Today I want to comment on an excellent article I read on Yahoo! Finance. It was an interview with Thomas Stanley, author of several books on the subject of the choices that American’s make in their lives and how that affects their financial security.
The article appears here: To Act Like The Rich, Be Frugal
This is probably the best online article that I’ve ever read on personal Finance, because it sums up the collective points of all of Stanley’s books in a way that really makes people stop and think about their own choices.
But I wanted to expand on the concept though. Stanley does a great job explaining how you can improve your own personal situation by living a frugal life rather than an extravagant life (yes, for most of you, owning an iPhone is extravagant). What isn’t mentioned in the article is that by living a lifestyle that is beyond your means, you screw up the world for the rest of us as well, by helping to reset the price of everything to unnatural levels.
For instance (I just love picking on iPhones), wireless rates are out of control right now in the U.S. Everything is separated into voice/text/data and when you add the cost of all three up, it’s ludicrous. The cost to send those data packets around the world is extremely small, so why are most people paying over $50.00 per month to do it? Because cell phone carriers can charge that much and we let them, plain and simple. Cell phone carriers typically don’t have the slightest idea how much a call costs because their own internal billing across networks is so complicated. But that is their fault, not ours. They raise rates to the highest levels they can sustain to ensure they make high profits even though they don’t really know what their total costs are from month to month, at least not in advance. And we allow it. We are lured by subsidized promotional prices on the actual phone, and then we are ripped off by the monthly rates for years.
By saying NO to things like high wireless rates, you help to recalibrate the system, and that benefits ALL of us. But that isn’t what happens. Data rates increase from $20 per month to $30 per month and everyone sucks it up and pays it. Since no one is saving for retirement anyway, it just means a few less Latte’s per month I guess. Or more credit card debt.
But the real pain is caused on the high end of the price scale, real estate and vehicles. So much pain has been caused by paying way more than is reasonable for real estate. I needed housing during the real estate boom like many of you did. I did not submit to overpaying, however. Because of all of you, I had to purchase a dilapidated near-foreclosure and fix it up myself to ensure that I was getting a fair deal that didn’t overtax my finances and reduce the amount that I could contribute to retirement. Stanley said it best, if you are wealthy then you shouldn’t purchase a home more than three times your annual income, and if you are not yet wealthy, you shouldn’t purchase a home that is more than twice your annual income.
The process of buying and repairing a heavily distressed home was work that I didn’t have time for, and it made the home search process more difficult than anyone should ever have to endure. And I’ll never forgive you for it.
