The idea of being financially independent is something most of us dream of, but some of us are taking action to make this dream a reality. We believe that living below our means, maxing out our retirement accounts, paying off our debts, and saving consistently will allow us to achieve freedom. We will be free from money issues, free from our constant struggle at work, and free to work on what we are passionate about.
I have always been a saver. There were countless times when I wanted to buy something but stopped because I didn’t want to spend the money. From a bottle of coke to that new car I wanted, I restrained myself over and over again because I know that buying would mean wasting money I worked hard for. I have used those compound interest calculators so often I can instinctively calculate the magnitude of how much my purchase would be worth in retirement if I just hold off.
I feel bad when I turn on air conditioning, so it’s rarely running. Sometimes the room is so hot I keep sweating and feel miserable. Yet I struggle through it, thinking that if I can hold off this one time, I could save that extra few dollars that will help me become financially free sooner.
On the other end of the spectrum is my friend. He practices living in the moment and worry about tomorrow later. He has three cars in his possession, lives in a very nice house, and goes out for dinner every night. When you look at the two of us, you would think that we were living in different worlds. Maybe he is worried about retirement too, but he is choosing to have the fun now instead.
My friend constantly reminds me that although I may have a richer retirement, he lives a richer life now. The fact that he can live rich for 20 years should be the same as me being able to live rich 20 years after retirement. He is right in a way, and I sometimes see myself being jealous of how he is now.
Life is full of gives and takes. My friend and I both made choices. I chose to tough it out at the beginning, and have a happy ending. If you want to live rich now, be like my friend by all means. No one is stopping you, because it’s your life.
I feel like I am better off than my friend because I feel secure knowing I am working for my future. I know that I’m getting closer and closer to be financially secure, something my friend never was and probably never will be. I will live my later years quite comfortably because I worked hard my whole life to secure the privilege. If you are trying to save diligently and feel burned out from it, remember the following two sentences.
“Perhaps we are giving up many materialistic things right now for the future, but what we are gaining is peace of mind. We know what we are doing is the right thing for us, and nothing in life can substitute this feeling.”
And guess what?
I wrote this piece in 2007, close to when I first started writing on MoneyNing.com. It’s been more than a decade since then. Has anything changed? What happened to me and my friend? Don’t you want to know how things have turned out? Here’s an update.
We are still friends!
We still regularly keep in touch, and both of us are doing great. I, as some of you know, got married, and have two beautiful kids. He too, has tied the knot with three kiddos.
I joke that his need for more and my value for freedom even extends to offsprings because he is one-upping me on family member count too!
As for our respective financial picture? Let’s start with him. All indications show that he’s doing decently. He went from three cars for himself to two for the family, but that’s still plenty since he works pretty hard and doesn’t have that much time to take care of his toys anyway. He also owns a nice house in a good neighborhood. And judging by our discussions on retirement plans and such, he likely has a decently sized 401k plus a modest taxable account.
I, on the other hand, am financially independent. My friend sometimes teases me for being retired because I also work at home and my hours are flexible, but I’m still writing on the site and generating income so I’m far from quitting the rat race.
What have I learned from our respective financial paths?
Compound interest works, but only if you have starting capital to compound. I had mutual fund investments since I was a teenager, so I’m living proof that those charts showing the power of compound interest don’t lie.
But money only grows if you start the ball rolling and let its momentum continue without interruption. Whether it’s saving money on coffee, not turning on air conditioning, or trying to start a side hustle, you need to find a way to save and keep saving.
Not buying now means being able to purchase the same item again and again later. I remember forgoing a $200 music player roughly 20 years ago. Instead, that sum invested is worth $800 today compounded at 7% per year. At the same rate of return, that $800 will roughly turn into $3,000 in two more decades. By then, the original $200 could be throwing out $100 in dividends every year.
Luckily, electronic prices have largely stayed the same. This means that I could buy a new music player every two years with the dividends that the original amount produces. And if I’m smart about finding deals on each purchase and selling the old one, I could even buy a new one every single year, all because I held off the purchase at the beginning!
