The Values Gap (Part III)

Thrift (noun) 1.the quality of using money and other resources carefully and not wastefully.

Thrift is a virtue, a value that can practiced by anyone. Not everyone has the ability to earn large sums of money. Even with a degree in engineering, I only managed to barely broach the top quintile late in my career. The Apostle Paul observed, “I know what it is to be in need, and I know what it is to have plenty. I have learned the secret of being content in any and every situation, whether well fed or hungry, whether living in plenty or in want.” I don’t know if I ever will discover the secret of being content in any and every situation, but with the exception of buying our first home, I have managed to live on less than I earned. That is my definition of thrift. If you practice this virtue with patience and perseverance over the course of a lifetime, it is highly probable that you will find financial freedom.

But, freedom is never free. We live in an immediate gratification society that constantly tells us we can have everything our minds can possibly desire without effort. We are told, credit is easy, without the Biblical reminder that the borrower is slave to the lender. As long as you are spending your money, chances are, you are going to be OK. It is when you start spending other people’s money that you are likely to get yourself into trouble. What are you willing to give up? Your mind is full of screaming little demons demanding that you fulfill their every desire regardless of the cost. When do you say, “No!”

How can you tell if one of your desires is in keeping with your highest values?

If your spending patterns are truly aligning with your highest values, it is likely that you are on the path to financial freedom. If you are working to satisfy the agendas of all the two year old brats living in your subconscious mind, you are on the road to a lifetime of financial slavery. How does that work out in 21st century America? Let’s consider a hypothetical two income family. Both husband and wife earn $30,000 a year, putting them right at the current median household income of, $57,617. Remembering that rules of thumb are rules that work thumb of the time, let’s, let’s apply a few financial rules of thumb to this couple.

Rule of Thumb: Your house should not cost more than 3 times your annual income. The median selling price of a home is $225,262. Strike one! Unless they are lucky enough to be living in a low cost area of the country, it looks like our hypothetical couple is house poor.

Rule of Thumb: Your car should not cost more than 1/3 of your annual income. Since they both have jobs, it is likely that we are looking at a two income family, so we shouldn’t expect them to buy a car that costs over $10,000. The average price for new car is $34,968, so they can forget about buying a new car. Given that the average cost of a used car is running at $19,227, the chances are good that our family is spending too much on a depreciating asset that only generates costs.

Rule of Thumb: If you graduate with student debt that exceeds your projected first year salary, you have too much student debt. The average student loan debt burden for a 2016 graduate would be $37,172. Strike three! You’re out!

No one is asking you to wear a loin cloth and live in a cave, just spend less than you earn. If you value gourmet meals, go ahead, drop $250 on a steak and a bottle of wine. If you want to shoot targets in your spare time, a CZ-75 can be found for less than $1,000. If you want a BMW 540I, it will likely run you somewhere around $65,000. If you have the cash and it won’t damage your higher values, like feeding your family, providing for your retirement, or sending your kids to the college of their choice, go ahead, you’ve earned it.

This brings us back to the 80/10/10 rule, a simple rule of thumb for budgeting your income. Live on 80% of your income. Give 10% to the charities that line up with your highest values, the ones that you believe will follow you into eternity. Put 10% in savings. What that last number will mean is that, sooner or later, you will have enough in savings to buy assets that generate income. As those assets begin to pile up the income that they generate will buy more assets that generate income. You have now have the miracle of compound interest working for you instead of working for another person’s financial freedom.

Before you make that next purchase, that next financial decision that could possibly be at a crossroad in your life, stop, look at what you are about to do, and above all take the time to listen to your heart. If you do this on a regular basis, with patience and perseverance, over the course of a lifetime, I believe you will find your way to financial freedom.