I’ve found myself, in moments of boredom during the lockdown, looking for things to buy. ‘Ya, I need this new sweater in two different colors.’ Or, ‘You know, Aaron, you deserve a new sports car.’
This got me thinking…
I’ve never really experienced this sort of frivolous fiscal mindset, except for the first time I made a decent chunk as an entrepreneur. And judging by the increasing inflation levels across all consumer goods, the real estate sector, and even the used car industry, I’m not alone.
For this blog, I will share some advice for entrepreneurs who recently had a big, net-worth changing score in business — be it an exit, a lucrative new contract, etc. Some of that newly earned wealth may be burning a hole in your pocket.
It’s tempting to go out and spoil yourself after a big win — and I very much think you should (rewarding oneself after a significant accomplishment is critical to continued success) — just be aware of the potential pitfalls if you go too far.
Keep Your Spending Within Reason
“Just save it. It [money] looks better coming in than it does going out… ”
Sage advice from Chad Johnson, one of the greatest route runners in NFL history. He made roughly $50 million in a decade-long career in the NFL. And it’s no wonder that with that mindset, he still has his millions today — despite Sports Illustrated reporting that roughly 78% of NFL players go broke within 2 years of retirement from the game.
Johnson is a self-proclaimed cheap person. He declares his cheapness with pride. During the above interview with Graham Bensinger, Johnson talks about buying fake jewelry — watches, chains, etc. He explains how cubic zirconia glitters in the light the same way the real thing does…
* It’s worth noting that although he’s proud of his frugality, Johnson is known for his generosity.
On the flip side of Johnson’s fiscal conservatism would be a young Mike Tyson — once the heavyweight champion of the world. Tyson made roughly half a billion dollars in his boxing career. He ended that same career roughly $25M in the hole (after declaring bankruptcy about twenty years ago, Tyson rebuilt his fortune with entrepreneurial ventures).
During his professional boxing career, Mike Tyson bought women he dated condos (none of which he ended up marrying). He crashed a Bentley, told the police to keep it, and walked away from the scene. Tyson had monstrous collections of cars, mansions, jewelry, an entourage on the dole, and he even owned exotic cats. He also spent millions on rare white pigeons. In more than one interview, Tyson talks about his money spending habits and how it was just an attempt to distract or fill voids in his personal life.
Go Too Far with Your Spending and Your Things Will Own You
I’m not saying you need to be precisely like Chad Johnson is with his money, and Tyson is most certainly the extreme on the other end of the spectrum. You should spoil yourself when you have achieved big career goals — we need it as humans. We need to reaffirm our efforts with rewards. That gives us something to continually strive for and highlights our wins for years to come. Dopamine is a powerful chemical.
“Neurons that release dopamine are activated when we expect to receive a reward.
Dopamine also enhances reward-related memories. It strengthens synapses — the junctions where neurons pass messages — in the brain’s learning and memory center, the hippocampus. Dopamine signaling in areas of the brain that process emotions — the amygdala — and regions involved in planning and reasoning — the prefrontal cortex — also creates emotional associations with rewards.”
One great way of recognizing and memorializing our big wins is to spoil ourselves with a purchase… just don’t go too far as it is easy for splurging to become habitual. And once it becomes chronic, you’ve lost your edge as an entrepreneur because you’ll be focused on the wrong things.
So what is too far and what isn’t?
Everyone’s financial situation is different, of course, but there are some guidelines I think we can follow when rewarding ourselves.
From my perspective, there are three categories of spoiling yourself with a reward:
Toys: Toys are an excellent way of spoiling yourself (cars, boats, bikes, etc.). Just remember, though, if you do not use an expensive toy, it will probably irritate you. Toys are often depreciating assets. Not using a toy is the same as burning money on fire (imagine a fancy sports car sitting in your garage nine months a year while losing its value). Buy a toy that you regularly use. Every time you use it, you’ll be reminded of what you had to accomplish to get it.
- When you buy expensive toys on a whim and without achieving something, you’re really just indulging. Indulge too much, and it inevitably leads to self-destruction.
Lifestyle: Lifestyle purchases are sort of the Holy Grail of reward purchases. This is where I typically see successful entrepreneurs go too far. The number one and most common lifestyle purchase is a home, be it a principal residence or vacation property (vacation properties have witnessed historic demand during Covid).
I believe if you can afford a big beautiful home, go for it. Just remember, though, a house — be it a vacation property or principal residence — should serve YOU and yours, not the other way around.
A massive mansion with ten beds and baths may be opulent, but is it going to serve you? Not likely. You’ll be hiring staff to keep that place looking good and running correctly. If you don’t hire staff to keep the place up, you’ll never have a spare moment on the weekend again because you’ll be cleaning all day and night.
I know many successful entrepreneurs who live in stately homes and have gorgeous vacation properties throughout the world. But these homes come with responsibilities that seemingly never end. They require regular and expensive upkeep and property taxes that increase almost every year.
- Depending on where they are, vacation properties can be a bitch, requiring unexpected trips that take days out of your week because something broke or requires your immediate attention. Enough of these incidents, and you’ll start to resent that vacation property.
Freedom: Trips are the quintessential ‘freedom reward’. They let you escape, both mentally and physically. Anything that gives you ‘recharge time’ — a chance to unplug — do it.
You can’t go wrong taking your family on a two-week vacation. Chilling and just being together in a beautiful foreign land is inspiring and will create lifelong memories. It’s excellent for you, your spouse, and your kids. It helps you recharge, shows your kids new cultures, and allows the family to bond — with no distractions from our everyday lives.
There is no better way to celebrate a major accomplishment than traveling with your family and/or friends.
- Another freedom buy is hiring more talent. While it’s not glamorous, it is the best thing you can do for yourself and your business. Hire an assistant (or two) who helps make your life easier. You’ll never regret this freedom reward, and the ROI is endless.
The last year of Covid has really made me evaluate some of my behaviors, one of which is how I spend money. While I strongly believe in spoiling/rewarding yourself upon reaching key personal/business milestones, just remember that the responsibilities of big reward purchases do not end once you’ve acquired them.
Enjoy life, incentivize yourself to keep grinding, but keep it cool. You’ve got a business to run, and your purchases shouldn’t take your mind off of what’s essential.
P.S. I’ve been an entrepreneur for 15 years. There have been ups and downs along the way, and I’ve seen a few surprising things. Subscribe to my newsletter below — only my best content will land in your inbox.