One lesson I wish I would have learned earlier in my life is to do a better job of living within my own means. One law of finance seems to be that your expenses will always grow to match or exceed your income. As a young father and officer, it seemed that every time I received a raise, my expenses would grow to exceed it. It wasn’t that my expenses grew without my control; I allowed them to grow. Often, I let them grow not when I got a raise, but in anticipation of one. We all know that we often overcalculate the take-home aspect of an anticipated raise. When we pre-commit our new income before it materializes in our paycheck, we can leave our family budgets out of balance, introducing debt and sometimes even ruin to our family’s finances.
Debt is a big issue that can affect us during our lives. Once we incur debt, it becomes difficult to get out of. Income spent on debt service is income that is not available for other purposes. Sometimes there is no other choice but to incur debt in our lives, but debt should only be incurred for our needs and not for our wants. Things like an affordable home and a practical car are things we can expect to buy on credit. These are needed items and can often be purchased on credit with low-interest rates. Purchasing wants on credit often comes with the attachment of high-interest rates. Forcing ourselves to save for our wants allows us to enjoy them without being bound by the chains of debt. Debt, and its powerful ally, interest, can cause us to pay much more for our purchases than we originally anticipated.
New officers beginning their careers usually start at salaries lower than their more senior co-workers. These new officers see the fancy cars, trucks, boats and RVs of the older, more senior officers. They hear about their vacations and lifestyles. Often, these new officers, with jealous eyes, fail to evaluate how these more senior officers achieved their current lifestyles. These officers spent years acquiring things, facilitated by higher pay, hard work and, in some cases, savings, and in others, debt. New officers sometimes try to go straight to these more lavish lifestyles without putting in the time, work and savings required to achieve them. They fill their garages with these unneeded toys at the cost of debt they cannot afford.
Creating a savings regimen will give you the surety you and your family deserve to ensure that all your needs are met. Additionally, savings will provide you with money to cover your prudent wants when they surface. Saving for a vacation or other desired item will allow you to pay cash and avoid debt. When you receive your periodic raises, I would encourage you to dedicate a portion of your raise to savings to build your reserves and allow you to pay cash for your future wants.
I made the mistake as a young married man to try and have the lifestyle that my parents had spent decades to achieve. Their lifestyle was impossible for me to achieve on my income. I learned some difficult lessons as a younger man as I took advantage of credit extended to me in my quest to keep up with the lifestyle of others when I did not have their matching income. Overcoming debt is a long process, one that can be avoided with prudent choices earlier in life. I would encourage you to follow some simple rules that I have learned in my life:
- Ask yourself if something is a want or a need. Focus on your needs before your wants.
- Don’t purchase wants with credit.
- Don’t commit the income from your future raises until you have received them and know how they will affect your take-home pay.
- Don’t depend on overtime to balance your budget.
- Dedicate a portion of each raise to your savings.