Archive for July 31, 2007
The Goal of Saving is Spending
For short periods of time you can deprive yourself of certain comforts in order to afford others. Just after graduation I lived in a group house in DC with five other people. But I also went out to eat quite a few nights a week and spent quite a few hours in bars down in Georgetown. Of course, I couldn’t spend money on anything other than food, because I didn’t have the space to store anything new. But there is no way that I could have lived in a messy, dysfunctional house, eaten dinner at home every night, and deprived myself of any activities with friends or family. Instead I chose to save money on the biggest expense: housing. With only $310 in rent due each month, (in 1999), I was able to save a significant amount of salary, and still have an incredible life in the city.
The point is: the goal of saving money is not to wake up one day with a pile of money. The goal is to save money in certain aspects of your life in order to be able to afford other luxuries. I am proud to say that I have never kept a balance on my credit card. Every month I have found a way to cut back on one expense in order to be able to afford another. Plus save a significant amount of my salary. If you can save $40 a week in groceries. Then you deserve to eat out every once in awhile with the $40 you’ve saved.
Two summers ago while my husband and I were vacationing I went for a walk and found a house I thought we should buy. When I mentioned the house to my husband, he said, “I’m not interested in buying a house. Let’s just finish paying off our primary mortgage.” At first, he was unwilling to sell his stocks or mutual funds. He had grown attached to the balance in his brokerage account. He had gotten used to seeing a certain number and didn’t want to see that number dwindle. He had forgotten that he was saving money that should ultimately be spent.
Of course, that doesn’t mean every time you save money you go out and spend it. I’m certainly not advocating that. Rather we save money in order to be able to enjoy our lives. There is no point in saving every dollar today and then waiting 30 years to take pleasure in that money. Along the way you have to enjoy your life, and more often than not, that enjoyment will require spending some money.
Buying our beach house is one of the best decisions we’ve ever made. Driving down to the beach, my husband and I get to spend hours alone discussing our dreams and plans for the future. We get to sit out on our deck and watch the sun set. We get to start each new day with a morning swim. Had we not bought our house we would have put the money in the bank and watched our balance grow.
This is, of course, more noble than spending all your money, or worse yet spending more money than you actually own. If you’ve read any of my other posts you know that I am a huge proponent of saving money, but I also think it’s important to enjoy the money you save along the way. The goal is to be frugal with your money… not miserly.
Do You Find Comfort in Your Home Equity?
My father has always been the primary provider in my family. One night a neighbor told my father she planned to pay off her mortgage early. My father fell in love with the idea. That night he came home and told my mother that he planned to pay off the house as soon as he could. With a limited income, and two children with two college educations, he managed to pay off his house 7 years early.
Three factors went into my father’s decision to pay the house off early. First, he knew that he would save money. Second, if anything happened to him, he wanted to know that my mom, brother, and I could remain in our home. Third, he knew that my mother did not have a head for numbers. (My mother is dyslexic.) In case anything happened to my father he wanted to ease my mother’s distress by letting her know that she would not lose the house and didn’t have to generate the income to continue paying the mortgage.
Because of this decision, my father has occassionally been forced to treat his house like a bank. Most of the time he makes extra deposits, but a couple of times he has been forced to make withdrawals. Since he invested his savings in the house he had little money stowed elsewhere. It’s not that he didn’t have any savings. He did have money in other accounts, but the majority of his wealth was in his home. So whenever a large expense fell upon his shoulders, like college tuition, he turned to the trusty HELOC.
I find this reasoning and logic quite interesting. The goal is to find comfort in the fact that your house cannot be taken away from you. But then you take money out of the house, via a HELOC, which again puts your home at risk.
My father recently took out a new home equity line of credit on the house. To my knowledge he has no plans to use the line, he simply opened it in case an emergency arises and he needs the money. But I can’t quite figure out why he chose a HELOC at this stage in his life. I know he has money set aside in both retirement and non-retirement accounts so he should never need to tap this line. I wonder… after all these years of having a HELOC as his safety net, does he feel at risk without one?
