Common sense and life experiences
Apr 26, 2017 12:02PM
● By Neighbors Magazines
by John Masus
As a young man I began my career as a life insurance agent collecting monthly premiums on existing policies and recommending additional insurance if needed. (Trying to guess my age?) As part of my business, I contacted new homeowners to talk to them about mortgage life insurance to pay off the mortgage in case of the death of the breadwinner. I once went into a home where the occupants had no furniture except a folding table and folding chairs. Other times only the kitchen was furnished. They would tell me that they bought a much bigger house than needed primarily for resale value in the future and now since the mortgage payment was larger than anticipated they would have to wait indefinitely on the furnishings.
On the face of it, buying more house than needed made sense as in planning for the future. However, increasing debt because of the potential future sale and then living paycheck to paycheck with very little furniture doesn’t make for happy times. Besides, we saw in the recent housing crash how too much debt can be very costly.
The story is true and I use it as an illustration because I think it’s something not to do. I don’t believe income should have to catch up to lifestyle. Too many things can happen to get in the way of that plan. I do believe lifestyle can increase along with income as long as it doesn’t overwhelm the income.
Living within your income range requires a certain mindset. It also allows you to do longer term planning in a way that gives you a sense of accomplishment. An affordable lifestyle now with the knowledge that you are securing your future.
In my last article I mentioned that according to the Boston College for Retirement Planning, half of all households headed by people age 55 and older have no retirement savings at all. I got to thinking about that report. When first reading it, it is just a piece of information that we read and then move on to something else, without really allowing it to sink in. But what if this is actually true?
Does it really matter? Eventually it would if you are in that bottom half and have to work long past the age you wanted to work with no end in sight. If that becomes the case, the plan actually fulfills itself.
I think the key factor here is behavior and acknowledgment that living within one’s means and paying yourself first is paramount. We live in a material world environment. We spend more on things than any other society on the planet.* In fact, we are a debt economy. Almost 20 Trillion and counting.**
As a group it’s hard to figure out where all this is going and what can be done. As an individual you can create your own world and know you’re doing what works for you. Excessive debt is not anybody’s friend. It’s excessive when you are trying to figure out how to pay the debt. If you have to keep transferring outstanding debt from one card to another or are making minimum payments.
At that point what’s really needed is, first and foremost, a spending lifestyle readjustment and then a debt reduction plan. Like losing weight it’s not easy but good financial health depends on it.
We can’t solve problems by using the same kind of thinking we used when we created them.
*The Economist—March 2016
John Masus CFP, ChFC, CLU is an LPL registered principal with clients in 24 states. Securities offered through LPL Financial. Member FINRA/SIPC. Masus Financial Group, Ltd. is a Registered Investment Advisor and a separate entity from LPL Financial. Masus Financial Grp, Ltd. has been located in downtown Batavia for over 24 years. John can be reached at firstname.lastname@example.org or 630-879-8464. masusfinancial.com