Sunday, April 19, 2015

Spending Money to Make Money, Smartly

The phrase, 'Spend money to make money is commonly heard by people.  Personally, I am not very fond of the phras because it is applied across the board when it only has specific applications.

Where it applies

This phrase is great for preventative investments. For example, it is important to spend money on the maintenance of your home because the $20 for the part you do not want to replace as cheaper than the $2,000 to fix the entire system. This can be helpful in maintaining your health as well. Is the gym membership worth your time and money instead of a trip to the hospital? 

Where it does not apply

This is where you have to get careful. Spending money to make money could leave you with just less money. Buying the new and flashy piece of furniture may give you good speaking power with your firends, but you may be able to find just as good of an item at Goodwill or a yard sale. I find this trade-off in the amount of money you spend can have health benefits as well. If you buy a $800 couch and it gets ruined in a year or two, I know I would be upset. However if I spent $200 on a couch from a garage sale, I would think I was able to recoup some of the cost. 

How can I tell the difference

Having perspective is the most important factor in deciding if the saying applies or not. I like to think about a financial measure called Return on Investment (ROI). Basically, it means how much value am I getting out of this investment than if I spent it elsewhere. Experts have stated experiences are worth more than buying the item in the store you have been eyeing. Go on a small road trip instead of buying the shiny new electronic device. When it comes to spending money, think of all the hard work you put in to get the money. If you are able to purchase smart investments, you will have a lot of value in your life and end up wealthier.

Please remember my opinions are my own.


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