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Many of the people who say “I want to be frugal” don’t really want to live frugally. They’d probably be more accurate to say, “I want to live well.” In my experience, they simply don’t know about a vehicle for wealth creation like carefully purchased real estate.
Most of us can only have one job, maybe two. But you can own as many income-producing apartment buildings, single-family homes, mobile home parks or vending machines as you desire. There’s no boss to ask for a raise, and yet you’re going to have more expendable income than others.
Real estate investors benefit from what’s referred to as “mailbox money,” which happens when your property’s monthly rent income exceeds all expenses. When a property manager controls its operations, your income is nearly passive.
To the initiated, it’s nearly seductive. Of course, you’ll want more of this income-producing, hands-off real estate. It’s get-rich-in-your-sleep stuff. There’s no limit to the income you can create. We know that money is an abundant resource. Though investors are often attracted to rental property for income, ultimately, what’s important is your outcome.
Few discuss the benefits of spending money. In conventional financial circles, spending more than absolutely necessary is almost deemed taboo. But really, it’s overspending that’s the problem. That’s not the subject here. This may not apply to you if you’re young, you got a bad break or you’re buried in 18.99% APR credit card debt.
Spending your money converts income into an outcome. Here are six reasons it’s important that real estate investors with that mailbox money coming in develop a healthy relationship with spending money.
1. You can beat inflation: Inflation means that the purchasing power of your currency is like an ice cube melting in your hand. Governments continue debasing your dollar, euro and peso. For instance, my wife and I recently look a grand trip to Italy to do all those iconic, once-in-a-lifetime things, from the Venice canals to the Roman Colosseum. Had we waited a year, we would have had to tack at least a few hundred dollars onto the cost of the trip. Your dollar spent today is worth more than your dollar spent tomorrow.
2. You don’t lose money: Spending your money exactly how you desire to means that you don’t lose it, like in a bad investment or lawsuit. Maybe you donate your money, directing it precisely where it can do the most good and doing something beyond yourself. Now, no one can take that away from you. Though overspenders run the risk of frivolous consumption — like buying a boat then deciding they don’t enjoy boating — healthy spenders do not lose. They get what they pay for.
3. You may experience a better quality of life: What kind of price can you place on living in a better neighborhood, building your kids a basketball court or having a warm garage to park your car?
4. You can help the economy exactly where you want to: Consumer spending comprises about 70% of GDP. Do you realize that each dollar that you’ve ever owned came from another person? Therefore, people spent money so that you could obtain it. Your expenditure becomes someone else’s income. Your spent dollar is also like your economic vote for what you want to see more of in the world. If you want more organic root vegetables to appear in the world, your dollar allocated here is one vote of demand. If you want cigarettes to disappear, you won’t vote for them by spending your dollar there. More dollars, more votes.
5. You can actually buy time: I am frugal — but with my time, not with my money. I’ve never mowed my own lawn, for instance, because paying someone to do it saves me from the opportunity cost if I mowed it myself, and stored and maintained the equipment. Buy the time to do what you want the most. What is the most dissatisfying activity you regularly think you “have to do”? Can you buy your way out of it?
6. Spending is just more fun: It may sound funny to say out loud. While overspending can create worry about your future, financial freedom means that money is no longer the primary concern in your purchase decision. You can save and invest until your net worth is that of Luxembourg. But at some point you must ask, “What am I doing all of this for?” and “If not now, when?” Practical items worth spending your money on might include a good mattress, vision and dental care, supportive shoes, home appliances, exercise, vacations, unprocessed food and your mobile phone. These can enhance your sleep, heighten your senses, improve your health and help you get more work done faster.
Ideally, with each successive year of your life, you will actually spend more, not less. It’s a responsible approach — as long as your income rises at the same or greater rate.
Some say, “I’d rather be happy than wealthy.” I agree, and add: “Why not be both?” Delayed gratification may matter when you’re younger, but how long will you defer your best life? As a real estate investor, you can have the lifestyle-smoothing benefit of an income stream your entire life. You don’t have to delay as much gratification as others. Well-directed spending is truly paying yourself first. Remember the words of Ben Franklin: “Wealth is not his that has it, but his that enjoys it.”
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