Her message is deceptively simple and clear: it's cool to be smart about your money; it's stylish to be sensible rather than overindulgent; financial stability is more glamorous than extravagance. But cut up the credit cards? No way. Levison prefers to promote responsibility rather than abstinence. She takes a realistic approach to personal finance that we can all live with, including:
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About the Author
Virginia, with her husband and two daughters.
Read an Excerpt
Living Well on Less
A lesson in finance from my personal trainer
I always had it in the back of my mind that when my younger daughter went to kindergarten, I was going to get a personal trainer. I figured now that the baby was five and a half years old, I could no longer continue to claim that my extra flab was post-pregnancy related. When the day came, I sent my little dear out the door and headed off to the local gym.
I was expecting to walk in there, do a few leg presses, a few crunches, maybe a lunge or two, and walk out looking like I was 18 again. So I was pretty disappointed when I made a total fool of myself flopping around on the stability ball, leg pressed until my thighs burned, did about 75 lunges, and walked out looking exactly the same as when I went in, except I was a lot sweatier and my hair was a wreck.
"This really sucks," I thought, as I threw myself down on the couch to recover the minute I got home, and it did. That night I woke up repeatedly with the feeling that someone was trying to rip my arms off, and the next day I could barely move. But what sucked even more was my realization that this was not going to be quick, and it was not going to be easy. There is no miracle cure for cellulite. I realized the first step was to face that reality, meet it head on, and then continue my journey.
Obviously, you're reading this book because you want to improve yourself financially. It's my job to help you do that, and the first step is exactly the same as the one just mentioned: a little dose of reality. There is no miracle cure for your finances. There is no quick, easy way to get rich. I'm not going to promise that you can read this book and become a double-digit millionaire, just like my trainer couldn't promise that I'd leave the gym with six-pack abs, but that's okay. The good news is that with persistence and effort, you can achieve your financial goals.
The other day a friend of mine was going through some of her old memorabilia and came across some pictures of our children when they graduated from preschool together. She scanned a picture of my older daughter and sent it to me along with a quote of what my daughter said she had learned in preschool: "Don't pull people if they don't want to go."
I don't want to pull you down your financial path kicking and screaming. I want you to walk with me. I don't want to lecture you or make you feel guilty. I want you to have a successful financial future, not because I'm telling you to, but because you want to. I don't want you to abstain from spending but rather to do so responsibly by putting more of your money into things that are going to help you build wealth. The choice is yours. You can either come up with all kinds of reasons why you can't make changes to your finances, or you can come up with all kinds of reasons why you will make changes to your finances.
I'm a big believer in the KISS principle: Keep It Simple, Stupid. However, as a southern gal, I find "Stupid" to be a little harsh. So I prefer to follow the KISH principle: Keep It Simple, Honey. In the pages that follow, you'll find simple advice that regular people, like you and me, can use to improve our finances. Hopefully, this advice will shed some light on how you may be flushing your money down the toilet instead of funneling it into your savings or investment accounts, and how you can best use your money to build wealth. I've also included some "Do the Math" equations that will help illustrate the financial concepts discussed.
Your next step on this journey will be to find your frugal side, so I've included some "Frugal Homework" in this chapter. I want to change the way you think about money because I can promise that, if you can and then apply those changes to the financial choices you make, you can create a secure and bright financial future for yourself. If you can change your outlook one step at a time, you'll truly change your life. So without further ado, let's get to it.
Find your frugal side
When I was growing up, I can remember complaining to my dad about it being cold in the house. Truth be told, it was probably plenty warm for most people, but I've always been cold natured. "Go put a sweater on," he would tell me. Dad's always been a frugal man.
But today's society has become obsessed with excess. Frugal people are seen as dull and boring. Big spenders seem flashy and exciting. However, I think the tide is finally beginning to turn on these perceptions. And that's a good thing. It's just not fashionable to own 20 pairs of shoes that you've only worn once. It's not cool to have 30 gadgets that you never use. And if you're spending all your money on designer clothes, you're not stylish; you're silly. Now more than ever, frugality is coming into fashion, and it's hip to be thrifty. It turns out Dad was frugal before frugal was cool.
