Dollars !

As we approach another year which promises to be full of economic uncertainty and upset, I’m sure many of us are evaluating and re-evaluating our expenses, savings and lifestyles.

Personally, we’ve canceled our health club membership, switched phone plans, discontinued magazine subscriptions and have amped up our savings even further.  Moreover, we are uncluttering the basement and our closets and donating items to Goodwill, giving them to friends or selling stuff on eBay.

As I think about all this I’m reminded of one of the basic pieces of financial advice I received from a friend years ago – having to do with the “sanity check” we give big purchases.  His approach was to take his hourly wage, double it, and divide the price of the item in question by that number.  For example, say you make $20 per hour and want to buy something that costs $400; in this case you’d give the purchase additional consideration for 10 days before making – or rejecting – the purchase.

In my case this has morphed into simply giving myself extra time during which I do a little soul searching.  At this point in my life I know my tendencies – and recognize that one of my weaknesses is to fall prey to the psychological lift I get out of buying something.  Nowadays when I want to make a significant purchase I spend a fair amount of  time asking myself why I’m really interested in that item and how likely I am to derive real benefit from it over time.

A current case:  I’m interested in buying a stand mixer, as I’ve been baking bread recently.  Do I really need to spend $300 for 10+ minutes’ kneading of dough – once a week?  In addition, the bread thing is a recent phenomenon – is there any chance I won’t be quite as interested a year from now?  Best to wait on this one…

What’s the best piece of financial / personal finance advice you’ve ever receivedPlease share by commenting and let’s see if we can learn something from one another…

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4 Comments on Ask the readers: what’s the best financial advice you’ve ever received?

  1. Chad says:

    Best advice ever that I wish I took when I was younger…
    “Live below your means”

    Some others:
    “Save 10% of your income”
    “Pay yourself first”

    [Reply]

  2. Cindy says:

    When I first became eligable for our 401K at work (a lonnnggg time ago) my lead told me to max out my contributions. I did that, almost a quarter of a century ago. Compounding is an amazing thing.

    [Reply]

  3. Kevin says:

    Great comments; thanks.

    When you’re starting out it seems impossible to max out your 401(k) but it’s great advice. If I discover that younger colleagues aren’t maxing out their 401(k)’s I’ll suggest that each time they get a raise they throw most of it into their contributions.

    Decades ago, a boss told me to take every bonus I get and invest it, vs. buying something frivolous. In all honesty, at times I haven’t done that (needed a car, etc.) but for the most part I have and it was very solid advice.

    Thx. for commenting!

    [Reply]

  4. David says:

    Save at least 10% of what you take home, no matter what.

    [Reply]

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