Introducing The Boot: Your Ticket to Guilt-Free Spending
I’ve always been a saver. No matter the raises or the successful investments, the extra cash usually found its way back into investments. But I developed a concept to help us enjoy our financial gains more freely: The Boot.
The fear of being stuck in an undesirable job always overshadowed my desire for luxuries. Even after leaving corporate life in 2012, splurging still didn’t come easy, especially now as a parent without a traditional job’s security.
Yet, I’ve realized that life isn’t just about earning but also about enjoying. There’s no joy in leaving behind a fortune that was never enjoyed. We could’ve spent that time making memories rather than just money.
How The Boot Encourages Spending
The Boot represents the portion of your investment returns that exceeds the long-term average. For instance, if your $1 million investment in the stock market earns 18% in a year, surpassing the S&P 500’s average of 10%, your Boot is 8%, or $80,000. This is money you can freely spend without guilt, as it’s earned above the expected return.
This concept finally pushed me to replace my six-year-old laptop, which was barely hanging on. Despite the need for a new one, I hesitated over the $1,500 expense until The Boot concept showed me I could afford it without financial worry.
Challenges with The Boot
Despite its benefits, The Boot isn’t foolproof. In 2021, my portfolio didn’t perform as well, causing me to doubt my spending. This hesitation is common among savers who fear losing their financial cushion.
For those who find The Boot concept too lenient, I propose The Boot Plus. It further refines the idea by only rewarding spending from returns that outperform the average outperformance. If everyone is getting an 18% return because of a market surge, there’s no extra reward unless you exceed this collective boost.
Navigating Boot and Boot Plus
Let’s say the S&P 500 grows by 12% and your portfolio by 15%. Your Boot is the difference from the average (5%), and your Boot Plus is the additional growth over the S&P 500’s return (3%). It encourages you to spend during prosperous times but maintains a discipline during less favorable periods.
For example:
– If the S&P 500 returns 4% and your investments 20%, despite the great personal gain, the economic uncertainty advises against excess spending.
– Conversely, if the S&P 500 dips by 15% but your investments gain 6%, it’s wise to preserve funds despite your relative success.
Why You Might Never Spend Your Entire Boot
The Boot is about balance. It allows for increased spending during good times but doesn’t require you to spend all of it. For instance, if your $5 million portfolio increases by 40%, using The Boot method for spending can seem nearly impossible due to the sheer amount of excess funds.
However, by linking spending to investment performance, you ensure financial discipline, likely avoiding financial pitfalls. This method isn’t about spending all you have but about enjoying the fruits of your investments responsibly.
In essence, The Boot and The Boot Plus offer a framework for spending that aligns with your financial growth, ensuring you live comfortably without jeopardizing your financial future. It’s about making the most of your wealth without the guilt of indulgence.
