Hello financially intelligent people
How do you not let your expenses grow with your income? This question has been on my mind lately due to significant changes in my financial situation (for the better, luckily).
Let me quickly give you a bit of my background. I read "Rich Dad Poor Dad" by Robert Kiyosaki in 2015. Since then, I've been hooked on everything finance, investment and mindset related. I've read books, listened to podcasts and read many blog articles on BiggerPockets, of course.
So I thought my money mindset was on point, particularly when it comes to spend less than you make. Until about a year ago, I was living on a student's "income" that more or less covered basic spending and nothing more, which was fine for me and even allowed me to put a bit of it on the side over the years...
...which I then spent on my first car as soon as I got my first real job. And this is where it gets tricky for me. After more than doubling my income in said job over the last year (having started as an intern), I repeatedly find myself looking for loft apartments twice the rent of my current place (where I actually like living), unnecessary modifications for my car and the like.
I always thought I was above that kind of thinking (aka expanding your spending with your income) because I managed to get by on a much smaller income. Now I'm realizing I'm very much like everyone else in this regard - what a horrifying thought.
Recently, I read "Your Money or Your Life" and very much liked the concept of "enough" in it. Basically, that's the point where more stuff doesn't add anything of value to your life. Also, I started reading a little bit about Buddhism - okay, it's The Dalai Lama's Cat... Given that the author knows what he is writing about, a core learning in Buddhism seems to be that true happiness comes from the inside, not our circumstances. Also a concept which I very much endorse.
So why the hell can't I stop thinking about that $3000 carbon rear wing for my car?
My guess is that my subconscious tells me that now, finally - with my first actual income after 25 years of, well, basically minimum wage, starting at birth - I deserve to get all the nice things. So by denying them to me, I am cheating myself out of what I have been waiting for for the last 15 years or so. In any case, I find it really hard to struggle against it, even though I firmly believe the right mindset switch is up there in that bald bubble above my eyes.
Now - if you have borne with me until here, let me ask you: How have you managed to not let your expenses grow in step with your income?
What has helped you get your mindset in order so as not to feel you're depriving yourself of anything while your income is growing?
What about making purchases more of a "reward" than increasing your daily living expenses. I'm not sure if you own any rentals or what your goals are, but a lot of people will say something like "every rental I buy, I'm going to take my family on vacation." So for you, if you want to buy the wing for your car, maybe buy a rental and then reward yourself with the wing. I wouldn't increase your monthly bills (new, more expensive apartment for example), but I see nothing wrong with using things you want as motivation to reach your end goals.
Do you have a "BIG" investment centered goal that you are working towards? If not, than it's easy to find ways to spend money. Also you are the average of the 5 people you spend the most time with so chances are if your friends or family members are into having nice cars with upgrades and fancy apartments you are more likely to want those things as well. Not saying you have to dump your friends if this is the case... it just may be worth your pocketbook to connect with people who have investments or investment goals similar to what you want. Like @Chris Szepessy says it's better to maybe reward yourself after you reach one of these goals. My husband and I travel abroad after every rental property we purchase. We are about to close on our 9th and 10th doors and have already started planning a trip to New Zealand and Fiji. Travel may not be your thing but maybe if you reach said investment goal then you reward yourself with a car part!
My wife has a hard time spending less and saving more. I Iook at the bank account and the bigger it gets, the less I want to spend it. When she sees it, she thinks about the places we can go, new cars, adding a pool, etc... I keep having to remind her that we are trying to build up this business so one day we can retire and have a comfortable living. It's like being on an elevator and as soon as it starts going up, you push the button to get off. I'm in no hurry, I'm heading to the penthouse. LOL
Rich Dad Poor Dad and Set For Life are pretty good books to read. I drive a 2006 Nissan truck that has over 200,000 miles on it. I think I can make it last at least a few more years and my wife keeps telling me to buy a new truck. It runs just fine but the paint is starting to peal. When I look at new trucks I see that prices start at $35k or so and I think that I would rather use that money to buy another house and than let the income from that house pay for my new truck. It probably won't even be a new truck. I think I will buy one a year or two old to get a better deal.
We don't scrimp every penny (my wife's a bad influence on me) because you have to enjoy life a little to. We take little vacations that don't cost a lot a couple of times a year. This year we're going to Arkansas during spring break and renting a nice cabin at a state park for a few days. This summer we're going to Alaska but this is something we have been planning to do for a couple of years and most of the expense it going to get paid using points from our credit card.
