Your money should work for you….

……not the other way around.

This is a wise quote I am happy to have learned – but unfortunately learned in rather high age (I’m not that old, only 42).

I grew up learning that “you should work to earn your money” and thus I have always done. It hasn’t exactly made me rich, not that I’m poor, but I am certainly not rich either. Guess I could place myself in the middle-class box, in which 70-80% of the Danish population belongs. That again can be divided in lower and upper-middle-class but let’s just call it middle-class to keep things straight.

Why have I not become rich? Basically, because I have spent most of the money I have earned through the years! Yes, it’s that simple.

“What has the money been spent on?”, you might want to ask. Well, traveling in Europe, Asia, America, etc., cars, motorcycles, restaurants and bar-visits, clothing and obviously house-rent, food, daycare institutions for my children, and other normal, but expensive, household expenditures.

Some of the above spendings can’t be avoided. Fine. But when reflecting on my historical consumption it’s hard not to think about what just a small amount of the consumed money could have grown into, if they had been wisely invested. Not that all pleasures should have been skipped, you only live once, but if just some of them can be postponed it’s far more fun to have look on your bank account in a few years.

A few months ago I stumbled over an excel sheet someone shared on a Danish Facebook site for passive investments. It shows what you will miss in retirement if the money is being spent now instead of being invested.

That sheet really opened my eyes and I learned how you can benefit from compound interest if your money is invested instead of being spent.

I’ll use my expenditures on my motorcycle as an example:

I used to ride motorcycles. My first was a Honda VT600 from 1994. That was sold and I purchased a Kawasaki ER6F instead. Not so old school but far more fun to ride. Besides the bikes, I had to spend money on a drivers license for motorcycles, helmet, clothing and other gear + insurances.

For the Kawasaki itself, I paid DKK € 9.105 in April 2010. In November 2016 I sold it for € 3.200. The main reason for selling it was I should pick up my children from the daycare after work. And a motorcycle does not come in very handy for transporting two kids aged one and three – not even for a few kilometers (it’s also illegal). Furthermore, it needed a repair and a few parts were worn and ready for being replaced.

Hence I lost almost € 6.000 on that “investment”. I had fun, and you can’t price everything in your life. But if I could go back to 2010 the money would have been invested instead of being spent – that’s for sure.

If I had placed the € 9.105 in an investment with a 10% interest (not an unrealistic interest in crowdlending investments) the amount would have been more than doubled today, nine years later.

As you can see I have set my retirement age to 43 (if I decided to retire this year) and the market interest to 10%. The question is if you should invest or consume but to me, the answer is pretty obvious.

From € 9.105 to € 21.469 in nine years.

Did the motorcycles I have owned make me happier? I felt it when I was riding them, but still, not really.

I think we all know the feeling of how happy we are when having purchased something. Or at least most of us. I can still have that feeling but I have realized it disappears very fast and I forget about it again. And sometimes I even feel I could have spent the money elsewhere but now they are gone.

The most important thing is to be aware of that. Remember that when you stand with your credit card in your hand. Try to think “do I really need this stuff or am I better off saving the money and investing them instead?”

If you choose the second option I think you’ll experience a much more long-lasting good feeling when you see your investments grow and your money working for you.

When you are on the job, every day is a sprint for earning more money. When your money is working for you it’s a marathon and you should be ready to see your investments from a long term view.

If I had known 20 years ago what I know today I would have been better economically off now. Of course not rich, as Bill Gates rich, but less can do. Let’s take the Kawasaki example again and now call it an investment made in the year 2000, still with a 10% interest. The € 9.105 is 19 years later five-doubled.

From € 9.105 to € 55.685 in 19 years.

As the € 9.105 has now turned into € 55.685 I think the answer to the question: invest or consume is rather obvious. If you have money to both invest AND consume you’re all good and won’t need to bother about this. But if not, then you have to choose and make your priorities.

This is not meant to make you feel guilty about your consumption. Naturally, you’ll have to buy food and clothing, etc. But hopefully, it will make you reconsider your next purchase, which you might not need and invest the money instead.

“But you can’t put a price on everything” you might claim. True, I can’t and I won’t.

But you can’t put a price on economic freedom either.

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