The Pitch

Image by Alaskan Dude

The pitch was relatively straightforward and predictable.  He wanted to review my finances with me to make sure I have all of my bases covered.  The company he works for offers products that may be useful to me and my family.  This isn’t something he could do over the phone, so we would have to meet either at my house or at his office.  To spare my wife the monotony of the sales presentation, I elected for the office visit.

But first, I went into great detail about the investments and insurance I currently have in place.  And, I took a fair amount of time to explain to my friend how they were less expensive and better yielding than the products he could offer me from his company.  After managing my portfolio for 25 years, I have no interest in buying whole life insurance or mutual funds with loads, redemption fees or 12b-1 expenses.

None of this discouraged him from his mission of setting an appointment.  I figured he was having a hard time finding clients.  Obviously, he was under a lot of pressure to bring people into the office.  Not to mention, he probably wasn’t making very much money.  So, I promised to stop by and he sounded relieved.  But, I warned him up-front that I wasn’t likely to buy anything.

The Visit

I drove 60 miles round-trip, paid $6.25 to park and spent an hour and a half at the presentation.  I was glad it was informal and low pressure.  Since my friend was new, his supervisor took over after the introduction.  His first words were, “Don’t worry; I’m not going to try and sell you anything.”  We both knew this was untrue, but I appreciated the low key approach.

I spent well over an hour answering questions.  I laid out all of my investments and the goals they supported.  Then, I went over all of my insurance policies and the risks they protected me from.  Finally, I explained my retirement strategy, including the targets I had set for myself.  I was hoping they would spot some holes in my financial plan and suggest some products that could fill in the gaps.  That would have made the trip worthwhile.

Unfortunately, they didn’t have any advice or products that were useful.  Their recommendation was to supplement my existing investments with a whole life policy.  This is after I told them I had $600K of life insurance.  It was obvious to me they were only interested in selling whole life insurance, no matter what my financial situation was.  So, I promised to look over the brochure with an open mind, but I told them it didn’t make sense for me.

The Lesson

The retail financial services industry is a rough and tumble world, both for customers and for advisors.  The deck is stacked in favor of poorly yielding products, because they carry the highest sales commissions.  So, customers will hear a lot about whole life insurance and variable annuities, even if these products aren’t the best fit for their needs.  And, advisors will have to follow the company program in order to survive in the industry.

In my opinion, the worst mistake you can possibly make as a novice investor is to wander into a financial advisor’s office, without knowing anything about investments.  I know, because I made this mistake 25 years ago and I wound up with a mutual fund with an 8.5% front-end load.  If you trust your financial future to an insurance company, you will probably wind up with an expensive life insurance policy, instead of an equity investment.

Obviously, financial advice isn’t free.  Financial advisors, office buildings and glossy brochures all cost a lot of money.  And, the investor gets to pay for all of this.  If you have a substantial amount of money to invest or your financial situation is complex, consider hiring a fee-based planner.  Otherwise, consider finding your own no-load index fund, sign up online and keep all of your money working for you.  The rest, you can easily learn as you go.

The Bottom Line

The bottom line is that you are the only one you can count on to serve your best interests.  And, the best way to do this is to learn about investments and control your own finances.  Putting someone else in charge when you don’t know what’s happening is like driving down the freeway blindfolded.

“Hazard not your wealth on a poor man’s advice.”

Don Juan Manuel- Duke of Peñafiel

Recommended Reading

This post was featured on the Carnival of Personal Finance over at Funny About Money. If you aren’t familiar with the Carnival of Personal Finance, it’s the premiere carnival of its kind. If you want to read informative articles from knowledgeable bloggers, this is the place.

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First Car

Bret's 1970 Buick Skylark

I rode a bicycle five miles each way to work and back, until I could afford a motorcycle.  Then, I rode the motorcycle for a year until I could afford a car.  I borrowed part of the money for the car, which I paid back promptly.  I fixed it up with parts from a junk yard and paid for my own insurance.  I even had to buy my own tools to work on the car.  The Buick became an incredible sense of freedom and accomplishment for me.  Having a car my senior year improved my high school experience dramatically.

I bought my kids reliable used cars, with their full agreement to keep good grades and to pay me back.  Maybe I’m naive, but that turned out to be more difficult for them than I anticipated.  After a while, I began to suspect they were trying to wear me down.  Unfortunately for them, I believe your word is your bond and my requirements for teenage driving never wavered.  I have to admit I was a little disappointed in my kids.  I hoped they would have been more appreciative.  But, most of their friends were given cars and I probably seem like a cheapskate for making them earn theirs.

