Why You Need to Spend Money to Make Money (With Examples)
Flex Your Mad Money Handling Skills
OK, maybe we won’t flex just yet. Maybe we’ll build first. Strengthen a bit. Then we can flex – at least at home, in front of the mirror. Eventually, there could be actual humble-bragging involved.
You’ve probably noticed that quite a few of the things we do around here center around helping you figure out how to be better with money in your own life. There are quite a few good reasons for that. Obviously day-to-day life is substantially less stressful once you have an effective personal budget and some sort of guiding strategy for paying down debt and building up savings. It’s also rather nice to be able to handle holidays, unexpected repairs, medical bills, or special occasions without having to break open the penny jar or worry your card won’t be accepted at the restaurant.
One of the biggest reasons to work your mad money handling skills, however, is a little longer-term. At some point, assuming nothing unpleasant happens in the meantime, you’re going to retire (by choice or by default). You’ll no longer have to trudge into work every day, and that will make some things easier. You can wear your comfy clothes all day, finally read those trashy novels you love, or get around to those minor home projects you keep meaning to do. On the other hand, you’ll probably still want to be able to eat – maybe more than once a day. You’ll periodically need to pay utilities or buy stuff for yourself or those you love You may even want to have a roof over your head.
That means you’ll need income after you retire.
Sure, there’s Social Security to consider. Maybe you have a retirement plan through your employer. Both are great supports, and you’ll definitely want to make the most of them. They may not be enough, however. As Americans keep living longer and longer, it’s increasingly difficult to anticipate exactly what sort of financial needs we’ll have during those “golden years” (I assume they’re called that because they cost so much). I like the way the good folks at AARP recently put it:
Figuring out how much money you need to retire is like one of those word problems from high school that still haunts you. “If X equals your spending in retirement, Y equals your rate of return and Z equals the number of years you will live, how much will you need to save, given that X, Y and Z are all unknowable?"
“How Much Money Do You Need To Retire?” (AARP.com, 9/17/2020)
You Gotta Spend Money To Make Money
You’ve heard the cliches: A penny saved is a penny earned. The love of money is the root of all evil. Unless you were born with a silver spoon in your mouth, you’d better bring home the bacon or you won’t have two nickels to rub together. Mo’ money, mo’ problems.
OK, I never understood that last one. With all due respect to the Notorious B.I.G., it’s not a situation I’ve ever been able to test firsthand. I want you to know, though, dear readers, that I’m willing to take the risk. I’m committed to bringing you the truth when it comes to your personal or small business finances. If I have to risk mo’ problems to do so, I’m in. Bring on the mo’ money. I’m not afraid. I can take it!
Most money cliches have at least some truth to them. Some have ALL the truth in them. One of the most truth-packed is also one of the most familiar: you gotta spend money to make money. But what does that even mean? Doesn’t learning how to be better with money always mean spending less of it?
Not necessarily. Sometimes it’s not about spending less so much as spending better.
Entrepreneurship
There’s nothing wrong with working for someone else for a living. It’s how most of us put food on the table. Even in the 21st century, some jobs are good jobs. Some employers are even pretty decent employers. Hopefully, you don’t hate going to work every day. Maybe it’s even a tiny bit fulfilling.
Sometimes?
As you probably know, however, the world’s wealthiest people aren’t those who work for someone else, no matter how much they make. The big money comes from starting your own businesses and being your own boss (or having a parent or grandparent who took that leap so you wouldn’t have to). Bill Gates? Check. Mark Zuckerberg? Check. Jeff Bezos? Check. Warren Buffet?
Hmm… Buffet is really more about investing than starting new businesses. That's a bit later in the article.
The thing is, you don’t have to become a billionaire for your efforts to be successful. There are over 30 million small businesses in the United States, and while their owners aren’t all super-rich, they’re in charge of their own futures and set their own goals. Some fail after a few years, but many others don’t. Every one of them started when someone took a risk. Left a job. Opened an account. Purchased some supplies. In 99% of cases, someone had to spend money to make money without any guarantee it would work.
Education and Training
A high school diploma doesn’t get you as far as we seem to think it did a few generations ago. A college degree is no guarantee of anything, but some form of post-secondary education or training seems to be pretty much essential if you’re going to have the sorts of career choices most of us would like. And maybe you’ve heard – college isn’t exactly free these days. (Not yet, anyway – but I wouldn’t hold my breath.)
Nor does earning yourself a 2-year or 4-year degree fresh out of high school mean you’re set for life. The average American changes jobs nearly a dozen times before retirement. People who study such things disagree about how often these changes count as completely new careers (I may go from teaching high school to training educators on new instructional technology, for example), but it’s certainly not unusual for the same person to have two or three distinct professions over the course of their adult life.
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More often than not, that means some sort of additional training or certification. If you’re moving into something for which there’s a particularly high demand, your new employer might ante up the tuition in exchange for a commitment from you as to how long you’ll stay. Otherwise, that bill is coming to you. It might be worth it. Let’s face it, unless a LOT of people were still convinced that college degree was worth the time and money, we wouldn’t have a student debt crisis. Sometimes you gotta spend money to make money when it comes to professional choices or advancement.
Looking the Part
None of us want to admit that we’re easily distracted by appearances. There’s certainly no point becoming obsessed with looking “pretty enough” or trying to maintain some imaginary threshold of “fashionable.”
That said, there are things we can control without plastic surgery or shopping in Beverly Hills. Some of those things can help us get ahead in our careers or other financial pursuits. I’ll limit myself to three brief examples. Keep in mind that I’m not talking about what’s “fair” or even what’s “right” – I’m talking about how things actually go sometimes. How you choose to navigate this broken world is entirely your call!
