Lessons in Personal Finance from My Galician Grandfather
By: Manny Vallarino
Tags: Galicia, Money Management, Money, Personal Finance, Finance

Lesson 1: Pay what you owe to know what you have.

My grandfathers’s lesson here is simple: The only way to truly know what you have is to pay what you owe. So…pay what you owe!

This lesson, however, goes beyond just asking us to do our best to pay our debts and asks that we shift how we think about our finances.

For instance, suppose you have $50,000 worth of savings. Suppose also that you owe your parents $18,000 for helping you finance an independent film, and you owe your aunt $2,000 because you bet against your parents helping you with the film. How much money do you have?

My grandfather would say you have $30,000. $50,000 minus the $20,000 you owe.

You don’t have “$50,000 and, oh, yeah, I think I owe some people some money; ah, I need to figure that out.”

No. You have $30,000. No more. So, all your financial decisions should be made based on this amount, not on $50,000.

This same lesson can apply if you manage a non-profit, a business, a rock band, a government, or really any organization that deals with money. Suppose, as an extremely basic example, that your organization has $200,000 worth of cash (and no other assets that can quickly be turned into cash), and you owe $250,000 in debt obligations that must be payed off within a year. In this scenario, however tempting it might be to say something like, “I mean, we do have cash on hand, which gives us liquidity despite our liabilities, plus I love business jargon,” a more honest assessment would be something like, “We have a problem.”

So, pay what you owe to know what you have.

Gracias, abuelo.

Lesson 2: Clear money means clear friendships.

If you ever enter into a business venture with a friend, make sure everything is clear. Every single thing. Have the uncomfortable conversations upfront: “Who owns what? How much? Who decides what? What do we do if either of us wants out? Where will we cater from? Seriously, where will we cater from? I need to know where we will cater from.”

Clarify everything and put it in writing.

This doesn’t mean you don’t trust your friend. It means you care about your friend enough to save the friendship from being destroyed by a misunderstanding about money that could easily have been avoided with one slightly uncomfortable conversation.

Clear money means clear friendships.

Gracias, abuelo.

Lesson 3: Stay on top of your finances.

My grandfather goes through his finances every day. Every single day. He has one of those large, old-school calculators that, as you type numbers into it, it prints out a receipt. Like an auditor, he’ll sit down with his calculator, some notebooks, and some relevant documents, and he will carefully make sure that everything checks out. Every day.

Oh, and he’s 91 years old.

91. I know people who are 31 and couldn’t care less about their finances. My grandfather is 91. And even though he’s been saying for the last 11 years that he’s ready for St. Peter to come down and take him (I don’t think that’s how death works in any religion), he shows no sign of letting up…nor should he.

First, because by monitoring his finances regularly, he’s made it a quick, easy, and dare I say enjoyable process.

Second, because it lets him know how he’s doing financially, which lets him know whether he should be making any adjustments.

And third, because the diligence inherent in staying on top of his finances gives him a sense of agency, which is vital for all of us, but especially for an older person living in a society that actively devalues older people. Good thing we have young celebrities, social media, and stuff we don’t need!

So, staying on top of his finances has not only helped my grandfather stay financially healthy; it’s also kept him active, engaged, and, of course, alive.

I mean, he is 91...

That might seem dark, but he’ll find it funny. Plus, I’m not exaggerating.

My grandfather had a big health scare once, and we all genuinely thought the end had come. The whole family stood around him as he lay weakened in a hospital bed. We tried to make him laugh; we asked him to tell us stories. Nothing. You know what fired him up? A business partner of his walked in and, after some small talk, casually lamented not remembering the amount of the latest electricity bill for their small business. My grandfather smiled for the first time in days and said with a strong voice: “$573.51.” He remembered the exact amount, to the cent. This, plus his business partner’s and our disbelief, filled him with pride and life energy.

I should add that we then asked him if he remembered his first date with my grandmother, to which he responded with nervous laughter. Nobody’s perfect.

Staying on top of his finances might have saved my grandfather’s life. It can save our lives too, or at least allow us to live better ones.

Gracias, abuelo.

Lesson 4: When negotiating, it’s better to ask for a favor than to make a demand.

Growing up, I had the opportunity to watch my grandfather negotiate many deals. He was (and still is) a great negotiator…and a likable one.

This surprised me, because I had the clichéd perception of negotiation being about overpowering your “opponent” in order to defeat them.

Turns out that, when negotiating, it’s better to ask for a favor than to make a demand:

If you’re at a store buying a new pair of jeans that seem overpriced, instead of telling the cashier, “$70! This is crazy; you have to give me a discount,” it might be better to say, “Wow, $70…this is more than I was expecting…are there any discounts or offers available? Could you help me in any way? I completely understand if nothing can be done, but it would mean a lot if you could check, just in case.”

If you’re negotiating payment for your potential services as a producer and someone who really wants to work with you offers you $3,000 when your research shows that you should earn more, instead of saying, “Give me more money, or I’m out,” it might be better to say, “Thank you for your interest and your offer; I really appreciate it. Although, I had done some research, and a project like this one really merits a payment of $5,000. I’d want to feel like my work is being valued. Can you help me with this?”

You get it.

Note that this doesn’t mean you’ll get taken advantage of, which is something I used to worry about.

If you’re negotiating with someone who’s also negotiating in good faith, this approach is likely to yield significantly more positive results.

