Forget frugality! There is an Easier Way to Financial Freedom
While doing research for my next book on money and financial freedom, I’ve been exploring various paths to financial freedom. And I bumped into Mr. Money Mustache (mrmoneymustache.com) along the way. I like him. He has a sense of humor and his math is correct. This is important as many websites don’t get the figures right. He is green, he is tough and rides his bike even in snowstorms. He achieved financial freedom ($900K invested) early in life by living well below his means for 10 years. There is much to be learned from him about having the financial freedom to live life as you please as soon as possible.
He and his wife were earning just over $100K combined incomes and saved roughly 60-70% of that for ten years. They were fortunate to be investing in a bull market. Ta da! They made it to nearly a million by living frugally on $27,000 a year. Because they have a simple lifestyle, they didn’t suffer in the process.
Todd Tressidder of financial mentor did much the same thing, but on a single income of $100K a year for 10 years. No suffering for him since he didn’t have expensive hobbies or children at the time.
So voila! There is a viable and mathematically correct plan for very early retirement. It requires two things that may make this plan unrealistic for most people. First, you need to earn $100K singly or as a couple to pull it off in a 10 year time frame. Second, you need to be pretty darn frugal.
If you earn $100K a year, then you can achieve financial freedom in 10 years by practicing frugality. The basic costs of food, shelter, etc. are the same for nearly everyone. About $27-$36K covers most basic living expenses depending on where you live in the USA.
But, where does this leave most folks? The math isn’t nearly as appealing if you are an average earner. If you earn $50K a year, it will take you a whopping 30 years to achieve the same result living a similarly frugal lifestyle. Read The Dirty Little Secret here to see the math on why this is so. Since the average US income is $50K, most of us are looking at putting some serious time in at the job. And, if you are going to have to put serious time in at the job, then it would make sense to find a job you really love doing. That will make the 30 year journey to financial freedom enjoyable for one thing!
I can understand sacrificing your happiness in a job you don’t love for 10 years to achieve a lifetime of financial freedom. I can’t see doing much more than that. After all, there are no guarantees you are going to be around to enjoy it. It is a dangerous trap to postpone happiness for some later date. Thinking, “I’ll be happy when I have $1,000,0000 invested” may be putting both your freedom and your happiness on hold for an unnecessarily long time. Being a woman, I immediately thought, there has to be a better way, hopefully with some shopping and nice clothes involved en route! (I’ll be happy to share with you my secrets to financial freedom that are feasible for the average Joe and don’t require extreme frugality for years in my upcoming phone class).
The second thing I’ve noticed is that if you look closely at these early retired financially free folks you’ll see that they all still work. Mr. Money Mustache writes his blog regularly (and most blogs of that length take a few hours to write). He also does home improvement projects and helps out his neighbors with their home improvement projects. He says he only does work that he enjoys. So that is the main difference—he no longer works for the money. But he quickly found that doing nothing is actually really boring. So he keeps himself busy with work of one form or another. He could no doubt have cut the cord even earlier if he realized he was still going to be working and earning money.
Todd Tressidder used the same tactic of frugal living for 10 years and is now the owner of financialmentor.com. He works, too, building a website to educate people financially. I heartily recommend his excellent Ultimate Retirement Calculator. Like Mr. Money Mustache, Todd now works on his terms. He works quite hard–more than I do. I have a fraction of the wealth he has. So technically, I should be working harder. However, I’ve learned that working harder doesn’t always lead to more money. In fact, the more fun I’m having, the more money I make. Fancy that! Come join me on that path if you like.
What other alternatives are there to financial freedom?
Read the Sunday Times Rich List and you’ll see there are three primary roads to wealth. First and fastest is business, second real-estate, and third and slowest is paper assets (stocks and bonds). I’m not counting marrying wealth which can work well for some (an acquaintance of mine did and she is still happily married so it isn’t true that you get what you deserve if you marry for money) and I’m not counting being a famous rock or movie star which also works well, but for very few.
Let’s look at MJ DeMarco who wrote The Millionaire Fastlane, after creating a business and then selling it for millions. He bought a big honking house in Phoenix that he doesn’t really love and a Lamborghini that he does love, but he can’t take out because people throw beer cans at it. He ends up driving his ordinary car around town to prevent damage to his fancy car, which stays mainly in the garage. So why bother with it in the first place? It would have been more cost effective to rent a flash car. After he sold his business for millions, he got bored and ended up buying his own business back! Then he wrote the book and that is another form of work too—more than most folks realize.
Okay, how about real-estate as a road to riches?
Robert Kiyosaki, the author of the Rich Dad, Poor Dad series of books made his wealth in real-estate and started from nothing (all the examples I’m sharing assume no inherited wealth and starting from nothing). He now works writing one book after another and creating educational board games (I like his Cash Flow Quadrant book as well as his Cash Flow board games—very instructional!), but he is very much still working.
Okay, but what about the super wealthy?
Now let’s look at the really, really wealthy who can truly afford never to work again no matter what happens. We’ve got Bill Gates. Last I heard, he is pretty old and still working. Warren Buffet is still working. Then we have Oprah Winfrey. She is still doing her shows, running her website and magazine. We have the Queen of England, one of the wealthiest women in the world and she is no spring chicken, and yet she refuses to let Prince Charles take over the reign. Still working. Then we have J.K Rowling, the author of the Harry Potter books, she is still writing and worries she will die before she gets all her ideas down on paper.
