Luxury, as defined in the Oxford dictionary, is
“a thing that is expensive and pleasant but not essential.”
Many people who live frugally despise the idea of buying luxuries as it is considered as wasting money. But many of them don’t hate the idea of owning luxuries. Many use their creativity to design their own luxuries, such as DIY fancy and classy jewellery, DIY Dolce and Gabbana bag, and DIY throne chair.
Some other people can’t be bothered with DIY projects and want to just own and enjoy luxuries. They save money earned from their salary for months, even years, to buy the luxuries they’ve wanted.
Some don’t have the patience to save and end up borrowing money from the bank or maxing out their credit cards, going from debt to debt just to satisfy their desires to have luxuries.
Why Borrowing Money to Buy Luxuries Is Not a Good Idea
While it’s not ‘evil’ to buy luxuries, acquiring it through borrowing will result in paying interest, which is basically, a waste of money.
A credit card interest is generally around 19%. So if you want to buy, say, a $4300 Prada Shoulder Bag with a credit card and you only pay $100 each month, you’ll need 6 years and 1 month to pay off the debt, and the interest amount is $2970.
For further details regarding the calculation, head to this credit card calculator.
Why Using Savings From Salaries Is Not a Good Idea Either
Unless you’re using the luxuries as accessories to enhance your image to get into a certain elite club that allows you to secure some worthy business deals, luxuries are not assets. They’re expenses. An expense is the cost incurred in or required for something. While an asset is something that puts money in your pocket ( Robert Kiyosaki’s book Rich Dad Poor Dad).
Get Income Producing Assets First
The right way to buy luxuries is by buying them from the money that is generated by the income-producing asset(s) you have instead of the salary from your 9-5 job (if you’re still working for other people).
Examples of income-producing assets are stocks, bonds, properties, royalties, peer to peer lending, investing in a business belonging to other people, and investing in your own business.
Acquiring income-producing assets first is not only the right way to buy luxuries, but also the right way to pay your bills and all other expenses. This is the key to financial independence, where the assets give you enough income to pay your living expenses for the rest of your life without having to be employed by other people.
Conclusion
You should use your salary/savings to buy an asset first instead of luxuries.
Having income-producing assets is the the key to financial independence, where the assets give you enough income to pay your living expenses (and luxuries, too!) for the rest of your life without having to be employed by other people.