If you’re forced to negotiate with someone who’s negotiating in bad faith, asking for a favor is likely to reveal that bad faith and allow you to adjust your strategy. Oh, and if you don’t need to negotiate with someone who’s negotiating in bad faith, don’t. Walk away. It’s not worth it, and it takes two.

When negotiating, it’s better to ask for a favor than to make a demand.

Gracias, abuelo.

Lesson 5: Every expense is an investment.

We tend to differentiate expenses from investments, saying that the purchase of a yoga mat is an expense, while the purchase of a disruptive derivative of a speculative derivative of a derivative of a derivative…

Seven weeks later…

…of a derivative of a stock of a horse that’s posing as a mortgage-lender is an investment.

My grandfather taught me that this isn’t so. Any time you pay any money for anything…you’re investing. It’s never a matter of whether you’re investing. It’s a matter of what you’re investing in:

By purchasing the yoga mat, you’re investing in your well-being.

By purchasing the horse-stock derivative, you’re investing in the hopeful possibility of a future monetary return.

By purchasing a book, you’re investing in your inner life.

By paying for a gift, you’re investing in a relationship.

By paying for a good meal, you’re investing in your health.

By paying your electricity bill, you’re investing in your livelihood.

So, since every expense is an investment, ask yourself before paying for anything: By making this payment…what am I investing in?

If you’re honest with your answer, this question will have a positive impact on your personal finances. It might, for instance, reveal that you’re investing your money into things you weren’t even aware of and perhaps don’t want to continue to invest in.

I, of course, still invest in horse-stock derivatives.

Gracias, abuelo.

Lesson 6: Credit cards are evil.

Yes, my grandfather describes credit cards in the same way he describes some former European dictators, but hey, I’m writing this for him…and he has a point.

In the American continent, especially in the United States, there’s a cultural and institutional obsession with words like “credit” and “leverage” as used in a financial context, which is to say there’s an obsession with putting one’s financial future over one’s financial present. Optimistic? Sure. Good for personal finances? Rarely.

So, per my grandfather: If you absolutely must have a credit card, think of it like a debit card. Pay it off as you use it, with real money. This way, you’ll know what you can and can’t afford, and you’ll feel like you’re actually spending money, because you are. If you don’t need to have a credit card, don’t.

Similarly, if you’re planning to have your business take on a lot of debt to achieve a hopeful future goal, you better know exactly what you’re doing and why you’re doing it, as well as the real risks that are involved. Otherwise, don’t do it. Instead, focus on managing your business and the money you do have (see Lesson 1) in order to create a sustainable operation.

Credit cards are evil (or potentially dangerous for our personal finances).

Gracias, abuelo.

Lesson 7: If you save, you’ll always have.

Per my grandfather, here’s the only rule you need to follow in order to succeed in personal finance:

Save more than you spend.

That’s it. Forget about fancy finance terminology, corporate structures, and needlessly complex legalese. This is it. If you’re saving more money than you’re spending, then you’re okay. This might sound obvious, but it isn’t.

If asked how to improve our financial situation, many of us would start rattling off ideas about how to make more money: working a higher-paying job, investing in financial instruments we might not understand, starting a business for no reason other than to make more money, creating a disruptive online business to easily live off passive income (or whatever those random people in sports cars are saying in internet ads), and more.

However, the less exciting but more effective solution to improving our financial situation has nothing to do with making more money. It has to do with saving more of the money we make.

Someone who makes $3,000 a month and saves 50% of that monthly amount is wealthier than someone who makes $30,000 a month but only saves 5% of this monthly amount. Wealthier, not because they’re pocketing more money per month (in this example, they’re actually pocketing the same amount), but because their savings rate is higher.

Someone who is able to save 50% of their monthly income will make the best of whatever money they earn, whereas someone who only saves 5% of their monthly income will likely feel a constant pressure to make more and more money, regardless of how much they already make.

I’m using these amounts and percentages for simplicity’s sake, but the principle remains: To improve your financial situation, whatever it may be, focus less on the pressure of making more money, and more on the ease of saving more of the money you already make.

If you save, you’ll always have.

Gracias, abuelo.

Lesson 8: Money brings problems.

My grandfather has taught me that money brings problems.

Most of us have an attitude towards money of “more is better.”

We envision the mansion, the beach house, the attention, the admiration, the magazine covers, the free time, the prestige, the TV interviews, the cars, the status, the supermodels, the celebrities, the access, the freedom, the exotic travels, the luxury, the tax evasion (I’m kidding, though some people and businesses clearly aren’t), and more…and it all seems like a dream.

What we fail to envision are the ego, the greed, the envy, the worry, the libel and slander, the false friends and lovers, the betrayals, the ulterior motives, not knowing if people want you or want what you have, all the work that must surely go into managing too much money, the feeling of being a target, the loss of privacy, the realization that, past a certain point, money has no positive impact on our well-being, the frivolous lawsuits, and much, much more.

So, if you ever have the chance to have too much money…don’t.

Invest (see Lesson 5) in your education, in your health, in art, in experiences, and in anything that gives your life meaning. Help your family, your friends, and good, decent people who haven’t been as financially lucky as you. Donate.

This way, when your financially stable self takes a woman you’re interested in out on a date in your old and beat-up (but clean) car and she doesn’t even flinch, you’ll know that she’s real, and when some greedy animal (no offense to animals) files a frivolous lawsuit against you because he thinks that making a buck will fix his many complexes, only to find out that your worth is significantly larger than your modest net worth, you’ll laugh and get on with your life.

Take care of your money (see Lesson 3). Just know that money brings problems.

Gracias, abuelo.