Thriving Millionaires

By Patrick

When I was younger, I believed a sound strategy was investing some money, and not overspending what I had left over. For years, I thought this was working, as I didn’t wrack up high-interest debt, and was able to watch my savings grow. As I became older and took on more obligations (children, house, car, etc.) I had to take a closer look at my spending by category in order to find areas to cut back. What I found shocked me.

                With this post, my hope is to shed light on some key lifestyle habits that can drastically increase the amount of money your spending. This is not meant to be a section where I talk about not taking elaborate vacations or putting lots of money on the credit card so you can shop. What I really want to get to here are some of the little, seemingly inconsequential lifestyle decisions that can have a major financial implications but will not always seem obvious. There are a few principles that I use in defining what these items are:

• They are generally a series of smaller, regular purchases

• There are easy alternative courses of action that provide the same result

• They have a significant impact on how much money you spend

Below, I’ve outline three major lifestyle decisions that have a significant impact on your financial well-being.

• Frequently going out to eat

While this one may seem obvious to some people, I would bet that most of us don’t have a great understanding of the amount of money we are spending eating at restaurants. Think about it, you go out to eat with some friends on a Saturday night, and spend $50 on a couple drinks and an entrée. Not a whole bunch of money, right? If you did this each Saturday every month, that would be about $200 a month. The problem is that many of us go out to eat several times a week. Now we are looking at $600+. Add in a quick lunch with friends at work on a regular basis, and the occasional brunch, and we are approaching $1,000. Who would have thought that a few meals here and there equate to a small mortgage or multiple car payments? Even if you could just eat in one additional time for week, you’ll find that the savings add up quickly.

• Frequently going to the bar

I get it, you’re single and ready to mingle, and you’ll be spending at least two nights a week out with friends. There is nothing wrong with this, but when you start to add it up, a couple nights out a week can easily cost about $400 a month. A few drinks can easily add up to $25 at the bar. Throw in an Uber there and back and you’re already at $50. Imagine you took that $50 from one night a week and saved it. Using simple math, we will round that to $200 a month. If you were to save this amount each year and invest it at a 7% return, that would equate to approximate $244,000 saved after 30 years. That’s how much one night out each week is costing you.

• Frequently spending money on entertainment

I’m not trying to be a party pooper here, but spending lots of money on entertainment can easily add up. Let’s take a simple example like renting movies online. While it may seem like a small transaction, if you’re the type of person that rents two movies a weekend at $5 a pop, those rentals really begin to add up. Cutting your movie rentals in half could save you about $24 thousand dollars over the course of 30 years. Again, this is a micro example. I know a lot of you are spending hundreds of dollars on big concerts, festivals, and sporting events. I’m not saying you shouldn’t do these things, but being thoughtful in how often you are spending money on entertainment can have an impact. Maybe watch an older movie that’s free on Netflix, or have friends over for games on a Friday night instead.

                Now I know many of you are going to look at the above three examples and say that I’m telling you to avoid all sorts of fun. Please don’t take it that way. We all need to let loose and enjoy ourselves, and we should never stop doing that. What I’m trying to point out is the long-term impact you can make by slightly adjusting some of the regular things you do on a weekly basis. Let’s say you were able to cut down on one dinner, one drink at the bar, and one movie rental a month. Let’s say in total, those three things cost you $105 a month.  Saving that amount of money over 30 years at a 7% return would net you $128 thousand dollars. You can essentially pay for your child’s education, one dinner, one drink, and one movie at a time.

Eric’s Thoughts

Patrick does a nice job illustrating the impact that small transactions can have when you begin to aggregate their impact and apply a standard rate of return over time. When you start putting things like “having drinks with friends” on balance with nearly a quarter million dollars, it’s hard to justify the weekly outings. However, as Patrick also points out, it is important to find the balance. The point is not to decline all social invitations and live under a rock in order to saving money, but rather to illustrate the entire impact of spending to make the best decisions for each individual.

Here’s the way I look at it – you should be spending your money on things that give you the greatest return from a happiness and fulfillment standpoint and cutting your spending from things that don’t bring you the same level of joy. A few examples from my life:

I love food. Those three words would make it pretty easy to justify a significant number of meals out and therefore a significant monthly line item in my budget. But here’s the thing – I actually get more fulfillment and happiness from cooking my own food for my family. Because of this, I actively try to minimize the money I spend on meals out, and reallocate some of that money to what may be a higher-than-average grocery budget. The net spending is still lower (not every dollar I could have spent eating out goes to groceries), which allows me to both save money and at the same time increase the amount of enjoyment from my total food budget.

I enjoy making things. For me, a Saturday working in my shop (aka, garage) is better than a day of going to movies, concerts, brunches, etc. And, on top of that, I am generally working on making something that we would have otherwise purchased.

For my daughter’s first birthday, I made her a play kitchen rather than buying a commercial version. Not only did I get great entertainment and satisfaction from making it myself, but we saved money vs purchasing a similar one available online.

This whole notion isn’t about avoiding spending – but about taking an honest inventory of your current spending, and understanding where small, seemingly insignificant transactions are adding up. Once you’ve identified those areas (for me it’s the grocery store and Home Depot), you need to do an assessment as to whether or not you’re getting happiness and fulfillment out of the spending.

If the highlight of your week is getting drinks with friends on Friday, then drink up!

If the only thing getting you through Monday at the office is dinner with your wife at your favorite restaurant, then make a standing reservation.

If renting a new movie every week is “me time” that you value highly, then pop some popcorn too.

But if those things are not, and the line items on your budget keep adding up, you should begin making adjustments to your budget – and then sticking with the changes.