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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.
I never liked to owe anybody money. When I was a young man, I borrowed because I needed to – school loans, car loans, mortgages, occasional purchases on credit. But I clawed along until I got free of all those things, and resolved to avoid large borrowings and to pay off my credit cards each month. I know there can be benefits to borrowing, but I like the sense of freedom I have about how I use what I’ve earned. I save a lot, and I put most of my money to work somehow. My weakness is imprecision. I leave more cash in my local bank account than I need to in order to get all those free services – checking, safe deposit box, etc. I let some of my RMD sit in a money market fund at my broker’s, rather than investing it more carefully. I sometimes pay more to have a service done than I know I would pay if I carefully got competitive quotes. In the end, however, I do think I’m pretty efficient with money. I like the tips in the comments. I always pick up a trick or two when I read these posts. Thank you!
Thanks Martin. I figure that it’s ok to imprecise, so long as the total plan works out.
Great article, keep them coming. We had our way too, it was no loans except for a car and a house. We worked diligently to live within our means, with one worker and one home Mom, with 3 kids. The other angle was we would contribute the max to our IRA’s, this worked for us, and now we have a very comfortable retirement. I must admit I pushed the numbers, and I look back, sure those numbers did not work after 50 years, but they also helped us get to a good place. Different strokes for different folks.
Thanks William, I really appreciate the feedback. If only I was a better writer and had more ideas!
Greg, I think your point about psychology is especially important. Personal finance may be about numbers, but our behavior often determines whether those numbers work in our favor.
I also like your observation that there isn’t one “correct” way to manage money. Your approach created a built-in speed bump: spending $10,000 meant consciously taking $10,000 away from debt reduction or investments.
That makes the opportunity cost very real.
Over the years, I’ve found that the best financial system isn’t necessarily the one found in the textbook. It’s the one that fits our personality, keeps us disciplined and allows us to sleep well at night. Yours clearly did that, and simplicity probably deserves more credit than it gets.
Thanks Andrew. I am a staunch advocate of simplicity, to a fault sometimes!
My wife and I made a deal in 1982 when we got married. We would contribute to whatever workplace plans we had available to get the maximum employer contributions. These started out as traditional profit-sharing plans and converted to 401(k) plans when they became available. I insisted on investing 100% in the stock funds available and it worked out great since we mostly contributed six percent and received four percent from the employers. We spent all the rest of the money as we had a house and children to support and when we had extra money, it went into college funds and an emergency fund. BTW, the success of this non-plan plan had a lot to do with the start of a generational bull market in stocks. Never confuse brains with a bull market.
Thanks Howard. I love the term “non-plan plan”.
Agreed with your take on luck – I will gladly confess that a whole lot of where we are at is due to our incredible good fortune.
What does redrew it from our mortgage mean? A home equity loan?
As you may imagine, I don’t get your approach, but whatever works is the important thing. I like everything prepaid meaning money allocated for an intended purpose which may come about in months, years or even never, but the money is there and earning interest while it is.
We became debt free around 2006 and I vowed to keep it that way and we do it mostly by our pre funded allocation method which includes vacations and cars, a bank account (replenished monthly) from which all ongoing bills are taken, (utilities, property taxes, insurance, internet, HOA, etc,) and emergency cash.
Dick, our mortgages in Australia are setup such that any payments above the minimum can be redrawn. We paid down our mortgages as aggressively as we could, then used those over-payments as a fund to tap as required.
Now debt free also, so we have tap into investments from time to time.
Interesting. That’s a new one on me. Does that mean if you made extra payments to accelerate payoff that if you take some back, your mortgage if set back with longer to payoff than before you took the money?
Dick, I’m a pretty simple character so won’t pretend to know all the details. But I don’t think that the loan term extended out when the money was redrawn.
Just don’t quote me on this! All I really knew was that paying extra off the mortgage was good, redrawing from the mortgage was bad. And that drove our behaviour.
