Today’s post is going to be in honor of my dad and the things that he has taught me about finance and responsibility. Today is his birthday and we are also coming up on his 10 year retirement anniversary. Many of the habits that I have around saving are the direct result of what he’s taught me explicitly and by example.
In my 50/20/30 budget post, I told you how my dad was always telling me that your housing payment should always equal one week’s paycheck. This was a big item that stuck in my brain as I started researching places to rent in Cleveland. It was difficult to be able to stick to this budget because I was living alone. I hadn’t made many friends and everyone I knew already had a roommate or a significant other they lived with. I experimented with a budget that would exceed the 25% of monthly income so that I could live in a normal apartment in the city. I found quite a few wonderful places starting at $800 a month. Many people I know pay this much on rent. But I couldn’t fathom saving $200 less per month. That’s $2,400 less per year. If I’d done that, I’d still be years a way from buying a house. My dad’s voice repeated in my mind and I searched harder, and adjusted my living expectations. I didn’t want to live “south of Lorain,” which is the Cleveland millennial way of saying “the bad part of town” in Ohio City, a cute walkable neighborhood on the near west side. The “bad part” of Ohio City was still walking distance to the West Side Market and all of the bars and restaurants on West 25th. I’ve still been able to enjoy all Ohio City has to offer, while living in a less fancy neighborhood. I sucked it up for the past two years in order to save more money and am now able to move a very nice neighborhood in Cleveland Heights, where I bought my first house.
Obviously, my housing choices have been primarily about being able to save money. Growing up, any time my parents or grandparents gave me any money, my dad always encouraged me to save it, or save part of it. Once I was about 10, my dad knew that I’d probably save the money he gave me, but he always let me make that choice. Rather than saving for me, he taught me to save on my own. I was probably 6 years old when my dad introduced the concept of “want vs. need” to me. If you aren’t familiar with this concept it goes like this. You’re about to spend money; is it for something you want or something you need? If you buy everything you want, you aren’t going to have any money left over to save. And if you’re like most people, you have a credit card, which makes it all too easy to swiping mindlessly and spend more than you make. If a 6 year old can understand that not every Barbie and water gun needs to be purchased, so can you. Many people convince themselves that they need things, but all you need is food, water, clothes, and shelter. All of these things can be done very frugally. You need a few pair of pants, a few shirts, and some socks and underwear. Everything else was something you wanted to buy. Know the difference. I needed a place to live, but I wanted to live in a nicer apartment. I chose to stick with only what I needed. You might need a car, but you want to buy it new. If you have the money, you can definitely buy new things and spend money on what you want, but remember you have a finite amount of money. Remember to set out that flexible spending budget that should occupy only 30% of your income. And the less you spend on wants, the more you can save for future, larger purchases.
Perhaps the most important idea my dad taught me though, and one that is so terribly overlooked, is the value of time. We derive so much value from money: how much of it we spend, how much of it we save, how much our portfolios grow. But money can only buy so much. Growing up I had this friend whose house was much bigger than ours and had nicer stuff in it. When our moms would take us shopping, she was always able to buy more clothes and accessories. As a young kid, I lamented not being able to have as nice of furniture, decorations, clothing as my friend. I liked stuff, just like most people. It was difficult to understand why she had so much more when our dads had almost the same job. The auto factories for Ford and GM were two of the three biggest employers in my hometown of Sandusky. Her dad worked for Ford and my dad worked for GM.
The difference was not that Ford paid more highly than GM at that time, but that my friend’s dad worked overtime every, single day. He also worked weekends. He earned at least 20 hours a week of time and a half. And he worked many holidays like the day after Thanksgiving, MLK, etc. and was able to earn double time. He worked a lot to get paid a lot. My dad eventually explained that to me when I was old enough to understand. But he said this simple thing to me. “I know she has a lot more than you, but her dad isn’t around very much. One day you’ll be happy that I was with you every day after school and on the weekends. One day you’ll understand.” I actually had many classmates with parents who worked boatloads of overtime. I had many classmates whose parents didn’t spend almost an hour every day after school talking with them. By the time I was 18, a senior in high school, it was crystal clear what my dad meant. Several of my classmates had been ticketed for underage drinking, and some with DUIs. These were kids I had gone to school with for 12 years. This can have long lasting effect on one’s life, like a scholarship being pulled or being prevented from working at certain jobs. There was of course the actual fine to be paid for these missteps. Everyone has their own free will and their own choices to make. But the habits and mindset we form is influenced by our environment, and in my environment my dad was spending time with me, not buying things for me. The time he spent educating me and just hanging out with me, was a far superior investment than any income he ever earned. I was a first-generation college student and now hold two Bachelor’s degrees and a Master’s degree. A huge part of that pay off was due to his time-based investment in me.
Money isn’t everything, but time is. Time is the only thing you can’t earn more of. You get what you get. What that means to me is that you can learn to live on almost any income. I know first hand because I watched my dad have to retire at 52 years old, long before he was ready, and live just fine on that pension. It was an adjustment for him, but he managed because he could always weigh want vs. need. Of course more money makes things easier! But if earning more money for you means working many more hours a week, weigh out if that time investment is worth the financial pay off. Don’t wear yourself out working 60 hours a week if you already earn enough to live on after just 40 hours of work. Especially if you have children, as many millennials already do. I make $51k a year and it would be great to earn more so I could buy a bigger house or afford cable television. But I like being able to go home and spend time with my niece and nephew, with my grandma, and with my parents. If I were waiting tables on the side, I’d sure be making some nice cash, but I wouldn’t have the time to see my family back home. I’d probably not have very many friends here in Cleveland. I’d rather enjoy my time than work myself into a stressed frenzy trying to make my income go to $65k a year (remember also that more money means paying more in taxes). I make enough money right now to live a very happy, comfortable life. I’m careful due to much of what I learned from my parents, and I try to enjoy my free time because I know it means so much more than time that is free from work. What financial lessons have you learned from your parents? Post a comment below if you have advice you remember from your parents.