Money, and How To Spend It
Spending money is easy. Our economy is largely based on making it as easy as possible to get you to part from your hard-earned dollars. Every sale, billboard, commercial, and social media post aims to get your dollars into their pockets. Now, spending money isn’t bad. In fact, spending money is good it creates jobs and powers the global economy. But spending all your money is not good.
So there are three things I’d like to explore when it comes to money.
How to break down your spending.
The most dangerous sentences in the English language
The difference between perception and reality
How to break down your spending
Let’s say you make an extra $100,000 per year. How much do you spend? Do you go buy new clothes and a new car? Do you get every gizmo (I hate this word) and gadget you can get your hands on? Do you end up in a situation where your extra $100,000 ends up being $0 because you spent it all? Or do you save every penny of it and live like a dirt-poor family in the Great Depression sewing up torn clothes, only buying day-old bread, and refusing to take your car to the mechanic when it so desperately needs a tune-up? What if both of these are wrong? What if both extremes are equally as toxic? Okay. So, back to the original question, how can we break down our spending? Here is the way that I perceive it. You should never buy all that you want. Discipline is the source of beauty in life. You should always save much more than you spend. You should analyze all your micro and macro purchases and understand why you are choosing to make that decision. You should never make purchases because you are lazy (I tend to view Uber Eats and DoorDash as a litmus test for financial discipline). You should allow money to improve your life, buy things that bring joy not happiness. Notice I didn't give an explicit breakdown for the allocation of money, there is no one-size-fits-all breakdown. The breakdown will vary dramatically based on your circumstances and what you value in life, but generally speaking you should save and invest as much as you possibly can.
The most dangerous sentences in the English language
What do you think the most damaging sentences in the English language are from a financial perspective? If you ask me the answer is “I can afford that” and “I deserve it,” those two sentences alone have destroyed more wealth than every financial collapse combined (probably not true, but bear with me for the sake of the narrative). So why are these sentences so dangerous? They are dangerous because they are true. The fact is that most people can afford most things and most people do work hard. If you cared about something enough you can probably buy it or find a way to buy it. Not that you should, but you could. Don’t let these two evil little sentences get in the way of achieving your financial dreams. They are tricky little buggers.
The difference between perception and reality
This is perhaps the most nuanced section. Having money and being perceived as having money are inversely related. The more money you are perceived as having the less money you really have. When we see someone driving a nice car, going on exotic vacations, or renting a nice apartment. We think “Wow, they must have so much money.” The truth is that in today’s day and age, it’s easy to fake the funk. They can lease the car. They can Klarna the vacation. They can scrape together enough to pay their rent. In reality, they may not be wealthy they might actually have very little money. Now, this is not to say everyone who drives nice cars or goes on exotic vacations is a faker, there are people out there who “really do got it like that” but it is not the rule (especially, while they are young). So here we are, a social critique with no action. It’s not fun being the guy in the old beater car pointing at the guy in the nice car saying “he’s not as rich as he claims to be” and my goal is not to be that. I believe people should not optimize for perception. You should not make purchases solely off how they will be perceived by others, but we don’t live in a fairy land where I can pretend like perceptions dont matter. Perceptions 100% matter. The way the world perceives you will affect your social circle, your professional circle, and the opportunities you are afforded. You should make purchases and decisions that represent you in a positive light (when it is necessary), but it is also important to live within the confines of your financial reality and know when to bow out of certain competitions.
At the risk of sounding crass, most people are horrible at managing money. 65% of Americans live paycheck to paycheck. This is not a failure of the US economy, but rather people like spending money more than they like being financial secure. People have a warped view of the difference between needs and wants. May we never be a part of that statistic.