Beer tastes on a champagne budget… This is the secret to riches! It’s a fancy way of saying that you should do what you can to live below your means.
This post is going to be short and sweet, Dear Readers. In a nutshell, if you can maintain your beer tastes once you’ve attained your champagne budget, then you will never go into debt, you’ll be living below your means, and you will always have money for investing.
You simply have to stick fairly close to your baseline. Oh, sure – you can increase your baseline by 10% each time you get a raise, or even more if you choose. So long as atleast 60% of all your increases go towards building your cash cushion, you’ll be just fine.
So what’s my Baseline?
Your baseline is where you are right now. Or your baseline could even be whatever income you had when you became interested in the topic of personal finance – this is your beer budget. You lived on this budget and you – metaphorically speaking – drank your beer. For whatever reason, you decided to learn more about personal finance. Perhaps you discovered the Financial Independence, Retire Early movement. Maybe someone close to you died and you realized that there’s more to life than working at an unfulfilling job. Or your reason could be as simple as you realized that you needed a way to fund your life when you stop working because you don’t have a pension waiting for you. There’s also the possibility that you realized that living paycheque-to-paycheque really, really sucks.
So you spend your time devouring any and all money-related topics and you get your act together. You’ve cut out the spending that doesn’t propel you closer to your life’s goals. You’re maxing out your registered plans – your Registered Retirement Savings Plan & your Tax Free Saving Account. You’ve funded a 6-month emergency fund. You’re cooking more meals so that you have money to invest in your non-registered investment account. You may have cut the cord in order as per the Physician on Fire to get to your goals sooner. You might even be acquiring your own army of money soldiers.
Getting to a champagne budget may take some time, but you’re committed to freeing yourself from the financial shackles that are preventing you from doing what you want with your life. A few years down the line, you realize that you’ve made significant strides. Your investment portfolio is kicking off a healthy 5-figure amount of dividends and capital gains every year. You’re a Smart Cat – you have those gains automatically re-invested and you continue to live on your beer budget.
You Will Be Tempted
At this point, the AdMan and his trusty fried, the Creditor, might start knocking on your door. It’s not hard to imagine them reminding you, ever-so-persistently, that you no longer have a beer budget. You’ve got some money now – you’re moving on up like George & Wheezy! You’re a person who can afford deserves champagne. And gosh-darn-it, you’ve got the money for it so what are you waiting for? You only live once, right?
The eternal question now looms before you: beer vs. champagne.
Do you increase your spending to match your new spending power? After all, you no longer just have your paycheque to spend. Now, you’ve got capital gains & dividends that can be spent too.
Hmmmmm….decisions, decisions!
Dear Readers, you’re grown! And I know that no matter what I say, you’re the one who’s going to make the final choice about how you spend your money. This is as it should be.
Does it really make sense to waste money just because you have it?
Like I said at the beginning of this post – the reason you’re in the position to make this choice is because you were living on a beer budget. Your baseline kept you going. You were never deprived. You spent your money on the experiences that brought you the most joy and happiness. The beer budget worked like a dream and it allowed you to save money until you’d created a champagne budget for yourself.
My simple suggestion is that you think long and hard before you choose to upgrade your baseline to the limit of a champagne-budget. Ask yourself what need will be served by giving up the beer budget just because you can afford champagne? What is it that you really, really want your money to do for you?