Thursday Trim the Trash: Keeping up with the Joneses (Continued)
Yesterday I spoke about “Keeping up with the Joneses” and how destructive it can be. The 3 examples I gave were people jumping to make large purchases such as a car, a house, and education. While I think all are worthwhile purchases I don’t think one should make them without thinking very carefully. I chose those 3 because they are probably the 3 largest purchases one will ever make and also 3 that I think people don’t think carefully enough about. Those 3 items also have emotional attachments to them. Kind of scary how such large purchases can also be the most emotional. These purchases should always be looked at from a business standpoint. If it doesn’t make dollars, it just doesn’t make sense. Here is some feedback and alternatives to these large purchases that may fit you quite well.
1) A Car
Don’t get me wrong, I love cars. They are sexy, fun and very convenient. During university, I didn’t have a car because it became too expensive. I got used to going without one. It wasn’t that bad at all. I used public transit if I had to. I took a cab if necessary. It didn’t really faze me at all. Once I left university I lived right near my work so having a car never became necessary. After a while, I got used to not having that expense. It allowed me to have more cash flow and save like a madman. There are times when having a car is essential such as for work, to commute or if you have kids. If it isn’t essential then you have to evaluate the situation. If you aren’t saving a dime and a car isn’t essential…..well you know what to do. Some solid alternatives to owning a car are taking transit, renting a car if you only need one a few days a month or simply living in a city center.
2) Owning a Home
Don’t get me wrong here either. I think owning a home is a very valuable investment. Owning a home or homes can be some people’s key to retirement or financial freedom. Owning a home can also be some people’s road to financial ruin. If the majority of your expenses go to your home then you are “house poor.” Being house poor is worse than being car poor because the numbers are just that much bigger. The craziness of the Toronto and Vancouver housing markets should scare us all. One thing we all need to understand is that a house is only an investment if you can service the mortgage. It is only an investment if it gains value as well. Just because a house sold for 1.5 million today doesn’t mean it will be worth 2 million in the future. Frenzy in the market is just that, frenzy. A simple rule of investing is to buy low and sell high. Don’t put yourself in a position where owning a home makes you house poor for an investment that might not even gain in value. Some of the richest people I know don’t own homes, remember that.
3) Education
It makes me sad that post-secondary education has become more of a business than a learning institution. I learned this first hand during my time at the University of Western Ontario here in London, ON. During those years I really struggled to keep a roof over my head and food on my table. During that time I also racked up a large amount of debt that put me in a hole for a long time. 5 years after leaving school I was finally debt free. It wasn’t easy and it wasn’t fun. Now I’m not saying people shouldn’t go to university and shouldn’t pursue higher education. What I am saying is that this as well as buying a car or a home should be looked at as a business decision. Think long and hard about what your life will look like during school and most importantly after school. I know several people who never went to post-secondary and are doing quite well for themselves. Some alternatives include learning skilled trades, on the job training or even starting your own business.
Thinking about these large purchases like business decisions means thinking about Return on Investment, (ROI). What kind of return will you get from each of these purchases? You also need to think about your budget and how a large purchase fits into it. Remember if you go over budget in one area, you have to take from another. Also, remember if you are not saving any money, then what you are doing is not working. Be aware and be disciplined.
Thank you for reading “Thursday Trim the Trash.” Tune in tomorrow for my weekly final reflection. Happy saving Friends!
“Use, do not abuse… neither abstinence nor excess ever renders man happy.” – Voltaire
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Joseph James Francis is a Financial Advisor. You can find him on various social media platforms and at budgetboss.ca.