At this point I am fairly confident that if I want to end up with a million dollars in investments that I can do so. Using a couple of basic assumptions and doing some simple math (like 5 percent interest for the next forty years) I can easily see myself hitting the one million dollar figure.
Doing so does not assume a huge return on investment (I figure on 5%, no more) and it also does not require me to get lucky and make obscene amounts of money (I already got fairly lucky and did that once).
So now that I have six figures to play with in investments I can use some ideas from Jacob over at ERE and let it all ride for a few decades. But before doing
that, I would first have to ask myself:
Do I really want a million dollars? (And all that it entails?)
Why make a million dollars? Why not spend the money instead?
Let’s say that you have a million bucks. What do you do with it?
Do you go nuts and start spending it? Do you buy fancy cars, go find your dream home, start buying all sorts of big screen televisions and iPhones and so on?
What is the point of having money if you cannot indulge and enjoy it, right?
Well hold on a second. Spending money is fun, but then it is suddenly all gone. Buying a dream house will cost you more in property taxes each month than what I currently pay in rent. Insurance on a sports car ain’t cheap. And so on. Big ticket spending will drain your nest egg fast.
It’s like the poor person mentality that occurs when the wrong person wins the big lotto jackpot. They are typically declaring bankruptcy within a year or two. Why? Because they have the wrong mentality. The wrong attitude. They want to be rich, appear rich, feel rich. They do not know what real wealth is or how to respect it. So they instantly want to spend, spend, spend.
A million dollars is a ton of money to someone who is frugal, because they can live well without ever touching the principle at all.
In fact, a million might be TOO much. Why go to all the trouble to make a million, if you don’t really need all that money?
When I talk about possibly not wanting a million dollars, I am not talking about all of the supposed stress of the ultra rich…..I am instead referring to the sacrifices (?) that I would have to make in order to achieve that level of wealth.
One of the assumptions that goes into my million dollar equation is that I have to keep working and covering my living expenses. This is not difficult for me to do, as I am quite used to working at this point.
That said, I don’t like to work more than I have to, and I certainly am not willing to ever take on 40 hour + weeks in an office environment again.
Because of this aversion to work (but still needing to cover my living expenses with regular, non-investment income) I need to practice a bit of frugality.
Now I know that the word “frugality” may make you turn your nose up and it might sound like an awful thing to say, but really it is not so bad. For example, I still have a car. I still drink caramel lattes here and there. But I do rent an apartment for under $500/month, and my car is over ten years old (and I do not plan on replacing it until it is good and dead!).
Frugality + burger flipping for the win!
In fact, I could reach my million dollar goal a lot sooner if I was willing to make some more extreme sacrifices to get there. Here would be the three major changes that I could make:
1) Ditch the car and just use bike + walking for everything.
2) Get a roommate and bring my rent from $420/month to under $250/month.
3) Go get a “real” 40 hour/week day job in my field of study.
If I did all three of those things I could reach the million much, much quicker.
But, I am not so sure that I would want to do any of those things. I like my car (and the travel it allows), I like living alone, and I like working 7 to 10 hours per week in my home rather than 40+ in an office.
But because I got a head start fairly young (over six figures invested at 36) the money has plenty of time to grow and compound (even at a very modest 5% return). I could flip burgers the rest of my life and be frugal (not ever touch the principle) and it would probably turn into a million by the time I am 60 to 75 years old.
But the question is:
Is that a worthy goal? What is the point of amassing the million, only to reach this finish line near the end of my life?
A philosophy like that found in “Your Money or Your Life” would say that it is still a worthy goal to live off of passive income, even if you leave a big nest egg when you are gone. The reduced stress of never having to worry about money is worth it in the end. Others would say “why wait, spend some money now, enjoy life!” These are the people who would like to be rich.
Do you want to be wealthy or do you want to be rich?
Being wealthy, to me, is having enough saved and invested (enough assets) that you can cover your living expenses ENTIRELY with passive investment income. That is real wealth. At that point you have wealth because your time is 100 percent your own, you do not *have* to go to a job, like most people do.
