Friday, January 30, 2015

The Reason Why You Are Still Financially Incompetent

I kid you not!

I was cruising through the news and this caught my eye:

"Almost 2 in 5 (40%) working age people are not saving for retirement or do not intend to do so" 

Give yourself some time to digest what you just read.

That is like almost half of the working population, and statistics never fail to surprise me. When we use the term 'retirement', we tend to picture a graying old couple sitting by the lake, desperately waiting for time to pass. Since we think that 'retirement' is a mystical phenomenon that only affects those who are 65 and above, we give little thought to it.


Because it's boring! And that's why a large chunk of the population is not doing anything about it.

Why should we care about something that is 20 or 30 years away from now when advertisers keep reinforcing the fact that "We-Only-Live-Once-So-Spend-Everything-You-Have-On-Whatever-You-Think-You-Deserve"?

It's Closer Than You Think

The first problem with this 'mystical phenomenon' is not recognizing that there is no timeline for retirement. If we can bring the timeline forward by say 20 years or 30 years, you're technically aiming to retire by 35.

Is it getting more interesting now?

And by retirement, I mean, by age 35 (or insert target age here), you can OWN your time.

Let me be more specific, it means that by age 35, you will be able to pursue whatever it is that you want (travel, party, club, write, perform, dance, sleep, or whatever is it that rocks your boat, in moderation of course) at your own time, without being controlled by someone - without having to worry about money. For the rest of your life.

If this thought does not excite you, I don't know what will.

Not Recognizing That It Is Actually Possible..

If you save 50% of your paycheck every month and dump it into a lean and mean compounding machine, in 10-12 years, it is not impossible to generate income from your investments that will cover your expenses.

And that is financial independence. If you put more effort in these 10-12 years, income from your investments will be more than your expenses.

That's financial freedom.

Who Are You Surrounded By?

This, is a tricky one. I realized that your environment, your coworkers and your friends can significantly influence your financial mindset.

In the White Collar Rat Cage, it is not rare to be surrounded by materialistic rats coworkers. If you are surrounded by people who keep planning their vacations (to exotic places), talk about nothing but the latest handbags, gizmos and cars, you seriously need to be strong enough to define your own values.

"I was once caught in a conversation with a bunch of coworkers who were measuring love with the size of a diamond. It was very tempting for me to preach my values to them. But then I recognized that this is a battle not worth fighting. So, I laughed along."

It's important to be smart about this. Unless you want to be branded as a jerk, a cheapskate or a loser, then be generous.

Be sincerely generous. Buy your friends lunch, don't pick on pennies, whenever you can contribute, do it, whenever a friend needs sincere help, help.

But when it comes to expensive vacations, buying cars, spending on unnecessary "nice-to-have" items, RESIST. These are big ticket items and you know you are more than this.

You have more inside of you to do this.

You owe yourself your own freedom.


Anyway, coming back to the report, I found another interesting highlight:

"Retirement is not the main savings priority for 85% of working age people."

I hope the readers of White Collar Freedom make up the other 15%.

"In the short run, life is a voting machine. The ones with the flashy cars and materialistic symbols of success tend to be more popular. But in the long run, life is a weighing machine. Your values, your ideals, what you stand for and your happiness will be revealed." - adapted from Ben Graham's famous quote about the stock market.

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  1. Your posts are always encouraging!
    I am surrounded by people you often mention. I am keeping a journal about my journey. Like most people i realized and started late however i have been on track. Just waiting for the fruits to flourish.
    Reading your posts it feels like these are my thoughts :)

    1. Welcome to this little space of mine CAPSLOCK. What started out as an online journal has now turned into the likes of Tyler Durden's Fight Club.

      Haha, or that's what I imagine it to be - more like-minded people are joining the freedom movement.

      Good to know that you're on track. As the famous Chinese saying goes: "The best time to plant a tree was 20 years ago. The second best time is now."

      Let this be our little secret.

    2. :)
      that proverb is ingrained in my mind, appreciate your responding to every comment.
      Best wishes!

  2. Makes me sick. I know it's mean but first thing I think is "what a bunch of assholes."

    Worst part is I know a lot of people who complain about "socialist" programs now when they are working but will completely depend on them when they can't work but haven't saved.

    I'm saving now so I won't be as dependent in the future!

    1. Hey Chris, YES. That's what went through my head as well. But I guess there are many out there who still cling on to the 'entitlement' mentality.

      To each their own. The best thing we can do is to observe and act accordingly.

      Own our future.

  3. Holy hell, that's a lot of people who are going to fall into a black hole once they realise they will never be able to retire.

