As I've mentioned before, I'm pretty frugal. I like spending money on things like the island, travel, and good food, but I also like saving money. I spend very little money frivolously, and don't have an overwhelming appetite for luxury.
I don't make much money, either. I'm content to have enough income to fund my inexpensive lifestyle, to save a little bit most months, and to retain control of almost all of my time to invest in big future projects like Sett.
Relatively frequently, though, I'll have a small windfall. Sometimes I'll have a good run in poker where I make a few thousand dollars within a couple days. My new book, Superhuman by Habit has been doing really well, too. Thanks to my readers and friends, it's been in the top 1000 books on Amazon. For a while last year my bitcoins were worth a bunch of money.
In these sorts of situations, it can be tempting to spend more money. People bargain with themselves, allowing themselves to spend some or all of unexpected sums of money they come across.
But this is sort of like buying a gallon of milk, chugging it immediately, and then not having any for later. Other than not drinking any milk if you don't have any, the amount of milk you have shouldn't really affect how much you drink. Resources and their use should usually be decoupled.
This is especially true of finance, where your spending can be tightly controlled and rather than turn into cottage cheese, excess compounds into more freedom and runway. When looking at the long term, there is a very clear incentive to decouple. Size your expenses to your minimum income, and use the rest to invest or save.
There are essentially three different financial modes people fall into. Some spend money they don't have, falling into the quicksand trap of debt. Others spend the money they have, but live paycheck to paycheck. Last are those who don't spend money they have, which inevitably leads to wealth of some scale.
If you're in debt or always cutting it close, think about the relationship between money you earn and money you spend. Decouple those two parts of your life, and make sure that you're saving money rather than going into debt. This requires changing your habits, but pays off forever.
Photo is the inventor of instant noodles holding his invention, in metallic statue form.
Just finished the back to back Japan Cruise and Japan Train Trip. Both lots of fun and great experiences, but I'm happy to be back and catch up on work. I know I owe a lot of emails to people-- they'll be coming tomorrow!
I am happy that your book is doing so well.
But here is a suggestion for you....take it seriously.
I see that you are offering only a kindle edition of your book with no physical paperback edition
You are losing a lot of money because of that
It is very easy to have physical copies of your book available using createspace.com
I am talking from experience. After I made available physical copies of my book, my income more than doubled.
You need to have your book and cover formatted for createspace. This is something you can do using fiverr.com
Physical copies have higher margin royalties as well.
Let me know if you need any help with this
Something interesting about the milk analogy is that if you were concerned that the milk was going to go away (go bad), you would in fact chug it immediately. You would then be storing excess calories as an "investment" of fat that you could draw on later when you didn't have milk or other food available to fuel your body.
It's converting a wasting resource into a storable one.
I wonder if that's what some people who spend frivolously are doing. Their experience is that money does not hang around, it's a wasting resource, it disappears. So they have to spend it on things that they can either hold in their hand, or that make them feel good and create good memories that will hang around.
Then again, maybe they just have a very short time horizon and can't look far enough out to see a good reason to pass up a good time now.
I'm always baffled by folks who can immediately list off the things they'd buy if they won the lottery, or once the debt/mortgage/daycare expense is gone. Buying stuff is generally the least interesting thing I can think of to do with money. To me it means freedom. No need to do the 9-5 just for the paycheck - now I get to fill my time only with what interests or challenges me with no consideration of any compensation I might receive in return.
Also, I have never understood those recommendations of what percentage of your income should go to housing vs transportation vs food etc. If I earn 50K or 500k I'm certainly not going to increase my grocery bill proportionately. A very low income makes covering the essentials challenging, then there is a range where all the essentials are covered comfortably. After that point more money just encourages either conspicuous consumption, or gives you the opportunity to carry on as before but also to significantly boost your savings and change your life and the lives of those around you. There's a definite fork in the road of life at that point and a person's true personality becomes very apparent.
I am a big believer in staying out of debt. It is so easy to get credit cards and buy things that you just don't NEED. I have found that if I have access to credit, I don't tempt myself by even ordering the credit card.
One other plan that I found works for me is to have an accountant/bookkeeper that we together plan my budget and spending. It mentally holds me accountable to someone to be disciplined. I outline a particular amount of money each week for discretionary expenses like food, beverages, gas/travel, fun stuff, etc. This encourages me to find discounts and deals on what I want to stretch my fun money.
I think that the way most people spend money is absolutely nuts. I see people buying things they can't really afford, or things that will have no lasting impact on their lives whatsoever, and I cringe. Be frugal, I want to yell.
On the other hand, there are people who go way out of their way to save a dollar, even When spending that dollar would really make their life better, or create some lasting memory that would impact them long after the dollar was gone. Don't be cheap, be frugal, I want to yell.
Maybe a better phrase for frugal, at least the way I think of it, is financially-efficient. And just like most mistakes I see people make, this one stems from not actually thinking about decisions and just going with the flow.
Money should only be spent if you have it, first of all. Just because everyone else has a car doesn't mean that you are somehow entitled to one, too. If you don't have money for a car, don't buy one. Never finance anything, with the possible exception of a house. Even then, I think it's usually a bad idea.
One of the biggest mistakes I see young people making is spending their money capriciously and not saving. If your bank account or investment portfolios aren't growing, or you are not expecting them to grow something is awfully wrong. S&P 500 has been shown to go up around 10% every year in the long run. There are treasury bonds and other investment vehicles as well which can ensure that your money is at the very least keeping up with inflation.
When I started earning some money last year I ended up investing or saving up 4/5 of it, and kept spending my money frugally and only splurged once or twice. Being frugal, saving up, and thinking about the future is crucial, especially at a young age because you have so much time for compound intrest to take hold
One of the clearest ways to picture this was an example given in the book the slightest edge, whereby two young post-graduates at the age of 24 agree decide that they want to retire millionaires and will invest 2,000 a year into an 12% account every year until they can make it a reality.5 years later they meet each other and ask how its been going. One of them has followed the investing religiously, while the other hasn't. The one who hasn't asks the other how close he is to his investment goal and the the other friend says "I'm done". It turns out that with just 6 years of investing, the compounding interest will be sufficient enough to get him to 1 million at retirement. The other friend decides he has to get to it, but when he does the math, he realizes he has to invest 2,000 a year for the next 33 years!
This story underscores two things. One the cost of waiting, how waiting to long to do something keeps you from taking advantage on the magic of compounding interest. and second how important investing and not overspending is.
The biggest reason by far not to overspend though, is so you can increase your freedom. I'm not saying money always equals freedoms, but having a good amount of money in the bank significantly opens your options and lowers your anxiety levels. Living paycheck by paycheck, or not having a clear long term financial goal can lead to distress and insecurity.