Smart Investing: Why You Should Rethink Your Spending Habits
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Chapter 1: The Cost of Unwise Purchases
Imagine receiving a 3% discount on the S&P 500, 32% off Amazon stocks, or 25% on Bitcoin, yet you still choose to buy discounted toilet paper. Society teaches us to excel in our professions, but we often lack guidance on how to avoid frivolous spending that can lead to long-term dissatisfaction.
In 2020, I found myself with an extra $1000 and thought, "I should purchase the iPhone 11 Pro Max; it’s an incredible device. Do I really need it? Not necessarily, but why not?"
Buys the iPhone 11 Pro Max for $1099
In a parallel universe, with the same $1000, I considered investing in stocks instead.
Fast forward to 2022, and I meet both versions of myself.
Me (Now): "What’s your return on investment, iPhone guy?"
iPhone-Me (2020): "Return? I’m trading in my old iPhone for $300 at Apple! So, after two years, it cost me $800."
Me (Now): "Noted. Your ROI is a negative $800 over two years."
iPhone-Me: "But the joy it brought me…"
Me (Now): "Let’s be real; this isn’t Disneyland. Stock guy, what’s your ROI?"
Stock-Me: "I invested in Tesla, and my $1099 is now worth $5500!"
That’s food for thought when you ponder whether to buy the iPhone 15 or the iPhone 15 XVRS MAX PRO ULT.
Person: "But you’re comparing an iPhone with Tesla stock. Nobody predicted that surge."
Fair point. Let’s assume you invested in the S&P 500 instead. Your $1099 would have grown to around $1500. In contrast to the iPhone's negative ROI, that’s a solid return.
Chapter 2: Cultivating an Investment Mindset
Society is full of various healthy and unhealthy habits. People scroll through social media, hit the gym to look good, or save money for unforeseen circumstances. The question of what constitutes healthy behavior is subjective.
Everywhere you go, advertisements bombard you, pushing products without questioning their necessity. Picture a candid ad for a luxury car: "This vehicle costs five times more but performs similarly. You’ll buy a few compliments for the next couple of years."
A naive person might feel conflicted: "This coffee looks delicious! I must have it." Or, "Gym subscriptions have gone up? No big deal; it’s essential!"
Unfortunately, many lack an investment mindset. We are trained to excel in our professions but not to resist unnecessary purchases that can lead to long-term unhappiness.
Section 2.1: The Trap of Subscriptions
It’s common for people to subscribe to multiple platforms like Netflix and Spotify. Take Spotify, for instance; a $10 monthly fee adds up to $120 annually. Opting for the free version could save you $360 over three years. Imagine if you invested that in Bitcoin instead; you'd have approximately $2160.
Person: "You want me to endure ads for three years for $2160? You’re so cheap."
You choose your spending habits, but just be aware of what you’re sacrificing for that $10 monthly fee. Personally, I’d rather listen to a 30-second ad while running than pay for an ad-free experience, ultimately saving for a down payment on a house.
Person: "A house? Really?"
If I had invested what I would have spent on Spotify over eight years into Bitcoin, I might have $96,000 today.
Person: "But Bitcoin was a fluke."
Sure, but investing in the NASDAQ could have yielded $3000, and Amazon stocks could have doubled to $6000.
The real question is: How many recurring payments do you have? Netflix? Daily fancy coffee? An expensive car?
Chapter 3: Current Market Conditions
The stock market isn't performing well right now; it's true. However, think of it as the market’s "Black Friday." As Warren Buffet advises, "Be fearful when others are greedy, and greedy when others are fearful."
Person: "What if it keeps declining?"
Remember, your cash may also decrease as the market drops. Spotify might have to increase its rates to cover losses, leading to higher costs for you.
Let’s play a game: categorize good versus bad investments.
Section 3.1: Evaluating Investments
- A Car: Depreciates over time, but it can save time. Weigh the time saved against the costs.
- Stocks: Generally a solid long-term investment unless you require immediate cash.
- Spotify Premium: Paying $10 for an ad-free experience might seem steep if you listen to just one song a month.
Some very wise individuals, like Zuckerberg, prefer average attire over expensive brands. Gates and Buffet embody a similar philosophy.
Person: "So, should I invest in Bitcoin?"
Not necessarily; I’m just saying it could be a better investment than a Ferrari, which will lose value.
The real issue arises if you adopt a spending mindset for too long. A pandemic could strike, leaving you jobless and in debt without the advantage of smart investments.
Section 3.2: Making Smart Choices
Engage in the good versus bad investment game and assess your choices. Consider gold, stocks of companies you believe in, bank bonds, or crypto.
The key is to remember: this is money you would have spent on unnecessary products and services.
Chapter 4: The Value of Self-Investment
In my experience, investing in oneself is the most prudent choice. Here are some ideas:
- Building a strong LinkedIn presence.
- Acquiring new freelance skills.
- Purchasing a book or SaaS that benefits others.
I carefully consider spending $40 on a meal but will buy a $50 book without hesitation. This mindset can yield a positive return over time.
You might adopt this approach and reevaluate it in a few years. Even a slight increase is better than a decrease.
Chapter 5: My Investment Strategy
My investment mantra is diversification. At the end of each month, I review my earnings and allocate a portion into stocks, gold, crypto, cash, and my businesses.
I’m not an investment guru, but while others seek car loans, I’m busy investing. I encourage you to invest in what makes you comfortable.
Important Note: This is not financial advice. It's merely an explanation of behaviors associated with investing that, according to research, yield better long-term results. Always seek professional guidance before engaging in high-risk investments like stocks.
I’m Al, a business consultant based in Zurich, Switzerland, dedicated to providing value to my readers. Connect with me on various social media platforms for more insights.
Chapter 6: Educational Resources
Best Vanguard ETFs & Index Funds | VTI vs VOO | Long Term Investing
This video discusses essential investment options, comparing Vanguard ETFs and index funds to help guide your long-term investing strategy.
April 27, 2024 | GDP, Personal Consumption Expenditures (PCE), S&P 500, Technology & Nasdaq
This video provides insights into economic indicators and stock market performance, crucial for understanding the current financial landscape.