It sounds like something no one would do, but nearly every one of us is guilty. We waste money, and then we try to fix our mistakes and end up wasting even more.
How to Waste Money…and Then Do It Again
Sam goes to college. He keeps his nose in the books and stays out of trouble. Due to his hard work, he lands himself a job that pays $45,000 a year. Nice job, Sam!
With his newfound wealth, Sam moves out of his parents’ basement and gets an apartment on his own. He’s able to pay his student loans, his rent, and he still has his crappy college car.
Another couple of years go by and Sam gets another promotion (sheesh Sam, you’re pretty impressive!). His salary increases to $60,000 and he starts chomping at the bit for a house. He goes to the bank, gets approved for a $250,000 loan and therefore buys a $265,000 house with a $15,000 down-payment (why is it that everyone uses up nearly every dollar that the bank will give them? Can’t we manage our own finances and understand that sometimes less is more?? Alright, alright…I’m done ranting).
After catching up with Sam just three years later, he has a wife, a kid, and a brand new boat (talk about a good way to waste money)! Sure, his job could support all the payments, but was Sam getting ahead financially? Doubtful.
The Reality of Lifestyle Creep
Want to know if you’re getting ahead financially? Start writing out a list of what you own. Not what the bank owns…what YOU own outright with no loans.
Here’s Sam’s list:
Sam has a loan on his car, his boat, and his house. AND, he still hasn’t paid off his student debt! His net worth is absolutely zero. Sure, he’s got a bunch of stuff, but the bank technically owns it all!
Sam’s life choices are the norm today, and nearly everyone looks at Sam and thinks he must be the happiest guy in the world.
In reality though, Sam isn’t happy….
He has a nice house, a new boat, a sporty car, and a beautiful wife and child. But he’s one of the poster children for lifestyle creep.
With every promotion, Sam got excited and parked a new toy in his garage. Sure, it was shiny and exciting, but it was actually killing him financially (depreciating assets have a way of doing this). His income was on the rise, but because of his buying habits, the size of his payments were ever increasing as well! Instead of saving some of his large salary, Sam was just living a higher life and spending it all. With every promotion, he’d just find yet another way to waste money…
How We Waste Money…Again
There are so many of us that fall prey to lifestyle creep because we’re just following the lead of everyone else! Get more money, buy more stuff, be more happy. This isn’t exactly how the equation works, and nobody seems to realize it until they buy way more crap then they really need, and they’re working long hours, late into the nights to support their lifestyle that’s full of stuff. And this is when we waste money….again.
Nope, nope, annnnnd nope.
Ask any millionaire on their deathbed what the most valuable resource is and they’ll all tell you. It’s time.
Time is precious. It’s finite. It’s a gift that we shouldn’t squander, or we’ll certainly regret it.
After climbing the corporate ladder and buying a bunch of stuff, many people take notice that they have absolutely no time (this is pretty evident when you drive past a really nice development on a lake that’s lined with boats…but nobody’s ever boating 😉 ). They think to themselves, “This is crap! I have all this money, but I have no time. I’m going to get some time back and enjoy life!”
So what do they do?
They hire some people to help them out…
- a house cleaning lady,
- a young entrepreneur to clean their boat,
- and a lawn care service to cut the grass and trim the bushes.
And, instead of doing car repairs and home maintenance, they hire all that out too.
They might also contemplate outsourcing some work at their job, but they think better of it and decide they can’t effectively cut their 70 hours a week of work duties. They’re just stuck with that.
The Spending Loop
It’s just crazy isn’t it? We work ourselves to death to have everything we’ve always wanted. Then we get it and realize that our insane work schedules don’t allow us to enjoy any of it! In our final ditch effort for happiness, we end up spending even more money to try and give ourselves some time. What kind of sick twisted game is this thing we call life? Why do we all go through the game this way? Isn’t there some better route?
There Are Better Options
There are basically three paths in the game of life as I see it:
- Path #1: Work a job, get promoted, and continually spend all your money
- Path #2: Work a job, get promoted, live on less and have the option to retire early
- Path #3: Work to create passive income, keep building it until you don’t have to anymore
Path #1 is the most defined and the one that’s more often taken. In my opinion, it’s the absolute worst option. You work unbelievably hard, spend money on stuff that you don’t need, and then you spend even more money to hire people for work that you could have done for free if you weren’t working so many hours at the office! With this option, you often end up with a lower net worth than someone that makes far less money, but is actually apt to save some of it!
Path #2 is simple, but extremely effective. You could work a job that’s not all that demanding and pays $50,000 a year. You live a simple life that only requires $25,000 a year in expenses and you put the rest toward investments. This way, you still have time with your family today, but you’ll also have plenty of money in the future. Heck, many people even retire early this way! In my opinion, this path beats path #1 every time (simply for the fact that time is so much more valuable than money).
Path #3 can be a tricky one. The basic premise is that you put a ton of time into a business up front and then reap the rewards later in life without much effort. If it works out that way, then life can be amazing. But, not all plans work out exactly as their initially sketched out…especially passive income ventures. Be weary of this.
Don’t chase every promise of passive income, because you might find yourself working constantly for very little in the way of future results. Be selective. Because if you’re not, then you may as well just follow Path #1 (you’ll work just as hard, but at least this way you’ll actually have some toys to play with)!
For me, I’ve selected a bit of Path #2 and Path #3. I’m living simply and investing a ton, and I’m putting some of my stake into real estate to create a passive income. I still have quite a lot of time for my family today, and if all goes as planned I’ll have even more time for them in the future.
Will you waste money again and again? Or will you choose option #2 or #3?
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.