Making Money by Not Spending
We’ll talk about money plenty here at Escape Velocity, in lots of different ways. One way we’ll talk about it is as a game’s scorecard. Another way we’ll talk about it is as fuel for reaching those goals you want. Part of what we need to do, you and me and everyone, is get more comfortable talking about money. For better or worse, when we don’t talk about money, and when we try to avoid it, that ends up biting us on the butt. Wish it weren’t true, but I’ve had too many personal experiences to the contrary to tell you otherwise.
How Do You Make Money?
There are a few ways to make money. You can make money actively: exchange services and products and time for some value. That’s how most people make money. They work somewhere, for some number of hours a day, satisfy some criteria that people have agreed upon, and receive money as a payment for that service and time.
You can make money passively: you might have your money invested in the stock market, or in bonds, or other instruments that are abstracts of other people’s efforts. You might have your money in real estate equity (though if you do, I’m temporarily sorry). You might be earning some money by investing it in other companies directly, or through loans. You might be making money by earning royalties off products like books or music or pieces of art.
You can also “make” money by not spending as much. This is every bit as valid. The thing is, this one also requires you to do an audit of where you’re spending your money, and it requires a little bit of work to get everything in order.
In coming posts, we’ll talk about making money in lots of different ways, and we’ll talk about our entrepreneurial pursuits and the like. For this post, I wanted to give you some thoughts about making money by not spending.
A Personal Audit is Tricky
The other day, I realized that I was still auto-paying for a gym membership to a gym I haven’t seen in ages. That one kind of hurt. I basically had invested in this gym, because they were getting my membership money without me showing up. I also realized last week that my home phone hasn’t been used in months, because we both have cell phones, so I finally made the executive decision to cut the cord. Those two changes will save me $70 a month. Yep. That’s a dinner for two (minus wine) every month I just recovered. And I think I’ve found more.
Once you get through the really obvious ones, you have to start going after your luxuries, to see if you really need two cappuccinos and three cans of Diet Coke every day. If you’re spending on average $15 a day on consumed goods every day, then that’s $75 a week (skipping the weekends). That’s over $3000 a year you could reclaim if you eliminated that from your spending.
Heck, if you even cut back a little, can you see what you could do with that money instead? Would that $75 be better spent in buying yourself that piece of software you’ve wanted to edit your photos so you can put some up for sale?
Money that Makes You Money
At this point in my financial career, the kind of money I love best is money that makes me money. I just went out and bought an HP TouchSmart PC because I needed a Windows box to run webinars on. My goal is to pay back the expense of buying that computer with my next for-pay webinar. Why? So that I can see the results of spending money that made me money. It’s the best kind.
I look at books like that. The books I read and review are almost always books that will help me earn more money. So, if I spend $25 to get thousands and thousands of dollars, isn’t that a great investment?
Looking at things this way is really helpful to how I build projects and to how I decide where to spend my money. This kind of thinking lets me know when something is a luxury to consume or an investment that will help me grow.
Things that aren’t money to make me money?
A nice watch. I have a decent watch, but I’m not going to buy myself a $10K watch. I have a really fun car, but didn’t buy the twice-as-much car because I didn’t see where the value would ever come back to me (cars are not an investment, period – mine’s more of a perk). TV doesn’t make me money. I’ve never once learned something on a TV set that was worth money to me.
Again, your mileage may vary, but this is how one might think about these things and apply some pressure to your future growth.
What’s your take?
