A good spending ratio will help you spend responsibly while enjoying your wealth more. For those of you who lack spending discipline, a good spending ratio is a must.
I have trouble spending money on things I don’t need because I value the freedom money buys. After enjoying complete financial freedom since leaving workin 2012, I NEVER want to be forced to go back to work for money again. Once you have financial freedom shooting through your veins, you’ll do anything to keep the high going!
At the same time, I struggle finding a proper balance between my earnings and my spending. To earn money is why we wake up at 5am, commute in painful rush hour traffic, tolerate micromanagers, work 80 hours a week, start a business, ignore our spouses, neglect our kids, and do all sorts of other selfish things. Thus, if we sacrifice so much, surely we are entitled to spend a portion of our earnings on things we don’t need.
To overcome spending dysfunction, I’ve come up with a no-brainer ratio to help people spend responsibly. Let’s just call it the Financial Samurai Responsible Spending ratio (FS:RS).
The Financial Samurai Responsible Spending Ratio
The FS:RS says that in order to spend $1 on something unnecessary, one must FIRST spend $2 on something beneficial. This is a good spending ratio that will always protect your finances.
For example, I want to spend up to $65,000 on my mid-life crisis car. My current vehicle is a $20,000 Honda Fit which I’m leasing for only $235/month. Because I’m turning 40 in 2017, it’s important I get an impractical car to make sure I continue to feel like a man.
In order to spend $65,000 cash on a luxury automobile, I need to first spend $130,000 on something financially beneficial. Well what do you know? I did just that by paying down $130,000 of a mortgage so I could lock in 2.375% and save myself $1,014/month in cash flow!
If you’re looking to refinance or get a new mortgage, I highly suggest you do so by checking the latest rates online. Rates are near all-time lows due to the coronavirus and investors seeking the safety of bonds. I recommend checking with Credible, my favorite online lending marketplace today.
Not only did I reduce debt and increase cash flow, I spent several hours producing two, 1,200+ word posts about my experience that may help increase traffic and online revenue as well. The posts should help other people who are struggling through the same mortgage refinance situation.
Use The FS:RS Ratio Along With Targets
If you want to really crush your spending guilt, then I suggest you not only follow a $2 good:$1 bad spending ratio, but also set yourself goals to achieve first before spending any money on big ticket items.
I was very close to buying my mid-life crisis car, but the seller stubbornly wouldn’t accept my $60,000 offer after listing his car for $65,000 for one month, and then $63,500 for another two weeks. He’s now off to Asia for three weeks for business.
The day before he left, he did come back and say that I could “have” the car for $61,000, but I stuck to my guns because I wasn’t 100% sure two other ongoing projects were complete: 1) finalization of my mortgage refinance; 2) locking in great tenants by depositing their deposit check.
When I gave my $60,000 car offer, my mortgage officer had said my mortgage refinance was complete and that I had nothing to worry about. But given the process took almost four months, I wasn’t taking her word for it.
As for the tenants, I received a strong verbal indication of interest, but they had yet to sign the lease or give me a $4,000 deposit check. Of course, the day the Porsche seller goes to Korea is the day I not only see my new mortgage account details online, but I also get a signed lease and deposit check from the tenants.
Having A Target Keeps You Disciplined
I tried my hardest to waste $60,000 on a toy I didn’t need. But alas, the spending gods continue to be against me. Or perhaps my marathon mortgage refinance and extended tenant search were blessings in disguise. With a modified black on black race car with black tint, I might be getting $500 speeding tickets left and right.
For those looking to sell things and aren’t getting any offers, lower your price for goodness sake. Time destroys the value of unnecessary things, especially cars.
Don’t be stubborn like the Porsche seller who originally got a $62,000 offer from me just prior to my trip to Europe which he rejected. If he decides to sell me the car when he returns from his trip next month, I’m going to offer $59,000 because I got one less month of ownership. Oh how I love to negotiate when I just don’t care!
Keep Your Finances In Check
Having a financially responsible spending ratio works because no matter how irresponsible you get with your money, you’ll probably always be fine because you did something twice as good.
Here are some other examples I can think of:
1) Sell $2,000 worth of clothing, shoes, electronics and other household clutter before paying $1,000 for the latest ultra high definition TV.
2) Pay down $10,000 of student loan debt before spending $5,000 on an international vacation.
3) Buy your parents a $500 gift before purchasing those stretchy designer jeans.
4) Fund $15,000 of your child’s college savings plan before buying a Rolex Milgauss.
5) Pay down $1,000 in mortgage principal before paying $500 for concert tickets.
6) Contribute $2,500 to your digital wealth manager before spending $1,250 on a Louis Vuitton handbag.
It’s important to spend the good $2 first before spending the bad $1. After spending responsibly, you’ll probably think more carefully before wasting any money.
Millions of people are itching to spend more money once we achieve herd immunity. We’ve been locked down for a year and our savings have gone way up. If you do decide to splurge on a revenge spend, you’ll feel good knowing you had a prior moment of responsible spending.
Invest In Real Estate
One of my favorite good types of spending is to invest in real estate. However, in the past, it was hard to just buy a rental property or single family home due to the down payment retirement. Now, you can invest as little as $500 in real estate through real estate crowdfunding.
Take a look at Fundrise, one of the largest real estate crowdsourcing companies today. Fundrise is the pioneer in private eREITs to give you real estate exposure and earn you 100% passive income.
Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you’re looking for strictly investing income returns.
Sign up and take a look at what Fundrise has to offer. It’s free to look.
Stay On Top Of Your Money
Sign up for Personal Capital, the web’s #1 free wealth management tool to get a better handle on your finances.
In addition to better money oversight, run your investments through their award-winning Investment Checkup tool to see exactly how much you are paying in fees. I was paying $1,700 a year in fees I had no idea I was paying.
After you link all your accounts, use their Retirement Planning calculator that pulls your real data to give you as pure an estimation of your financial future as possible using Monte Carlo simulation algorithms.