In this guest post, my friend Michelle from The Better Grind shares 5 money-saving lessons her parents taught her that you need to know.
I’m excited to have Michelle guest post and share her parent’s money wisdom with you all. Since this is a guest post I will let Michelle take over in sharing some tips in her own words:
I chuckle to myself when I hear people talk about financial independence is something ‘new’. In fact, the principles of financial independence are not new at all. I was incredibly privileged to grow up with parents who shared with me their philosophies about saving money. These are 5 money lessons that I learned from my parents that everyone needs to know.
Lesson #1: Live below your means
There’s only one way to save money. To live below your means. In other words, you need to spend less money than you earn.
So, you’re working hard, earning a good salary and you feel like you can afford to splurge on a nice bottle of wine this week, to plan an extravagant overseas holiday, or to upgrade to a larger home.
That doesn’t mean you should!
Why you should live below your means
If you choose to spend all of your money on these lifestyle upgrades, eventually they become your new normal. You expect them. At first, they bring you happiness, but then you want more.
So, you work harder and longer to maintain your desired lifestyle. You wonder how you can afford to save. You’ll save after that next holiday. You’ll invest after you pay-off your mortgage. But wait, by then you’ll be 60 years old!
This is lifestyle inflation.
How to Live Below Your Means
Spending less that you earn does not mean saving every penny or depriving yourself. It doesn’t mean eating beans and rice or saying no to dinner out with friends.
It means spending with intention. Learn more about budgeting and spending with intention by reading this post.
Every time you buy something, you have an opportunity to question how much value it is adding to your life. Is spending this money now bringing more value than saving it for later?
Here are a few examples of how you can intentionally reconsider your lifestyle upgrades. You can:
- Splurge on a $30 bottle of wine each week from the liquor store, or you can order a case of wine for $60 (thats 12 bottles for $5 each) and save $100/month.
- Buy the latest iPhone or you can buy last year’s model refurbished for $500 less.
- Upgrade to a new car or you can upgrade to a new-to-you reliable used car and invest the $30,000 difference towards your retirement.
Little savings invested regularly add up to large sums of money over time. There’s no right or wrong way to live below your means as long as you are spending in line with your values and saving money towards your future.
Lesson #2: If you’re not using it, cancel it
These days there’s a subscription for everything! Subscription services can be great value for money, if you’re using them regularly.
When I was younger, we signed up for a deal with our local video rental store Video Ezy (ah, how things have changed!). The deal was $1 a day for unlimited video rentals. While we had the deal, we enjoyed family movie nights at home at least once a week. We watched every single movie that we wanted to in the store. And then, we canceled. Simple.
Just a few subscriptions that you might be paying for include:
- Gym membership
- Music streaming subscription
- TV streaming subscription
- Audiobook subscription
- Cloud data storage subscription
- Amazon Prime
- Weekly grocery box delivery
- Monthly toy and treat box for your dog
There’s a simple rule to make sure you’re getting value for money.
If you aren’t using it, cancel it. You can always re-join when you’re ready to use the service and get your value for money. The company will probably send you a discount to keep your business.
If you’re letting a subscription continue un-used, instead of saving money you’re giving it away!
Would you like to go to the gym more but these days your struggling to find the time? Cancel it.
Want to listen to more books but you haven’t used your subscription the past month? Cancel it.
Subscribed to a streaming service you’re not watching this month? Cancel it.
Lesson #3: Buy the cheapest car your ego can afford
As a general rule, a fancy new car is a terrible financial investment. In fact, it’s not a financial investment at all. It’s basically guaranteed to lose you money.
The Truth About Car Depreciation
The moment that you drive your brand new car off the dealers lot it loses about 10% of its value. That’s not in the first year, the first month or the first week that you own the car. It’s in the split second that you drive out of the parking lot in your shiny new vehicle.
The car continues to lose value with time, and the largest depreciation typically occurs in the first three years. This means that new cars experience significantly more depreciation than used cars.
The benefits of owning a car
For many people, owning a car has big benefits. It gives you freedom to:
- Buy a home in a lower cost of living areas without frequent public transit
- Go on weekend road trips without organizing a rental
- Take your dog on weekend hiking adventures
The important thing is that you get these benefits regardless of whether you buy a reliable used car or an expensive new car.
Do you even need a car?
These days, I live in the city and don’t own a car at all! I walk or take public transit almost everywhere and am saving thousands of dollars every year on car expenses as a result.
I’ll buy another car one day, and when I do it will be with my mom’s motto in mind. “Buy the cheapest car your ego can afford.”
Lesson #4: Never Take On Credit Card Debt
If you are living below your means it goes without saying that you should never buy something that you can’t afford to pay for in cash.
If you can’t afford to pay for it today, don’t put it on a credit card.
I watched my parents use their credit cards responsibly to earn us free accommodation on family vacations, a fancy new espresso coffee machine, free car rentals and more!
After many years of being credit free, I finally signed up for a credit card in my late twenties and haven’t carried a balance or paid a dollar of interest yet. Instead, I’ve embraced travel hacking and cashed in thousands of points for free flights and accommodation.
If you use them well, credit cards are a powerful tool to earn you awesome free stuff!
Lesson #5: SAVING money is freedom
So, what is the reward of living by these money lessons? It. Is. Huge.
Following these principles, my parents retired younger than any of their friends and family. On a typical week, they are hiking, kayaking, painting, and cooking. One month they might take a course in philosophy, or french language, or Chinese history. Another month they might set out on a road trip in their camper. Life is their adventure!
I am incredibly privileged to have learned these lessons and witnessed the rewards first hand. I’ll be forever grateful. And now, I’m sharing these lessons with you.
These lessons won’t help you get rich quick. They will cause you to think deeply and to make difficult choices. But you can do it. I know you can! And if you do…
You can save for your freedom too.
Which of these money lessons will you apply in your own life? Let Michelle know over at her blog The Better Grind or at hello@thebettergrind.com.
Learn More: How to Get Rich in 2 Simple Steps
