Today I want to talk to you about the way I try to think about saving money. What made me think of this topic is something I’ve been dealing with lately. I’ve really been wanting a new phone that is on sale for $550, my carrier does not have the phone so getting it at a subsidized price isn’t possible for me. I’ve been thinking about buying this phone for a solid 6-8 months so it isn’t just buying on a whim. To make the temptation worse, I just got a $4k tax return and a $5k quarterly bonus from work this month. To let you all know how badly I want this…I’ve gone to check out multiple times, then look at the total and think “that is too much money, I can’t do it”.
Now while $550 isn’t a small amount of money by any means, it also isn’t a ton of money. I make good (above average) money and I save about 40% of gross pay. As I shared on the My Current Situation post, I have around $175k in cash between retirement and other savings accounts. Instead of thinking about $550 as “not a lot of money” let’s think about it as a percent of everything I can buy. Here is my thought process:
- $550 is 0.31% of all my savings in the world
- 31% is a pretty small percent, maybe that’s not so bad
- If I were to spend all of my savings I could only buy 318 $550 items
- I could come up with a list of 318 $550 items I want
- I want a lot of $1,000 items. I could only buy 175 $1,000 items
- I’d love a luxury car, I could only buy 2.5-3 luxury cars
- If I don’t invest that $550 I’ll earn over $1,500 in interest over the next 20 years
- This one item might not be so bad, but I want lots of items. If I buy all the things I want (and don’t need) I’ll be broke and S.O.L.
This brings me to my next point: How do other people not think like this?
Below you’ll find the Median Net worth by age from the 2011 Census. With $175k in cash, I have more cash than the average person has in total net worth and I’m unwilling to spend $550 on a phone. The average net worth of anyone less than 35 is $6,676. Why do I see so many people my age (I’m 31) working part-time jobs and carrying brand new phones? If your total net worth is $6,676 what are you doing with an $800 phone? That is 12% of your net worth, tied up in something you can drop and break, or have stolen. Don’t you think you should be saving whatever you spent on that phone and maybe get a free phone from your carrier. I make six figures and my current phone was free.
|Age of Householder||Net Worth|
|Less than 35 years||6,676|
|35 to 44 years||35,000|
|45 to 54 years||84,542|
|55 to 64 years||143,964|
|65 years and over||170,516|
|65 to 69 years||194,226|
|70 to 74 years||181,078|
|75 and over||155,714|
Maybe I am on the extreme end of things, but I don’t want to work forever so I try to save what I can. The best way to accumulate wealth is to just not spend money. In my phone example above I mentioned that I could earn $1,500 in interest in 20 years, however by just not spending the money I have “earned” $550 that I can invest. The interest is great, but it’s going to take another 10.5 years at 7% interest for me to turn that $550 into another $550.
So I’ve talked myself out of buying a new phone…at least for the time being. I think my plan right now is to wait a month or two and see if they drop the price at all. It is important to spend your money, we all work hard for it, we just have to work hard at being smart about what we spend it on as well.
For anyone interested here is the link to the 2011 Census wealth tables. Take a look and let me know what you think.