Living La Vida OpEx or CapEx

In business, one of the fundamental concerns when it comes to spending money is should the money be spent as an Operating Expense (OpEx) or Capital Expenditure (CapEx). The difference between the 2 is that an OpEx is a pay as you go model while a CapEx is a pay up front model. Looking at these 2 ways of spending money can help you in your personal life make better financial decisions. Consider a common wasteful spend that occurs every January, home exercise equipment.

When you are considering buying home exercise equipment, you are trying to fulfill your goal of staying healthy. Buying home exercise equipment with money you have in the bank is an example of CapEx. You are spending your money up front for the long term capacity to exercise. You laid out cash for the capability to exercise as much as you want. Another approach would be to join a gym and pay as you go. This would be an example of OpEx. As long as you are exercising, you will pay. If you stop exercising, you will stop paying.

Which is better? Let’s say you spend $350 on gym equipment to enable you to fulfill your goal. In gym membership time, that is about 15 months of usage of all their equipment. They maintain it, and the variety of offerings is more than your $350 of equipment. Further, let’s say you decide after 2 months you are not really into exercising then it is a matter of canceling the gym membership (whose cancellation fee may be the equivalent of 1 months usage). Financially, for most people, when considering exercising, the outlay of money is less with the OpEx model.

When would you use CapEx? When you have nearly zero doubt that the upfront investment of your money out weights a pay as you go model. Why? Let’s consider the exercise equipment model again. The first month of gym membership is $25, which you take out of the $350 you set aside. That leaves $325 to earn interest that month! The next month, you take the $325 + interest earned and subtract the next $25. And so on it goes. You make money with all the unspent money, plus if your lifestyle changes, your costs can adapt more easily. Let’s consider our spend on the boat. The cost of renting a boat like the one we bought is around $1,000 per week. Plus, the rental boats are not allowed to venture where we want to nor are we allowed to make the modifications we want to. Within 2 years of our voyage, we will have recouped the cost of the boat, taken it to places not allowed by rental companies, and modified it to suit our needs. In this case, we decided that a CapEx was the better way to go. Cars are similarly in this category.

We’ve tuned our life to be as much OpEx as possible. This not only allows us to spend more nimbly, but we have more in reserves if something unexpected were to happen. Our advice is to always start in the OpEx model and always challenge the need to go CapEx. If, after going OpEx, you find you are better off in CapEx mode for something, then simply switch. For the few times you pick wrong, you will more than have moved ahead with all the other places that going OpEx was the better choice.

Something Extraordinary?

Over the past 2 + years that we've been on our preparation journey, we've probably shared our story with 200 or so people. A number of those same people have told us that our journey has become a point of discussion for them, their family, and their friends. The list of those who know about this grows every single day. Yet, when we tell someone about it for the first time and they are stunned by what we are preparing to do, we are still surprised that folks find this whole thing remarkable. To us, this whole trip doesn't seem remarkable at all. To not do this would be remarkable. Our passion is our family and travel. Why wouldn't we do this? People talk about having small kids on a boat as being risky. That is because they don't live on boats and it seems foreign to them. People talk about giving up a good job just to travel the world. That is because they are unsure of their own capabilities. People talk about sailing ocean passages for 15 days at a time as if that is a prison sentence, with no TV ("you better have a Gameboy for your kids!" one person said authoritatively). That is because they have not taught their children how to experience life without the gizmos. As I hear the barrage of why this is such a bad idea, I smile and ask them how people got along before the advent of , electricity/cars/Internet/video games/washing machines/fire/etc. The easy, dull road of life, is paved by others. You want a life unique to you? You must blaze the path yourself. We will be blazing the path for ourselfs.

Hola Cheapo!

Mexican Restaurants not only serve my favorite type of food, but they give free chips and for $9 you get enough food to feed 2 or more people. In fact, when we go to Mexican restaurants, we typically order 1 main dish (which includes the main food plus 2 sides) and 1 extra side, and we all eat from that one meal. Never have I had any one at these restaurants say a single word to me about it. As is often the case, the waitresses give us an extra portion anyway because our girls are bonita! :) Ahh, I love eating out!

How to wash your car for free!

Once someone scrawled in the dust on my car, “Get a car wash!” I wrote in the dust, “I’m waiting for the rain.” They wrote back, “You cheap bastard!” I replied, “Yep!”

Unless the cleanliness of your car is tied to your livelihood, don't wash it! Wait for the rain, then let nature do it for you, for free. Whip out a pair of swim trunks, grab a towel, some soap and play in the rain. If you have kids, all the better, it is a lot of fun! If it is too cold out, then just let the rain pound on your car and run the dirt off. But never, ever, spend money on a car wash just to clean your car.

Busting Your Ass Is Stupid

I read a blog last month that has been haunting me because it gave some bad, commonly accepted, advice to a large number of its readers. It said to make money you have to work hard. The notion of hard work equaling money is exactly what those who know how to make money want you to believe. They need more distracted servants. The author of the blog may be one of those who really knows, or he is simply naïve.

The concept of working hard for your money is so easy to believe because that is what we see and hear. We are taught that the way to make money is to trade your time for monetary compensation. The more needed your particular task is, the higher your pay is per hour. You could simply obtain more money by increasing your personal per hour value (PPHV). Medical doctors, for example, are sorely needed because the number of them is so limited (due to the rigors of becoming a doctor). As a consequence, medical doctors are paid a higher amount per their hour of working time than say a janitor (the pool of potential janitors is much, much, much larger). Most believe increasing their PPHV is the best way to accumulate wealth, but this is WRONG!!!!! WRONG! WRONG! WRONG WRONG WRONG!! Why? Because this method of making money is constrained by the 168 hour law: You cannot work more than 168 hours per week (7 days per week times 24 hours per day). No matter what, the medical doctor who makes his money only based on his work has a maximum he can earn. Sure the amount is a lot, but it is finite and tied to 168 hours, plus it takes him 7 years to start earning it. Earning via PPHV is hard, and can work, but there are other methods that require much less effort.

My most favorite method of earning money is via earning interest. Any money I put away earns me something regardless of what I do. If I put $100,000 away, every year I earn $5000 and I don’t have to do a damn thing. I don’t have to lift a finger, yet $5000 is handed over to me. (pick your scale, $100 = $5 in interest).

Those arguing that hard work is required will say, “Yeah, but you had to somehow earn that $100,000?” True, but maybe I built up to that using interest. Maybe someone gave me $100,000 in inheritance. Maybe I won the money in a Lotto. Maybe I easily seduced female billionaire and she paid me for my services (okay, that may be a stretch). Maybe I have the easiest job in the universe making minimum wage and I saved like crazy, lived dirt poor, and now I’m living off the interest of my savings.

The point is, if you believe that the only way to make money is the “hard way”, then every way you will try will be the “hard way.” If you believe that you can make money the “easy way” too, then you will find easy ways. I’ve highlighted 1 way, and there are more, but that is left up to you to find them. (oh wait, that's hard work!)