If you are truly going to change your habits and your spending, the first thing you need to do is get rid of any idea that you have to somehow keep up with your neighbors’ spending or their habits. This is going to be hard. I know when you see your neighbor drive up in a new BMW and you look at your 6 year old car, your first thought is, “wow. I could get a new car like that too.” JUST STOP HERE!
I can tell you right now that I have had neighbors who bought it all. New cars, boats, ATVs, trailers, RVs, you name it. They made close to $500,000/year and saved none of it. If you really want to be wealthy or you want to be financially free, you cannot start your journey with the idea that you need to buy everything your neighbor has. It just doesn’t work in this plan.
If you have a nice car and you pay off the loan, there is no need to run out and buy another car. You are most likely saving $400 – $500/month. Do you honestly think anyone you know is thinking “Damn, my buddy Bob has a 5 year old car. He needs to upgrade. He needs a nice new car because if he doesn’t get one I am going to think less of him.” Now, if you have a 15 year old car with 200,000 miles on it, it might be time to look for something newer as you don’t want to deal with the unexpected repairs. I had a paid off Jeep Cherokee that I owned from college for about 9 years. I think it finally kicked it at 175,000 miles.
Speaking of cars, there is no way that you should ever purchase a brand new car. First off, no car increases in value over time. The minute you drive that shiny new car off the lot, you are losing 10% or more of its value. From that day on, the more you drive and the older the car gets, the lower in value it becomes. In other words, cards are a money suck. They are a liability and high car payments prevent you from using your money to invest. I bought an SUV used. Brand new, it had a sticker price of just over $65,000. With just over 35,000 miles and 2 years old, I was able to buy the car for $37,000. This is a 43% savings! Just because someone else drove it a couple of years. When you factor in taxes, it’s closer to a 45% savings. For me, this was an expensive buy, but I love my truck. If you are starting out, I recommend finding as inexpensive car as possible and getting your car payment down as low as possible or even buy a used car for cash so you don’t have a car payment. Every extra dime you have can be used for savings and investments that will grow over time.
On top of cars, there are trips or clothes you can buy, home renovations and other things constantly popping up. You have to realize one thing. If you invest money today into something like real estate and you invest $10,000 at 7% per year, that comes out to $58 in free money every month. Remember that internet subscription you had at $60/month. If you paid that with your interest gained, that internet subscription would be FREE! If you invest $100.000, you could generate $580/month at 7%. So, that money could cover: a car payment, internet service, cell phone service, nails and probably hair every month. All FREE and paid for with interest from money you SAVED.
All you have to do is ignore the feeling that you have to keep up with everyone else. Focus on your own finances, your own savings, your own investments and the money will come. For all of those people making $500,000 a year and saving nothing, the minute something happens and they lose it all, they will wish they had read this blog and put that money into passive income investments instead of wasting it all.