Life’s Lessons Are Not School Chemistry Chapters

A couple I know recently welcomed their first child. The husband, an engineer by profession, was the sole breadwinner. He lost his job in this economic downturn and has been unemployed for the last few months. So? There are probably hundreds of thousands of people in a similar situation i.e., single income families, with a baby to boot, searching for light at the end of the tunnel. Yes but not many would have the small matter of a 350K+ mortgage and car payment on a shiny new Honda toy to take care of! I do not know about other debts they carry. The wife is in no position to work (with a baby to look after) and the husband is on the lookout for a job in his field, while taking heart from the fact that he has a job in customer service at the local supermarket (no offense to customer service people – I’m just highlighting the fact that he has taken a severe pay cut).

Forget about emergency funds; they may or may not have had one. They will ride it out and things may hopefully be rosy again. What irks me most is the fact that couples (single and dual income) stretch every dollar to lead a great life in the eyes of their neighbours. No, I’m not going to rant about people who keep up with the Smiths and Joneses. But, would it not be better to wait a couple of years before jumping into such expensive mortgage commitments? Would it hurt to drive a late model car for a few years and then go for a new one, once the wife gets to work again?

Obviously, it is easy for me to go on a spiel with the benefit of hindsight. The talk of emergency funds, living within your means, etc. seems to have spread like wild fire, thanks to the efforts of personal finance blogs and TV and radio shows. When the economy gets back up on its feet (yes, the stock market is running a 100-metre dash but the economy is picking up at a slower pace), however long that may take, people would do well to remember the lessons learned during the time of doldrums. As raging as the next bull market may get and as low as the unemployment rate may go, the basics still shouldn’t change. Building up an emergency fund, delaying gratification, staying out of credit card debt, making wise investment choices by keeping expenses low, etc. are time-tested methods. There is enough material available about these topics on the web that one can feed off for free!

Change is permanent but greed and gullibility seem to be constants too. I hope people don’t treat these experiences as some chapter from a school chemistry textbook that holds no value to the majority of the population in their post-school life. Will I be made to eat crow in a decade or so, when the economy is doing well and people are still living great lives by avoiding consumer debt, pursuing passion, etc.? I’d gladly do so but that’s going to happen only if people start to fear unnecessary debt (the nonmortgage, non-educational kind) and resist living to please the world!

Clark is a twenty-something Saskatchewan resident employed in the manufacturing sector. He repaid around $20,000 in student loans and has been working to build his investment portfolio as a DIY investor (not trader) while nurturing plans to retire early. He loves reading (and using the lessons learned) about personal finance, technology and minimalism, when the mood strikes – which happens everyday!

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Clark

Clark

Clark works in Saskatchewan and has been working to build his (DIY) investment portfolio, structured for an early retirement. He loves reading (and using the lessons learned) about personal finance, technology and minimalism. You can read his other articles here.
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Jen Moore
11 years ago

You are absolutely correct cannon_fodder. Different money styles can be one of the most difficult issues that couples deal with in a relationship and it is definitely important to identify the differences and find the similarities. In my practice I always ask each partner to complete a questionnaire separately and without consulting with the other person. It is not surprising that every couple has some differences in risk tolerance and money habits. Most are only slightly different but occasionally I come across people who are markedly different in their views about spending, saving, use of credit and risk tolerance. In those cases we have to get to the root of their philosophies (or habits) and find some sort of compromise between the two. This is invariably a serious source of stress in relationships.

I do not have any clients that have come to me early in their relationship (pre-marriage/common-law) seeking joint financial advice. I think that if more couples were able to be honest about this topic right from the beginning, serious problems could be avoided later. This is such a sensitive subject for most people and possibly embarrasing if they have very bad habits.

I would suggest that couples who are able to discuss financial habits and philosophies early in a relationship, probably either share similar attitudes or are willing to work together. I would also suggest that couples where one or both people are secretive about their money, spending and credit situations at the point in a relationship where they are getting more “serious” with each other, are in for a rude awakening when the truth eventually comes out (usually when they decide they want a loan or a mortgage and credit ratings come into play!).

It’s my hope that lots of teenagers are reading this blog because so many great topics about everyday money situations have been discussed. I particularly loved the discussion that put a dollar figure on the first year of a baby’s life! This would be very good birth control for teens who think having a baby would be “fun”.

cannon_fodder
11 years ago

Jen in T.O. – do you see many couples coming in to get a reality check when they are early in their committed relationship (i.e. soon after living together or after they are engaged but before they get married)? Finding out that there are two clashing, or dysfunctional, financial management styles could be dangerous for a long term, successful relationship.

Clark (The Guest Blogger)
11 years ago

@Jen: The husband’s not fresh from university, it is not his first real job and hasn’t changed fields. My reasoning is that if a couple know that they want to buy a house atleast two years down the road, they should start to save for a down payment (atleast 20%). If expenses don’t allow them to reach their savings goal in two years, then delay buying a house or go for a smaller house. You could argue that they were dutifully paying off their student loans (I don’t know if that is the case) and hence could not put 20% down. If true, then they could have waited for a few more years (delaying gratification?). Of course, if buying a house is a dream and a wild one at that, then good luck!

Jen
11 years ago

Clark – the additional context makes all the difference in the world! Of course putting only 5% down on any mortgage isn’t a decision many people would consider particularly wise, and borrowing closing costs from friends also indicates they might be struggling.

