My uncle spent his life sanding floors in Maine. He made a couple million bucks, but he didn’t spend any of it. Now he’s old and stuck in his ways.
Last week, we talked about when to cheap out. Like a lot of people, my uncle took it to the extreme, and that’s a problem.
Balance is one of our recurring themes here at Jared Dillian Money. During the first half of life, up to about age 45, you should save and build wealth.
After that, you should think about spending a little where you can.
Unfortunately, people don’t do this. They either save like mad or spend every cent they earn. It’s just easier to do all or nothing.
Let me tell you a story about my best friend in the world. I’ve known him since I was 18 years old, and he’s always been cheap.
Some of you know that I went to the Coast Guard Academy. When you’re a senior there, USAA will give you a generous car loan with pretty low interest.
Basically, they suck the payments out of your military pay, you barely notice, and you get a car.
So I got a car. My best friend didn’t. He took the money and invested it. Then he’d bum rides off of everybody else. That’s the kind of guy he was.
Today he’s a very successful managing director at a big bank. I’d guess he’s worth about seven million dollars. But he’s so risk averse that he won’t buy stocks. He buys some investment grade bonds, but mostly it’s just in cash.
Every few months, this friend calls and says he’s thinking about buying a second home or a new car. But he never does!
He won’t even buy a decent suit. Bear in mind, his clients are big shot CEOs. So he goes to all kinds of swanky events. But he wears suits from Jos. A. Bank. “Buy five, get one free.”
Don’t get me wrong—Jos. A. Bank suits are fine for most people. But if you’re in his position, you can’t do that. He needs nicer suits.
A lot of personal finance types would say, “He’s saved, he’s financially independent, so what’s the problem?”
I think there is a problem—and it’s not really about the suits.
The real problem is, if you’re that cheap, it affects your relationships. When my friend comes to visit, I know I’m paying for everything. He’s got a ton of money, but he has “alligator arms.”
We’re still friends despite this, but some people will drop you if you’re that cheap. It can ruin relationships—even with your kids.
Speaking of, my friend lives in a bad town and sends his kids to public school there. He could afford to move somewhere with top-notch schools. Or he could pay for private school, but he won’t. That’s a problem.
Again, most personal finance folks say this guy is the ideal. They tell you to never spend a dime. Just keep all your money in cash and stare at your big bank account. I think that’s a big mistake that can spoil relationships.
When I got accepted to college, my mom refused to pay for it. She had the means to—today she’s a millionaire, lives in a tiny house, and has a giant bank account that she won’t spend. But her refusal to help with college in 1992 has affected our relationship profoundly.
You have to think about stuff like that. Do you want to live your financial life in a way that makes other people happy? Do you want others to consider you generous?
I’ll tell you, it’s nice to be thought of as generous. And it’s nice to have money left over for yourself. There’s a balance.
So do this… build wealth during the first half of life. After that, you should think about spending when you can.
Jared Dillian