Life is Not Short – Life is Long So Make Good Money Decisions

October 03, 2011

You’ve heard the saying, “Life is short so don’t waste time worrying” or “Life is short so enjoy every minute of it.”  When I was listening to Frank Abignale, Jr., the convicted felon turned distinguished FBI agent (I wrote about him last week) and the subject of the movie, Catch Me if You Can, give the keynote address at the Financial Planning Association conference, I heard him say the opposite.  He said, “Life is long.”  Then he went on to say, “Life is long so make good decisions.” 

He has an interesting point.  I just read that one third of people living today will live to be 100, so for them life will be very long.  The whole line of thinking that life is short encourages people to spend money instead of saving it, or go into debt to take a vacation they can’t afford every year, all the time thinking, “Life is short.”

Life is long and it’s important to make good money decisions because you have to live with bad ones for a long time.  It’s not that you can’t enjoy your life now, but there are some short term thinking that can really hurt us in the long term.  Here are a few examples:

Buying a house versus renting: When you rent, it can be cheaper in the short term because there is no down payment, the landlord pays for all the upkeep, the taxes, and some utilities.  When you buy a house if you get a fixed mortgage whether it is fifteen years or thirty years, eventually it will be paid off.  In the long run, owning your house can save you thousands of dollars a year.  The average cost to rent an apartment in the US is about $700 per month.  If you own your house free and clear, you still have upkeep, property taxes and expenses like water and garbage but they generally are much less than $8400 per year.

Rents rise.  If rents increase on an average of 3% per year, thirty years from now you’d be paying $1700 a month in rent instead of $700 a month now.  Consider this, if you buy a house when you are 30 years old with a 30 year mortgage, it will be paid for when you are 60 years old.  If you live a long life until age 100, you’d save 40 years of rent payments.  Using the example of $1700 a month in rent, you’d save $816,000 by owning versus renting.

Spending less and investing more: Those employees who invest more in their 401(k) — the full 10% of their income instead of the current national average contribution rate of 6.8% –may be very happy they did.  Those employees who saved an “extra” 3.2% per year of their income, who make an average of $75,000 a year over 30 years earning 6%, would have an extra $200,000 at age 60.

Just by making two decisions with a long term view in mind, owning a house and investing more could add a million dollars to the bottom line.  If life is long, that could really come in handy.  Here are some smart money decisions you can make that would make that long life a lot more enjoyable:

Save more money and set up your savings (and investing) automatically

  • Transfer money from checking to savings to build your emergency fund.
  • Increase your 401(k) contribution and set it to increase automatically every year until you hit the max.
  • Open a Roth IRA and fund it every year.
  • Set up a systematic investment into a mutual fund.

Invest for the long term

  • Buy a house and pay it off to live mortgage free for years.
  • Take care of your car and keep it for a long time.
  • Buy quality items that will last a lifetime.

Keep your fees low

  • Learn tax basics to pay the minimum taxes necessary.
  • Invest in low fee investment accounts.
  • Pay off debt to reduce interest charges.

Oh and another thing, you might want to be really nice to your family so they’ll spend time with you when you are ninety-nine.