“The Average Family’s Guide to Financial Freedom”

July 12, 2008 at 5:52 am | Posted in Nonfiction, Personal Finance | Leave a comment

(April 14, 2007)

Or, “How You Can Save a Small Fortune on a Modest Income”

This book, published in 2000, describes how the authors, Bill and Mary Toohey, have reached a sort of financial independence.  For those of us who love the idea of not having to go to work any more, it’s a fascinating read.  Unlike most personal finance books, the authors talk about their day-to-day life and how their strategy really has played itself out.  They also talk freely about mistakes they feel they’ve made and possible problems that could delay their retirement – whereas most books will assure you that if you simply follow the steps, you are guaranteed fabulous returns.

In the introduction, the Tooheys explain that their combined income began under $35,000 and is still under $60,000.  They were able to completely pay for one daughter’s college education, pay off their house and two cars free and clear, and rack up $467,000 worth of assets – while raising three children, one of whom was born severely mentally disabled.  They say they have enough put away to pay for all expenses for the rest of their lives, excluding part of their medical, which is why they are still working.  They save 46% of their gross income.  They have my attention!  At the time the book came out, apparently they made a number of television appearances on various talk shows.  (I haven’t spent much time around TV in the last 15 years, so I must have missed them).

The book begins with a discussion on how to change your mindset and prepare as a couple to do the work necessary for financial independence.  The next chapter covers how to handle a major life crisis – like finding out your baby has a series of frightening medical problems.  The Tooheys go on to talk about how to live comfortably in a small house, including sharing one bathroom among five people, and how important it is to remember the conditions our grandparents grew up in and to be grateful for what we have.

One theory the Tooheys present is that “saving doesn’t work.” The idea is to simply focus on cutting back spending as much as possible.  This includes planning for all possible expenses.  They discuss bargain shopping for a home, cars, and college education, and how important it is to control debt and increase your standard of living only slowly.

Two pages cover “some things we don’t skimp on because it just isn’t worth it:” (78-9).  Hot water; restaurant meals; vacations; home and car maintenance; school activities; cable TV; air conditioning; heat; computer; internet; a home decorator; and VCRs (they have two).  I don’t have to pay for hot water where I live, and I keep my thermostat set at 64 (it used to be 62, but I got a raise this year).  Personally I feel I can continue to live without several items on that list, particularly air conditioning (which I hate), but everyone’s list is different.  I like to splurge on cookbooks, soap, and hand cream.

The book includes chapters on taxes, maintenance, research, things to learn to do yourself, parenting, and of course the Toohey family investment portfolio.  Most chapters are very brief, some only one or two pages.  It’s particularly interesting how they make connections between such seemingly disparate ideas as having a happy marriage, good parenting, and saving vast amounts of  money – but it seems completely obvious how these things have worked out so well in their own life.  It’s true that “fighting over money” is the most common cause of divorce in our country.  How much better would couples do if they could make sure to agree on how to run a household?  In light of this, I will summarize the “Killer of Love” list from the book:

1. Control – feeling like your spouse gets to tell you what to do, when all you want is to spend some money
2. The Ball and Chain – feeling like your spouse is the one spending all the money, and you’re the one doing all the work
3. “the Joneses” – feeling deprived compared to your acquaintances
4. Fairness – feeling like the things you want to spend money on are considered frivolous, while what your spouse wants are “necessities”
5. “It’s too hard”
6. “It won’t work”
7. “I’m doing the best I can” – so stop criticising me for what I spent

It’s an interesting take – most books do not spend much time addressing the psychological factors behind working toward financial independence.

One caveat about the Average Family’s Guide to Financial Freedom is that it really does apply to average families.  If you make significantly less money, do not have health insurance, do not live in a small town (which is part of their official strategy), and/or are trying to do it alone, not all of these methods may work for you, and it may take longer than it took the Tooheys.  Of course,  if you want to attain financial independence you will have to pick some strategy sometime.  And if you’re willing to go without vacations, restaurants, or a home decorator, it’s possible you could do it even sooner.

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