Chapter 6: Money Matters


Overview

There are two kinds of people in this world: those who understand interest and those who don’t.

Those who understand it receive it; those who don’t pay it.

Rex and Janie were good friends of ours. We met them when we attended college together. They were frugal, worked hard, and spent little. In fact, our group of friends always teased them because for Rex, a “big date”—even on their anniversary—was taking Janie to McDonald’s for a hamburger.

Over the years, Rex and Janie managed their family budget on one income. They lived within their means and contributed regular- ly to a savings account. They taught their children to be happy with a few nice outfits instead of a closet full of top label designer clothes. For family vacations, they had great times camping out and using their boat, which was very nice, and which Rex had bought used—in cash—for pennies on the dollar. They lived in the same house for years. When they couldn’t afford improvements, they decided to live happily with what they had.

At the age of 42, Rex was diagnosed with pancreatic cancer. Within six months he was gone. He left Janie with six children, ages 5 to 19. But he also left her with a sizable insurance policy, a savings account, and no debt.

As a result, Janie was able to spend the next year at home with her children, being with them and comforting them until they felt secure and were all in school. Unlike many single mothers, she did not have to fight with them about “things” they could no longer buy. They had already been taught to be frugal and they were all willing to pitch in and help. Also, she didn’t have use her insurance and savings to pay off debts that had been left behind.

After a year, Janie was able to go back to school and get her master’s degree—without going into debt. Though she got an excellent job, she did not feel pressured to bring in the same income Rex had brought in, because she still had backup funds.

Rex and Janie’s “investment” mentality, provident living, and thoughtful, disciplined preparation provided a great deal of freedom for Janie to focus on what was most important, even in what could have been a terribly difficult situation. And, despite their frugality— or perhaps because of it—she remarked that there was never a time when the family felt they couldn’t have a fun, happy, full life.

Now let’s compare their experience to that of another couple— unfortunately, us.

When we were first married, we were both university students, struggling to live on a very tight budget. We went through some fair- ly stringent times. We were careful with our money. We always had insurance, but we didn’t really invest. Our basic operational paradigm was that the best way to improve our financial situation was to earn more money.

So we did. Over the next 30 years, our financial situation improved. We moved several times, always lived in fairly modest homes, managed to pay for education, doctor’s bills and braces for seven children, to make regular church and charitable contributions, and even to put away a little for retirement. We used credit cards, but our intent was to reach the point where we were completely out of debt—including our home—and could always pay for everything in cash.

After some years, the business we were involved in reached a point where it had significant market value, and suddenly we found ourselves completely out of debt. We no longer had to worry about whether something we wanted was on sale or not. We had the resources to fulfill what we thought were some important family goals.

We started work on a cabin—a beautiful place in the mountains where we could enjoy nature, work on writing projects, and provide relaxation, inspiration, and bonding for family members and guests for generations to come. At the same time, we started to build a new home. The one we’d lived in for 22 years could scarcely accommodate our family gatherings, which now numbered 29. So we invested a good deal of time and money in these projects.

Then the storms hit. Within a period of a few months, one of our contractors went berserk, walking off the job and leaving the project unfinished and suppliers unpaid, and we were out about 250 percent of what we’d agreed on. At the same time, our stock plummeted, the bank panicked and sold it, and we found ourselves with liens, no resources to finish either project, and a huge capital gains tax bill.

In the midst of all this, we had financial problems with a new business enterprise. One business partner—a company—took a 90- degree turn in strategy. Another partner—a major investor—suddenly lost his money in a stock market dive. Then, within a few months, our health insurance company went under . . . and our credit card number was stolen. We felt like the dark-cloaked villain had us in his clutches and was ready to tie us to the railroad tracks . . . with the hero nowhere in sight!

There’s no doubt about it—this was a very hard time for us. Just as we were looking toward retirement and different avenues of contribution, we were thrown back to where we’d been years before and were essentially starting all over again. It was a humbling, sobering experience. It made even clearer to us something we had known for a long time: There is no security in material things, which are transitory at best. It also helped us realize that just because you may be doing very well in two or three “life matters” doesn’t mean you can ignore, other “life matters” without consequence.

The problem was not that we’d been terrible money managers. We’d done a lot of things right. But had we simply been aligned with the fundamental principle of investing instead of consuming, even the terrible things that happened would not have created such a personal economic disaster.




Life Matters. Creating a Dynamic Balance of Work, Family, Time & Money
Life Matters: Creating a dynamic balance of work, family, time, & money
ISBN: 0071441786
EAN: 2147483647
Year: 2002
Pages: 82

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