It's all about having a different mindset then most people. Most people are trying to keep up with the Jones and it's important for them to have the right clothes and drive the right car in order to fit in or look cool. I don't care what other people think because I'll be laughing all the way to the bank.
If you retired right now, what would you have to live on? When I looked at my own finances (I'm 55) I was looking at working till I was 67 and we would be living on $100k a year. That would be plenty for some people. Once I got into real estate, I now plan to retire around 62 and we should have around $200k a year to live on. If I want more income than that, I can keep building my portfolio while i'm retired or put off retirement a few years. My choice! Before real estate, I had no choice.
Alan, I understand your wife as I am the same. My main investment goal is 50 new countries till 4 5. And I am on my way. This goal helps me to set priorities and not to spend money on other things. I don't even have a car.
Rich Dad Poor Dad was my first inspiring book at my 17. I was found of investing in real estate from that times. But if you read his latest works, he is now talking more about taxes but not about real estate. Unfortunately, even Robert Kiyosaki believes that the traditional approach to real estate investment does not work. But I still believe in real estate, only need to find a new approach.
Here's one I can actually reply confidently to. Grew up with 5 siblings and we were not well-off. Always food on the table, but not a whole lot. We rented half a duplex, owners family was in the other half. My father worked 2 full-time jobs before the big divorce, no family vacations, no Hersheypark outings (and we lived 3 MILES from it!!).
Now the wife and I have the kids grown and out and we both work full time and have the vacation rental. 9 year old car and we vacation in Jersey for a week every year. Still don't spend a lot, we both stack little piles like squitrrels in the fall.
She is a quilter, and let herself indulge in a new and complex sewing machine and made one bedroom into the "Quilt Room" and she buys fabrics to her hearts content. I collect sunglasses (And I wear every pair) and I buy and trade for them with the other weirdos a couple times a year.
We don't go crazy with disposable income because we never did earlier in life, and we both have pretty simple tastes so it's easy for us not to get a new car every 2 years (I'm in the car business and don't like cars). Our primary residence is all but paid off and we'll use that money for another rental property when it hits zero. We hate working but still have to for now, so we make the best of it and smile when we see the savings grow.
@Alan Pederson pretty much nailed it for us. We just have a different mindset based on our backgrounds. We both work too long and hard for the money and don't like spending it, but you do have to enjoy life! Even if it's just a little once in a while.
Now where are those Oakley's?.... :)
@Dominik Perrenoud the reason you want these things is because every person around you has these things. Your friends, coworker and relatives all enjoy nice things. Your brain says I make the same (or more) money than they do, so I should be able to enjoy those luxuries. Your brain also tells you, I am working harder now and I deserve it. Or your brain says, why work hard in life if you can't enjoy the fruits of your labor. This has been made exponentially worse with the advent of social media. Everyone posts pictures of their new car, of their new home, their perfect family or adventurous vacation. They brag about their amazing new job, which they want everyone to know pays well so they have to match the life style to the job. Even worse, companies like Google and Facebook operate for free at the cost of tracking your interests and force feeding advertising on you.
So you may feel like the odds are stacked against you and they are! This is why there are doctors and even movie stars who make hundreds of thousands, even millions and live pay check to pay check. Some even file bankruptcy as their spending gets deeply out of control.
So the answer is not to deny yourself anything, It is to make careful purchases that add value to your life. If you love mountain biking, it is ok to buy a quality mountain bike if you will use it. If you bike once a year, then you should rent and not even own one. That is just one example, but you get the point.
I drive a ten year old minivan and watch every neighbor roll up with brand new $40K SUV. One neighbor has had three new vehicles in the time I have driven this old beater. I love it! They probably think I am broke. I think they are crazy and wasteful. Who cares.
Read the millionaire next door. Amazing book that reveals most wealthy people are actually very frugal and you would never know how wealthy they are. Most people driving fancy cars and living the high life are generally broke living paycheck to paycheck.
I'm loving this thread. It's inspiring!
The goal of what you are trying to accomplish has to be bigger or feel better than how you would feel if you spent the 3k on your car or new place. For example...the goal of me leaving my job a few years ago was one of the only things I cared about. I started asking myself when it came to big purchases if that purchase was going to get me closer to my goal. If the answer was no then I typically didn't buy it. Over time I significantly changed my lifestyle and my spending habits, which allowed me to accomplish my goal through getting out of debt, investing and rental properties.
