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Hi! I'm Mike and this is my wife, Jen!  Since we began this site, we've learned to live more frugally, completely eliminate our debts, create new income, radically increase our net worth, and live altogether better lives!  Sign up below for instant access to our members-only toolbox, including our exclusive guide:  15 Steps to Fix Your Broken Finances and Live a Better Life!

Friday
Jun272014

Earnings, Savings, and Time

In my writing over the last two years here at LTNE, we've spent a good deal of time talking about saving money.  We've sold a car to become a one-car family, cut our cable TV, replaced one of our cell phone plans with a very inexpensive home telephone solution, worked hard to save money with our grocery shopping, cut our restaurant expenses, worked to be intentional about spending, and on and on.  

All of this has made an immense difference in our savings rate, which has allowed us to dig out of debt and start some pretty substantial monthly investing.

But here's the other side of that:  we've also increased our incomes substantially over the last two years.  As much as we've talked about passive income-- and I'm a genuine believer in maximizing as many income streams as you can-- our active income has made the real difference between our old financial insecurity and our new, burgeoning financial security.  

I'm at the peak of my earnings years in the military and my wife returning to work has added another substantial chunk of monthly income that we can turn around and immediately invest.  These facts matter immensely.

At the apex of our internet-based passive income effort-- with all of the hundreds and hundreds of hours we'd invested into this site and our other ones, we only just approached the $1000 threshold in monthly passive income.  As a percentage of our monthly active incomes, this really is fairly insubstantial.  

In many ways, getting ahead financially really is a three-sided proposition:  you have to earn, you have to save and invest, and you have to have time.

So, is it possible to have a secure financial future with low earnings?  It will be tough, but if you have a long-enough horizon and you save enough each month, then maybe.

Can you spend a ton and still get ahead?  Sure, if you have a high enough income.

What about us?  We increased our savings rate each month to well over 50 percent now (and I'm trying to squeeze out even more!).  Where we suffered was in our time horizon.  For far too long, we had very little savings and investments, but we counted on the very worthwhile military pension earnings that we looked forward to, plus a sense that I'd leave the military and move fairly seamlessly into a high-paying job.  When we became less certain of that glidepath, late in the game, we've needed to really amp up both our savings and, where we could, our earnings as well.

No doubt, this is all common sense in many ways, but how many of us still bone it up?  

If you want to have a Scrooge McDuck pile of money to dive into at one point in your life, you'd better amp up your earnings, save as much as you can, and start early.  Don't forget:  this pile of money isn't an end in and of itself.  That pile of money represents freedom-- well, at least as much freedom as money can provide.

If you fail at one or more of these, the other leg(s) will have to make up the difference.  

If you have a low-income job, is there a path to a higher income there?  If not, can you get a new job?  If not, how else can you increase your earnings right now?  

If you are spending too much, what can you cut right now to increase your monthly savings?  Have you eliminated all of your soul-killing debt?  If so, is your money working for you now, with solid investments?

If you don't have a long time horizon, you're going to have to brute force your way-- right now-- to a better net worth, as you've already sacrificed the time value of money and need to do your best to make up for that fact.

As always, we welcome your thoughts in the comments!  

Monday
Jun232014

Resisting the Urge to Buy a New Car

Sometimes I miss my car.  Having a second car in the family gave us loads more flexibility, plus it was nice to be able to just get in it and go do something without having to worry about everyone else's schedule.  To me, driving my car was an event.  I loved it.  But, truth be told, I just didn't drive it that much.  My office is only ten minutes away by bicycle and Jen's is five minutes away by car.  As much as I liked the flexibility of having it, it did sit in the garage quite a bit.  

So I sold it and we became a one-car family.  Instantly we reduced insurance expenses, maintenance costs, and I no longer had a monthly payment.  Since I liked to rub on my car on the weekends with expensive waxes and polishes, those expenses went away too.

Our 2005 Odyssey mini-van, as soul-killing to drive as it is, has served us well.  We change its oil on time every 3,000 miles and it has rewarded us with trouble-free driving.  Paying for a 10-year, 100,000 mile warranty when we bought it paid off narrowly when the few problems that we have had emerged (side door issues, a problem with the DVD player, etc.).  

115,000 miles later, we seem to be at some sort of inflection point.  It started leaking somewhere in the back tailgate area.  After a few Google searches, I found out that that problem was fairly common and I was able to fix it myself by removing a few clogged up drain ports.  I accidentally left some watermelons that I had bought for a party in the back-- I forgot about them and, a few days later, the car really stunk.  Jen, at this point, began to ask about a new mini-van.  I convinced her to hold out.

Now the right front headlight keeps coming on and off and I haven't yet been able to figure that one out.  Also, our exhaust has started to clang.  Yesterday, in a monsoon of a rainstorm, the battery indicator went off on the dash and the van shut itself down for a second.  All the while, the pressure to buy a new one builds.  

Why am I resisting still?  

1.  We don't have a car payment and I love that fact.  If I buy a new van, I will have to pay cash-- I don't want a car payment-- and that takes cash out of our investments.

2.  Our existing van has its fair share of bangs and bruises.  If I buy a new one, I get to once again stress about parking lots and our kids' collective effects on the interior.  Right now, if they have ice cream in the car, I can give them a stern warning about not making a mess.  If I have a new van, the ice cream won't be allowed, until the inevitable wear and tear causes me to give in.  Plus, I'll assuredly spill coffee at some point.

3.  Buying another mini-van is still buying a mini-van.  I don't care how nice it would be, inside and out, but it is still a mini-van.  It is an expression of pure family utility, a condition that it can never transcend.

4.  I absolutely despise the hassles of a new car purchase.  Even with techniques that I've used in the past to stop dead the back and forth negotiations over price, you still have to worrry about the trade-in, and, more importantly to me, I have to get the car registered in the state where we are residents, worry about the taxes and fees, get new stickers and plates, and then do all of the stuff to get the car stickered for DoD. 

So, my plan for now is to shlep our Odyssey over to our local mechanic, track down the existing problems and pay for them to be fixed.  Whatever that ends up costing will sure be a whole lot cheaper than the alternative, our investments will remain right where they are, working hard to make us wealthier, and I won't have to worry about the stuff above.  

Plus, that watermelon smell is almost gone.  Jen, are you reading this?

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