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.
Some examples:
- 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.)
Hi Kevin. My sincerest condolences on the loss of your loved ones. And, congratulations on your 25 year anniversary. The latter is itself a milestone these days and one to be very proud of. I’m only sorry it had to be dampened by the losses you both faced.
I also agree with Jodie’s words. We never have control over every aspect of our lives because life always has a new or different plan for us. Living life on your own terms has a different definition for all of us, but I would think it involves some type of savings or security for our basic needs, food, shelter, etc. These days, I would also add to that some type of medical insurance, as serious illness can bankrupt you in short order. No need to expound on that, since we’re all dealing with it. To live life on your own terms is truly a sweet spot few get to experience, but it is a goal worth pursuing. Good to see you back.
Thanks Bev. Yeah, we went on our anniversary trip and had a great time, but there wasn’t any time to savor the experience after the fact. We knew my mom was declining so I asked my sisters and my kids not to tell us if she passed while we were away. I know that sounds selfish, but it was a special celebration trip for us, we were out of the country, and there would have been nothing we could do until we got back. And sure enough, when our daughter picked us up at the bus station after the trip, she told us my mother died the morning we were at the airport getting ready to depart. And suddenly the trip was forgotten as our minds shifted gears. But such is life.
Anyway, back on the topic at hand…I think our culture has turned anything remotely resembling success into a numbers game. Yes, you can have a life of your dreams, but first you have to reach financial level X. That can resonate with us intellectually, but often doesn’t square with real life or our personal circumstances.
I’m certainly in favor of deferred gratification, but everyone has to measure how much deferral they’re willing to accept. Given the uncertainty of both the length and quality of life, it’s best not to go too long-term here. It may be better to have a shorter-term strategy, that adds more flexibility to your life, while reducing stress, and then add a more limited provision to the very long term. Whether we accept it or not, the farther out our plans are, the less certain they become.
What I’ve noticed in life is that the people who seem happiest are those who have the fewest constraints. That’s not necessarily the people with the most money. It probably comes down to that saying “success is wanting what you have, not having what you want.” The first part enables you to live life on your own terms. But the second has you chasing arbitrary goals, that you may only think you want.
Life is certainly too short and uncertain for that.
Now in my 50s I regret some of the goals I pursued while young. Time is more valuable than money. And too many people strive to live life according to what is expected of them and the status quo. I heard someone say, I think Tony Robbins, and this stuck with me: Money is a means to an end. So I focus on the ends. Money is important as far as it meets those ends. Sometimes we focus on the money itself so we can reach a point where we can relax and be “all set” and can live with a sense of security. Unfortunately, one can regret the years spent in chasing money in itself. Of course we have basic needs and need to put money away for the future. But putting priorities in order is more important. If you focus on the ends the means can come more gracefully and naturally. Sometimes the ways of meeting those ends is different than we expect. But if we’re always chasing the money for money we may miss it. So keep the eye on the prize not on the money itself. I can explain this more but let this sink in. Remember that time is more valuable as it is not renewable like money.
Hi Susan – Excellent commentary, especially “Sometimes we focus on the money itself so we can reach a point where we can relax and be ?all set? and can live with a sense of security.” I think that’s an important caveat for us all. The reality is we’re never actually all set ? it’s more likely we’re going through a time without crisis. But life being what it is, crisis comes sooner or later. What’s more important is having the flexibility and fortitude to deal with it. For example, I’ve seen some people whose lives are so carefully controlled that when crisis strikes they fall apart. Even the previous assumption of being all set crumbles.
By contrast, someone who has experienced multiple crises in life, and learned how to survive with it, is usually better prepared on all fronts. I think that’s something we miss, given that the world now believes we need to be in control of only everything. Logic alone tells us this is impossible.
But I think age is an important factor here. As you get older, you began to understand how complicated life is, and that simple solutions ? like having enough money ? won’t solve all problems. But that’s a lesson we all have to learn as we go through life.
My wife and I are in that position now. While we’re working to provide for the future, we’re well aware that life is now, and there is no nirvana this side of Heaven. I found that realization is liberating in itself.
