The Personal Finance Podcast - 12 Financial Rules of Thumb That Let You Spend More on What You Love

Starting point is 00:00:00 On this episode of the Personal Finance Podcast, 12 rules of thumb that'll help you spend more on what you love. What's up, everybody, and welcome to the Personal Finance Podcast. I'm your host, Andrew, founder of MasterMoney.com. And today on the Personal Finance Podcast, we're going to be diving into 12 financial rules of thumb that help you spend more on what you love. If you guys have any questions, make sure you join the Master Money newsletter by going to to mastermoney.co slash newsletter. And don't forget to follow us on Apple Podcasts, Spotify, YouTube, or whatever podcast player, you love listening to this podcast on it.

Starting point is 00:00:44 If you have a question for the show, feel free to join the Master Money newsletter and respond to any of those newsletters that come out. And we will answer your question there. Also, if you're getting value out of this podcast, consider leaving a five-star rating and review on Apple Podcast, Spotify, or your favorite podcast player. Now today, I'm going to be diving into 12 rules of thumb that are going to help you spend more on what you love and less on what you hate. Values-based spending is a huge thing that we talk about here because we want you to spend more dollars on the stuff that you actually care about

Starting point is 00:01:13 and less on the stuff that you do not care about. And so today, we're going to be diving into these 12 rules of thumb that can help you spend more on what you love. The first one is the pay yourself first rule. Long-time listeners have heard me talk about the pay-yourself first rule, but this is where you save and invest before you spend, not after. And if you aim for a 20 to 25% savings rate off the top, then you can spend what is left over. And the pay yourself first rule actually allows you to not have to get into spreadsheets or budgets. Instead, you can save off the top and then spend what is left over. And so this is a really cool way to get your dollars working and put them in the places that you actually want them to go to. So always saving off the top and spending what

Starting point is 00:01:56 is left over is one of my favorite ways to build wealth. Number two, is the 25x rule. Now the 25x rule is a quick back in the napkin math way to figure out what your retirement number is. Now, this is just a rough estimate. You still have to do some deeper dives to figure out exactly what it is. And if you want to learn the deeper dive way, if you go to mastermoney. com slash resources, we have a free retirement calculator in there that you can check out. But when you think about this, it's going to be going, hey, how much do I spend every single year? Well, let's say, for example, you spend $100,000 per year. You have a household where it's you, a couple of kids. And so you live in an area that may have

Starting point is 00:02:30 slightly higher cost of living. And so you spend $100,000 per year. Well, if you spend $100,000 per year, that means if you multiply that number by 25, you would need $2.5 million in order to be able to retire. And so this back in the napkin math helps you figure out, okay, well, what are my goals and how do I get to this number by the year that I want to retire? This is going to help you make different financial decisions when you're thinking about spending your dollars going forward. Number three is the two category rule. So I want you to pick a couple of different categories. Maybe it's one to two categories. Maybe it's three categories where you're going to do two things. Three of the categories, I want you to spend more on. I want you to spend lavishly on

Starting point is 00:03:09 three of those categories. So maybe you want to spend more at your gym membership. You want to upgrade to a nicer gym. Maybe you want to spend more on going on vacations. And so you want to put more money in the vacation category. Maybe you want to spend more on doing fun activities with your kids or doing fun activities with your friends. Or maybe you want to go out more. I want you to find those areas that you actually value and spend more on those areas that you value. But I also want to find three categories or two categories that you can cut back on. Find those areas where you want to cut ruthlessly, where you really don't care about spending money on those, but you feel as though it's just gotten out of control and you're overspending in some of these categories. This, my friends,

Starting point is 00:03:45 is the best way when you do this exercise, it helps you re-center and allows you to spend more on those things that you love. So think about it. The two category rule, spend lavishly and cut ruthlessly. When you do those two things, your life becomes so much better. Number four is the 70, hour rule. So the 72 hour rule is any purchase that you're making over $100. I want you to wait 72 hours before you hit that buy now button. The buy now button was created so that your dopamine would allow you to just push that button and Amazon makes more sales. Walmart makes more sales. Target makes more sales. Dick's sporting goods makes more sales. Sephora makes more sales. And you want to make sure that instead you are thinking through this in a way that makes sense for you. And so the 72 hour rule allows you a

Starting point is 00:04:29 cooling off period to make sure this is something that you actually want. Now, one thing that you can do is you can start to track some of these purchases that you want in something like a Notes app on your phone. You can do it on a spreadsheet if you want to and say, hey, here's how long I've been waiting before I purchase this item. Do I actually still want this item or do I want to wait another 72 hours for an additional cooling off period? It's going to stop you from making those random $200, $300, $400, purchases that don't feel like a big deal maybe in the short term moment, but are a huge deal in the long-term moment. Number five is the 1% rule for big purchases. So if a purchase is more than 1% of your annual income, we want you to sleep on it and we want you to sleep on it for at least a week.

