Ben Stein How Not to Ruin Your Life

In my never-ending quest to learn more about personal finance, I keep my eyes and ears open for the good, the bad, and the ugly.

A few weeks ago, one of my favorite human beings, a handyman in Malibu, was fixing a balky kitchen cabinet door in my house when he told me excitedly about his new car. "It's a Bentley," he said. "I've always wanted a Bentley. It's about 20 years old and needs some work, so I got it pretty cheap. I got it online at eBay."

"Great," I said. "Did you sell your Corvette or your Chrysler Sebring?"

"Neither," he said "The Bentley is my third car."

Consumer Debt Peonage

My heart sank. This fellow is a great handyman. He's a great guy in general. But he has no regular income of any size, works freelance, has either no savings or almost no savings, and isn't young.

Buying that car is placing himself into a form of peonage. He's made himself drastically more susceptible to downward mobility by having an extra monthly bill to pay for car costs, and he's deprived himself of money he could have saved. In a word, he's harmed himself.

If the Bentley breaks, as it will, his repair bills will be astronomical. I tried to gently point this out. He answered simply, "I love cars."

"Then good luck to you," I said and shrugged.

Lives Well-Lived

On the other side of the spectrum, I dined last night with an old friend from the glorious street of my childhood, Harvey Road in Silver Spring, Md.

Gene Daumit, who was accompanied by his beautiful wife, DeeDee, is a super-smart guy with a Ph.D. from MIT, a major job at a huge chemicals company, a spouse with a great job in real estate, a home and a vacation condo that are both paid for (or mostly paid for), a substantial pension, and impressive savings.

As they told me about their life, especially their wildly successful daughters, I said to them, "Your lives have been perfect examples of prudence."

"No," said DeeDee. "We just kept it simple."

This showed staggering wisdom. People who can keep their lives simple are so far ahead of the game it's ridiculous: a steady job or a good business; saving money regularly starting at an early age; great self-discipline about health (Gene and DeeDee are thin and fit); instilling the same discipline in your kids -- it all adds up to a life well-lived.

Set Yourself Free

Gene and DeeDee's example weighed on me heavily, because in my own life and in the lives of those around me there's so much complexity: too many cars, too many houses (my main curse), too much of an image to have to show off, too much keeping up with the Joneses.

All of this keeps you stuck behind the eight ball for too much of your life, working and slaving to support a lifestyle that starts out as a pleasure and becomes a burden.

How do you get back on track? Call a family meeting or just sit down with your financial advisor. Make a list of your monthly obligations. How many of them do you really need? How many of them are freeing you and how many are enslaving you?

Generally speaking, with the exception of a home and a vacation house, if it's eating money and not paying out, you have to question if you really need it. Do you need that time share? Do you need those three cars? Do you need a $20,000 TV? (If you do, please tell me what's on that makes it worth paying that kind of money for.) Illiquid assets that you rarely use enslave you unless you have so much money that their cost is incidental.

The Liquid Life

On the other hand, liquid assets equal freedom, as my old dad used to say. Liquid assets that pay good dividends and have capital gain potential, such as index funds weighted toward companies that are financially strong, are especially lovely.

The XLU, the REIT, and the ICF are all lovely as well. Any form of broad index fund that tracks the larger markets at home or worldwide is a darned good thing -- and for most of us, far better than a third car.

The fact is that life is deeply uncertain. We often need money when we least expect it, and at that point a third car is useless. A third car doesn't compound unless it's a rare antique. (I sure hope my handyman has such a car.)

Money in a broadly based mutual funds or a low-cost variable annuity does compound. Life goes by pretty quick, and as my old student Ferris Bueller said, "If you don't slow down, you might miss it." And slowing down takes money.

The Luxury of Financial Security

The Daumits have it right, and far too many of us have it wrong.

So keep it simple, my friends -- the burl-wood dashboard and plush leather seats of a Bentley may feel great, but opening up your mutual fund statement and seeing how much you have to cushion you and your family against life's uncertainties feels even better. Besides, peace of mind gets you down the road farther and in greater comfort.

Start now. Get those unnecessary monthly costs out of your life and replace them with monthly savings in broadly based funds. I promise you'll be grateful. And if you still want a Bentley, you can always go to the hobby shop and buy a model of one.