I have trouble spending money on things I don’t need because I value the freedom money buys. After enjoying complete financial freedom for the last four years, I NEVER want to be forced to go back to work for money again. Once you have financial freedom shooting through your veins, you’ll do anything to keep the high going!
At the same time, I struggle finding a proper balance between my earnings and my spending. To earn money is why we wake up at 5am, commute in painful rush hour traffic, tolerate micromanagers, work 80 hours a week, start a business, ignore our spouses, neglect our kids, and do all sorts of other selfish things. Thus, if we sacrifice so much, surely we are entitled to spend a portion of our earnings on things we don’t need.
To overcome spending dysfunction, I’ve come up with a no-brainer ratio to help people spend responsibly. Let’s just call it the ONIG Financial Blog Responsible Spending ratio (FS:RS).
The FS:RS says that in order to spend $1 on something unnecessary, one must FIRST spend $2 on something beneficial.
I want to spend up to $65,000 on my mid-life crisis car. My current vehicle is a $20,000 Honda Fit which I’m leasing for only $235/month. Because I’m turning 40 in 2021, it’s important I get an impractical car to make sure I continue to feel like a man.
In order to spend $65,000 cash on a luxury automobile, I need to first spend $130,000 on something financially beneficial. Well what do you know? I did just that by paying down $130,000 of a mortgage so I could lock in 2.375% and save myself $1,014/month in cash flow!
If you’re looking to refinance or get a new mortgage, I highly suggest you do so by checking the latest rates online. Rates are at all-time lows in 2021 due to the coronavirus and investors seeking the safety of bonds. I recommend checking with Credible, my favorite online lending marketplace today.
Not only did I reduce debt and increase cash flow, I spent several hours producing two, 1,200+ word posts about my experience that may help increase traffic to ONIG Financial Blog as well. The posts should help other people who are struggling through the same mortgage refinance situation.
If you want to really crush your spending guilt, then I suggest you not only follow a $2 good:$1 bad spending ratio, but also set yourself goals to achieve first before spending any money on big ticket items.
I was very close to buying my mid-life crisis car, but the seller stubbornly wouldn’t accept my $60,000 offer after listing his car for $65,000 for one month, and then $63,500 for another two weeks. He’s now off to Asia for three weeks for business. The day before he left, he did come back and say that I could “have” the car for $61,000, but I stuck to my guns because I wasn’t 100% sure two other ongoing projects were complete: 1) finalization of my mortgage refinance; 2) locking in great tenants by depositing their deposit check.
When I gave my $60,000 car offer, my mortgage officer had said my mortgage refinance was complete and that I had nothing to worry about. But given the process took almost four months, I wasn’t taking her word for it. As for the tenants, I received a strong verbal indication of interest, but they had yet to sign the lease or give me a $4,000 deposit check. Of course, the day the Porsche seller goes to Korea is the day I not only see my new mortgage account details online, but I also get a signed lease and deposit check from the tenants.
I tried my hardest to waste $60,000 on a toy I didn’t need. But alas, the spending gods continue to be against me. Or perhaps my marathon mortgage refinance and extended tenant search were blessings in disguise. With a modified black on black race car with black tint, I might be getting $500 speeding tickets left and right.
For those looking to sell things and aren’t getting any offers, lower your price for goodness sake. Time destroys the value of unnecessary things, especially cars. Don’t be stubborn like the Porsche seller who originally got a $62,000 offer from me just prior to my trip to Europe which he rejected. If he decides to sell me the car when he returns from his trip next month, I’m going to offer $59,000 because I got one less month of ownership. Oh how I love to negotiate when I just don’t care!
Having a financially responsible spending ratio works because no matter how irresponsible you get with your money, you’ll probably always be fine because you did something twice as good.
Here are some other examples I can think of:
1) Sell $2,000 worth of clothing, shoes, electronics and other household clutter before paying $1,000 for the latest ultra high definition TV.
2) Pay down $10,000 of student loan debt before spending $5,000 on an international vacation.
3) Buy your parents a $500 gift before purchasing those stretchy designer jeans.
4) Fund $15,000 of your child’s college savings plan before buying a Rolex Milgauss.
5) Pay down $1,000 in mortgage principal before paying $500 for concert tickets.
6) Contribute $2,500 to your digital wealth manager before spending $1,250 on a Louis Vuitton handbag.
It’s important to spend the good $2 first before spending the bad $1. After spending responsibly, you’ll probably think more carefully before wasting any money. And even if you do splurge, you’ll feel good knowing you had a prior moment of responsible spending.
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Updated for 2021 and beyond.