The Incremental Approach to A Life of Luxury
A straightforward approach to living financially free, and obtaining that freedom is to pay as little interest as possible, on everything. If you can avoid it completely, it would be a wise move to do so.
If you want a little luxury in the mix, before you actually have the hard cash to afford it, consider the following: Far more time and patience is required to save 30,000 today than it does to save 5,000, I propose the incremental approach to luxury - that I've been practicing for a while now, without really even taking notice of it. That's the beauty of the concept - you don't notice that you're practicing it, and yet, your life gets incrementally more luxurious!
Suppose you drive a car that is worth approximately 10% of your take home income. Another wise choice. Perhaps it's even salvage - which is even better, so long as it still gets you from A to B, has all of the safety equipment intact, and you can swallow your pride. Also suppose that you decide you can only suffer the laughter of all of your coworkers, clients, and peers for so long. You decide that after a year or two of driving the busted and humbling vehicle, you want something nicer. Now instead of jumping on with the rest of the mindless consumers and purchasing a new vehicle - the average price of which was reported in 2015 to be $33,560, you just bump up to another vehicle which is another 10% of your take home salary - plus the sale price of your old vehicle. Depending on how well you've taken care of the busted one you've been driving, your new vehicle purchase price might be anywhere from 15-20% of your yearly take home salary.
Utilizing this method, you obtain a new, incrementally nicer vehicle every year or two, and it is possible to work up to something that's actually really nice over the span of 6-8 years - without every paying a penny of interest. If you continue to purchase salvage vehicles, they become exponentially nicer as you spend more money on them (side note - the caveat of this is resale after you're done, as salvage vehicles can be significanty more difficult to sell than a car with a clean title). A couple of key components to insuring success of this plan is to make sure you're taking expert care of your vehicle - if it depreciates by more than average, then you may find that the next time you try to trade in and trade up, you come out with a vehicle of equivalent quality. When practicing this approach, you work your way up to the type of vehicle that other people drive - and even nicer. You're spending the money that they spend on interest, on actual value of a vehicle - that gets you ahead almost by itself. By always purchasing used, you won't get as hosed on depreciation that new cars experience - worst of all top import luxury models such as the BMW 7 series, Audi A8, and Mercedes S Class.
A coworker may decide they can't take the shame anymore and purchase a brand new luxury car - they're presumably paying 800-1000 per month on the payment alone for 6 years or so. On top of that they're paying interest on the loan, and full coverage for insurance. If you instead take less money and inch your way up the luxury ladder, you're going to end up with the same car in 6 years for less than half the cost, all while keeping your ego in check and your nest eggs growing.
I'm about to enter the process of an upgrade right now - I've had the same daily driver for more than a year which is typically more time than I typically allow a car that I'm not absolutely in love with. I've got to the point where I've settled on a final sale price of about $4500, which I am sure I will be able to get for it. Using the scheme above, I could go ahead and purchase a car with a value somewhere in the range of 7,000-10,000. Allowing myself to spend that much on a used vehicle could probably get me a decent car that is less than 5 years old, with more power, better fuel economy, and overall cleaner.
Now, call me a hypocrite, but I'm not going to do that for two reasons.
1.) I currently have 4 cars. My 2006 Acura (the vehicle I intend to sell), my '86 Corvette (which falls in the value range I laid out above), a 1985 Camaro (which needs a power steering belt and some deserved attention), and a 1980 C10 which I use to haul all my dirt, engines, and garbage in. I have absolutely no need for 4 vehicles. Obtaining another nicer vehicle in place of the Acura would serve no purpose whatsoever.
2.) I'm saving for an investment property. The money obtained from the Acura would be a welcome addition to the funds that will be going toward a down payment. More on that process in a future article. I'm trying to get into investing as young as a possibly can, since I, like so many others, didn't contribute a dime to my 401k or any retirement fund in my early 20s. Better to play catch up young and struggle a little than catch up old and struggle a lot.
The same process can be applied to anything. You hardly notice the work that goes into making something 1% better, and sometimes you don't even notice making something 20% better. That's the beauty of the incremental approach. It's like watching a puppy grow into a dog. You see it and interact with it every day, so you don't notice the pounds they're putting on other than objective comparison to old pictures, and the comments that infrequent visitors make when they see it. The same way, putting new light fixtures in your kitchen might lead to nicer appliances over the course of a few months, then new tile, and before you know you've renovated a room.