Sunday, November 27, 2011

Financial Freedom

Around this time of year there are a flood of pieces about being frugal for the holidays... bake cookies, give your time, re-gift, and make your own, are all extorted as ways to save some money for the holiday season.  All of these ideas follow the formula of the majority of personal finance books which talk about keeping budgets and planning, packing your lunch, making your coffee at home, etc.

I've been thinking of late that such advice is wrong on many levels.  My simple thought on the idea is that where most people screw up their finances are in three places - housing, automobiles, and education - it's the big ticket items that take away our freedom, not the morning latte.

It's, in part, simple math.  The average mortgage payment in the U.S. in 2006 was almost $1700, the average car payment is roughly $400 a month, and the average student loan debt is $25,000 with a monthly payment averaging $275 a month.  Think of what you pay a month in non-income generating mortgage payments.  Instead of paying $1700 a month, what if you paid $850 a month? It would take you about 10 years of not buying latte's for what you'd save in one year of mortgage payments.  Instead of buying a $30,000 car, what if you bought a $5,000 used one?  Well, for that $25,000 in savings you could attend a movie a week with popcorn, drink, and junior mints for the next 24 years.

We've been told that success is a big house and a nice car, it's been ingrained in us from a very young age.  But, what if success is the freedom to do what you want to do when you want to do it?

(only somewhat related, but I liked this exchange in the movie The Tourist between Johnny Depp and Angelina Jolie:
Frank Tupelo: Would you rather have me smoking for real?
Elise: I would rather you be a man who did exactly as he pleased.)

We've paid lip service to freedom, but we've bought into servitude and indebtedness.  Students today are leaving college with no option but to take whatever job they can find that pays enough money to pay off the student loans.  If you've got a big mortgage and car payments you can't get fired, you don't have that freedom, how does that affect your behavior and performance?  We complain about how busy we are and the stress, the anxiety of our lives, and the lack of money to go Christmas shopping, but we can't look ourselves in the mirror, and our friends/families/neighbors in the eye, and say - 1500 square feet and four good tires is more than enough, and well worth the price for the freedom it provides.

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