Don’t Spend Money On These 3 Things
The Amplified Impact Podcast
July 31st, 2023
Today, we’re diving back into one of my favorite topics…building meaningful wealth.
And here’s the thing you absolutely need to grasp: Wealth is a ratio, plain and simple.
It’s all about what you make versus what you spend.
Real wealth isn’t just about earning more money…it’s also about keeping those expenses in check.
We’ve got to be careful not to fall into the lifestyle creep trap.
So before you go all out on those expenses, really think about how much they’ll add to your happiness.
Instead, focus on experiences, skill-building, and building strong relationships – those are the real happiness-boosters.
TWEETABLE QUOTE:
“True wealth then is not just about making more money, but also limiting how much you spend in relation to how much you make.”- Anthony Vicino
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Episode Transcript:
Anthony Vicino [00:00:00]:
We’ve said this countless times before on this podcast. But if you want to build meaningful wealth, you have to understand, you have to get this through your head, that wealth is a ratio. It is a number between what you make and what you spend, right? So true wealth then is not just about making more money, but also limiting how much you spend in relation to how much you make. For instance, if you make a million dollars a year in income, that’s fantastic. However, if you spend a million dollars on expenses, then you are functionally broke. You have no wealth. Flip that on its head. If you make, say, $100,000 a year and you only spend 50,000, then that means for every year that you work, you’ve accumulated another year of wealth, of savings.
Anthony Vicino [00:00:48]:
So for that one year, if you make 100,000, you spend 50. That leaves you with 50,000 in savings, which is enough to cover one year’s worth of expenses. That’s one year of wealth. And so we want to increase that ratio as much as possible. One of the easiest ways to do that is by increasing our earning capacity, right? If we’re making $50,000 a year well, I’m sorry, if we’re making $100,000 a year and currently we’re spending $50,000, well, one way, if we were to reduce our expenses by half down to $25,000 now we’re saving $75,000 a year. However, if we were able just to increase our earning capacity, say up to $150,000 now, all things being equal, we have $100,000 saved up at the end of each year, right? So typically increasing our earning capacity is the way to go. However, we got to be careful and mindful that we don’t fall into lifestyle creep. This is one of the big issues that I see with people as they start making more and more money.
Anthony Vicino [00:01:48]:
They go out there, they buy nicer and nicer and more expensive things and so the relative wealth does not actually increase. And they get onto this treadmill of keeping up with the Joneses where eventually you start to realize that the things you own actually own you. And that’s a really bad, terrible feeling because now you have to be on the treadmill because if you don’t, you can’t keep up with the expenses that you’ve accrued the liabilities. And so I want to share with you today three of the stupidest expenses that we all incur, we all tend to spend too much money on. And so if you’re on your wealth building journey right now, you’re in your twenty s. I strongly encourage you to think about how can I minimize these three expenses? And then as you go through life and you start making more and more money, be really careful. Because two of these three areas are where you will see the largest lifestyle creep for sure. The first one, and this isn’t going to pertain to everybody if you’re already old and crusty, you’re already out of school, then you can pass on this one.
Anthony Vicino [00:02:45]:
But the number one expense I see people spending way too much money on is school. Specifically college. Now, when I was coming out of high school, my dad gave me some of the best advice that I never took. He said, don’t go to that private, nice school that costs $30,000 a year. You don’t know what you want to study yet. That is just going to be a waste of money. And in the first two years of college, you’re really only going and getting the basics out of the way anyway. You’re going to see your Basic Psychology 101 or English 101.
Anthony Vicino [00:03:19]:
You’re taking the prerequisites to figure out where do you want to go? That’s not where the value is. And you can get those credits at a community college for a fraction of the cost. And while you’re there getting those credits and you’re starting to experiment with the different avenues that you could pursue that you might want to learn or get your degree in, then you can go to that school and spend more to get the degree, but you don’t need to get those basic prerequisite classes from that same school. I didn’t take that advice. I ended up going to a very expensive school all four years. It was like $30,000 each year for undergrad. By comparison, my youngest sister, Brie, she’s going to college this year and she’s going to school up in Canada. And she was doing the mental, like, doing this financial audit, and she could have gone to say, the University of Minnesota, and it would have been, I don’t know, like $20,000 a year and going up to Canada, it’s going to be like 4000.
Anthony Vicino [00:04:15]:
And so it’s like, that is just such a better financial decision than the one that I made. Because if at the end of the four years, she’s going to come out with about $100,000 less debt than I did. And so that just puts you already, at such a young age, so far behind the eight ball. And unless you’re going to a really prestigious school that can justify the expense based on the name brand, like a Harvard or Stanford, there’s really no reason to go to a school charging $30,000. I will tell you this. Nobody, unless you’re going to one of those top five level schools, nobody cares about where you went to. Nobody. In the modern workforce, with very few exceptions, very few industries, like maybe being a lawyer, being a doctor, whatever, outside of those things, it really doesn’t matter.