Achieving early financial freedom is a choice, but it’s not the only good choice. I was okay with the sacrifices I’ve made because I highly value financial freedom. Ask a hundred other people and you may not be able to find another person who’s willing to suffer through no air conditioning just to save a couple of bucks a day.
My friend lived large for pretty much all his adult life and continues to have a good one. Sure, he probably doesn’t have as much saved as I do at this point, but he’s still well on his way to financial freedom. I may be less stressed about work than he is right now, but he’ll likely still be in great shape because he still saved along the way.
While I skewed heavily towards saving every penny I could get my hands on, he spaced his savings out at a much more gradual pace. I’m reaping the reward of my decision now, but he got to enjoy the money he earned at an earlier age.
I chose this path, and I’m glad I did.
I can’t say he’s wrong though. It’s just a matter of priorities.
Which path have you chosen so far? Do you have any regrets? If you do, then it’s time to change course. How will you live life differently today than in the past?
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I’m with you David. Retire early FTW!
Onward to the promised land together buddy!
It’s not everyday financial bloggers even acknowledge the other side of the coin, let alone say that it’s okay to not save every penny.
Both of you seem to be doing great, and staying friends.
My strategy is in the middle of you two extremes. Save a little, spend a little. I think balance is the best way because I don’t want to work until I drop dead. Yet saving at full speed and then retiring early without purpose isn’t my cup of tea either.
Moderation is a really good way to go Nate.
One of the reasons why I chose my path was because of the uncertainty of my active income source. I’m glad I saved a ton because self-employment income is really up and down and having money in the bank offers tremendous comfort.
Those who have a steady job probably don’t need to be so conservative though.
When I was growing up, my parents never had the extra money to eat out all the time, buy me a nice car, or help me buy a house. Not that I expect that from them, because I didnt. But now that I have 2 kids, I am 100% motivated to make sure there is a safety net for them. I want to raise them to be responsible on their own and to save money and get a job. However, I want them to know that when emergencies happen, like having a kid early or getting int o an accident, I can help get them back on their feet. I just think its so important to not live free now, but rather save so your kids have the ability to live free if they need to.
You can enjoy life as I did but I refused to buy the latest electronic toys and gadgets , extra large flat screen T.V.’s for $ 2000.00 + [ am quite content with a
$ 350.00 / $ 400.00 T.V. ] , also always bought low mileage used cars which were as good as new BUT I saved close to half the cost of a new car . That savings was invested 7 months later after the 2008 stock market crashed and within 1 year I doubled my money. Going out to dinner 3 or 4 times a month for 2 people will cost about $ 1500.00 to $ 1900.00 a year . Paying extra for the latest movies on T.V. , paying extra for call waiting etc. on your phone , paying extra for all the bells and whistles on a car , a larger house that you need will also cost higher property taxes , property insurance , general maintenance , electricity and heating , it all adds up to MEGA dollars and DEBT. After my 4 years in the Navy , I wanted to travel and see Europe . Rather than spend the money I saved in the Navy , aside from working 8 hours a day , 5 days a week , I also worked another 4 hours a day for the next 8 months . That next summer I spent 3 months in Europe bicycling thru France , Germany , Holland , Switzerland and Italy . By overnighting in Youth Hostels , it kept the cost down .
Since then by being thrifty and still enjoying life , I amassed enough money to be a good credit risk and was able to borrow money from the Banks in order to buy bankrupt restaurants and also multi family houses to rent out. Am now retired and have a steady hefty income coming in and have lived like a king for the past 22 years , no debts and not a worry in the world . By the way , I still buy low mileage [ 12,000 – 18,000 miles ] used cars . They are like NEW .
I personally believe being financially independent is important. For example, having no debt is something I wish more people would learn gives you a lot of freedom. However, as you guys have alluded to your missing out on life. Quite frankly for that I think your an idiot. There are always cheap ways to enjoy your life in the same way someone with twice the amount of money you have does you just got to find it. Who says your going to live to retirement? Who says your going to be able to do what you want then? Your health will likely be an issue at some point and some things you won’t be physically able to do. I avoid putting myself in debt if at all possible,but neither do I have a retirement account(at the moment) because my savings are used for short-term goals(3-5 years) like going to the World Cup Final in 2014(trust me not at all cheap). I hope to not have a cent in my bank account when I die, but rather a rich collection of memories of the great things I did.
