Dad’s Most Valuable Advice
In honour of Father’s Day, I thought I’d share the most valuable piece of (unsolicited) advice I ever received from my father.
I was a teenager (14, maybe 15) and there was something I desperately wanted (frankly, I don’t recall what it was, but it must have been vitally important because I was on a bit of a ‘tear’ about it). I do remember that I was in the living room with my parents, doing one of those ‘wailing speeches’ that only teenage girls can manage about how I NEEDED this ‘thing’ but that I wasn’t sure I could afford it.
(NOTE: this was an era when parents neither ‘gave’ nor ‘loaned’ their children money for superfluous items; when only the most affluent families had credit cards [and they didn't hand them over to their children to use]; when there was a very distinct understanding of the difference between ‘wants’ and ‘needs’ – I wasn’t asking my parents for the money, I was merely deliberating aloud about the [im]probability of being able to buy whatever it was that I very much wanted at that moment).
My father, without looking up from behind his newspaper, calmly asked, “Do you have that much money in the bank?”
I stopped, sucked in a breath, and answered (honestly), “No.” (In the back of my mind I’m fairly certain I was thinking, “What’s that got to do with it?”)
“Then you can’t afford it,” Dad said.
I might not remember what it was that I wanted at that particular point in my life (obviously I didn’t buy it, yet clearly I survived) but I do recall Dad’s words – and I’ve followed them pretty much for the last 40+ years of my life.
If I don’t have the money in the bank, I don’t buy stuff I don’t need (and if I need something I can’t ‘afford’ right now, I save up for it).
It’s a pretty simple rule and it’s kept me debt free my entire adult life (the obvious ‘exceptions’, of course, being mortgages on three homes [that I knew I could ‘afford’, based on a careful assessment of income vs. expenses] and a couple of new car loans [one car served me for over 12 years; the other I plan to drive until the day I die]).
Following this simple ‘rule’ hasn’t meant that I (or my family) have ever ‘gone without’ – in fact, we lived (and continue to live) quite comfortably. My boys were raised in a big four bedroom house on a large lot with a huge pool in the backyard; they had more toys than they could play with; we went on family camping trips and annual vacations to places like Disney World, Las Vegas, California, and the Gulf Coast; they took part in summer sports, computer, and nature camps; there was money in the bank when it came time for them to go to College; and I have a healthy retirement fund waiting for me when I reach 65. And lest you think this was only possible because our household income was somewhere in the stratosphere, let me assure you, it was not (in fact, I was teaching on a part time basis while the boys were young, and their father was earning a very modest salary – we would have been within the ‘average Canadian family’ income bracket). We simply adopted the policy that we would only buy what we needed (not ‘wanted’), save for future purchases, and live (responsibly) within our means. It wasn’t exactly difficult, but it did take commitment and a healthy dose of common sense (something my father always said, ‘ain’t too common’).
I’m flabbergasted when I see news reports that state the average (Canadian) debt to income ratio is 162% (meaning the average person owes $1,620 for every $1,000 [in AFTER TAX dollars] they earn); that consumer debt (i.e., excluding mortgages) is $30,000 per person (and rising 3.5% every year); that the average individual pays $1,400 in interest each year on their lines of credit (that would go up by $350 if interest rates rose a mere 1%, or $600 if they went up 2%); and that a frightening number of people (over 20%) see ‘no issue’ with carrying credit card debt (even with interest rates bordering 20%) or paying only the ‘minimum required payment’ each month. NOTE: to put that idea into perspective, consider these facts:
- it would take 2 ½ years and cost $150 in interest to pay off $500 on a credit card that charges 19.8% interest and requires a ‘minimum monthly payment’ of $20 (assuming the balance never increases)’;
- a $2,000 balance on a card with a 2% minimum monthly payment (e.g., $40) would take 265 months (that’s more than 22 years) and cost $4,800 in interest to pay off;
- even at a ‘low’ rate of 18.5% and a minimum payment of $20 a month, it would take 11 years and cost almost $2,000 to pay off that $2,000 (meaning the item ends up costing the purchaser DOUBLE what they paid for it).
With the cost of living increasing exponentially every year, I realize it’s hard for some people to (think they can) manage, but I honestly believe a careful review of income vs. expenses, ‘wants’ vs. ‘needs’, and future goals could turn things around for many. Above all, remembering what my father told me ‘way back when’ couldn’t hurt: If you don’t have the money in the bank, you can’t afford it.
That solid bit of advice has certainly benefited me all the way to … the other side of 55.