2008.07.06 (updated : 2023.10.28)
I originally wrote this as advice for my son shortly after he was born. I've kept it up ever since.
I've always been able to live within my means, even during periods of extended unplanned unemployment. It is hard, for many reasons, even for the spoiled product of the lower-middle class that I am.
Here's how I've done it.
facing facts about our society
An alien visiting our planet would be forgiven for thinking that our society is entirely focused on vastly enriching a very small number of people at the crushing expense of the rest of us. It's the "mission" of our global economy, and the economy is the focus of our society. Don't believe it? Cast your mind back to the 9/11 attacks. What did US leaders say in his first address? "Keep spending".
Everything around us is geared to extract money from the consumer. Forget aliens; even someone propelled from the 1970s would have a hard time recognizing our economic priorities. $100 monthly cell phone "plans"? Replacing a $1000 cell phone long before it needs to be replaced? Maximizing a mortgage because interest rates are low? Marble counter-tops, gigantic trucks, holidays in foreign countries.... It takes a lot of effort to convince us we need all this stuff. $350 billion in the US alone in 2023. Can you imagine where we'd be without that hair-dryer of incentive blowing in our face at all times?
So let's face facts: most of our spending is optional and encouraged by people who have their own profit in mind. They know what they sell is of questionable value. To me, there is no difference between the people who would selling you disposable fashion, a new car, or cigarettes. They all know what they're doing to us and they would rather make money than find another way of making a living. All three of these example industries are either ruining irreplaceable resources, poisoning the land or our bodies, and setting up future expenses that someone else must pay. And in the meantime, they are chipping away at your finances like cancer.
Avoid debt at all costs. If you owe money to other people, you have effectively given them control over your finances. How are you supposed to manage your affairs in such a circumstance?
What do I mean by 'avoid debt'?
Be realistic about your needs. Have you ever looked at something that someone's bought and suddenly wondered, "Just what is this person earning?" The reality is almost always that they're not making exceptional money, they've just bought more than their income can justify. When faced with an expense, I like to think about how much I'll actually use the item and how much utility I'll get from it. Are there cheaper alternatives? I my case, a car was never the answer until I was 43 years old. A house has still never been the answer, but expensive private school for our children certainly was. The difference is one of utility: I'm renting a house that's large enough for the four of us at a rate that's a fraction of a mortgage. In the meantime I'm setting you kids up with the best education available.
When evaluating a purchase, be very sure of how effective the purchase will really be. For instance, many of my peers bought cars at some point, even as early as in high school. Why? For the "freedom" that cars afford (meaning, the freedom to travel where and when you want).
My solution to the issue of getting around was different. Looking at it more logically, I preferred to:
- live more closely to where I work, cutting out a long commute
- ignore any recreational activity that involved a car
- live in places where I could easily walk to stores and restaurants
- order things for delivery rather than driving all over the place to find them and then bring them home
I chose the car as an example because of the high expense that car ownership incurs. Here's a quick list of expenses that I've avoided:
- buying or leasing the car to begin with
- renting a parking space at home, or renting a home with a parking place
- parking while at the office or shopping or doing anything else
- license plates
- car washes
- replacing tires twice a year (going back and forth between summer and snow tires)
Besides, if I wanted to drive somewhere out of the city, I could always rent a car for a fraction of the monthly cost of owning or leasing a car.
Compare this with a bicyle. A bicycle is a fun way of getting around, and its good exercise. But it's also economical, because every day I save on transit fees. Cost-wise, a new bicycle (even a relatively expensive one) pays for itself in months if you use it to commute. Compare this with the vast cost of owning a car -- it never pays for itself in savings from transit, because it costs 10x more than transit. In a large congested city, a bicyle is just as fast as a car or transit, for any trip up to about 10-15 kilometres.
No impulse buying We men are famously emotional buyers - particularly when it comes to big-ticket items like cars. When weighing a decision on a costly purchase I tend to review where I've been spending - have their been any necessities of late that mean an optional expenditure is unwarranted? Have I given myself time to make a purchase rather than run straight into it? Have I shopped around?
