The number one obstacle to financial freedom
Call me crazy, but I want to retire early. Not because I don’t enjoy work, but because there are things I enjoy more than work. For example, relaxation on a beach in the Caribbean or to learn a new language (Italian is my personal choice). It’d be a dream to do things I’m interested in without worrying about money. However, this is only possible with enough money to live comfortably without working again. Or, in other words, financial freedom.
Financial freedom is when your portfolio of assets are generating enough income that you don’t have to work. Financial freedom at a young age is “the dream” for most. The unfortunate reality is with an average age of retirement at 67 in the U.S. this is only a dream for most. Eventually fading into the abyss when you are 60, still working every day. Many will blame this an insufficient income. But is that really the cause?
In The Richest Man in Babylon, there is an excerpt on how some people make significantly more than others. Yet, are just as poor. According to the author, this is because income has little bearing on wealth. Despite being published nearly a century ago, this idea holds true today. While this may sound ridiculous, it’s best exemplified by countless celebrities who make millions, but “lose it all” on a lavish lifestyle While it’s obvious that we shouldn’t blow our money on designer clothes, yachts, and bottle service. We need to understand the same spending issue applies on a smaller scale to your “Average Joe” who believes a mediocre income prevents them from financial freedom.
So if this is the case, how can I retire on my terms to do things I want while still young?
What blocks most people from this is spending discipline, or rather a lack of it. Often, the same Average Joe who “doesn’t make enough to attain financial freedom” has a house littered with name brand groceries, multiple cars, and the latest technology. Why? People place a greater value on having the here and now than they do on saving. It’s a classic example of “Keeping up with the Joneses.” They are constantly spending to maintain a social status.
The inability to use discipline and cut spending is the key roadblock to financial freedom. This is true whether you make $20,0000 a year or $200,000. In fact, as income increases the spending problem is augmented. With more money, individuals feel more compelled to flaunt it; this is called lifestyle inflation.
To avoid this, the more you make, the more you should put towards saving. It’s not a complex process, but it requires a great deal of discipline. Saving must come before spending or you will always add unnecessary expenses.
The Richest Man in Babylon advises to save at least one-tenth of your income; very attainable at any income level if you are willing to cut spending. Sometimes spending cuts will be obvious; like not buying a luxury car and instead opting for a more economical one. Sometimes you’ll have to be creative; like opting to use a towel over paper towels. Nonetheless, there are infinite options. You have to be willing to make the sacrifice.
Until you cut spending, it won’t matter how much you make.
Conquering overspending and investing the difference will fast track financial freedom. It’s essential to learn discipline in spending before adding additional income — what most people believe they need. Without discipline in spending, adding more income will only augment the overspending making it harder and harder to retract as you slowly lose sight of true necessities versus wants.
To start, follow The Richest Man in Babylon and save a least 10% of your income by cutting nonessential costs. No matter your income, this is achievable for almost everyone. Once attained, start saving more. Someone who makes $100,000 a year should have no problem saving 10% and should strive for up to 50% of their income. In 0 U.S. cities does it cost $100,000 a year to live.
10% is only meant to be a starting point for any income level. Ultimately, there is no golden number, it all depends on when you want to retire. The earlier you want to retire the higher that number has to be. To maximize this as your income increases so should the amount you save to counteract lifestyle inflation. Just because your income increases does not mean spending should.
Financial discipline is not something that requires a great deal of expertise. But, it is extremely challenging in practice. It’s the reason most people never meet the goals they set and is the reason many people do. You don’t have to be the founder of the next tech giant to retire on your terms. But, you do have to use discipline to cut back spending and increase saving.
