In 7 Dark Reasons Why Good Workers Don’t Get Promoted reader/commenter Jodie made an astute observation. She wrote: “I am retired and advise everyone to do whatever you need to do to stash away $ for when it is time to “get out of Dodge”. The ability to thumb your nose and walk away when it is time will help you retain your self-respect, health and sanity.” In my comment response, I agreed with her assessment, and added that money enables living life on your own terms.
Money is probably the most commonly discussed topic in our culture. To one degree or another, everyone pursues it, yet does anybody truly understand its real purpose?
The financial industry attempts to be very specific. Not only do they try to define a specific dollar amount you need, but they also encourage certain specific strategies to reach it. Not surprisingly, one of those strategies is usually employing a product or service being directly or indirectly offered by the publication or individual providing the advice.
But providing general advice as to how much money everyone needs to be financially secure is far from an exact science. It’s different for everyone, based on their financial resources, goals and lifestyles.
Rather than providing specific numbers, I prefer taking a qualitative approach to money. Money is after all nothing more than a tool. And like all tools, it exists to help us fill a specific need. Ultimately, that need is – or should be – to create a comfortable life. Unfortunately, you won’t make much money hawking products and services built around that premise. So let’s dare to consider the real purpose of money, while specifically avoiding any dollar thresholds.
The Millionaire Misdirection
One of the fundamental problems when it comes to money is Gimme a number, which is a question framed as a comment. It’s as if there’s some magic number we have to reach to achieve a certain important financial goal.
Probably the most common number is $1 million. Statistically speaking, the percentage of households or US adults who are millionaires is in single digits. That means at least 90% of the population are not millionaires. Does that mean that 90% of the population are leading miserable lives?
That is of course an absurd question, but it makes an important point. Can we put a number on how much money is enough?
Taking it a step further, is it possible that the belief that a certain number represents financial success, or the struggle to attain it, in and of itself creates unhappiness?
The point is, clearly no one needs to be a millionaire to be happy. But you can’t blame the financial industry for trying to sell the dream. It makes a strong case however for not getting on the money chase treadmill, or getting off it if you’re already there. After all, even if you reach millionaire status, the likely outcome is that you’ll set a higher goal.
That’s the real problem with the money chase, it doesn’t really have an end game. In that way, money becomes the master and not servant it’s meant to be. There’s absolutely something wrong with that.
Some Level of Financial Security is Still Highly Desirable
My point in emphasizing the millionaire myth isn’t to say that money isn’t important, but rather to say that it’s not necessary to assign a specific number to the goal. Instead, it may be more instructive to consider the benefits that having money can provide, without having to attain some very specific level of wealth.
I prefer examining how much it will take or what will be necessary to enable you to be living life on your own terms.
That being the case, some better and more attainable measures might be:
- Becoming debt-free to lower your obligations and cost of living, as well as your stress level.
- Having enough money set aside to cover living expenses for several months, so you’ll be free to quit a bad job if you need to. Or as Jody said, to “get out of Dodge” – which is something we all need to do from time to time.
- Having a second savings account in place to cover intermediate needs, like making a down payment on a house or replacing your car.
- Setting up a health savings account (HSA) to cover out-of-pocket medical costs.
- Having a retirement plan in place that you’re contributing to on a regular basis that will at least make you more comfortable when retirement rolls around (as opposed to independently wealthy, as is often implied).
None of these strategies require a hard and fast number. Some can give you a greater sense of control just by getting them started. For example, if you don’t have enough money to cover several months living expenses, you might find a bad job more tolerable just knowing you’re moving in the right direction with your savings.
The Expense Side of the Living Life on Your Own Terms
So far we’ve been focusing on accumulating money. But equally important is properly managing your living expenses. The lower they are, the less wealth you need to have.
One person might need $500,000 per year to live comfortably, by their own definition. Another may need just $75,000. And a very frugal person may only need $30,000.
Whatever the need is, the goal should be to balance a certain amount of money with whatever your financial requirements are.
For example, if you need $50,000 per year live, and you already have $100,000 in savings and investments, you’re probably already living life on your own terms. After all, you have enough money salted away to survive for two full years without even working. Growing your savings 10 times, to $1 million, probably won’t dramatically improve that situation. And it certainly won’t make you 10 times happier.
So the other half of the equation then really is living expenses. Sometimes the problem isn’t a lack of savings or investments, but living expenses or aspirations for a higher cost lifestyle that are the real culprit.
