People often use the excuse of hypocrisy to justify bad behavior. If someone preaches one thing, but then does another, that is taken as an excuse to do likewise. For example, the radio show host Dr. Laura would preach constantly about virtue and ideals, often berating callers who were unfaithful to their spouses and practiced other destructive behaviors. Some unflattering photos then came out of her from an affair that she had during her college years. She then lost credibility and her career was severely damaged since people would no longer listen to her advice.
Unfortunately, many of the people who preach good behavior fall short in their private lives. Everyone is human and doesn’t always live an example life. Nonetheless, this is no reason to ignore the advice if it contains truths. Just because no one is perfect doesn’t mean that everyone shouldn’t strive to be as perfect as one can. If Charles Manson ( a serial killer) or Ted Kazinski (the Unibomber) were to say that murder was wrong, it doesn’t mean everyone would then be justified to commit murder. Just because a dietician eats a big bowl of ice cream every night doesn’t mean you can do the same thing and expect to lose weight. Likewise, just because I don’t do everything I say you should to become wealthy doesn’t mean the ideas are wrong.
Today I thought that I would come clean with some of the financial mistakes I make. I’m sure that some of these things will come back to bite me eventually. If you can avoid them, you’ll be doing better to me.
1) Have a legacy drawer. My wife and I both have wills, including living wills, which give instructions on what to do if we are incapacitated. We also have 10x salary in term life insurance for me, which would allow my wife to raise our children and pay expenses if something were to happen to me and my salary disappeared. Likewise, we have enough term life insurance on my wife to help pay for Mary Poppins to help with the kids should something happen to her.
I do not yet have, however, a legacy drawer. This is a drawer that contains all of the important documents like deeds, a listing of bank accounts, instructions on the disposal of different assets, and perhaps a personal message to those I care about. I’ve been meaning to do this for some time but have not yet gotten around to it. If I were hit by a bus on my way home tomorrow, my family would have a difficult time finding everything. My wife has little experience trading stocks and probably would not know which stocks should be held indefinitely and which should probably be sold. If we were both killed, our next of kin would have difficulty finding everything.
This is not what you want to burden people who are grieving with. Everyone should have a legacy drawer for the people they love. I’ll be doing mine this month.
2) Have no credit cards. I’ve been using only debit cards for the last seven years or so. This is ever since I had to pay interest on my Chase card (that I was using for points and paying off each month) because I miswrote a check and Chase happily cashed it for a lower amount and started the interest going without even calling me. (Note the bitterness lingers still.) My wife, however, still has some cards she gets for stores since they give her different rewards. I’m sure we’ll get bit by a late payment at some point and it would be better to go without them. If you can avoid having credit cards, you’ll not need to worry about a late payment or even worse, getting into lots of high interest rate debt. It is much better to have a big cash cushion for emergencies than a credit card.
3) Make a monthly budget. Making a budget each month is very important, especially when you first start working and need to direct money towards savings, investing, and purchases. Even when you have some substantial savings, keeping a budget is important to ensure you have your money flowing according to your plans. Without one you can quickly see even a substantial nest egg quickly disappear into a pile of worthless junk. It is also a great way for a couple to communicate about their goals and desires.
We do take out a specified amount of cash each month for expenses like dining out and personal spending money. Still, I do find a lot of months go by where we have not prepared a budget (we do it maybe two or three times a year). I have noticed that I feel less control over my spending in months without a budget than when I have taken the time to create one. I’ve also found that money is not flowing into the kid’s college funds and my wife’s IRA throughout the year like it did when we made a budget each month. Instead it becomes a big burden at the end of the year or in April when taxes are due that temporarily drains our emergency accounts below the level where I’m comfortable. My resolution for February is to get back on track and create a budget.
4) Keeping both Netflix accounts. I signed up for Netflix when it was $9.95 for movies by mail and streaming had not yet happened. I kept the movies by mail even after they started the streaming, split the service, and doubled the price. We have movies sit on the shelf for two to three weeks before we watch them because we are busy almost every evening and weekend. I really should cancel the movies by mail, and maybe even the streaming since we barely use that either. It may not seem like that much per month, but getting rid of those little fees for things you don’t use can really add up over time, particularly if you’re looking for extra cash to invest.
So now you know that I’m certainly not perfect and don’t always follow all of the advice I give. This does not mean, however, that following the advice won’t make you wealthy faster. It just means that we’re all human and get busy sometimes.
We have done somethings right. We bought a home where the payments for a 15 year loan were within 25% of our take-home pay. We allocate money each month to investments. We buy used cars and pay cash for them. We put 15% away into retirement accounts. We started college savings accounts from the time the kids were born. All of these things have helped us secure our financial future and resulted in the ability to pay cash for most things other people out on credit. We are far more secure than many of our peers and could weather a job loss or other financial event without the lights getting turned off.
Do what you can to not be like everyone else, even if you can’t be perfect.
Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.