The Rewards of Fiscal Discipline

One of the many things that amazes me about Americans is their lack of fiscal discipline.  If I were Elizabeth Barrett Browning, I’d say, “Let me count the ways.”  As a society, we continually opt for short-term gratification, which leads to long-term instability.  So I thought I’d take some time today to point out some of these poor choices we make.  As many of you know, I retired from business two years ago to pursue my dream of a challenging writing and speaking career.  I couldn’t have done that if earning money still was a necessity.  Someday, hopefully, you’ll be 68 and have dreams you’ll want to pursue, too; I want you to be in the fiscal position to go after them. It’s a worthy goal you should want for yourself, too.

Short-term gratification versus long-term stability.  You look at your peers and you want the same things they have.  You’re dying to drive that two-seater convertible, only it’s so far out of your price range you just know you’ll choke on the payments, to say nothing about how it will drive your savings rate into the minus column.  (We’re up to a 5% savings rate I’m told; it’s better than the zero rate we had before the economic tsunami that pummeled us in 2008, but still far below the rates of most other societies.)  What to do?  You know you should be saving: for the house you want, for your children’s education, for your retirement; but the lure of that two-seater is so powerful you just can’t stop thinking about it.  Oh man, it’s driving you crazy….  You just have to have it!  What the heck, there’s plenty of time for saving, right?

Wrong!

Have you ever heard of the concept “pay yourself first”?  What it means is you establish a savings plan and you put a set amount into it off the top; it’s money you never see, so spending it is not an option.  Of course, to do that you must be willing to sacrifice now for fulfillment down the road.  That future fulfillment must be more important to you than the two-seater, or wide-screen television, or you name it.  You must be willing to put off your tremendous desire for instant gratification for a better tomorrow.  You know what?  It’s worth it!

When Nicki and I built our home 26 years ago we opted for a ten-year mortgage.  It was a load at the time, but it saved a tremendous amount of interest and, once the loan was paid off, freed us up to put that mortgage money into other savings’ vehicles.  Perhaps a ten-year loan is too much of a burden for you, but maybe a 15-year loan is feasible—look into it.  The monthly payment difference between a 15- and 30-year loan is not that great; it’s another way to pay yourself first and achieve long-term benefits.

Credit cards: the rule in our house is credit cards are a free 30-day loan.  They are not to be used unless they can be paid in full when the bill comes in.  To pay the ridiculous interest rates the banks charge on these cards, as well as the exorbitant fees they get away with, is insane.  Don’t do it!  If you have credit-card balances, pay them off, get off the interest-paying merry-go-round.

Car loans: I come from a generation when the longest term you could get on a car loan was three years.  Today car loans have turned into mini-mortgages.  The rule should be if you can’t pay it off in three years, you can’t afford it!

Retirement planning: Do you have a long-term plan for retirement?  Half of you do, half of you don’t.  If you’re in the wrong half, it’s time to change things.  It’s time to find a way to pay yourself first for retirement, too; to max out IRAs and 401Ks; to watch that invested money grow and grow into a sum which will astound you when you arrive at my age.  Pay attention to Social Security, too:  Approximately 70% take Social Security too soon, losing out on a lot of money in their later years.  The rule, for most of you, should be to wait as long as you can—to age 70 if at all possible—to claim benefits.  Take the time to study it.

If you’re lucky, you’re going to live a long life.  Live it fiscally sound and the rewards will be worth it, I promise you.  Today is important, but a sweet tomorrow is just as important.