Wednesday, July 9, 2014
Living Off Your Savings
The point of saving money is to reach a point in your life where you can spend it, and not have to work anymore.
Some folks, reading this blog, might come away with the idea that I am one of those crazy money-hoarders. You know the type, they are mentioned in the media occasionally - some crazy lady who lives almost like a homeless person, but has a million dollars in the bank and leaves it all to charity.
But that is not what this blog is all about. I am not sure it is worthwhile to scrimp and save all your life and then leave it all to the Salvation Army, so that they can give it all away to drug addicts. But that is a lifestyle choice, I guess.
Rather, I think it is worthwhile to scrimp and save so you won't have to work for a living and be beholden to others the rest of your life.
And this is not something we have a choice about. Eventually, you will be laid off or retire, or be downsized or your income will drop - at least most of us face that probability. And at that point, you have to live on Social Security and what you have saved up. And if you spent it all on Jet Skis and Cable TV, well, you'd wish you hadn't.
But most people today do just that - spend every penny they make and then borrow a penny more. And as a result, they have to work, work, work, for hours every day, just to pay for it all.
This Fourth of July, the island was invaded by a horde of campers - all of them Georgians pulling trailers that were pulling trailers - the latter loaded with "buggies" or golf carts. They spend thousands and thousands of dollars on golf carts, and then drive them around the island, which apparently is the height of amusement. Frankly, I thought driving a golf cart was cool when I was 12 years old and my Dad took my golfing. Since then, the thrill of operating motorized machinery has worn off somewhat, as it does for most adults. Others, however, never grow up.
But the funny thing was, on Sunday, over 101 campers left the campground, all racing to get back to "home" so they could march off to work on Monday. They can afford to spend $10,000 hopping up a golf cart, but they cannot afford to miss a day of work.
Which is better, owning a hopped-up "buggy" or owning yourself?
I own myself, bought and paid for, "title in hand" with no liens.
What does that mean?
Well, simply stated, I can choose not to work if I want to, for the rest of my life. If I can live on the median income of the United States (about $50,000 a year) then I can afford not to work for well over 30 years, at present. And that is a pleasant prospect to consider.
Of course, we never know how long (or how short) our lives will be, so the conundrum is how long should you work? If you quit too early, you might run out. And health insurance costs can skyrocket between ages 55 and 65, until you can finally qualify for medicare.
At this point in my life, I still work a bit - but I also live off some of my savings, tapping a few thousand dollars a year so I can afford to work part-time. This means my portfolio continues to grow (the amount I take out is a tiny percentage of the overall amount) but it also means I can take four months off every years and do little or nothing in the way of work. I think this represents a good balance between quitting work entirely (and spending it all too soon) versus working until I am 80 (and leaving tons of money to ungrateful heirs or charities).
But the key is, using the money to live, not to buy gaudy "things" and pay for them in installments for the rest of my life. If I choose to consume then it would take only a few years to burn through my life's savings. To me, that is not a smart choice, to own things when you can own yourself instead.
Part of the reason I am able to work less (or afford to work not at all) is that I have stripped down my lifestyle and eliminated a lot of expensive money-consuming stuff and services from my life. Smart phones and Cable TeeVee don't add quality to life, but suck the money out of your bank account, with little to show for it. Is it worth working extra hours per month so you can watch Cable or text your friends? That is the question.
And it is a question that most people don't ask, as they don't see it. Since they work all day long and have only weekends to contemplate their lives, they don't ask whether spending 10% of their annual income on a golf cart (when they don't even play golf!) is a smart idea or not. They just want to have "fun" for the few hours a month that their employers allow them to have free.
But again, these are lifestyle choices, like the lady who lives as a pauper and leaves millions to charity. It is a choice, not a destiny. You can't complain about "living paycheck to paycheck" and text it on your smart phone. Many do.
So, we are off for three months. Boston, Provincetown, Montreal, Ontario, Saugatuck, West Virginia, the Natchez Trace, and finally New Orleans. Somehow, we will make do without a "buggy" or a smart phone.
See you in October!