Things I treat as investments, not spending

Ramit Sethi

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A lot of people are really cheap. They’d rather not spend $1 than spend $1 knowing they’ll make $5 back. That’s not smart. On the other hand, smart people know they should treat certain expenses as investments, not discretionary spending. Another way to look at is that it’s ok (even preferred) to spend money on anything where you’ll make a return on it.

Companies do this–even troubled ones. Check out Sun Microsystems, which has had a very tough time in the last 5 years. But even Sun knows enough to protect its R&D (3rd paragraph) and think long term, not just cut all spending.

We can do these things at the individual level, too. So even if I have to cut my budget, I protect certain things because I believe they’ll give back to me many times over–whether financially, socially, or just to feel good. Some of them might be surprising to you.

Things I treat as investments

  • Cell phone (keep in touch with friends and business partners)
  • Business cards
  • Investment money (i.e., paying myself first)
  • Gifts to friends and family
  • Travel to meet friends and business partners.

    Here’s a good example: I once emailed someone who I thought was very good at what he did. I told him I’d read all his books, loved his work, and thought I could add a lot. He said he liked my style and invited me to visit him in New York. Now, the flight was about $350, which definitely isn’t cheap for a student’s budget. But you have to think about it in the long term: Even if nothing came of it, I got to meet someone amazing and could nurture a relationship with him for many years. But it turned out that we both liked each other and I interned with him over a summer. That $350 was an investment that was returned many times over.

Things I’ll cut if I have to

  • Going out at night
  • Eating out (here’s why)
  • New clothes
  • Buying books (I could use the library or read at B&N–or just not read but I’M NOT ILLITERATE SO WHY ARE PEOPLE PROUD OF NOT READING!!!)
  • Lots of monthly subscriptions like Rhapsody (more about subscriptions)

A couple of points here: Saving on little things like a $10-a-month subscription is nice (and it adds up) but it doesn’t really do THAT much. Just doing that is how dumb people save.

The key is prioritizing what’s important to you and what you can do without. When I’ve had to cut stuff off my budget, I found that a combination of cutting unimportant items AND earning more money (here’s how I did it) was the quickest way to get back on track.

So what’s on your list?

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  1. Jenn

    I took your advice about seeing how much I was spending on eating out and it was disgusting when I realized what I was doing. I stopped almost all of my eating out right after I did that. So that’s the thing I cut.