What Homer Simpson, Starbucks and Star Trek Can Teach Us About Personal Finance
Today’s guest is Robert Brown, author of a new book called Wealthing like Rabbits – An Original Introduction to Personal Finance. Robert gives us a lot of practical advice, including his thoughts on house buying, mortgages, and debt in general.
"Wealthing" and What it Means
Robert describes "wealthing" as a savings plan with the overall goal of increasing your net worth. His analogy to rabbits suggests that if you make saving a habit, your net wealth will continually multiply; and eventually the habit becomes a lifetime commitment that will pay off in a big way.
In his book, Robert tells a story about a woman whose small decisions in life have affected her financial situation at age 57. To make his point, he rewrites her story using a set of alternate choices that make a big difference for her overall financial wellbeing. Simply put, the small choices that you make everyday, can be the difference between just getting by and increasing your net wealth.
Modest Mortgage, Bigger Wallet
Today's world is fast paced and filled with unrealistic ideals. Robert suggests that we should scale back on our expectations for housing and the size of the mortgage that goes along with it. Even though interest rates might be low and the value of your home could stand to increase, he explains that:
...[buyers] should be looking at it from the perspective that they should still buy a modest home and take advantage of those low interest rates to pay off as much of the principle on that mortgage as they can before those rates go up.
One reminder that his book touches on is that, as the price of a home increases, so do the costs associated with that home. A larger house means higher heating and cooling bills, higher insurance rates, property taxes, and even additional furniture to fill up the space. As one of the largest, if not the largest purchase that you will make in your life, your house buying experience should look at the bigger picture and contribute to - not hinder - your "wealthing" habits.
The Balancing Act
Chapter 10 of Robert's book discusses the fine line between saving for the future and paying off debt. Doing both at the same time, can be a difficult tight rope to cross and Robert acknowledges that life is not always easy and that adjusting to new or changing financial situations can be tough. His advice reverts back to his original argument that saving should become habit, even if you're still paying off debt. He explains that,
...even if you're putting away as little as 10 dollars a week or 20 dollars a week for your long term savings, while your aggressively paying off your debt, I think it's important.
By putting away a little bit at a time, you've created a solid foundation for the day when all of your debts have been paid off. It is all too common that people work hard to pay off their debts but have put nothing aside for the future. The stress of always trying to get ahead never quite goes away. Instead, Robert stresses that it is important to start saving for the future as early as possible by forming "wealthing" habits that become automatic. In his words,
...make it as easy as possible, make it automatic, make it happen on the same day that you get paid so that you don't miss that money.
Practical Advice from Robert Brown
Robert advises readers to be mindful of their credit cards. Although convenient and instant, when you swipe your credit card, you have not made a purchase. Instead, you have borrowed money from the bank or credit card company with the promise that you will pay it back. Robert considers credit cards as a tool, that when used wisely and correctly, have the ability to make life easier and more efficient. However, neglecting or abusing this tool can lead to serious financial debt.
Robert warns that,
...just because you're paying off your credit card bill each month, doesn't necessarily mean you're using your credit card properly.
If the money that you charged to your credit could have been saved to grow your net wealth or a specific goal such as your child's education instead of impulse buying, then your credit card was used improperly.
Extended Interview Segment
We continued our conversation with Robert past the radio show and learned that he advocates treating yourself on a weekend to a smaller treat, such as Starbucks. He makes the comparison between spending $10 at Starbucks and spending $200 elsewhere. Of course, all things in moderation; but the key point here is to rethink the way that you spend and consider those opportunities to increase your savings.
Robert goes on to discuss his distaste for pay day loans the debt that they often lead to. Just like credit cards, he sees these organizations as a financial tool that need to be used properly. However, all too often, this is not the case.
In short, treat yourself to Starbucks every now and then as an alternative to impulse spending, and skip the pay day loans to create and maintain effective "wealthing" habits.
Resources Mentioned in the Show
Click here for a full transcript to Show #14 - Wealthing Like Rabbits with Robert Brown