It was a dry afternoon, like most afternoons in Lubbock. We had just enjoyed some fine dining at a local restaurant, I don’t remember where we went but I have a feeling we ate burgers. Walking back into the house my friend asked me “Kraken, you’re good with money. Should I buy a new 350Z? My old one is getting worn out and I’ve been thinking about getting a new one.”
Alarm bells went off in my head, I could feel sweat dripping down my forehead. In the bottom of my throat, I felt it coming out. The word vomit that contains all the financial beliefs that are ingrained in me. “Cars are a depreciating asset! That’s the worst financial move you could make. Save three-quarters of your salary and retire early. Invest your money in index funds rather than hunks of metal with wheels attached. That thing is going to rust your money will never rust!” I took a deep breath and swallowed it, I will save my financial bible thumping for another day. I responded cooly with “I don’t know, should you? What is the next best thing you could spend your money on?”
I was in a situation where my normal doctrine of financial philosophies didn’t apply. My friend is in a completely different place in life, he grew up with completely different experiences and has totally different goals.
Sure spending money on a new sports car isn’t the best place for you to put your money if you’re looking for good financial returns but not spending your money on things that bring you the most happiness isn’t a good plan either. What you should do is spend your money with a deliberate goal in mind.
“If you don’t stand for something you will fall for anything” this applies in life and in finances. So you should have a financial purpose in your life. For me, this purpose was to be able to retire early and not have to work a job I hated.
What is your financial purpose?
If you have trouble answering that right off the bat you might be on a slippery slope of spending money on anything/everything. While this might be fun now, there’s a better way. To figure out your financial purpose you should think of these things:
Where do you want to be in 1 year, 2 years, 5 years, or 10 years? If you have a clear picture for any or all of these points of time then you probably have an idea of where to go. Be careful that you aren’t falling into the ‘clone mentality’ of wanting the white picket fence with 2.5 children and a stable job. Aim for something more, because you can achieve it! If you don’t have any idea of where you want to be that far in the future, don’t sweat it! I don’t have any clue either.
What is the one thing you do that makes you happier than anything else? For me, this was meditation, reading, learning, and writing. For my friend, it’s driving a fast car and working on it. Think about your hobbies and side projects and see if this can/should be a financial focus in your life. If you don’t have a hobby you should definitely get one.
What’s the ONE thing you’ve always wanted to do/own that you always thought would be impossible? Chances are if you focus on this one thing and cast all other priorities aside you can achieve it. If you want a Sports car, a nice house, 3 kids, and want to sail around the world. Chances are you will only achieve a fraction of these things. Worst case scenario you achieve all of them but you are emotionally and financially strained in the process. If you eliminated most of them and just focused on one thing then you could easily achieve it.
For example, living in Spain for 6 months is cheaper and arguably a better experience than traveling to Spain for two weeks. If you live there for 6 months you can move out of your apartment or rent out your house and be able to use that money on a villa in Spain. If you only go for two weeks then you will have to pay for someone to maintain your house/apartment during that time. Airfare is the same regardless of the duration but the amount of time that plane ticket buys you has increased the longer you stay. If you’re going to Spain you want to enjoy the culture. if you’re there for 2 weeks you can observe it sure, but if you’re there for 6 months you can participate in the culture. By focusing on this one goal rather than trying to have everything you come out with a richer experience. Do some research on your dream, most likely it will be much more attainable if you eliminate expenses that don’t build up to this goal.
Once you have a good idea of what your financial purpose should be, consider the next best thing that you could do. By assessing your opportunity cost you will either reinforce that it is a good idea or recognize that there’s a better goal to strive for. If my friend wants to buy a new car but this means that he can’t fly home to see his parents for 2 years then maybe he will recognize that buying a new car isn’t the right idea. If my friend is in a financial position where whatever money he doesn’t spend is just going to go into excess savings and he doesn’t need that (because he has an emergency fund and he doesn’t want to retire early like his buddy Kraken) then maybe buying the car is a good idea for him.
What if the next best option is also something you want? If you want to sail around the world and the next best thing you can do with your money is to raise your kids then there might be a way to do both. In The Four Hour Work Week by Timothy Ferriss, this exact situation happens. A family of 4 wants to sail but most suburban families don’t take their kids sailing. Upon further research, the mother found that, while families she knows don’t bring kids sailing, inside the sailing community plenty of kids are raised on boats. She decides to pull the trigger and finds that her kids focus on reading since there is no TV on the boat, they learn to get along with each other because they are in a tight space, and they learn more from a year of travel than they ever would have in school. If your top two choices are both your most important consider mixing them together to see what you can achieve.
The goal here is to figure out what is important to you and eliminate everything that isn’t. If you aren’t living in poverty then you have a fire hose of income that you can aim at anything you want. However, if you don’t have focus then you will end up spraying it everywhere and just making a mess. What’s really important to you in your life? What awesome thing do you want to do so that you will feel like you achieved something baffling?
Photo Credit: Rennett Stowe