Once you have enough to cover your basics, you are paying an implicit price (in future time) for every dollar you spend.
A case study to illustrate…
Let’s say you are considering a $10,000 trip of a lifetime…
My preferred way to view spending is relative to my net worth. My give-a-hoot threshold is set at 0.1% of family net worth. It helps me not sweat the small stuff.
Applying that heuristic to a $10,000 choice, you need a net worth of $10 million (!) not to be thinking carefully about the trip.
So let’s think very carefully!
Realistic financial freedom comes from chipping away – day by day – at the requirement to work full time to fund your core cost of living
The value of a future benefit is undervalued by nearly everyone. A short-term focus makes sense from an evolutionary perspective but greatly limits the options in the second half of your life.
Let me reframe $10,000 of spending for a family earning $120,000 per annum.
Core cost of living = $120,000
Capitalization Rate = 4%
= Capital required to retire completely
Divide that by 300 working days per annum, and you get $10,000 of capital per working day.
So the vacation could be priced as one day working, forever.
When you look at a new SUV, you could see an additional week working, forever.
Jewelry, RVs, hobbies, private education… All can be viewed in terms of time.
Keeping it simple…
…every ten grand you invest in a balanced, low-cost portfolio, buys you an extra day off for the rest of your life.
…and while it can be tougher for a young person to accumulate capital, the time payoff is FAR greater.
$1 million of family capital can buy you four-day weekends, for the rest of your life.
After you’ve bought it, don’t wait too long to spend your time.