College Education

Educations is very important to me. It’s very important to everyone in my family.  We all worked our way through college, paid for our own tuition and books and graduated with degrees.  We have also put most of our kids through private school, for at least part of their education.  It’s a huge commitment in time, energy and money.

There is nothing I would rather do for my children than to send them off into adulthood with a college education.  That’s why I started college funds for each of them when they were two.  Unfortunately, it takes a lot of effort to earn a college degree.  And, cracking the books is a lot harder than watching Greek on TV.  Fortunately, I think my kids both understand why they need a college education.  And, I’m confident they will succeed.  Right now, my son is working his way through and saving his college fund for a house.

Living Expenses

I never mooched off my parents as an adult or what is now fashionably called “getting ahead, by living at home”.  I paid rent from my 18th birthday through my first year of college.  I moved out at 19 and never asked my parents for another dime.  Sure, my folks would have been there for me if I had a problem.  And, I could have stayed at home for much longer, while in college.  But, I wanted to make my own way in the world.  It’s a decision that led to a rough start financially, but it’s one of the things that made me resourceful and self-sufficient.

As for my kids, I have no problem supporting them through college.  I’d much rather have them focus on curriculum than on finding something to eat.  But, I have been very careful to make sure they know it’s a temporary educational situation.  I’m not subsidizing their lifestyles, just their educations.  As soon as the grades drop or they start wasting money, the party’s over.

Weddings & Houses

By now, you are probably starting to see a pattern.  I saved up for my own house and paid for my own wedding.  So did all of my brothers and sisters.  In fact, we were so broke when we got married that we asked everyone to donate towards dinner, in lieu of gifts.  It was a quirky request, but nobody had a problem with it.  And, we’re still married 19 years later.  A fancy wedding has never ensured a long marriage.

I will probably help my kids with their weddings and houses, provided they are more than half way there, on their own.  In my opinion, if they can’t save up some money for a wedding, they aren’t ready to be married.  And, if they can’t save up a down-payment, they aren’t ready to buy a house.  I’m pretty sure this opinion won’t be popular with my wife or kids.  But, it’s based on many years of watching people get divorced and lose their homes.

Inheritance

I haven’t inherited anything of value in my lifetime and I don’t expect to.  My Dad left me a watch, which I cherish.  There is a person of modest wealth in my family and she is worth way more to me than any of her possessions.  Since I’m doing pretty well on my own, I don’t want to see an inheritance for many years.  An inheritance should be considered a gift, not a birthright.

As for my children, I may or may not leave them anything, depending on how well they do on their own.  I certainly don’t want their financial plan to be waiting around for me to die.  I want them to become successful through their own efforts.  I got this idea from reading the Richest Man in Babylon.  If they aren’t responsible with their money, I may leave most of my belongings to charity.  Easy money has never been good for anyone.

The Bottom Line

The bottom line is, sometimes the more you do for others, the less they do for themselves.  As society’s values have changed from respecting the self-made to pacifying the entitled, so have people’s expectations.  The question is, are you helping or hurting by contributing so much to your children?

What do you expect to give your children?
What do you think they deserve from you?

“If you want children to keep their feet on the ground, put some responsibility on their shoulders.”

Abigail Van Buren (Dear Abbey) – Advice Columnist

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Income & Employment

Photo by Cyron

This morning, my coworker lost her job.  I found out last night, because I work in IT.  So, I had to come in early to deactivate her key card, collect her computer equipment and change her network password.  We talked a little before she left and I could tell she was upset about the situation.  I told her not to take it personal, but that wasn’t much consolation.  There is very little loyalty between employees and employers.  And, there is very little job security.  It’s nothing personal.  That’s just the way it is now.

Never count on your income.  Millions of jobs were lost in this recession and many of them will never return.  Sure, new jobs will be created, but they will likely be filled by people with a different skill set.  And, because the government is broke, those jobs may be the next to disappear.  Clinging to your income is futile, because the job market is changing.  Put some money away and be prepared for this change.  Stay flexible and keep your liabilities to a minimum.

The job market may change more in a decade then it has in a century.