Pay cash for things, even large things. I paid cash for our first (and only) car and had no obligations when I later didn't have an income. Until I had the money, I didn't have a car. What's my alternative: to pay 50% more in the long run on some kind of revolving series of leases, or to
Buy used when you can. As I write this I'm sitting at a second-hand Ikea table. Yes, there is such a thing. It's lousy but who cares? I have a lovely teak table in storage on the other side of the world, another nice table is out of the question.
Repair everything you can. I took a bicycle repair course when my kids were both beginning to ride. I can do things myself that would easily cost a hundred dollars at a bike shop. I can fix computers, I can repair furniture, and I can repair things around the house.
What price luxury? Everything is becoming more expensive, and in some countries it's becoming very noticeable. I tend to think of our lifestyle in the eyes of our ancestors. They put up with unbelievable hardship that isn't part of our lives today, but there's no reason for us to pretend that we can live like millionaires.
get rid of debt
I have at times -- due to previous times of un- or under-employment -- been in enough debt that it was a multiple of my annual disposable income. I was cycling debt between credit cards and multiple lines of credit. I know how it can get.
If you are carrying multiple debts, do not follow the absurd advice that's out there to pay down the smallest first and move onto the largest. I have no idea where this comes from - perhaps it's from the precepts of project management where you build on small wins when pulling together a team and gaining confidence. But it's wrong. If you pay down a small, low-interest debt while carrying a larger, higher-interest debt you probably haven't accomplished a thing. Instead, it's important to eliminate the expense of debt by things like consolidation with an eye on addressing the most expensive debts first. There are non-profits that you can approach on this.
As you can see from this website, I take a lot of photos. Photography is important to me, and I carry a camera around with me all the time. But I've always been careful with camera purchases, and did a lot of comparison shopping before buying. As a result, I have a modest collection of rather good camera equipment, and it's not costed a lot because I bought used equipment and kept to camera brands that didn't come with a premium price tag.
The same goes for almost any purchase you could name. Furniture, going on vacation, clothing, groceries. Look around, you'll find the things you want at a price you can afford.
time your purchases
I put off the purchase of a digital SLR camera for at least five years. I did so for some basic reasons.
First, I was carrying debt from a period when I didn't have a job. Paying down debt is the most important thing you can do with your money. So new purchases had to wait.
Second, I already had film equipment that functioned just fine. I didn't, strictly speaking, need a digital camera. So I could wait for prices to come down. And they did!
Third, it's important to know that when new consumer products come out, the price always goes down. In the case of my first (and so far, only) DSLR, I bought a model that initially cost $1300. But I waited until the model had already been replaced by a very similar model. I was able to buy the same $1300 camera for only $400 after the new model came out. Why, because in the world of consumer products, an older model is perceived as being less valuable than a new model. Yes, it's still the same useful camera, but suddenly the majority of camera buyers think it's no longer usable.
I guess you could look at this aspect of timing a purchase as "taking advantage of silly decisions that other people make".
We can't avoid spending money on food. We can chose not to eat in fancy restaurants, but there are really only a certain number of things on which we must spend money. Everything else is a matter of priorities.
To put this another way, I've always been a cheap dresser. In part this is because there really isn't much fashion clothing available to a 6'5" man, even in countries where my height is not such a great rarity. But another reason is that I've had other priorities in my spending.
By comparison to most people, I've spent more money on travel and less on home electronics, cars (as noted) and big homes. In fact, I've never owned a home. But I have swam with sharks in Fiji, and swam with dolphins and photographed breaching Humpback whales in Australia. I've also kayaked in wild places, hiked on four continents, and visited 5,000-year-old ruins in misty Irish hills. I even got married on a deserted tropical beach in Thailand. I've never earned a lot of money, but I prioritized my spending on things I'd enjoy.
Always research your purchases. It's important that you know what you're buying, so you can properly decide whether you're going to use it (and how). Again, this applies no matter what you're buying. Read reviews, read feedback from people who have the product you're considering, and read about alternatives. Go ask the people who sell the things, they sometimes have good insights and can even suggest alternatives.
Spend your money in ways that will bring you enjoyment. Be mindful of how much you're spending, and what you're spending on. And by all means avoid debt for anything other than dire emergencies. But do have fun, it's what we're here for. Don't overanalyze every little purchase, and don't let the process of shopping around and weighing your needs make you miserable. Enjoy!