“Save for retirement, exercise daily, eat less sweets.”
Great advice, right? Absolutely! We should of course be doing all these things. The problem, however, is that we hear information such as this so frequently that it becomes routine and mundane. It loses significance because it’s so repetitive. It’s so simple that we glance over it without so much as a second thought.
Every once in a while, however, something really profound comes along that hits you deep to the core.
That’s what happened to me.
The sad thing is that I’ve heard this advice a hundred times before. I’m a little embarrassed to share such a simple piece of advice with you all, but it’s only recently found incredible significance in my life.
Are you ready? Here it is: “Never lose money.”
Wait, that’s it?
Okay, okay. I know what you’re thinking: “Wait, you’re kidding me. That’s it? Well that’s obvious. Thanks for nothing, but I’ll be on my way now.”
Wait! Don’t go yet.
Bear with me, just one second, and let me share with you the story that forever changed the way I think about money.
The Story of a Free Four-Wheeler
My brother-in-law, Kelton, is a mechanical genius. If it has an engine, he can fix it.
It’s a rare sight to see him walking around without some sort of wrench or tool in his hand. More often than not, he’s knee deep in an engine bay working on a vehicle, covered head-to-toe in grease.
While dating my (then) girlfriend (now wife), I remember going over to her parent’s house for the first time. We sat down for a nice home-cooked meal. After eating, we all went outside to enjoy the evening in the backyard.
Walking through the backyard, I turned the corner, came around the side of the house, and was greeted with a wall of power-toys. I’m not exaggerating here — there must’ve been at least 17 pit-bikes, 6 four-wheelers, 4 motorcycles, 3 dirt bikes, a couple snow-mobiles, and a RAZR or two.
I turned around to my girlfriend and asked, “Wow! Do all these belong to your family? They must’ve cost a fortune!” She laughed to herself and said, “Nope. They all belong to my brother.”
I looked over at Kelton’s direction and said, “How much did you spend on all of this?” With a smug little smile, he replied, “Nothing.”
Seeing the obviously confused look on my face, he continued, “It didn’t cost me a dime.”
Panning back around to the row of power toys before me, I skeptically said, “Rrrrriiigggghhhhtttt.” From a quick glance, I would’ve estimated everything at $30k-$40k. Surely he wasn’t just given all these.
Never Lose Money
Kelton went on to explain how it all worked. He just started small, and began trading up. But through it all, he never lost a single dime on any of his flips.
He usually started by searching either Facebook or Craigslist for a semi-decent deal. Say he found an older-model four-wheeler for $1,200. He would go over, check it out, make sure it was in basic running condition, and then haggle with the seller further to get the price as low as possible. In the end, he usually ends up 10-15% below asking.
All said and done, he’d be into the four-wheeler about $1,000. Once he got the four-wheeler, he would ride it and use it for a two or three months, and then turn he’d turn right around and sell it for $1,400.
He literally did nothing to enhance them or increase their value. It was the exact same as when he bought it a few months before.
“You mean you don’t even change the oil or put new tires on it?” “Nope”, he replied. “If I did that, I’d never make that money back.”
$400 richer, and earning his initial $1,000 back, he’d again start looking for a new deal. Not to mention, he had a fun toy that he was able to ride and use for free. Rinse and repeat. Every single one of his power toys was completely paid for, free and clear, without any loans or financing.
Buy low, sell high
Of course, this is a classic example of “Buy low, sell high”, right? We’ve always heard that’s the #1 rule to selling.
But it doesn’t really hit home (or at least it didn’t for me) until you see a wall of power toys adding up to a significant amount of money, all for free.
Kelton’s simple example has completely and forever changed my life.
See, that’s the best thing about personal finance. The principles behind it all is really simple. It’s easy to get rich, as long as you’re willing to change only a few things in your life — most importantly, your mindset.
Now, when it comes to cars, I no longer buy brand new. Because I will never make that money back. It’ll depreciate so quickly that I’ll literally be throwing money away.
Ever since Kelton’s example, I’ve actually made money on every vehicle I’ve owned, because of what he’s taught me.
In this example, it helps that Kelton is mechanically-inclined. He’ll find non-running vehicles, fix them up, and then flip them for an increased profit, because he fixed them up. But you don’t have to be a mechanic like Kelton to be able to buy low and sell high. You just have to keep your eyes out for a good deal.
Even better, this principle applies to more than just cars and power toys.
If you lose money, don’t buy it
I’ve taken this example and applied it to literally every aspect of my life.
I’m a hobbyist photographer. Looking at new photography equipment can be incredibly tempting for me. All the different cameras, lenses, and lighting equipment make me want to shout “shut up and take my money!”
I’ve learned, however, that if I purchase these things brand new, it’ll make a massive dent in my wallet. Lucky for me, photographers pride themselves in taking great care of their cameras and lenses. Even better for me, photography equipment holds its value very well.
When I find myself lusting over a new lens, I’ll search Craigslist and Facebook for someone local selling what I want. I’ll haggle with them to drop the price $50-100.
After using the lens for some time, I may decide that either I don’t like it, or I may just want to try something else. I’ll turn right around and sell it for more than I bought it for.
The absolute lowest I will ever take when selling something, is what I bought it for. Never ever ever lose money. Remember? We’re in the business of making money, not losing it.
It may take time, but it’ll always sell — eventually
This is yet another lesson I learned from Kelton. Sometimes when he flips a car or a four-wheeler, he won’t have a lot of interested buyers initially. There’s times he’s had to sit on a car for 6 months or longer. He’ll drop the price here or there, but he knows the absolute bare minimum he has to sell it at to make money, and he doesn’t ever drop the price below that point.
“Eventually, someone will come buy it, it may just take a while.” And he does just that. He doesn’t panic, he doesn’t stress. He sets himself up in a position to where if it does take months to sell, he’s okay with it.
When it comes to real estate, I’ll apply the same process. If replacing countertops, I ask myself, “Am I ever going to make this money back?” Does spending $2,000 on new granite counter-tops equate to $2,000+ in the future? Absolutely not. Or say a tenant calls up saying the dishwasher isn’t working. Do I go out and buy a new stainless steel appliance to replace it? Of course not. I’ll never make that $500 back. Instead, I’ll search garage sales and other used listings. Dishwashers can be had all over the place for $100, but with some negotiating, $65-$70 is common. For me, I’ll make that money back, and so I’ll happily do it.
Okay, okay. I get it. Some of this may be a little extreme. Of course there are going to be things that will never make you money. Toilet paper, for example, you literally flush down the drain. Food is a necessity, and you’ll never see that money back.
But the point of this all, is to explain that in almost every situation, you can not only get things for cheaper, but you can make money off of everything you do. Buy low, sell high, rinse, and repeat. Never lose money. With each and every passing day, your net worth should steadily be increasing. This is the fastest way to wealth.