Partners & Relationships

This afternoon, I spoke with my neighbor, who had recently gotten divorced.  He was cleaning out the garage of his house that had just been foreclosed.  He told me a sad tale of how he had lost everything, because his spiteful wife had accused him of abuse and forced him to move out.  Then, she took everything of value and purposely let the house go into foreclosure.  Normally, I remain neutral in someone else’s personal dispute, but she went as far as to euthanize his dog.  And, having known them both for many years, I’m just glad he is finally free of this relationship.

Divorce is a primary destroyer of wealth in western countries.  Teenage pregnancy is a poverty trap that can last for generations.  Abusive, addicted or spendthrift spouses can wreak havoc on a family.  Dishonest financial advisors or business partners can devastate your finances.  Even lending money to friends and family is a potential disaster.  Choose your relationships carefully and avoid giving up control of your finances, at all costs.

Count on yourself and you will seldom be disappointed.

Health & Lifestyle

Last weekend, one of our employees succumbed to cancer, after fighting for eight years. She lost her life on Mother’s Day and left behind a husband and 12-year old daughter.  She was a warm and thoughtful person, a talented Engineer and a woman of faith.  I’m not looking forward to her funeral, because I have nothing to say that could possibly bring comfort to her family.  Sometimes, bad things just happen to good people.

Although it’s impossible to completely avoid health problems, there are many things we can do to tilt the odds in our favor.  Everyone knows we should eat right, exercise and maintain a healthy body weight.  But, it’s easier said than done.  The next thing we know, we are eating a donut for breakfast, skipping a workout, stressing at work and carrying around an extra 20 pounds.  We aren’t planning to become the next cancer, stroke or heart attack victim; we’re just too busy to make health a priority.

Treat your health as the most valuable thing you own, because it is.

Insurance & Savings

A couple of years ago, a friend of mine broke his back, while riding a quad in the desert.  Unbelievably, he flipped the quad back over, rode it back into camp and then drove himself to the hospital.  He missed some work, rang up some medical bills and wound up having to sell his house.  They moved out of state to a place they don’t really like, but at least they can afford.  He regained his health and has a new career, but he doesn’t seem nearly as happy as he was, nor does his family.

I miss my friend and some of the fun things we used to do together, with our families.  And, I can’t help thinking that an emergency fund or some disability insurance may have changed his fate.  If you live on the edge financially, it only takes a small push to send you over a cliff.  Why expose yourself to a large problem that can be avoided with a small amount of money?

Save, invest, insure and prosper.

The Bottom Line

The bottom line is that there will always be risks in life.  And, the people who manage those risks are the ones will become successful.  Those who ignore the risks are the ones who will become a statistic.

“There is no security on this earth. Only opportunity.”

Douglas MacArthur - American General

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Trick 1 - Attaching our Income

Photo by Chubstock

I have done a lot of foolish things in my life, including most of the tricks listed below.  But, the one smart thing I have always done is to save some of the money I have earned.

Way back when I was 21 years old, I started an automatic investment into a mutual fund.  I officially stopped spending everything I earned.  By keeping a little bit of my paycheck each month, I have never since been parted from all of my money.  Of all the concepts of personal finance, this is one of the simplest and one of the most effective.  This is also where most people fail. 

There is a reason why saving is so important and should be considered before everything else.  No matter what else we do financially, if we fail to save any money, we become wage slaves.  We work only for the benefit of others.  We live paycheck-to-paycheck, with no financial cushion or peace of mind.  And, we never accumulate wealth or free ourselves from the chains of dependence.  Our money is our future.  And, we need to take control.

Check out:  Pay Yourself First

Trick 2 - The Debt Treadmill

Debt is an insidious force that undermines our finances.  It’s like driving our cars with the parking brake engaged or carrying that extra 20 pounds around our waists.  It compounds upon itself and grows like a tumor.  It erodes our income and stunts our savings.  Debt is not a privilege; it’s not a convenience; and, it’s not a benefit.  It is a clever mechanism to siphon our paychecks with interest and fees.  It’s a profitable new way to sell us the things we can’t afford, at prices we shouldn’t pay.  Debt is the enemy of wealth.  It should always be avoided for consumer items.

It’s very easy to get caught up in the cycle of debt.  It’s something I have struggled with for most of adult life, despite being successful in the other areas of finance.  I have always felt I had it under control, because I could pay it off at any time, with the money I have saved.  So, I let it hang around.  This was a huge mistake that has cost me thousands of dollars in interest and opportunity.  Last year, I began a crusade to eliminate my debt.  And, I’m one year away from paying off my credit cards.  I’m six years away from paying off my house.  Then, I will finally be debt-free.  I dream about owning my paycheck, instead of owing it.

