What is Luxury?
Recently, I read a wonderful story that made me think. A woman in her fifties noticed that her colleagues in their 20s were buying expensive handbags. She realized that she had never owned a luxury handbag, but if her younger colleagues could afford it, surely she could after years of hard work. She told a few of her friends about this, and everyone encouraged her to spend money and have fun because she had earned it.
She looked around and found the Chanel bag she liked. She even had to book an appointment to purchase the bag. When it came time to pay with her credit card, she resisted. She couldn’t do it. She couldn’t bring herself to spend thousands of dollars for a status sign.
This week, I wanted to explore luxury in relation to financial independence. What do you do with economic security?
Financial Security
A buffer of cash in your bank account is a luxury that you should not ignore. Financial security can be a wonderful thing. You can be sure that you will have enough money to cover any expenses, whether it is for a broken fridge, a car that needs new tires, or unforeseen health issues. What a wonderful luxury!
Insurances such as income protection or life insurance could be an extension. These insurances provide financial safety and add to your peace of mind and economic security.
It is a great relief to be debt-free or at least have your debts under control. This allows you to sleep well at night.
You can go one step further by holding investments that you could liquidate if necessary. You can’t put a price on the luxury of being able to quit your job, liquidate some assets, and re-calibrate yourself.
You don’t need to track each dollar.
If you have read my Financial Autonomy Book, you will know that the first chapter is about cash flow management. It also discusses different strategies you can employ. You don’t have to keep track of every dollar you spend. Paying yourself first is the best method. As soon as you receive your paycheck, all investments and commitments will be deducted. You can then spend what is left. You can combine this method with a bucket-type approach to make sure money is set aside each month for bills and other expenses.
Luxury is not being able to spend money without thinking about your future but being able to live a comfortable and happy life once you have taken care of all the sensible things.
Simplicity
Simplicity, I believe, is an underappreciated luxury. A family trust is often asked if it would be useful to add trust into a client’s financial planning strategy. Family trusts can be a good option in certain situations, but the added cost and complexity are often greater than the benefits.
In the past, it was common for investors to purchase individual shares in order to create a balanced portfolio. Today, we have funds that are easy to use and allow for diversification. Administrators can help you track your dividends and capital gains, which will make it easier to prepare your tax return and keep track of your performance. Automating your financial life is another way of simplifying your finances. This can be done by transferring money from your online banking or using an administrator to allocate your cash automatically across different investments.
When they first start investing, some people like to be hands-on and very involved as they learn about the different investments. With time, however, the benefits of simplicity will likely become more apparent. Simplicity can be a great luxury.
Fun is a must
The last luxury I would like to recommend to those who have achieved financial independence is to be able to enjoy themselves. The richest person at the cemetery doesn’t get a trophy, nor do they give out awards to the frugal. If you have a good financial plan, you can enjoy some expensive drinks at a bar, spend more money on your next vacation, or even take up a hobby. These are wonderful luxuries that are well worth the effort.
Financial Autonomy’s North Star is a choice. Regular listeners know this. You can buy a Chanel bag if you want one, and your finances allow it. It’s great to have the option. If that type of luxury isn’t for you, you may find your luxury elsewhere. I certainly applaud you.
