How Less Consumption Leads to Early Retirement

From Yahoo Finance:

Do you want to retire early? Then spend less and save more. You’ve probably heard this advice preached countless times and completely agree with it in principle. But you know how it goes. Saving money makes perfect sense, until you actually see something you want, and then every urge you’ve learned to control goes swiftly down the drain.

In the heat of the moment, you don’t think too much about the impact of a seemingly small purchase. But how much are you really giving up when you give in to small purchases? Here are a few reasons daily spending lengthens the amount of time you will spend in the 9-to-5 grind:

Your expenses are directly tied to how many years you need to work. The fewer dollars each paycheck that go to spending, the more you have left over to invest. No surprises there. But a smaller monthly outlay also lessens the load your nest egg will need to pay for in retirement. Spending just $5 per day on a coffee fix or other convenience food will cost you $1,825 per year or $54,750 over a 30-year career. For people who earn around a $50,000 salary, that’s an entire extra year of work just to pay for $5 worth of daily discretionary spending. If that worker spends close to 9 hours a day at work or commuting and works 20 days per month, that’s 2,160 extra hours of dealing with work, boring meetings, incompetent bosses and the commute, just to finance a daily $5 purchase.

Avoiding discretionary purchases could help you retire sooner. If you instead saved that $5 per day, you could not only retire a year earlier, but perhaps much earlier than that due to the compound interest on that $1,825 you tuck away each year. Saving just $5 per day in a 401(k) will grow to $178,856 over 30 years, assuming 7 percent annual returns. That’s about three and a half fewer years you would need to work if you earn $50,000 per year. And if you also get an employer match of 50 cents per dollar contributed on that money, you will have $268,284 after 30 years, which is 5 and a half years’ pay for the same worker.

You don’t need to save up as much. When your expenses are less each year, you can live well with a smaller nest egg in retirement. If you learn to live on $40,000 a year, even if you earn much more than that, you only need to save up enough to cover the $40,000 per year in retirement, not enough to replace your current salary. In fact, living on $40,000 per year, working hard to earn more than that and saving the difference is one of the fastest ways to retire early.

It’s much easier to come up with income to replace the smaller lifestyle. A smaller monthly budget can also add to your peace of mind in retirement. When your standard of living is entirely dependent on what the markets do, it’s hard to not be nervous whenever valuations gyrate. But what if your spending is so low you can easily come up with the difference by working part time? Obviously you can still aim big and try to get a large salary back. But if an easier to find and less stressful job can fulfill a possible income shortfall, then you don’t have to worry so much about investment performance and can concentrate on enjoying retirement.

For some people, spending less is extremely hard. We all live in the same modern society that celebrates consumption. But think about what you are giving up whenever you click the “buy” button. Is years of working worth the extras that you will forget about after owning them for a while?

Visit MoneyNing.com for more personal finance discussions. This site also helps readers decide whether a 0 percent balance transfer card is worth signing up for and keeps a good list of helpful promotion codes.

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The Morality of Wealth

Religious symbols

In talking with others about wealth and investing I find that there is a HUGE pressure on American Christians to be, act and remain poor.  I did a Google search for Bible verses on wealth, money and materialism and I found quite a few results that included many admonitions to be poor and to give up all of your wealth and possessions.

Now, I’m not going to get into a religious or philosophical discussion here – that’s a whole other website and I’ll leave it to someone to tackle those issues.  But I can say that almost my entire family comes from (very) religious stock & they are all quite poor.  I’m guessing that if you’ve come here, you are probably interested in getting rich.  If you are a Christian, you will have to balance your Biblical beliefs with your desire for wealth and how to merge the different philosophies.  Aside from Americans, this website is most visited by Chinese.  So, to my Chinese readers, whether you are Atheist, Buddhist, Christian or some other religion or philosophy, having a positive subconscious view that money and morality can coexist will be easier for you.

If you are a Christian person and you struggle with the idea that Jesus told the disciples to be poor and give up their possessions, you may consider some other logic.  Personally, I believe that any religious texts, if they were divinely inspired, have quite a bit of “influence” added by the writer.  And when I say influence, I mean distortion.  Now, if God’s hand came materialized and came down from the sky and wrote the book, it would be one thing.  But when a man puts it to paper, after first hearing it from someone else, there is a bit of distortion.

And, you have to look through a lens of context: when was the text written?  The Bible used to command people to stone those who worked on the Sabbath, but that has been done away with.  When Jesus told the disciples to “go poor,” did he mean EVERYONE or just those who personally followed him?

