by Damon Carr
For New Pittsburgh Courier
In the world of business we often say the deal was “inked” when expressing that a contract was signed and executed. The various documents we sign for leases, credit cards, loans, partnerships, agents, employment, and in marriage are binding contractual documents. In regards to loans, we pledge that we are willing and able to pay back the loan. Oftentimes we pledge collateral to secure the loan in the event we default on payments.
I have talked about living below your means with a purpose and using credit only when absolutely necessary in various articles. For many, the concept of living below your means creates images of people who dress in unfashionable clothing, drive beat-up hoopties and live in humble housing. In actuality, people who live below their means understand how to manage the money they make. They are intentional. They are proactive. They prioritize their goals. They are living their life in the moment while at the same time, planning and preparing for their future. They understand that the decisions they make today have long-term consequences. They “Think before they Ink.” They comprehend before they spend.
Before signing short-term or long-term credit obligations, they evaluate whether or not the newly created bill interferes with the big picture. They want to know if this new obligation will restrict their ability to obtain and do other things they enjoy having and doing. For example: A young couple may ask themselves, if I were to purchase this second car making payments of $525 per month for five years, would it interfere with our plans of having a child in two years? Can we afford this car note and cover the expenses that our new child will create? They begin to prioritize. Should we postpone having the baby or purchase a more affordable car? From there a decision is made.
In my view, living below your means is about taking control of your finances and understanding what you can and cannot afford. It forces you to think outside the box and find other ways to enjoy the luxuries of life. Depending on the priority of certain items, many people who live below their means drive fancy cars, live in nice homes, take extravagant vacations and wear designer clothes.
I have several friends who practice living below their means and use credit only when absolutely necessary. For the sake of anonymity I will create names for them.
People often wonder how “Skinny Penny” is able to take two extravagant vacations per year, wear fine jewelry and designer clothes. People think that she is making tons of money. What they fail to realize is Skinny Penny is a young lady who “Thinks before she Inks.”
Skinny Penny knows that she likes to travel and wear nice clothing. Therefore when she bought her first home, she bought a four-unit property. She occupies one of the units. The rent payment from the other units covers the mortgage and creates extra income for her.
Before she purchased her home she paid her car off in full. Therefore she has no car payment, her tenants pay her mortgage, and she has a surplus from the rental income.
The average car payment is $400 per month and the average rent payment is $700 per month. Payments that she doesn’t have. That’s like getting a raise in her income for a total of an extra $1,100 per month.
She didn’t stop there. She took out a 15-year mortgage and she makes extra payments on her mortgage to pay it off early. Imagine that, a four-unit property fully occupied with no mortgage payments. Cha-ching. NICE!!
Another friend of mine, “Nickel-less,” recently purchased a Lexus. This car has all the toys, leather interior, banging stereo system, bluetooth, built-in navigation system and more. It even came with a First Aid kit, clothed in a Lexus pouch. She also helps out her elderly aunt and uncle with money for their necessities. People think she makes tons of money.
What they fail to realize is Nickel-less “Thinks before she Inks.” Nickel-less accepted a modest apartment in comparison to what she can afford. It freed up money for her to save for a down payment on her home. Her goal is to put 20 percent down.
Nickel-less purchased a 3-year-old Lexus. The original owner took the bait and paid the invoice price for the brand new car. Nickel-less waited for the car to depreciate 40-60 percent. The car looks new with only 30,000 miles at the time of purchase. She negotiated the price to an acceptable level. She put a decent amount down. She ended up with a three-year car note that she plans to pay off early.
Automobiles can drive you to the poor house! Especially when you take out car loans longer than three years. Nickel-less was smart. She understood that car loans longer than three years would create a negative equity position, better known in the car business as upside down. She plans to drive this car until the wheels fall off. Her goal is to keep the car for 10 years minimum. That’s seven years with no car payment! Just think, with no car payment, she should be able to save up and pay cash for her next car. That’s what I call a whip!!
I have another friend who purchased a home far less than what the bank approved him for so that his wife who is a registered nurse can stay home and raise the children.
I have another friend who told me that she does not have any high-priced designer bags in her closets. In her next breath, she tells me she has a retirement portfolio worth $60,000. She is only 31.
I personally was able to create a business with a dollar and a dream—no grant money and no loans. I made sacrifices in other areas of my life in order to do so. I may not have grown as fast as I would like but having no debt on my business ensures that I will have longevity in this business.
In closing, “Think before you Ink.” “Comprehend before you spend.” The cost of daily living is too expensive to do otherwise.
(Damon Carr, Money Coach can be reached @ 412-216-1013 or visit his website @ www.damonmoneycoach.com)