Most of us imagine the wealthiest people living the high life — whiling away their afternoons in heated saltwater swimming pools or jetting off to exotic destinations. But as financial advisors, we’ve learned that it’s often quite a different story in reality; some of our highest net-worth clients are totally committed to modest living. (Which is probably how they got their nest eggs to grow so nicely in the first place!)
While living below your means might not sound like an all-out party, it creates the financial breathing room you need to enjoy your earnings to the fullest. And as we know, life’s richest moments have little to do with the money itself — or even the fancy, frozen beachfront cocktails that money might purchase.
Here are some simple ways to minimize your spending so you can live debt-free and maximize the most important thing your money can buy: peace of mind.
Keep Your Debt As Low As Possible
Yes, this advice may seem obvious. But we live in a country where the average credit card balance is more than $6,000 — and that’s not counting the debts we owe to keep roofs over our heads and tires in our driveways.
The ideal scenario is, of course, to live debt-free, but this option is simply unavailable to most of us, at least at the start of our career. Five-digit student loan totals are a basic, if unfortunate, fact of 21st century American life. And if you want to own a home of your own instead of leasing — a smart money move, which will help you build equity rather than effectively throwing those rent checks out the window — you’re probably going to need to take out a mortgage.
Making a comprehensive debt-repayment strategy is key, and something we’re more than happy to help you with. But if you’re looking for a basic rule of thumb, here’s a more realistic number to aim for: a debt total that amounts to no more than 20% of your gross income, which likely means making your home your only loan if possible.
And to that end, we have some more suggestions!
Don’t Buy The Biggest (Or Nicest, Or Newest) House On The Block
A McMansion does not a home make. It may be pretty to look at, but that brand-new, 3,000-square-foot fortress is going to cost a fortune — and in our experience, even the nicest new homes don’t seem to be built as well as they used to be.
Rather than aiming for the best-looking home at the upper margin of your price range, focus on value: is the house built suit your family’s actual, everyday needs? Is it in good repair, or is it a maintenance nightmare?
A good shortcut is to shop by neighborhood. A well-kept neighborhood tends to have well-kept homes. If you’re a parent, you’ll also want to consider the school district — and after that, move on to this important factor:
Live As Close To Work As Possible
Nobody ever accused Birmingham of being eminently walkable. In fact, the same could be said of almost any city in the south.
But if you can walk or bike to work, you might save a fortune on gas or even forego a car payment — a weighty loan that runs Americans a whopping $530 per month on average, when they buy new.
If You Do Need A Car, You Guessed It: Make It Modest!
If you can’t ditch the wheels, the same principles apply here as with homebuying: ignore the clarion call of those brand-new, souped-up speedsters. And if your tastes run more toward gas-guzzling pickup trucks and SUVs, you might want to reconsider. Chances are you don’t actually need that much room — and if something comes up where you do, you can rent one.
A small commuter car will get the job done with less gas, smaller (read: cheaper) tires, and lower insurance payments. Oh, and this should almost go without saying, but…
… buy used!
Modern cars are safe and will usually last to at least 200,000 miles — which will take you forever to rack up, since you’re living so close to work. (Right?) You easily lop off 20% of the sticker price just by driving a new car off the lot, and depreciation just keeps on ticking from there.
We recommend looking for cars about five years old with up to 75,000 miles on them, ideally purchased directly from an individual rather than a used car lot. That way, you’re more likely to buy a car you can actually afford for cash, rather than setting up yet another loan.
We’ve got plenty of other modest living advice to share, so keep your eye here on the blog for more simple steps to success.
And in the meantime, please don’t hesitate to reach out and set up a consultation. Our services aren’t just for high-income investors who’ve already built up a considerable amount of wealth. We think everybody can benefit from professional financial advising, and we’re ready to help you achieve the freedom you’ve worked so hard to earn.