fire | The Caleb Barney Collection

Don’t go broke trying to look rich.

I saw this post from FinancialSimplified on Instagram and loved it. How many people spend above their means just to try to impress other people?

If you have the “keeping up with the Joneses” mentality, it’s going to take you a really long time to build wealth. And if you’re ok with that, that’s fine. But if you have children, maybe it’s time to shift that mindset. I say this for a few reasons…

1) It is your duty as a parent to live responsibly, and to teach your kids to live responsibly. This goes for health, work ethic, attitude, teaching them about money, etc. If you have bad money habits and idolize material things or trying to impress others with your new clothes, new shoes, new car, etc, what does that teach them?

2) You don’t have to leave your adult children anything. At that point, they should be self-sufficient. I remember my dad saying that when he passed away, he wanted his last check to bounce. I have the complete opposite mentality. When I pass away, I want to leave my kids with millions. As long as I’ve given them the proper financial background so they don’t blow the money, and I’ve raised them to be good human beings (moral, just, etc), I’d be more than happy to relieve any sort of financial burden from their shoulders. If you don’t have to worry about how you’re going to pay your bills, it gives you the freedom and creativity to try new things that can be more fulfilling.

We never know when we’re going to pass away. If you’re not financially set, or if your passing will create hardship for your significant other and your dependents, you need to have life insurance set up. It’s a small cost for you right now, but if you leave this earth without it, the people you love most will suffer the most – not only emotionally, but financially too. If you needed two incomes to pay for your house, child care, food, transportation, and general living, what kind of stress and struggle will your family encounter if you pass away and they’re left with nothing?

3) You owe it to yourself. Why is it that we love ourselves so much, we are all so selfish in a way, but we care about what other people think? Why should other people’s opinions of us matter when they don’t really even know us?

You know yourself. Are you buying that $500 fancy wallet to impress yourself, even if there is no money in it? If I did that, I would feel worse about myself. Why cave into others’ expectations? Why have no money left over to spend on an experience with my wife and kids? And, not only that, but you’ll feel like an imposter too. Sure, you look rich. But you’ll know that you don’t actually have the money to back it up.

Don’t go broke trying to look rich. Don’t try to impress people you don’t know, you don’t like, and who don’t have to deal with your poor financial decisions.

We all have to start somewhere. Live within your means. If people laugh, just know that as long as you keep saving and investing money, trying to increase your income constantly while it increasing your spending, you’ll eventually have the last laugh. You’ll get to retire early when they are still slaving away in their 9-5.

Smart debt versus dumb debt

If you’re buying an asset that makes you more money (whether through appreciation, cash flow/dividends, or tax benefits) than it costs to borrow (paying down your principal and interest while more than keeping pace with inflation), you can make a legitimate argument to go into debt to invest in that asset.

If you’re going into debt to buy something that doesn’t make you money, you’re giving into your inner child.

Only borrow money to buy things that go up in value. Otherwise pay all cash for it or not at all.

Using cash or using debt?

Are you a “cash” only person (like Dave Ramsey) or do you prefer to utilize debt on your behalf?

Honestly, I see the pros and cons to both sides. Being more financially risk averse/conservative, I get the appeal of only using “cash” (or, even if I’m putting it on a debit/credit card, only buying what I can afford to pay at that very moment). It’s a safer position from the standpoint that you aren’t going to get yourself into massive debt. This strategy makes a ton of sense for those trying to minimize spending on things they don’t need (mostly consumer products that contribute to lifestyle creep).

But if you leverage debt to buy assets (like real estate), where someone else is paying the loan down for you, you can scale much more quickly.

Imagine wanting to buy a rental property. Let’s say you’re looking to buy a single family home for $120,000. If you have to pay cash for it, it will take you a long time to save up $120k. Even if you’re investing it, unless it’s in a self-directed IRA, when you pull your money out to purchase the property you’ll get hit with taxes. But if you only had to save up $30k (for a 25% down payment on an investment property) or even $4,200 (for a 3.5% FHA loan, where you have to live in the property for at least one year), you can get started much sooner.

Leverage works both ways. It can help propel you to success or drive you into the ground. But as long as you’re taking on appropriate risks (preferably starting small unless you have a ton of experience and expertise in what you’re investing in), you can build wealth at a greater pace by leveraging debt as opposed to paying all “cash” for everything.

What are your thoughts/how do you prefer to invest?

Thoughts on finance, student loans, and taking ownership of your life

“Even today, what to study and how to study it are more important than where to study it and for how long. The best teachers are on the Internet. The best books are on the Internet. The best peers are on the Internet. The tools for learning are abundant. It’s the desire to learn that’s scarce.” – Naval Ravikandt

That’s the sad part about the student loan crises that we have going on right now. People are going into major debt (a debt that is not even forgiven if you declare bankruptcy) for an obsolete product. Many adults, including myself, graduated from school and do not get paid to do whatever they received their degree in. I feel fortunate to have had some help along the way and be out of debt (I received a small amount of scholarship money – for working hard and applying, $10,000 was given to me to use for school, my aunt and parents would help with groceries when they could, and I worked between 25-30 hours per week the last three years of school. I also worked about 15-20 hours per week during my freshman year when the university recommended NOT to work at all that first year. Finally, I worked 40+ hours per week every summer and after graduating school, I worked about 65 hours per week with three jobs for the first six months to pay off any remaining debt). But many people choose not to work when they’re at school. Or they choose a school for prestige and do not care about the cost. If that’s the case, they have to accept responsibility for their debts. Yes, our country has a problem that we need to fix regarding the cost of schooling. But it does not owe anything to us. And if we can’t change what Congress is doing (if they’re not going to help), then we shouldn’t just throw up our hands and say “well, that’s just the way it is. Everyone has student loans, car loans, a mortgage on their home, and credit card debt. I guess I will too.” No. You should do what you can to avoid that. Apply for scholarships every day. Work your butt off. Go to a community college first then transfer to the in-state university/college of your choice that you can afford. Of course, you will be working the whole time and saving more than you earn. When it’s time to buy a house, don’t listen to the loan officer and get the most expensive house “you can afford.” You’ll be house-poor and end up taking an eternity to pay off your mortgage. Don’t burn through cash and live paycheck-to-paycheck. Trust me, you will be much happier when you’re not worried about bouncing a check or how you can afford your next meal.