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Sacrifice Determines Value

10.08.2010 by Matt Jabs //

In the comments of a recent DFA article – highlighting how we always have options to help us overcome fear and unhappiness – one DFA reader tells of his lack of financial resources necessary to receive a degree he’s interested in.  My reply to his comment made me realize how perfectly personal sacrifice determines value… which is a concept well worth an article all its own.

Here is our comment exchange:

Comment: You know, I really like the way you track your financial progress openly and publicly like this. I especially like the “education loan” part, I think that’s the amount that I have to churn out if I want to get the advanced degree that I have been eying for the last 4 years.

My reply: Thank you, putting the information out there helps me to better realize my mission and reach my goals. I would encourage you to think long and hard before taking on new debt. I hope that you come away with the understanding that you should avoid paying later. If you want the education, save, work, and pay as you go. That way you value the education more because you are FULLY aware of how hard you are having to work to get it. Where as, if you get the education before paying for it, not only will you have to pay it back later at the expense of freedom of choice, but you run the risk of not valuing it as highly since you haven’t sacrificed for it yet.

What do you think?

Do you value things more if you sacrifice to get them as opposed to getting them, then having to pay for them later?

Categories // Debt, Savings Tags // Debt, sacrifice, Savings, student loan, value

Taking Action to Meet Our Savings Goal

03.19.2010 by Robert Espe //

Taking action to save money

Lately I have been talking a lot about the importance of deciding exactly what you want for your money, setting goals, and making sacrifices to reach them.  This week I wanted to show that process in action, to provide an example of how this can work.

My savings goal

This year I set a goal for myself to save $22,000 toward the purchase of a home.  In order to do this, I have to set aside $875 from every paycheck, while still paying all my other bills, and saving for expenses such as health care, auto maintenance, etc.  So far, I have managed to stay on track, and have saved over $5,000 since January 1st.

Our savings goal may be too lofty

While I have been making excellent progress, keeping up with my goal every month has required all of my surplus income.  I have a $10,000 emergency fund, so this is not a critical problem, but it does mean that if I had to draw on my emergency fund, I would not be able to replenish it and stay on track with my goal.  Additionally, surplus income allows me to budget for discretionary purchases.  What this means, is that if an emergency occurred, or my wife and I wanted to buy something, we would not be able to meet our goal.

Our sacrifice to meet the savings goal

My wife and I talked it over, and decided that we would make a change in housing to free up extra money.  Most areas of our budget are already pretty tight, but we spend $700 month for our apartment, which is a little steep.  We have lived here for a year, and have no complaints, but we initially chose it simply because it was easy to find, which was important when we moved into the area.  I was sure there had to be better deals available, and a little research revealed an apartment of the same size for only $495/month.  After a phone call, and a visit, we decided to make the change, and are now just waiting for our move in date.

Sacrifices and Gains

There are pro’s and con’s to every decision made.  Here are some of the things we had to give up, and some of the things we gained by making this move.

Cons

  • Location.  Our current apartment is right across the street from where I work in a prestigious area of town.  The new one is not in a bad area, but it is older, and will add 5-10 minutes to my commute.
  • Perceived Security.  Our current apartment is a gated complex; the new one is not.  However, we have noticed that the gate to our current complex is frequently left open for long periods, either because it is broken, or to allow for deliveries.
  • Laundry.  This is probably the biggest one for us.  Our current apartment had a washer and dryer in the unit; the new one has an onsite Laundromat.  The actual cost is negligible, but we both enjoyed the convenience of not having to leave our apartment to do laundry.

Pros – Savings!

  • Rent.  We will save $205/month just on the face rent.
  • Water.  Our new water bill is included in the price of the rent.  This will save us $12-$15 dollars a month.
  • Gas Bill.  Our current apartment has a gas water heater.  This was the only gas appliance, and the monthly base fee for gas hookup is $15, making for an average $17 month bill (even though we only used $2 worth of gas).  Absent additional gas appliances, it makes sense to have only one utility bill, and the new apartment has all electric appliances.
  • Internet.  Our current apartment required that they provide any Internet service.  They charged us $45/month for the slowest service.  The new apartment allows us to get out own contract, and due to a sale, I will be getting faster internet for only $30/month (price locked in for 1 year, same as my lease)

Pressing on toward the prize

I have previously written that sacrifice is made meaningful by having a goal.  This is a perfect example, because my wife and I both hate moving.  It is uncomfortable; a lot of work, and there are some not inconsiderable downsides.  It would have been far easier to simply maintain the status quo.  However we do have a goal, debt-free homeownership, and because we kept that goal firmly in mind, we have the motivation to make a sacrifice that should net more than $3,000 dollars a year to propel us toward our objective, while also returning a surplus to our budget.  Additionally, this lower rent means we are more able to choose to stay in an apartment until we are prepared to buy.  Even with some annual increase in rent, we will avoid paying “as much as a house payment” every month.

