is whether or not you have any kids. The purpose of marriage is not to amass wealth and prepare for retirement. The purpose is not even companionship--the purpose is to have a family. Trust me... there is not enough money in the world to keep you two together once the luster of success and "ladder climbing" wear off. Don't miss out on the opportunity to share your good fortune with your children and grandchildren.
POSTED BY: Juan (October 16, 2008 09:57 PM)
After college (1993) I had lots of problems finding work. Even though I graduated as a chemical engineer I could not get launched in that career. Needless to say my finances suffered accordingly. I finally succumbed to the credit card debt and defaulted on my one citicorp visa card. In the intervening years my parents taught me the value of money by refusing to give me any handouts. I suffered but eventually I landed a new career as a computer programmer and database developer. I now make a salary approaching six figures. Until recently I was still using my old 1993 Blazer but after saving all these years I purchase 2005 tacoma at carmax (for) cash. I have a healthy 401k the stock market volatility not withstanding and I still have a sizeable savings account. However, like yourself I have learned to do without some things... I rent a studio apartment from my family. They own the home (fully paid off) which I will eventually inherit. We have resisted all those predatory lenders trying to sell us a reverse mortgage or even take out a loan on the value of the house. Even today I save 25% of my paycheck to recover the money I spent on my *new* used truck. I tell you it is a great feeling knowing that whatever curve ball life throws at you there is always something to fall back on.
POSTED BY: Maggie (November 09, 2008 02:22 AM)
I am in graduate school to be certified as a teacher and last year I saved up a few thousand dollars from substitute teaching. I am scrimping and saving and minimally spending in the hopes of being certified and paying it off and being completely debt-dree at the end of next semester. I got an undergraduate tuition scholarship because my mother was a full time employee (a nurse) at the university I attended. I have worked have to save money and protect it, but I have a hard time letting go and paying for many necessary things. I need to learn not to panic over money, but I think I do a good job of ensuring a finacial future at a young age--recently married (1 1/2 years ago). But you have some great advice here! Really practical (though I don't yet find the need to buy in bulk yet with just me and my husband)! I enjoyed reading your thoughts.
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