So you see, making those millions really isn’t what it is all about. In fact, it is crazy to sacrifice your present for some future that may not even occur. If you read the Rich Lists you’ll see that these rich people are all still working. Most of them made their huge wealth though either business or real-estate. Very few are rock or movie stars. None of these made their great wealth by being super frugal for 10 years.
What about those wealthy people with the yachts? Aren’t they having more fun? I am always amazed at those yacht owners who are parked up in the docks and what are they doing? They are watching TV in their yachts, parked in the docks. Hmmm… do you really need a yacht to watch TV comfortably? So you don’t need a yacht, a Lamborghini or a big honking house to be happy. In fact, if you want any of these fancy things, do as Warren Buffet does and rent them instead—much cheaper!
So you see, making a million by 30 or 40 is not really the point. Yes, it does mean you can work on your own terms, but you certainly don’t need a million dollars to say, “Take this job and shove it.” You need about two year’s living expenses in reserve…about $60,000 could tide most folks over for two years or more if you lived frugally, as our frugality experts have demonstrated. $100,000 if you are more of a spendthrift and you’ll have two years to find or create another source of income.
So once you have two year’s in reserve, you don’t have to do work you don’t enjoy. Hooray! Freedom is yours! You can do what you want! Yippee! As you’ll see, all these folks, even the super duper wealthy carry on working at something, even if they don’t get paid for it. And, if you ask them, they’ll tell you they are happier doing something productive than not. You could start a business you are passionate about. Or you could work part time to cover the bills while you go back to school or explore different and more interesting career options.
The one thing that is clear is that you’ll WANT to do something (after lolling around for a few months and getting bored or depressed) and as soon as you find that thing that you’d do when you had your million socked away, you don’t need to wait for ages until you have a million to do it. In fact, I worry that all this emphasis on getting to a million will be keeping people stuck in jobs they don’t enjoy for decades just so that one day they get to say, “Ha! Ha! I quit!” Don’t wait, you can probably quit much sooner than you think, but you do need a plan.
Now it is my turn to brag. In some ways, I’ve done better than all of these folks mainly because I didn’t wait to retire early—I did it at 30. And I have spent like a maniac in the process (which I don’t actually recommend and have a cure for if you are a shopaholic), have two kids, a wonderful husband and three houses and I don’t have anywhere near a million in the bank, but I am financially free and could quit my work at any time and opt for the frugal lifestyle and live quite happily and comfortably.
Okay, I’ll confess that I’m frugal in some areas (I have never bought a new car in my life). However, my friends and family can confirm that I sure know how to spend. I enjoy shopping and dining out at least once a week. (See, we needed a gal’s perspective on these things!). I didn’t wait until I was 40 to retire. Instead, I “retired” early at 30 with a mere two year’s living expenses in the bank. I quit my full-time job at Chase (I never made more than $60K there) and started my retirement career which I’ve been doing ever since –life coaching, speaking and writing books.
And anyone who retires in good health at 30 or 40 will need to be thinking about that retirement career or they’ll end up depressed and miserable like the drug addicted billionaire son of J. Paul Getty. So why not focus on getting that retirement career going sooner rather than later? That will buy you anywhere from 8 to 30 or more years of enjoyable lifetime. Sounds like a better plan and it is certainly a practical plan for most people and achievable on any income. Time is the one thing we can’t get back, we can always make more money.
Since quitting my job, I moved out of my tiny, rented 600 square foot NYC apartment and I’ve mainly lived in lovely, somewhat grand five to six bedroom homes with large yards, hired an image consultant to select a wardrobe designed and then hand-tailored for my figure, have had weekly massages, go out for a nice dinner once or twice a week or more, traveled two to four times a year to foreign countries for business and pleasure holidays, bought a summer home, have furnished my large homes with antiques, and I even have a gym membership. I have worked as a life coach and author and motivational speaker part-time (20-25 hours a week) on my terms ever since leaving the bank, giving me time to spend with my husband and two children, potter in the garden and read books. Oh, and I’ve had my house professionally cleaned weekly since I was 29, now twice a week with the kids making more messes of things.
Do I have a million dollars invested? Not even close. Do I have a financial plan to have a million dollars or more invested at some point so that when my brains go I don’t have to worry and am financially independent? Yes, you bet. But I’m not going to sacrifice our present enjoyment and fabulous lifestyle and world travel to achieve that goal when I already do work I love. A million would be nice to have now, but it isn’t necessary to fully enjoy life right now and it wouldn’t change our lifestyle.
We are being responsible adults–we do have disability insurance so that if we are unable to work, there will be some money coming in, but other than that, it is pretty obvious that the richest people in the world keep working because they enjoy it. They’ve long since passed the point of needing to work. That is why I keep doing my life coaching business too. I get great joy and satisfaction coaching people to become happy and successful. And, I’m passionate about helping people find their calling in life.
The sooner you can find your own passion, the sooner you can join the ranks of these other allegedly “retired” guys and design your own life, working on your own terms. Then, whether or not you have the million becomes fairly irrelevant. Yes, nice to have, but not essential for living a rich and amazing life at all. In fact, one could argue that you are better off NOT having the millions so you don’t get too lazy like J Paul Getty’s billionaire son. I know I’d like to think I’d still be highly motivated if I had millions. But I’m actually pretty content doing not much at all. I could see that having too much money might make me less creative and productive, not more.
The lesson: Live Well Now, Not When You are Too Old to Enjoy It
Important Note: You can save money and live well at the same time. It is wise to do this in your 20’s thanks to the wonders of compound interest. Start at any time as better late than never to get on the path to financial freedom.
Read the next article How to Live Like a Millionaire Without a Million here.