Starting point is 00:05:09 This is something that the 72-hour rule gives you a couple of days, but sometimes the dopamine can still be kicking in for some of these bigger purchases. I want you to sleep on it for at least a week. And if it's a much bigger purchase, I want you to take some time to think about it. I want you to take some time to cool off and make sure this is an item that you actually want. Let me give an example on this. Let's say, for example, that you want to go out and you want to buy a golf cart for your, and you want to ride around that golf cart in your neighborhood and you're saying, hey, yourself, hey, I really love golf carts. You know, I see other people riding around my neighborhood in a golf cart. I want to get one too. Well, if that's the case and you decide, okay, I want to buy this

Starting point is 00:05:44 golf cart, the last thing I want you to do is to decide I am going to buy it today. Instead, you want to wait some time before you can actually go out and buy that so you have that cooling off period. This protects you from those dopamine-driven purchases that we keep talking about. Most of you need to realize that dopamine is a big portion of why you spend on certain things. And again, if you want a golf cart, more power to you. I've had a golf cart in the past. Loved it, sold it, happy I sold it. So it's one of those things where I got my enjoyment out of mine, and now it's one of those areas where I could care less about. Sometimes that's how things work. You value them during certain time periods, and you value them

Starting point is 00:06:19 less during other time periods. Number six is the cost per use rule. So the cost per use rule is a really valuable rule that I have used in a number of different ways. Let me give you one example. So let's say, for example, you want to figure out how much it's going to cost you per use to buy a shirt. So me specifically, I love to go to Marshalls. I'm a bargain finder when it comes to clothes. You can find really good brands at Marshalls for a fraction of the price or T.J. Max or whatever else. And so I like to go there to find myself a good old-fashioned polo. So let's take this polo, for example, the one I'm wearing right now. And let's say I wanted to apply this rule to buying this polo.

Starting point is 00:06:57 And let's say this polo was $25. Well, if this polo was $25 and I applied this rule to it, I want to get at least $1 per use out of that polo. So I need to wear it 25 times to get my value out of that polo. Now, you need to find what works for you. Maybe it's $2 per use. Maybe it's $3 per use. Another good example of this is running shoes. So I run a lot.

Starting point is 00:07:17 And when I do run a lot, my shoes wear down every $200. 250, 300 miles, you got to replace your shoes. And so when you're looking at this, you can say to yourself, okay, if I buy these 90 dollar running shoes, I'm actually going to get 50 cents per mile out of these shoes, where if I buy, you know, $180 running shoes, I'm only going to get, you know, 95 cents per mile out of these shoes. And so this is something where you really got to reconsider how you're thinking about buying some of these items and then just create some rules of thumb for yourself. Having financial rules of thumb in your own personal life is a powerful way to just keep yourself in your own lane to keep yourself in a spot that works best for you and your own personal

Starting point is 00:07:54 situation. Number seven is the value to cost ratio. So before any purchase, I want you to ask yourself, does this bring me joy or value greater than the cost? If this is yes, then you can buy this without guilt. You can buy this without worry. You can buy this without stress. If the answer is no, you need to reconsider that purchase decision and decide if you actually want to move forward with it. because really that value to cost ratio is the question that should always be in the back of your mind before you make a purchase now i'm not saying hey do the value of cost ratio when you're buying a coffee or a piece of gum i'm talking about if you go over to the store and you're saying to yourself should i buy this brand new pickleball paddle or is the pickleball paddle i already have on hand does that

Starting point is 00:08:35 work just as fine so those are the types of things that i'm talking about when we are thinking through this number eight is the 50% raise rule the 50 50 rule you've heard me talk about this a couple of different times The 50-50 rule is a rule that every single time you get a raise, you take 50% and put it towards future you. And you take 50% and put it towards things that you value and things that you enjoy and things you want to spend money on so that you can enjoy your money as well. You worked really, really hard for that raise. And I don't want you to just take every single penny and put it towards future you if you don't want to. Now, some of you want to. I know how some of you out there are.

Starting point is 00:09:09 You want to take every extra dollar, put it in your portfolio because you're addicted to building that portfolio. And I love that for you. I'm addicted to building my portfolio too. But for some of you out there who wants that balance, you want to be able to balance saving more and spending more, you can do it this way. If you get a $10,000 raise, take $5,000, send it to your 401k, Roth IRA,

Starting point is 00:09:26 taxable brokerage count. Take the other $5,000 and send it somewhere else. That's going to be one of the best ways that you can do this. Number nine is the heck yes or no rule. So if a purchase doesn't make you say, heck yeah, I want to go out and buy that or do this, and you're lukewarm about spending money on that item, then it's probably just going to need to be a no.

Starting point is 00:09:43 You need to tell this to yourself every single time you're looking at something. So if you go out to the store and you say to yourself, I'm thinking about buying this new watch. And I want to go out and get this watch. And I don't know if I really want it, but it looks pretty cool. And so I want to test it out and see if I like it. Well, if you're lukewarm like that, it's probably not worth it to spend $500,000. I don't know how much you spend on watches, $1,500 on that watch when it does not bring you value. And so you got to think through this.

