I wanted to bring in a couple of ideas here, and hope you’ll help me out with how you deal with these questions… the tough one for me isn’t when I could afford a dog, rather a second car, which I’m struggling with, but let’s see what that clickbait title is all about.
I still recall reading in Rich Dad, Poor Dad (dodgy book, but got me started) some anecdote where the author wouldn’t allow his wife to buy a car, but he would allow her to buy a real estate investment, and the profits of this could be used to buy a car. This idea troubled me for the longest time… why is it that much better to buy a car after the real estate investment, rather than buying another real estate investment, and another, and another… can you ever get to the point where you can buy a car?
What happens in the meantime, does she have to walk to work until such time as the real estate investment returns enough money to return 100%?
The dog comes into play from reading a post on Mr Money Moustache, who so many people admire (present company excluded) who went on some rambling post recently called Dog Ownership is Optional. To be honest, I didn’t read the post, I was looking for another one I recall seeing where he also spoke about the net present value of the investment of not having a dog… I think that was in a post about how everyone should rent or something… which was written near a post about how he is building his own house through badassity.. do what I say, not what I do….
Can you get comfortable spending money?
All this talk on how much you can save drives me bonkers. I started out guilty of it myself, and I did the classic, cutting the cord post back in the day too. But I learned a secret on the way, its OK to spend money. It’s OK to have some lifestyle inflation.
Life isn’t about making yourself as miserable as possible in order to maximise your Roth IRA, money is the tool that fuels a great life.
Don’t ruin your life to make money, it doesn’t give a shit.
Now.. you can also screw things up royally by following this advice, so be careful of that, but be equally careful of focusing only on asset accumulation at any cost, and finding yourself in a badass coffin made of cardboard.
Introspection
I like to think that my reluctance to spend money comes from the level of risk involved in my work. I’ve never had a traditional job, and for many years no salary at all. I think that there should be some level of interplay between risk taking, debt taking, and primary income source. By which I mean I would be very scared to take on a mortgage due to the complete uncertainty in future inflows, but a person who has a really stable job, and perhaps multiple inflow channels should perhaps go a bit crazy, and maybe splurge more also.
If you were a doctor who also worked the speaker/conference market, and had good insurance, I’d say that you might want to take on larger debt risks, buying the nicer car, taking on a larger mortgage. But if you are like me, I think it is more natural to be nervous of spending money. Another thing that I’m keen to get in on, but have held off thus far is real estate investments, basically for the same reason I don’t carry a mortgage today.
It’s not about the dog, or the car
The notion of the cost of ownership shouldn’t be focused on so much as the cost of ownership in relation to cash flows and the probability of those cash flows being maintained. It’s perfectly fine to have a $1M mortgage, and drive around in Telsa with a weekend Ferrari, providing that you have the means to do so. If you are simply burning assets because inflows cannot keep up with outflows, that is a huge issue.
A switch will flick
I know that one day I’ll be comfortable with spending, hopefully I’ll have a Tesla, and sure, my dog can ride in it too. What I think is interesting though, is that it will be a behavioural ‘lightswitch’ that will kick in probably later than it should. After all, it is hard to go from the asset accumulation phase, and being told to be frugal and save, and suddenly start to spend. For now, I’ve noticed the lifestyle inflation creeping in a little bit, and I’m perfectly fine with it.
There seems to be a false idea out there that spending money = living and not spending money = misery. In reality there is a balance and money is A tool (not THE tool) that fuels a great life. Freedom, time, and lack of stress are just as important as money. I also don’t think MMM would tell you that you’re wrong to spend money but just to be fully aware of the impact (which is what I took away from the dog ownership article).
I disagree, money is the tool. You can’t live a great life without it. How you decide to go about the daily activities of life can be considered leverage of that tool.. IE you can have a great life with a little money if you do it right, and a lame one with a lot.. but its the core.