Do the math
According to a ShopSmart magazine survey, women are willing to spend an average of $49 per pair of shoes and own an average of 17 pairs. That's $833 sitting in the closet! The average person's unused gadget list might include a Wine Aerator — $39; FryDaddy (thank your lucky stars that you're not using this one) — $30; Workout Equipment (just in case you decide to use the FryDaddy) — $100. That's $169 and probably just the tip of the iceberg on your useless gadget collection. If you owned half as many shoes and skipped the gadgets altogether, the money in your bank account would total $585.50.
If I had to come up with one synonym for frugal, it wouldn't be "cheap"; it would be "smart." Being frugal isn't about buying the cheapest thing; it's about buying the things that are truly a good value. Let me put it to you another way. You have to start spending less, so you can have more. Many things like cars, clothes, and furniture depreciate greatly the minute you take them home. You need to think hard before spending a lot on those kinds of purchases. Look for bargains, buy used, and don't be ashamed to shop at discount stores. Put more of your money into things that are going to appreciate. For example:
$ Price of a solid wood coffee table and two end tables, new, purchased from a furniture store — $299.
$ Price of a solid wood coffee table and two end tables, three years old, purchased on Craigslist — $75.
$ Money in your bank account — $224.
I'm amazed that some people can spend hundreds, even thousands, of dollars each month on clothes. The next time you're tempted to go on a shopping spree, remember: As soon as you wear that designer shirt once, it's worth a fraction of what you spent on it. Kind of ironic, isn't it? You pay top dollar to a big corporation just so you can clip that tag. Not only that, but every time you wear the shirt, the corporation is getting free advertising.
I was doing some shopping at a discount store one day and happened to pick up a white cardigan for $15. It quickly became one of my favorite sweaters, and I wore it frequently. On at least two separate occasions, I was told how cute it was. One of the women who complimented me also mentioned that she had seen it at a designer store and admired it. Obviously, she couldn't tell the difference between the discount sweater and the designer one. Designer store price: $75. Money in my bank account: $60.
We all like to have nice things. For me there's no substitute for a high-quality blazer — the perfect cut and quality fabric are worth every penny. But there's a limit. I'm not suggesting that you should forgo all the frills in life, but aren't a couple of nice dresses and suits enough? Do you really need 10 handbags, or would two or three be perfectly adequate? If your closet is so crammed full that you could clothe the entire neighborhood, there's a problem and it goes deeper than money. Clothing is just one example, but it demonstrates well the concern so many people have with looking good on the outside, even though they're falling apart financially behind closed doors.
Frugal people don't spend their time wishing they had more stuff. They avoid excess. In fact, they take pride in being understated with their possessions. You have to nurture that mentality within yourself. You aren't what you own. Being secure with who you are is one of the most important factors in financial success. If you don't have self-confidence, you'll constantly be comparing yourself to others. If you're not self-assured, you leave yourself vulnerable to the "keeping up with the Joneses" mentality.
Does your financial life consist of smoke and mirrors rather than dollars and cents? Have you found yourself with a solid credit card bill instead of a solid savings account? Do others view you as well-to-do, even though you're barely squeaking by? If your answer to any of these questions is yes, you are not alone. Many people these days are living a lifestyle that can only be described as "all hat, no cattle." They're putting on a good show, but they don't really have the financial resources to be living the lifestyle they are. They've got champagne taste on a beer budget.
I guess I'm just a simple country girl, but big houses, fancy cars, and designer labels don't impress me. If you have a chalet in Aspen or a house on the waterway in Ft. Lauderdale, I'd love to come for a visit but I'll let you keep the mortgage. I can't remember the last time I drove a new car. Right now I've got an SUV with more than 135,000 miles on it, but it gets me where I need to go most of the time. And although I have been known to buy a designer purse or two, it's always at the outlet. Believe it or not, I prefer it that way.
I watched a show once about a single woman raising her two grandchildren, ages 3 and 7. She would drop them off at daycare and school each morning, go to work as a waitress and bartender all day, then go home and do homework with them in the evening. That impresses me.
