The Urge to Splurge

I write less and less about personal finance these days, but this time, I couldn’t resist.

I would not consider myself to be much of a “car guy.” I don’t geek out about cars; they are a way to get from A to B. I owned Toyotas pretty much all my adult life. In 1995, a Tercel; in 2003, a Camry; in 2010, a Highlander; and in 2017, another Highlander. I wasn’t happy with the second Highlander. The car creaked and rattled, and the sound system was crap, and you know what a music nerd I am. A good sound system is important.

A few years back, I got into a minor car accident (which was my fault, the first at-fault accident in my life), and while my car was getting fixed, I got a BMW X3 for a rental. I loved that car, and I resolved to get one, but the X3 was a little small for my taste, so I recently got a BMW X5 M60i. Like I said, I am not a car guy, and I don’t what an M60i means, but apparently it means it’s awesome. It’s got a powerful engine and a fancy Bowers and Wilkins sound system. And the car literally rides like it’s floating on air, the most incredible driving experience I’ve ever had. There are days I want to get in the car and go drive somewhere just for fun. It has made my life a million times better.

Well, I postponed this purchase as long as possible. I had that POS Highlander for 8.5 years, hating pretty much every minute of it, until I got to the point where I said to myself, “Gee, you make stupid amounts of money. Why don’t you live at your means and get a car commensurate with your status in life?” The BMW X5 came out to $104,000. I got $8,500 for the trade-in (which had a dent in it), put down $31,000, and financed the rest at 2.99%. I’ll have it paid off in a year.

Living at Your Means

I want to explore this topic of living at your means. You don’t want to live above your means, but you don’t want to live below your means either. You want to live at your means. 

If you are affluent, a BMW is a good car to buy, or a Mercedes, or even a Porsche. Now, maybe you say you have no need for a fancy car—like me, you just want to get from A to B, and you can have a beater car, and it doesn’t matter. That’s fine. Fancy cars aren’t for everyone. I thought the same thing, and you know what—cars that cost more are typically better, and you will enjoy it more than you think. 

More expensive clothes are better. More expensive food is better. More expensive anything is better… usually. If you’ve worked hard and accumulated some wealth, it is perfectly acceptable to splurge once in a while and get yourself something nice. There is no risk of ruin for me. A market crash would not hinder my ability to pay off this car; it would probably help! So just do the thing.

As you also probably know, I built a house and moved into it two years ago. It is a big, expensive house, and I got to the point where I said, “I am making enough money. I can afford a big, expensive house.” It was a bit of a stretch while we were doing it. I had cash flying out the door to architects and builders, plus a lot of debt. Fast forward two years, and we have about 88% equity, and the house will be paid off in less than a year. Then we will own it free and clear. 

So, it was a stretch—there definitely was some risk involved, but now, we are living in a $7 million house and couldn’t be happier. The house is literally the best and smartest thing I have done in my entire life. The point is that I am happy. I am happy with the house, and I am happy with the car.

Living Below Your Means Is a Sin

Being frugal is considered to be a virtue. We have a lot of frugal people in this country, and I have written about them before, The Millionaire Next Door types who live in crappy houses and drive crappy cars and have two commas in their bank accounts. 

Literally, what is the money for? Unless you really want to give it to your kids, or you really want to give it to charity, there is no reason for it to be sitting in the bank or brokerage account. There is a book about this called Die with Zero. Money is meant to be enjoyed (to a point). Some people are excessively risk-averse, and a little bit of risk aversion is a good thing, but as long as you’re not inviting the risk of ruin, a little bit of debt is not going to kill you. Clearly, I am not Dave Ramsey.

So, I encourage you to stretch a little bit. Splurge a little bit. Living above your means is a sin, but living below your means is an even bigger sin. There is nothing more ridiculous than a dude with eight figures in a bank account and a $30 Casio watch. I know, it tells the time. That’s not the point. 

These frugal people also think they are morally superior to everyone else. Ha ha ha, look at that jerk with his $10,000 watch. What a maroon! The joke is on you, my friend. The fact is that material things give us pleasure. In some cases, lots of pleasure. Take a trip. Stay in the $600 hotel. I have never regretted spending money. I have, however, regretted not spending money. 

I could say more, but you get the picture. 

Jared Dillian, MFA

P.S. I recently wrote about Heartland Investor, a portfolio of mostly small-cap value names with a few overseas ones thrown in. Some numbers to show how it’s stacking up:

• Eight out of 12 current stock picks in the portfolio are trading in positive territory, a 67% hit rate.

• Our average winning position is currently up 27.9%, while our average loser is down just 7.8%.

• Across our current open stock positions, we’ve delivered an average total return of over 26.1%.

I’m proud of this portfolio, and we’re still in the process of building it out. I hope you’ll consider joining us—right now, we’re offering you the chance to join Heartland Investor at a significant discount. Smash this link to learn more.