Sunday Conversation #1

For the next few Sundays, I’m going to post a conversation I’ve had with a person I know who has made interesting financial choices in their lives. Hopefully, these discussions will be enlightening and entertaining.

To kick off this short series, I had a conversation with John. John is one of my oldest friends and my closest friend over the last several years (besides my wife, of course) – he even served as best man at our wedding. John is a single male in his early thirties and he works in quality control in a technical industry, earning a pretty solid income. What sets John apart from the pack is that he spends far, far less than he earns, and he’s been doing this for as long as I’ve known him. The end result of that choice is that he’s now in his early thirties and is beginning to build up quite a bit of money in the bank – he’s nearing “walk away from it all” money.

Here’s the conversation I had recently with John. I thought it would be interesting to highlight someone who is living by the mantra “spend less than you earn” – and living by it hardcore.

You spend significantly less than you earn. Why?

For one reason, it seems shortsighted to spend significantly more than one earns. Unfortunately many people seem to be doing just that by accruing credit card balances and other debt.

I take the long view. Is there anything I really need today, be it extra excitement, gizmos, food, drugs, sex, rock & roll, or so on? I’m not afraid to spend an extra buck to try a new restaurant or a few hundred to jump out of a plane. But I don’t need to do those things every day or every week. The financial security of tomorrow is more important to me than a large high definition television.

About what percentage of your income do you save each month?

Against common advice, I don’t have a set amount of money budgeted to save each month. The reason is that I am not lost adrift in my finances and looking to get a foothold on saving. I don’t have bad habits that need to be broken. My general mindset is not to save as much as possible but rather to manage my expenses. It just comes as a pleasant surprise to realize how much is left over each month. And instead of spending the surplus, I save it. With my current lifestyle I ended up saving about 53% of my net income for 2007. In essence, about every other paycheck went into savings.

Recognizing that this is something different than what the average twenty- or thirtysomething American is doing, is this something you learned from your parents, or is it something you figured out in adulthood?

I don’t think I learned it from my parents in the sense of talking about money or watching them deal with money. I think it was more due to growing up below the federal poverty level and knowing the value of every penny. I know I’m showing my age, but finding a nickel on the ground was a cause of celebration because it could be spent at the local gas station for either five pieces of bubble gum or one large jawbreaker. It was only the mid-1980s, but I’m sure it sounds like the twenties. I learned to be frugal by simply enduring some financial hardship in my youth.

What are you doing with that extra money? Why?

The extra money is sitting in low risk investments. I’m not risk tolerant so I don’t go after the potentially high return investments. Yes, this means that I might not have as much money as I could have had, but I will have money in the future. I also don’t like to tie up money. The thought of being able to call up thousands of dollars immediately without having to borrow or suffer penalties, i.e., being liquid, is actually quite comforting. This gives the feeling of being my own master, answerable only to myself.

Within just the last two months, I put this liquidity to practice and paid cash for my car. It wasn’t a terribly expensive car, but I didn’t have to prove I had a job, give out my social security number, or dance through hoops to get a significantly better vehicle than my old one. If all goes well, I’ll be able to drive this one for as many years as my 1993 car lasted.

Do you have any spending weaknesses? Things that you spend money on that probably don’t make sense? How do you curb that from going wild?

The only spending weakness I have is gifts. Relative to what I would spend on myself, I spend much more on others. This isn’t saying I give many or expensive gifts. While I have spent $300 on something as trivial as a globe, this a lot more than I would spend on myself. A nice gift is one of the few outlets I have to let people know that I care. I usually counter the impulse by just getting one relatively nice gift and keep my personal bank account threshold in mind.

Do you have any long-term goals for the use of your savings?

One day I’d like to pay cash for a house. Not the down payment – everything, including closing costs. I don’t know if home ownership is in my future, but that won’t stop me from saving up for just such an occurrence.

Does having this kind of cushion change your future plans? In what ways?

Having financial flexibility hasn’t changed my plans, but it has changed my perspective. I’m much more apt to consider taking a new job or willing to move to be with another person. It really is the freedom to move about as life comes.

Do you ever feel compelled to spend more money than you do? If so, how do you curb that desire?

I am quite comfortable with myself – I don’t need to buy to feel happy, love, or acceptance. Be grateful for what you have, and you will always be happy.

What do you envision retirement to be like? Will you actually quit and just pursue hobbies, or will you take up a job that’s just for pure enjoyment? How old will you be?

I love what I do for work right now. It is difficult for me to envision retirement in the traditional sense because that seems like something that would bore me to death. Sure, I like to do some hobbies, but I find I usually need a break from them as well. I’ve spent a year living that life as an adult, and it did not make me a content person. There probably will be no such thing as retirement for me, as I’m the kind of person that enjoys having an objective. Ideally, I’ll be a 987-year-old brain in a robot when I’m incinerated upon a freak reentry accident to Mars – killed doing what he loved, performing null gravity experiments.

If you have any questions/comments, I encouraged John to peek in on the comments section here and answer anything he felt comfortable answering.

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