Spending All of Your Investment Gains Mentality
Financial Management

Spending All of Your Investment Gains Mentality

I was told of an interesting scenario today where a person originally invested in a condo a few years back and just recently decided to sell it. Turns out, he was able to get almost one million dollars for it. As a result, he then decided to use that money to buy a house worth over one million dollars as it was almost like free money.

The person telling me the story thought that was kind of crazy as she believed if you were that fortunate to sell it for that price you should just find something decent for say $600,000 and then use the rest of the money for other purposes.

I guess a lot of people do this for smaller items as well. For example, let’s say you bought a piece of electronic equipment and for some reason it broke. The company then gave you back the original cost of the item and then some to compensate you for your time. Most people would be inclined to then use all that money to then buy something superior to what they had before as oppose to wanting to save the extra money and get something of an equal value like before.

While in many ways it is simply a preference, I think it is kind of a bad habit that you have to teach yourself not to do. I know for myself I usually perceive free money or ones gained from investments as funds designated to help you earn more money as this is essentially your pool of funds to help further flex your financial stability. Therefore, to me it is almost invisible in regards to spending it as a regular fund.

Like in the case of the condo scenario what I would have done would be say if I originally invested $600,000 then for the house my consideration to buy it would be that $600,000 plus factoring my existing stream of income and savings. The other $400,000 I would try to think of what else I could do with it such as maybe trying to find another good deal on a condo to hopefully repeat the cycle. I personally think it is better then just spending it all.

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