To reach financial independence, boosting your savings and keeping spending in check are crucial steps. After achieving this, focus on increasing your earnings. The bigger the gap between your income and expenses, the more wealth you accumulate over time.
However, be cautious. If you save too much, you might feel the urge to spend impulsively once your savings reach a high enough level. For instance, as a kid, it was tough for me not to spend the $20 bill my grandma gave me right away. Nowadays, I resist spending any amount under $50,000 due to past financial losses and missed opportunities.
My resistance to spending is currently being challenged as I’ve accumulated about four times more than I’m used to. With the markets at record highs in 2019 and investment opportunities scarce, my cash is earning a decent 2.3% in an online savings account.
It’s easy to dream about all the things you could do with extra cash. Here are a few things I’ve considered:
1) Paying off $180,000 of mortgage debt.
2) Buying a $195,000 Bentley Continental GT—impractical for my savings level.
3) Donating $20,000 to my in-laws through gift cards.
4) Splurging on a $20,000 to $30,000 cruise for my parents.
5) Building a 700 sqft home extension for $200,000, though my current space suffices.
For something a bit more reasonable, a mid-life crisis might lead me to a $65,000 Porsche 911 GTS, a smarter choice compared to the Bentley.
I’m also considering investing $200,000 in a digital wealth advisor to simplify retirement planning, ensuring the first investment is always yourself. Maybe mixing wise and less wise spending isn’t so bad—after all, thinking about spending is more thrilling than the actual spending.
Despite the joy of imagining spending, I understand the importance of controlling impulses. Here are a few strategies:
1) Consider how much you need to earn before tax to afford a $50,000 car or a high-end TV.
2) Calculate how many hours of work it would take to buy something you want, like the Porsche.
3) Always pay yourself first, which means saving before you start spending.
4) Compare your financial situation to others both more and less fortunate to gain perspective.
5) Set a financial goal that must be met before you make any significant purchase.
6) Understand the opportunity cost of spending now versus investing for the future.
Always remember, the way to amass significant wealth is by maintaining a good balance of saving and investing wisely. For those struggling to resist spending their surplus cash, try coupling sound financial decisions with occasional splurges to maintain a balance. I’ve invested $550,000 of my extra cash in real estate, attracted by its potential long-term benefits, especially in areas away from expensive coastal cities.
In essence, solid financial habits coupled with a disciplined approach to managing money can pave the way to lasting financial freedom and success.
