Spend Well, Live Rich (previously published as 7 Money Mantras for a Richer Life): How to Get What You Want with the Money You Have - Softcover

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Michelle Singletary

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The best financial planner Michelle Singletary ever knew was Big Mama, her grandmother. Big Mama raised Michelle and her four brothers and sisters on a salary that never reached more than $13,000 a year. Yet at her death, Big Mama owned her own home, had paid off a car loan, and had a beautiful collection of Sunday-go-to-meeting church hats and a savings account that supplemented her Social Security check and small pension. Most important, she had taught Michelle "7 Money Mantras for a Richer Life." Those mantras serve as the inspiration for this straight-talking book of practical personal financial advice that really works.
The 7 Money Mantras are:
1. If it's on your ass, it's not an asset!
2. Is this a need or is it a want?
3. Sweat the small stuff.
4. Cash is better than credit.
5. Keep it simple.
6. Priorities lead to prosperity.
7. Enough is enough.
Michelle Singletary is a syndicated columnist for "The Washington Post whose popular personal finance column appears in more than 120 newspapers. She's also a mother of three children who understands what it's like to live on a budget. In a plainspoken, sassy, no-nonsense voice, Michelle provides answers to the financial issues that confront almost every household: how to teach children the value of money; how to address money issues in a relationship or marriage; household saving tips; getting the best loans; and much more.
"This book is about saving enough money to have choices," she writes. "It's about feeling free to be cheap if you can't afford to buy a ton of gifts at Christmas. It's about eliminating wasteful spend-ing so you can begin to save and invest. It's full of uncommon commonsense lessonsand guidance on the way people should use their money."
With humor and down-home financial wisdom, Michelle Singletary offers practical and realistic advice that will help you live well with the money you have.
Michelle Singletary on . . .
Romance and Money
"It's okay to say: 'Honey, I love you and everything, but if you need money, ask your mama.'"
Credit Cards
"We are minimizing our financial potential by making minimum credit-card payments."
Car Buying
"If you want to save money, keep your car until you're on a first-name basis with the local tow-truck drivers."
Leasing a Car
"You, too, can drive a car you can't afford and then have to give it back. It's crazy."
Gift Giving
"Generosity isn't about how much you spend. It's about how much thought you put into the gift."
Penny Pinching
"I once bought a stick-shift car because it was $1,000 cheaper than the automatic in the same model. There was just one little problem. I couldn't drive a stick-shift. But at least I saved $1,000!"

"From the Hardcover edition.

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Chapter 1

MANTRA #1: "IF IT'S ON YOUR ASS, IT'S NOT AN ASSET"

Think about the word asset. What exactly does it mean? An asset is an item of property, a person, thing, or quality, regarded as useful or valuable.

That definition is broad enough to allow most people to justify most of what they buy as an asset. You convince yourself to buy a big, expensive car because it will "hold" its value in case you want to sell it later. But selling this asset usually means acquiring debt to obtain another car. Doesn't that defeat the purpose? Does a banker consider your Lexus an asset? Does it improve your chances of getting a home loan? Not if you still owe money on it.

We amass a great deal of things, but how much of that stuff maintains its value? Did you know that there are more than thirty-five thousand self-storage facilities in this country? Americans' houses and garages are overflowing with so much stuff that we have to rent extra space to keep it in. I know someone who rented space in a self-storage facility for her clothes because she ran out of room in her closet. Crazy!

I want you to think about all the stuff you have because, ultimately, I want you to determine whether too much of your income is being devoted to servicing debt to pay for personal property that depreciates every year.

There are four types of assets that make up your net worth. Three don't require you to rent self-storage space and are more likely to put you on the path to financial security. They are called appreciating assets.

Common definition of appreciating assets: Assets that have the potential to increase in value and/or produce income.

Commonsense definition: Assets that you don't wear or drive and that will help keep you from asking at age seventy-five, "Would you like a shake with those fries?"

Appreciating assets include the following:

*Liquid assets. Cash or other financial assets that can easily and quickly be converted into cash with little or no loss in value. Liquid assets include checking, savings, and money-market accounts and certificates of deposit.

*Investment assets. Assets held for their potential to appreciate, or increase in value. They include stocks, bonds, and money in a mutual fund.

*Real property. Land and things attached to it (house, garage). This is by far the greatest source of wealth for American families.

