Photo by Gabriel Meinert
The subject of spending seems to be getting a lot of attention of late in and around the financial independence (FI) community.
The issue seems to be that those pursuing FI are on a path of deprivation and delayed gratification, and this behavior becomes so ingrained that when the time comes to spend they lack the ability to shift gears.
We’ve all seen this in action and even my pal The Mad Fientist has written about his own journey from saver to spender.
There is no question that the behaviors that get you to Fi are not necessarily useful once you are there. But perhaps there is a different way to frame this whole journey.
Deprivation?
“Save my money? Ah man, I want to spend it all!!. I want to enjoy life to the fullest! YOLO!!”
Yeah, me too!
And here’s my dirty little secret…
I have spent every dime that came my way just as fast as I could.
This from the guy who somewhat famously counsels, “live on less than you earn.” How can it be?
Simple. Like most people, I’ve spent my limited dimes on what was most important to me.
In fact, the thing money could buy that I wanted most was so important to me I immediately and fully spent 50% of all the dimes that came my way on it:
My Financial Freedom
Deprivation? Delayed gratification? Hardly. I was buying what I most wanted RIGHT NOW.
The way to acquire this precious situation is through the purchase and holding of assets. Specifically low cost broad-based stock index funds.
Other people, of course, want other things and that’s where their money goes: Big houses, fancy cars, jewelry, clothes, luxury travel.
I confess this baffles me a bit. Buying my financial freedom was just so much more desirable to me. Plus now that I have it, all those other things are essentially free (more on that below).
But it is their money and they are free to spend it however they choose, regardless of how baffled it leaves me.
Buying my financial freedom provided an endless sense of satisfaction as week-by-week, month-by-month, year-by-year I could see myself becoming steadily financially stronger.
Just like going to the gym and watching your physical strength and agility grow over time.
Deprivation? Never felt that way to me. Delayed gratification? Nope, the gratification was immediate and continuing.
Buying Happiness
“But I want to be happy!”
Me too!
Problem is, buying stuff probably ain’t gonna get you there.
Let’s start with with a basic understanding that there is no research that suggests spending money generates happiness.
Certainly a shortage of money can cause great unhappiness. Living pay check to pay check, worrying about paying the bills, living in fear of losing a job you desperately need but don’t really like is a miserable way to live. But that is a very different thing.
Once those basic needs are met that unhappiness certainly diminishes. But spending more does not continue to improve things on the happiness scale much, if at all.
So, two assertions here:
- Spending money just because you have it is silly. Stressing that you are not spending money you could spend is sillier still.
- At the same time, if you are comfortably FI and have ‘enough and then some’, you shouldn’t hesitate to spend when it suits you. Wanting something you can easily afford that would improve your life and denying yourself because of an ingrown habit, is tragic. Even if that thing is a terrible value proposition.
Here’re a couple of examples.
I’ve always liked cars and at this point I could easily afford an expensive vehicle. Back in the day, when luxury was defined by great engineering, build quality and fine materials, I would have bought one. But today it is about gadgets and touch screens, things I actively don’t want. The idea of telemetries in my car makes my skin crawl.
Seems I am not alone. A few months ago I was at the dealership getting an oil change. There were about half a dozen other folks in the waiting room with me. Men and women, ranging from young to, well, me.
One of the sales guys came in to get a coffee. As he was leaving he said, “If any of you would like to upgrade the new models are available. I’d be happy to show you. They have all the latest features.”
Silence.
Finally, cranky old geezer that I am, I said, “Let me know when you have a new model with fewer features. That’s what I’d be interested in.”
To my amazement, every single other person piped up saying, “Me, too! That’s what I want!”
The sales guy sighed. “I hear that all the time,” he said.
Spending money on a new car is something I can easily afford. Problem is, it would make my life worse. My new car buying days are over.
My up coming solution is going to be to buy an older luxury car and have some of my engineer/mechanic buddies refurbish it for me. But that’s a subject for another post.
On the other hand…
For years now I have flown 1st class. Flying 1st class is just about the worst value proposition I can think of and accordingly buying the ticket grates on me each time.
But flying first class makes flying in this day and age slightly less miserable. Not good mind you, just slightly less miserable. As I can easily afford it, that is worth the spend.
Not only worth the spend, it’s free. And I am not talking about points.
Everything is Free
A number of years ago, my pal Pete (Mr. Money Mustache) and I were in Ecuador. We were headed to a bodega to buy some wine. He’d been there before and I had not.
“How much is the wine at this place going to cost?,” I said.
“It’s free.”
