Saturday, May 30, 2015

Is Life a Treadmill?

Jane!  Stop This Crazy Thing!

A reader recently wrote to say that they liked my blog, but that, Living the life on a treadmill can drain people out and "occasional" splurges can definitely help.

What made me sad is that he viewed his life as a treadmill, and sadly, many folks do as well.  And when life is viewed as a treadmill, then spending money on yourself seems like a good idea, as "you deserve a treat now and then!"   But I think this kind of thinking serves only to perpetuate the treadmill.   For every treat, you have to run another mile or so.   Rather than being closer to getting off, you are just extending the journey.
When I was a young hot-shot lawyer making the six-figure salary, I had to get up every morning at dawn (or before), shave, shower, and dress (including a suit and tie) and then drive off to work in my late-model Japanese sedan (with car phone, no less!), fight traffic into Washington DC, and then arrive at the underground parking garage at the office where I worked.   I would then spend the next ten hours behind a desk, billing like mad and cranking out work.  By the the time I got home at night, it was dark.   We would be "too tired" to make dinner, and send out for a pizza.   Before long, it was time for bed, and then the process repeated, except for brief reprieves on the weekends - and sometimes those were even taken up with work.

Oddly enough, I enjoyed it.  I was an important person doing important work, and it was a bit of a rush to be involved in what seemed like gripping things and issues.   But of course, over time, sitting behind a desk all day and eating bad food started to take a toll on my physique.   And over time, it seemed less and less glamorous.   It started to become a treadmill.

And eventually, I tired of the treadmill.    I was working hard and making a lot of money - for someone else.   Despite all the raises I got, I never seemed to "get ahead" in life.   Each new raise in income seemed to be matched by a raise in spending.   Having "no time" to attend to my personal life, I had a maid, a lawn service, and so on, to tend to the house that I saw only on weekends.   And being "too tired" to cook, we started using restaurants as our kitchen - for lunch of course, at work, and often again at Dinner.

But I started to think that maybe this wasn't the life I wanted to lead.   And the experience of my Father on the "treadmill" was one reason I thought this.   My father was an angry abusive man, who was raised by an even angrier and more abusive father.   So in a way, he was an improvement over his ancestors.   But he clearly felt trapped by marriage and family by his early 40's, and he let us know it in no uncertain terms.

He would berate us for being lazy and indolent - which we were - calling my brother and me, "Prince Tom" and "Prince Robert" with a sneer.   And from his perspective, you could see why.   He got up every morning before dawn to go to work (so we could live on a lake, 20 miles from the city, in a Frank Lloyd Wright style house) while we sat around and smoked pot and had a good time.

He was making the inflation-adjusted equivalent of the "six figure salary" at the time, but had very little saved of his own money, and of course a huge (at the time) mortgage to service.  No matter how hard he worked, it seemed that he never got ahead.   Of course, having four children to raise and put through college probably exacerbated the problem - but college was a lot cheaper back then.

Then, two things happened, in rapid succession, that changed his (and our lives) dramatically.   First, while on a business trip in Canada, he met this nice young woman at a bar at the hotel, who seemed really nice and flirty.  He kidded himself that at age 55 she was interested in him on a personal level.   However, what she really wanted was a "Sugar Daddy" to buy her things, and if Sugar Daddy wouldn't fork over the dough, she might try a little blackmail.

Middle-aged men trapped in career jobs are easy pickings for treasure hunters like that.   Men feel drained of the excitement in life and see their lives slipping away, a little bit at a time (which it is, sadly).   They call it a "mid-life crises" and it often ends in divorce or at the very least, the purchase of a new Corvette.

My Dad avoided both.  Realizing that his paramour would bleed him dry, he fessed up to the malfeasance and faced the consequences.   And sadly, my parents both realized that if they got divorced, their financial situations would go from bad to worse.   Economic necessity is often the glue that holds a relationship together, which is why our divorce rate skyrocketed in the 70's and 80's and has declined since the 1990's.   Divorce is an expensive luxury - and wasteful.

