To get ahead in life you have to save money and invest money. However, at some point, you have to spend money on yourself. All the saving and investing does you no good if you never use the money for anything. I love to set goals for income and for investing, but I also set goals for things I want and things that will make me happy. In fact, the goals I set for things that make me happy are more effective than the goals for income and investing. While saving money is vitally important to getting ahead in life, so is spending money. The big question is when do you decide to take some savings or extra income and spend it on something that makes you happy instead of investing it?
Most people spend too much money on things that “make them happy”
It is difficult deciding when it is okay to spend money on you instead of investing. The fact that you are asking this question means that you are far ahead of the average person. Almost 75 percent of Americans have no savings and live paycheck to paycheck. If you are living paycheck to paycheck with no savings, you should not be worrying about spending money on extras right now. You should be worrying about building an emergency fund and saving money.
The first step to getting ahead financially is saving money and investing it. Many people look to get ahead by using creative financing to buy homes with little money down. You can start investing in real estate with little money down, but if you have no savings, it is much riskier. If you have rental properties, you need to have reserves to cover maintenance and vacancies. Investing in real estate with no savings and no money is asking for a disaster that would put you in an even worse financial position.
I think we all know people who buy brand new cars every two years, have a boat, a nice house, and no savings or investments. I am not saying it is bad to spend money on nice things, but saving and investing must come first. I am also not saying you need to be frugal your entire life; I am far from frugal! You have to make sure that the things you spend money on really make you happy and you are not just buying them to keep up with the Jones’ or because you feel it is what you are “supposed to do”. It takes sacrifices to get ahead and the sooner you make those sacrifices, the better off you will be. Here are a few examples of how I lived coming out of college.
- I drove a 1991 Ford Mustang Convertible for almost seven years as my daily driver. The car had no heat and I had to bundle up in the winter!
- I have never bought a new car. Yes, I have spent a lot of money on cars, but the newest car I ever bought was three years old.
- I never had a car loan until I was 29.
- I have never financed furniture, electronics, boats, etc., unless it was a special zero percent interest rate, and I could have paid cash.
- My first house payment was about 28 percent of my income and that was a huge mistake. It made it hard for me to save money and get ahead. After I sold my first house, every personal house since then has had a payment of less than 10 percent of my income.
Here is a great article on why buying the most expensive house you can is not a good idea. If you do not save and invest enough now, you risk running into financial problems and never being able to afford the things you really want in life.
Why do you need to spend money on yourself?
Once you have saved money and invested money, you need to think about things that make you happy. If you save and invest too much without ever spending money on yourself, you risk losing your true self. You risk living your life to save instead of living to do what you really want. If you give yourself goals that make you happy, such as buying your dream house or dream car, you have a better chance of being successful. Giving yourself big goals that excite you and that you can visualize provide a huge amount of motivation.
I made a goal of buying a Lamborghini in 2014. Every day for most of 2014 while I drove to work, I imagined I was driving a Lamborghini and I bought one four months later! Not only did I find a great deal on a 1999 Diablo, but also the car has gone up in value since I bought it. That motivation helped me work harder and smarter. How do you decide when you are ready to start spending a little and stop saving everything? My solution is to give yourself targets or goals for when you can spend money. If you give yourself rewards for reaching certain milestones you will not feel guilty when you spend money, you will feel proud because buying something special means that you accomplished a big goal. By accomplishing a big goal, you also know you will be able to afford what you bought.
Where do you start when deciding how to reward yourself?
In order to figure out how and when to reward yourself, you have to know what you want in life. When I took Jack Canfield coaching, I had to make 100 goals. Making those goals or trying to come up with those goals (it is not easy to make 100 goals) taught me a lot about what I wanted in life. Too many people never take the time to figure out what they really want. When I made my goals, I was given instructions not to limit what I wanted based on what I believed I could achieve. Even with these instructions, I still held back on what I really wanted in life.
I made my first goals based on what I thought I could afford or what I thought I had time to do. When I started to run out of ideas for goals, I started to challenge myself and write some goals that were a little more unbelievable. After I made those goals, I started to achieve goals, including some of the goals that were less believable. It was the less believable goals that stuck in my head and I kept thinking about. The less believable goals were also the goals that made me the most excited like buying my dream house and a Lamborghini.
I went from thinking I could buy a Lamborghini in maybe 20 years if I was lucky to buying one in about a year. I also bought my dream house within 6 months of writing those goals. It was not magic that writing 100 goals made me successful; I had already been making goals and striving to become successful. The 100-goal task was the final straw that made everything fall into place and helped me believe that I could accomplish much more than I ever thought I could. Keep in mind, when I bought these rather expensive items, I made sure I could afford them!
How do you know when you can afford expensive purchases?
When I started investing in rental properties, I made a deal with myself that I would buy a new car when I bought my tenth rental property, not a new daily driver, but a special car that would stay in my collection. I have a plan to buy 100 rental properties and if I give myself little rewards for making progress on that plan, I think I have a better chance of accomplishing it. I bought my tenth rental property in early 2014 and I actually decided not to reward myself yet.
I was making $5,000 a month from my rental properties, but I still did not feel comfortable buying a $100,000 plus car. When I had first made the deal with myself to buy a car when I hit ten rentals, I was not even considering buying a Lamborghini. I was thinking I would buy something like a $30,000 Toyota Supra twin turbo or something similar. I decided to give myself another criterion for buying the Lamborghini. When the blog produced enough income to pay for the monthly expenses (including the car payment for the Lamborghini) I would start seriously looking. I hit that in early 2014 as well and I still did not start looking, because it just seemed too crazy to buy a Lamborghini! Then I saw the perfect car come up for sale and I showed it to my wife. She actually encouraged me and reminded me that I had already met the goals I set for myself and I should look into buying it.
