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Personal Finance Basics: Live Below Your Means

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Last week I started a series called “Personal Finance Basics“.  In the series I plan on talking about basic concepts of personal finance, going back to the simple concepts that we sometimes forget or ignore.  Last time I talked about the idea of paying yourself first in order to ensure that your savings grow – instead of having your money mysteriously disappear.

This time I want to talk about another important concept – living below your means.

The Lure Of Easy Credit

One thing that this generation has done is to forget the basic concept of how you create and grow wealth.  The ideas of easy credit and buying things before you have the cash have taken  hold.  Whereas our parents  would save up and pay cash for the things they bought, when we have a whim and desire something – we just buy it.

The average age at which a U.S. consumer under the age of 35 first adopted a credit card is 20.8 years. The average age of credit card adoption for a consumer over the age of 65 is 40.6 years. (Source: “The 2008 Survey of Consumer Payment Choice,” Federal Reserve Bank of Boston)

The average age that we started using credit has dropped as time has gone on.   Using credit and going in debt has become more acceptable.  Millions of people have acquired debt and gone thousands of dollars in debt.

Total U.S. revolving debt (98 percent of which is made up of credit card debt): $852.6 billion, as of March 2010 (Source: Federal Reserve's G.19 report on consumer credit, March 2010)

So revolving debt in the U.S. has grown to near 1 trillion dollars.  That can't be a good thing!

So what can you do about it?

Spend Less Than You Earn And Live Below Your Means

Thomas J. Stanley in his book “The Millionaire Next Door” talked about millionaires and what the greatest factors were that lead to their creation of wealth. Contrary to the picture that many people hold of the wealthy, the picture of the lavish spending, expensive cars and expensive homes, most millionaires  that he interviewed were rather frugal.  They lived well within their means – and most lived below their means.

He said that the average millionaire doesn't have material things just to have them:

We wear inexpensive suits and drive American-made cars. Only a minority of us drive the current-model-year automobile. Only a minority ever lease our motor vehicles.  Most of us (97 percent) are homeowners. We live in homes currently valued at an average of $320,000. About half of us have occupied the same home for more than twenty years. Thus, we have enjoyed significant increases in the value of our homes.

Millionaires don't feel the need to display their wealth, or show off by living in fancy neighborhoods and drive a fancy car. They live below their means, make thoughtful homemade gifts, buy quality things, and don't focus on brand names or status symbols. They enjoy the good things in life, but also know good value. They know how to live on less than they make. In fact, for many of them, their frugality and living below their means is one of the primary reasons why they have created their wealth.

So what do you think – is living below your means an important piece of creating and growing wealth? Tell us your thoughts in the comments!

Rags To Riches Millionaire Success Story: Jimmy Dean

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From time to time I think it's an interesting exercise to look at the stories of people who have risen to fame and fortune, and figure out how they did it. Was it luck? Hard work? A burning desire to succeed? Today i wanted to look at one such story of rags to riches.

This past weekend we saw the passing of a entertainment and business icon, musician, actor and sausage magnate Jimmy Dean. While most of us are probably familiar with Jimmy Dean's sausage because of the prolific TV commercials, what a lot of people don't know is that Jimmy Dean lived a true to life rags to riches story. He was a musician and singer, actor, businessman and more.

Early Life And Musical Beginnings

Jimmy Dean was born in 1928, in Plainview, Texas. He was raised in poverty and dropped out of high school after the ninth grade. Despite his humble beginnings, he rose above his situation, worked hard and made himself into a huge success.

Dean grew up in a musical household where his mother taught him to play the piano. His father, who left the family, was a songwriter and singer. Dean taught himself to play the accordion and the harmonica.

Dean began a band “The Texas Wildcats” in 1948 that by the early 1950's had it's first national hit.     In 1961 he  won the Grammy  for his big hit “Big Bad John,” which is about a coal miner who saves fellow workers when a mine roof collapses.  It's one of his more famous songs, that you can still hear today. Here's a video of the song:

Fame, Fortune And Business

His fame in the music business ended up leading to a career in TV and movies.   He had a couple of iterations of “The Jimmy Dean Show” on CBS and ABC, played an ally of James Bond in the film “Diamonds Are Forever.”   He was also the first guest host on “The Tonight Show”.

In the late 1960's Jimmy Dean returned to something that he knew well – the meat business. His family had raised hogs when he was little.  Jimmy and his brother  slaughtered the hogs and ground the meat – and his mother seasoned and prepared it.

Jimmy Dean opened the The Jimmy Dean Meat Co. in his home town of Plainview, Texas – and after six months, the company was profitable.  Jimmy was a good businessman.    He sold the company to Sara Lee Corp. in 1984, although he stayed on spokesman until 2003.   Who hasn't seen one of the commercials for Jimmy Dean Sausage?

By the early 1990's Jimmy's personal fortune had grown by leaps and bounds and was estimated at near 75 million dollars. Not bad for a poor kid from Plainview!

Jimmy Dean – Careful Money Manager

Having watched other stars fritter away their fortunes, Dean was always a careful money manager – which helped him to amass such a fortune.

“I've seen so many people in this business that made a fortune,” he told the AP. “They get old and broke and can't make any money. … I tell you something, … no one's going to play a benefit for Jimmy Dean.”

Jimmy Dean rose from a life of poverty with a single mother to attain every dream he had ever had. He did it through hard work, persistence and through common sense business practices and integrity. If we can learn anything from his life it is the power that can be found in those things.