I went for a walk last night as the sun set. It’s March in Minnesota. The snow banks were melting, causing cold, icy, and slippery side-walks as I walked. This is the season in Minnesota where spring and winter mix together. Warm afternoon air mixes with the sub-zero nights, and an icy mess appears everywhere outside.
I dodged frozen puddles and snow banks that looked like frozen lizard sculptures around my feet. Tonight I was thinking about my two favorite subjects: money and life. I was asking myself if I am using my time alive to become the human being I want to be.
I talk to God when I walk. I simultaneously speak to myself. I use outdoor walks to try to understand who I am. Am I living the mission I am supposed to be living? Or am I just working a job so I can mindlessly afford a nice middle-class lifestyle as I slowly inch toward my eventual death? I ask myself these question as I walk: Am I living my life the right way? What is the right way to live? I honestly don’t know what I am supposed to do with my life most of the time. That’s why I go for so many walks. I desperately try to listen to the voice in my soul, and then do that over and over again. Here’s a good visual showing why I walk so much:
As I walked last night, I thought about the financial decisions I make on a daily basis, and how they impact my overall life. My thoughts floated around like butterflies in my mind. I could almost see them land on bright, beautiful ideas that looked like blooming flowers inside my skull.
I decided to call the idea that blossomed inside my mind as I walked: The Three Horsemen That Will Make You Rich or Poor. I’ll list the three Horsemen below (Because they all start with the letter “H.”) These financial horsemen that you will encounter in life will either make you rich or poor, depending on how you interact with them. The three horsemen are: Houses, Hovercrafts, and Hobbies.
The First Horseman: Hobbies.
Ask yourself right now; are your favorite hobbies making you rich or poor? Are your hobbies expensive or cheap? If your hobbies are expensive, it’s going to be extra-hard to save the cash you will need to buy investments and become wealthy. However, if your hobbies are inexpensive, it will be a lot easier for you to become wealthy. I believe cheap hobbies are one of the best gateways to building wealth.
For example, with just some gas money, I can spend an entire weekend exploring beautiful places outside. We have another favorite hobby of inviting our best friends over to our house for dinner and a game night. We buy food at the grocery store for around $10 or $15, and we have a great time hosting our best friends at our house. Since our favorite hobbies cost so little, we’re able to save a spectacular percentage of our income without feeling like we’re missing anything.
Let’s compare this lifestyle one of my old favorite expensive hobbies: Partying. I remember back in the day, it was nothing for me to buy a $50 concert ticket, and spend my weekends blowing through cash on $20 parking fees, $20 dinners out, and $30+ drinks at the bar. My money was flowing out of my pockets living this lifestyle. My hobbies were eating up all my cash before it could even make it into investment accounts.
Looking back at the cost difference between my hobbies now and then, it’s no surprise why I felt broke in my 2o’s, and why I feel wealthy in my 30’s. My current lifestyle allows me to take $20 and have a GREAT time! My old lifestyle took $20 just to get out of my driveway! It cost me a few hundred bucks before I could even feel like I was having a good time.
I am convinced that how much money you spend on your hobbies will be one of the biggest factors that determine if you will be rich or poor. If your favorite hobbies are Shopping, Cable TV, Drinking in Bars, Eating out, Going to Concerts, being broke will be the reality you live because those hobbies will eat your money like little cash-eating monsters . But if you can find hobbies that cost little, but lead you to the same amount of happiness, then you will create a great opportunity to become wealthy.
The Second Horsemen: Hovercrafts.
While I was out on my walk in the winter snow, “vehicles” actually came to mind as the second Horseman. But because I wanted to stick with the “H” symbolism in this story, I decided to call all vehicles: “Hovercrafts” because that’s really what they are. You sit in vehicles, and they “hover” you to wherever you want to go. These “Hovercrafts” come in all different shapes and sizes: Airplanes, Motorcycles, Cars, and Boats, etc. They’re all big, expensive, and require a lot of maintenance, and cash, to keep them running.
To increase your chances of becoming wealthy, learn this financial truth: The amount and type of vehicles you own will be a significant factor to how much money you can save, and the amount of wealth you will be able to create.
Vehicles are notorious for breaking, needing updates, and sucking money out of your bank account for interest payments, upgrades, and general maintenance. The vast majority of vehicles depreciate in value the minute you buy them, and drop in value until they’re eventually as worthless as a hunk of metal in a junk yard. The government even gets in on the action, as the newer your cars are, the more the government can charge you for licenses and tabs just to drive them on the road. It’s just a fact that the more expensive your car is, the more your cash will be diverted from your savings account, into your expenses account, and the less “dry powder” cash you will have to buy the right investments.
