If you think about how much money pours through your fingers over a lifetime of work you will be shocked. Over your career you will earn MILLIONS in gross pay. So, do you feel like a millionairre? No? No wonder…Likely, you never learned to think like a millionaire.

Wealthy people understand that one of the BIGGEST DANGERS of buying items, today, is the hidden cost of taxes, inflation, repairs, warranties, upkeep, borrowing, operating, and other costs. Buy something mechanical, and it becomes a money pit. Buy a home and upkeep and repairs can quickly turn it into a money pit.

Larceny, (wanting something for nothing), is both vice and powerful emotion. Sellers have long ago learned to switch on the larceny motive by offering a deal to excite, engage, and commit people to spend money that they ought to be managing much better. Eyes glaze over upon seeing a “deal”. That $500 jacket on sale at $375. A mobile device available at “Black Friday 50% discounts”. Such a deal?!

BEFORE YOU SPEND YOUR NEXT PENNY

[Ooops. Money has become so devalued that pennies are now obsolete in Canada]–Let me rephrase that title, Before you spend your next dime…

ADD HALF, EVEN AS MUCH AS DOUBLE THE COST. It is easy to use half–50%–of the sticker price to measure how long and how hard you must work to earn a paycheck to enable you to get enough AFTER-TAX dollars to be able to buy that item.  A  $30,000 car requires  $45,000 in gross dollars on your paycheck. That mobile device, $1,000, requires $1,500 of work effort. That 30th pair of fancy shoes for $275 will require $415 of paycheck.  Learn to ADD 50% to the sticker price before you buy.  Want to spend $100? Think: I must earn at least $150 at work. My rule of adding 50% gets you closer to YOUR REAL COSTS after you pay for hidden costs such as taxes, borrowing costs, repair costs, depreciation costs, and the hidden costs of “REAL” inflation. Financially principled people agree that 50% is a conservative estimate, ought to be much higher, but 50%, or thinking of adding half, is easier to keep in mind.

WHAT YOU SPEND ON THIS, YOU CAN’T INVEST IN THAT. A good friend of mine once complained he had no money to invest. Yet he bought all kinds of “toys”, (boats, cars, motorcycles), on borrowed funds. When the bills arrived, a few minutes of fun with the toys on weekends turned into a nightmare and weeks of a sick stomach. Money is a scarce resource. Spend it in one direction and it is no longer available for something else and something more important and better.

CONSIDER ALL COSTS AT TIME OF PURCHASE. Have you considered the cost of borrowing? Cost of gas? The cost of servicing every 3 months? Winterizing? Insurance? Renewals? Highway or towing protection membership? Many items require ongoing costs after you own it. Carefully consider ALL costs.

BORROWING COSTS MAKE LENDERS RICH, NOT YOU.  Once upon a time, interest rates of 21% to 30% was called loan sharking and usury. Today, people take for granted such abusive rates. $5,000 on a 21% credit card, for 5 years, will cost you $2,660 in interest and you would not have paid down your principal. That $2,660 +50% requires $4,000 of work dollars, (gross earnings).

To become RICHER:

  1. Buy only what you need, not what you desire
  2. Watch for, add, all ancillary and  hidden costs
  3. Get out of debt and stay out, if at all possible
  4. Save cash to enable you to make maximum down payments on anything financed, especially your home
  5. After all debts are paid off, live on what remains after “Pay-Myself-First” dollars. Hint: tell your employer to redirect 10% from your paycheck into purchase of company stock, or into a second bank account which you will NEVER touch and is just for savings. Learn to live and pay all ongoing bills on the 90% remaining. It will force you to cut back on the frills
  6. Learn to invest wisely. Study investment books or work with a trusted investment advisor/planner.