How to Spend Money if You Want to be Miserable
I’m finishing up Morgan Housel’s new book, “The Art of Spending Money” and the major theme of the book is directly in line with what makes you successful at pursuing Financial Independence:
Live by an ‘inner scorecard’ instead of an ‘outer scorecard.’
If you care little for what others think, and don’t change your behavior to impress the people around you, you’ll have a much easier time achieving a happy and contented life.
You’ll also likely be much wealthier and reach FI sooner.
I found this great article on the Farnam Street blog about “The Inner Scorecard: How Warren Buffett Mastered Life” that I think is well worth your while to read and it presents interesting thought experiments such as:
“If the world couldn’t see your results, would you rather be thought of as the world’s greatest investor but in reality have the world’s worst record? Or be thought of as the world’s worst investor when you were actually the best?"
Or we see this with cars:
On almost any objective measure, a fully loaded Toyota or Honda is going to be a true “luxury” car, yet you see many people buying a bare bones BMW for more money.
Why else would they do this other than for an outer scorecard measure?
I came across this excerpt from “The Art of Spending Money” on the BigThink website and it offers a ‘brief guide on how to be miserable with your money.’ Here are a few of my favorite quotes from Morgan:
- “Pursue status at the expense of independence.”
- “Fantasize that having more money is the solution to all of your problems.”
- “Compare your inside with other people’s outside, envying others’ success without having a full picture of their lives.”
- “Associate net worth with self-worth (for you and others).”
- “Overestimate the attention you get from having nice stuff.”
You Need to Cover Your Expenses NOT Your Income
I was at the gym yesterday and had a conversation in the sauna; the guy was excited that in 3 years he’d have a fully vested pension from the USPS and could think about retiring.
He said his big issue was that he earned “around $100k” per year and his pension was only going to be about $70,000 per year and that he’d somehow have to make up the difference to maintain his lifestyle.
He really wanted to relax and work on his health, but thought for sure that he’d have to make $30,000 more per year after leaving the USPS just to tread water on his current lifestyle.
I politely told him that most likely he was absolutely fine and that all he really needed to cover with his pension was his annual expenses and that would make him Financially Independent.
The simple question I asked him was:
“Do you save any money out of your $100,000 salary?”
And he said yes, he absolutely did. Probably at least 20% or so.
He’s also paying tax on that extra $30k in income. Since he’s a single filer, those dollars would be in the 22% bracket for Federal and at least 5% for the state, so 27% of the additional $30,000 income would be about $8,000 in tax on that extra income.
So, between the $20,000 he saves and the $8,000 in additional tax, that makes up nearly the entirety of the $30,000 difference.
This means his annual expenses look a lot more like the $70,000 he’s going to get in pension and that means he’s already at FI once he can retire in 3 years.
The key here is this:
You don’t need to replace your income. You simply need to cover your expenses.
This is why FI is always in your control. It’s just about what your life costs.
ChooseFI Community Taking Action This Week
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I Paid Off My Student Loans—In Half the Time! This is a huge win for me and my husband—one I’ve been working toward for years. I earned both an undergrad and a master’s degree, but like many people, I had to take out student loans to make it happen. There were seasons when I worked two jobs while in school, rode a bike to class, and stretched every dollar just to stay afloat. I didn’t always have support from those around me—except my loving husband, who’s been my constant. But I kept going. I made extra payments whenever I could, stayed focused, and just made a final, massive student loan payment—paying them off in about half the time originally expected! This milestone isn’t just about interest saved. It’s about taking control. It’s about building freedom. It’s about proving to myself that I could rise—even when the odds weren’t in my favor. Now I’m officially debt-free. And every dollar I earn going forward? It builds my future instead of repaying my past. FI feels a little closer this week. — Bonnie |
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My 1% win feels really small, but the small things are the big things. I had Vanguard drafting money from my checking account and investing into VTI, but seeing myself "spend" money every 2 weeks was stressful. This year I split my paycheck to multiple bank accounts through my employers HR portal. So I set up a Vanguard Cash Plus and directed 2% of my paycheck to that account. This money then gets invested into VTI through Vanguard's recurring transactions feature. This way I get that money to work but never have to see it leave! — Andrew |
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To align with FI lifestyle and keeping monthly costs low, we've been leveraging our local community to exchange freebies. For our kid's birthday, we picked up free decorations from a baby shower (that were going to be tossed) and then built the theme around them. We hit up kids' consignment sales mainly on days with 50-75% off sales, and tapped into our local parks and rec center for a discounted venue price. To top it off, we only requested donations to a 529 plan for those interested in giving gifts as it's never to early to start saving. Thanks for all the tips on the podcast and the online community you've fostered. — Christine |
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I'm doing around 4% better after moving our emergency fund and next-car fund out of a standard savings account and into an account where it earns interest from SPAXX. I knew I didn't like drawing no interest but I didn't have the confidence to do anything else with these funds until discovering the FI community earlier this year. — Anthony |
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Our 1% better is more of a total life change that would not have been possible without the knowledge provided by ChooseFI. My husband works a dangerous job with very long hours, and recently the company he works for decided to require all employees to work 60+ hours a week. Taking into account commuting and the inevitable overtime, he would likely be gone over 80 hours a week for his job. Attempts to discuss this change with management were unsuccessful, so I told my husband to quit his job that week. From concepts we learned through FI we have designed our life to be able to survive on one income so hopefully we will not have to tap into our savings at all! He has been out of work for 2 weeks, but his mental and physical health have improved significantly. We have realized as a couple that his current profession is not good for him or our family, and he has decided to use his veteran benefits to go back to school as a nurse. We are both excited for this new chapter in our lives. Years ago the thought of one of us without a job filled me with dread, so to be able to do this has made me so grateful for everything I have learned through ChooseFI. — Marcella |
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I wanted to share some small wins. Sometimes companies offer very long term or lifetime deals with little to no recurring costs. Unlike a timeshare with very high recurring costs. In college my mom bought me a gym membership. It was slightly more per year for a couple years but had a $20/year (yes a year) lifetime renewal. I just renewed again for another year and it has been used for 25 years now. It saves me around $500/year. I also bought a coffee can for a small premium at a local coffee shop many years ago. They are still in business and really good. It cost me $20 to buy and it came with an agreement for refills at $8. A regular coffee bag was selling for $9-$10 back then. Now almost 15 years later a 10-12oz bag of high quality organic coffee is selling for $18-$28. This is saving me around $900/year. Both of these combined has reduced my FI number by quite a bit. If I valued this coffee can like a bond that paid me $75/month it’s a $15,000 coffee can! — Justin |