From economical to chic to buying a peloton
Financial success often means learning how to be thrifty. Once you’ve succeeded, is it okay to switch from frugal to chic? We have after buying a peloton.
Today’s classic is being republished by Doctor philosopher. You can see the original Here.
I’ve spent a lot of time over the past three and a half years teaching other people how to get started and stay frugal. As a result, it became difficult to loosen up my family’s purses even after we had significant financial success. Is it ever okay to spend more of the money you make? Or do we just have to throw away every extra dollar we make? I’ve learned that switching from frugal to edgy can be difficult when you’ve built those strong frugal muscles that have enabled you to say no to the many things you didn’t need to gain financial independence and Don’t get caught up in your lifestyle.
How to get rich
Becoming wealthy and financially independent takes a fairly simple equation. There are only four steps, especially during training and in the first few years afterwards.
- Earn a good paycheck.
- Spend a lot less than you make.
- Save the difference (at least 20-30%).
- Use that extra money to build wealth. (i.e. pay off your debts and invest the money you have saved to make your money work for you).
While this is a simple formula, it is not an easy one to achieve.
The reason this simple equation is difficult to implement is because financial success is 90% behavioral funding and only 10% knowledge. Knowing what to do is not enough. You need to be disciplined and, since we are all prone to behavioral finance mistakes, avoid us. That’s the hard part.
Once you’ve figured out all of this, there’s actually a fifth step in the equation that is much more convenient:
5. When you’ve met your financial goals, enjoy the rest!
Spend a lot of money doing the things you love
After you’ve achieved all of your financial goals, I think you should spend a lot of money on what you love. It’s okay to switch from frugal to chic.
Now don’t put words in my mouth. You still need to pay for your future self first, make sure you are saving enough each year, and that your debts are paid off.
If you are in the initial stages of wealth building after exercising, use the 10% rule to constrain your lifestyle. Enjoy 10% of every raise – including the difference between your last training paycheck and your first attendance paycheck each month – and spend it on whatever your heart desires. Then use the other 90% to repay your student refinanced loan or annual savings goals.
We used the 10% rule to increase our net worth by ~ $ 500,000 in just over 2 years after training. Much of this included repaying our student loan of $ 200,000, car payments of $ 75,000, and some other minor debt.
When all of that debt was gone, we found we had a lot more cash flow. We started to wonder what to do with all that extra money. I think that’s why they say, “Cash flow is king!”
When the 10% rule becomes the 20% rule (or more)
Personal finances are personal.
For us, financial freedom means becoming financially independent in our mid-40s. We don’t feel like restricting our lifestyle any further in order to achieve financial independence at the age of 40 instead of 47. It’s just not worth living like the poor. Instead, we want to enjoy today AND become financially independent early in our lives.
When I looked at our annual savings rate, which is north of $ 115,000 a year, I realized that even with conservative estimates, we would hit our FI number by the mid-1940s. And those numbers didn’t include any additional income I’m bringing in from The Physician Philosopher.
So this Christmas we let go of the wallets in a way my wife and I have never seen in our 10 year marriage. In deciding what to spend this money on, we decided to spend it on our family’s health.
This included a top notch rectangular trampoline for the kids (yes we’re crazy; yes it has a sturdy casing; yes the kids have special rules to limit injuries). They love it and have already spent hours jumping on it. It’s good to see them go outside and move around.
Even after these purchases, we still had money in the budget that my wife and I had created. In fact, we had so much left that my wife and I decided to join the Peloton Cult Club. Our bike arrives a few days after this post was published.
The best part was that there was no guilt or financial burden. We had more than enough left over even after our shopping spree ended.
When is it okay to spend more?
In order not to derail this personal finance blog that is based on frugality and strong financial discipline, I thought I would outline the things you recommend before moving from frugal to edgy in your household too!
# 1 Make your financial plan
When you start spending more money it becomes much easier to spend even more. Before starting your journey from frugal to chic, please make sure that you have sat down with loved ones and created your life plan.
Your annual savings goals and other financial plans naturally result from your life plan. If you haven’t already, you have no idea how much “okay” to spend. Don’t skip this important step.
If you need professional help crafting your personalized financial plan, check out The Physician Philosopher’s list of recommended financial advisors.
# 2 Pay off your debt
You will find that we will have paid off most of our debts before adding some of these big purchases to our lifestyle. The only debt we still have at this point is our mortgage, which we want to pay off in 10-15 years (instead of the traditional 30).
I do not encourage anyone to loosen their wallets too much until their debts are paid off. Otherwise, you’re likely to cause unnecessary financial stress (and worsen burnout if you’re trapped in a lifestyle). The best way to spend more money is to do it without feeling guilty.
# 3 Hit your annual goals first!
You shouldn’t be spending money that you are not sure you have got. To avoid this problem, the first thing you need to do is make sure that your annual goals are being met.
For my family, this means automating / achieving the following annual financial goals:
In the future, any additional money we receive will likely be broken down into different things, such as: B. a travel / vacation fund, early mortgage repayment and donations to charity. Or we can spend it wastefully on anything else we want without feeling guilty!
# 4 Spend the money wisely
Remember that there are studies on how to spend money in a way that will make you happy or satisfied in the long term.
If you want to make sure that you are getting the most bang for your buck here is what you need to do.
- Spend money on experiences about things.
- Give the money to other people or charities.
- Buy smaller and more often (we screwed this up with the Peloton buy, oops!)
- Postpone shopping to make sure it is really what you want! Do your research and enjoy the experience of buying “stuff” if that is the direction you are going.
Take it home with you
It’s okay to spend money. All you need to do is make sure you’ve taken care of business before switching from frugal to chic. If you are still in the process of paying off student loans and / or have just completed your training, I recommend that you adhere to the 10% rule for the first few years after training.
However, if you have done the hard work getting your financial house in order, you should be enjoying your money without feeling guilty. There is nothing wrong with switching from frugal to chic. Remember to meet all of these financial goals first before spending what is left.
And when you spend the money, you are wasting it on the things that you love and know will bring you the greatest happiness and satisfaction in the long run.
Have you struggled to loosen up your purses after making great financial progress? Are you still in financial trouble? Leave a comment below.