Locking it in

Unlike many of the HD community, I still pack my lunch each weekday and head off to work. There’s a range of reasons for this, but most importantly it keeps my wife sane!

During my 9 to 5, people will buy ride-on mowers somewhere in the range of $10,000 to $25,000. My relatively frugal brain thinks …. “Wow, $15,000 just to cut your grass”. And it got me thinking about how some folks are completely comfortable to spend like that, while it’s so far out of my comfort zone.

Part of it is no doubt a natural tendency for frugality or carefree spending. But in exploring my own thoughts and decision making, there is something about where our money sits that is important. We have always have a very simple approach to saving and investing – every dollar gets a job. We have put every available dollar to work by either paying down debt or investing for our future. I know that it’s not in the personal finance textbook, but we never had an emergency fund, nor a savings accounts for cars, holidays (vacations) or other goals. Everything was about paying down debt or investing for the future.

If we needed money for a trip, to replace a car or to spend on the house, we either redrew it from our mortgage or pulled some from our investments. I understand why this isn’t recommended, in particular the risk that pulling money back out of investments can mean crytallising a loss. But over a span of a few decades, I’m pretty sure that going all in has been a net benefit financially. Further, I think that it added a psychological threshold to spending that shouldn’t be overlooked. If we spent $10,000 on the house, the act of pulling that back out of our mortgage or drawing down from investments hammered home the point that the money spent now had an impact. Whilst it didn’t stop us spending – we have always had a comfortable house, reliable cars and excellent holidays, it made sure that we didn’t spend extravagantly or needlessly on those things.

Now I would love to tell you that this was a specific strategy that we put in place and it worked out exactly like we planned. On the contrary, it is only with hindsight that I can see how our approach played out. But I think that it shows a few things. Firstly, there are lots of ways to achieve a good financial base, and following the textbook probably isn’t required if you find something else that works for you. Secondly, psychology matters – humans don’t view every dollar as equal, and how we place and package our funds can have a profound effect on how we manage our money. Finally, simplicity can be a wonderful thing.