Final Thoughts

I hope this helps illustrate how a concrete goal can lead to saving money, and maybe motivate you to meet your own goals.  If you have taken action to reach your goals lately, or plan to, we would love to for you to share your story with us.

Categories // Housing, Savings Tags // goals, Housing, sacrifice, Savings

Saving Money – An American Virtue Reborn

03.05.2010 by Robert Espe //

Saving money is trendy again

I recently read a magazine article talking about how the recession has brought saving money back into style as people found themselves short on disposable income and easy credit.  The article went on to explain that part of the “new” saving trend was buying more expensive clothes that don’t wear out quickly, and I agree in principle, but would steer clear of “name brands” found in many magazines advertising sport watches in excess of $300.  While the article had some great info, it felt like they were mostly trying to sell overpriced goods and convince customers they deserved a pat on the back for “saving money.”

What really captured my attention was the article’s focus on how this saving trend was “new”, “fresh”, “exciting”, and not “cheap” like saving money has been viewed in the past.  Apparently people believe that for any idea to be good, it has to be new.  Saving money has never meant “cheap,” and there is nothing wrong with saving… however one may view it.

Saving money is virtuous and logical

Saving is a synonym of the word frugal which comes from the Latin root frugalis and is closely related to the words for both fruit and enjoyment.  Nothing cheap about those terms!  Saving money was actually one of the old Roman Virtues, and in times past was also an American virtue.  Somehow, over time, the modern American virtue regarding money has been closer to irresponsible spending than saving.  For many years in America it seemed anyone who paused to think before spending was quickly characterized as a penny-pinching cheapskate.  Thankfully, that trend has reversed again due mostly to the recent financial crisis.

While not buying stuff you cannot afford is part of of what it means to be a saver, it is only half the meaning.

Webster tells us that saving money is about economy and the use of one’s resources.  A mindset of saving will often lead you to avoid spending even if you have the money saved, perhaps because you are saving for something else or you just feel the purchase would not be worth your life energy.  The essence of saving is simply spending less than is necessary to get what you want, which is hard to do if we are unaware of exactly what we want.  As strange as that may sound, most people never set savings goals for themselves.  Have you set savings goals for yourself?  What are they?

Saving money for specific goals helps you avoid pitfalls

What do you really want in exchange for your life energy?  I’m not referring to the general stuff like food, a roof, some wheels, and a few vacations… I’m more interested in the specifics.  Where exactly do you want to live and in what type of home?  What toys do you want most?  What is most important to you in a vehicle?  Where do you want to go on vacation and when?  Do you want to retire and at what standard of living?  No one can have everything, so we all must decide which things we want most.  If you never ask yourself such questions, there are a couple of financial pitfalls we tend to run into.

First, without focus on what we really want we tend to buy whatever we see… simply because buying new stuff is fun.  We might even buy good stuff, but if it is not what we really wanted, it runs the risk of sitting unused and the life energy we spent to attain the stuff gets wasted.  Without specific savings goals our resources may get unnecessarily consumed, and we eventually miss out on something we would have enjoyed more.  That is not very wise, but most of us have done it more than once… myself included!  🙂

Another common pitfall… not saving as much as we could have had we set specific savings goals.  Without specific financial goals we become comfortable with the status quo.  If our bills are paid and we have some savings… we may never think to save more.  Absent any definitive goals (and the sacrifice necessary to reach them) it is much easier for careless spending to rob us of the things we actually wanted the most but never took the time to define.  The difference between deprivation and sacrifice has been described as the presence of the goal which a sacrifice is made to attain.  Visualizing the purpose of your sacrifice will give you the strength to see it through, to save for it, and is likely to make others wonder how you are able to accomplish so much with the amount of money you earn.

I’m bringing saving back

Finance writer Joe Dominguez looked forward to a time when we would speak of savers with awe and respect (hey, he was writing in the 70’s.)  I think now is the perfect time to bring back the saving trend, but without the $300 watches the magazines are pushing!  🙂  People focused on saving money are typically willing to make sacrifices to meet specific goals.  I set a high goal to save $22,000 towards a house this year.  For me it is attainable, but requires having to say no to some of the fun things we like to do.  My wife and I stick with it knowing that every penny we save brings us that much closer to the house we both want.

Are you bringing saving back?

Have you made a list of which things you want most, and thought about what things might be getting in the way?  Where could you save more and what sacrifices could you make for the things that matter most to you and the things that will help you meet your savings goals without feeling deprived?  We would love to hear about any goals you have set for yourself, or that you have recently achieved.

Categories // Savings, Spending Tags // goals, money, sacrifice, save

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