Sunday, May 13, 2012

Spend Less Than You Earn?

This was my first time to see a Saguaro cactus in bloom... and if you look closely you can see a lot of bees enjoying the blossoms.  I only had my iPhone, so could not zoom in like I wished... but none-the-less it was a glorious sight.

Life is like kind of like catching a fun photo unexpectedly.  This cactus was on the street between our hotel and the airport.  Since we came in too late to pick up our rental car the night before we stayed at a hotel close to the airport, which was only a short walk to the Avis car rental.  Hundreds of people likely walked past this cactus and and several thousand drive by it every day, but I doubt any of them saw this glorious event.  However, if you keep your eyes open you will find opportunities many others totally miss.

It is kind of like another tidbit I discovered that totally changed the way I think about money and mortgages.

I have been thinking about the topic of money more than usual lately... and planning for our future.  If you read this blog regularly you know that one of my goals this year is to learn something new every day.  Most of us learn something new every day, but when we don't write those things down every day we can never recall all of them at the end of the week or the month.

So, to help me remember what new things I learn, I am posting my kernels of wisdom... or worthless dribble... (depending on your perspective,) on my blog.

"Spend less than you earn."

We have no doubt all heard this old adage... but very few of us have figured out how to live by it.

Further more our government has never figured out that it is important, so why should we?

Countries all around the world are pretty consistently over their heads in debt.  The US government now is spending more than 40 percent of every dollar collected in taxes just to pay the interest on the national debt... and like the songwriter has written in Sixteen Tons, "Another day older and deeper in debt."  Every day the problem is worse than the day before.

Are we wrong in thinking we can just spend our way out of debt?

At first glance the answer is "Absolutely Not!"

But what if you could borrow enough money at a low interest rate... say 3%... and then invest it at a higher guaranteed rate of say 6%.  How does that sound?  Pretty good, eh?  Bring it on!

The only problem is where can one find the collateral to put up so that you can borrow some of that current low interest money?  You know how most banks are today... they only want to loan money to those who don't need it.  And the minute it starts to rain, they call and want their umbrella back.

Now if you happen to be fortunate enough have some significant equity in your home... that is one pretty easy way to borrow some money at our current historic low interest rates.

But wait a minute.  All my life I have worked  hard to finally get clear title on our home... why would I want to jeopardize putting a mortgage on it now and possibly lose it?  No way, Jose.

Except my financial planner tells me that he has a product that has consistently given 7 to 10% annual returns, with a guaranteed 5% minimum return for life.  Plus he says that you can write off all the interest on the loan that you use to purchase this product, which sweetens the return even more.

He had a client who borrowed $500,000 against his house 7 years ago... and after paying the interest  costs and with compounding the earnings made his estate worth $3,000,000 more.  Not too bad, eh?

What flower blossoms might you be walking past today?


  1. It's all funny money...

    Here's a blossom I walked by during today's lunch.

  2. Mr McAwber summed it up in David Copperfield:
    Annual income twenty pounds, annual expenditure nineteen nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.

    I'm reading a book about trading by Van K Tharpe where he talks about the holy grail of investing being more about your attitude toward money than it is about any absolute amount of assets or income.

    1. Thanks for sharing. I love the Copperfield quote... and I like the book you are reading. I agree controlling emotions and attitude is the most important.