Tuesday, January 27, 2015

Early Retirement Is Nothing More Than Turning Your Life Upside Down


(This is a guest post by Mr. 1500 from "1500 Days to Freedom" - an admirable FI blogger who sees the bigger picture in life. Oh, and did I mention that he'll be financially free in just another 2 years? Let's learn something from someone who is far ahead in the journey.)


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No real Alfa Romeos for you until you are financially independent!
No real Alfa Romeos for you until you are financially independent! (You may have this toy one though.)
One thing I frequently notice is that most folks don't figure out money until it's too late. If you don't start saving until you're 40 or 50, the ship has already sailed and you have to do a lot of swimming to catch up. You've lost decades of time that your money could have been working hard on your behalf. However, if you figure out that you need to save when you're in your 20's, safely exiting the workforce at 50 or even much younger suddenly becomes a possibility.
I'll explain the numbers in a moment, but first I'll share a couple stories.




Mr. 22 Year Old Buys a New Corvette

My first job out of college was in the IT department of a large retail company. There were a lot of interesting people who worked there, not necessarily in a good way. Almost everyone seemed to be in competition with each other to see who had the nicest car or newest gadget (hello Palm Pilot!) Clunker-driving Bad Car Bill was a rare exception.
Every summer, new hires fresh out of college would start. I clearly remember one of them who I'll call "Dan." Within a month of getting hired, Dan went out and bought a new Corvette. Not just any Corvette, but a red convertible. To make matters worse, it was an automatic*.
Dan clearly had no idea what he was doing with money. At the time in his life that it's absolutely most critical to save, he did the exact opposite, taking out a huge loan to buy a silly status symbol.




Old Folks Finally Learn Money

I wrote about the most valuable day of my life a while ago. It was a seminar run by a non-profit organization that taught the basics of investing. No get-rich-quick scheme, just work hard and put your money in diversified investments as early as you can. Luckily I was just 20, so this lesson came at precisely the right time in my life. I was just about to enter the workforce where I could really start to save. However, I was one of the few young ones in the room. Almost everyone else was at least 50 and some were pushing 70.
I often think back to this day and the people there. Money concepts should be taught to young students as a regular part of schooling. Let's try to get through to folks when they're 18 or 22 instead of 50 or 65.




How To Do It Right

In both stories, the people have it all wrong. My just-out-of-college, Corvette-driving friend should have held on to his clunker and attended the money seminar. The old folks who were at the money seminar should have learned about investing in their 20's instead of 60's. Allow me to show you a couple graphs that show the incredible power of saving early.
The first graph shows a 30 year old who has saved $50,000. He never adds another cent to his investments. After earning 9% interest for 30 years, he'll have $663,383:


saver


The second graph shows someone who waited until 40 to accumulate the same $50,000. Because he started a decade later, at the same age of 60 he'll have just $280,220:
notsaver

The difference become more pronounced if we go out another decade. The first guy will have over $1,570,000 while the second guy, just $663,000.
Always remember that seemingly small decisions early on in life can have big consequences down the road.




Early Retirement Is Nothing More Than Flipping Your Life Upside Down

We all know retirees who live a sparse existence for fear of running out of money. This sounds like a horrible way to live. I hate worrying about money. I also hate the thought of working when I'm 80. I have a proposal for you; a way to avoid the nasty scenario of being an octogenarian Walmart greeter.
Turn your life upside down. Live a sparse existence when you're in your 20's or 30's. Put the saving gas pedal to the floor and don't let up. Save until it hurts. Then save some more. Put the money snowball in motion. After a decade or so of doing this, you can let off a bit on the gas as you watch that snowball get bigger and bigger.
Don't make excuses either. You may love your job now, but nothing is forever. Wouldn't it be nice to be able to jump on a sailboat for a year. Or perhaps start every day with a hike or a good book. How wonderful would it be to be able to walk your children to and from school every day? The thought of being able to take my life in any direction I please is a very pleasant one.
And, if you're 70 and still have a hankering for a fancy hard-working car, go get that Corvette. If you've saved very well, maybe even a Ferrari.
However, never forget that your freedom trumps any material possession.
*A Corvette with an automatic transmission is sacrilege.



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23 comments:

  1. "A Corvette with an automatic is sacrilege"

    Amen. No properly bought sports car should have anything less than a manual transmission. Isn't that the biggest thrill? Some aggressive shifting? But I digress.

    There is a huge void in people ages 15-25, where money isn't fully understood, especially when it comes to the earning of said money. Spend $350 on a new video game console - well, that just cost you 25 hours of work at $14 an hour. Of course, that really means you're earning $20 an hour since you've got taxes and other 'work expenses'.

    I'm not a fan of cliche's, but 'Time is Money' couldn't be more accurate.

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    1. Yeah, I'll cling to a manual until that stick is ripped out of my hands! We have 2 boring family movers and both are sticks!

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  2. "To make matters worse, it was an automatic*." HAHAHA spot on.

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    1. Yep. I want to do the shifting myself. At all times. Perhaps I have control issues...

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  3. Great post Mr. 1500. I made the mistake to pay $17.5k a year into my career for a new-used car. I have since sold it since moving to NYC, and am now now car free, but I really wish I used that money to pay down my higher interest rate student loans instead of a car payment. Hindsight is 20/20, and can only use it as a learning experience and improve from here!

