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by elmads

INTRODUCTION

It is counterintuitive to think that savers and investors never spend money because they are tightwads. But like all people in the world, they are spenders too, and they spend lavishly and heavily as well.

The only distinct difference is that they spend with intent on the things that they deem important for themselves, on items and experiences that they really enjoy, and in turn, it reflects who they are. These are the people who just don’t spend for the sake of spending, and they certainly don’t primarily spend to impress other people.

If you believe that spending on luxuries is only for high-income people and not for average people like us, you have a deeply embedded stereotype in your mind. Average people can certainly afford such things, but not in a carefree manner. We have to accept that we only have limited resources for our wants, which is why we need to handle it strategically. We can definitely spend large sums of money by saving a part of our salary for months and years in order to be able to purchase expensive items or go on vacations. This strategic endeavour requires time, effort, and, most importantly, focus before we can purchase the luxury items we have always desired. If other average people like us have been able to do it, then so can we.

I’m an average saver and investor, but that doesn’t mean that I do not have any wants for myself; I do, and they’re a lot. What keeps me grounded and holds me back from spending all of my salary on it or going into so much debt just to get what I want is the reality that, I only get this “X” amount of salary every month, while I have this “Y” amount of needs and an unlimited amount of wants. My salary is not enough to be able to get all of my wants, but it is enough to sustain my necessities of life every month. So, I asked myself, what else can I do to achieve all or some of my wants, without jeopardising my and my family’s current and future financial lives?

Probably you have answers in your mind already, like “look for a higher-paying job,” “start a business,” “buy and sell products,” and “invest,” which, by the way, are all correct. The only problem here is that, like saving money, it also takes time. No one will be able to get a high salary right away, and most especially with businesses, no one will have a very profitable business within a day. We have to accept that everything always takes time, and enjoying the journey from A to Z will make it all worthwhile.

Returning to spending on luxuries, what did I do to enable myself to fulfil some of my desires? “I saved a percentage of my salary for that and accumulated it over time.” What were you expecting, a life hack kind of strategy? There is no such thing. It is a universal truth that everyone already knows, but it’s actually the intent and the mindset that differentiate a person’s financial stability and success. I don’t mind not being able to get my luxuries right away, because what’s more important for me is the comfortability of knowing that my family is financially safe and secure, not just today but into perpetuity. At the end of the day, love, which dictates our priorities, is the strongest motivator for us human beings.

MY 5 GOLDEN RULES

I rarely spend for my personal wants in a year, but when I do, I spend heavily and with large sums of money. Don’t get me wrong; that large sum of money I spend is relative to each and every one of us; a large sum of money for me can be relatively small for others. That being said, before I spend on luxuries, I must first fulfil my 5 golden rules.

1. To make sure that I’ll still be able to fully pay for my basic necessities of life. There’s no point in buying our luxuries first if we can’t eat and sleep for the month, isn’t? Our basic needs will always be more important than our wants; that’s a no-brainer.
   
2. My personal finance core must be complete above all else: debt fully paid (except mortgage), emergency fund, life insurance, and medical insurance. For instance, let’s say that there was an emergency that caused me to drain a portion of my emergency fund. What I’ll do next is stop allocating a portion of my salary for my wants bucket; instead, I’ll put it all in my emergency fund bucket until I completely replenish it again.
   
3. My luxury item spending should not exceed 5% of my net worth. This rule of mine empowers me to become a better saver and investor. If I am able to be more efficient in saving money and attain my maximum potential as an investor, I’ll be able to exponentially increase my net worth, which in turn will also increase the amount of money I can spend on my luxuries.
   
   To give you some context, let’s say my net worth today is $1,000, so I can only spend on luxuries worth $50 (Why? because $50 is 5% of $1,000). How about if my net worth is $10,000, then the most I can spend on luxury items is $500. Yep, I know, it’s small, isn’t it? but that’s the motivation for me to work harder to increase my net worth. Imagine this: once our net worth reaches 5 digits in USD, the amount of money that we can spend on luxuries will be above the $5,000 mark; this is based on my 5% rule of luxury spending.
   
4. The money I’ll be spending on luxuries should never be taken from my net worth. This means that I’ll only get money from my wants and enjoyment money bucket allocation. Only withdraw money from your investments once you’ve accomplished the original goal for which you invested the money in the first place. So, if the money for your investment is not for luxuries, then it can’t be touched or withdrawn for luxury purposes.
   
   Nonetheless, what if we want a very expensive item, our dream item? Assume we adore luxury watches, and our ideal timepiece is a Vacheron Constantin, an Overseas Perpetual Calendar Ultra Thin, or an Audemars Piguet Royal Oak Openworked watch. The question is, can we also invest our saved money for our wants? My answer to you is an absolute yes! But! There’s always a but! It will also take years before we could buy such an item, because firstly, it is extremely expensive; secondly, it will depend on how much money we could invest; thirdly, it depends on the performance we can generate from our investments; and lastly, there are a lot of other factors at play.
   
   We can have a lot of goals or options for our invested money. Again, our investment goal will always depend on our priorities in life.
   
5. Safety, Security, and Comfortability for my family always come first. It’s as simple as this: My love for my family is the primary reason why I’m doing this endeavour. If my luxuries will hinder my family’s SSC (Safety, Security & Comfortability), I won’t pull the trigger to purchase any luxury items anymore.

So, that summarises my 5 golden rules before spending on luxuries.

For the person listening to this, learn to prioritize, be consistent, be pragmatic, but most of all, still live life to the fullest.

Knowledge is my Sword and Patience is my Shield,

elmads

This blog is for informational purposes only and not a Financial Recommendation. Not all information will be accurate. Consult an independent financial professional before making any major financial decisions.