Pearls of wisdom worth repeating

1. Always Live Below Your Means

Your means is defined as your net take-home pay for your regular workweek. It doesn’t include overtime pay or bonus pay. I worked in the auto industry where we had many years when overtime was abundant. People made much more than their base salary year after year. They would get accustomed to having this money and would spend it as if they were guaranteed to make this much every year. The automotive industry is a boom or bust industry in a big way. Inevitably we would have four or five years when it was booming, and then we would have the lean years when we didn’t manage to work steady for 50 weeks out of the year. The plant would shut down for weeks on end and that meant unemployment. Now unemployment wasn’t bad for the union workers. With supplemental pay from the union, it amounted to about 98% of regular wages. For the people living above their means, by spending all their base pay plus overtime pay, 98% of regular wages was often a 50% cut in wages. Many people got in big trouble this way.

2. Never Purchase a Vehicle New

This may sound odd coming from somebody who used to work in the auto industry but the automobiles of today are nothing like the automobiles of 30 or 40 years ago. I remember when automobiles were rusted out after 3 years and started having serious mechanical issues after 70,000 miles or so. Today’s automobiles are highly reliable vehicles that will last a decade or more and are relatively problem free for 200,000 miles or more. Several thousand dollars can be saved by purchasing a certified pre-owned vehicle. You still have the 5 year/100,000 mile warranty and can rest assured that you are buying a trustworthy vehicle.

3. Don’t Trip Over a Dollar to Save a Penny

I knew a guy who would drive across town to buy gasoline 10 cents cheaper than it was across the street. He easily burnt up his savings in the gas it took him to drive across town. I know gas 10 cents cheaper sounds attractive but if you do the math it really isn’t a big deal. The average vehicle will take about 15 gallons to fill up. At 10 cents per gallon cheaper, you just saved $1.50. Even on a 30 gallon tank you only saved $3.00. You get the idea. Understand what your net savings are. Does it make sense to buy the more expensive item at the grocery store because you have a coupon? Many times the store brand is cheaper than the name brand minus the coupon savings. I don’t find enough difference in quality between name brands and store brands to warrant the difference in cost in most cases.

4. Don’t Carry Credit Card Debt

Credit card debt is a financial death spiral. They allow you to spend money you don’t have to buy things that you can’t really afford. It’s ok to use credit cards and when used properly, they have some pretty good perks. But if you can’t pay them off at the end of the month, don’t buy it. The interest on credit cards is usually high and before long, paying the interest on the debt is sucking up all your extra cash. And if you are late on a payment or miss one, the interest goes through the roof. Pay them off every month no matter what.

5. Cheapest Isn’t Always The Best Deal

This may seem like conflicting advice from item #3 but let me explain. I was in the market for a blender. The Vitamix I wanted is a top of the line blender but it also comes with a hefty price tag. I did a little research and compromised on a lesser blender at half the price. This blender did an adequate job. It wasn’t a Vitamix but for the price I felt the compromises were worth it. Now I don’t use a blender every day and before a year was up the motor on this blender burned up. I tried to do a warranty exchange but got nowhere with it. Luckily, I had purchased it at Costco, so I could return it under their replacement policy. I got a full refund and walked to the other side of the store where I purchased the Vitamix that I should have bought in the first place. I was lucky to have purchased it at Costco or I would have been out more than half the cost of a Vitamix blender and I probably would have purchased the Vitamix as the replacement anyway. The more expensive blender ended up being the more economical purchase over time.