If your financial life is a fake, the only one you're fooling is you. Do you want to surround yourself with people who put the most value on material possessions? I prefer those who find hard work, responsibility, and integrity to be the things of greatest importance. Financial exaggeration is usually just a thin disguise for insecurity, emptiness, and self-doubt. If you've been feeling the need to overinflate your financial standing, what you need to start doing instead is nurturing your frugal side. Maybe you need to get a new group of friends, or maybe you need to get a new budget. Flashiness fades, but broke is forever. I don't know about you, but I'd take a herd of cattle over a big hat any day.
Make a list of the best qualities you possess as a person. You might describe yourself as:
1. A good mother/father.
2. A loving husband/wife.
3. A competent teacher/nurse/auto mechanic.
4. Neat and clean.
Now, make a list of your most important possessions. Your list might include your:
5. Big-screen TV.
These are the physical things that are a part of your life, but they are not a part of your character. You need to see that the first list — the qualities about you that make you who you are — stands on its own. It's static, even as your list of physical possessions is dynamic. If you are neat, clean, and stylish, that doesn't change. I would put all of those qualities on my list, and I feel confident that I'm going to look just as good in a $15 discount store sweater as I would in one that's designer. If you are neat, clean, and stylish, your home will reflect that. You don't need a house that's 4,000 square feet to show who you are. Your tidy, well-organized space can be just as enjoyable and stylish at half that size.
I have a friend who went through that exact scenario. She and her husband decided it was time to downsize. They sold their very large, customized home and bought a smaller, more standard version. I was shocked when they told me about the move. Their sprawling brick home was just gorgeous — flawlessly furnished and decorated, spotlessly maintained. It was so enjoyable to eat dinner at their house and relax on the back patio. I have to admit, I thought they were a little nuts to be giving all that up.
But as soon as I stepped into their new home for the first time, I realized I was the one who hadn't been able to see the bigger picture. Their smaller home was just as gorgeous. Even without the large foyer and vaulted ceilings, this home gave an immediate feeling of elegance. The physical things were different, but the characteristics of the owners were still the same. My friend has fabulous taste and style, and that hadn't changed. Because of who she is as a person, she was able to make her smaller space look every bit as fabulous as the larger one had. She's also an excellent cook. Sure, she might have given up her stainless steel kitchen, but the food that came out of her mid-grade oven was every bit as tasty as it had always been, and we ate, drank wine, and laughed just as hard on her new smaller patio.
Make frequent use of the words "I'd rather"
Frugal people don't derive pleasure from having the newest model vehicle or the biggest house on the block. Their enjoyment comes from knowing they have a secure financial future. Frugal people know something their non-frugal peers haven't figured out yet: Each dollar spent is a dollar that could have been invested.
I want you to stop being concerned about keeping up with the Joneses and start making frequent use of the words "I'd rather." Let's say you're talking with your neighbors who just bought a brand-new ski boat. They're very excited about taking it out for the first cruise of the summer. Because they know how much you love the water, they suggest that you should look into getting a boat too. What do you do?
First, resist the urge to hop in the car, drive to the nearest boat lot, and buy one that's got more horsepower than your neighbor's. Then say something like, "I love your boat. I'm sure it's going to be lots of fun, but I'd rather save up for the kids' college tuition. I don't want them to have to take out any student loans."
Do the math
Going out on your neighbor's boat with them: Free. That's called out-smarting the Joneses.
"I'd rather" is empowering. "I'd rather" says: I have choices and I'm making smart decisions. I'm not comparing myself to my friends or neighbors or coworkers. I'm not influenced by their decisions. I'm the captain of my financial ship. I'm in control.
When it comes to spending, remember you have nothing to prove to the rest of the world. Prove to yourself that you can be smart with your money. Make "I'd rather" a part of your daily life. Wouldn't you rather be debt free and sitting on a good nest egg?
Here's another exercise that will help strengthen your frugal mind. I call it the Bargain Brand Challenge.
I'm always amazed at the money people will spend needlessly just because they're worried about looking cheap. While on a recent vacation, I had a conversation with a bus driver about the different hotels available around the area where we were staying. She cautioned me not to stay at certain more expensive hotels, because they were no better than their less expensive counterparts.
