Wednesday, December 7, 2016

Now Versus Later

More viewer mail!

A reader writes:
My point is when you are 60, money is really meaningless apart from health insurance and basic needs- and that is why you end up saying things like friends,love etc. are important because you don't have the much energy to do anything else anyway.

Isn't it a better way to spend the money when you are young and able as you will be able to enjoy life more- e.g. a Ferrari or a vacation in your 30s can be enjoyed much more than when you are energy less in your sixties?
At first, this seems like a simplistic attitude.   But it does point out the conundrum facing everyone who works for a living and hopes to retire someday.  Do you eat this hotdog now, or put that $1.99 in your 401(k)?  What's the point in scrimping and saving all your life if you keelover dead the day after your retirement party? (a scenario that happens more often than you think!).
Why not spend it all now on a party and say "fuck you" to that old fuck who is you, 30 years from now, who always wants your money?  We all hate that guy, right?  Chiding us from the future for not saving more in the present!  What a buzz-kill he is!
Well, like with anything else, moderation is the key.   It is possible to save money now for a later retirement and still enjoy the present.  The key is to save smartly and spend smartly.

What do I mean by this?
Well, to begin with, with the advent of the 401(k) and IRA, saving is no longer an option.   Sure, you might collect Social Security - if the Trump Administration and the Republicans in Congress don't cut it back.  There is already talk of curtailing cost-of-living increases and putting a "needs test" on payments.   People who made retirement plans based on Social Security will be fucked - proper fucked.  (The GOP also recently cut military cost-of-living increases.  Yes, all the Democrats voted for it, too.   But it was a bi-partisan effort to cut back on retirement costs, which are ballooning as people retire younger and live longer).
Unless you work for one of the few companies left that offers a defined-benefit pension or a government entity that has a cushy pension plan, you have to save.   And even with a pension, well, we've seen in recent years what happens to pension plans - even government ones.
The smart way to save is to put a little aside every year, rather than try to end-load your retirement once you reach 50.   A dollar put aside in your 20's is equal to five dollars put aside in your late 50's.   I put away a lot of money fairly early in life - but still had a good time - and at this point in my life am no longer putting any money away.  I am living on it - long before standard retirement age.
Which brings us to the next point - early retirement and longevity.   In our modern economy a job is no longer a guaranteed 30-year experience, with a gold-watch at the end of the rainbow.   You will likely be laid off in your 50's, a decade before retirement, and have to flounder around for a second career (often at far less pay) or be prepared to retire on what you have set aside.
Moreover, you can expect to live an active and full life well into your 70's or even 80's.   The reader assumes that retirement is an era of decrepitude, when in fact, many retirees are in better health (thanks to Medicare) and more active than many 40-something cubicle dwellers (who are often in poor physical shape from sitting all day long).   Many "seniors" participate in sports activities (such as the Senior Olympics) and travel extensively.   You can do a lot as an oldster - more so than as a youngster.   Provided, of course, you can afford to do it at that age.
So the idea that retirement is sitting in a rocking chair is flawed.  It is more akin to rock climbing that rocking chairing.  Be prepared for it.

The second half of the equation is smart spending.   You can have a lot of fun in life without spending a lot of money.   In fact, I would suggest that spending less money is often a better experience.   And let me give you an example of what I mean.

I've owned a number of convertibles over the years.  They are fun cars and I like driving with the top down - or I did, at least, when I was in my 40's.   One of the most fun cars I had was also the cheapest - a 1981 Fiat convertible that I bought for the princely sum of $1700, quite well used.   I spent a lot of time tinkering with it and fixing it up and had a ball driving it around.   It was unique and also a bit of nostalgia for me, as my Mother had one back in the 1960's.   We took it on the Auto-Train to Florida and drove it around there.  We had a lot of fun with it.
I sold it for $6000 in order to buy a friend's 1999 M Roadster for $29,000.   It had only 7,000 miles on it and was like brand-new.  There was little I ever had to do with that car, other than change the oil and replace a back-up light switch.   We also had fun with that car, taking it to rallies around in Watkins Glen, driving the old course, and even a few parade laps around the track.   We sold it a decade and a half later for $15,000.

Now both experiences were fun, but  have to say the Fiat was funner.   Why?  Well, for starters, it didn't cost me nearly as much.  It was cheap to buy and parts were cheap.   Also, for me, half the fun was fixing it up and tinkering with it.  Old cars are like that, and the end result is something that you created to some extent.  The M Roadster was just a check I wrote - a big check.   It takes talent to bring an old car back to life.  It doesn't take any talent to borrow money and sign loan papers on a fancy car.
I had similar fun with my 1974 BMW 2002, which was a mountain of rust when I got it (for $800) and my 1985 Mercedes 300D ($1700 again, my price point!).  I fixed them up, had fun with them, and sold them for more than I paid for them (but probably less than I put into them, of course!).   They were cheap, they were fun, and half the fun was tinkering, not driving.   And in terms of driving, where we went and what we did was what was fun, not the "pride of ownership" which is a false pride.