Check out:  Stop Living Paycheck to Paycheck

Trick 3 – The Lure of Consumerism

What do people really need?  Everyone needs food, shelter and clothing to survive.  Most Americans need income and transportation to obtain these necessities.  The list of things we don’t “need” is endless.  A few years ago, nobody “needed” half of the gadgets we have today.  Twenty years ago, we lived in smaller houses, without SUVs.  These things have all been presented as a “need” by advertisers.  Consumers just bought into the fantasy.  Most of the shiny new things we buy are simply a distraction from what is truly important in our lives.

If you are debt-free, saving money and your income is secure, then buy what you want and can comfortably afford.  Life is for living and money is for spending.  You only get so much of each and they are both precious.  But, if you are carrying debt, failing to save or just accumulating too much stuff, then ignore to the advertisers.  Recognize consumerism for the scam that it is and make wiser choices with your life and your money.

Check out:  Life is about Choices

Trick 4 – Fear, Uncertainty & Doubt (FUD)

Marketers learned a long time ago that fear is a very strong motivator.  And, they have played upon our fears to sell us most of the things we see advertised today.  Will you get the job if you have gray hair?  Will you get the promotion if you don’t drive a luxury car?  Will you get the girl or guy if you don’t use the right deodorant?  Will your wife nag you if you don’t buy her the diamond pendant?  Once you analyze the hidden message inside of commercials, they are almost laughable.  But, they are also effective and therefore profitable.

I realized in my early 20s that I had a very acute fear of financial failure.  I was afraid I was going to lose my car and my apartment, then have to move back home.  This fear was caused by a low income, unnecessary expenses and some poor decisions.  I didn’t realize at the time, that I could drastically reduce the possibility of failure (and the associated fear) just by saving money.  And, I could eliminate the stress of losing my car, just by avoiding payments.  Once I figured this out, I stopped living in fear.

The Bottom Line

The bottom line is that we can’t spend our way to happiness.  It doesn’t come from jewelry, clothing or the latest electronic gadgets.  It doesn’t even come from a new luxury car or a bigger house.  Happiness comes from experiences and relationships.  It comes from controlling our destiny and living our dreams.  In order to accomplish the things that will truly make us happy, we need to manage our finances.

“There are two fools in this world. One is the millionaire who thinks that by hoarding money he can somehow accumulate real power, and the other is the penniless reformer who thinks that if only he can take the money from one class and give it to another, all the world’s ills will be cured.”

Henry Ford – Founder of Ford Motor Co.

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This doodle sums up almost everything you need to know about Personal Finance at its most basic level.  You are in control of your finances and you make the choices that decide how successful you will become.

Justifying the Irrational

One thing the Subprime Crisis has reinforced in my mind is that people can always justify irrational choices.  They buy a house they can’t afford and justify that it will go up in value.  They buy furniture on credit and they justify that a new house must have new furniture.  While they are struggling to make the mortgage, they take out a second to remodel, and justify it as an investment.  They buy the latest electronics or new appliances and justify that there are no payments for a year. 

Recently, I listened to a teenage girl making minimum wage try to justify a $500 purse, because it was of such high quality.  I listened to a broke 24 year-old justify paying $500 to sit at a table in a nightclub.  And, I have listened to people justify cars, TVs, cell phones, dirt bikes, vacations and many other things they couldn’t afford.

The Affect of Bad Choices

Nothing is sadder than watching someone lose their home.  Almost as sad, is watching people struggle in debt, while they waste their precious income on frivolous things.  All of the money spent on late fees and credit card interest would make a great investment into a retirement account.  Instead, this money is bestowed upon banks, which are more than happy to profit from our indiscretions.

But, it is nearly impossible to convince people to make better decisions with their money.  I don’t have the heart to explain the affect of these bad choices on their finances.  Nor, do I feel it is my place to judge people’s purchases or to kill the joy they receive from buying something.  So, I smile and act happy for them.  Inside, I am biting my tongue and thinking of all the foolish things I bought on credit.

Making Wise Choices

It takes an incredible amount of discipline to say “I really want that new HDTV, but I can’t afford it right now”.  It’s very easy to justify that it’s Christmas and the family deserves it or I’m having friends over to watch the Super Bowl and I am embarrassed of my old TV.  But, if you put this purchase on a credit card or are late on just one of those zero-interest payments, the TV will cost you much more than it’s worth.