“Pete,” I said, “I know things are cheap in Ecuador, but it is not going to be free. The merchant is going to expect us to leave some money behind before we go strolling out his door with the wine. How much might that be?”
“No, no JL, you misunderstand me. Everything is free.”
Clearly the Ecuadorian sun had addled his brain.
“What in blazes are you talking about? Nothing is free. I’m shelling out money all the time.”
“True enough. But what I mean is, once a certain level of wealth is achieved, your money is earning more than you are spending. That means the money you spend takes no effort to earn, making it free. Along with anything you spend it on.”
This was an epiphany for me. No matter what I spent, my invested money replaced it and then some. This makes everything essentially free.
Now to be clear, if I put my mind to it, I could spend more and faster than my investments can handle. Then those investments themselves would be reduced to cover the spend which would lead to less money invested earning less money to spend until I was broke.
Exactly like our federal government has been doing for decades now so that the federal debt is closing in on 40 Trillion Dollars. The interest spent on this is ~$1,000,000,000 a year, second only to Social Security, and accounting for almost 15% of all government spending.
But again, as with cars, I digress.
Sometimes people seem to forget that what I advocate is…
This of course means if you follow it you will become wealthy and then, as Pete pointed out to me, everything becomes free. Including all those houses, cars, jewelry, clothes, and trips that are a struggle to buy on your salary.
You just have to buy your freedom first.
There is a wonderful way of illustrating this in the book The Richest Man in Babylon.
In it Arkad has a purse that continually overflows with gold even as he lives the lavish life of the richest man in Babylon. How? His investments provide an “income that constantly keeps his purse full, no matter how liberally he spends.”
He bought his freedom first and then, as Pete would say, for Arkad every has become free.
Enough
Once you’ve accumulated enough wealth to be FI, you have succeeded in buying your financial freedom. You have Enough.
How much is that?
Enough that your invested money throws off enough money to cover all your basic expenses, and then some. You know, for all those extras you might choose to buy. Like Arkad, at this point you spend and your purse still refills and overflows.
The 4% rule is a good guideline for figuring out what this might look like for you.
Once you have it, you don’t have to keep buying it
Here’s a key point that seems to get overlooked:
Once you have Enough, once you have bought your Financial Freedom and are FI…
You don’t have to keep buying it.
This, I think, is what bothers the critics. Savers & investors tend to keep saving & investing.
To the extent this is done without thought and gets in the way of people spending money in ways that would better their lives and that they’d enjoy, I agree with the critics.
Once you have Enough, you can stop building more and spend that money on other things. Or quit working and earning money. Or shift to working at something you love rather than what pays the most.
This is the beauty of achieving FI…
You can do whatever you choose
Even if that means continuing on your same path.
As we discussed above, there is a tremendous satisfaction in the process of buying your freedom (investing & saving) and just because you’ve achieved FI doesn’t mean you have to give that up.
For some people there is more fun and satisfaction in growing their nest egg than spending it down. If that’s you, don’t let anyone tell you you are doing it wrong.
Plus, as we’ve said, spending just because you have the money is silly.
By all means, feel free to spend on whatever makes your life better. Even if it is a terrible value proposition like my 1st class plane tickets. Even if it is continued investing.
Here is my modest suggestion of a great value proposition to consider:
Hands down the spending that gives me the most selfish pleasure is the money I give away.
But I Like My Work 🙁
While I think the FIRE acronym is very clever, I don’t use it. For me, it has never been about retirement. I’ve always liked working.
I think most people do. I think it may well be hardwired into us through evolution.
What they don’t like is having to have a job, and the lack of autonomy inherent in most jobs.
But look at those people who hate their jobs on their off hours. Like as not you’ll find them in their woodworking shop, restoring their old car, crafting beautiful quilts, refurbishing their home or, in my case, writing books and blog posts like this one.
Things that look a lot like…
Work
Sitting on a beach all day downing drinks with fruit and umbrellas sounds great when your boss is chewing on your ear. And it is. For a vacation. But it is not what we are hardwired to do.
For most of human history people worked until they died. Your great-grandparents (or grandparents depending on your age) would be stunned at this whole idea of retirement and leisure time. It is still very new, and we are not yet settling into it with much comfort. Maybe we will.
When I think about AI replacing the need for humans to work, I don’t worry so much about how they will pay the bills. We’ll figure that out.
But what will they do with themselves?
That seems the bigger challenge.
Again, I digress.
For now, if you have a job you love, feel free to keep it. Becoming FI doesn’t mean you have to quit.
It means you get to choose. It means you have freedom to do whatever you damn well please and to spend however you damn well please.
Enjoy!
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