I agree with many of the people on here. I have always been a saver and my financial future is very important. However, I have been having health problems recently and have also realized that I don’t know how long I will be around for so I need to balance life with saving for a future that may not come. My strategy is to save approximately 30 to 35% of my income and spend the rest. That is a pretty beefy savings (that does not include my company pension and SS on top of it) and yet I still can have a nice car, home and take some nice vacations. However, it is ALL about trade offs…I spend money on the above three and not on things such as alcohol, expensive hobbies or clothing and other materialistic items. The above three make me happy and so does my large savings account. Isn’t happiness what we are all shooting for anyway? Thank you David and everyone for your posts. Reading your website also makes me happy 🙂
KMull: Yes it is definitely a very fine line. Hopefully the more we read and write on personal finance, the better we will be able to balance our finances.
You cannot forget to live. It is a fine line sometimes. Live life… you may die tomorrow. But don’t sacrifice your future as well.
fubek: Don’t worry about not getting the consumer side of things. The pros of not having that “gene” definitely outweigh the cons.
I completely agree that we need to spend time with love ones. I often get so involved with the things that I do that I end up not spending enough time with my fiancee.
I should spend more time with the people I truly care about.
Well, I’m not anywhere above others, on the contrary. Sometimes it feels like I am missing the consumer gene, some kind of birth defect. I just don’t get it.
But it’s true that you have to balance your resources. For me, that is having time now for myself and for the ones I love instead of later, and to connect in a deep way. Work life gets into that way far too often and I have to remind myself to slow down.
I guess everyone needs to find out what’s truly important to him/her and just follow that need without thinking too much about the Joneses.
Engineer: I believe balance is different for everyone. It is important to find what makes you happy with the consequeneces of your actions in mind.
For me, having a financially stable future is “very” important. At this point, it is more important than many other things. This may change in the future, but I can only comment on how it is right now. I may suffer because I don’t turn on the A/C, but I believe it is the right choice because I can in the future. I believe in imporving life over time, instead of having to worry about a degrading lifestyle in the future.
Eat, drink, and be merry. For tomorrow we may die.
But what if you’re unlucky enough to live until the day after tomorrow?
As in engineering, life is about trade-offs. In the short run, we have to eat. In the long run, we’re going to be dead anyway. We need to balance between the two extremes, and there is an opportunity cost to our decisions. Time is something you don’t get back. How will the choices we make today balance out over the course of our lives.
Personally, I think the proper balance is somewhere between having four cars, and risking heat stroke by not running the air conditioner in the one car you have.
fubek: You are almost living in a level “above” us humans 🙂 It’s great to hear that you will be financially independent in four years and can “choose” to work unlike us.
marylandterps: You are right in that we all need balance. It is definitely hard to do though since living good now is directly hurting the potential of living good later. Hopefully I can find a balance one of these days since I believe I’m more on the “save too much” side at this point in my life.
I am not materialistic but my girlfriend & I enjoy our current life while also saving for the future. We don’t buy a lot of junk or waste money on the newest electronic gadgets. I don’t want the clutter in our house. We do take 4 or 5 trips per year. We even save money on trips by staying at hostels & using frequent flyer miles or cheap airfare when we travel. Our cars are 4 & 5 years old but paid off. We do use a/c but keep the house between 76 – 80. So I think everyone needs a balance between the future & the present b/c who knows how long you will live.
The fun starts if you stop wanting the stuff you are not buying. I don’t know how I got there, I guess I have always been that way, but I keep finding out that I just have no use for most of the stuff that people around me own. I guess I just don’t understand consumerism. That frees me enormously: where other people would feel deprived, I just shrug and go on. That way, I can save a lot of the money that I earn and be financially independent in four years time when I’m 40. No need to work anymore from there on.