Stop the irrational behavior and the excuses for buying things you can’t afford.  Your family deserves to live debt-free, without the stress of money problems.  Your friends should be happy to watch your old TV and enjoy your hospitality during the big game.  If not, they can host the party and you can watch their new TV.  Or, you can find some friends who value your company, instead of your possessions.

The Bottom Line

The bottom line is that our lives are a continuous series of choices.  And, nowhere are the choices we make more important than in our finances.  Whether you choose to save your money or live your life in debt, the choice is completely up to you.

“While we are free to choose our actions, we are not free to choose the consequences of our actions.”

Stephen Covey – American Author

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One reason this advice may not be so popular, is because it may appear self-serving to some people.  But, income is one of the key pillars of sound financial planning.  And, it is critical for meeting life’s necessities as well as meeting your financial goals.  So, here are some reasons you should be planning to increase your income steadily.

Never Limit Your Income

I bargained with life for a penny
And life would pay no more
However I begged at evening
When I counted my scanty store

For life is just an employer,
He gives you what you ask,
But once you have set the wages,
Why, you must bear the task.

I worked for a menial’s hire,
Only to learn, dismayed,
That any wage I had asked of Life,
Life would have willingly paid

- Author Unknown

What this Poem Meant to Me

I first read this poem almost 20 years ago.  Until then, I was content with my meager salary, even though I knew I was underpaid.  And I lived a happy life, even though I wasn’t able to achieve many of my financial dreams.  After reading this poem, I was no longer willing to settle for less than I was worth.  I realized that I worked very hard and I deserved a fair income.  Much to my amazement, life was willing to pay me a lot more.  I simply had to ask for it.

Is it Wrong to Want More?

I’ve noticed some people are very judgmental when it comes to income.  They act as if it’s noble or virtuous to live on less and selfish or greedy to want more.  I don’t subscribe to this kind of scarcity thinking.  Nor, do I think it is right to cast judgment down upon the incomes of others.  As long as someone is legally and morally creating value which supports their high income, they are rightfully entitled to it.

Except for some in the legal, political and financial professions, income isn’t a zero-sum game.  You don’t have to take money away from others to create income for yourself.  You can create jobs, create products and create opportunities for others, which also generate income.  You can choose to be a wealthy person of high integrity, much like Warren Buffet.  And, you can employ your wealth to help others who are less fortunate, much like Bill and Melinda Gates.

How Much is Enough?

For most of my adult life, $100,000 per year was my magic number.  I always felt this was an attractive amount that would allow me to lead a comfortable life and help others along the way.  Inflation has diminished the purchasing capacity of $100K over the past 20 years, but this remains a fond and familiar goal of mine.

Lately, I have begun to realize that it’s silly to worship this milestone of $100K in annual income.  If I am fortunate enough to reach this goal, it will happen because I am producing more value than I am right now.  It’s not that I want or need more income to live on.  But, I have come to realize I could do some wonderful things with the excess.

The Magical Powers of Income

As an Investment -What investments have you made in your income?  Chances are, the less you have invested in your career, the less income you receive.  You can easily get an entry-level job and make the minimum wage.  If you invest the time to learn a trade, you will be paid the wages of a skilled laborer.  If you invest in college and get a degree, you will receive a professional salary.  If you invest in a business, your income is not limited to wages.  The key is in understanding that you have some control over your income.  And, you must invest in yourself, if you wish to increase your income.

As a Resource – What is the number one cause of stress and divorce in America?  The answer is money problems.  Unfortunately, a high income won’t solve money problems.  In fact, it often creates problems.  Like most other valuable things in life, income is a resource that must be managed wisely.  If you save a good percentage of your income, you will have a nice cash reserve to cushion any problems.  If you increase your debt and payments to match your increasing income, you may be headed for disaster if your income is ever reduced.

As a Foundation - I have set a future goal to donate 10% of my net income to various causes.  And, if my income increases steadily in the next few years, I may be able to increase this to as high as 20%.  Many tithe to the church or help family members who are in need.  Others help their children through college.  Whatever your cause, raising your income can build a foundation for the benefit of others.

The Bottom Line

The bottom line is that income is simply a tool to meet your financial goals.  Just as a bigger hammer will pound nails faster, a bigger income will help get you out of debt or fund your retirement faster.  Excess income can always be used for a benevolent purpose.  So, don’t be afraid to pursue a larger income, as long as it doesn’t come at the expense of your family or your lifestyle.

