Common Sense

By James Schaefer

A friend I knew many years ago used to say, “A little stupidity goes a long way.”   Let’s re-phrase that and say, “A little Common Sense goes a long way.”

Herewith are some bits of wisdom that have been shared with me over the years.

1)  Live below your means.

No matter how little you earn, save something from each and every paycheck.

Debt is slavery; having savings is freedom; save until it hurts.

2)  The power of compound interest works in two directions: it works against you if you spend with borrowed money, and it works for you if you save and invest.

Money is magic, and this single point – the power of compound interest – is the “genie in the bottle”  that makes it magic.

The genie can be your master or your slave — you get to decide.

3)  Distinguish between what you need and what you want.

You need to determine whether high fashion, expensive jewelry, new cars, a “starter castle”, and the latest electronic gadgets, especially if purchased with borrowed money, are more important to you than financial stability.

You need to decide if they are worth more to you than having robust retirement savings and holding no debt, and whether you want them so badly that you cannot wait until you can buy them with cash.

If you don’t have that kind of patience, there’s no need to read any further.

But here’s a secret.

With the exception of a house, you can have all those material things, and you can have robust retirement savings and no debt.  You can have them both.

It only requires that you change the order in which you acquire them.

Build your savings first, then purchase the goodies later, using cash.

The timing of the purchases is everything, and your attitude about debt and savings is everything.

4)  Never, ever spend borrowed money for things you want, but don’t need. 

Borrow only for things you need, and even then, limit the use of borrowed money to three things only: an education, a home, or a business (our thanks to George Houghton, CPA, for this insight).

And even then — to the fullest extent possible — ensure that the return from those three investments can pay handsomely above your costs and within a reasonable period of time.

For all other purchases, especially for things you want but don’t need: save your money until you can purchase them with cash.

More importantly, save your money and pay only with the cash that comes from the interest or earnings on your investments, leaving the principal untouched so it can continue to grow.

5)  Plan for 37 years in the working world (roughly age 22 to age 59), and 37 years in retirement (roughly age 59 to age 96).

If you are fortunate to have good health and a grateful employer, and are able to continue working to age 70 or beyond, then by all means, do so; but in the meantime plan for retirement at age 59.

And plan for a retirement that is much nicer than your working years. 

6)  When you absolutely, positively have to have some new consumer item, remember:

for a true, deep-seated feeling of satisfaction that beats the thrill of “retail therapy” a thousand times over,

there is nothing — absolutely nothing — so reassuring during a time of recession or job loss as having robust retirement savings and holding no debt.


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