If you can’t afford to pay for it now, you can’t afford it.
When my grandfather told me that 40 years ago, it didn’t sound
nearly as radical as it does today. Grandpa borrowed money only
once in his life -- to buy a house -- and even then he paid it off
long before the bank required.
Of course, times are different now. Everything costs so much more.
There’s no way you can live comfortably these days without
borrowing money and going into debt.
Wait a minute! If you believe those last three sentences, then have
we got an article for you. Those three sentences are as false as
Grandpa’s teeth.
I picked the brains of some leading personal finance experts and my
own network of volunteer "Miser Advisers" to get their thoughts on
living comfortably without going into debt -- or at least without
borrowing to the extent that most Americans do today.
Here
are their secrets...
Be afraid, be very afraid, of credit
cards. To paraphrase Jack Nicholson’s character in
the movie
A Few Good Men, "Credit cards? You can’t
handle the credit cards!" Roughly 60% of active credit card
accounts are not paid off every month. Many people think that they
can game the system -- earn lots of bonus points or cash back by
frequently using a credit card -- and pay it off every month. In
reality, most people just end up in debt.
Pay in cash, and you certainly will spend a lot less. According
to
Bankrate.com,
the average credit card purchase ends up costing 112% more than
the purchase price (that’s right, more than twice as much)
because we fail to pay it off right away.
To me, there are only a few wise uses of a credit card. These
include establishing your credit history... genuine emergencies...
and transactions such as car rentals that require a card.
Practice the art of procrastination. When it
comes to debt-free living, procrastination can be a virtue, not a
vice. We’ve all had buyer’s remorse. That’s the feeling of regret
you get when you buy something that disappoints you. Buyer’s
remorse often is compounded by a sense of guilt when you buy
something on credit. The purchase has disappointed you, and you
haven’t even paid for it yet.
Practice procrastination when it comes to discretionary purchases,
particularly if you plan to use a credit card. Wait at least one
week between the time you see an item in a store or online and the
time you go back to buy it. Chances are good that you will decide
that you don’t want it after all. And whenever you do buy, save
your receipts so that you can return items you regret for a full
refund.
Shine up that used car. When it comes to
buying an automobile, the smart money is almost always on buying a
used (but not abused) vehicle, so you let the guy who buys the new
car pay the 20% or more in value that most new cars lose in their
first year of ownership.
Still have that urge-to-splurge on a new car? Anthony Manganiello,
author of
The Debt-Free
Millionaire, has this simple advice that helps him
resist the call -- keep your car really clean. He says that a
sparkling used car feels like a new car and helps him resist the
unending barrage of car commercials.
Buy a home, not a castle. Granted, few people
can afford to buy a home without taking out a mortgage, but that
doesn’t mean that you need to live your entire life with a mortgage
hanging over your head, as many Americans do. The secret is to
choose a house costing no more than 75% of the maximum amount you
can qualify to borrow and then aggressively paying off your
mortgage early.
"The priority is to get into something you can afford and then work
on trading up or improving the house you have," says personal
finance columnist Gregory Karp in his book
Living Rich
by Spending Smart.
Once you’re in that affordable home, begin making extra principal
payments to pay off the loan early. If in the course of a year you
make just one extra monthly payment, you can knock years and many
thousands of dollars in interest off your mortgage.
Ask yourself, "When is Christmas next
year?" That sounds like a stupid question, but as
Heather Wagenhals of the Unlock Your Wealth Foundation points out,
many people are financially blindsided every year by holidays,
vacations and other "spending events" that can be planned for well
in advance.
The same goes for "emergencies." Certainly it is possible to have a
truly unanticipated financial emergency, but for many people,
almost everything is an emergency because they’ve failed to plan --
and save -- for even those things that can be anticipated. A car
with 100,000 miles on it needing repairs shouldn’t be an emergency.
You know it’s going to need repairs... you just don’t know exactly
when.
Figure out what Grandpa would do. If you
still aren’t convinced that it’s possible to live debt free, or
nearly so, like previous generations of Americans did, keep track
of everything you spend money on for a month. Then look at that
list, and ask yourself one simple question, "Did my grandparents
spend money on that?" A second or third automobile? Unlikely. More
than one TV? Doubtful. Meals in restaurants, other than for very
special occasions? Rarely. Pet-grooming services? Not a chance.
Bottled water? Are you crazy? Tanning
salons?
Fuggedaboutit.