Saving and Spending: The Happy Point Framework
One way to think about your spending is through the idea of a "Happy Point". Imagine each purchase gives you happiness on a scale. A $5 burger might give you 5 happy points. A new car might give you 500. But here’s the trick: you could buy a burger a few times a week, keep your costs low, and still rack up hundreds of happy points over time. That’s much better than draining your bank account on one huge purchase.
Of course, happy points differ from person to person. For example, a burger might only give you 1 point, but a car could give you 100,000 points if it truly improves your life. The key idea is to focus your spending on things that genuinely make you happy, and save or invest the rest for long-term benefits.
Investing First, Spending Second
Once you’ve built your emergency fund (3 months of expenses, or 6 months if you have dependents), start putting at least 10% of your income towards investments. Over the first 12 months, ramp this up until you’re investing around 50% of your take-home pay. Focus on safe ETFs such as VFV, VEQT, or VTI. I’ll write a future post with more detail on these picks, but the key idea is simple: pay yourself first.
The First $100k Matters Most
Charlie Munger once said: “The first $100,000 is a bitch, but you’ve got to do it.” That’s because your money snowballs after that point. For example:
- At $100k invested with 7% returns, you’ll earn ~$7,000/year without doing anything.
- At $200k, it’s ~$14,000/year.
- At $500k, it’s ~$35,000/year.
- At $1M, it’s ~$70,000/year — enough to cover living expenses for many people.
That’s why the grind to $100k is so important. After that, compounding does the heavy lifting.