I found an article that was written in light of a recent blog posted by an incredibly wealthy man who was complaining about being broke. I thought it would be helpful to those of you with lots of money, but no common sense.
"Adjust your expectations. "I can show you a client of mine right now who lives in a suburb of Chicago, he's a doctor, makes $350,000 a year, and he routinely racks up $25,000 on his credit cards," says Michael Kalscheur, a financial planner at Castle Wealth Advisors in Indianapolis. The reason? Too many people have "unrealistic expectations," says Mr. Kalscheur. They figure they should be vacationing in Italy, driving expensive cars, the whole deal. "We need to knock him upside the head. He's got to stop spending money." Every financial planner will tell you the same thing: The real challenge is tackling the psychology.
Refinance your mortgage. I have no idea how big and expensive your home is, but you can now get a 30 year jumbo mortgage at around 5.3%. Even on a $1 million loan that comes to $5,500 a month, and it's tax deductible. If your home is so expensive that you can't even afford it at these rates, you can't afford it. Sell it and move somewhere more affordable. If you're underwater on the mortgage, talk to the bank. Forget about "equity," which may not exist, and look at the cashflow.
Get a grip on your discretionary spending. Carry a pocket notebook with you for a month, and write down everything you spend. Get your wife and children to do the same. It will help you understand where your money is going. Almost every financial planner will tell you that this is invariably a huge eye-opener. As Jonathan Sard, a financial advisor in Atlanta, says, you may find you spend $100 in Target every time you go in for lightbulbs, or spend $300 taking your kids to a White Sox game. With everyone it's different, but you need to know where the losses are. If writing everything down is too much of a challenge: Junk the plastic, and just carry cash. This is instant budgeting. If you carry $500 a month, that's all you can spend.
Think about relocating. No kidding. It's not about how much you earn, it's about how much you get to keep, and if you are paying too much to live in an expensive town like Chicago, you may be much better off earning less somewhere cheaper. You and your wife both have highly portable jobs. According to the ACCRA Cost of Living Index, someone earning $350,000 in Chicago could get the same standard of living on just $230,000 a year in, say, Austin, Texas or Cincinnati.
Reconsider the investments. You say you're putting money into the stock market each month, even though you are paying off huge student loans. You need to do the math. If your investments are through a 401(k), they make sense: They're saving you taxes, maybe taking advantage of a company match. But if they are in addition to your 401(k) plan, they may not make sense right now. You are probably better off using the money to pay down that debt.
Rethink the two cars. Are you leasing them? How much are they costing you a month? This is one of the biggest ways middle class families blow their cash. I can't believe the number of people who think these moving white elephants are a status symbol. When I see an expensive car go by, all it tells me is that the owner is (a) insecure and (b) has no sense. These days you can get a decent set of wheels for a lot less than $10,000. Buy used. Pay cash. Run it till it dies.
Rethink the schools. You're sending your children to private school. But how much is it costing you? I take your point about terrible local public schools, but can you move to a neighborhood with better public schools? Or downscale to less-expensive schools?
Talk to a tax accountant. You say you're using TurboTax. With your income, you might benefit from some professional assistance. Are there deductions you can take that you're not using? Are you subject to Alternative Minimum Tax? Should you make your fourth quarter state and federal tax payments before Dec. 31? You may be able to help your financial position.
Go after all the little costs. You're hemorrhaging money. Get the kids to mow the lawn or do it yourself. Bake your own bread. Cook your own meals. Buy generic brands and bulk brands. Go to Costco, Sam's Club and other discount clubs. Junk the landline. Junk cable for Netflix. Rethink your banking: You're probably bleeding money through needless "fees" every month. Forget the "conspicuous consumption." Go for the conspicuous unconsumption. Brag about how little you spend. Find new ways to avoid spending money."
Really, these things should be common sense. But SO many Americans are so spoiled they don't seem to understand that the fact that you WANT it now does not necessarily mean that you should buy it now. I know people who like to do things like buy a new house before the old one is sold, or purchase a new car with a crappy loan because the old one is too cramped in the backseat. Really, someone explain to me why ANYONE who is living responsibly within their means even needs a credit card IN ADDITION to their existing loans?
There are people all over this planet who are struggling just to eat every day; why is it that so many of us define our "needs" based on comfort and vanity? Really, is there a reason to buy the new model when the same car used is $5,000 cheaper? Is your brain going to explode if you don't have the navigational system put in? How many phone numbers does one person need, again? And here's the one I really don't understand: if THIS rice is $0.13 per ounce, and THIS rice is $0.75 per ounce but has a more colorful package, why in God's name would you pay extra for the part that you will not keep?! The thing is, you're only paying for the packaging.
Let me break this down for you.
The cheapest way to print packages and labels for foods and beverages is to use three colors of ink or less. Any more than that, the manufacturer is doubling their costs, and they're certainly not taking that bullet for you. This is why the most extravagantly packaged items come with an extravagant price tag. Did you know that buying generic brand food (which is the SAME STUFF, people!) can save you up to 50% on your grocery bill? The same thing goes for medications. Identical ingredients, simpler packaging. Sometimes, the simpler stuff is even BETTER FOR YOU.
Simple things like TURNING THINGS OFF AT NIGHT can save big money too. Did you know that letting your computer idle instead of turning it off can cost you up to $500 per year if you never shut it off?
Really, it isn't harder to save money these days, it's just that people expect more. It's not just the basic food, clothes, transportation and housing; people think they NEED pretty brand names, designer labels, brand new cars and three extra bedrooms. I'm not judging those who choose to live beyond their means. I'm just saying that I'm tired of hearing them talk about how broke they are.
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