“And I say unto you, Ask, and it shall be given you; seek, and ye shall find; knock, and it shall be opened unto you.”

New Testament - from the Sermon on the Mount

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Having spent a couple of years working on Year 2000 issues, I can sympathize with the characters in this movie.  Sometimes, the dehumanizing aspects of greedy, self-serving corporations can make you depressed.  After I quit my last job, I watched Office Space a couple of times and it really cheered me up.  It reinforced my belief that I shouldn’t put up with abuse at work, just to earn a living.  There are many great companies out there and I am thankful to be working for one right now.

The Million Dollar Question

During one scene in the movie, Peter asks Michael and Samir what they would do if they had a million dollars.  They talk about investing in mutual funds and taking care of their families.  Peter’s answer is that he would do absolutely nothing.  He would just get up every morning and do whatever he wanted.  In the past, I have had a similar “dream goal” of taking it easy and enjoying my day. It’s all about the freedom for me.

My Million Dollar Dream

Now that I have such an enjoyable job, my goals have changed quite a bit.  Instead of slacking off and lounging around, I think I would like to do something for the betterment of mankind.  I would like to contribute to the world in some way that isn’t possible with the resources I have right now.  If I had a million dollars, I would devote some of my time and money, to a higher purpose.

I’m not yet sure what my contribution will be.  But, I have an interest in the field of energy.  I believe the control and pricing of energy is the biggest criminal enterprise I have witnessed in my lifetime.  I grew up in one of the smoggiest cities in the nation.  And, I have always felt we were being poisoned for the sake of someone’s profit.  Having lived through the Oil Embargo, Rolling Blackouts and the recent manipulation of oil prices, it seems we are being cheated for energy at every turn.

Here is some good news.  We are on the verge of a revolution, where people will be in control of their own energy resources.  Just as computers, blogs and the Internet have broken the monopolies over music, news and communications, new technologies will destroy the monopolies over energy.  In a few years, electric cars, solar panels and energy storage devices may be as ubiquitous as personal computers and cell phones are today.  I believe we are nearing the end of the era of burning things to create energy.  And, I would love to do something to help affect this change.

What’s Your Million Dollar Dream?

The real question is; what would YOU do if you had a million dollars?  Would you enjoy a life of shameless luxury?  Would you pay off the bills and help out your family?  Would invest the money and ride the markets?  Or, would you party large until it’s all gone?  There are as many answers as there are dreams and dreamers.

The Bottom Line

The bottom line is that it’s easy to dream of a million dollars.  But, it’s not so easy to deal with the reality.  The grim statistics of lottery winners will confirm that it’s not always a blessing.  So, be careful what you wish for.  And, never lose sight of your dreams.

“I would rather have a million friends than a million dollars.”

Eddie Rickenbacker – WWI Fighter Ace & Race Car Driver

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• Boring conversations at dinner parties or on dates
• Being considered a cheapskate by your spouse and friends
• Bouts of insomnia, while thinking of ways to save money
• Funky smell from that homemade soap or deodorant
• Missing invitations to events where they split the bill

Stepping Off the Frugal Path

Many of the posts from Personal Finance bloggers are about climbing out of debt, strict budgeting and living a frugal existence.   This appeals to a very small percentage of the population, most of whom are PF bloggers.  I’m taking a stand against this.  I’m calling B.S. on the lifestyle police and giving frugalistas the finger.

I don’t want to clip coupons or shop in thrift stores.  And, I don’t want to have to count my dimes or create a monthly budget.  I don’t want to dwell on my bills or my expenses.  Most of all, I don’t want you to waste your time on this either.

I have a much better plan.  I want my finances to be fun.  I want to check my investments and dream of where they will be in twenty years.  I want to see my income steadily rising.  I want a bigger budget for fun and entertainment.  I want to invest more of my income and pay less in interest.  I want to enjoy the money I have worked so hard to earn.  Most of all, I want you to have this lifestyle too.

Why Being Frugal Doesn’t Always Pay

I understand there are people of limited means who must be frugal in order to survive financially.  Twenty years ago, I was one of them and I knew every frugal trick in the book.  The reason I wrote this post is because I spent years of my life scraping by just to make ends meet.  I firmly believed I was doing the right thing at the time by limiting my expenses and I was very proud of my frugal accomplishments.  But, now I know I was definitely on the wrong track.