Starting point is 00:10:11 if it's not a heck yeah, then it's a no. And that's how you should spend a lot of things in life. Derek Sivers has this great concept called hell yes or no, where this is where we're pulling this from because it is an area where like, hey, if your friends ask you out for dinner and you decide, okay, let me decide if I want to go. If it's not a heck yeah, then it's a no. So I want you to really think that way when you're making decisions. Number 10 is the one in, one out rule. So the one in one out rule for clothes or gadgets or hobbies or toys means that when something new comes in, something old goes out. So a lot of companies already help you do this. Apple, for example, if you get a brand new iPad, they will take your old iPad as a trade in. Maybe you get a couple hundred

Starting point is 00:10:48 bucks, maybe you get 50 bucks depending on how old it is. But it is a one in one out system. Whereas maybe you get brand new clothes. And when you buy brand new clothes, you have some other clothes in the corner of your closet that you don't wear anymore. You can donate those clothes. Or if you're in debt or trying to get your financial situation right, you can sell them on eBay or sell them somewhere else. And this can help you find money in your, own personal financial situation. So when you think about this, I would recommend every time you bring something into your home, you put something out. If you feel as though all your closets are cluttered, you feel as though your house is cluttered or your garage is cluttered. Most of us feel that

Starting point is 00:11:21 way. Many of you out there can feel that way, then that would be a great way to get one in, one out so you don't over clutter your house. Number 11 is the experience over stuff rule. So when it comes to this, research consistently shows that experiences make us happier than possessions. And when in doubt, spend on the trip, spend on the concert, spend on the round of golf, spend on the friend's trip, spend on the bachelorette or bachelor party. Do the things that you want to go out and do, because these are going to be memories that compound over time. And memories are one of the best things that nobody can take away from you.

Starting point is 00:11:55 And then number 12 is the future you test. Before any purchase, ask yourself, will future me thank present me for this? Meaning, let's give you an example on this. Let's say you want to go and buy a boat. And you want to go buy this boat and you decide, okay, I'm going to buy a boat and my family and I, we can go out, we can go to the island, we can go fishing, we can go, you know, skiing, we can go whatever you want to do tubing. And so you decide you're going to buy this boat. And you buy a used boat and let's say you spend $25,000 on the boat. Well, then all of a sudden, you have to

Starting point is 00:12:26 get a trailer for it. You have to take it down to, unless you live on the water, you have to take it down to the local boat ramp. You got to launch the boat. And all of a sudden you feel as though this is kind of becoming a hassle, but I feel like I need to use this boat. I spent $25,000 on the boat. And then a couple of years go by and you have to do some maintenance. You have to fix some stuff on the boat. And it's going to cost you thousands of dollars to fix the boat. Then a couple of years go by and you realize, man, I am paying $300 every single time I take this thing out in gas. This is driving me crazy. And all of a sudden, future you is not happy with the decision that present you just made. And so you want to think through some of these things before you make

Starting point is 00:13:02 purchases. I have felt this way with a number of different things. And I think this is going to be helpful for most people to think through future you and how they would feel about this purchase after all the enjoyment and the initial fun wears off. Listen, the goal isn't to deprive yourself. It's to be intentional. When you have rules in place or you have rules of thumb that can help you make money decisions, you can actually spend more in what you love and less on what you hate. This episode was so fun to make. Thank you guys so much for being here. If you love these shorter episodes, let me know down in the comments below on Spotify, Apple Podcast, you. or whatever you listen to your podcast. And in addition, if you want to dive deeper and you want to

Starting point is 00:13:38 learn more about how to build wealth, consider joining Master Money Academy. Master Money Academy, I do weekly coaching calls with people just like this live. It's me literally in there every single week live, doing weekly coaching calls, helping you through your financial problems. But in addition, we also have all of our courses in there. We have a community of people who are all building wealth, who are bouncing ideas off of each other. And really, in Master Money Academy, there are so many other cool things we are doing as well. We're doing monthly masterclasses that I'm presenting live. This month we're talking about spring cleaning your finances. Last month we talked about taxes. The month before, we talked about relationship planning. The month before that,

Starting point is 00:14:12 we talked about goals. And so this is really one of those things that I am so excited for each and every single one of you to join. I'm so proud of what we're doing at Master Money Academy and can't wait to meet you inside. Down below, I'm going to link a seven-day free trial. Get in there, join one of the coaching calls with me live. Have a conversation with me on those coaching calls. learn about some of the courses that we have on hand and how they can help you if it's not for you nothing wrong with that whatsoever continue listening to the show no worries we're not worried about that i want it to be the right place for you and i think it is at the current price that we have it right now i don't think that you can find more value for your dollar let me know if you have any questions

Starting point is 00:14:47 but would love to have you join again thank you so much for listening to this episode and we will see you on the next one

The Personal Finance Podcast - 12 Financial Rules of Thumb That Let You Spend More on What You Love

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