Anthony Vicino [00:04:59]:
And more importantly, nobody’s going to look to see where you did your basic prereqs. Get those out of the way at the cheapest way possible. Go to community college, get those. And then if you want to get the degree at the more expensive school because you think that’s going to matter, go for your last two years to get the degree, get those credits to transfer over. You will save so much money, I promise you. Okay, let’s get that one out of the way. That one’s for the young people who are still trying to make that decision, for school, for the rest of us who’ve maybe already made that decision poorly or, well, depending on who you are and how smart you were. The other two expenses that we all spend or we tend to spend too much on, number one, our car.
Anthony Vicino [00:05:38]:
This is like the one of the very first thing that as people start making good money, the first thing they go and upgrade is their car. And it’s the stupidest expense because nobody cares. Nobody cares. I drive a 2015 Toyota Prius C. That’s the tiny one. It’s not impressive. I look silly getting out of it because it’s like a little clown car, but I can parallel park it anywhere in the city, so it’s awesome. And I go to meetings that we are going to go and negotiate multi million dollar contracts on buildings, and literally nobody has ever cared what I drive up in.
Anthony Vicino [00:06:10]:
You might think, oh, if you had a BMW or Mercedes or Porsche, people are going to take you more seriously. They’re not. I promise you. Nobody cares about what car you drive more than you. You’re the only person thinking about it. And once you realize that people think about you far less than you think they do, then you start to wonder like, why do I want this thing? Now, one of the arguments that I hear from people over and over is like, oh, I’m a car guy. I’ve heard this one a lot. Somebody very close to me in my life says this, and they use it as a justification for driving an obscenely nice car that there’s no rationale for.
Anthony Vicino [00:06:47]:
They say, I’m a car guy. No, you could be a car guy, and you can still go rent that thing. You can go take it out for a spin on the weekends if you want to. But the marginal enjoyment that you get, I think, out of having that nice car is not is not worth it in the grand scheme of things. Now, you might get to a point where you have just so much disposable income that it doesn’t even matter. It doesn’t even put a dent into your lifestyle. Do what you want at that point, but until you get to that point, don’t spend more than you need to on a car. It really does not add any additional happiness to your life outside of the first two weeks of owning it.
Anthony Vicino [00:07:26]:
Beyond that, it just becomes a liability that stresses you out when you park it on the street because you’re afraid somebody’s going to nick it or hit it or if something happens to it. From a maintenance perspective, it’s going to be in the shop for weeks. It’s not worth the headache. This is one of those things that so quickly becomes the master, and you become the slave to it. Don’t do it to yourself. Don’t upgrade the car more than is necessary. The third thing goes right in hand with this. Right after people get money, they upgrade the car.
Anthony Vicino [00:07:55]:
And the next thing they like to upgrade is their housing, their living expenses. They go get that nicer apartment, they go buy that fancy house. They go buy these living arrangements that they can’t justify. And this happens more often when you’re very young. This happens at all points. But when you’re very young and you get that first job, you’re making, say, $100,000 a year, you’re like, I’m going to go buy that fancy apartment that I can finally afford. I think this is a really big mistake because most people, their housing is the largest expense that they outlay cash on each month. It usually is between 30 and 35% of your income.
Anthony Vicino [00:08:32]:
And I’ve seen people go much, much higher than that. If you’re going higher than 30% of your income on your housing, you’re spending too much. You’re spending too much. And in my experience, yes, your house does matter. Your location, your neighborhood, your proximity to things does matter far more than the actual unit itself. One of the things for the last five years, we lived in a house that we had bought for $200,000. Not a very nice, fancy house at all, but it was beautiful for us. It was great because it had exactly what we needed, the perfect amount of space.
Anthony Vicino [00:09:03]:
We moved into this nicer apartment building about six, seven months ago. It’s nice. It’s lovely. It’s like twice as expensive. And if you were to ask me, does it bring me twice as much life enjoyment and satisfaction, I would say, no, it doesn’t. It’s nice, but it’s not twice as nice. And so just realize that these things that we spend more money on, they do not scale our happiness proportionally. So just because you spend three times more on your housing doesn’t mean you’re going to be three times happier.
Anthony Vicino [00:09:33]:
If anything, you’re going to be like, 0.5 happier, but you’re going to have three times less money. Okay? So really do that mental calculus of, like, what are the things in life that will make me genuinely happy? And typically those things are more memory oriented or relationship oriented. So spending money on trips or on skill acquisition or on relationships and going and spending time with people that you love and taking trips and making memories, those tend to be things that do scale your happiness quotient proportional to the money being spent on it. Whereas, like, your car, your housing and your school, they typically don’t. So just take that into consideration. As you’re on your wealth building journey, you’re going to be tempted to probably, at some point, to spend more money on two of these three. You might be too late for the school one, but on the car and the housing, you’re going to be tempted to spend more and more and more as you start making more and more money. I just challenge you to really examine whether or not that expense is justified in terms of your overall life, satisfaction and goals.
Anthony Vicino [00:10:33]:
So hope this brings you guys a little bit of value. If it did, do me a favor, drop a review. That’s always really cool to see. Like, it brings me a lot of joy and happiness to see that people are getting some value out of this. So thank you so much, guys. I’ll catch you back around these parts tomorrow. But until then, stay hyper focused, my friend.
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