But it pains me to see so many young people having their heads filled with all the financial propaganda. Some financial experts are telling young people they need to be saving for retirement even before they figure out who they are or what they’re going to do for a living. That kind of thinking needs serious reevaluation.
Hey Kevin
Good to have you back! Sorry for your loss. It was great to see your notice come up in my email!
I agree that you need some working capital to be financially free, but may not agree on the amount. I have a 6 month cushion stashed away and enough ready cash at home to be able to cover a new apartment and moving expenses if something goes wrong.
My yearly income is less than 15k amd I still try to put at least 200 dollars in the bank each month.
Lowering expenses is just as important as having money at hand. People are so conditioned to their consumer lifestyle that they cant see any other way. The first step to escape that is not caring what other people think of you.
Thanks Ric – I believe your life is a textbook study in the point I was trying to make in the article. We’re gradually being conditioned to believe that freedom and happiness is to be found in having a certain dollar amount of money. And if you notice, the numbers are almost always beyond the reach of the average person. For example, while it might be theoretically possible for a person making $50,000 a year to become a millionaire in 30 or 40 years, it’s extremely unlikely to happen.
And we have to ask if the effort even justifies the outcome. Your situation proves that. By objective standards, you’re considered low income. But you’re highly liquid ? you have low expenses, money saved, and extra money at the end of every month. There are people who make many times more than you do who are virtually trapped in their lifestyles. Author Robert Ringer even gave it a name, referring to it as “suburban poverty” – a high income offset by high expenses.
So many people who are “living the life” are in financial situations that are so tightly stretched that they have no peace in life. On the outside it looks great. Then at the opposite end, you have those who are so future oriented that the present is just moving right by them.
We all need to find that balance. As it’s been said “yesterday is a canceled check, tomorrow is a promissory note, but today is cash”. That doesn’t mean we don’t make a provision for the future. But it should make us question the whole concept of living exclusively or primarily for the future. We can become so future oriented that we can’t see that peace and happiness are closer than we think, and don’t usually have a big dollar amount attached to them.
I always liked this example. My mother in law worked like a dog her whole life. She made a decent living and retired at 72 with a nice six figure bank account and a pension from her late husband. She has zero bills except her monthly heat and cable, etc etc.
She tells me to this day she’s almost 80 now. That because she worked and worked her whole life she is literally to tired now to do anything.
So I would say the trade off for her probably wasn’t worth it. The stress of being a single mother and worrying for 50 years just did her in.
Even now she won’t travel. She still worries over pennies. She lives in fear of running out of money. If chicken goes up 5 cents she won’t buy it. She’s trapped in that life your speaking of above. Her biggest concern is leaving her children money when she passes.
The pursuit of money your whole live leaves you empty in the end anyway.
I’ve seen a lot of that Tim. One of my observations is that after a lifetime of frugality, you don’t suddenly sit back and enjoy what you’ve accumulated. People who are frugal like that live in a perpetual state of fear of never having enough money. To my thinking if having some money doesn’t release you from worry over money, then it has no real purpose.
Worry is the exact opposite of freedom and living life on your own terms. If you have a six figure bank account, and you’re afraid to spend $100 on something you really like, it’s become a sickness. People like that die with a lot of money they never enjoyed. Sure, you certainly want to leave some to your kids, but if you don’t feel comfortable spending some of it on yourself and creating positive experiences, then money loses it’s purpose. That’s how money loses it’s status as a tool and becomes the master of your life.
Funny thing is, when people do that with stuff, we call them hoarders, and label it a psychological disorder. When they do that with money, we charitably call them frugal. I say both have issues.
I find most people are penny wise and dollar foolish. Yes, it is a sickness. I don’t give to much thought to something that goes up a dollar or gas prices or small things.
I am frugal when it comes to big ticket purchases. I try and get the best out of it.
Normal everyday stuff I don’t care about.
I haven;t clipped a coupon I don’t think ever. I am not going to live in the bondage.
Your exactly right with your comments.
Glad to have you back !
I made this mistake early on in my business. Profit was the motivation. I found though after two years it was never enough and I was never going to be satisfied.
I shifted after that. I focus on making a good product and treating customers like I would want to.