On the other hand, I can say I had less fun with cars I merely bought.  The 1995 Taurus SHO was a classic example.   I paid for it and that's about it.  Even with extensive "modding" (which really didn't do much to make it faster, handle better or ride nicer) it just wasn't as much fun of a car as the old Mercedes.

But hobby cars are just an example of what I am talking about.  In every area of your life, odds are you can spend too little, too much, or "just right".   Fishing too far downstream is often self-defeating, as the costs of being too cheap end up being more than overpaying.

People do silly things in life, like ripping out perfectly good kitchens to replace them with slightly different kitchens - the idea being (but of course, never admitted to) to impress other people with your apparent wealth.
And that's where status rears its ugly head.  The reader mentions a Ferrari - a car that is usually well beyond the means of most middle-class people, unless you are talking about an older 308GTB or the like, which can be had fairly inexpensively, but can be a nightmare to repair (like the SHO, the Ferrari requires you remove the engine to replace the DOHC timing belts, and they need to be changed often!).

Quite frankly, I have never been a fan of the Ferrari's, Porsche's, or Lamborghini's.  I never had the Testarossa poster on my wall as as teenager (I guess that was too late for my teen years anyway) or lusted after hyper-expensive cars.   My feeling was always, that's too obvious.   I mean, if you want a car that goes fast, you can throw a pile of money on the table and wa-la, you have a fast car.   What is more interesting, as Jay Leno often states in his YouTube series (NOT the cable series!), "It is more fun to drive a slow car fast than a fast car fast!"

It takes talent and skill to get an old BMW 2002 to go through the corners and conserve your speed as much as possible, because the M3 is going to clean your clock on the straightaway.   On the other hand, it takes no talent or skill to go to the dealer, sign a loan document, and buy a fast car and just slam on the brakes in the corners and floor it on the straightaways.

I am using cars as a metaphor, here.  You can apply this same theory to any part of your life.  We have friends with gourmet kitchens who can't make toast.   Mark makes wonderful meals with consumer-grade appliances.   And what we've learned over the years is that all that high-end shit Mark got from Williams-Sonoma (scratch and dent, employee discount) really isn't much better than lesser gear - and in fact, often lesser gear works better for the consumer, as professional grade is wholly inappropriate.

So you can "have fun" as a youth without blowing through wads of cash.   You don't need to spend a lot of money to have fun or have a rich life - which was the point of this blog.   Not only that, but having a nest egg - a life's savings - is one of the most fun things you can have.  Knowing you have real wealth and not just apparent wealth parked in your driveway is a very comforting and relaxing thing.  You can quit your job if you want to.  You can join a start-up company or start your own.  You can do things that people who are enslaved to possessions can never dream of doing.

Being in debt and being financially stressed and worrying about your future - that is no fun at all, trust me.

The final thing is this:  When you are young, you can always make more money next week, but when you are older, it becomes harder to do.   Whether this is because you are laid off or because your skills or physical abilities deteriorate, it really doesn't matter.   It is possible - in fact likely - that you will end up in a situation later in life where you have no means of earning income but at the same time have decades left to live.   This is a shitty time to discover that thanks to that Ferrari you bought when you were 30, you have no money left to spend.

And many people do this, as they don't view the "tomorrow you" as the same person as the "today you".  In fact, they view themselves as an infinite number of people, being created and extinguished moment to moment in their lives, as the live.   These are the sorts of people who have no remorse for crimes they have committed, as they don't view the person (the former them) as being the same person they are in the moment.

And who knows?  Maybe from a metaphysical standpoint this is how we live - as discrete moments in time.   But metaphysics is bullshit, I think.   And our actions do indeed have consequences for our future selves.

And maybe right there is the point.  A small child doesn't see that what he does NOW will affect him in the future.  So be does something naughty and then complains later on that it is "unfair" as the present him is being punished for something the past him did, and in his mind, these are entirely different people.

I think maturity is recognizing that the older you, the present you, and the past you are all the same person, and moreover, that the actions you take today will affect your future tomorrow.  Seems like a simple thing, I know!  But it eludes probably half the population.  Ask anyone who smokes.

You can have fun in life, without forgoing saving for the future.   If you want to spend extra on status things, like fancy cars, you will discover the satisfaction of owning such things is very, very fleeting.   I guess the difference is in talent and creativity.   I have warm feelings and memories about things I made or did, but very cold and indifferent memories about things I merely bought.

Spending a lot of money chasing happiness in the here-and-now will not only not make you happy in the hear-and-now, it will make you miserable in the future.