Most people get into debt when they buy homes and cars, but you'll eventually hit a ‘golden age' of your finances when you pay off that debt. You will then have a lot of extra money available each month, and financial personality Ramit Sethi doesn't want you to mess it up.
Sethi mentioned that most people do not stop to think about what they should do with all of their extra money. If you aren't thinking about what you could be doing with the extra money, you risk missing out on compelling opportunities to build your wealth. Sethi offered some suggestions on how to capitalize on your financial ‘golden age.'
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Keep The Asset For As Long As Possible
When you pay off an asset, it will be a little older. The house you bought 30 years ago may not be as attractive as similar homes in your neighborhood that were recently built. Similarly, a car that you bought five years ago may not have the latest gadgets that you can find in today's models.
Sethi encourages people to hold their paid-off assets for as long as possible. He continued to drive in the same car for 19 years, which proved to be a financially savvy move. All of the money that would have gone to monthly car payments went into Sethi's portfolio. Doing that for more than a decade can result in significant wealth in the long run.
It's realistic for many people to allocate half of their monthly budget to their housing and vehicles. Once those loan payments go away, you'll save a lot of money each month. While you'll still have to pay insurance, maintenance, and other costs for those assets, the heavy lifting is over once you pay off the loans.
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Invest Most Of The Money You Save
Sethi believes people should invest for their long-term future but still spend some money on themselves right now. It offers a good balance between spending all of your money and never getting to enjoy any of your money since you're constantly investing it.
However, it may be the right move to invest most of the money you save, especially right after those loans go away. If you don't upgrade your lifestyle, you can aggressively pursue your financial goals. Furthermore, you won't immediately spend additional money when it becomes available. That is a good financial trait that can steer you away from lifestyle inflation.
Investing most of the money you save has another benefit. Compound growth will benefit any dollar you put into investments. Although any investment is better than no investment, the money you put into the stock market right now will have a lot more time to compound. If you front-load your investments, your portfolio will grow faster and put you in a position where you can spend more money later in life.
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Monitor Your Spending
You don't have to live cheaply, but it's good to be frugal. Regularly checking your credit card statements can help you detect wasteful spending, such as a subscription plan that you haven't touched for more than a year.
You still have to stay on top of your expenses after paying off your mortgage and auto loans, but it's okay to spend money. If you review the numbers and know that you can treat yourself to a discretionary purchase, it's totally fine. That's how Sethi views discretionary spending. Instead of spending money just for the sake of it, the purchase must enrich your life and be something that you won't forget about after a few days.
These types of purchases must make financial sense. Granted, it's easier to make these purchases after you own multiple assets that don't have any debt attached to them.
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