On the other hand, many people who are far from wealthy and actually live close to paycheck to paycheck are what I would consider to be “rich.” They act rich, they wish they were wealthy, and they spend money like crazy. They also MAKE money like crazy. So they work like a dog and they are probably leveraged up to their eyeballs with a big mortgage and a huge car loan. They are “rich” even though they do not have real wealth. They are owned by their jobs. Even if they can change jobs, they are still owned by full time work. They have to work.
I do not have to work. I have wealth, though I am definitely not rich. I cannot go buy the new BMW. If I do, then I am back to where I *have* to work.
I make some compromises. I drink caramel lattes. I travel with the family. I drive a car (cars are horribly expensive in case you did not know!). But I also work a bit of freelance, enough to cover my monthly bills.
I like being “wealthy” in this way even though I cannot go nuts with my spending. My time is my own. No one can claim it, unless I choose to go buy a house and a new car and start living beyond my means and taking on debt and so on. I do not need to do any of that to be happy though. So I like the idea of accumulating more assets while living somewhat frugally and traveling here and there.
How I got to this point: the Sprint technique
A hat tip to my good friend Yaro (actually an amazingly nice person, btw) for putting into a blog post the concept of “sprinting” so nicely for me.
About five years ago when I started my first website it was making decent money and I was still working a full time office job.
I hated the job and therefore I wanted OUT. Thus, my “sprint” technique was born.
At one point I took a month off from my day job, cranking out up to 25 articles in a single day on my flagship website.
On other days I was more reasonable, and had a daily quota of publishing at least three articles.
I continued to do this even while I worked a day job.
Hundreds of articles on my website eventually turned into over a thousand articles. Times a million thinking. This created the platform that would become my current wealth.
I had to sprint to do it. I had to push hard and make some insane efforts for it to happen. There were days when I cranked out up to twenty thousand words of new content for my website. I wanted my freedom real bad, and I got it.
So that is the “sprint technique.” Read more about it on Yaro’s site if you like. The bottom line is to get all distractions out of the way and then work like a madman. This is what worked for me.
Becoming FI and discarding your unhappiness excuse forever
Another hat tip, this time to Todd over at Financial Mentor for introducing me to this concept.
I am grateful today because now my “unhappiness excuse” is gone.
This is the idea that “I will be happy when I have a better job and am making more money….”
“I would be happy if I just had a million dollars…..”
But because I now have wealth (though I am still not “rich”) I now realize that those mental games are exactly that: games. I am not going to be happier if I double or triple my investment account numbers. Realizing and accepting this is another piece of the freedom puzzle. I can be happy today with the assets that I do have, without wishing for future happiness based on more money, a better job, etc.
Today I have no excuse to be unhappy.
I will teach you to be wealthy
I guess the real question then is this:
Do you want to work like a dog so that you can feel, act, and appear “rich?” Or would you rather be frugal, financially secure, have piles of money in your accounts, and not appear to be rich at all?
I have enjoyed a fantastic steak recently, but not every day, and not at the fanciest restaurant in town.
I have enjoyed a caramel latte recently, but I do not drop 5 bucks on one every single day.
I could easily trade in my car and get a cute little Smartcar or even a nice Prius, but I choose not to do so. I am not “depriving” myself. I am not making a huge sacrifice by driving my ten year old Hyundai for another few years.
Think carefully about this. I am not saying that I do not *want* a Smartcar (because I obviously do!). What I am saying is that I realize today that my happiness is going to be the same, almost completely identical, regardless of which car I am driving.
Sure, there is that instant euphoria when you buy the new car, and you can take your cute little Smartcar around and show all your friends how dorky you look in it, and how fun that is, but this is not related to your long term happiness. In fact your happiness will likely go down as new cars are VERY expensive to buy.
If I want to act or feel rich I can go on a spending spree and go buy that new Smartcar. Then I can go buy a house (so I don’t blow my money on rent, right? WRONG…..property taxes + maintenance + upkeep kill the deal and make $420/month rent an absolute steal).
Instead of a spending frenzy, I choose wealth.
I choose to be wealthy rather than rich.
This involves saying “no” to a whole slew of marketing and potential “feel good” purchases.
Money is only money if you spend it, right?
Wrong. My money creates passive income for me. This only works if I keep my spending in check and focus on the things in life which make me truly happy.