But then the other shoe dropped.   The company he was running was facing financial troubles - as were most other small manufacturers in the early 1980's.    Brutal competition from larger US companies, as well as overseas, along with high union labor rates and restrictive work rules, plus outdated and worn out machinery and factory infrastructure meant that the company was doomed to fail.   His boss, who owned the company, unexpectedly died.   When the bosses' son took over, he closed down the money-losing division and put my Dad on the street, at age 55.

Suddenly, the treadmill stopped.   And I harp on this a lot in this blog - that your "high-paying six-figure salary" job may just go away when you are in your mid-50's, without much warning.   Look around the place where you work, and see how many people with grey or white hair are working there.   Chances are, if you are in Engineering, Law, Medicine, or Management, there are damn few old people around.   Most are pensioned off or "early outed" or laid off or fired or whatnot, along the way.

(A friend of mine is going through this right now.  He was laid off two years ago, and just now has decided to "move on with life" after over 50 job interviews and no offers.   He is now starting his second career).

And then there are others who just burn out and leave.   For doctors, it could be that killer malpractice suit that forces them out of business and out of the business.   It is not that they did anything wrong, only that one opportunistic lawyer plus staggering insurance premiums starts to make retirement look a lot more attractive.    

For the lawyers, it is the "partnership track" - or lack thereof.  I have written before how the entire law firm scenario is basically a pyramid scheme - with many at the bottom and few at the top.

For managers, it is the layoff or "RIF" - Reduction in Force.    Some young MBA goes on a spreadsheet program and shows top management how they can cut out a lot of middle management and save money - and Wall Street rewards them with a huge boost in stock price (and since they are paid in stock options, it is hard to resist!).  And the folks they cut are the older managers who are paid more and have higher health care costs (particularly now that their 26-year-old son living in the basement is allowed to stay on their health care plan!).

For Engineers, it is not only the RIF but also the gradual obsolescence of their skills.   I work with a lot of Engineering companies, and the age structure is like that of a law firm - a few senior managers who came up the ranks as Engineers, but mostly young folks in their late 20's and early 30's, with maybe a few 40-somethings scattered in there.

My parents did OK.   They sold the expensive house on the lake for a nice profit, and walked away from five-figure property taxes in New York, and built a much less expensive house in Maryland.   And my Mother came into a small inheritance (after fighting her brother for it - never count on an inheritance!).   And my Dad actually got a small pension from the company - which was later bought out by a German concern, instead of Bain Capital - so he is safe.   But retirement for them - like for most people - was something thrust upon them, not something carefully planned out in advance.

So, how does one get off the "treadmill" in life?   Well the easiest way, of course, is not to get on, in the first place.   But often, that is not possible.    Unless one is born to wealth, one has to go out and work, start a career, and spend many years accumulating wealth, which can be a tiresome and tedious process.

But that right there is the key.   The "treadmill" is not an end in and of itself, but a means to an end.  And that end is economic independence.   Sadly, since we spend so many years (decades even) on the treadmill, many look at it as an end in and of itself.   And you hear these folks all the time, decrying how they are "living paycheck to paycheck" and "struggling to get by" and of course, all of this being "Sent from my iPhone".

(They view their salary as wealth not how much they have accumulated.   And the popular media reinforces this message - talking about "wealthy people" in terms of annual income, not accumulated wealth.)

On the other hand, life is to be lived and enjoyed, right?   So, as my reader posits, you do have to "treat" yourself from time to time, right?    Well, of course life is to be enjoyed - but if you view your life as a treadmill, with just occasional breaks of freedom, maybe that is not so much enjoyment of life?

It is a balance, of course.   You want to accumulate wealth (you have no choice in this matter, if you are part of the 401(k) generation.)   You also want to take the kids to Disney world (which can easily cost over $10,000 if you stay on-property). 

So how do you reach a proper balance?   Well, like anything else, it pays to have a plan in place and talk this over with the spouse - and even the kids.  My parents didn't have a plan in place, other than some vague ideas about "retiring someday".   My Dad handled all the money, spending  once a month at a card table "paying the bills" and of course getting angrier and angrier with each new bill he had to pay.   At the end of the night, he would realize he was broke, and his no-damned-good kids were the major cause of it all.   Best to sleep over at a friend's house those nights!