All vehicles suck money out of your wallet, rather than put money into your pocket. Protect yourself from this financial Horseman, by making vehicle choices that are based on economics, durability, and that will do their job for the least amount of money. If you can avoid buying a car altogether, good for you. But I live in Minnesota, and the winters are just too harsh to be outside December-February, and our city landscape is too spread out to avoid owning a car. So I personally buy Toyota Prius’s, Camry’s, or Rav 4’s, (depending on my needs) that will last 200,000+ miles. Below is my current 2004 Toyota Camry with 206,000 miles on it. Honestly, this car has been a huge reason why I’ve been able to build so much wealth so quickly. I don’t have a car payment on it. It just never breaks down or needs expensive repairs. The tabs are only $49 a year. The money I save by driving an inexpensive car then gets funneled into the investments that help me build wealth. You can read about My Five Favorite Investments to Become a Millionaire by clicking here.
The mathematics to beat this financial Horseman is pretty simple: Own as few vehicles as possible. Buy economically-smart ones for the vehicles you do need.
The Third Horsemen: Homes.
Once your financial decisions surrounding your hobbies and hovercrafts become more efficient, where does the remaining portion of your monthly paychecks go? Probably to housing costs. Rent and mortgages are often the biggest monthly costs we have.
I’ve learned that the home you choose, will either help you get rich, or help you become poor. To build wealth, focus on buying, or renting, a home that isn’t too big, or too luxurious compared to your income. If you choose a home that’s too big, or too luxurious, your savings rate will get slaughtered by your mortgage or rent payment. If you pay too much in housing cost, you’ll never attain a savings margin big enough to help you build wealth.
The way to beat housing costs is to use this mind trick when you choose a house: Avoid choosing a house based on what you can afford. Instead, choose a house that fulfills your needs. Buying a home that feels amazing and luxurious will lead you to feeling good at first, but ultimately lead you to being poor as a result. Choosing a home based on your needs, will lead you to feel fulfilled. The benefit of being frugal with your housing costs will allow you to funnel extra cash toward buying the investments that will help you build wealth.
Here is how I choose the right home: I decide what I can afford, and then I buy, or rent, 1,2,or 3 steps below that. The lower I can go below what I can afford, means the more margin I can create between my income and my housing costs. The bigger my margin, the more I can save. The more I can save and invest, means the more wealth I can build. The more wealth I can build, means the more options I will create for my future. The margin you create between your income and housing costs should become your “wealth-building” fund. The size of this fund will determine how wealthy you will ultimately be.
And remember that this “Housing Horseman” comes in many different forms. “Housing” also comes in the form of “House Repairs” and “Property Taxes.” Remember, if you’re house is 4,000 square feet, it’s probably going to cost twice the maintenance, energy, and taxes as a 2,000 square foot house, minus the appliances. Be aware of that when you’re comparing square footage decisions and layouts.
In conclusion: being rich isn’t about buying expensive stuff. It’s about having the freedom to do the things your soul craves without having to face financial consequences for doing it. Save and Invest over and over again until you’re rich. And then once you’re rich, have some fun with it. Chase a dream you’ve always wanted to live. Or support an honorable mission you’ve always be a part of. Be smart with these three financial horsemen: Hobbies, Homes, and Hovercrafts; Invest the rest of the cash you save, and you will naturally find your path to wealth.
Addendum #1: After publishing this article, I got this awesome email from an email subscriber who I think really nailed the point I was trying to make in the article:
I think the post really resonated with me because, as you pointed out, it just takes a little bit of intentional focus in these areas to either set you up for a trajectory or success (making smart decisions) or a slow bleed of all your incoming resources (by making poor decisions). It’s like these minor decision points – how do I want to spend my weekend, which house should I buy, what method of transportation do I want to utilize – have such a profound effect that just compounds over the course of our lives. If you can simply put some focus and make intentional decisions in these 3 areas – or even 1 of the 3 areas – that decision moves the needle every single day. It’s interesting stuff 🙂
Addendum #2: And if you liked this article, our friend, Freedom is Groovy, expounded on the thought in his article: “Tito, The Three Horseman, and Talking Trash.” Here is an excerpt on how he improved my idea:
Bottom line: Billy has discovered a very intriguing calculation. If you can keep your three horsemen costs under 10% of your gross household income, you can save a crapload of money. In 2016, Mrs. Groovy and I saved 51% of our gross household income.
For the longest time, the foremost mantra of the FI community has been to “mind the gap.” And that’s great. The larger the gap between income and spending, the more you have to save and invest. But perhaps a more effective mantra is this: mind the three horsemen. For if you become adept at minding the three horsemen, minding the gap will be darn near effortless.
Haha! Thanks to Billy, the simple path to wealth got even simpler.
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