Don’t Save Up, Yield Up

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I can’t tell you how many times I’ve heard someone say “I’ll save up for it and buy it one day. You know, just put away $100 each month and in ten years I can buy myself ______” (insert Beechcraft Bonanza, a Florida beach house, etc.).

I have no problem with saving whatsoever, but that plan never works for wants. When it comes to needs, people have a tendency to do better with it, which is great! Obviously it is more important to meet your need-obligations than your want-obligations.

Is it better to pay for your kid’s college, or for them to figure it out? I heard this once: “There are no loans for your retirement, but there are loans for your childrens’ college. So put retirement planning first.” I found that to be a pretty good point. Good luck finding a retirement loan; school loans however are everywhere.

The whole thing makes you think about where your money is going. Or it should.

If there is no joy in your life, I say do something about that. Finding something that is fun is worth it! But what if you don’t like fishing, which is relatively cheap if you do it off a peer or from the shore? What if you really want to splurge on a GA (General Aviation) aircraft or a Florida house?

Don’t save up, yield up!

What do I mean by that? Well, you already understand the idea of saving up. Then once you have enough you drop $250,000 on a Bonanza! Or will you? Will you even make it through the obstacle course of financial life without spending it along the way? And if you did, is it wise to spend a quarter-million dollars on a want (that is also a depreciating asset in this case)? No, it’s not wise!

But you can still pull this maneuver off! How?

You yield up!

That means you buy an asset that yields money each month! For instance, buy a quadruplex (or two duplexes) rental home/s for $200,000 (in the Midwest that is very doable). Let’s say you get a duplex. That duplex can do $1000 per unit each month, or $2000 per month total. So now you own-outright a $200,000 asset that makes you money, plus you have $50,000 left over for fixups or something unexpected.

Now you have a machine that kicks out cash!

Take that cash and finance your Bonanza or Florida house! You might be wise to only spend $1500 per month though. But $1500 per month is now available to you! (Some people would take out equity loans on the $200,000 of property that they now own outright, but that’s not my thing.) So do the math on what you want to treat yourself to and see what it would cost each month. Then look for an asset that yields that plus a bit more. That’s your answer.

Oh by the way, you now have your Bonanza or Florida house plus you still have your $250,000! If you ever want to unwind it all, then bam – that $250,000 (minus a fee to sell it) is back in your pocket. If you just spend what you saved-up outright, then it’s 100% gone and completely unrecoverable.

This is a hack that the rich do all of the time. You should know about it too. It makes a lot of sense. You don’t need to buy the thing. Instead, you buy the thing that buys the thing – and holds its value the whole time!

Don’t Save Up, Yield Up!

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