I’m not sure how having a job for 2 years has anything to do with showing how well they plan (again, more context needed – has he been an engineer with other companies before this one? is he fresh out of university and this is his first “real” job? has he recently changed fields?) – again, this still remains a pretty useless post in terms of the calibre of content usually on this site, but I do appreciate the follow-up from the guest-poster!

Matt @ Dividend Monk
11 years ago

Great post. It amazes me how much people spend on appearances. I know of a guy who makes $250,000 and can’t pay for his only kid’s graduate school tuition. It might have something to do with his $800,000 house…..

myfinancialobjectives
11 years ago

Great post, a message more Americans need to hear. I worry about the stock market doing a “hundred meter dash” right now, I’m half expecting a decent market correction within the next year.

Also living below you means should be a staple for MANY Americans right now. If I were the couple, I would without a doubt sell the car, and go for something cheaper, say at a government auction, or through Craigslist, the papers, etc. Cut all unnecessary expenses, the first being that shiny new Honda!

Clark (The Guest Blogger)
11 years ago

@Big Cajun Man: Well, if one believes that education will be their road to a better life, then I’d say go for it. Of course, there is no guarantee and there are a number of factors involved but I don’t think I’ll pick on someone who gets an educational loan. Whether they use that money and their time in a useful way is another matter altogether!
As for the mortgage, if owning a home is a dream, then “To Each His Own” as long as they can afford it and don’t stretch themselves thin!

@ITS: The couple mentioned in the post live in Alberta but there are atleast a few houses that go for that price in the two big cities of Saskatchewan!

@Jen, @Bob: The house in question is in Alberta. Maybe, more facts may help – as I mentioned earlier, I don’t know every detail but I am aware that they put 5% down and borrowed a small amount of money from a mutual acquaintance to cover closing costs. The husband had held the job (in a big organization) he lost for over two years at that time. I believe that this shows their planning and savings scenario (it is not impossible that they put another 15% of their down payment into an emergency fund but unlikely I think). It is also entirely possible that they learned a lot after they bought the house and gave birth and tightened up within the next year (when he lost the job).

The post is not meant to show up the people in debt or show off my limited knowledge. It is a post inspired by a young couple’s story to provide some food for thought for people who are on the same track. I don’t know if the post came off as “attacking everyone with nice things” or arrogant (views will vary, of course). There are BMWs on the road and big houses in posh localities. Have I wondered if the owners are in debt? Sometimes! Do I lead my life begrudging every person who is rich (whether in debt or not)? No.

Jen in T.O.
11 years ago

I’m a Financial Planner and although Clark made some pretty large assumptions about the couple’s financial situation, I can tell you that in my practice I run into many couples and young families in their 20s and 30s that are living with significant debt and are often reluctant to reveal it to me in our initial discussions. They have heard the messages about living within their means but the compulsion to have the “best stuff”, right away, is often too strong! In most cases, everything is fine, as long as they can maintain their income levels. I often find myself wondering what life lessons the children of these people are learning. Believe me when I say that kids are very good at picking up on the habits of their parents, and their expectations about their standard of living and what they need to have to be comfortable as they grow older will be very high.

Incidentally, we chose to live in a decent but slightly less desirable neighbourhood in Toronto because we knew that keeping up with the Joneses would not be an issue and we could live our lives as we wished, surrounded by people who share our values of living within our means, spending on things that are meaningful and modeling good financial responsibility for our children. I think we enjoy a very high standard of living but it’s just not about the “stuff”. I don’t believe that “stuff” makes anyone a good citizen or neighbour. It’s the things we do that really make a difference both for ourselves and our communities. Interestingly, our neighbourhood is chock-a-block with artists, self-employed individuals, environmentalists and journalists. I’m encouraged to see that so many people who comment on MDJ share my views. Sorry if I sound “preachy”.

Smart, Rich Women
11 years ago

Great post, Clark.
In Victoria, BC, I see this situation threaten to play itself out all the time – couples using both incomes to support their mortgage (except here it’s $500k). Wife has a baby and self-employed hubby gets hit by a downturn in his line of work and somehow SOMEHOW they don’t lose the house but boy, are things tight and grandparents are called.

“Delaying gratification” is not a concept my generation (X/Y) seems to understand at all. People who pay off their debt, save, invest and plan will see a future with a great retirement and debt-free worry instead of still working at age 70 and owing $200k in mortgage and other debt.

Clark (The Guest Blogger)
11 years ago

Thanks for the all the comments – both appreciation and critique!

An update: The husband has found a job as an engineer, albeit in a small company, and in a better situation than four months back.

@Joe: Well said! The freedom is what drives me! I know what I need and succeed in avoiding peer pressure most times!

@Scott: Great points!

@Lillee: I’ve been told that I think like an old man (wrt money and planning) by a few people and I have taken (and will take) them as compliments. I believe that I’m a better writer than speaker. Nonetheless, when I’ve seen friends in their early twenties follow the herd blindly and spiral into the abyss, I’ve (never given a lecture as such but) mentioned casually about the pitfalls of the path they are on; it didn’t work and they are continuing on their merry way. Maybe, a structured program would be better (schools, are you reading?)!

@ctreit: Swallowing pride is commendable indeed; not many would be up for it.

@die_broke: I’ve heard that example of “what if I die tomorrow?”. I don’t have statistics to back me up but only a small percentage of people die everyday and the percentage due to non-health reasons will be even smaller. I’ll gladly live a simple life and pursue my freedom unless someone is willing to give me the DATE. I’m not doing this to break convention but it is just what I Iike!

I’ll get to the rest of the comments later…..