Another way of looking at it is opportunity cost. What opportunities are you giving up by doubling your rent payment or spending the 3k? If I buy this now then maybe I can't buy something else I might want later. Think about it in terms of leverage for a rental property. If you have to put down 20% to buy a rental, then the $3,000 you have would actually buy you $15,000 more of an investment property. I know it doesn't seem like a lot right now (you wouldn't want to buy and couldn't finance a $15,000 house traditionally), but it makes a lot more sense when you have significant savings you are looking to invest. You can then leverage yourself into higher asset classes. Even a $500 increase in rent coupled with the $3,000 for the car and you're looking at almost $10,000 in expenditures that you don't have to make and that will inhibit your ability to grow and accomplish your financial goals.
I would try to sit on this for a year and see what you can accomplish. If you still feel the same way, then look at your situation again and reanalyze your goals. Best of luck.
Pick your life partner wisely. It is the single biggest decision you will make, financially. Pick somebody that is like minded, and it will be easy. Pick somebody different than you, and it can be misery on your finances.
I've learned to ask myself "What will this purchase be worth in 3 years? 5 years?" "Will this purchase take me towards freedom, or sign me up for more years in the rat race, running on my little wheel?"
Gotta have a goal and a why. I like the reward/carrot mindset mentioned by Chris above. After reaching a savings/debt-reducing or investing goal, reward yourself in some way. A $3000 car appendage will never make sense financially, but as a reward for saving 5x that first, you will build good habits.
Children do what feels good. Adults devise a plan and follow it. -Dave Ramsey
For me, I make up my grocery list ahead of time and then stick to it when I'm at the supermarket. This minor habit has major implications for my net worth because it's part of the discipline running my life.
I learned the Financial Freedom day concept from Van Tharp's book Safe Strategies for Financial Freedom when I read it back in 2004. It's not wrong to buy "doodads" (the RDPD Cashflow game's terminology), but by using money this way instead of investing it in income-producing assets, the Financial Freedom day is pushed out into the future. Since I wanted financial freedom more than I wanted doodads, I developed the mindset of living well below my means, delaying gratification as much as possible ("do I really need this item"), and investing my money intelligently.
I don't use discount coupons anymore. I have a tendency to spend $9 to save $1 on a $10 item I don't need. The Consumer Behavior course I took in business school is spot on.
I discovered my affluenza affliction ("retail therapy" or "when the going gets tough, the tough go shopping") back in the 1990s. I read a book (I don't remember the title) discussing the $2,000 large-screen TV of that era. Buy 1 TV from your $10,000 savings account and you are spending 20% of your capital; buy 1 TV from your $100,000 savings account and you are spending 2% of your capital; wait until you have a $1 million account and you can afford several TVs with the cost as part of the roundoff error. This idea appealed to me and started me down the road to recovery. My next task was to figure out how to get the $1 million account. Now that I can afford several TVs, I've figured out there's nothing on TV (except for PBS) worth watching. I watch PBS on my PC as a stream over the Internet.
@Dominik Perrenoud mo money mo problems
What kind of car for the wing? They can be SO SEXY
@Dominik Perrenoud It's a frame of mind for me - I always try to focus on the long term, not the short term. It might feel like a sacrifice now by not having the $3000 wing, but the bigger sacrifice is not having the life you want.
"Do today what others won't, so you can live tomorrow like others can't." - Unknown
This is always a fine line you have to walk. You work hard and grow your investments so you can enjoy the money you make. Life is short and it would be tragedy to spend your entire life working saving and never stop and enjoy it. I think sometimes you have to learn the hard way. In my 20s I went and bought a Mercedes AMG. It was a lot of fun and stupid of me but 8 months later I got bored and sold it. Got it out of my system. Realized I should have purchased a property and have it pay for the car.
Maybe in your case, you can see if someone is selling a used carbon fiber wing. Buy it at a 50% discount.
@Dominik Perrenoud For me, it comes down to honing in on what truly brings me pleasure in my day to day life. So right now, it's training, cooking and traveling. Fresh ingredients aren't cheap, neither are lessons, gear and memberships, but I spend my money on them because doing these things bring me joy. There's no reason to work this hard if you aren't using money as a tool to do the things you enjoy.
