We read Ben Carlson’s blog religiously, but he also has a podcast with Michael Batnick called “Animal Spirits” which we watch occasionally. This week, I was drawn to the topic and their guest, Ramit Sethi.
Netflix has recently launched a series hosted by Ramit called, “How to get Rich”. If you’re like me, your initial reactions to the name of the program is that it sounds a little corny and that this topic has been covered a million times already.
However, after the interesting interview I needed to search out the series and see if it was like everything else that I’d seen on this topic. Rahit defines rich much differently from most others – “Frugality, quite simply, is about choosing the things you love enough to spend extravagantly on and then cutting costs mercilessly on the things you don’t love.”
Many advisors and money professionals would have you focus first on your budget and tell you where you should and shouldn’t be spending your hard-earned dollars. Rahit suggests that leading a rich life involves prioritizing activities that bring the greatest amount of fulfillment and pleasure, while sacrificing or eliminating the things that do not. When you achieve this focus, you gain clarity on the things, and people, that are most important to you.
Read the A Wealth of Common Sense blog post: How To Live a Rich Life
Coincidently, I was going through the browser on my phone, where I keep a few tabs open that I like to refer to occasionally, and I came across a Morgan Housel blog from January entitled, “The Art and Science of Spending Money”. Morgan quotes Ramit a few times and lists thirteen points that he has noticed about spending. I‘d like to focus on one that I think is extremely important to absolutely everyone: “An underappreciation of the long-term costs of purchases, with too much emphasis on the initial price.”
Price is easy to calculate. It’s whatever you paid for initially and sold for eventually.
Cost is harder to figure out. It tends to be slow drips over time which are easy to ignore but add up.
Morgan uses the example of a house purchased in 1974 for $60,000 that has a current value of $350,000. There is a meaningful gain and one would tend to think that this outcome is quite impressive. However, when you really look at this example, you’ll find that the initial investment compounded at a mere 3.75%. If you factor in property taxes of 1%, likely annual maintenance costs of 1% to 3%, and potential interest costs associated with a mortgage, you really have not gained much, if anything. However, per Rahit, owning your home can bring you your greatest amount of fulfillment and pleasure!
Read the Collaborative Fund blog post: The Art & Science of Spending Money
Our mentor and the man that is responsible for helping most of us get to where we are today, Ted Thomson, has always said, “tell your dollars where to go instead of asking where they went”. When we create self-awareness, focus and spend time and money on the things that make us happy, it tends to mean we are being more accountable to where our dollars are going.
We wish you plenty of happiness to you and those most important to you!
Eric, Rob, Chris, & Shiv
Thomson Financial Partners