How to Spend More While Still Building Wealth
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Lifestyle creep is the #1 wealth killer for Americans.
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Which is why the next line Iβm about to write is ironic.
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Iβm pro-lifestyle creep.
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I think everyone should increase their spending as they earn more money.
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But, it has to be calculated and under control.
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What most people do is they decide to spend more money based on what their monthly income is.
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βI have $5,000 coming in. That means I can take on $5,000 of payments.β
Calculating if you can afford the monthly payment is what broke people do.
If you want to build wealth, you need to assess total cost of ownership. But thats for another day.
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I want to show you how to allow lifestyle creep to enter your life. You can build more wealth than you ever thought you could.
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Your money should be enjoyed.
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Letβs get into it.
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Save Half Spend Half
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Your boss calls you in and hits you with the good news. You are getting a raise!
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But, what in tarnation do you do with the money? Let me introduce you to the Wealth Builders Raise Golden Rule.
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The Golden Rule with any raise is to save half spend half. I love this idea because you can increase your lifestyle and invest in your future.
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This creates balance.
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Balance is everything if you want to be happy with your financial situation.
Automate 50% Spend 50%
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Typically, people have no plan for their raises.Money is added to their checking account and gets spent.
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It evaporates in the black hole that is their checking account.
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This wonβt happen to you though. Youβre a wealth builder, and as a wealth builder, we always have a plan.
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Instead, look at the increase, and automate 50% wherever it needs to go.
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- Looking to beef up the emergency fund? Send it to the HYSA.
- Looking to pay off debt? Increase your payments by the raise.
- Looking to invest more? Increase your automatic contributions.
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This is going to ensure that money is going exactly where we want it.
But what about the other half?
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With the other half, we do the same thing.
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But this time, we make it rain on what we love. Or, increase our financial baseline.
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Be intentional with where you want this money to go. Donβt leave it in checking. All we know is with this money we want more.
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- More vacations.
- More eating out.
- A nicer car.
- A bigger house.
- More clothes.
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There is nothing wrong with more. You deserve more. Your hard work allowed you to create more.
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Maintain Balance
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When it comes to managing your spending percentage if you want a quick idea of what you need to be spending, I like the below.
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- 50% - 60% Baseline Expenses (Housing, Food Transportation, Childcare etc.)
- 20-25% to Future: Investments and Savings
- 15%- 25% Fun (Vacations, Drinks, Experiences etc.)
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P.S. I am working on a tool that will help you figure out what you spend in these areas.
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Proceed Cautiously
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If you accelerate your lifestyle quickly, I want you to understand one thing.
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Itβs really hard to go backward.
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Itβs nearly impossible until you are forced to.
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This goes for housing, cars, lifestyle spending, etc.
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Imagine this for a second. You make more money and decide to upgrade your house. Nothing wrong with this at all. But, one day your income gets cut. All of a sudden you canβt afford the mortgage and invest for your future.
The last thing you will do is downgrade your house. You worked so hard to buy that house. Even though, it could be a logical choice.
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This is because of something called Psychological Anchoring.
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Psychological Anchoring is very important to understand. Once you get accustomed to a certain lifestyle, it becomes a benchmark. Downgrading from this 'new normal' often feels like a significant loss. It feels like more of a loss than the initial joy of upgrading.
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This is related to the concept of loss aversion. The pain of losing is psychologically more impactful than the pleasure of gaining.
If you buy a brand-new SUV and can't afford it anymore, the pain of downgrading to a 2013 Honda Accord is greater than the pleasure of buying that new car.
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We all experience this in one way or another. It's very normal.
The key is knowing this exists before we make major purchase decisions.
Remember, sometimes the best financial decision is the most painful one.
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Conclusion
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I want you to spend more on what you love. You should spend more on what you love. So craft an intentional plan on what to do with new money each year. Your present and future self with thank you.
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