The thing about investing money is that it's pretty hard for an individual to do much better than 5-15% per year consistently, depending on your risk tolerance and connections (my best investments have been putting money to work with friends' businesses). Five to fifteen percent is pretty good, but it's inside-the-box thinking to stop there. What else can we do with our money?
As a disclaimer, I have a good portion of my money in investments that make a return like that. It's good to grow your cash and I'm not saying you shouldn't. But what if you diversify your portfolio beyond earning a financial return?
After all, the point of money is utility, so why aren't we thinking one step further and thinking about how we can earn the most utility on money?
I love to find situations where my capital is preserved, grows a little, or is consumed very slowly, but which yields me a lot of utility as a result. For example, I bought my RV for $18k, plus probably $15k over its life in repairs, and maybe another $6k in improvements. I sold it last week for $30k, so I lost $9k over the eight years I owned it.
That's not a great investment, especially when you count the parking fees I paid for 4-5 years, until you think about the utility. For that small loss I had a worry-free place to live in San Francisco. I bought myself the ability to have fixed living costs indefinitely, the freedom from having a landlord, and a really cool experience.
There are all sorts of professionals who are competing for every last dollar of return on investment. I probably couldn't buy and sell vehicles and expect to make a huge profit because there are plenty of other people doing the same thing and they are better at it than I am. But no one is competing on the utility side, so my returns can be much higher. If you estimate I saved $1500/mo in rent, which is probably conservative, I saved $144,000 in rent over eight years.
That means my net "profit" was around $11k per year. That's almost a thirty-percent (non-compounding) return, consistently over eight years.
The RV is a really obvious example, because it saved me actual money.
Art is a more abstract example. I love buying art. I don't have a ton of art, but every piece I have is something that I would go out of my way to see in art museums. I buy my art very slowly and carefully and would estimate that if I liquidated my small collection patiently I could probably get twice what I spent.
It's hard to put a numeric value on having a little art collection, but to me it's well worth it even if I can never sell at a profit. I love seeing great art throughout my day, and I like being able to share the stories behind different pieces with my guests.
When I first moved to Vegas I bought a 1995 Mercedes C class for $2500. It idles a little bit rough, the hood has a small wrinkle in it from where it must have been in some fender bender, and the driver's side door doesn't lock automatically with the rest of the doors. But it gets 35 miles a gallon, has a nice wood and leather interior, and is one of the most reliable Mercedes built. The utility I get out of that car is far greater than I could get in pure returns on $2500. Plus I sold half of it to my friend, which halved my cost but maybe only decreased utility by 10-20%.
I think most people would have bought, financed, or leased a car that cost $10-20k. Same utility, much higher price.
Because all I ever think about, at least for big purchases, is utility on investment, my life is full of these sorts of things. The condo in Vegas, the Island, the place in Budapest, watches, home improvement projects, clothing, etc.
The end result of all of this is that a large portion of my discretionary spending goes to things that will both make my life cheaper and better in the future. I'll never have to pay rent or a mortgage again if I don't want to, nor would I have to pay for an airbnb or hotel if I just go to the island and Budapest. I'll never have to buy a watch again. I get mental stimulation every day from looking at my art. I have my own little tea room in my place in Vegas so that I can host people for free.
In the same way that debt compounds to make life miserable, investing in utility compounds in the other direction. Every year I have fewer and fewer mandatory expenses, so I can use more of my money to invest further in utility and/or to invest for a return which can perpetually fund my extremely low living costs. I have a lifestyle that is really exciting and satisfying to me, and it costs me under $1000 per month, a large portion of which is my private chef (aka Chipotle).
Whenever you're about to spend a lot of money on something, really dig deep and ask yourself what sort of utility you're getting from it. What's the real utility on that leased BMW? Is there a smaller amount of money you could spend to get the same or similar utility? Is the utility you're gaining actually useful to you? Remember that if you save money in one area you can deploy it somewhere else to get more utility. Don't allow yourself to spend large amounts of money on something that isn't going to bring you a lot of utility.
And when you're thinking about investing money, think beyond pure financial returns. How could you invest money that would lower your cost of living for years to come? How could you spend it to permanently make your life better? What resource could you buy that would create experiences for you and your friends?
This is one of those concepts that just seems so obvious to me, and yet I see very few people doing it. Most people's expenses increase all the time, as if it's some law of nature that this is how life has to be. But with good capital allocation you can continually increase your quality of life and lower your costs. That's how you buy freedom, in a way.
Photo is the helicopter my friend and I got to ride in for free. You can get a lot of cool free things in Vegas, but maybe not as many as San Francisco.
The response to my coaching post was way bigger than expected, and the stories were also more compelling than I expected. I'm really excited to work with everyone, but it will take me a while to add so many people in a manageable way. If you want to be on the waiting list, let me know.
