Do you remember when you were a kid and your grandma slipped you a $5 bill without your parents noticing? This was always incredibly exciting and I just couldn’t wait to go to the store to see what I could buy with the money! Did this ever happen to you? What did you do with your $5? For me, before the day was even over, I either bought myself loads of candy or a few packs of baseball cards (or POGS – remember POGS?!) and was only left with a few pennies in my pocket.
Since I didn’t earn that five dollars (my grandma just gave it to me because I was cute I guess), it really didn’t matter to me what I spent it on. It was free money and I couldn’t wait to see what it would buy me!
This is often the case with adults as well. While we don’t necessarily buy baseball cards or candy, our mouths salivate at items that are typically more pricey… things like new cars, lawn mowers, and boats. If someone were to give us $30,000 today (no strings attached), we would probably have the money completely spent before the week was over and absolutely none of it will have gone toward our savings or investment account.
You might be asking yourself, “When is someone ever going to give me $30,000? It’s never going to happen.” But, it actually already has – to all of us. Think about it. When we apply for a credit card and get approved, VISA or Mastercard is telling us, “Here is $10,000 for doing absolutely nothing. Spend it on whatever you want and just pay us back later.” With this arrangement, how many of us are actually making wise purchases with our credit cards? Probably less than 5% of us. FYI, if you currently have a balance on your credit card, then you are NOT using it wisely.
My Early Twenties
When I was 20 years old, I bought my way into a network marketing business. Do you know what my first goal was? I was going to sign up a few people, start earning $500 a month, and buy a brand new Mercedes on credit. Does that sound very wise to you? Ha, not at all! But, since I did absolutely zero work when I made the goal, it sounded perfectly reasonable.
Now Approaching Thirty
Well, the network marketing gig never did pan out. I didn’t earn that $500 a month and never purchased that Mercedes. When I turned 24, I had approximately $25,000 in student loan debt and didn’t have much of a plan to pay it off. It was at that time that I was handed Dave Ramsey’s Financial Peace series. Over the course of the last 5 years, I have paid off $45,000 of debts (half of that was due to my wife leaving me…), have saved up $15,000 in the bank, am putting away 15% of my income toward my retirement, and have only $54,000 left to pay on my home mortgage (which I plan to eliminate by the end of this year). I have worked hard to get to where I am financially, and suddenly new cars and boats no longer intrigue me.
Watching the Net Worth
I realize now that the most important financial figure in my life is not the worth of my car or house, but is the overall worth of my equity. Since I have been studying my net worth (my assets minus my liabilities) for a few years now, I realize that buying a brand new car can completely destroy it. Think about it. If you go to the car lot and pay cash for a $25,000 vehicle (that’s cash, so we’re not even talking about losing money through debt interest payments), after 4 years that car is no longer worth $25k is it? Nope, it’s worth about $10k. By purchasing that brand new car, you have effectively reduced your overall net worth by $15,000. That sucks! I want to increase my net worth, not reduce it! For that reason, I am not focusing on fancy cars or mammoth yachts. Instead, I think more about building up cash for future investment opportunities. If you truly start earning your money before you spend it, you will begin to want fewer and fewer things, which, oddly enough, makes you more and more satisfied with life! 🙂
Have you noticed yourself wanting less as you begin to increase your net worth?
Either Zillow is Broken or We’re in a Massive Housing Bubble – by Financial Samurai
Why I’m Cancelling My iPhone – by Monica on Money
What is Your Next Career Move? – by Savvy Financial Latina
I Wasted $11 By Not Following a Simple Rule – by Money Beagle
How to Reduce Your Food Costs – by The Wallet Doctor
7 Things You Can Afford Once You’re Debt Free – by Save on Almost Everything
High Yield Savings Doesn’t Exist…Think Again – by Rich in the Heart
Should You Save or Should You Earn More Money? – by Grand Per Month
How Debt Hurts You – by 20’s Finances
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.