The Intersection of Frugal and Fun

The “lifestyle of the rich and famous” tends to be a distorted concept. It seems more accurately described “lifestyle of the temporarily rich and famous.”

If you want to achieve financial freedom, you probably need to pay more attention to the lifestyles of the self-made rich and not so famous.

If you’re human, you’ve probably been caught up in “needing” certain things at some point or another. A degree from an expensive liberal arts college. A house in a nice neighborhood. A new car. A flat screen television. A nice watch. The newest phone.

On average, college graduates are now leaving the classroom with $27,000 in student loan debt and a monthly payment of around $300. Buckle up, if this is you and you only make the minimum monthly payment, that college degree is going to cost an additional $10,000 in interest!

Let’s add in an almost universal debt: the car payment. The average car payment as of 2011 was $484/month (higher than a lot of mortgages) and 58% of car loans are 5 years or longer now.

How much is that car going to be worth in 5 years? Unless it’s a classic roadster, you are essentially renting your car.

Our culture is based around consumption.

Products get sold through savvy advertising that tells us we need them. We are bombarded all day long with product positioning, both in traditional forms (ads on the radio) and indirectly (your colleague pulls into work in a new Audi).

This, of course, adds up to living barely within or much above our means, also known as the lifestyle of the broke.

Murphy comes calling when you spend what you make. Your transmission will go out or your basement will flood. Something will push you into debt, and then the spiral begins.

There is an opportunity cost in all decisions. When you decide to accept a $400/month car payment, you give up the opportunity to use that $400 in other ways.

If you chose instead to buy a used car at a great deal for $150/month on a 36 month loan, you could then put $250 towards living your life. I don’t care what you say to rationalize it; driving a fancy car is not living your life, unless you’re in the Daytona 500.

$250 saved up over just one year comes to $3,000.  You could go to Ecuador to explore the Amazon for less than that. You could go to Italy and ride in a gondola through Venice. Take a hot air balloon ride…every other month.

Sound like fun?

You could also use that $250 to make extra payments on your mortgage, investing in future fun.

On a $300,000 30-year mortgage at 6%, the extra $250/month would result in owning your home outright 7.5 years earlier and would save you $97,685 in interest over the life of the loan.

What would it feel like to own your home outright?

The payment on a $300,000 mortgage is around $1,800/month. Now that it’s paid off, you have $2,050/month to play with. Hopefully you paid off those student loans, giving you another $300/month. And being smart, you also squeezed out some cash from your grocery budget and bought your next car with cash, so you actually have $2,500/month, assuming your income hasn’t gone up in the 23 years it took to pay off your home (unlikely).

You could quit your 9-5 in favor of working for yourself or transition to a remote work agreement. Then you could live in Europe and ski the Alps all winter. Or you could stay on the beach on a Hawaiian island if you’re like me and avoid strapping sleds to your feet on an icy mountain.

Disposable income is aptly named. Most will dispose of it in quick fashion and will ask at the end of the year, “Where did all that money go?”

Your neighbor might only make $40,000 per year when you make $120,000, you are equally poor if you both end up with nothing at the end of the month. You may have nicer things, but who really dreams about things?

Do you dream about plasma televisions or the Maldives?

How about the experience of needing your job versus the freedom of walking away?

What if you could be part of unique new ideas as an angel investor?

Do you wish you could help the little girl in your neighborhood who has leukemia?

Money is not the root of all evil. It simply amplifies your values.

Does the purpose you assign your dollars align with what you believe to be your values?

What could you cut out of your life today in order to exchange the cash for a greater purpose?