The second asset category is personal property. This includes your automobiles, furniture, clothing, and electronic equipment. Technically, personal property is counted on the asset side of your personal balance sheet. However, once you walk out of the store or drive off the car lot with this type of asset, it immediately loses a great deal of its value. These assets are otherwise known as depreciating assets.

Common definition of depreciating assets: Assets that lose their value over time.

Commonsense definition: Assets that may make you look good but don't do a darn thing to make you rich.

Want to see how much of your income is spent to acquire assets that aren't likely to make you wealthy? It's not a perfect formula, but figuring out your debt-to-income ratio will give you some idea of where your money is going. This is a number, expressed as a percentage, that compares the amount of your debt (excluding mortgage or rent payment) with your monthly gross income.

Mortgage lenders look at the debt-to-income ratio all the time. When you apply for a mortgage, a lender will first determine the percentage of your gross monthly income that goes toward housing expenses.

Common definition of gross pay: Income before taxes, deductions, and allowances have been subtracted.

Commonsense definition: Income you wish you brought home before everybody and their mama, including Uncle Sam, gets their cut.

Typically, your monthly housing expense should not be greater than 28 percent of your gross monthly income. Mortgage lenders will then look at your total-debt-to-income ratio (all your debt obligations including your mortgage payment) to determine whether you are able to handle a home loan. The maximum ratio they typically like to see is 36 percent, although increasingly lenders have allowed borrowers to have a total-debt-to-income ratio as high as 50 percent. Still, your basic debt-to-income ratio compares your debt load with your income. The lower your ratio, the better off you are financially.

"Maintaining a good debt-to-income ratio will keep vital financial doors open," said Rudy Cavazos, director of corporate and media relations for Money Management International, one of the nation's largest nonprofit credit-counseling agencies. "Owning a home and a car is just the beginning. A home requires improvements, and cars must be replaced."

To calculate your debt-to-income ratio, use your gross monthly income. Include any bonuses, tips, commissions, alimony, child support, dividends, interest earnings, and government benefits. Next, figure out your monthly debt obligations (excluding mortgage or rent payment). Include payments for your car, installment loans on furniture and appliances, bank loans, student loans, and credit cards (use the minimum amount due).

Now divide your monthly minimum-debt payments by your monthly gross income. For example, if you have a gross monthly income of $2,000 and minimum payments of $400 on a car loan and your credit cards, you have a debt-to-income ratio of 20 percent ($400 divided by $2,000 equals 0.2).

According to debt-counseling experts, if your debt-to-income ratio (excluding mortgage or rent) is

*15 percent or less. You are doing a good job keeping your debt at a manageable level.

*15-20 percent. You're still a good candidate for credit by most lenders.

*21-39 percent. "This range definitely raises a red flag," Cavazos said. At this level, start looking at your spending habits and eliminate credit card balances that carry high interest rates.

*40 percent and above. "This is a serious situation," Cavazos said. The average client seen by Money Management has outstanding debt (not including mortgage or rent) of $19,000 and annual income of $27,100. If your debt-to-income ratio is this high, Cavazos said, you probably should seek credit counseling. To find a consumer credit-counseling agency near you, contact the National Foundation for Credit Counseling at (800) 388-2227 or go to www.debtadvice.org.

About one in twelve American families had a negative net worth in 1998. About one in eight families had a net worth of less than $5,000.

"Wealth creation rarely happens by chance," said Theodore R. Daniels, president of the Society for Financial Education and Professional Development. "It is generally the result of informed choices about spending, savings, and investment."

How do you begin to accumulate appreciating assets?

Reduce the amount of your personal property. And that begins with curtailing your love of consuming. Think about what it means to consume. Here's how the Merriam-Webster dictionary defines the word:

*To do away with completely.

*To spend wastefully.

*To waste or burn away.

Many of us-actually you because I'm a reformed shopaholic-shop as a form of entertainment. Americans go shopping on average 1.9 times a week, according to retail consulting firm WSL Strategic Retail.

"I shop therefore I am" is the credo of the new American consumer, the firm announced when it released its "How America Shops 2000" survey, which tracks how, where, and why Americans shop. "The role of shopping in American life has changed dramatically since 1990," said Wendy Liebmann, WSL president. "No longer is shopping solely about practicalities alone. Today,...