I should have been working much harder to increase my income.  Instead, I was expending most of my energy working long hours for low wages.  And, I was squandering my mental talents on creative ways to save on every expense.  This approach cost me a lot of time and money during my 20s and 30s.  I still live a pretty frugal lifestyle for my tax bracket, which allows me to invest 20% of my net pay.  But, I am way happier now that I have sufficient income to enjoy my life.  My family is much happier as well.

Reasons to Increase Your Income Instead

Savings are finite, while income is virtually unlimited.

It’s not possible to cut 100% of your expenses, unless you mooch off others or live in a homeless shelter.  It would be difficult for most people to even cut 10% of their expenses.  But, it’s very possible to raise your income by 10%, 100% or even more.  In fact, I have more than quadrupled my income in the past twenty years.  And, I don’t work any harder than I used to.  I just get paid a lot more for my efforts.  In a way I am very lucky.  But, I made a conscious effort to boost my salary and it worked.  I wish I had thought of it sooner.

There are economies of scale with a bigger income.

You will pay higher taxes, but your budget allotments will increase as well.  For example, I always pay myself first by putting away a percentage of my net income.  Obviously, the amount of money I was able to save grew a lot as my income increased.  So did my allotments for food, clothing, travel, transportation and entertainment.  As the pie gets bigger, so do the slices.

Many of your biggest monthly costs are fixed.

Unless you inflate your lifestyle, your fixed expenses will become a smaller percentage of your income.  For example, my mortgage payment is the same as it was 13 years ago (actually it went down), while my income has more than doubled.  This allows me to comfortably pay extra each month on the loan.  Insurance, property taxes, utilities and other fixed costs are also much more affordable on a higher income.

Savings are incremental, while raises are exponential.

Would you rather get a 5% raise or save 5% in expenses?  After taxes, it may seem like the 5% savings is a better deal.  But, your income will be up 5% every year and this could add up to a lot of money over time.  When you get your next raise, it compounds on top of the old one.  So, regular increases in income tend to grow exponentially, just like investments.

The Bottom Line

The bottom line is that you must keep a lid on your spending. But, this doesn’t mean you should become preoccupied with being frugal. It is much more efficient and enjoyable to use that energy to increase your income. As your income rises, it’s OK to increase your spending, as long as you eliminate debt, avoid payments and save for your future.

Recommended Reading

This post was featured on the Carnival of Personal Finance.  If you aren’t familiar with the COPF, it’s the premiere carnival of its kind.  If you want to skip the junk posts and read informative articles from knowledgeable bloggers, this is the place.

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What most people don’t realize is that you don’t have to be wealthy or even high income in order to live large.  Since we all deserve to live large, here are a couple of tips that I use to live large on a modest income.

Step One – Keep it Real

The first lesson of living large is to stop desiring what you can’t afford.  Why dream of luxury cars and mansions, when you’re bringing home a blue-collar paycheck?  Why covet clothing, jewelry, cars and flat-screen TVs when you are up to your eyeballs in debt?  This doesn’t bring about happiness.  It brings about feelings of inadequacy, jealousy and discontent.  If you wish to dream of a better life, start by dreaming up a plan to increase your income.  Nothing is more deflating to a soul than idle dreams and empty promises.

Materialism is a curse that was created to enrich others at our expense.  All of the advertising we see is designed for one purpose, to separate us from our money.  Advertised items are presented with a highly inflated value.  And, the advertised benefits are dubious at best.  Seriously, how many times have you hooked up because of your deodorant?  You rarely need something you see in an advertisement, which is why these companies are paying to reach you.  The sooner you recognize this scam, the happier your life will become.

Thou shalt not covet thy neighbor’s goods. – 10th Commandment

Step Two – Enjoy what you Have

The second lesson of living large is to enjoy what you have.  Appreciate your health, your talent, your family and your friends.  These are the most valuable things you posses, because they cannot be purchased for any amount of money.  Treat each day as a gift and you will have a wonderful life.  Treat your finances as sacred and your income will become a blessing.

Relish the opportunities that are available to you.  You are living in the most prosperous time that has ever existed throughout history.  And, you may be living in the richest country on the face of the planet.  You are fortunate to be alive right now.  You weren’t born a slave or a servant, so don’t act like one.  Seize your opportunities and become the person you dream of being.

