Our culture today is all about making a large income and buying a bunch of stuff on credit to “enjoy life to the fullest”, but in my experience, this often leads to discontentment, stress, and a constant want for more. One would think that the higher income earners would have a ton of money socked away in the bank, ready to retire at any time, but this isn’t how it typically works is it?
If one’s salary is $50,000 a year, they might finance a brand new Chevy Malibu. If their salary bumps up to $100,000 a year, they finance a mid-level Mercedes. If they are earning $200k+, they suddenly find themselves in an $80,000 Infiniti SUV and an executive home on the lake! As the pay grade increases, so does the lifestyle. As for that savings account, it might be a little beefier, but nothing like it could be.
I once had a friend ask me why I would ever want to pay off my debts. After all, you only live once (YOLO)! From her perspective, I was jipping myself out of the good life. Instead of paying down my debts, she believed I should finance a bigger house, buy a brand new car, and maybe even a sports car for the summer time.
Sure, I could afford to finance these things, but then what? Well, then I had better get to work because I would have a ton of payments to make for the next 30 years! To her, that was the best way to live, but for me, this just sounds like bondage – a prison with invisible chains. By taking on all this debt, I have now promised to pay large amounts of money to multiple people and companies for many years in the future. If I do not keep up with the payments, I lose everything.
What If I Swam Upstream Instead?
What is the purpose of having a huge mansion on the lake? What does a small family do with an 11 bedroom castle? Don’t they know they can only occupy one room at a time? As I grow older, I am slowly beginning to understand the joys of a simple lifestyle. The fewer things I own, the fewer expenses I have, which also means the fewer headaches I have as well.
With our culture the way that it is, I have decided to swim upstream. If everyone is running out and trying to live larger than their friends (but still ending up miserable), then I think I would be better off doing the opposite. What if I bought a simple house and decided to live simply for a few years? What could happen?
The Life of Options
If my house were paid off completely (update: it now is!), I would be 100% debt free and would no longer have to make any payments…on anything. My total expenses would be about $1,200 a month. Just for kicks, let’s say I give myself an extra $300 of “fun money” each month, which would mean that I could easily survive and have some fun for just $1,500 a month (or $18,000 per year).
So, what if I was able to earn $68,000 a year after tax? That would allow me to invest $50,000 a year (on top of what I already have), which would quickly become $500,000 in 8 years (assuming my investments earned a moderate return). Well, what then? I would be 37 years old with $500,000 in the bank and a completely paid for house and car. At this point, I would have quite a few options now wouldn’t I?
At this stage in my life, perhaps I would decide that I didn’t like my job and took an early leave. How long do you think my money would last? Remember, I have absolutely no debt and have expenses of $18,000 per year. If my $500k earned a moderate interest rate of 5% per year, then I would receive $25,000 in interest each year. This would cover my basic expenses (which includes a little fun) and I would still have $7,000 to spare! So guess what? My money will last forever (and will actually continue to grow)!
So Which Life Would You Choose?
So the real question is, “Is it worth it to drive a luxury SUV and live in a huge executive house on the lake?” For many, these choices sign them up for 30 years of large loan payments that they can never escape. If they start living large when they are 30 years old, they really aren’t able to start saving money until they are 60! That means 30 years of work to “enjoy” their lifestyle and then another 15 years of work to quickly save up some cash for retirement.
Maybe I am the oddball, but this option just makes me cringe. I would much rather position myself to have choices in life. If I suddenly decide that I would like to explore Europe for a year, I want to be able to do that. Or, maybe I want to be a writer or painter, or maybe I’d like to just sit on the beach with a pale ale in my hand. Why not? The money is in the bank and there is absolutely no reason not to.
Am I just crazy? Or would you like to live a lifestyle without debt and full of choices?
My name is Derek, and I have my Bachelors Degree in Finance from Grand Valley State University. After graduation, I was not able to find a job that fully utilized my degree, but I still had a passion for Finance! So, I decided to focus my passion in the stock market. I studied Cash Flows, Balance Sheets, and Income Statements, put some money into the market and saw a good return on my investment. As satisfying as this was, I still felt that something was missing. I have a passion for Finance, but I also have a passion for people. If you have a willingness to learn, I will continue to teach.