Money Obedience

When I got my first job I bought a used Ford Escort for very little money and I paid cash for it. At the time I could cover all my regular household expenses with my income, but I could not save much aside from my 401k contributions. Back then I could not afford a lot of things like vacation travel, lots of clothing, and many forms of entertainment.

A year and a half after I started that job I was lured away from my first employer and asked to join another company in the same industry, and I was offered a bit more income. I accepted the job and the higher pay. You can guess that one of the first things I did was spend that money. That’s when I bought my first new car. Yes, right away. And, like most car shoppers, I did not have the money for the car in the bank; so I took out a four-year car loan. Once I started making the monthly payments on my car loan I realized that my take home pay did not really increase that much over what it had been. So, what did this teach me?

First, it taught me that an increasing income usually leads to an increasing household budget. Somehow our expenses always seem to keep up with our incomes. We never manage to save money unless we make a serious decision to do so and to stick by it irrespective of our incomes. (Of course, at a certain low income one has to spend every penny just to meet the needs of living.) But I’d learned a valuable lesson, and each time I got additional raises I tried to remain very careful about spending these raises in advance of having the money in my pocket, or bank account.

Second, I realized that I did not like making these car payments or any loan payments. Writing a check to the creditor was a dreaded monthly exercise. So, I made a point to pay off the loan faster and eliminate debt. After all, I made more money anyway and had a little extra left over even after paying back the car loan. Once I was done paying off the car loan, I started to save money for the next new car I knew I’d need to buy at some point in the future. This plan had three real advantages. (a) It meant that I could not use the raise money to increase my household budget. My living standard basically stayed the same and at a level of my lower income, and the savings goal was just added on. (b) I was a lot happier, and had less stress, because I stuck with a living standard I could easily afford. I just refused to consume more and give myself more worries. (c) When it came time to buy a new car, I truly did have the money saved up, and I that time I brought a brand new car with cash! Just like I did when I bought my very first car. The big advantage here: I did not have to pay the lender any interest! Instead, you can say that I was the one who got paid interest on the collection of car payments I’d saved up in advance. Pretty neat, eh?

I have been fortunate and disciplined enough to avoid taking on debt (besides a mortgage) ever since. I believe that such a debt-free life has added to my overall happiness even if I did not buy all the things that people say may have made me happy. But going to sleep each night debt free surely has made me feel pretty good about my finances, and probably a lot better than any frivolous purchase could have ever done.