Don’t Compare Yourself with Others
For better or worse, our culture encourages competition. That inevitably leads to comparing ourselves with others, particularly when it has anything to do with money. Unfortunately, that can be like chasing your tail, especially if you’re not competitive by nature. As well, things aren’t always what they seem on the surface.
- You want a higher paying job, but you may be underestimating the additional time, effort, stress, and responsibility that comes with it. It may increase your income, but at a cost of decreasing both your free time and your independence.
- Friends just moved to a more expensive home, and you got the bug to follow suit. But while trading up might feel good for a time, the increase in living expenses that will come with it may impair your ability to live life on your own terms.
- A friend is all in on becoming wealthy. As you watch his wealth grow, you’re tempted to follow suit. But in doing so, you find yourself working harder than ever, enjoying life less, and focusing almost exclusively on increasing the bankroll or investment portfolio.
I want to camp out on that last example for a moment. I’ve known people who have followed that path. Not surprisingly, they’re often not happy even when they reach the goal. The problem is that a lifestyle centered squarely on monetary accumulation isn’t easy let go of. The person gets trapped in a Catch-22 of always needing more.
The same is true of people who are extremely frugal. Even once their wealth grows, and the need to be frugal (or even cheap) no longer exists, they continue to live one step above a homeless person. After so many years, the behavior takes over, and any monetary goal is meaningless.
Financial Goals Need to be Attainable Within a Reasonable Time Fame
This should be self-evident, but it’s often not. In fact, it relates closely to the two examples above, of the person totally committed to attaining wealth and the other who is so focused on being frugal that he forgets to live. In each case, the person spends so much time pursuing the goal, that she no longer knows how to function in any other way.
With any endeavor we take on, we always need to measure the cost. Attaining wealth is highly time sensitive. If it will take you 30 or 40 years to amass a certain level of wealth, you have to ask what you’re giving up in the meantime.
One of the perversions I see in our culture today is an obsession with retirement. It’s as if the true or ultimate measure of a person’s life is how well they arrive at retirement.
This is a dangerous assumption because it leads to three potential problems:
- Investing too much on the backend of your life.
- Being so overwhelmed by the effort that you either abandon it or never get started.
- Fail to reach your goal, in spite of your best efforts.
I have a theory that one of the major reasons for the dramatic rise in depression in recent years has something to do with what people are doing (or not doing), versus what we’re all being told were supposed to do. In a culture that increasingly encourages conformity, this disconnect from the theoretical mainstream can lead to all kinds of psychological and emotional problems.
Charting a Better Course
Maybe you want to achieve some level of financial freedom, but you’re not prepared to commit half your life to the chase. I think that’s perfectly reasonable. It may be better to set a lower, more attainable goal, that will fit better in your lifestyle.
For example, if you’re 30 years old, you may choose to commit the next five years to getting into a financial position where you’re living life on your own terms. That may be preferable to committing the next 35 years to prepare for a “golden retirement”.
Some may say that this is an irresponsible recommendation. Naturally, I completely disagree. The better your financial circumstances are in the short run, the better they’re likely to become in the long run.
Put another way, the more control you have over your life, and the more comfortable you are, the easier it will be to attain greater wealth in the future. Even if that’s not a goal, it’s a common outcome. It’s a result of having more control over your time, your activities, and your money. Rather than being a slave to a specific financial result, instead you’re building the kind of life that leads you to a better place.
This can happen by default. Just by having sufficient savings to relieve financial stress and enable you to quit a bad job, can give you the ability to pursue your own goals and passions, without fear of financial annihilation. The same is true being debt free. The less debt you have, the less income you need, and the more freedom you’ll have to do as you please.
Final Thoughts on the Real Purpose of Having Money
Once again, money is a tool. Its real purpose is to provide you with options, the kind that will see you living life on your own terms. That doesn’t mean becoming a millionaire, as has become a popular goal in our culture. Instead, set your own definitions of what constitutes financial success, pursue them, then enjoy your life.
That’s more important than we realize, because the clock is already ticking, and it’s already later than you think. Spending decades working to build wealth may be totally unnecessary, when the real goal is probably just a desire to avoid feeling trapped. And you can overcome that one with a lot less money than you think.
(Note to regular readers: I apologize for not adding content to the site for the past one month-plus. From the beginning of March, we had a series of events that limited my time on the blog to the bare minimum. It started with a 25-year anniversary trip for my wife and myself, during which my mother died. On the day of her funeral, we received notice of the death of my closest aunt. It’s taken me the past two weeks to finally get back into a routine that looks something like normal.)