If there’s one idea that’s been drilled into us, it’s definitely this: Your net worth is contingent on your spending habits. However, is there a right way to spend money? Turns out, there is, and what I want to do now is outline the four best ways to spend your money if improving your financial position is a priority of yours.
But, before we dive deep into the 4 best ways to spend money, let me give you a background check about someone that heavily influenced the concept of money spending. The guy goes by the name Milton Friedman, and even a decade after his death, he is still a household name in the world of Economics. Specifically, Friedman was a renowned American economist, born on March 31st, 1912. In 1932, he graduated from Rutgers University with a degree in Mathematics and Economics. He proceeded to Columbia University to clinch a Ph.D. in Economics. Friedman was an economic brainbox, a trait that earned him the Nobel Peace Price of Economics in 1976. And like many scholars of his kind, he left behind an insightful book that serves as an economic reference point to date.
Milton Friedman’s book, “Free to Choose,” counters the prevalent mindset that perceives spending money as a bad thing. If you’re like most people, you’ve probably looked at something nice and refrained from buying it despite having the funds to. You’ve developed a sense of financial insecurity because you keep thinking that you don’t make enough money to spend.
Consequently, spending money is often tailgated with feelings of guilt or even regret because you believe it’s better to save and invest instead. Your scarcity mentality leads you to think that there’s a money-hungry monster out to take all you have. Do you know what else this mentality does? It stops you from securing your financial future and living the life you truly deserve.
The thing is spending money isn’t a bad thing after all! Actually, the negative outlook on spending stems from deep-seated poverty (scarcity) mindset. Most people think that financial resources are so limited that they’ll automatically fall into a financial black hole if they dare give up even an extra dollar. This is a lie, and it’s all in your head.
Ditching this poverty-strewn mindset is the first step towards reclaiming your financial power. If anything, seeing spending as something bad could have a ripple effect on handling essential bills. In a bid to guard your bank balance, you might end up postponing necessary payments and landing yourself in financial trouble. If you want to achieve your financial goals, start shifting your mindset to believe in abundance. There’s so much money to be made; hence you shouldn’t shy away from spending on things that build a better you. Here are the only four ways you should be spending your money!
Number #1: Spend your own money on yourself
The first, obvious method to spend money is spending it on you. Friedman argues that when you spend money to fulfill your own needs, you’re careful about what you spend it on. Your intent is to extract maximum value out of every dollar. As such, the need to economize doesn’t manifest itself in this case. Your only concern is whether the value of the expenditure tallies the satisfaction you’ll derive over the long haul.
How can this spending strategy help you make more money?
The thing is, when you’re familiar with the nuts and bolts of earning an income, you’ll spend it on things that bring you genuine fulfillment. Forget the fleeting happiness that accompanies drinking alcohol or shopping at your favorite store. We’re talking about the deep sense of self-satisfaction that makes you regard your financial decisions with pride and give yourself a pat on the back. The type of decisions whose financial results you’ll reap even years from now.
For instance, let’s assume your boss pays you an extra $50 for every hour of overtime you work. If you extended your workday by 3 hours for five days a week, that’s an additional $750 and since you’re familiar with the sacrifices involved in working over-time, you’ll be glad to spend the money on yourself as a token of appreciation. This can be through learning a new skill, saving towards your home’s down payment, paying for a gym membership, or upgrading your computer setup.
If you choose to spend the money on a gym membership, you’re technically investing towards your health. Work performance correlates strongly with your physical and mental shape. Therefore, working out will have positive results on your personal and professional life. With sharper work performance, you’ll be slated to bag a promotion, a raise, or a strong recommendation for a better-paying job. In the end, working overtime turns out to be worth the effort. See how beneficial it can be to spend money on yourself? And the best part is, your options are limitless.
There are many ways you can spend money on yourself and derive high financial value from it. Education is another excellent example. If there’s a stock market course being sold for $200, you are better placed adding it to your basket than purchasing a $200 designer bag that you may need to replace in two years. It’s likely that the knowledge you’ll acquire from the course will carry you through the majority of your investing life, increasing your earning potential along the way.
