This is a tough subject, brimming with unspoken taboos. The more I’ve researched, read, and written about personal finance, the more deeply I’ve come to understand a fundamental truth: many people want a certain lifestyle, and they are going to live that life regardless of whether there is money to support it. Do you deserve a life you can’t afford?
Certainly, some of the confusion comes on the definition of affordability. What does affordability mean to you? Some might consider a debt-free existence within the bounds of affordability. Fair enough, that’s a safe start.
Sadly though, 33% of Americans are on the verge of maxing out a credit card, and perhaps think “I can afford this” for anything that can be purchased on loan from a credit card company. Buying on loan is enslaving you to paying with yet-unrealized funds. You are perpetually heading off to work and earning to cover choices of your past!
A Timeline to Traditional Retirement
How long do you think you will need to work? From a traditional standpoint, if you are starting a career in your early to mid-20s, you need to at least plan on 40 years in the workforce, right?
But here’s something you may not know (we didn’t):
If you plan to retire in only 40 years you likely need to be saving and investing at least 17% of your income every single year. That model assumes you are starting from a net worth of zero, have no plans for other passive streams of income in retirement, and won’t collect substantial social security payments. If you are young, you shouldn’t plan on much social security income.
If you are in debt, it only goes up from there. Want to know your timeline? Play with this online calculator. It’s fun.
The flipside though is that by increasing your savings, you can bust out of debt and/or significantly decrease your working timeline. And you can do it now!
Americans Aren’t Saving
I’ve mentioned this time and time again, but it’s important to bear in mind that we simply aren’t saving enough. Americans are saving, on average, about 3% of their income as of 2018. You will be required to work your entire life with that kind of savings rate.
Many will be quick to point out a handful of social and economic culprits: stagnating wage growth, increasing prices, and a rifting divergence between those who have and those who have not. I agree with all the above, and as a society we have some problems to address.
How’s it going for you?
BUT…can you confidently say that you are steadfast in living within your means? As an adult, are you doing all you can to be 100% financially self-reliant? Are you convinced as a young person that it’s important to live it up now and figure it out later? And in doing so, are you (even unintentionally) leaning on your parents or other friends and family to bail you out when unexpected expenses inevitably occur?
Parents, are you too eager to throw your kid a bone every time they hit the tiniest snag, robbing them of the crucial experiences necessary to learn and grow and provide for themselves in adulthood? I understand that we all need a hand every now and then when we’re young, but a spoonful of tough love can go a long way towards teaching the real value of money.
My fear is that with a steadily dwindling social security system and the vast elimination of pension-paying careers, we will face even more daunting financial problems than the ones we face today. Are we to expect a growing number of people who can’t afford to support themselves later in life, long after employers are willing to pay for their services?
No, not if we take personal accountability now, flexing our sense of individuality and strong-willed drive. We don’t need no damn crutches, right? We can find joy in a life we can afford.
“But My Life Makes Me Happy”
I recently read a blog post where the author, a young woman in her early 20s, discusses her life in an expensive city with her boyfriend. They both carry thousands of dollars in credit card and student loan debt. Instead of making a case for the immediate need to pop her ballooning debt, she continues to discuss her preferred life in a mid-town trendy apartment, paired with the desire to eat out often or purchase “only organic food.”
The reason for this lifestyle? “It makes us happy.”
I was floored and admittedly a bit enraged at this logic, on a peaceful Saturday morning no less! The lifestyle choices aren’t the problem, it’s the disconnect and sense of entitlement for a life not yet earned. In my early 20s I slept on a mattress on the floor of a dumpy, white-walled working class Portland, OR apartment. Why? It was all I could afford. Was I happy? Eh, not really (I blame the rain), but I was grinding on and building a base to get me there.
“Without Labor Nothing Prospers” -Sophocles
More debt = happiness? Perhaps we need to work on semantics.
Traveling the world makes me happy. Sleeping in makes me happy. Eating chocolate makes me happy. Drinking a glass of 40-year Cotes du Rhone from the cask in a musky French cellar would also probably make me happy (haven’t tried that yet). Rock climbing makes me happy. My wife makes me exceptionally happy.
But the reality is that happiness is most pronounced when it’s earned. Sleeping in feels wonderful when contrasted with the stress of a long and engaging work week or training session, but without that contrast would it not just be sort of depressing?
I deeply cherish the relationship with my wife because it’s something we’ve built and cultivated. It’s taken years of effort, more than a few cold shoulders, and lots of eye rolls to get to where we are today.
Finding a Life We Can Afford
Certainly, we’ve all heard the cliché phrase that money can’t buy happiness, but so many of us keep trying anyway! Who cares if we are stuck in a sticky, intricate spiderweb of debt? It will work out eventually. YOLO.
