You know why so many people get stuck financially and stay broke? They live above their means. It’s that simple.
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Evolutionary psychology says our natural brain wants to spend as soon as we get money because from an evolutionary standpoint, we never know how long we are going to live.
We get a mental reward when we buy something, and it releases endorphins that make us happy, so people want to buy more and more.
If you look at the average person in the United States, the average person saves $4 for every $100 they make, so they're spending $96 of it!
You probably know this feeling, right?
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Because of the way our brains work, we have this natural tendency to spend. So how do you overcome that?
I want to talk to you about The Law of 15. If you want to have wealth, spend less than you make. You need to live under your means, and look at each dollar as fifteen dollars. Everytime you go to buy something, take the cost and multiply it by 15.
So a car that you're thinking of buying that's going to cost you 20 grand, make sure you multiply it by 15. That's the true cost. So that 20 grand car times 15, is actually a $300,000 car you're buying. If you're going to buy a house for $300,000? It's actually a $4 million house.
Now you might be thinking, that sounds crazy Dave, how could it be worth 15 times more? You may have heard of a key economics term called Opportunity Cost. It's basically a fancy way of saying if I spend this money today, I can't invest it in something tomorrow since I already spent it.
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So let's say instead of buying the $20 grand car you put it into different investments and it turns into $100 grand. If you would've bought the car you would've missed out on making the $100 grand. That's called Opportunity Cost. You don't just lose the $20 grand when you buy the car, but you also lose the profits you could've made with that money.
That sounds kind of scary, but it's that simple.
Instead of spending money on going out to eat, or on a new pair of pants, or spending it on a trip somewhere, invest that money. Next time you're going to buy something for five bucks, multiple it times 15. Go is this worth $75? Because if I kept this five bucks and invested it in the stock market or invested it in my own business, at just a modest return, over time I would have $75.
The true cost of things is 15 times what the price says.
This is a tried and true method. Bill Gates, Charlie Munger, Warren Buffett all say the same thing.
Live below your means.
That means if you suddenly inherit $100,000, most people will ratchet up their lifestyle and live as if they have an extra $100,000, and blow all of that money away.
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I read an interesting book which said the human mind is designed to ratchet up by 20%. The person who could control their own mind is the mightiest, so don’t fall into this trap. Control your mind.
This takes a lot of self control, but look at every dollar you spend and evaluate how much benefit that thing is bringing to your life. If it’s below 15%, save that money and invest it into yourself.
Start Now,
Semboze
P.S. Over the years I've made it a point to be a learning machine. From the early days my grandma got me hooked on reading, I've never stopped. Always be a learning machine, it doesn't cost anything to learn and I promise you it's more valuable than we can imagine.
The Law of 15 is only one of the things I've learned over the years. Those are just two small examples of what I've learned since that day as a young boy when my grandma got me hooked on reading.
There are so many things life can teach us if we stay curious. Now life isn't always fun and games. Sometimes shit gets real and you need to learn how to deal with it.
I say it all the time, life can be full of pressure and stress, it can feel like a complicated puzzle at times. It's our job as humans to figure out how to put the damn pieces together.
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