Purchasing valuable assets is also another brilliant way to spend money on yourself. Essentially, purchasing cash-generating assets is a tested and approved path to financial freedom. It involves buying appreciating assets like real estate property or stocks. Such assets assure you of earning profits with time, making them a proper way to spend money on yourself and earn from it. So the next time you have an extra couple of dollars to spend, first assess your life to identify what’s lacking. If you find that it bears an earning potential, don’t hesitate to invest in it.
Number 2: Spend your own money on others
The second method is spending your money on other people. When you do this, you become more discerning about how much you’re spending without necessarily losing sleep over the value the other person is deriving. Your worry is to spend as little as possible and still derive reasonable value from it.
A perfect example is hiring employees to take on different tasks at your company. During the interview process, you’ll be keen to lay all your cards on the table and only hire employees who meet your stated requirements. This means that as long as they fit into your non-negotiable (things like experience and level of education), you won’t mind if they don’t tick all your boxes. This is why companies don’t mind hiring clueless interns and training them on the job. For one, interns are cheap to onboard, and they’re less likely to demand a high salary anyway. On top of that, they’re willing to learn and can efficiently juggle different tasks once they’re in the loop of things. If you get dependable ones, you’re sure of boosting your company’s productivity and expanding your clientele base, which in turn translates into more earnings for your company.
This analogy also applies to spending money on a marketing agency. Suppose you onboard qualified, marketing experts to bring more visibility to your business. In that case, the fruits will manifest in your company’s profits. Strategic advertising can actually bring tremendous benefits to your business, including social media visibility, SEO, brand awareness, and access to cutting-edge marketing technology.
So what’s the take-away here? Despite spending your money on other people, it’s bound to find its way back to you, and multiple-fold. If spending money on an external party will translate into more returns, then it’s worth investing in. Whether this means hiring an affordable bookkeeper so you can spend less time doing taxes or getting someone to mow your lawn as you secure an extra freelance project, go ahead.
Number 3: Spend someone else’s money on yourself
Thirdly, you can spend someone else’s money on yourself, but through acceptable means, of course. Let’s imagine your boss gives you their debit card to cater for your lunch. There’s no limit to how much you can spend, so you’re unbothered about how much the lunch will cost. Most likely, you’re going to pick a tasty, high-end dish that you would shun if you came to lunch with your own money. Because under normal circumstances, you’re hard-pressed about pinching pennies and ordering within the constraints of your budget. But, in this case, your only concern is to fully exploit the “free” money in front of you. Consequently, you would care less if the restaurant had a discount, because you’re not the person paying anyway.
Similarly, leveraging other people’s money could be the gateway into a life of abundance. Debt is a good example and I’m sure you’re familiar with angel investors, right? These private investors obligingly inject their money into business start-ups or existing enterprises that seek expansion.
Depending on your agreement, they’ll either do it for free or in partial exchange of equity within your company. For you, this is a golden opportunity to obtain funding for that business idea you’ve been working on. If you’re able to acquire, say, $400,000 worth of funding, you can hire a large, skilled team without worrying about how you’ll pay them. Plus, you’ll have the financial power to invest in the best technology that will help you run your business efficiently. This also applies to acquiring debt to boost your business or taking advantage of company benefits such as cars, health insurance, or flight allowances. In essence, spending someone else’s money is a means you should get behind!
Number 4: Spending someone else’s money on others
Lastly, you can spend another person’s money on someone else. Believe me, it’s not as complicated as it sounds. In this case, you are neither the payer nor the direct financial beneficiary. You only come in as a link between these two people. For instance, look at how the government handles taxes. While these are funds extracted from other people’s income, the government channels them towards bettering other people’s lives through social funds, pensions, and student loans. The government simply links the taxpayer and the beneficiary without caring about the utility derived by each party. It doesn’t matter whether you, as the taxpayer, approves of such projects either; it does what has to be done.
In the same light, you can also spend someone else’s money on someone else for your own benefit. For example, when you obtain a business loan to pay your employees, you’re basically spending someone else’s money on someone else. Paying your employees on time means they continue working for you and helping you to upscale your business. The same applies to running a charitable organization. You collect funds from willing donors and remit them to those in need. While the latter example may not result in any direct benefit, you can benefit from building a name for yourself as the head of a charity organization.
And there you have it! Those are the only four ways you should be spending money!