The typical financial advice from millionaire self-help gurus tends to be one of two things: 1) “Do not spend any money, save every last penny and invest it in something that will yield you safe but meager returns over the next 40 years. That way, when you retire you’ll have millions.” 2) “Sacrifice every single drop of energy for 5 to 10 years, completely devote yourself to creating a business, and you’ll be financially independent in your mid thirties.” None of those are ideal, and here’s why:
The problem with situation #1
There is nothing wrong with saving a substantial portion of your salary. This is basic financial responsibility. You definitely do not want to be the guy whose expenses outweigh his income. It is wise to live below your means, however, subscribing to this ideology can very easily make you an annoying cheapskate. You also don’t want to be the penny-pincher man that is so scared of spending money that feels like he can’t buy a piece of gum. Or, similarly, the kind of guy that is constantly talking about how everything is too expensive, thus justifying his lack of participation in absolutely every social gathering. Don’t be that guy, nobody likes him. Save, but do not be obsessed with counting your pennies. I promise you, having that beer with your friends will yield a much better return than the 5 dollars you might save invested at a 3% yearly rate over 40 years. Additionally, people that are too focused on saving don’t usually put too much effort in increasing their income, which should be prioritized, especially in your twenties, when incomes tend to be lower.
I promise you, having that beer with your friends will yield a much better return than the 5 dollars you might save invested at a 3% yearly rate over 40 years.
The problem with situation #2
Again, there is nothing intrensically wrong with devoting time and energy to create a stable and healthy business. But, whereas people that are obsessed with saving don’t do anything else because it costs money, those obsessed with working all the time don’t do anything else because they feel as though they should be working 24/7. Same as before, spending time with your loved ones, going out now and then, or simply taking some time off will yield a much better return than dedicating the same 2 hours to your work.
Besides, even if you manage to do it, if you sacrifice every single thing that is meaningful and brings you joy, and you become financially independent at 35 years old, you’ll be alone, your parents will be older, your friends won’t be there (because you neglected them for years) and you’ll realize that it probably wasn’t worth it.
What to do, then?
The answer is simple: be "pound-wise" and "penny-foolish". This means that yes, you should save a part of your income, yes, you should live below your means, yes, you should look at investment opportunities. But you shouldn't be so overly concerned with spending money that you cannot buy a cup of coffee without feeling guilty. Being pound-wise means putting effort into taking smart decsions when it comes to things that will have a big impact in your finances (choosing a career, buying a house, a car, or anything that is actually relevant for your financial future). This will ensure that you're not spending money stupidly, buying designer clothes every time you have the chance or spending your salary on things that you realistically can't afford. The other side of the coin is being penny-foolish, which means that you shouldn't spend so much time and effort trying to decide whether or not you should accept your friends' BBQ invitations, because you would have to buy something to bring. Being penny-foolish means recognizing that sometimes, there is more value in spending money than in saving it. Remember, having money is cool and all, but it is not the only metric, nor the most important one. Having a balanced, healthy lifestyle, filled with fulfilling relationships is the real goal, and guess what? Achieving that and maintaining it is going to cost some money from time to time. Don´t be afraid of spending money on things that bring you other, more important kinds of value.
Having a balanced, healthy lifestyle, filled with fulfilling relationships is the real goal, and guess what? Achieving that and maintaining it is going to cost some money from time to time. Don't be afraid of spending money on things that bring you other, more important kinds of value.