A better approach would have been to sit down with all of us and set out goals for the family.   For example, how to pay down debt over time, increase savings, and set aside money for school.   Instead, we all just spent as much as we could get away with (a classic "race to the bottom") and since we had no idea how fragile our parents' finances really were, never thought about the actual costs.  We just assumed that Dad was "making good money" and that was that.

For example, I went to prep school for a year (before they tossed my ass out) and never thought about the cost (or even knew about it).  My siblings had all gone to private schools, and in retrospect, the cost must have been staggering.  Sadder still was that we lived in places which had excellent public school systems (the run-down ghettos of Old Greenwich and Lake Forest).   I would rather my parents had put that money into their retirement planning, quite frankly.  And in retrospect, a public school education would have been superior to the outdated "liberal arts college prep" education that private schools gave at the time.

But money wasn't talked about in our family.  And we certainly didn't have any monetary goals or targets to reach.   My Dad was on the treadmill, and we all rode him like a cheap pony.   And yea, that really wasn't fair to him, was it?   On the other hand, no one forced him to get on the treadmill, did they?

But, once you have financial goals in place, it is a lot easier to understand whether or not you can "afford" to "treat yourself" to a cruise vacation or a new car or whatever. 

For example, if your goal is to have $2M in your 401(k) by retirement age (enough for $100,000 a year income) how much do you need to set aside between now and then?  It is not hard to calculate this number, based on average rates of return in the market over time (factoring in things like a 2009 recession, or even just a 1995 recession).    Also factor in the concept of "what happens if I am booted out at age 55?"    It is not that you might have to live off your savings at that point, only that you may have to get a second career and not be able to continue to save as much from then on (which is no great tragedy, as the effect of compound interest for old people, diminishes rapidly).

With regard to debt, is your debt load going up or down?   And what is your plan to pay it all off by retirement age - or preferably sooner?   Again, you get laid off at age 55, do you really want to be looking at the front-end of yet another 30-year mortgage you took out to "refinance" your house?

Once you have this plan in place, you can figure out (factoring in some buffer for unexpected circumstances, like job loss, health problems, etc.) what is "left over" for spending on "other things".   And if there is nothing "left over" then it is certainly time to look for unnecessary expenses to cut back on.   The latter part being the point of this blog.

Having a plan puts this all in perspective.

Not having a plan, well, results in chaos.   For example, a friend of mine - I'll call him Sammy - just retired with a fairly nice pension and some savings.   He also just refinanced his home and not for the first time.  His wife is still working, and will have to keep working for another decade or so before she can retire.   While they are not starving to death, they are not financially independent at a point in their lives where they should be wealthy.

And how did they get to this place?   Well, lack of planning.   They spent money lavishly, on vacations, owning two homes, new cars every few years, hobby cars, and of course "helping out" their adult children with things like paying for their cell phone bills and buying them cars and whatnot.   Dad was "making good money" so he felt they could "treat themselves" and even their kids, with "treats".    But I don't think they added up the cost of all of this, in terms of how it affected their overall debt load, their savings plan, and the like.

And yes, an unexpected retirement and layoff were part of this picture as well.   Oh, and the messy and unnecessary expense of divorce (for both of them) factor in.

The treadmill is not an end in and of itself, but a means of achieving a goal.   Set a goal, figure out how much it will cost, and then figure out how much you need to set aside.   Anything "left over" (and there is usually damn little) is disposable income.

And you can still "treat yourself" if you become creative in how you spend your money, or figure out ways to have a "treat" at little or no expense.   Spending the day at a beach, or even a public park having a picnic costs little or nothing, and yet can be a whole lot of fun.   Vacations need not be expensive trips to resort destinations or on cruise lines (which I find stressful, as I realize how much I am spending and how little fun I am having!) but can be as inexpensive.   A week hiking the Appalachian trail costs little or nothing, and certainly is more healthy than sipping tropical drinks at a resort.

We do have choices in these matters.   No one is forcing us to view life as a treadmill.

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