I would assume Greg means an offset mortgage. I’m not sure if they’re a “thing” in the US.
Yup sounds like the UK offset mortgage which is a really useful tool, essentially overpay as much as you want then those payments sit in a offset savings account reducing the amount of principal for interest calcs. Term is unaffacted. Guess you can technically carry an almost nil mortgage balance to term.
I think you have pretty much nailed the setup in Australia. I know people that keep a very low balance on their mortgage to term, such that they have a line of credit available to them, secured against their house.
Greg:
For many years I traveled a lot, so when I I was home on the weekends, I didn’t want to spend it cutting grass. I will admit however, when I used to do it, I always enjoyed the pride in the finished job. I imagine that comes from my first jobs as a kid…mowing lawns for $2.00 (in the mid 1960s).
I have had the same lawn guy for the past 8 years. He is extremely dependable, comes twice a month, and always does terrific job. We have about a one acre lot…with the rest wooded. I figure I am saving the oil and gas, and physical energy by paying the $10,000-$20,000 to him over 10-15 years.
After all…lawn guys have families to support too!
It pained me last month when I finally had to give up my 38 year old walk behind lawn mower due to a repair I couldn’t do myself. At 81, I don’t have to worry about the new one lasting another 38 years.
I am finding it hard to believe that Toro can no longer build a reliable walk behind mower. I have bought two Timemaster 30” mowers the first started with replacing the belts after three years, then the pulleys, the the stems, finally the engine failed all starting three years after purchase, and failing over one year. These repairs cost almost 1K, and kept my mower unavailable for most of a season.
My second one needs a new belts after just 18 months.
I’m also in the “walk-behind” crew. A lot cheaper, and good exercise.
Well done Greg.
We were never frugal but neither were we extragravant, at least most of the time.
I had a HELOC on our house, which I always used to buy cars. We usually kept our cars for 10 years or more, and accumulated 150k or more miles. There was a minimum monthly payment required, but I usually paid more and usually had the car paid off in 12 to 15 months. If I had a car payment instead, I would have probably paid it off in 24 to 36 months and spent the extra money in my checking account. Similarly, we had a 25 year mortgage for our house. We paid it off in 18 years. It is a great feeling to have a fully paid off house.
One indulgence we had was having dinner at Ruth Chris on our anniversary. It was expensive but the food and service was great and we both really enjoyed that. We need to have some indulgences but obviously need to discipline ourselves for them to not be excessive.
Many years ago, when living in Kenner, LA, working for Ford Motor Company I had the honor of meeting Ms. Ruth at her Ruth Chis restaurant in Metairie, LA.
Nice lady and always great food. I have eaten at at least 7-8 different Ruth Chris Steakhouses over the years, in many different cities. Always good service and great food.
ALWAYS HOT!
Jerry, I think you and I might have attended the same personal finance class!
No money here in special buckets either. I agree whatever works is a “good plan.”
Marilyn, I see some personal finance experts with quite elaborate sets of buckets. I think that for many people they work well, but I always find it a bit complex and overwhelming.
Early in our financial journey, we did tap into the equity in our first home a couple of times—once to replace rotting windows, and another time for a small bedroom remodel that included adding a dormer roof. We felt okay about this since the money was going toward improving our home. Beyond that, we mostly stuck to traditional approaches: paying down the mortgage and funding retirement through conventional means. But at the end of the day, whatever method works is fine by me!
What a joy to tap into your home equity to …. fix up your home!
“…every dollar gets a job.” It sounds like you practice intentional spending of your monies. Commendable! That by itself will go a long way towards meeting your long term goals.
Jeff, I think the term “intentional spending” sums up the core of success for lots of people. Nicely put.
….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.
General George Patton once said “A good plan, violently executed now, is better than a perfect plan next week.” Leave out the violently executed part and I think his quote supports your point. My take away is that a good plan implemented now is usually better than a perfect one later. Sometimes later never comes.
I quite like the phrase “violently executed”, but agree that it might not be appropriate for personal finance.
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