    Here in Belgium a lot of people save, but mostly towards a new car or house. Hardly anyone saves for their own retirement as it's mostly provided for by the government and employer pensions.

    Great post again!

    1. Shocking isn't it? But it just makes it clearer for us to see which direction we should take.

      That's pretty great for your government to do that (but is that a good or bad thing?).

      PS: I'm still looking forward to our little project together.

  4. Saving for the near future and retirement (which traditionally is about 30 years away, but may even be sooner, considering I am somewhat an aggressive saver) consumes my thoughts throughout the majority of the day. I may be frugal, but I am generous with my loved ones. That's where it counts.

    1. I think about it all day too Karen. And it's starting to scare me.

      I agree with you on being generous with loved ones and for causes I believe in. That is the main difference between a financially responsible person and a scrooge.

      Some people save for the sake of saving and are even stingy when it concerns their loved ones. That pisses me off big time.

  5. Thank you for your post. The thing I struggle with every time I look into it is what is the number I need to retire. I know the 25 times your income and other things they say and like all my issues are different so applying the rules to our situation is always a struggle. So we save all we can and pay off debt. Thanks to you and others I follow we have paid off almost all our debt except about 60k on the house. 2 years or so it will be done plus we save around 60k towards retirement yearly. Sadly that did not start until we were in our 40's but we are doing it now. Please keep up the good fight because I always need a little encouragement from time to time.

    1. Hey Mike,

      Thanks for the kind means a lot. Well the great thing about saving 60k yearly for retirement already puts you ahead of probably 80-90% of the population (or perhaps even more). I can imagine how taxing it is to have a mortgage lurking in the background but 2 years definitely sounds like you've been doing a great job at paying it off.

      Personally, the '25 times of our income' formula wouldn't apply to everyone and here's the best part - once you've already achieved that, your money should snowball at a higher rate and you'do probably achieve 10x more in the next 2 years than what you did in the past 10 years.

      Isn't that beautiful?

  6. Saving for the future is always a good idea. People need to think more about the future rather than now.

    1. Yes...delayed gratitude.

      But what really motivated me to start this journey was the fact that I can bring my future forward.

      So it becomes an event that happens in 10 years rather than 40 years. Being able to see your objectives clearly motivates you to walk towards it.

      If it becomes a vision that is too far in the future, it can have the illusion that we'll never reach it.

  7. JC,

    This is an excellent post (though you are simply preaching to the choir with me).

    I agree it is important to think about who you are surrounded by. Our physical world is filled by those you describe. I however am nearing FI and looking at retiring within the next 2 years. I have been immersing myself in the online FIRE world and while that has been mostly positive, I am starting to question if we are getting too focused on this goal. I question whether we should be taking a more balanced approach focusing more on enjoying each day while still keeping an eye on tomorrow.

    At the end of the day, your perception is reality. The thoughts and people you surround yourself with will have a big effect on that reality.


    1. Hi EE,

      I really needed this comment. It came at a perfect timing.

      I, too have been battling with this thought lately (if you read my post on 'Expectations') - in which I ask myself if 10 years of saving up to be FI is worth the sacrifice.

      Meanwhile, I see friends and acquaintances who just left their jobs to pursue what they really want to do and...they are really happy. And they are far better off than they were previously - in terms of finances.

      I, too started questioning myself if I'm way too focused on this one goal and I'm really afraid that I'll lose out on the joy and the non-predictability of life.

      Still haven't figured out a solution. The only compromise I can think of is to do both at the same time - find a way to pursue my passion and the things that bring me joy while continuing to add to the freedom fund.

      Thanks for your comment. I really needed this reminder and I read your latest post too on the same topic.

      Stay in touch,

    2. I think if we all look back to the time we chose to do things differently, we'd see it was sparked by something: a person, an event, a 'Pauline experience'. Without that, we'd still be like everyone else. We were lucky enough (or smart enough) to figure out that life could be different. Next is to understand 'why' you want it to be different.

      I really believe we need to know the 'why' to stick with the mission and for me, that 'why' applies to my vision of early retirement. I'm sure my vision of retirement is different to yours so my funding requirements are different, too. And that vision is fierce so set backs (divorce, redundancy) can never derail my plans completely.

      Maybe its time to understand your 'why'?

    3. @Diane: I have to agree with you. The "Why do it?" has to be a burning desire to make us want it. Otherwise, it's going to be a miserable ride all the way to FI.

  8. I think you hit a couple of key points.
    1. Don't forget your in a cage.
    2. Focus on the big wins (big expenses)
    3. Have a goal in mind.

    All big if you want to stay the course.

    1. Yup and:

      4. Be conscious of societal influences