When you’re young, every dollar feels precious. Money doesn’t lose its value as you grow older, but other resources become more valuable – specifically time. Since money is such a scarce resource when you’re younger, you have to be tight to save. This means, as we talked about on our most recent show 3 Signs You’re Ready to Live Like No One Else, that you may have to adopt some unorthodox habits in order to save money.
How to know you can stop being tight
Once you’re set in your ways, it can be difficult to stop being tight with money. The idea of money being a very scarce resource that must be saved and protected at all costs isn’t easy to grow out of. You will (hopefully) reach a point in life where you need to give yourself permission to spend money on nice things. This means not always choosing the cheapest option available, maybe paying a little more for luxury every now and then, or treating yourself to something you really want.
How do you know when you can give yourself permission to spend a little? As we discussed on the show, there are three main signs. The first one is that you are following the Financial Order of Operations. This doesn’t mean you’ve completed the steps, but just that you are generally doing the steps in order. The second sign is when you are able to save 20-25% of your gross income for retirement. Reaching that 20-25% savings rate is a big milestone on the way to financial success. The third sign is when your portfolio is working harder than you are. This happens when you make more from your portfolio than you do from working. Once you meet all three criteria, it’s probably safe for you to start spending.
The danger of not taking your foot off the gas
Most of us, at least those who listen to our show, work hard and live below their means so they can have a retirement (and maybe even an early retirement) filled with abundance and freedom. Some people have difficulty finding the “off” switch. We all know people like this; these are the doers, those who retire but still work part-time to keep themselves busy. These are the millionaires and billionaires of the world.
There’s nothing inherently wrong with not having an off switch; in fact, it may be your fuel for success. It can be a problem when it interferes with your ability to enjoy life. We all need to be able to take a break from time to time, and stop doing and start enjoying ourselves. You’ll probably spend most of your early years doing. Once you reach the point where you have the resources to be able to take a break every now and then, don’t be afraid to temporarily hit the off switch.
Being tight about money when you don’t need to be can affect your relationships negatively. More importantly, the point of living like a tightwad is so one day you won’t have to. Giving yourself permission to spend is the “I’ve finally made it to the big leagues” moment of building wealth. It’s what you’ve been working for and dreaming of. Don’t let that slip away. Our full show, 3 Signs You’re Ready to Live Like No One Else, is available to watch on YouTube below.