I’ve been leaning the same way lately. I’ve come to realize that it’s the big wins that really make a difference in the long run, not stressing about whether or not to buy a cup of coffee. You have to find a balance. I just set goals and monitor my progress, and as long as I am on track or ahead of schedule then I don’t worry. If I backpedal one month then I’ll straighten things up again. Neither me nor my wife are really spenders though, so it isn’t much of an issue for us.
Yeah, we are lucky in that we are starting from a generally ‘cheap’ place also, so adding in items of luxury is easier. And I enjoy coffee too!
How about, can you afford the kid? Dogs seem pretty affordable by comparison.
Exactly! It’s the same thing, a kid is inefficient, costs money, and puts you back on your retirement plans..
I think the line of logic should not use FIRE or retirement.. but ready for death plan.. IE, you’re goal is to die in a fiscally responsible manner, rather than live your life.
Excellent article. I learned the cost of saving firsthand when my wife and I were living in an apartment (with a toddler) while saving up for our “forever house.” We had some saved up, but rented one of the cheapest apartments we could find in an attempt to go on a savings binge.
We also cut back on a lot of superfluous spending — we stopped going on dates, rationalizing that the $60 we would pay the babysitter should be thrown into the down-payment fund instead.
As you might expect, this drove us crazy. We snapped at each, were cranky all the time, and generally hated life for about a year. It wasn’t until later, with some distance, that we realized that the contents of your bank account are just happiness you haven’t allowed yourself to have yet.
Hey Matt,
You mentioned you started with Rich Dad, Poor Dad as a resource. Do you have any other suggestions for reading resources on Financial advice? I’d be super appreciative if you could help point me in the right direction. Thanks!
David
I won’t speak for Matt, but would add The Millionaire Next Door to the mix. I don’t exactly follow its advice, but found it really interesting.
I’ve heard that is a good book. To be frank, I’ve not read a good one yet but maybe that should go on the list. I generally find it hard to read a lot of these financial help books as they are often written by people who aren’t really in that position, kinda like MMM. Its a case of ‘do what I say’ but there isn’t the substance.
Two places where there are some smart people which might help education would be bogleheads and quora.
Thanks Matt, and thedealmommy. I’m trying to figure out a way to get a better handle on my finances, so any resource I can get my hands on to build a better basic understanding of everything is great. I appreciate the honesty of both of your suggestions. Time to start reading :). Thanks! On a similar note, I’ve found both of your blogs to be quite informative for so many reasons, so thanks for that too!
We have 2 dogs(was 3 one died of cancer), all of whom would be dead had we not adopted them. That is an investment in the soul that pays immeasurable dividends. Of all the hassles that come with dog ownership the cost of such has never been a problem even though we adopted them when we made less than 1/3 of what we do now.
Yeah, ours was adopted when we lived in Japan, and we’ve managed to make it work also.. we even flew her over here with us.. which cost something I guess..
We had 1 car for about three years, which was about 6 months too long. In the end buying that second car 6 months sooner would have had zero financial impact compared to buying it when we did, but it would have made those 6 months a hell of a lot easier.
Yep, its often afterwards that people realize how much stress for how little reward they put on themselves.
In addition to uneven or unpredictable income, I think another issue can be what you witnessed during your formative years – if household finances created stress, it’s quite likely to impact you when you become the adult.
Totally, we both come from this situation, and it is evident in our decision making.
I’ve read both articles you mentioned, and to be fair, he recommends renting only when you have a choice between renting in a city and buying in the suburb. I used to commute to work for 2.5 hours a day, and now that I live within a 10-minute walk from my office, no money in the world would make me go to the old ways (well, figuratively speaking 🙂 ).
Agree about dogs. We don’t have a dog, but I believe you should have it if you’re ready for a longtime commitment. Money can’t buy happiness, but a dog can come very close. You can always save on something else.
I do agree in the value of time, that’s a given. But I still disagree with too much I see there. It’s not about the posts, but the underlying message.