Plain Old Common Cents

I know what you’re thinking. Who is this clown? Why should I listen to him?

Well, let me tell you why I think I am a personal finance maven, and why I think my method works. But first, let me tell you about my current situation.

My wife and I are pretty young (mid-twenties), but we are completely debt free. We own two cars that are paid for, we do not carry any credit card debt, we have well funded retirement funds, we max out our roth IRA accounts every year, and we are paying cash for my wife’s MBA from Georgetown University. On top of that, we have saved up a 20 percent down payment for a townhouse in the expensive Northern Virginia region, and we plan to purchase a house in the very near future (we submitted an offer today- wish us luck). I don’t tell you these things to brag or to be elitist, I just want to show you that our methods have worked for us and we consider ourselves to be pretty well off for someone our age.

I am not formally educated in corporate finances, investment banking, accounting, or economics, but fortunately I don’t plan to teach you anything about those subjects. I want to teach you about personal finance, which I consider myself to be very well educated in. It started with my parents, who were pretty good with their money. They weren’t perfect, but nobody is (not even me). From them I had a strong foundation in common sense based personal finance, but the rest I had to pick up on my own. I learned from books, personal experience, radio, tv, magazines, my friends, my family, and my wife. My personality combined with my interest in personal finance has always pushed me to talk about money with whoever I could get to listen. I found myself trying to help as many coworkers and friends as I could, and I feel a great sense of accomplishment over some of the advice I have been able to give. This sense of accomplishment has pushed me to try to reach a wider audience on the world wide web, where I could potentially affect the lives of many more people. By writing this blog, I am also stepping away from the intimacy of face-to-face communication, which should allow me to delve into much more personal subjects that might be too invasive to discuss with friends.

Personal finance can be intimidating to a great many people, and instead of trying to deal with it they might ignore it all together. Everywhere I go I see people making mistakes with their money, and it isn’t always because they don’t know any better. Sometimes it’s because they are following social norms, the crowd, or conventional wisdom. My method works because it breaks down personal finance into pretty simple ideas that require a little bit of discipline and the guts to reject social norms and conventional wisdom. In America, there is a negative saving rate, which means that the average American spends more money than he makes. If the average American is in debt and spends more money than he makes, then do you even want to follow the crowds? My method, which isn’t really a method at all, but more like a philosophy based around the idea of living on less than you earn.

The most basic tenets are:

1. Live on less than you make. Easy to say, difficult to do, and absolutely crucial to building wealth.
2. The only acceptable debt is house debt. Yes, that means car debt is no good, student loans should be avoided, and credit cards should never carry a balance from one month to the next. Home equity line of credit is also a terrible idea.
3. Don’t make stupid decisions. This one is harder to qualify, but this is where common sense really comes in. Example, don’t buy a $30,000 car when you make $30,000/year and have $5,000 in the bank. I don’t care how good the APR is, it’s still a stupid decision!
4. Compound interest is your friend. And so are online checking and savings accounts.

This blog will strive to help you identify the stupid decisions you make with money today, and help you avoid them in the future. Don’t be ashamed, everyone makes stupid decisions with money, but you don’t have to keep making them over and over again. Use your noggin’ and think about what you want to accomplish financially in your life. If you keep it simple and follow these four tenets, you will be blessed with more wealth than you can shake a stick at. Even a large multi-branched stick.

• Use a credit card to pay your bills online
• Use a free online bill pay service from your bank (never pay for this service)
• Use your checking account to send an e-check online
• Have access to more than one checkbook
  • One with him and one with his wife, or
  • One with his wife and a supply of checks at home, or
  • One with his wife, and a few blank checks in his wallet
• Pay your bills at least 1 week early, so that you can improvise when situations like this occur

I’ve established that the containers that hold your money are relatively unimportant, so that begs the question, “what IS important?” It’s pretty simple actually, from now on don’t think of your money in terms of “yours” and “mine,” don’t think of your bills in terms of “yours” and “mine,” and don’t think of your retirement as “yours” and “mine.” It is “ours.” The other important part of your financial lives is establishing a budget together. It has to be together, with each partner getting an equal voice, and you have to hold each other to the budget. If you break from the budget, you have to discuss it with your partner beforehand, and you have to figure out where the money is going to come from. I won’t tell you how to make your budget; maybe I will later if readers request it, but the most important thing is that you have one.

Do you agree with my take on combining finances? Discuss it in the comments and I would love to debate it.