Badass vs Dumbass
Master your Financial Kung Fu to be one and not the other.
Go to Sifu’s Notebook – Master the Power of Spending: Secrets to Financial Success and Happiness
Primer: Who are Sifu & Ronin
Episode 24: Shopaholic Ronin
Sifu: Ronin, we’ve talked a bunch about the income side of FIRE – you know investing, side hustles, etc. But the other end of the equation is equally important, and that’s how you spend your hard earned money.
Ronin: Now, this is when I get excited, boss! Woo-hoo! Let’s go shopping, dude!
Sifu: No so fast, Quick Draw McGraw. The true power of spending is not in the shiny objects that grab your attention at the mall. It’s in how you direct your money.
Ronin: Oh yeah. It was me that said “Think twice, spend once, or not at all”, wasn’t it?!
1. Spending Reflects Your Values
Sifu: Yes sir, it was. Great line too! Let’s first understand that spending reflects your values. How you allocate your money shows what you really care about. For example, if you are always getting high-end items, it may shows you are into comfort and status.
Ronin: Well, the latest high-end kicks do impress my crew. Is that bad?
Sifu: Maybe not great, #1. What about spending on experiences like travel or education – that would reflect a deeper value in personal growth and relationships? You into that?
Ronin: You betcha! I’d rather spend my money on travel and fun times with my peeps, so maybe I value experiences more than all things lux.
2. Prioritizing Quality Over Quantity
Sifu: Very good, Ronin. Now, let’s talk about quality over quantity. It’s often wiser to invest in higher-quality items that last longer rather than going the cheaper route, where stuff wears out quickly.
Ronin: You’re right, bossman! Like how I bought this $50 blender that’s making weird noises already versus a proper one for $300 that is supposed to be guaranteed for life.
Sifu: Bullseye! Investing in quality stuff costs more upfront, but saves money and hassle in the long run. Work for you?
Ronin: Checks out, Sherlock. So, I should save up for the good stuff, not go cheapo every time. Here I was thinking that I was saving my cash, but I was really wasting it … and my time! So lame …
3. Understanding the Opportunity Cost of Spending
Sifu: Quite so. Another principle is understanding the opportunity cost of your spending. Every dollar you spend could have been invested or saved elsewhere, which means gains lost.
Ronin: Hmmm. So, if I spend $10,000 on a vacation, that’s $10,000 not growing in investments? That vacay just became a financial black hole, didn’t it?
Sifu: Undoubtedly. Just like spending $30,000 on a degree could enhance your career prospects, whereas the same amount spent on a new car would not help you get to FIRE. It would just depreciate in value. That degree might very well compound your future income. See the difference, #1?
Ronin: Oh man! Sounds like investing in myself is a solid bet, eh boss?
4. Spending for Happiness
Sifu: Always, #1. Finally, spending for happiness. Research shows that money can contribute to happiness, but only if spent wisely. If you prioritize your spending on experiences, personal growth, and relationships, that invariably leads to a more fulfilling life.
Ronin: So, if I spend $1,000 on a memorable weekend getaway with friends, it’s better than buying a custom tailored suit.
Sifu: Good example, #1. Investing in experiences or personal development often provides more lasting joy than temporary pleasure from material goods.
Ronin: 10-4, good buddy. Message received loud and clear! Can we spend a little on lunch now? Then we can chalk it up to a great experience between Sifu and his #1 student, am I right, big guy? See, I am listening to you!
Sifu: Hahaha. Right you are, Hungry Hippo.
Ronin: Yee-haw, let’s eat!
Sifu’s Notebook
Master the Power of Spending
Spending money goes beyond merely trading dollars for goods and services; it wields significant power in shaping your lifestyle, values, and future. From purchasing a home and investing in education to choosing your leisure activities, how you spend your money plays a crucial role in determining your overall financial health.
1. Spending Reflects Your Values
What It Means: How you choose to spend your money offers a clear glimpse into what you truly value in life. If your purchases often lean towards luxury items, it might suggest a strong inclination towards seeking status or comfort. On the other hand, if your money goes towards experiences, it likely reflects a focus on personal growth and building relationships.
Why It’s Important: By analyzing your spending habits, you can better align your financial choices with your deepest values. This alignment can lead to greater satisfaction, a stronger sense of purpose, and more meaningful financial decisions.
Examples:
- Luxury Items: If you frequently buy high-end fashion or gadgets, it may reflect a desire to project a certain image or enjoy the finer things in life. For instance, purchasing a designer handbag for $2,000 instead of a functional one for $200.
- Experiences: Spending on travel, concerts, or educational courses can indicate a preference for personal growth and creating memories. For example, choosing to spend $3,000 on a family vacation to Europe rather than upgrading to a set of 20” wheels for your car.
2. Prioritizing Quality Over Quantity
What It Means: In many cases, it’s wiser to invest in a higher-quality item that endures over time rather than repeatedly buying cheaper, short-lived alternatives. This approach applies to everything from clothing and appliances to education and even larger investments.
Why It’s Important: Choosing quality can lead to long-term savings by avoiding the frequent costs of replacements and repairs. Additionally, it reduces the hassle and stress associated with constantly needing to fix or replace lower-quality items.
Examples:
- Clothing: Buying a $200 pair of durable, well-made shoes that last for years versus spending $40 on shoes that wear out every few months.
- Appliances: Investing in a high-quality washing machine for $1,200 that lasts 15 years instead of a cheaper $500 model that needs replacing every 5 years.
3. Understanding the Opportunity Cost of Spending
What It Means: Every dollar you spend is one that could have been saved or invested elsewhere. This concept, known as opportunity cost, highlights the potential gains you miss out on when you choose one spending option over another.
Why It’s Important: By being mindful of opportunity costs allows you to make smarter financial choices, ensuring that your spending decisions support your long-term wealth-building goals.
Examples:
- Investing vs. Spending: Choosing to invest $10,000 in a diversified stock portfolio instead of spending it on a luxury vacation. Over time, the investment could grow significantly, providing future financial security.
- Education: Opting to spend $25,000 on a degree that enhances your career prospects versus spending the same amount on a new car that depreciates in value.
4. Spending for Happiness
What It Means: Studies suggest that money can indeed contribute to happiness, but the key lies in how it’s spent. Prioritizing experiences, personal development, and nurturing relationships often provides more lasting joy than acquiring material possessions.
Why It’s Important: Focusing your spending towards what truly enhances your well-being can create a more fulfilling life, helping to curb the urge for unnecessary purchases and fostering a deeper sense of contentment.
Examples:
Personal Growth: Investing in a $1,500 online course to learn a new skill or hobby that brings joy and satisfaction, rather than spending the same amount on a new winter coat.
Experiences Over Things: Spending $1000 on a weekend getaway with loved ones rather than on a new piece of furniture. The memories and bonding time can provide lasting happiness.
