Wise Spending

Today I would like to blog about something that is DEFINITELY a big issue in today’s society, and even though the politicians won’t shut up about it I don’t think this will get anyone’s panties in a twist.

DEBT! Not national debt, personal debt.  Most likely, everyone has at least some. I always wonder how people my age are buying brand new cars or going on grand vacations, I like to rationalize that their parent’s paid for it, or that their entry level job pays over 50k. Unfortunately, I can only guess the occasional loan or credit card comes into play. Yes I was raised by Dave Ramsey Jr, however Dave Jr is debt free besides a 15 year mortgage and spends his weekends hunting and fixing up his corvette and motorcycle, so I can only assume there has to be something to this wise spending. I thought I would share some things the real Dave Ramsey, my dad and even my older sister have taught me about wise spending.

1.  If you can’t pay cash, you can’t afford it

2. Live below your means

3. Debt is a sinking ship, get out

4. Budget, physically budget

5. Invest for retirement

6. Shared money is for spouses not significant others

Now to further delve into each point.

1.       Credit cards have their place, such as hotel rooms or to build credit, I always use one on websites I am not familiar with. Credit cards are just imaginary money, like Monopoly money. I guess I don’t have a ton of experience because I don’t ever keep a balance on my card, but paying to spend my own money seems silly. If I use a card, as soon as the amount shows up on my card, I pay it off. Credit card purchases are recorded in the budget just like cash purchases.

2.       We try to save as much as possible, of course having 2 houses puts a damper on that. When budgeting I first figure out the needs, then allot for wants, if you don’t give yourself a budget for “wants” you will end up going over budget, or I would anyway. There are lots of websites that give pointers on how much you should save but personally I just save as much as I can.

3.       Just about everyone have some kind of debt, even if it’s just a mortgage, which is technically “good debt.” People my age most likely have student loans and car payments. We only have one year worth of loans from a state university, thanks to the MR, but in 2 years we only have about 40% of the loan left, not great but not bad. Our cars are not great but they work and neither of us has ever had car payments.  Loans have a place of course, if your car craps out and sharing cars isn’t feasible obviously you may have to take out a loan. If you do, do you really need that brand new car? Or even the barely used car? Your ego may enjoy it but your wallet won’t. One thing that I always thought was a joke, but I have ran into over a handful of people in real life who keep going back to school in order to push back student loan payments. Talk about fanning the fire! Student loans do NOT go away if you file bankruptcy, I don’t think even death will get you or your loved ones out of them.

4.       Have a budget, a written down or typed budget… keeping one in your head makes it more of an idea than a real thing. It’s one thing to say “I will not overdraw my account at the mall” versus “I cannot spend over $100 at the mall.” I used to keep a notebook, but after misplacing it at least twice a week I switched to a spread sheet. Most likely if you are married, one of you will be more apt to keeping up the budget, if this person is you ,keep the other person updated on how much you have to spend and what you have left at the end of each week. I also keep track of the online banking so I tell my husband when to make the student loan payment and how much to pay on it, I also know if we can or can’t go at to dinner. An almost fool proof way to budget is what I call, and I think Dave calls, “the envelope system” budget out a certain amount of money for everything, excluding automatic withdrawals or purchases where cash is not accepted, then hit up the ATM and fill your envelopes with cash, when the cash is gone, no more spending.

5.       Investing for retirement is much more important than it used to be, not sure about you but I don’t have any faith in the social security system. There are different ways to save, you can do a good old fashioned savings account, but your money isn’t going to grow… on the upside your money is guaranteed to still be there in full when you need it and you can draw it out at any time. I am a fan of Roth IRA’s and Roth 401K’s. “Roth” means it is pre-taxed, so if your work offers a plan and you choose a Roth, they will take out your taxes then take out the amount for the Roth. A simple IRA or 401K, will be taken out pre-tax. The real benefits of the Roth is, one, you don’t even realize you are paying taxes on the money, and second, you will not have to pay taxes when it’s time to use that money. Lastly, if you are like me, you are probably hoping to be in a higher tax bracket when you retire than you are now… do you really want to pay more in the future than you would have 30 years prior?

6.       Sharing money is for spouses, this does not refer to going Dutch on dinner or splitting the rent, obviously most unmarried couples will do this. What it is referring to, is much bigger payments such as loans, cars, etc. Dave Ramsey would say you shouldn’t live with someone you aren’t married to, I say, do what you want. However, paying off your boyfriend’s car is not your issue… until you are married. Before we got married, I did start putting away money for Simon’s loans; however all I did was put it away. He made all the payments with his very own money until we were married then I helped him knock it down with the money I had saved. Maybe it’s the former pre-law student in me, but I know if I buy Simon the world and something doesn’t work out… I can get that money back in court, not sure if Judge Judy is going to care that you paid off someone else’s loan.  So basically don’t pay for anything you would regret paying for if the relationship went south. Will you regret paying for dinner? I imagine not, but would you regret that you paid off that speed boat you have never even been on? I would think so.

Now that we are married, money is money and there is no such thing as mine/yours. We are on a tight budget and work lunches, gas, and groceries are the only things that don’t call for a discussion first. All couples are different though and I know several couples who have separate bank accounts and have divided all costs, if that works do it, as long as you are both on the same page.

Some of the best advice about spending I ever received was from a coworker who got the advice from his parents, it was “don’t expect to live the lifestyle we live now when your 20” I am constantly reminding myself of this. Actually the Mr. and I are probably doing better than my parents were at our age. Won’t say I don’t turn green when my parent’s take 8 vacations a year but I’m learning.