The unfortunate reality is that, for the majority of us, “success” is spelled E.F.F.O.R.T. (My dad gave me that one — good on ya!)
How can we find a life we can afford?
In 2015 we decided we wanted a better life, so we re-framed our perspective and worked very hard to achieve new goals and benchmarks. We feverishly researched investing and withdrawal strategies, hustled to lower our expenses and increase our income. We challenged ourselves to take on new practices and let go of those that cost us money without providing substantial value. The hardest part was getting started, and then it was frankly easy. The whole process provided new meaning to our lives.
Let’s look at some common limiting beliefs and suggested workarounds:
“My Job Doesn’t Pay Me Enough to Save”
This is a common and understandable sentiment. Early-career and underpaid employees (e.g., teachers) really struggle to find margin between money in and money out, even if they aren’t blowing their money on dumb stuff.
Step one for you folks is increasing your income, and I believe in you. Are you hustling to be a great and irreplaceable employee, fighting to show your value to the company? Is your work ethic unquestionable, allowing for easy decisions on who does and who doesn’t get a raise this year? Or are you just going through the motions, doing the bare minimum, and complaining about not getting a raise again? That’s for you to decide.
Outside of work hours, have you considered side sources of income? Dog-walking, scooter charging, coaching, or whatever else you enjoy all can be low-effort sources of supplemental income. Even your hobbies might pay some decent coin if you’re creative. Here’s a more exhaustive list of potential side hustles.
Teachers: I no doubt understand that the school year is draining, but are there opportunities in the summer to capitalize on the free time to increase income?
There are limitless ways to make side money, so why not?
Zach over at Four Pillar Freedom has an inspirational story. He, like us, was a corporate employee disillusioned with his career and in pursuit of early retirement. Instead of following that path in its entirety –which would take more than a decade in the corporate world — he hustled in his off hours to generate several streams of income, finally allowing him to quit his job in lieu of financial independence. Here’s how he did it. Well done, sir.
“I’m Not Spending That Much”
Well, let’s take a look under the hood, shall we? Have a look at our post on the Five Essentials That Are Destroying Your Savings. Is there anything you can cut?
The problem with American spending habits is that we are far too quick to confuse needs with wants. We don’t need television. Dining out isn’t necessary. A five-year-old car is not old. It’s not essential to live in a hip neighborhood. The CC’s were guilty of a lot of this too until we took a hard look at our own numbers.
Now I want to clarify once again: I’m all about value spending. If there is something unessential that brings true joy and happiness in your life, you have the Mr. CC seal of approval! We have lots of discretionary spending on our tracking spreadsheet, but we’ve taken great effort to establish what brings value and largely eliminated the rest.
Does it bring value? If the answer is no, it ought to go!
If you tally up your spending and analyze the results, I’ll go out on a limb and guess that at least 20% of your spending could be eliminated immediately with no long-term change in overall life satisfaction.
I’d further venture to guess that you will likely even find the opposite to be true; increasing joy through simplicity. But it won’t be easy at first, and you must face change.
I’m happy to help, for free. We can all afford that :). Contact me with your story.
“Investing is complicated and it’s scary”
This is a topic worthy of a book, so here’s hands down one of the best money can buy (also available at your public library):
Investing is a psychologically demanding endeavor. However, without the compounding effects of growth in the market or other investments (e.g., real estate), it’s virtually impossible to save enough to provide for life after a steady W2 income.
Loads and loads of researchers arrive at the same conclusion: If the investor quits screwing with it and trying too hard, passive investing in low-cost and broad-based stock index funds provide for fabulous long-term compounding growth. Here’s our simple strategy that works.
“But I Didn’t Even Know!”
That’s why I’m not mad at you, friend. We didn’t know either! You have my digital shoulder to lean on, my hand of binary code to help you on your journey to being the boss of your money.
Most of this stuff, unless you are here, is completely hidden from our conscious thoughts. Of all the federally ordained “essentials” we are taught in schools, we aren’t taught how to save. We aren’t explained the immense power – both negative and positive — of compound interest.
We aren’t taught the dangers of debt, and the reality of the endless treadmill that is our working lives when saddled with the burdens of a lifestyle we can barely afford. Let’s go to work to pay for the stuff we don’t have time to enjoy anyway.
Summary
This movement of financial independence is so fundamentally good that it nearly brings me to tears sometimes.
I want badly to share these lessons with everyone, but this message clashes with the decades-old core of the quintessential American (and increasingly global) lifestyle: buy more stuff and you will be happier. It’s a lie we’ve been told, mostly subconsciously, our entire lives.
We can’t afford to keep living like this.
There’s a tough crowd out there, but you’ll help us, won’t you? Please send this to those who will resonate with this message, or those who need to hear it most.
Remember, the best laid plans mean nothing if you can’t take action today. Have questions? Need some feedback? Hit us up on the Contact page.
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