I was fortunate to find the time to visit family recently and I must say that I enjoyed it immensely. This get together made me realize that there seems to be a penchant in my family for the guys to marry women from European decent. My wife is Portuguese, my brother’s wife is Italian, and my aunt is English. Despite our commonalities, I know there’s a prevalent cultural difference in the way we manage money and use banks for our investments.
The proliferation of credit and the ease to which we can access it has resulted in the perfect storm, whereby some people are living beyond their means through the accumulation of debt, yet others well within it. Those who have amassed debt only mask the relative wealth they feel they have. These people have many things, but they also owe a lot on them. This results in a zero or negative net worth. Our net worth is when we add up all of the things we own and subtract everything we owe (this includes loans, mortgages, credit card debt, etc.). The problem is that because we have things; we have the false feeling that we’re worth more.
The problem is not with the banks, rather with how we ‘view’ money. Banks serve a very useful way for people to save, invest and pay their debts. Sometimes we forget that we’re the customer and the banks serve our interests. We need to change our view to seeing them as partners in our money management goals. For example, I know I couldn’t have bought a house if the bank wasn’t willing to give me a mortgage. Yes, I negotiated by asking questions about what they could do for me, rather than just settling on the posted rates. It sounds simple, but few people leverage the banks to better manage their money whether it’s by asking for lower rates, strategies on investments, account types, or tools and information. I’ve saved thousands of dollars simply by asking questions.
There’s a way to rein in this spending behavior and change our perceptions of money. All it takes is a first step, and it isn’t that complicated.
- The first and most obvious is to begin to pay down your debt. We’ve all heard the banks say it, now its our turn, put more than the minimum payment down and consolidate debt where it makes sense to lower your interest costs. Yes, it’s that simple!
- Start to save. Pay yourself as you would pay a bill. For me, I’d be looking for the best savings and investment account anywhere from Texas to Vancouver.
- Reduce your housing costs. Don’t become house poor.
- Put your credit cards on the side and begin to pay cash. Only spend what you have now, not what you expect to make in the future. This will stop the financial blood-letting. Unless of course you have the self-control to use the credit cards to your advantage, gaining points, and always paying off your outstanding balances.
Now, I’m not a big saver; rather an investor. What ever you do it’s important to ensure that you don’t live beyond your means.
How do you know you’re living beyond your means?
- You have less than 5% savings based on your gross income or you’re not saving anything.
- Your credit card balances are growing instead of shrinking.
- Over 30% of your income is being directed to your home.
- Your bills are rising or you’re getting new bills.
What makes a good investment is when what we receive is greater than the investment we put into generating it. I only need to learn from my Aunt’s British conservative side to set me on the right path.
Are you taking the right steps to saving to stop living beyond your means?