Technical Difficulties from on Top of the Mountain
2004-04-24
  Having money by not spending it
Many younger people today have a problem with money. They think the problem is that they don't have enough of it, but I don't think that's where the issue is. Its how they spend it. (Notice I didn't say what they spend it on.)

Now I come from a downright stingy family to begin with. We thinned our milk with powdered milk because it was cheaper, I got hand-me-down clothes from my cousins (being the oldest in the family didn't save me there), and my mom would wear my boots when I grew out of them cause they still had some life left in them and they fit ok if she wore five pair of socks. But the defining moment wasn't family related, it was an article in Time magazine back in the 70s.

In this article, Time explained that income levels had risen to the point that the average wage earner was going to earn one million dollars in his lifetime (which to a thirteen year old seems like an awfully lot of money). It then when on to break down where that money was going to go and it featured this nice big pie chart graphic showing the major categories. The number one expense, and it was a biggie (more than a quarter), was interest expenses. Now this was back before credit cards were big, so it was mostly house mortgage, car financing, and a little for paying off higher education.

What I realized that afternoon, while sitting on the floor reading that article, was that all I had to do to be richer than others was to not give away 30% of my lifelong earnings to banks for the privilege of using their money. To a thirteen year old, interest seems like the worst thing to spend money on--it doesn't buy anything of substance. As I got older, I understood that in some cases time is money, but to a consumer in almost all cases, interest is really about impatience and self inflicted slavery.

Here's my spending rules that keep me out of debt (except a mortgage representing 25% of the value of my house), and that gets me through the low times as well as the high:

Basically, by not buying something immediately I save myself from buying at least 20% of the things that I see that it turns out I really don't need or even want. By saving up for something, I get even more stingy about buying other things, and by researching an item I sometimes find that my first selection wasn't the best choice or might not have done what I thought I wanted to do with it. Finally, by being prepared, well researched, and having cash on hand; I can actually pounce on sales/good deals when the come along (with the ability to truly determine if they really are a good deal).

This approach can seem like putting things off needlessly, and my behaviours do often annoy my wife, but she finally saw a brief glimpse of the wisdom in these ways when we went to buy our most recent vehicle. We were going to replace an aging 1996 pontiac grand am which I had bought used for my wife and she had never really liked. But it was also starting to show signs of wear (with 80k+ miles on it) and our family had grown to the point where we could really use something bigger.

At first she was looking at SUV like things (which I was looking at station wagon like things), and then she was looking at true monster vehicles (like a Chevy Surburban), when I finally realized what we needed was a minivan. So then we canvased all the various automakers and I really got stuck on the Toyota, but JM wanted it tricked out with all the gadgets. Unfortunately this adds more than $20k to the base price of the van, but I knew that if I fought her directly on this she wouldn't be happy with whatever she ended up with; and I'd be looking at buying yet another car in less than five years. Finally she arranged a test drive and dragged me and the kids down to the dealership to try it out.

This being Flagstaff, they only had one van there (a more reasonably priced mid-range model), and after test driving it (which wasn't really necessary), I took JM off to the side and told her that if she was happy with that model, then we could afford to just buy it and not have to dicker further with financing and trying to figure out where the money for a new car was going to come from. She thought about it for a few minutes, and decided she wanted that van. At that point we went back inside and motioned for our sales droid and the sales manager to come over for a minute. I explained that the van that they had out on the lot was not exactly what we had been looking for, but that if they were willing to take $1,800 off the price (which included some dealer added crap and also took into account that some fool at the dealership had driven the thing down to Phoenix and back and put over 600 miles on the odometer), then we were willing to pay cash right then and there and buy the car.

Our sales droid was astonished at our offer. This was the new 2004 Sienna (Toyota) model that was a complete redesign of their van based on the lead designer test driving the previous model across the united states (going through every state), and these things were flying off lots. These things were winning awards left and right, and some dealers were selling their stock $1,000-2,000 over sticker. Our sales droid was even more astonished when the sales manager came back a few minutes later and countered with $1,600 off. I accepted, and JM was in her new van about twenty minutes later. Preparation paid off and the transaction demonstrated once again that cash is king.

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