Is it possible to be rich and at the same time be religious?  Of course.  Provided that you’re smart with your money.  Giving it all away to your church isn’t smart.  Actually, I think over-donating (to your church or ANY other cause) is irresponsible.  If God gave you children and you give all your money away and your child becomes ill or you can’t afford to clothe them or pay for a good education, then you’re really a bad parent.  Good church-goer, but bad parent.  Bur really, this is what the New Testament says.  It says for the disciples to give up EVERYTHING for Jesus.  Does that mean that God expects ALL Christians WORLDWIDE to abandon their spouses and children?  Of course not.

When you look at what was written in context, you can see that there is no prohibition to wealth.  When looked at, in its totality, the Christian scripture warns against love of money more than God.  In other words, if you are so hungry for money that you will lie, cheat and steal, then, that is a bad thing.  And I can honestly say that I haven’t lied, cheated or stolen to save my first million dollars.

The good book does warn against indebtedness yet I see most Christians in debt.  Funny, so many Christians will chastise affluent people for violating God’s rules but a page later, when it says not to be in debt, they do the same thing.

And so, in our American culture, we have an inset bias against wealth and affluence.  it is no wonder that the immigrants to this country regularly beat Americans in the wealth competition game.  The average American seeks a “job” and the average immigrant seeks “opportunity” (often to start their own business.

I suggest that it is morally right to be affluent.  Have a look at God’s “chosen people,” the Jews.  They are, by capita, the richest people on Earth.  They don’t have any guilt trip when it comes to being wealthy.  This is an interesting paradigm because if they are God’s chosen (as believed by most Christians), how can they also be so wealthy?

Remember, all things in moderation.  God wants you to be happy and prosperous.  Saving enough money so that you can set up your children and grandchildren in their life is a good thing.  It is a moral thing.  Don’t let anyone tell you that having money goes against God’s will.  That is just silly.  If you look closely at your own religious beliefs and take them into the context of your whole religion, you will probably find that become affluent is good and it is moral.

Good luck, and good investing.

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net

Debt

If you are in debt, you will never get rich.

This is perhaps the most important reason that most Americans (and others around the world) have such difficulty attaining financial independence.  Your goal is to save money and have it work for you.  Think of the little green dollars as slaves, if you have a hundred of them and you put them to work, they will produce some returns for you.  You add to them and over time they add up.  But with debt, it is the opposite.  Whatever money you have in the bank and your earnings get swallowed up in interest charges.

The average credit card charges almost 20% interest.  If you put something on finance and don’t pay it off for 5 years, you will end up paying 200% the value of the item (5 years x 20% interest = 100% in interest).  If your “normal” monthly expenses are $2,000 and you put a portion of your living expenses on credit, your monthly costs may be $2,500 or more.  That $500 a month could be going into your savings account.

If anything, you want to be loaning money, not borrowing it.

I have one brother who has a great job (he is a co-owner of a fair sized corporation) and makes a fat salary.  But, he loves his credit cards and constantly carries a balance.  This “easy spend” lifestyle eats away at his savings potential and the interest charged on the rolling balance keeps him in perpetual debt.  If he would just cut his spending for 6 months and pay off the cards, he would be able to return to a “similar” spending lifestyle and be able to keep the savings (what he’s not paying in interest) and begin to build his savings.

Debt is just stupid, don’t do it!

In 20 years, I have paid my credit card off each month in full.  And the only reason I use a credit card is for the frequent flyer miles.  The ONLY debt I have carried in 20 years is my mortgage.  Even my car was paid for with cash.

If you can’t afford to pay cash for your next car, ask yourself, “do you really need it?”  I’d rather drive an old car and have people “think” I’m poor than to be poor and have people think I’m rich.

Live will bring you dozens of opportunities to get rich.  If you are in debt, you will miss them all.  A lot of people blame others for their lack of financial success – and most of these people are in debt.  Don’t make this mistake.  If you are in debt now, get out of debt.  Cut your spending, take some overtime or do whatever you must to get out of debt.  If you are considering taking on debt (credit card use or buying a new car), don’t do it!  It isn’t worth it.

I’m growing richer each month loaning money to others and rolling the interest back into new loans and investments.  My investment portfolio is monthly returning about 1/2 of what I receive in paychecks each month.  This money just compounds and some day, my investments will yield more than my salary.  At this point, I will be free to quit my job if I want, and I’m only in my early 40′s.  This journey to becoming a millionaire would NOT have been possible if I was carrying a debt load.

Good luck & good investing!

The use of copyrighted material in this website is protected by the Fair Use Clause of the U.S. Copyright Act of 1976, which allows for the sharing of copyrighted materials for the purposes of commentary, criticism and education.  All shared material will be attributed to its owner and a link provided when available.  All other comment on this site may be reproduced with the author’s consent.  Please source any references or quotes of this website to: http://www.my1stmillion.net