Money Monday: How to Live a Rich Modern Life Without Debt – The Simple Dollar
Over at The SImple Dollar Trent Hamm has written the single best finance article for any UC Davis student or anyone who wants to live richly, How to Live a Rich Modern Life Without Debt – The Simple Dollar. You should take five minutes to read the whole thing for a lot of actionable tips but here’s his main idea:
My single biggest regret in my adult life is that I used debt to finance my life choices after college.
That’s about as simple as I can make it.
Debt was a huge mistake. I used that debt to get a nice car… which I no longer own. I used that debt to buy a lot of electronics… which I no longer own. I used that debt to buy a lot of restaurant meals… which I mostly don’t remember at all. I used that debt to buy a lot of books… which I mostly don’t own. I used that debt to delve into expensive hobbies… which I mostly don’t participate in any more.
Almost all of that debt went to nothing. It simply went to finance a short-term lifestyle, one that has almost completely vanished in just a few years.
Why did I let that happen? It’s simple. I believed that to live a modern, comfortable life, I had to get into debt.
Essentially, I bought into the idea that there were a bunch of things that I needed to have in order to have a life that didn’t feel like “poverty,” and I needed those thingsnow.
The whole idea was ludicrous, of course. After a few years, I was left with very little other than an aging car, an apartment full of barely-used stuff, and a gigantic pile of debt.
What happened once I figured this out? I continued to have a pretty good day to day life, but I paid off every cent of that debt including a home mortgage within five years.
The truly sad part of this tale is that I now realize that I could have had virtually everything I actually valued from life back then without taking on a cent of extra debt. I didn’t need to have a car loan or a bunch of credit card debt to have a really good “modern” life.
Here are several key things that I figured out about life that I dearly wish I could drop in my lap in, say, mid-2002 or so. If I had understood those things then and applied them, I would probably be retired right now.
Stop Buying Stuff You Won’t Remember in a Week
This is perhaps the biggest lesson I’ve ever learned about personal finance. If it’s an item or an experience you won’t remember in a few days, you shouldn’t be spending any money on it. If it’s completely forgettable, then any money you spent on it is basically just lost.
The only completely forgettable things you should be spending money on are your most basic life needs – basic food, basic clothing, and shelter.
The thing is, people often have a memorable event where they do something they enjoy – like enjoying a delicious morning coffee with a friend – and then start repeating it and repeating it until it’s completely not memorable any more. It becomes normal and completely forgettable, and when you have an extra expense that has become normal and completely forgettable, you’re literally throwing money away.
Even “special” purchases can become completely forgettable. The first book you buy this year might be memorable, but the 30th? It just gets tossed on your shelf.