Rule #1 – Know What You Need and When Enough Is Enough

Good morning, Internet!

This morning, I woke up thinking about my children again. I wonder what they'll be like as teenagers and later as young adults, and about all the financial decisions they'll make along the way. Laura is currently at that stage where she'd love to own every toy on the planet, even though having them wouldn't improve her quality of life in any meaningful way. Luca has a much simpler decision to make: right boob or left boob?

I wonder who their financial mentors will be and whose example they'll follow. Even if they end up having all the money in the world, that doesn't automatically mean they'll live happy lives. Money and wealth don't necessarily translate into happiness, a fulfilling family life, or freedom from worries. What would their own little corner of sans souci look like? I'm beginning to realize that the most important part of this entire quest is what they'll expect from their financial reality. Just as some young people today dream of earning €20,000 a month, my children will probably head in the same direction. If young people their age still think the way young people do today, why would my children be any different? It would be stupid of me to expect otherwise.

Now, earning €20,000 a month isn't a bad idea. But what exactly would it accomplish? Someone who earns €20,000 but spends €19,000 every month probably doesn't have a particularly happy life. I doubt they're especially at peace with themselves, either. Some time ago, my wife told me a story about a humble fisherman who would wake up every morning, catch a small amount of fish, return to the harbor, and sell his catch. By lunchtime, he'd be home eating with his family, and he'd have the entire afternoon free to do whatever he pleased. One day, a businessman approached him and suggested that he should work longer hours, including afternoons and weekends, so he could afford more fishing boats and hire crews. If our fisherman turned out to be a good businessman, his company would eventually become so successful that he could afford to take his afternoons off.

This morning, I read something similar about two childhood friends whose lives took very different directions. One became a monk, living on beans and rice, while the other became wealthy and enjoyed a completely different lifestyle. The wealthy friend teased the monk, pointing out that if he worked as hard as he did, he too could afford a different lifestyle. The monk replied, "If you were happy with beans and rice, you wouldn't have to work as hard as you do now." These stories remind me of the saying, "Beauty is in the eye of the beholder." The expectations we set for our own lives are what ultimately determine whether we're happy or not. Warren Buffett still drives an old car, Mark Cuban drives a Kia EV6, and Jeff Bezos was still driving a Honda when he was already worth billions. Why weren't they all driving Ferraris? Probably because a Ferrari wouldn't add anything meaningful to their lives.

And yet, we raise our children to believe the exact opposite. From an early age, we teach them that "if you work hard and make enough money, you'll be able to afford a house with a swimming pool and a convertible." How many of you who own swimming pools actually use them throughout the year? How many billionaires buy houses in different corners of the world, pay staff to maintain them and replace the flowers every single day, yet never even visit those properties? Buying property as an investment is one thing. But maintaining a house in perfect condition every single day when nobody actually lives there is, in my opinion, the very definition of stupidity. Says the guy who doesn't happen to own another twenty villas in exotic locations...

Our lifestyle directly determines how much money we need to earn. And the lifestyle our children dream of will determine how much money they'll believe they need to make. But where exactly is the line between spending money to improve our quality of life and spending it unnecessarily? I'm not trying to argue that we should spend as little as possible. Not at all. I'm simply suggesting that we should stop and consider whether the money we're spending will genuinely make our lives better. If we don't, we risk overspending for absolutely no reason. And here's the problem: every single one of us is capable of spending more money than we earn. Will our children end up spending money simply to show other people that they have it? If they want an expensive pair of sneakers just so others can see them wearing them, is that really a good reason to buy them? How exactly will those sneakers improve their lives? And this is precisely the kind of mentality they'll carry into adulthood, applying it to their houses, cars, clothes, and restaurants.

Our children learn from us. I don't believe we can logically explain one thing to them while showing them something completely different through our own behavior. And the fundamental lesson we have a responsibility to pass on is that more doesn't automatically mean better. The logical conclusion is learning to recognize when enough is enough. We should encourage them to seek experiences rather than material possessions. Becoming attached to material possessions can be just as dangerous. There are adults who become so attached to their expensive homes that they fall into depression when they lose them to the bank because they can no longer afford their mortgage payments.

If we reflect on everything I've said here, the one lesson that emerges is that we should be very careful about how we spend our money. Most of us probably have areas in our lives where we could downgrade without sacrificing any real quality of life. Financial lessons, however, are easy to forget. Most of them are theoretical and go against our individual desires. How can I sit here telling you not to spend money unless it genuinely improves your life? It's easy to convince yourself that a much more expensive car will improve your quality of life. That's why I suggest creating a set of rules to guide our purchases and spending decisions. Whenever we spend money, we should ask ourselves whether our lives will change substantially because of it. And, even more importantly, we should be able to explain exactly how that change will happen.

And that's how Rule No. 1 of sound financial decision-making is born: How will my life change? Can I achieve the same utility for less money? Know What You Need and When Enough Is Enough. The best example here is refusing to buy a cheap car simply because you don't want to look broke. My question is this: do you want to have money, or do you want other people to think you have money? Do you think Mark Cuban is poor because he drives a Kia EV6? Do you think his billionaire friends laugh at him for it? Or, more importantly, do you think he cares?