Hi Tynan, I would be curious about the sharing of the car. I am a fan of your ideas of sharing things but I actually tried co-owning car and it basically ended one friendship. It was really hard to distinguish which damages were caused by driver (he pays the repair) and which just happened without any fault (splitting the repair cost)
We are both the kind of people who would err on the side of taking responsibility, so there are no issues. It also helps that both of us just want the car for basic transport and don't care about anything else. So if he hit a pole and made the car look bad I wouldn't care.
All of my shared property things have had zero conflicts, and I think it's due to setting the vision in advance and only choosing people who dont want drama and who default to taking responsibility.
Interestingly enough i drove a '95 C-Class for eight years as well. Someone crashed me, however and i traded up for a 2010 model. I sure miss the smaller bills and more carefree parking i had with the 95er...
I love this, Tynan, but it can be quite difficult to implement even with the best of intentions which is maybe why you don't see many people doing it.
A wordy example. My wife and I needed to buy a car. (After being car free since 2009 this was a little sad, but that's living back in the US with no public transport.) I was looking to try to spend in the vicinity of $5k or less, but I wanted something that would handle long road trips and wasn't just a beater to get around locally. I spent months over the summer looking at cars -- paying attention to Craigslist, autotrader, ebay, dealer auctions -- but came up empty. We ultimately decided on a 2013 Camry for $13k (paying cash, of course) because we were down to the wire with needing a car (and I was tired of wasting time looking and money renting whenever we needed one). My thinking was, "either get an okay cheap car or get a really good slightly used car." While our car is great and we'll probably keep it until it dies it still would've been nice to find something cheaper. (On the other hand, not owning a car for 7 years probably saved a good $10k so I don't feel too bad.)
Whew! What I'm saying is, I think a lot of people may do their best to think like what you describe in this essay, but putting it into practice maybe requires not only patience, but also a little luck.
Anyway, this is quite possibly my favorite essay that you've written. I love thinking about ROI in ways other than just hard cash.
Another perspective that might have benefitted you would be to look at the frequency of lengthy trips and the cost of renting a vehicle for those. I have given serious thought to moving both my work and living situation to somewhere that I can leverage public transportation and simply renting a vehicle for any road trips I need to take. I don't know if that would have worked for you, but renting periodically might have been a better option over the long term for you.
Yes, I thought about this. We don't live where there is public transport. (Hello almost everywhere in the US.) We did move within walking distance of my wife's work, though.
Would it be cheaper to use Amazon Prime Now / Amazon Pantry, Postmates, Shipt, Uber/Lyft to get around locally, and rent cars for road trips? To be honest, it would probably be similar to our costs of ownership. But it would definitely be more inconvenient. And it's quite possible it would be more expensive. The rental just for our move across the country would have been in the vicinity of $1k. (One way rental plus we needed a car for at least the first few weeks of moving to the new city.)
I'm ultimately happy with our decision and believe it was the correct one for our situation. We'll know in a few years. :)
I think you're an outlier thinking this way, because most people buy way fancier cars than they need.
My pushback on your story would be to think about whether you could have gotten 80% of the utility for 40% of the price and whether that may have been workable. Maybe not, I don't know. Even longevity in a car is sort of pointless... like when I bought mine I thought "if this thing lasts a year, it will have been worth it". Now it's been over two. If it turns to dust tomorrow I can just buy a new one and may buy something different based on changing needs (in that way a short life expectancy car is actually more valuable).
I actually tried to buy an even crappier car than mine that had manual everything and literally no features... until I realized it had no AC.
"most people buy way fancier cars than they need."
You're probably right. If I think outside of my bubble of friends then the people I know mostly buy new and finance. (Which, depending, can actually be the best decision: http://www.mrmoneymustache.com/2016/10/04/so-i-bought-an-electric-car/)
"you could have gotten 80% of the utility for 40% of the price"
Yeah, this is probably true. Basically, I'm paying up front for not having to spend time buying a car for hopefully the next 10 years.
I actually forgot that I briefly owned a cheap $3k car back in 2011 when I needed it for a 3 month road trip. After spending over $1k (plus lots of time and frustration) after a breakdown ~500 miles into the trip I eventually sold it for $2k. So I probably have some baggage. :)
Another great post.Question: Your monthly burn is really under 1k a month? Or is that with certain categories omitted?
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.
It's great to have money. Money can buy you many of the finest things and experiences in life. Sure, there are some things you can't get for money, but there really aren't that many.
When I was a kid, I used to dream about having a yacht. I could spend hours researching different luxury yacht models, looking at pretty photos of what I thought represented a happy life.
I guess I was spoiled by our materialistic world from an early age. Or maybe I was born that way. But now I've learned that materialistic goods don't add much happiness to our lives.
I used to think that owning a Retina Macbook Pro would make me so much happier than having my two-year-old laptop. So I worked really hard and saved up some money until I could finally afford to buy it. It's by far the most expensive thing I ever bought.