Being economically self-sufficient is a balanced equation with two factors. The first is your savings (retirement funds) and retirement income, which fund your ability to not have to work. This includes the proceeds from your 401(k) using the 4% or 5% rule, and your Social Security (pre-Romney, get it while you can) and any pension you may have (ha-ha, only Dinosaurs have these!). The second half is your spending - how much you decide you need to spend in retirement.
And you do have control, to some extent, over both. You can save more now and retire earlier. Or you can spend more now, retire later and/or on less. And that choice is never really thought of, by most folks, in their daily budgeting. We just spend money and hope to put "a little aside" for retirement.
But economic freedom is available for most middle-class Americans, we simply choose not to seek it. Instead, we seek out new ways to spend money - all the time. And we fail to realize that each expense comes at the expense of our economic freedom.
If you think of expenses in terms of the cost of a year of retirement, however, you may start to think differently about the "necessities" in life. The following things will EACH cost you a year in retirement savings. Cumulatively, they can add up to a decade or more of additional work you'll have to do, in order to be financially "free".
You are selling yourself into slavery, much as the Indians sold Manhattan for $24 of beads and trinkets. And if you asked the Indians at the time, they would have told you they got the better part of the deal. "Hey, we got a special 2-for-1 on the beads, and as a special offer, trinkets were free with every purchase!" The Indians congratulated themselves on being "smart consumers" and shuffled off to a reservation somewhere to die in abject poverty. But hey, they had their beads and trinkets, right?
Consider the following purchases and whether they are worth a year of your life. In a way, we are living in the dystopian world of "In Time" - where we literally trade four minutes of our life for a Starbucks coffee drink. Is it worth it?
1. New Cars: Every new car you buy is another year you have to work before you retire. And it really doesn't matter how much you spend on the car. $11,000 spent at age 22 on an econobox is about the same as $50,000 spent at age 50 on a luxury car - thanks to the miracle of compound interest. Buying Brand-New cars is hugely expensive in terms of depreciation and insurance - easily doubling the cost of buying a solid used car (from a person, not a dealer) and driving it forever, carefully. Many folks buy one new car after another, and wonder why they have to work until age 75. Each car adds a year to your retirement, period. That old beater in your driveway starts to look more attractive, doesn't it?
2. Cable TV: Spend $100 a month on Cable TV for 30 years and at retirement, you are looking at over $80,000 in savings. Do this for 45 years and it is even more. Spend $150 a month and you are talking about 2-3 years of retirement (and thanks to some honest readers, who admit to spending that much!). It seems like such a trivial expense, when viewed in installments. But that is the evil nature of the monthly payment mindset - you can squander away a lifetime of earnings a little bit at a time. And no, Cable TeeVee is not like oxygen, food, or water - you don't need it to survive. In fact, it is more like cigarettes - a hindrance to your life, not an asset. All it sells you is crap.
3. Cell Phone/Smart Phone: Many folks today believe that, like Cable TeeVee, a cell phone is second only to oxygen in their survival needs. Oh, how did we do without it, only a few years ago? And our whole society has changed as a result - for the worse. How many times have you been talking to someone, only to have them blatantly ignore you to answer a meaningless phone call from someone? Or worse yet, have someone texting while holding a conversation with you? They are anti-civilization, frankly. And expensive. Many folks spend easily $100 a month on this - some much more, for family plans with data and texting. Again, this can cost you anywhere from 1-3 years in retirement.
4. Toys: Boats, Jet-Skis, Snowmobiles, Toy Tractors, and anything else with a motor on it, basically adds a year to your retirement. And what is sad, is often these toys don't distract their owners for more than a year or so, before they are parked outside the house and left to rot. In many cases, people buy these things on time (using high-interest rate consumer loans) and then cannot afford to sell them, as they are upside-down on them. Yes, toys are fun and all. But you might find more fun in a cheaper used version you pay cash for, than a "brang-new" one bought at the dealer on a loan.
5. Fast Food: Not only does this literally shorten your lifespan, it costs a lot of money. $10 a day at Starbucks buying candy-coffee drinks can add up to $300 a month in expenses, which makes Cable TV seem cheap. And yet, I know people who work $10 an hour jobs, who spend at least $5 a day on Starbucks and $8 on a "value meal" at Mickey-D's and think they are being astute consumers. Throw in the cost of commuting to work, and these folks aren't making any cash until after lunch. And they wonder why they are broke all the time.
6. Cigarettes: Again, this one shortens your life, so you end up working longer to get to retirement, and then never enjoy much of it. Smoking today costs a staggering amount of money, and yet it is mostly the poor who do it. How they can afford it, I cannot fathom. At $5 a pack, this easily adds 2-3 years to your working life.
These are just the top few things, I can think of, that are really unnecessary expenses and add a lot to your bottom line, while adding little to the quality of life. Cell Phone apps, to me, are not worth working until I am 70. Sorry.
And they are areas where you can find cheaper alternatives or actually enhance your life by doing things differently - or not at all.
And I know what some folks are going to say, "Well, you might as well not spend any money at all! Then you can retire at 40!" Hmmm..... And that's a bad idea because.....what?
But seriously, yes, you have to spend money on some things, and yes, you do want to spend some to enjoy life. But bear in mind that each spending opportunity represents a choice - a trade-off - between immediate gratification and ultimate economic freedom.
If you want to make that trade-off, fine. But just realize you are making it, and stop whining when you end up 68 years old, broke and trying to scrape buy on Social Security.
I also know that some of you will say, "Well, our daughter needs a smart phone, because all the other kids have one and she won't be popular in school without it!"
Yes, the ultimate importance of a high school education is to be "popular" - because that translates directly into economic success in life. Oh wait, that is inversely true. The popular kids at my high school ended up poor. Funny how that worked out. It's called "peaking too early". When 11th grade is the highlight of your life, you shot your wad too soon.
And think about this: How many situations have there been where people have said, "Thank God little Suzie has unlimited texting! It has really improved her grades!" Usually, it is just the opposite. And why are you training your kids to be obsessive-compulsive at such an early age? Why not just take them to the Casino and teach them how to smoke?
Unfortunately, most of us do not figure all of this out until it is far too late. When we are younger, we want things now as a "reward" for our hard work. We disassociate the future US from the present US, and sacrifice the future dude to reward the present one. It is a short-sighted philosophy - the future US and the present US is the same person.
Everything you buy in life has a real cost - not just in terms of dollars, but in terms of how much longer you will have to work to become economically free. And at some time in your life, if you live long enough, you will be forced to stop working and have to be economically free. But moreover, being economically free is such a desirable thing it is a shame more people don't even bother trying for it.
Perhaps they would, if they viewed the cost of things in terms of a year of their retirement.