Tag: money

Opportunity cost, saving money, and living your rich life

If you want something, you HAVE to give something up to get it – whether that’s time, money, effort, etc. You have to make sacrifices…you can do anything if you set your mind to it, but you can’t do everything. You will have to pick and choose what is most important to you because by saying yes to one thing, you are inherently saying no to something else. It’s opportunity cost.

For example, if you want an expensive new car, you have to give up money to get it. To earn enough money, you have to work for it (trading time and effort for dollars). You’ll also have to save up for it (also costing time, because it won’t happen over night, and effort, because you might be tempted to spend money on other things). So if you also want to go on vacation, go out to eat all the time, go on a shopping spree, etc., but you don’t make enough money, by saying yes to those other things, you are saying no to getting that dream car.

You can’t have all of the toys and live the “rich” life without PAYING for it. What you need to do is redefine what is a rich life for you (it’s different for everyone). Living a rich life doesn’t necessarily mean you have to spend a lot of money. It does mean that you’re allowed to spend money on things that matter most to you though. Life is meant to be enjoyed. When you die, you can’t take that money with you.

But the problem for most people isn’t having too much money leftover when they die, it’s not having enough for their later years. Most people mindlessly spend money on things they don’t really get enjoyment out of. They do this all of their lives. Stop doing this! If it’s not something you truly care about, cut it out of your life or buy off-brand. Save money for the things that matter most to you and when you do spend on something you’ve been saving for, don’t feel regret.

The sunk cost theory

Always keep the “sunk cost theory” in mind.

Are you doing something because it actually makes sense – because you want to do it or because it is providing some value to you or serving a purpose? Or are you doing it because you’ve already “invested” so much time, money, or energy doing it and you think about everything that would have been wasted if you quit now?

In reality, you can’t get back the time, money, or energy you’ve already spent. You can’t recoup that. So the question becomes, are you willing to waste more time, money, and energy now just to see the project through? Are you willing to “throw good money after bad?”

Take a step back and ask yourself this question… “If I didn’t have ANYTHING invested in this and I have all of the information that I have today, would I still invest in doing this task?” If the answer is no, then it’s probably best to let it go.

We only have a finite amount of these resources. When we say “yes” to making suboptimal choices, we are inherently saying “no” to making better choices. We can’t be in two places at once. Most people have to make either/or decisions when it comes to buying things because we don’t have unlimited money. And our energy waxes and wanes, but if we keep beating our heads against a wall and doing things that don’t serve us or energize us, we will feel depleted of energy long before we need to. Don’t continue to do something that doesn’t work just because you have a sunken cost – it will only cost you more time, money, and energy in the long run.

Power

We want to power not so we can abuse it, but to make sure that we are never taken advantage of. But there are different types of power. For example, being wealthy is powerful. If you are independently wealthy and not financially reliant on your W-2 income, if you feel like you are mistreated or if you just don’t like your job you can leave it for something else.

Other types of power include strength (physical and mental), intelligence, and influence.

If you physical strength or if you know how to defend yourself, you have power. People will think twice about messing with you before selecting an easier target.

If you have mental strength, you have power. Others will not be able to manipulate your emotions if you know how to keep them in check.

If you have intelligence, you have power. You will be able to detect when someone is lying or trying to mislead you. You can use your intuition and what you already have a base knowledge of to figure out if something makes sense.

If you have influence (such as a huge social media following, but even with your friends or family), you have power. Your words can affect how people think, what they say/do, how they vote, etc.

Once again, it’s not that we want this power to hold over someone else. It’s actually the complete opposite. We want to have the power so that others can’t exercise that power on us.

How are you increasing your power today?

Remember what you’re working for

For the high achievers out there, remember what you’re working for. Some people refer to this as finding your “why.” Why are you working so hard? What is it that you really want?

Sure, you may like what you do, you may find enjoyment getting recognition or accolades from your employer, or you want to be seen as successful in the eyes of your peers/family members, but is that in alignment with what you actually want?

I’ve been working hard for a long time. I worked in high school, worked my way through college, and upon graduating I worked multiple jobs and many hours of overtime to pay off any student loans I had, pay off cars, a mortgage, etc. But after having kids, I had to re-prioritize my life goals. Did I still want to earn financial freedom? Absolutely. But I need to do it in a more sustainable way so I can see my family. Working 60-70 hour work weeks will help me earn income, but at what expense?

The questions I had to ask myself were:

1) What am I working so hard for? What is my new why? The answer to this, I think, is to create the best life possible for my family. That doesn’t necessarily mean to have or to make the most money though. Instead, I think it’s to raise respectful children with good work ethics who are happy with life…and me NOT being around just so I can earn more money or do something I’m “passionate” about is actually a very selfish thing to do.

2) Instead of racing the the financial freedom finish line, am I willing to maybe work a few more years to have a better quality of life (more free time to spend with my family, friends, and hobbies)? The answer to this is yes. What’s the point in rushing to retirement when you might lose your family (say, if you get divorced as a result of never spending time with your spouse), you lose your health (because you’re “too busy” to work out), lose your friends (because you never hang out with them anymore), and have no hobbies (are you just going to sit at home and watch tv all day)?? That life would be so unfulfilling to me.

So, as I conclude, I just want to say that everyone is different. We feel different things, have different goals, and are in different stages of life. Our life experiences are different. Our expectations are different. There is no right or wrong when it comes to why you’re working as hard as you are. But the key thing is to think about what you’re working for and adjust your time accordingly.

Memento mori

“Memento mori” means that “remember, you will die.” It helps to keep things in perspective. Some people hate the idea of death and try to avoid thinking about it (whether it’s their own death or others’)…but we should all contemplate death. It is inevitable. No matter how rich or poor you are, your life will eventually come to an end. When it does, how do you want to be remembered? Make sure that you act in accordance to this and don’t forget it.

One last thing – make sure that if others are depending on your salary that you set up a will and get life insurance. You never know if you’re going to get hit by a bus, get cancer, etc. When you do die (especially early or unexpectedly), it will already be an incredibly difficult time for your loved ones. Please don’t make it even harder for them by burdening them financially or not setting up a clear will, which often leads to infighting with those you love the most.