I recently noted how one guy got rich while making only $20k a year, but here's a great "spend less than you earn" story that's a bit closer to home. It's from an email I recently received from a grade-school friend of mine that I've kept in touch with. She was thinking of buying a new house, but it didn't fit within her family's finances. Then she shared some other info I thought illustrated what can happen when you consistently spend less than you earn and also live debt free:
Well, we never did buy that other house - just couldn't bring myself to go in debt again - especially for something that would take so much work. But I wanted to share with you our "financial year in review." Keep in mind I never could budget - just not my style. I just believe in paying off credit cards each month, paying off a house in 10 years or less, never buying a vehicle for more than we have saved, and buying the heck out of things on sale - whether we'll ever use them or not.
This year, big things hit. We had to replace our roof - $14,000. Jesse got braces - $3500. Earl got major dental work - $3000. Bought a van - $5500. New furnace - $2000. New water system - $3200. None of these things were expected. Yet we were able to pay for them all - on a teacher's salary and a farmer's salary small enough to qualify our kids for free lunches. Didn't completely wipe out our savings either. We still have taxes to pay, and we REALLY need a different vehicle, but we'll make it. We won't be able to remodel the hideous kitchen as soon as we would like, but I haven't yet figured out what I want there anyway. It really helps when you don't have a mortgage and car payments hanging over your head...
Let's summarize her situation:
1. Debt free at the start of the year.
2. Over $31,000 of unexpected expenses.
3. Very little income.
4. No debt at the end of the year.
So this means she's had a good-sized emergency fund, which means she's been spending less than she earns and storing away the difference for probably quite some time. No, she isn't rich, but she's doing better than most on an income that many would likely find unmanageable.
Here again is a real-life example of what can happen when someone is debt free and watches their spending -- even if they don't have a huge income. Seems like this is a reoccurring theme, huh?
I'll be impressed when I see someone get rich on only $12K a year.
Posted by: Way-Below-Average Joe | December 04, 2007 at 07:36 AM
Getting out of debt except for our house was a huge relief. It has allowed us tons of flexibility. We have saved 13K into our emergency fund and continue to save for other things so we can pay cash only. When an emergency expense comes up we usually just don't save as much that month. It is an awesome feeling I cannot wait to get the house paid off only 120k left to go.
Posted by: The Saving Freak | December 04, 2007 at 08:24 AM
WOW!!! Great success story...I think I would enjoy my home cooking a lot more (even though the kitchen needs a makeover) knowing that I did not have debt. Somehow that "no debt" mirage has a way of making everything taste better and I'll bet it's a nice benefit for sound sleep. Way to go--It inspired me.
Posted by: Susan | December 04, 2007 at 12:15 PM
Unexpected? Or just unplanned? Most of those sound like they could be readily planned for.
Posted by: Lord | December 04, 2007 at 02:38 PM
i appreciate the efforts, really the story can be an inspiration for many of us, who never understand what money can do. When i started reading i was expecting something else at the end, but was wrong. and yes this can happen in anyones life.
Posted by: Larry | January 19, 2008 at 04:50 AM