Spending decisions that end up costing a million dollars

Posted by TEBI on January 6, 2022

Spending decisions that end up costing a million dollars



One of the challenges investors face is to put enough money away to ensure they don’t run out of money later in life while also enjoying life in the present. As ANDREW HALLAM explains, it’s a difficult balance to strike. Andrew was one of the pioneers of the FIRE movement — living frugally and investing as much as he could in his 20s and 30s, to allow him the freedom to travel and enjoy life in his 40s and 50s, and only work when he needs to. But Andrew likes his luxuries too. The key to spending money wisely, he says, is to remember that every purchase has an opportunity cost — and that, in some cases, the cost is far greater than you might think.


I used to run home after work in Singapore, keeping an eye out for crocodiles. One of my friends said he once saw one beside the lake that I ran past. It was in a military zone, used for training soldiers. I never saw a crocodile by that lake. But my paranoid eye made me keenly aware of the less harmful, wondrous sights: monitor lizards, monkeys, wild boars, and occasionally reticulated pythons (known to eat people, but not very often). 

Wednesday was my favourite day of the week. When I arrived home, I had a quick shower, tossed on a pair of shorts, and then lay on the massage table where Juliana — a freakishly strong-fingered Malay Singaporean woman — waited to torture me. She worked on my knots like a sadist. And sometimes she recorded my wimpy squeals, playing the recording for my friends whom she was scheduled to hurt next. 

It might sound horrible. But it wasn’t. Most of the time I was in a deep, relaxed state. And by the time she was done, you had to practically peel me from the table. One of my friends once said, “Andrew, for a guy who’s supposed to be good with money, you spend a stupid amount on massages every year.” 

My wife Pele and I both did. Besides our weekly routine, we often treated ourselves to foot reflexology sessions. When we visited Thailand or Indonesia on weekend trips we often enjoyed more than one massage a day. 

Doing some back-of-the-envelope arithmetic, my friend said, “I think you and Pele spend about $7,000 a year on massages.” 

Plenty of us have friends who are supposed to be good with money. But if we dig into their financial lives, you’ll often find something that doesn’t make sense. In our case, it was massages. My friend’s calculations were right. 

Paula Pant has a fabulous blog and podcast called Afford Anything (thanks for the steal on this chapter title, Paula). Her premise is that you can afford anything, but not everything. 

Here’s what Paula means. If you prioritise your spending, you can afford something that might otherwise look like a ridiculous luxury, as long as you’re careful with your money in other areas. Perhaps you absolutely must have a five-star vacation every year. Fair enough. But if you’re going to do that, unless you earn buckets of money, you should ruthlessly cut costs in several other places. 

In my case, those massages could have been better if I had fewer of them. For example, in Happy Money, Elizabeth Dunn and Michael Norton say we appreciate luxuries more when they’re a treat. Instead of getting at least one massage a week, I might have enjoyed them more if I had just one a month. 


Opportunity costs and gains

Those massages also cost far more money than initially meets the eye. “Opportunity cost” is the difference in cost between making one decision over another. An opportunity cost isn’t always financial. But in my case, those massages might have cost us more than $770,000. 

Confused? Check this out:

We spent about $150 a week on massages during an 11-year period (2003–2014). 

That’s $85,800 over 11 years. 

Over that time, our investment portfolio averaged 8.34% per year. 

If we had invested the money we spent on massages, we would have had an extra $143,239 in our investment account by 2014. 

That’s a lot of money. But I’m not done yet. We left Singapore in 2014 (when I was 44). Assume we let that $143,239 grow in a portfolio that continued to average 8.34% per year. Without adding another penny to it, that money would grow to $770,241 by the time I am 65 years old. 

That’s the long-term opportunity cost of spending $150 a week on massages for just 11 years. 

I can argue that my multiple weekly massages allowed me to keep running pain-free. They might have helped me sleep better, strengthening my immune system to better cope with pesky cancer cells. They might have helped my wife ward off her constant back pain. They gave us something to look forward to midweek. Perhaps, just maybe, those massages were worth $770,241. 

Whether you agree or not doesn’t matter. My point is that our teaching salaries weren’t enough for us to enjoy those massages, and five-star holidays, and a new car, and weekly meals out, and a fancy wardrobe. We were able to afford anything (in this case, those massages), but not everything. Unless you earn a seven-figure income while also saving huge sums, the same should apply to you.


Your income doesn’t determine your wealth  

As teachers at a private school, most of my friends won’t qualify for a state pension. Some, because they worked overseas for their entire careers, won’t receive US Social Security payments or defined benefit pension income. 

When Pele and I left our Singapore-based teaching jobs in 2014, I began delivering more investment talks. Sometimes I spoke at companies. Other times I spoke at international schools. I still remember chatting with an older teaching couple from my former school in Singapore. They had worked at the same jobs for more than twenty-five years. They raised two children and paid their college fees. This couple wanted to show me their financial statements. They hadn’t received a dime of inheritance money, and yet they had amassed a surprising amount of wealth. 

Their circumstances were similar to, but at the same time very different from, the circumstances of another couple I knew. This second couple also spent their career teaching at that school. Like the first couple, they had children who were now in their twenties. They bought similar investment products. But when they explained their financial situation, it couldn’t have been more different. This second couple had a fraction of what the first couple had. 

Both of these couples were my friends. From my perspective, they lived similar lifestyles. They enjoyed traveling and dining out. But just a few subtle differences in choices explained the difference in their wealth. One couple spent slightly more than the other couple on vacations and cars. Both couples enjoyed eating out, but the couple who grew wealthier preferred lower-priced hawker food (if you ever visit Singapore, these eateries are great). My friends’ lifestyles didn’t differ much. But after more than twenty-five years, one couple had become millionaires because they were able to invest more money. They understood how opportunity costs worked. 

Not everybody spends $150 a week on massages, of course. But many of us could cut back on expenses that don’t enhance our lives. A few simple decisions could be worth a million dollars. 

For example, at AssetBuilder.com, I published two stories about car purchases: “Why Buying New Cars Over Used Is a Million Dollar Decision” and “Leasing Cars Instead of Buying Used Could Be a $1 Million Decision”. If someone chooses to buy a new car every five years, the opportunity cost of that decision could exceed a million dollars, compared to owning well-maintained used cars and investing what they saved. In most cases, consistently leasing cars also carries a seven-figure opportunity cost.

The benefits of lower-cost cars (or not having a car at all) coupled with a cheaper cell phone plan and a penchant for entertaining guests at home instead of always dining out can add up to a lot. When you use an opportunity cost model, it’s easy to see how two couples can earn similar lifetime incomes but end up with dramatically different levels of wealth.


The article is an extract from Andrew Hallam’s new book, Balance. The book, which is published on 18th January, explains how to strike the right balance between enjoying life now and ensuring that we have enough money in retirement to maintain our chosen lifestyle. It’s available for pre-order now on Amazon.



Nudges are still the best way to tackle investor inertia

Is today’s market conducive to successful active management?

The chart that shows traditional active management is dead

A one-page financial plan really is enough

How good are we at predicting our longevity?

50 laws that govern investing



The evidence is clear that you are far more likely to achieve your financial goals if you use an adviser and have a financial plan.

That’s why we offer a service called Find an Adviser.

Wherever they are in the world, we will put TEBI readers in contact with an adviser in their area (or at least in their country) whom we know personally, who shares our evidence-based investment philosophy and who we feel is best able to help them. If we don’t know of anyone suitable we will say.

We’re charging advisers a small fee for each successful referral, which will help to fund future content.

Need help? Click here.


© The Evidence-Based Investor MMXXI



How can tebi help you?