Build, Before You Spend!

That’s the golden, yet simple rule for financial freedom. It’s a principle that this great country lives by its exact opposite. We spend what we don’t have. We borrow money from others (banks) to buy stuff for ourselves. Just for a moment, think of this scenario as if the bank was your friend. You like a new shirt, or desire a yummy steak at your favorite restaurant, so you go “borrow” money from your friend to buy it. Can we see ourselves do that? I guess not, it sounds insane, even indecent and irresponsible, as long as we don’t do it out of necessity. Who will ever say that we can’t live without a brand new car, a fancy dinner every week, and new cloths every couple weeks! Well, only those who don’t have a clue what “real life” is will say so!

In the famous book “The Millionaire Next Door”, one of the noteworthy characteristics that the author found common in self-made, first generation millionaires is that they live “below their means”. Not only they don’t spend what they don’t have, they actually don’t even spend “all” that they have. And that’s how they could build real wealth that ends up liberating them from money. They might live a simpler life, and others, who heavily rely on their high incomes to qualify for big credit, live a more sparkling life, dwelling in more expensive homes and driving luxurious cars. But the first group lives a simpler, yet comfortable life that is “theirs”, while the latter lives a luminous life that doesn’t really belong to them. They are at risk of loosing it every month, even every day. If their big fat paycheck stops, their ill-founded life falls apart. This is indeed a sure prescription for stress and the inability to truly taste and enjoy what we “think” we own.

I recently heard from a friend about a pilot who committed suicide. He got laid off, and obviously couldn’t find another job with a similar income. He gave up on life once he was hit and paralyzed by his finances falling on his head. He must have relied too much on his big pay, borrowing heavily to buy a nice house and new cars, etc., the typical scenario. Had he waited and lived “within”, not even below, his real means, he wouldn’t have ended up in trouble. He could have rented a nice place to live, or bought a reasonable house, used his big pay to save money while living comfortably, and his life would look very different by now. He’d probably be having enough savings to cover all his expenses for a long time, until he figures something out. He was one of the millions of victims of the norm. I wish more of us humans were strong enough to go against the norm, when it’s not really normal, if we just use some common sense! When enough of us do that, soon we will change and restore the norm to a more normal and harmonious state.

I like this advice from Suze Orman, even though I myself am nowhere close to it at the time of writing this. She suggests that we should have enough savings to cover our expenses for 6 months. That’s the first financial foundation we should build on. If your paycheck brings you a decent sum every month, I’d even say it’s safer to start by building enough savings for one year in case you lose your job. Six months sounds good, but we all know that life is UNPREDICTABLE. Yes, in capital letters, because I want it to look you bigger in the eyes! It’s one of those obvious facts that we tend to forget.

Well, I do think that the system itself is not going the right direction. We have seen what happened in the last years in the US market, and how many people lost their homes. I don’t think it’s even fair that you make payments for your house, then lose everything once you can no longer afford to pay. Buyers make mistakes and buy things they can’t really afford long-term. Buying a house is really a long-term commitment, mortgages going for 15, 20 or 30 years. We need extra caution when committing to something this long. However there is something wrong with the system itself.

In Islam, interest is strictly forbidden. I do believe that the Islamic rules are divine and meant for the ultimate, long-term good of both individuals and societies. Interest is a passive and abusive profit. We need no proof; those who got caught in debt know it too well. It’s hard to get out, and it enslaves the borrower to his ever-increasing debt. I do think that we can use the rule of “no interest” with the lessons of modern economy, and we can come up with the best formula. We need a just economy and just profits. No one can go wrong with justice, because it’s a win-win. In the meantime, we individuals have to start by our own selves. You don’t have to believe that interest is evil, because you might not believe in the Islamic teachings as I do. But we can all believe that it’s always better to use what we have. We can easily believe that buying a house or a car that we’re not sure to afford over time is like living in the house with no roof over our heads. It will get damaged with the first storm, and we’d even loose what we already paid in the walls and the furniture, thinking that the storm will wait for us until we can get to that roof and build it!

Build the whole house first, then move in and enjoy it! Now it’s really yours.

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