On a side, I financed the car, but I could have paid cash for it. I financed it to get a 12-year loan, with 15 percent down and a 5 percent interest rate. Instead of paying cash for the car, I could use the cash I saved to buy more rentals! When I bought my dream house in 2013, I had never considered buying such an expensive house. We had purchased the house we were living in at the time at a trustee sale and it was an awesome deal. We had $100,000 in equity, even after refinancing, that covered the down payment on the new house. I realized our payment would be higher, but still only 10 percent of our income, which meant we could easily save money after buying the house. I did not set goals or milestones for buying my dream house, but I made sure I could afford it and still save money.
To learn how to use mindset and attitude to make yourself more successful, check out: How to Change Your Mindset to Achieve Huge Success: Why your attitude and daily habits have more to do with making more money and having more freedom than anything else. A 200 page book available as an eBook or paperback on Amazon.
Was it worth spending money on a Lamborghini and big house?
For me it was well worth it to buy a Lamborghini and our dream home. For others with different goals, it may not be worth it or you may have other things that make you happy. I am a car nut; I have loved cars since I was three and I have always wanted a Lamborghini. I drive the car about three times a week if the weather is nice, and people love it! It is a great way for me to get into a conversation with people wherever I go, the gas station, car wash, etc. People ask me what I do. I mention I am a real estate agent and I hand out many business cards. The car has also attracted more visits to the blog and drawn more attention to our real estate team, which in turn has allowed us to bring on more agents.
All of this was a bonus. Just having and driving the car was well worth it to me. For my birthday this year, I took a one-day trip to the dealership in Seattle where I bought my car. They had a 1989 Lamborghini Countach. The owner was kind enough to give me a ride in the Countach during a rainstorm. The Countach is another car I would love to have, but at $369,000, it is a bit out of my budget and I would be scared to drive it. Below is a video of my trip and of my Diablo as well.
The house has been a great experience as well. We now have family dinners and birthdays at our home, more friends come over, and people stay longer! My wife is happy as well, which is really all that matters.
You do not have to limit yourself to big goals or big time spending
One of the hardest things for me to do was to realize that I could make my life much more enjoyable if I spent a little more money on things. Again, I do not stretch my budget and I do not spend so much money that I stay up at night worrying about how to pay bills. Here are some examples of how I spend money to make my life better.
- I hire someone to cut my lawn. It costs me $45 to have my grass cut. It would take me over an hour to do it myself. In addition, I would have to hassle with maintaining my mower, making sure it has gas, and getting rid of the grass clippings. For $45 a week, I save hours of frustration and hassle. I do enjoy yard work, but instead of mowing, I spend my time building something new or planting new plants, which is much more enjoyable than mowing.
- I have contractors do all the work on my rentals and flips. I did all the work on a flip myself a few years ago and it was the biggest mistake I ever made! It took me longer than a contractor would have taken and I had no time for other activities. I use my time for things that produce a lot of value. Painting and remodeling are not my highest values.
- We spend money to get an ocean front room when we go on vacation. I used to get the cheapest room I could whenever I booked vacations. I wanted a nice resort, but I never looked at what an upgraded room would cost. Usually it is not that much more to get an ocean front room and it is so worth it!
- I book non-stop flights. I used to buy the cheapest flight without paying attention to how long the flight was. Is it worth saving $100 on a flight to spend five hours more in the airport and on planes? My time is much more valuable than the amount I was saving on a cheap flight.
- I order what I really want at a restaurant. If you are like my family, we rarely have time to go out to eat. When we do have time, especially without the kids, I want to enjoy the experience. Is it worth a few extra bucks to have what I really want or should I just order the cheapest thing on the menu?
Again, I am not trying to convince you to spend all your income on small things. Nevertheless, once you save enough and start producing passive income, you can make your life so much more enjoyable by spending a little more on yourself.
Spending money on others
Perhaps the most satisfying thing you can do is spend money on others. This last Christmas we adopted a couple families in the area and bought them all gifts that they could not afford. We took our time choosing families that we thought were deserving and it was a great experience for our family and for our children.
I became a corporate sponsor for the local food bank this year and it was amazing how happy they were. It was also amazing to see how many families they could feed with the money they receive.
I even volunteered the Lamborghini for Make-a-Wish and Wounded Warriors in case they have someone with a dream of riding in one. There have been no takers yet, but if you can use what you have to help others, it is a wonderful thing to do.
The more money you have, the more you can give to others. The more money you have, the more time you should have as well. Time is perhaps the most valuable thing you can donate.
Do I have future goals and aspirations?
I really love our house and I would not be upset if we never moved again. That does not mean I do not give myself more milestones and goals to achieve. I admit it has been harder since I bought the Lamborghini to get as excited about new goals. I still do my best to push myself and create new and exciting things to shoot for. After visiting Seattle, I realized how awesome it would be to have my own exotic car dealership. I have also always wanted to fix up an old plantation house. Both of those goals would take a lot of money and I would have to step my game up to an entirely new level. Those goals may seem out of reach now, but so did the Lamborghini a couple of years ago.
Making big goals for yourself that you can visualize and that excite you are one key to being successful. Even if you just beginning your investing career and trying to save every penny you can, it does not hurt to make big goals for the future. It also does not hurt to make smaller goals for reaching milestones, such as saving $5,000 or buying your first rental property. Just make sure the rewards do not cost more than the goals! If you want to learn more about how I changed my attitude and outlook to become successful, check out this series of articles: How to become more successful at real estate and life.