Now, you also have to make sure you're willing to sacrifice other things. I drive a used vehicle that I paid cash for. I live in a very modest house, that's not nearly as nice as most of my rentals. I don't blow my money at the bars. Yes, I'd like the new truck and the 2500 sqft house with a balcony overlooking the mountains. Yes, I could afford them, but I'm willing to sacrifice these things so I can afford to do the hobbies that make me feel good daily and help my personal development.
@Dominik Perrenoud from your post, it is obvious to me that you already know it is a mindset shift you need to move from where you are to where you want to be. You just have not found that event, place or thing that will create the shift.
For me there were 2 very distinct moments in my life. In high school I worked in the kitchen of a convalescent home. Being around people at the end of their lives and talking to them about what they did and hearing about what they wanted to do, really puts life in perspective. People never regretted the things that they did, even if they were wrong or if it was not the best decision. But many regretted not having the money to be living the balance of their lives outside of a convalescent home... and many attributed their situation to poor financial decisions when they were young.
The second moment that effected my mindset was more recent. I was doing business in the Philippines for many years. I traveled there almost every month for years and got to know the people beyond the aspect of business. I went to a Christmas party where the home was nothing more than a shack with a single bare light bulb and no running water. These people had nothing but it was seriously one of the most memorable moments in my life.
My mindset has never been the same since either experience. If you want to make a mind shift, actively choose to see the world for more than a nice pad and a useless carbon fiber wings on a car that will probably never be on a track.
To fight the millions of Instagram posts and heavy marking in mass media that try to drive me toward useless consumer spending, I try to keep my mind and desires in check by getting a does of reality.
Last year I took several weeks to motorcycle through Vietnam and took donations to several orphanages. That was a serious eye opener. I also went to El Salvador to help build a house for Habitat for Humanity... another reality check.
I am not saying go quit your job and become a monk. I am saying that for me, seeing that most of the 7.7 billion people in this world have less than me and that they can be happy without the extra bling that social media throws at us, puts my spending in perspective. Perhaps if you spend some time and consistently volunteer to feed the homeless or get on a plane and go to a third world country to volunteer on a clean water project, the reality of larger world will make your desires to spend on bling less significant.
Anyway, it is great that you already acknowledge that you need a mind shift, you just need to find the tool to put yourself right... what ever that means.
Good luck to you!
@Dominik Perrenoud Wow, you have received a lot of really insightful answers. A source of motivation for you could be reading about and following the FIRE (Financial Independence Retire Early) movement. My husband and I are focused on increasing our savings rate wether it be reducing expenses or increasing income. In addition to funding our 401ks, we are laser focused on growing a real estate portfolio to allow us to retire early. We think of our pensions and 401ks as our Plan B/worst case scenario which we could use to retire at 55. We currently have a 30% savings rate and see a path to get that to 40% by the end of the year. This also helps protect us from “corporate downsizing” should either of us be affected.
You're overthinking it.
Priorities. You haven't decided what your goals are. Once you do, you'll realize you already have the answer.
Personal finance is just that ... personal.
You'll ultimately get a lot of subjective opinions that'll just push you towards the decision you already made.
Listen to yourself.
Big Daddy Kiyosaki would say. " If you want fancy cars, just buy another asset that will pay for it."
I have heard a lot of Great responses. Didnt have time to read through all. Honestly What if you can think of your fancy cars as an asset? I mean their are a lot of car enthusiast out there that would pay fortunes for certain kinds of modified cars. If you like cars and want to feel less guilty, find cars that will be worth more later, and find them cheap. I guess the point is find the things you can indulge in that will make you happy and in end make you feel less guilty because they aren't chosen carelessly, but profitably. Big Daddy kiyosaki would also say " I wont go into a deal unless I knew a way to get out of it if I had to"
With that. Buy something that you like that you know will be of value to someone else if you need the money back asap.
Pay yourself first!
Set a budget as soon as you receive your income and allocate the funds directly to your investments. Focus on the longer term goal. If you know you need to save, set the milestones so you can hit them weekly.
It is all about goals. Very simple but, not easy.
I had a similar spending problem but it was going out to bars, gambling, and clothes.
One day I woke up and was like hey, where do I want to be financially in “x” time frame. Come up with a goal and refer to it repeatedly.
When debating a purchase, ask how it fits in your goals.
Disclaimer: your goals will change!
Best quote I’ve heard is money is like a living organism. Investments are food and water and this will help it continue to grow.
Spend your money and you kill it.
Try not to kill your money.
@Anthony Wick Best advice ever!!
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