Blessed is he who expects nothing, for he shall never be disappointed. – Benjamin Franklin

Step Three – Reward Yourself

Wednesday, I watched an Angel’s game with my brother, daughter and niece.  As I was sitting in the stands watching the Angels beat up on the Rockies, a pleasant thought occured to me.  I am so thankful that I can finally afford many of the fun things I like to do.  Ten years ago, there’s no way I could have afforded my share of the season tickets.  That money would have gone to pay the bills, with nothing left over for me.  Now, I can afford a little entertainment and I treat myself and my family.  This has made our lives so much more enjoyable.  Rewards don’t have to be expensive in order to be valuable.

All of those years when I struggled to make ends meet, it never occurred to me that I just needed to earn more money.  It never dawned on me that I deserved a bigger reward for all of my hard work.  I used to be proud of the fact that I had worked for almost a decade without taking a two-week vacation.  Now, I realize that a decade of my life passed me by, while I was slaving away to make someone else rich.  Of all the foolish things I have done to myself, this has to be one of the worst.  Don’t let a year go by without doing something special for yourself.  If you work hard, then you deserve it.

Pay yourself first and then reward yourself second.

Step Four – Plan for the Future

The final lesson of living large is that it doesn’t matter where you are today; it matters where you are going.  Back when I was pushing a lawnmower for my brother’s landscaping company, I knew some day I would become a professional.  Others warned me not to quit my job, but I had bigger goals in mind.  There were years of college, a couple of layoffs and some lousy jobs along the way.  But, I have accomplished my career goals and have a bright future.  Wonderful things are possible, if you are willing to do what it takes to get there.

I had a similar experience with my finances.  I started out with a very low income and I could barely save for my future and feed my family at the same time.  But, after many years of hard work and savings, my income and investments rose steadily.   Even after the stock market collapse and tech bubble-burst, I have a bright financial future.

Don’t neglect your finances or you will limit your future.

The Bottom Line

The bottom line is that living large is easy, even on a modest income.  All it takes is a dedicated effort, a solid plan and perseverance.  Most important, it takes a wealthy mindset.  Once you believe that you deserve to live large, the path to get there will become very clear.

“Success seems to be largely a matter of hanging on after others have let go.”

William Feather – American Author

Recommended Reading

This post was featured on the Carnival of Personal Finance. There are lots of great articles from many of the best personal fianance bloggers. Check it out.

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The show contained a series of skits that highlighted responsible personal finance and the wise management of money.  The show was created to be humorous and educational.  The humor seemed to fade in and out, but the show was definitely educational.

What was Covered

Most personal finance topics were covered, including mortgages, debt, emergency funds and retirement planning.  The content was very basic and designed for people who were unfamiliar with finance.  The general theme was to live below your means and prepare yourself for a secure future.

My favorite part was the spoof of Cribs, where Seth Green is bragging about his 2-bedroom house that he can afford on a third of his income.  The comment that he slept like a baby was priceless.  I also enjoyed the skit by Samuel L. Jackson called “I’m Broke as Hell”, where he portrays a personal finance guru, who has no money.

I applaud Mellody Hobson and all of the artists for their contributions on this project.  This show is truly something to be proud of.

Why this Show Matters

This is the first prime-time special dedicated to responsible personal finance that I have seen on television.   There are plenty of financial guru shows, such as Suzy, Dave and Robert.  But, these shows are practically infomercials for their products.  Un-Broke was reminiscent of a public service announcement, like the singing cartoons of the ’70s.

Personal finance is quietly becoming a mainstream issue in America.  Like the environment, people are starting to question the sustainability of our debt and consumption lifestyle.  As the layoffs, bankruptcies and foreclosures take their toll on our economy, some consumers are starting to realize there is a much better way to live.

After the Great Depression, an entire generation of Americans became frugal for the rest of their lives.  And, their baby-boomer kids learned this lesson from their parents and were fiscally conservative.  Hopefully, this recession will help America get back to financial reality for the benefit of our future generations.

The Bottom Line

The bottom line is that it’s great to see “Money 101″ featured on prime time television. It’s about time Hollywood accepted responsibility for promoting their over-the-top lifestyles.  Advertising and consumption have always profited the media circus at our expense.  A little financial payback is long overdue.

Don’t be a hamster on a debt-treadmill just to enrich others.

Recommended Reading

This post was featured on the Carnival of Personal Finance. There are lots of great articles from many of the best personal fianance bloggers. Check it out.

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