Financial Responsibility is Key

Regular readers will recognize this theme from earlier posts as this was – and still is - one of my major messages for those seeking early retirement. I was reminded of the topic by a couple of recent events. The first came during conversations with friends who lamented that their young adult children frequently ask for financial support for necessities after spending their own money on trips and other fun stuff. The second is the outcry about the hardships facing those with student loans who will have to start repaying again after a little over 3 years of deferral thanks to Covid. One student loan holder interviewed actually said “it’s worse than debtors’ prison”. Fear not, I will not be heading down any of the potential emotional, judgmental, or political rabbit holes these 2 scenarios present.

While I feel for those who are carrying significant student loan debt (I had loans for grad school and paid them off in full), it seems to me to be far from a catastrophe that after 3 years of not making payments, they will have to start paying again. I’ll use a personal example to explain my position. When my wife’s Jeep was paid off, I earmarked the monthly payment dollars for a new vehicle fund. We allocate money to that fund each month, subtracting from it to cover vehicle repairs (regular service is not part of that money as it’s a separate budget category). Over the course of several years, there is enough money in that fund to put a substantial down payment on a replacement vehicle. While money has not been stashed in a separate account, having the funding as part of our monthly budget gives us visibility to it and acts as a reminder of the coming expense, allowing us to plan accordingly.

In addition, when we do need to purchase a new vehicle, interest rates will determine how much we pay upfront and how much we finance. If we can get an interest rate lower than what we make on our investments (which are laddered and allocated appropriately for our stage in life and risk preference) we will finance as much as possible. On the other hand, if interest rates are higher than what we receive, we will pay cash in full. Another way to be financially savvy.

Let’s move on to those young adult children. It must be a generational thing because no one I know in my age bracket would have dreamed of asking for money after spending on non-essential items, especially on trips and frivolous things. For us it was taken for granted that necessities come first. Pay your bills and have fun with what’s left – and if you are looking long-term, save a little before splurging. Maybe it was because many of our parents, and certainly grandparents, lived through the depression and understood how important saving money is. Not judging here, just a generational observation.

A simple way to be financially sound is to live well within your means or even below. That does not mean depriving yourself. It means taking stock in how much you have, knowing your expenses and living in a way that allows you to cover all your expenses. It’s about prioritizing - needs first, important wants next, then next level wants, etc., etc. For those seeking early retirement it also means saving as much as you can as soon as you can and preferably connecting with a trusted financial advisor as early in adult life as feasible.

Living for today is great but if it comes at the expense of planning for the future, that future may not be the one you want.

www.RetiredandInspiredat55.com 6-19-2023