As strange as it sounds, companies realize that some people actually like paying more for things. It makes them feel important, a step above the rest of the crowd. They assume they must be getting more because they're paying more, but that's an incorrect assumption.
The bus driver had it figured out, but lots of people don't. Name-brand Nancy or name-brand Ned, as the case may be, won't buy anything that doesn't have that well-recognized symbol or registered trademark. For them, everything from hand lotion to hotels must be top of the line, the latest and greatest. No less than the (perceived) best will do.
But is that little symbol really worth those extra dollars? Does more expensive really mean better? Are you guilty of buying higher-priced things just because you think someone else will view them as better?
I'm challenging you, for one week, to choose one of the least expensive options available whenever you make a purchase. For example, if you need a box of cereal, buy the generic.
Do the math
$ Price of a box of name-brand raisin bran — $3.09.
$ Price of a box of generic raisin bran — $0.99.
$ Difference — $2.10.
$ Savings if you purchased one box per week — 52 x $2.10, or $109.20 per year.
$ If you want to watch a movie, rent a DVD.
$ Cost to take a family of four to the movie theater — 4 x $10, or $40.
$ Cost for a family of four to watch a movie rented from Redbox — $1.
$ Money in your bank account — $39.(Continues…)
Excerpted from "Frugal Isn't Cheap"
Copyright © 2013 Clare K. Levison, CPA.
Excerpted by permission of Red Wheel/Weiser, LLC.
All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
Excerpts are provided by Dial-A-Book Inc. solely for the personal use of visitors to this web site.
Table of Contents
1 Living Well on Less 25
A lesson in finance from my personal trainer 25
Find your frugal side 28
Make frequent use of the words "I'd rather" 34
It's about your mind, not your money 38
Surround yourself with positive people 40
2 Less Spending, More Balancing 43
A lesson in budgeting from a tyrannical toddler 43
Create a balanced budget using "I have to" and "I'd rather" 47
Trim your budget 49
Use online banking to implement your budget 60
Be assertive about your budget 63
Staying on budget during the holidays 66
A word about Christmas 68
3 Getting Out of Debt 73
A lesson in debt from Sharon Lechter 73
Use credit cards wisely 77
Check and repair your credit report 80
4 Save, Save, and Save Some More 83
A lesson in savings from my golf pro 83
The savings challenge: 20 percent 87
The three-phase savings plan 87
Other savings opportunities 95
5 Creating an Investment Plan That Works for You 99
A lesson in investing from my two alpacas 99
The importance of financial education 102
Put the "I" back in investing 104
401(k)s and IRAs 107
Employee Stock Purchase Plans and stock trading accounts 110
Real estate 114
6 How to Make Those Large Purchases Work 117
A lesson in home buying from my days at the lake 117
The key to a solid home investment: differentiation 120
Being realistic when buying a home 122
The 15-year mortgage 123
Buying a vehicle 126
Everything is negotiable 128
7 What Is Net Worth, and Why Should You Care? 131
A lesson in net worth from Thomas Jefferson 131
What Thomas Jefferson and MC Hammer have in common 236
The nuts and bolts of net worth 139
Your greatest asset, your greatest liability 147
8 Income: a Crucial Part of the Financial Equation 15l
A lesson in income from my chicken farming days 151
Detrimental career profiles 156
Your spouse's income 163
Alternative ways to increase your income 164
9 Wanting to Be Rich Doesn't Make You Evil 167
A lesson about the quest from corporate America 167
Money: The root of all evil? 171
Using money for charity 174
Charity begins at home 175
Volunteer: give your time instead of your money 177
Donating small dollars 179
Donating larger dollars 181
10 What You Should Teach Your Children 187
A lesson about children from a Disney princess 187
Should your children know how much you have? 189
Plant the seed of frugality 192
Allowances, budget money, and paying for grades 194
Keeping up with the Joneses, college style 200
Set a good example 204
11 Achieving Financial Success 207
The simple formula 207
Commit to the mental shift 209
Incorporate change in to your daily life 210
Put it all together 212
Live better 215
About the Author 233