I swear, this isn’t going to be a belated Black Friday or Cyber Monday or whatever the hell comes after that post. That horse died and yet most of the PF-o-sphere keep beating it.
I’m hardly a minimalist, although I do have some minimalistic tendencies. I have two sets of grandparents who are pushing to give me perfectly good furniture, but I’m resisting because I don’t want more stuff in my house. (Even though I have a spare bedroom that’s completely empty) I borrow books from the library primarily so I don’t have shelves and shelves of books. And because I’m a cheap-ass who doesn’t want to pay for books. I travel a lot but rarely buy souvenirs. The list could go on, but we’re all bored.
Conversely, I think paring down your possessions to a certain number is silly. Most of the things that I own have a purpose. Usually they have some sort of utility that makes my life easier in some way. Sure, I could cook rice in the pot, but my rice cooker makes it really easy. I own an iPad even though I have a perfectly functional laptop. The bottom line is that things aren’t necessarily bad, providing they enrich your life in some way.
But how can you tell whether you can afford a certain thing? Somebody I know created a sexy flowchart you could follow. But that’s not the only opinion out there. In fact, most of my fellow bloggers would tell people that as long as they’re out of debt then they should be able to buy whatever they want. Assuming it doesn’t put them back in debt, of course.
Do you want to know why most PF bloggers will never be wealthy? Reread that last paragraph.
Here’s the deal. If you have a $1 net worth, you are poor. A hobo sleeping under a bridge has a higher net worth than that, provided he hasn’t spent his spare change on mouthwash. If you have a $5000 net worth you are still poor. I’m not sure where exactly the number has to be before you get above the poor threshold, but chances are you’re not there.
It continues to amaze me that people will buy big ticket items (iWhatevers, vacations, etc.) when they are wallowing in sea of debt. If your net worth is $1 and you pay even $500 for a weekend away, you just spent 500 times your net worth on a liability. I don’t care how reasonable your debt is. Climb out of debt before you start doing that crap. You “deserve” nothing.
When people are young they often have all sorts of free time. They’re unencumbered by the types of things that tie down their elders. Their parents are still reasonably young, they can take care of themselves. They tend to not have children. So they go to work, do their 40 hours per week, and then they’re left with all this free time. And what do they do with it?
It doesn’t matter what you buy, whether it’s stuff or experiences. Once that money is spent, it’s gone. That’s money that you could have put towards investments. And, as we all know, the earnings from those investments can themselves make more earnings. Compound interest gets me hard in the pants.
Every dollar you save now will turn into $10 after 30 years, assuming an 8% compounded return. If you delay saving for retirement for 9 years then you’ll need to save twice as much to achieve the same results. There’s a cost to consuming when you’re young.
Busting your ass when you’re young is the perfect time. You have lots of energy. You can get by on reduced sleep. You don’t have anyone to support but yourself. If you combine that with consuming less, there’s no telling how wealthy you could get. Compound interest is pretty basic stuff once you fully understand it.
Most people are kinda lazy, so my point won’t get through. And that’s okay. If you take one thing away from this post, make it this. Your net worth matters. The next time you buy something, take a look at what percentage of your net worth you’re using to pay for it. And busting your ass on a sideline venture is terrific – providing you have something to show for it.
Personal finance blogging should be about creating wealth, not destroying it. Start doing more of the former and less of the latter.