Everyone has heard the old saying, ignorance is bliss. I remember back in 2008, when the economy was spiralling downward, bailouts were given out like free samples at Costco on a Saturday, and production started to slow, and yet few of my friends and even my acquaintances were very, if at all, concerned about what these events meant.
I remember being amazed by the fact that people carried on like it was business as usual, oblivious to what was happening. It seemed that unless the recession prevented them from keeping up their daily routine or affected their plans for the weekend, they really didn’t care. After all, at that very moment, they still had their jobs and their steady sources of income.
Surprisingly,
however, even the people I know who were laid off because of the slowing
economy didn’t seem to make the connection between what was happening in the
global economy and the fact that they’d lost their job. Or, if they did, they
didn’t seem too concerned. After all, unemployment payments allowed them to
keep buying, living their life with few if any changes.
Now this isn’t to say that my experience was the norm. I’m sure these economic events were a wake-up call for a lot of people, both in Canada and the U.S., and that a lot of belt-tightening happened as a result. Still, I couldn’t help but wonder, is ignorance really bliss or is it just, well, ignorance?
Kevin is a fairly recent university graduate who works in software development and spends his spare time learning and writing about all things personal finance. His blog, Invest It Wisely, is full of informative and interesting articles, that span many different personal finance topics from investing, saving, frugal living and smart spending, yet all focus on the bigger picture with the same message: those who look and plan ahead while taking careful consideration of the factors and events that are beyond the realm of their immediate day to day life, will prosper. Yes, the financial approach that Kevin imparts to his readers is the antithesis to the popular bury-your-head-in-the-sand tactic.
It was back during the 2008 credit crunch that Kevin became increasingly interested in personal finance. He says he realized just how wrong his financial approach had been when he was younger, namely getting in over his head and racking up debt, and he saw just how much there was to learn about managing money.
“I think there's some truth to the saying that youth is wasted on the young,” Kevin said. “I don't really have any major regrets, but I definitely spent too much money and made some unwise financial choices. If I could go back in time, I would tell my younger self to focus more on the future and not only the present.”
With all that he has learned over the last three years, I asked Kevin if this greater knowledge makes him at all concerned going ahead, in light of the fact that recession fears have started to resurface. On this, Kevin said he’s optimistic that what he has done over the last few years to prepare himself by upping his savings and being more prudent with regards to spending, will allow him to take advantage of market dips and potentially make money.
An example of one of the ways Kevin has planned to secure more savings is that he set a goal, back in January, to save 50% of his net income by the end of 2011. With just 10% left to put towards his savings goal, Kevin had this to say about why it’s worth it to make a few sacrifices now, for the future:
“The beauty of this is that your life really doesn't suffer at all, because you'll end up having the same amount of enjoyment because you'll still spend money on the things which are most valuable to you and you'll only be giving up the marginal things which you decided were not worth it in the end,” he said. “At the same time, you'll feel much better off knowing that you don't have a noose of debt around your neck and that your balances are growing with every month. There is a great feeling in knowing that you are building up a nest egg for the future.”
And, just like a personal finance or frugal living goal like this helps to keep you thinking about your financial future, Kevin said it also requires you to carve out a long-term spending plan, so that you’ve made decisions with regards to what you will spend your money on even before the opportunity arises.
“The biggest mental shift is that it forces you to make a decision now, as opposed to some point in the future,” said Kevin. “You need to decide now what you're going to buy, because you can't buy everything you possibly want without busting your savings goal. You'll need to decide what's most important to have right now, and what you can wait for. This isn't something that our generation is used to having to do.”
Unfortunately, the credit crunch of 2008 didn’t foster an ‘aha!’ moment for every North American like it did for Kevin. Instead of learning that debt isn’t desirable or conducive to a secure financial future, many in Canada and the U.S. continue to spend on big ticket items, beyond that which they could realistically afford, even after witnessing the fallout of such actions back from 2008 and on.
“I look at friends and family and most of them are basing major financial decisions on the current rock-bottom interest rates,” Kevin said. “They are fine with spending very large sums on homes and cars because they look at the monthly payments, and they are affordable at the current rates. These people are already carrying large payments around, so imagine what the burden will be like if the rates start going back up.”
So instead of going down the same path, the one that put a lot of people in a pretty tight situation just three years ago, let’s learn from our past and commit to never making the same mistakes again. Start by reading posts like, How Important is Financial Balance to You, and, Savings=Freedom, or, How to Organize your Finances for a Wealthy Future, at Invest It Wisely and start a new chapter for the sake of your financial future.
What I love most about Kevin’s site and the posts he writes is that they all pertain to finding a balance. Kevin won’t teach you to scrimp and save in every way possible just to save a few bucks, but he will teach you how to make smart decisions with your money so that you allow yourself the freedom to get what you want from life.
“I believe
that it's important to have room and flexibility in your budget so you have the
ability to find a balance,” he explained. “If you require two salaries to cover
your mortgage and tax payments, you have a lot less freedom to make major
decisions, such as having a parent stay home when the baby arrives, or even
minor decisions like taking a vacation in the summer.”
Here are Kevin’s top three tips for finding financial balance—pay particular attention to number three:
1) Spend no more than 33% of net income on total housing costs.
2) Save a significant amount of net income on the side, 30% to 50%.
3) Enjoy the remaining money and don't feel guilty about how you spend it, so long as you stick to your savings goals.
With a solid understanding of where you’re going or what you’re doing with your money, you will reap rewards that extend far beyond financial security. Kevin said, for him, learning about personal finance has motivated him in many other areas of his life and encouraged him to not only save his money but to also find new ways to grow his wealth.
“You also start to think more about how you can make more money, because when you're saving so much of it away, you're forced to make choices on how to spend your money, and that's a little uncomfortable,” Kevin explained. “You then start to think about how you can advance your career, education, and build up side income -- you start to think a lot more about yourself and where you're going, and your future, instead of just living the days as they come. This was the biggest benefit for me personally.”
Kevin said Invest It Wisely has become a forum through which both he and his readers can learn from the personal finance savvy of the other and he hopes the blog can continue to be a valuable tool for people wanting to learn more about how to best use their money and their time.
Going ahead, we can only hope that there will be more people who, like Kevin, have one of those life-changing ‘aha!’ moments where the blinders are lifted and they can see just how dismal our financial future will be if we carry on as we have.
Ignorance may be bliss when it comes to some aspects of our lives, but I’d say real bliss is only experienced by those who have broken out of the bubble and are using their time, money and energy wisely.
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