Financial Posture

I'm relatively certain that the author of Rich Dad/Poor Dad first published this notion, and I found it incredibly useful. Just as posture is an incredibly important aspect of your personal health, your financial posture can be just as important to your financial health. A little bit of slouching here and there can add up to quite a significant amount of lost opportunity later on in life.

So you buy a delicious coffee-drink from Starbucks three times a week at $4 a pop. And sure, your bank isn't located anyplace convenient, so you hit up an ATM twice a week, with the ATM owner's bank charging you $1.50 each time and your own bank accessing a $0.75 charge. It's little, seemingly insignificant purchases like these that add up over time to become huge sums of money. (In this instance, $858 a year, which over ten short years without increase is a surprising $8,580—almost enough to buy a car outright!)

This is just the 'little stuff' that doesn't add up to much. What about those smaller, but still significant purchases made once or twice a month? $20 here, $30 there... I'm not advocating being a penny-pinching miser or even saying it's not alright to splurge once in a while. It's when it becomes a regular habit that we find ourselves in trouble; massively in debt, and wondering where our hard-earned money went.

When one takes the time to master impulse control and evaluates what will truly be a 'good purchase', usually two things immediately result:

First, your purchases will bring more "utility" (which is just a fancy economics term for "satisfaction"). You'll find yourself experiencing less buyers remorse and more true enjoyment from what your wealth has bought you.

Second, you will find yourself with more and more money left over at the end of every month. Before you can be tempted to spend it though, it's important to ask yourself three important questions for your financial-health checkup.

1. Do I have at least 6 months living expenses in savings?
2. Have I contributed at least $50 this month to my IRA?
3. Do I have any credit card debt outstanding?

If the answer to either of the first two is no, I heartily encourage you to put the money away. After all, if you have to make a purchase, why not purchase an asset that will generate more money for you? (A CD, a zero-coupon bond, or even a few shares of a high-dividend-yield stock like Duke Energy or GE are all good examples of money generating assets, although I am advocating nothing specifically.) If the answer to the third question is yes, then, by all means pay down your high interest debt! There is nothing closer to earning a 'guaranteed' return on your money than paying down high-interest debt!


Okay, for the record, just so you know I practice what I preach...

1. I only buy Starbucks when I'm traveling on business; and only because my company only reimburses 'Actual's (as in what we actually spend on food) in lieu of a daily Per Diem (or fixed) rate.
2. I contribute 10% of my income to a 401(k), $100 a month to a Roth IRA, and an additional 10% of my net-check to a high-yield savings account (namely Emigrant Direct) which I use for emergencies.
3. The only credit card debt I have is a 0% offer for furniture. The money used to pay this off currently sits in my Emigrant account, currently earning 2.5% interest.

I know everyone can't afford to do that, but I know I wouldn't have been able to stick to the budget I do if I didn't show some backbone when tempted with the likes of a Venti Caramel Macchiato....with an espresso brownie...damn.

(The problem is, the caramel macchiato and the espresso brownie won't generate any income for me. If anything, they'll cause me to spend more money when I have to go and buy a gym membership after too much splurging.)