MIDYEAR REVIEW OF INVESTMENTS AND PERSONAL FINANCE : Personal Best
We publish advice and insights from all sorts of investment and personal finance experts--much of it contradictory. So to find out what works in real life, we went to the source, asking our readers to recount their all-time best financial decisions. From hundreds of letters, faxes and e-mailings, we’ve selected a few of the most interesting to publish or excerpt. Thanks to everyone who contributed.
Frugality Pays Big Dividends in Long Run
As a “leading edge” baby boomer (born in 1947), all of my financial decisions have really been driven by my parents’ Depression-era ideas. These ideas have been reinforced by other sources along the way and are basically these:
1. Live below your means.
2. Stay away from debt.
3. Don’t buy what you don’t need.
Living below your means has two significant advantages. First, more of your money is invested and working for you over the longest possible period of time. My wife, Fran, and I have been able to invest approximately 50% of our combined income (salaries, interest, dividends and capital gains) since our 1969 marriage. This has allowed compounding to work very advantageously for us. Second, you get accustomed to living on less than you can “afford.” This is very important when contemplating retirement.
The conventional wisdom is that you need 75% to 80% of pre-retirement income to make it in retirement. However, if you’re living on only 50% of your income, you obviously need far less than 75% to 80% later on.
Staying away from debt keeps you from paying interest costs, but even more important, it keeps you from having any delusions about what you can really afford. Our investments have been primarily in real estate (through 1979, when we found our “permanent home” in Palos Verdes Estates) and common stocks (dollar cost averaging since 1981), and we haven’t used any debt except for a first mortgage that we paid off in 1993.
By waiting to make major purchases until there really is a legitimate need, one can save money and, more important, aggravation. Money saved by avoiding questionable purchases can be invested for a future need (or desire, like a vacation). And purchases that are never made are never missed. I’m still happily driving my 1977 Nissan 280Z, and I have no plans to get rid of it.
Our current situation is a fortunate and enjoyable one. We own our home (which, to us, really is primarily a home and not an investment) free and clear and we have no other debts. Our oldest daughter graduated in 1994 from UC Berkeley (with no debt). Our youngest daughter’s college education is provided for. Best of all, I was able to leave work about two years ago, at age 45. I’ve been having the time of my life ever since.
Russ Bock
Palos Verdes