I’m better off for it. The money now is secondary. It’s a by product of the main focus.
In the early days every time an unexpected expense came up. ( Which is weekly or daily ) it would stress me out. Now I just let it go. I have enough cushion to whether it.
Life goes by quick. Money doesn’t satisfy and it never will.
I agree Tim, do quality work, and the money will follow. And your previous comment about being frugal with the big stuff resonates with me. I wrote a post on that some years ago, comparing micro-frugality with macro-frugality and arguing if you keep the big expenses low, you won’t have to penny pinch on the smaller stuff. Truth be told, if you keep the big expenses low, you’ll have plenty left over for the fun stuff that makes life worth living. And because of the budgetary freedom you’ll have with those little things, you won’t feel trapped by the circumstances of life.
It always mystifies me when people overbuy on their house, then become fanatical coupon clippers and never have any cash in their pockets. But we can make the case that falling in love with the house is the same as obsessing on money and stuff.
Hi Kevin, sorry to hear of your loss. Best wishes to you and your family.
Just the other day I was thinking that I hadn’t heard from you in a while. I hope you are able to take the time you need with your family.
Thanks Neil. There are times in life when things get overwhelming, and March was such a month for us. We were happy to flip the calendars! But that may not change much for a bit. In the past few days we found out both our kids are moving out within the next two months, so we’ll be busy with that for a while.
It’s funny (or not), you always think life will slow down at some point, but it never seems to happen. I’ve heard that from people in their 70s and 80s too, so I’m guessing this is a permanent thing.
Isn’t it funny when nothing happens for a couple of years, then boom, all of a sudden six things happen at once.
Always seems to be the case.
Sorry for your loss. My mom passed on Thanksgiving one year and my mom in law 2 weeks later!
I was also thinking I had not heard from your blog in a while! I even re- registered my email.
Glad your back!
Wow, thanks Terri! It’s amazing how things tend to happen in bunches. It leaves you off balance for a time. But the silver lining is that we got to spend extended time with extended family, and that becomes increasingly rare as you get older and everyone grows apart. It’s important to look for the good in everything.
Condolences. I loved my job to the point that I earned more than I?ll ever be able to spend and worked past when I could have safely early retired but I do not regret that in the least. I accomplished a lot of things in my job that I couldn?t have done outside of work and left a legacy of running a company in a caring and fair manner that is a little rare in the Fortune 500 world. I never had a target because I was never in a hurry to retire until the time was right. I still retired early but only slightly so and life now is even better. We were always frugal and still are but we splurge on the things that really matter like international travel or the quality of our outdoor equipment and sports gear. I guess my main point is that while I did work for thirty years plus, and we did live frugally compared to others with our income, I don?t feel I missed out on anything. Life has been good almost every single day of my life and it still is. My wife and I are coming up on our forty-first anniversary of marriage next month and looking forward to many more!
Maybe some readers on here can tell me how to have a short term goal without a long term one? How do you know what to do short term if you have no longer view?
I’m at the point ( year six ) of starting my own business and I’m questioning now where I want this to go. What do I want out of it?
I would like to stay small but I am always in the mind frame that when you are not striving forward your actually going backward.
One of the reasons I left my job and took retirement was because I had reached the pinnacle. There was nowhere for me to go but down. I don’t like to be comfortable or ever feel like I arrived or have it made. I get lazy if I start feeling that way.
The downfall of this is that you never really arrive. It becomes a trap like everything else.
So maybe money for me allows me to keep going forward. I’m getting tired though.
Not sure I have an answer for that Tim. But maybe rather than thinking of the business you should think about where you want to take your life. Then figure out how your business works within that goal. It may be that your business enables you to live the life you want, in which case, maybe you don’t need to do anything. But maybe you want to consider building the business to the point where you can sell it one day for a windfall that will open up other opportunities.
I guess what I’m saying is you may need to think BIGGER picture, rather than just what you want to do with the business. Figure out where you want your life to go, and the business question may answer itself.
That’s a bit spacey, I know, but I think we all need to worry less about money and business, and think more about how both fit into the lives we want for ourselves. Which sounds a lot like me restating the original article 😉