One of my earliest jobs as a teenager was delivering pizza. I worked for a major chain, and had some great managers and co-workers. I asked one of the assistant managers one day why he wasn’t in charge of everything. He was clearly the most competent and friendly and worked harder than anyone else there. He told me it was because of his teeth. He had some wonky teeth when he smiled. Not so much that it frightened children or anything, but enough that the company wouldn’t promote him unless they were fixed. He couldn’t afford that sort of dental work, so… there you go.
Shortly before I graduated from college, I attended a job fair for future educators held at the university itself. There were only a few dozen of us in the program, so we all knew one another. There were multiple schools there from our area and surrounding states, and it was all very positive. It was far more positive for one young lady than the rest of us, however. I knew “Veronica” well enough to know she was smart and capable and committed to kids. She was also 22 and gorgeous and knew how to dress completely professionally while still leaving you rather breathless just to be in the same room. The rest of us were offered business cards and asked for our resumes. Veronica was offered a $5000 signing bonus and a paid recruitment trip to a prestigious district in Texas looking for fresh talent.
Several years ago, I applied for a training position at a local bank with several dozen locations across the region. I made it through several layers of interviews and it was all very positive, but I didn’t get the job. My wife periodically interacted with some of the folks at this particular bank as part of her job, and months later one of them confided in her that I was on the final short list. I was dropped because when all other factors were equal, the other guy had worn a tie to all three interviews. It was mid-summer and in the upper 90s, and I didn’t. (It was bad enough going with long sleeves!) It felt like he “fit the culture” slightly better than I did, and he got the gig.
Again, I’m not arguing the “right” or “wrong” of these scenarios. No one was up to anything shady or trying to take unfair advantage. In each situation, however, the main character had some degree of control over how they were perceived based on appearance. Maybe pizza guy could have found a way to finance the dental work, had he so chosen. Veronica had to have put some thought, effort, and yes, money, into her professional fashion choices. (She really did go full legit, but without downplaying her… “natural advantages.”) And honestly, I have a ridiculous number of ties from which I could have chosen.
Sometimes knowing you gotta spend money to make money isn’t about the thousands of dollars. Sometimes it’s not about the hundreds of dollars. It’s about evaluating the circumstances and figuring out the best way to invest in your future. It’s about figuring out what you want and what it will realistically take to get there. Maybe it’s a jacket or a tie or a haircut.
Investing and Retirement
If your employer offers a retirement plan of some sort, you should probably be looking pretty seriously at how much you can make of it. A 401(k) or state retirement plan of pretty much any sort is usually better than nothing. Sometimes they’re pretty impressive! You can also consider something straightforward, like an IRA. We’ve written about these extensively here at Wealthry an across the Goalry family, so there’s no excuse not to do your homework! Honestly, once you have a feel for the basics, they’re not so hard to understand.
Then, of course, you have seemingly infinite investment options of other sorts. These can get a bit overwhelming if you’re starting with limited knowledge, so don’t feel like you have to make major decisions today. I suggest setting aside 30 or 40 minutes a couple of times a week just to read articles like this one, on the Wealthry, or others across our sister sites or other reputable financial sources. Don’t think you have to figure something out right away; think of it as casually laying the groundwork for what you might do in three months or six months.
In the meantime, practice adding a little extra to your savings each month. Pretend you’re investing it, and when the time is right, you’ll have a little nest egg to get started.
But Blaine, what if it’s only a few hundred dollars? That’s not enough for my investment to matter, is it?
Well, that depends on how you look at it. How much will you make by investing zero dollars? Compare that to what you could make starting with, say $200 and building from there. For example, if you’d purchased $200 in Netflix stock twenty years ago, that stock would be worth nearly $50,000 today. Even if you weren’t all that cutting edge in 2000, that same $200 investment in Tractor Supply Co. would be worth over $20,000 today. And if you’d taken a risk on a young company called Monster, making something called an “energy drink,” that $200 of stock you bought in 2000 could be sold for around $125,000 right now.
And chances are if you kept working at it for a few years, you’d probably invest more than $200 eventually. I mean, one would hope.
Spend Money to Make Money By Investing
Most of us won’t get rich picking the next big thing, and that’s OK. The point is, the earlier you begin and the more wisely you choose, the more likely you are to spend money to make money instead of spending money to, well… wish maybe you hadn’t spent all that money.
We can help you get started with financial basics – CDs, mutual funds, bonds, stocks, and all the rest. We’re not going to try to sell you anything; we’re not brokers. Our overarching goal is to help you take more effective control of your personal or small business finances so that you can reach your goals, in your way, based on your choices. You can, you know. You have every right to the same information, connections, and opportunities as anyone else. It may not be easy, but it doesn’t have to be as hard as it often seems.
For many years, for example, the stock market was treated like some sort of Wonka Factory tour that only a few specially chosen individuals could visit or play in. We saw it in the movies and read about it in the papers, but we’d never dream of going there – let alone participating. If we were involved in some way, it was only by handing our money over to someone who’d already secured a golden ticket and hoping they’d invest it for us.
With the technology of the 21st century and the availability of information, though, anyone can navigate the basics of buying stocks. You can do it from your laptop or set it up on your phone. You can manage every detail yourself or set up a few basic parameters and let the algorithms do the rest. You can invest thousands, or hundreds, or even micro-invest with a few dollars here and there until you get a better feel for how it all works.
There’s always risk, of course. You don’t want to roll the dice with next month’s rent or that past due credit card payment hoping it will pay off. That’s not the money you want to invest. But I’m betting if you put a little effort into it, you could find a few bucks to set aside for your future, or the future of those in your care. And next month, maybe you can find a little more. And the month after than… and after that.
In the 2020s, anyone can spend money to make money. That includes you. Let us know if we can help.