“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.”
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 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 traded up, but he never lost a single dime on any of his equipment.
He usually started by searching either Facebook or Craigslist for a semi-decent deal. Say he found an older-model four-wheeler for $1200. He would go over, check it out, make sure it was in basic running condition, and then negotiate with the seller slightly. In the end, he’d usually end up $200 or so below asking. All in all, he’d be into the four-wheeler about $1000. Once he got the four-wheeler, he would ride it and use it for a month or two, and then turn around and sell it for $1400. 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 $1000 back, he’d again start looking for a new deal. Not to mention, he just had a fun toy that he was able to 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. It makes perfect sense. 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. That simple example has completely and forever changed my life.3
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 a profit. But this doesn’t only work with cars and power toys. It applies to anything.
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 photography equipment new can be incredibly tempting for me, but I know the hit I’ll take on my wallet will be painful. 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 for a new lens, I’ll search Craigslist and Facebook for someone local selling what I want. I’ll bargain with them to drop the price $50-100. After using the lens for some time, I may decide I don’t like it, or I may just be looking for something else. I’ll turn around and sell it for more than I bought it for. The absolutely lowest I will ever take, when negotiating with someone, is what I bought it for. Never ever ever will I take less than I bought it for. Remember? We’re in the business of making money, not losing 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.