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SPENDING ISN’T something I like to do. It doesn’t bring me lasting joy. I prefer just to buy what I need.
For many folks, spending involves borrowing. If spending is your thing, incurring interest charges on credit card debt and car loans probably isn’t a big deal. But to me, borrowing to buy something means I’m overspending. If I can’t afford to pay cash, I shouldn’t buy it.
Borrowing has been the downfall of many. Spending is a onetime event—unless you borrow to spend, in which case your spending has a long tail attached to it. I think people get used to borrowing. The interest charge is just the cost of doing business—in this case, the cost of buying something we can’t afford.
When all goes well, the monthly interest charges just get attached to the monthly bills we have to pay. But if our income drops or we lose our job, those monthly expenses can become nightmares.
For the worker who has always had a job and believes that the job will always be there, spending with borrowed money is comfortable and doable. You’ve always had a salary and you probably believe you’ll always have a salary, so why change?
My experience has been different. As I’ve mentioned in earlier articles, I lost my job 10 times during my working life. While this was bad, it also made me good at finding a new job. I came to understand what I needed to do to make myself more attractive to the insurance companies that might employ me, such as earning my Chartered Property Casualty Underwriter designation. This involved taking 10 written exams, each three hours in duration, over a five-year period.
The other, more important habit I learned was to save and not borrow. Losing a job with no outstanding debt and money in the bank makes for a smoother transition to your next employer. Otherwise, you’ll take whatever job comes along because you need to pay your debts. My financial caution meant I could be more discriminating about who I’d work for and at what salary.
There have been times in my life when I did borrow. The first time was when I bought my 1987 Honda. I worked for a company that was relocating from New York City to New Jersey. It offered a relocation package, including paying the interest on a $10,000 car loan, so I took advantage. I also took out a mortgage to buy a condo as part of this same relocation package.
I ended up voluntarily leaving that company for a new job, so I had to pay the car loan myself. When I sold my condo to buy my current house, I got 15% less than my purchase price. Fortunately, this loss took place during another relocation package, and the company paid me the difference between what the condo cost me and what I ended up selling it for.
After that experience, I decided I was going to be mortgage-free as quickly as possible. In 1990, when I bought the house, interest rates were high. When mortgage rates dropped, I refinanced the loan. I didn’t borrow more than the outstanding balance—something many people did, and which led to some folks losing their homes during the 2008 financial crisis.
After the refinancing, I kept paying the same monthly amount as before, so I paid down the principal balance even faster. I refinanced twice more, but each time stuck to my strategy of paying the same monthly sum that was required on the initial loan. The result was I paid off our 30-year mortgage in 15 years, ensuring we could stay where we lived, regardless of my employment status.
Since paying off our home loan, we’ve never taken out another mortgage. We pay cash for our cars and we pay our credit card bills in full each month. Paying everything in full might not make for a glamorous life. But I can tell you from experience, it’s far less stressful.
David Gartland was born and raised on Long Island, New York, and has lived in central New Jersey since 1987. He earned a bachelor’s degree in math from the State University of New York at Cortland and holds various professional insurance designations. Dave’s property and casualty insurance career with different companies lasted 42 years. He’s been married 36 years, and has a son with special needs. Dave has identified three areas of interest that he focuses on to enjoy retirement: exploring, learning and accomplishing. Pursuing any one of these leads to contentment. Check out Dave’s earlier articles.
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totally agree. Thank you for the article, David.
Money for me was always a number thing and why we have done the following over the years.
1) We always paid all the bills in full on time.
2) The first house we bought, we used a loan, after all, if we had to wait until we had the money, it would a long time.
3) After our savings reached $100K, we always bought big items (furniture, mattresses, and later vehicles when we had more money) by taking zero to low-rate loans. We knew that if we needed to pay it immediately, we had a lot more to cover it.
4) When our portfolio grew substantially, I took another home equity loan for 5 years at 1.99% with zero fees, again, it’s a number game and the risk is much lower while we still working. Our portfolio was 5 times larger and I knew I could easily make 1.99% annually…and I did much more.
5) BTW, I was laid off 3 times but never paid these cheap loans earlier.
I understand the above isn’t common, but logically it made sense to me that if our portfolio is much larger, we paid all bills on time, and the rate is very low, the risk is also very low.
One year before retirement we were debt-free with a large portfolio.
Yes King David, Agreed.
I was raised ultra conservative on a Montana farm and never liked to buy anything. Yes, a not so glamorous and boring life, at first.
Being married to someone of the opposite mind set only worked for so long and she went her own way.
Now, me being at the retirement part of life, with no big bills and plenty of income makes for a very pleasant world! If I need it, I write a check.
See, delayed gratification does work.