    ReplyDelete
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    1. It's all good, especially if you learned your lesson at a young age.

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  4. Well said, per usual Mr. 1500! We've turned our lives upside down in many ways and I find that the opposite of what prevailing culture espouses is usually the best. For example, buying more does not = happiness. Buying very little and enjoying what you have while living a clutter-free existence = happiness.

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    1. Exactly! Stuff just drags you down. Your possessions end up possessing you! Thank you Tyler Durden.

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  5. Is it wrong that I think Dan's worst decision was not the Corvette itself, but the automatic transmission?

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    1. Ha, I'm totally on board with that. When he told me that, I rolled my eyes. At least in my imagination.

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  6. I was not to far off from Mr. Corvette, I decided to go with Mr. Benzo de Lorenzo, I told myself I deserved, that I fought to get here, that I needed it to replace my broken down car, and I wanted to be a "big deal". Selling that vehicle is one of my top 3 financial decisions of all time, hope Mr. Corvette did the same.

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    1. Nice move Even. I have no idea what became of Mr. Corvette. He was a real good talker, so he's probably a director now with a 5 Series BMW.

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  7. The power of compounding is indeed an impressive force in the universe we live in. I was fortunate to come across the book "The Slight Edge", where the author Jeff Olson teaches how The Slight Edge (compounding) is either working for us or against us everyday and in every area of life.

    This is the book I give out the most to people. It is a very simple for very powerful philosophy as you so elegantly pointed out in your graphs above.

    Cheers!

    ReplyDelete
    Replies
    1. I've heard of that book before but keep forgetting to read it. Thanks for the reminder!

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    2. Sounds like an awesome book! I'll add it to my growing list...

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  8. FYI, once the kids came along, I sold the Corvette and bought a USED Cadillac Escalade so I could fill it with all the cheap groceries we're buying at Costco. Who's the financially responsible one now, hot shot?

    - Mr. Corvette

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    1. "Who's the financially responsible one now, hot shot?"

      Hmmm, seems like you have taken my post personally. I don't know enough about your situation to know whether that is warranted. I do have some questions for you though:

      Why did it have to be an Escalade? Wouldn't something like a Tahoe have sufficed (same thing with a less fancy badge)? And, what about a Mazda 5? This seats 6 people and a new one probably costs less than your used Escalade. The Costco part is pretty good though.

      You are free to buy whatever you want. My suggestion is to fund your freedom first. After you have that, go nuts. You can have your Corvette (or Escalade) and drive it too; just achieve FI first.

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  9. I'm glad you don't generalize and say that young people don't understand money. It's a pet peeve of mine. I didn't understand a lot of things even though they were taught to me when I was that age, and I'm still figuring shit out now. Plus, your stories show how ignorant older people are too. We're all figuring this out as we go, but we can always improve the next generation. Nipping it in the bud will be important, and we'll try to teach our daughter how to manage money correctly so she can do whatever she wants instead of getting stuck in a job she hate but needs for the paycheck with no end in sight.

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    1. "I'm glad you don't generalize and say that young people don't understand money."

      Thanks Chris! I'm blown away every day by folks who are really young, but have it totally figured out. Look no further than Mr. White Collar Freedom actually. This guy isn't even 25 and is probably wiser than 95% of the population when it comes to matters of money. I'm blown away. There are others too. Look at the PoPs . These people are in their early 30s and have their sh*t together. So do the Frugalwoods. I'm amazed every day. No joke.

      The fact that you're aware of money and thinking about it means that you've already won most of the battle as well. You know what you need to do. I have no idea where you are in life, but I'd bet good money that you're on the right track (also, Mrs. 1500 is addicted to your blog :) [check your email!]).

      I have made lots of mistakes myself (2 new cars!). While I'm better than most, if I could go back and redo certain things, I certainly would. We humans trade time for knowledge and there are no tradebacks. The keys is to not trade too much time.

      So yeah, money ignorance knows no bounds. Some children have it figured out. Some adults never figure it out.

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    2. It may seem like there are many young ones out there who really don't understand money, but it is true that there are 'outliers' out there too. The struggle, however, is that it can be a very lonely journey to work on a 'freedom fund' at an age like mine when all your peers are busy upgrading their 'Corvettes'.

      Also, it is very easy to fall into the 'jerk' quadrant when talking about money, so we'll have to tread carefully. Very carefully.

      Our environment can deeply influence our behavior with money - and that is the tough part.

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    3. Glad you like the blog. I've been catching up on yours and am starting to read through Josh's too.

      My family is in a lot better situation than most and are well on our way to some sort of early retirement. I'd love 40 but that is 11 years away and who knows what the future holds. Now, if we can keep our savings rate over 50%, then I'll be thrilled and I think we'll be able to hit the goal.

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    4. Chris, I like how your blog's different from others. I actually have a high success rate selling items, or 'clutter' to other willing buyers - but I do it through peer-to-peer mobile marketplaces.

      Thought you may be interested in this app - DePop

      Good to know that you're striving for a 50% savings rate. I'm still on the way there. Very challenging.

      But I'll do it, anyway.

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  10. Ha, never mind, I see that was a joke now! I was hoping so? You got me. :)

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