My father is also a financial advisor. About 12 years ago he had a couple in their early thirties come into his office. They owned a business and were now at the point where they wanted to start saving and planning for their future. They were in the process of finding a financial advisor that they felt good about and had interviewed several before they came to my dad.
They spent a fair amount of time interviewing my father and he, in turn, found out as much as he could about them. At the end of the meeting, as they were about to leave, the wife asked my dad one last question: “Are we crazy?”
By Who’s Definition?
My father asked what she meant and she replied with something like the following: We are in our early thirties. We own a successful business and make a great income. We have every indication that that income will only improve. And yet, we don’t have a lot to show for it. Our friends are about the same age and make the same amount of money, or even less. And yet so many of them look like they are doing so much better. They have bigger houses, drive nicer cars, and go on nice vacations. They look at us and wonder why we don’t do the same. But we know that they are going into debt for all of this stuff and we don’t want to. We are debt free and saving, but sometimes it is hard to see all of the stuff that we are missing. My dad smiled and only said, “Ask me that question again in ten years.”
Jump Forward Ten Years
About two years ago this same couple came into our office to review their financial plan and investments. At the end of the meeting my dad reminded her of their conversation the first time that they met and of her question. Then he said, “So, are you crazy?” They smiled big and laughed. They were probably still smiling as they drove off in their Corvette.
You see, they had just reviewed their portfolio of well over $1 million in assets (in their early 40’s), not including the business. They still had no debt and had all of the disposable income that they needed. At the same time, their friends were in about the same circumstances that they had been in 10 years earlier. I guess it all depends on how you define crazy. If “crazy” means seeing the world differently and acting differently than the average person then I would say that they definitely are crazy, by that definition. Oh that the rest of the world were crazy too!
It Gets Better
Soon after this meeting the housing crunch was becoming a real issue. This couple’s business is building spec. homes and selling them. When the Real Estate market came to a screeching halt, so did their income from home sales. However, even in their business they had not used debt. So, while their homes sat on the market and didn’t sell, they also had no payments to make on those homes as they would have if they had used debt. In their personal lives they had no debt as well. This meant that their necessary monthly expenses were minimal, and their supply of cash to get them through this hard time was plentiful. All of this while many of their competitors are going out of business or getting night jobs to stay afloat.
So, who is crazy? In this case the definition, in my mind, changes: Almost everyone in the world is crazy except a select few. Getting out of debt is the only sane thing to do!
* This article is commentary on basic principles. In no way should the things said in the article be construed or interpreted to be advice for your specific situation. Before making any financial decision you should consider all factors and consult with a professional.