It’s Easier To Earn More Than To Spend Less
Posted on February 2, 2007
As readers of this column know, I’m a strong advocate of building up cash reserves to cushion against unforeseen expenses or unanticipated loss of income. Events can happen that result in financial distress and unless one has a cushion to fall back on the results can be devastating. As a real estate investor for more than 35 years, I’ve seen first hand how accidents, illnesses, loss of employment, divorce, and other tragic and unexpected events have caused people to lose not just their homes, but their pride and dignity as well.
I am often exposed to the serious financial difficulties in which some owners find themselves. As a long-term investor, I have to purchase properties at wholesale values, but that doesn’t mean I’m only out to take advantage of people’s misfortune. There are many ways to balance price and terms to create wholesale values, but financial distress often causes sellers to reduce their price to avoid foreclosure or even bankruptcy. When this happens, I am frequently presented with deals because I am able to close quickly and pay in cash if required.
With few exceptions, the people who come to me in dire financial straits wanting to sell their property have almost all have gotten in that condition because they didn’t have any cash reserves to carry them through the difficult times. While their circumstances may vary, their reasons for not building cash reserves are similar. Most say it was taking everything they earned just to keep a roof over their heads and food on the table which is why they were unable to save. What’s interesting is that most of them had cell phones, I-Pods, Palm Pilots, GPS navigation units, nice cars, boats, recreational vehicles or other similar possessions they could have easily done without.
Imagine what it must be like to be on the verge of losing your home because you’ve exhausted your savings by making a big down payment on a new car or boat on which you still have to make payments amounting to several hundred dollars each month. Even worse, imagine never having any savings because you spend everything you make on the latest electronic gadgetry, expensive hobbies, sporting events, travel or other non-necessities. Many times people commit future earnings by financing the purchase of things they could easily do without, but that’s the American way. Buy now�pay later!
How rewarding can it be to live a standard of living you can’t sustain if you hit a bump in the road? Unfortunately, too many Americans live right on the edge and are only a couple of missed paychecks away from financial ruin. Why? Personally, I think it’s because their wants out weigh their will. They want to enjoy the fruits of their labor right now so they are unwilling to save and invest in order to secure their position in life. These are the people who need to learn that it’s easier to earn more than to spend less.
If you have a job and earn a salary and it’s taking everything you make to pay the bills, you’re probably not going to be willing to give up what you’ve grown accustomed to enjoying just so you can start a savings account. You may try, and start with all the good intentions in the world, but once you’ve become accustomed to a certain lifestyle, it usually takes a major financial setback to force you to go backward.
Here’s a tip! If you’re living up everything you make, it’s easier to focus on earning more rather than on spending less. Pick up a few hours of overtime if available, find a part time job for a few hours each week, deliver newspapers, mow a neighbor’s lawn; the possibilities are endless. If you look around, you’ll find hundreds of ways to make extra money if you’re willing to work and not too proud to do so. The key is to put this extra money aside and let it start a reserve to carry you through difficult times. Saving money this way lets you build cash reserves without having to sacrifice the things you’re accustomed to having. The only thing you have to give up is a little spare time which you’re probably wasting anyway.
Before I start getting emails from those who say they are already working two or three jobs and still can’t save, let me add that throughout my 35 years of investing in real estate, I can’t recall ever buying a property from someone who was working more than one job. So, if you’re already doing this and still struggling you may need to focus on reducing spending. On the other hand, I can recall several times when I’ve sat in a house about to go into foreclosure and listened to the owners tell me about their financial woes as they smoked cigarettes, drank beer and had to turn down the volume on their big screen television so we could talk.
My experience is that people who have had the good fortune to buy a home have had decent credit and been financially responsible at some point. Its changes in behavior after the purchase that got them in trouble and once in trouble they were unwilling to change their behavior to get out. This holds true whether people own property or not. It’s easier to change behavior to increase earnings than it is to reduce spending. Think about it!
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