People work hard. Very hard. It doesn't matter if someone sweeps floors, cleans toilets or is a brain surgeon. Talk to anyone about their career and you'll learn they all have major challenges, difficult people to deal with and long days. We all work hard and most of us do it to make a living. We need money to pay bills, but this takes away our freedom to do what we want for the majority of our lives.
What many people don't understand is that there's a way to limit your dependence on your job, and ultimately buy back your freedom and time. Here's how to break free from the typical life pattern.
Typical life pattern
Stage 1 - Age 0-22:
Earn no money. Go to school, play, find out what you're good at and what you like
Stage 2 - Age 22-65:
Work really hard for money and save some so you can eventually stop doing this
Stage 3 - Age 65 - 85ish:
Carefully spend what you saved and worry constantly you might run out.
Which stage is the best?
For me that's an easy one. Stage 1 is the best because we're doing things we enjoy and we're free of worry. While not everyone has an easy childhood, most children are generally free to enjoy activities they like such as sports, playing at a park, and ample time with their network of friends. We're also free of worry, especially the worry about money that weighs down everyone once they reach adulthood. This stage unfortunately represents only about 25% of life. And having not endured the more difficult phases, we're not able to fully appreciate just how good we have it.
Why are the other stages so difficult?
The need for money forces us to do things we don't want to do. Whether it's working in a job we don't enjoy, working two jobs, or working more hours than we want, the need for money limits our freedom to do what we enjoy, and our happiness leaves with our freedom. The need for money prevents us from doing all of those activities we enjoy doing in Stage 1, so we spend our time doing things we dislike in Stage 2 in hopes that someday we will make it Stage 3 where we can do things we enjoy again.
I hope I'm not alone when I say this feels like a really terrible way to live, and yet we all do it. We also have a habit of making things way harder on ourselves than they need to be by self destructing our finances and living a lifestyle that's too big for our wallets. This affects us in two ways;
First, by living an expensive lifestyle we limit our options. By purchasing the big house, expensive car and fancy vacations our lifestyle requires us to work the long hours in the highest paying job we can find, rather than the right number of hours in the job that actually makes us happy. Lifestyle inflation is a major problem in the U.S. and if people quantified how many years they'll need to work to pay for those extra luxuries, I think they'd think twice about how much they spend and what they spend it on.
The second and most debilitating way people sabotage their finances is by borrowing money. People borrow money for many reasons, but their expensive lifestyle is the main culprit. They can't pay for all the things they think they need so they borrow to pay for them. Borrowing in most cases is a bad idea and if it involves credit cards it's a horrible idea. I discussed why in our first post, the 8th Great Wonder Way to Wealth. To put it very simply, by borrowing we not only pay interest, we lose out on the opportunity to invest.
Putting the wind at your back
As we discussed in the 8th Great Wonder Way to Wealth, we only earn so much money in our lifetime.
When we borrow we can buy fewer goods and services with that money, but if we earn interest and compound that interest over and over again, we can purchase more, way more than what we've earned. More importantly, instead of buying more, we can buy the same amount and use our investment returns to buy back time and freedom. This is the power of putting the wind at our backs.
So how do we do it?
Use the power of time
You must put time on your side first and foremost. You must begin today whether you're 22 or 52. Most people don't realize that time, not fancy investments are the key to generating compounding returns and building wealth.
Be debt free
Get angry, read Dave Ramsey if you have to, but put all of your effort into getting out of debt. Not only does it feel good to pay off debt, but every debt you payoff frees up money to invest. It's like getting a huge raise every time.
Change your lifestyle
In order to payoff your debt you need to free up money. Go after big expenses - downsize if you need to, because this will free up A LOT of money. Limit unnecessary purchases within reason - expensive restaurants and clothes can have a huge impact.
Don't be a car clown
Cars destroy wealth, and interest paid on cars destroys lives and happiness. Buy reasonably priced cars (used is fine) and keep them way longer than you do now so you can save up cash for your next one. How? Learn how to pay for every car you ever own in cash here.
This really works....but it's up to you
By putting the wind at your back aggressively and as early in life as possible, you will wake up one day and realize you have more options for happiness. While others are stuck in a job they hate until 65, you will have 'purchased' more options. Seeing that you have no debt and a big investment balance, your decision making process will be easier. Maybe you'll no longer need to work the job you hate and you can finally pursue that lower paying but more fulfilling career. Maybe you can retire early, or cut back on your hours and spend more time with your kids. Everyone's path will be different but it really will work if you put it into practice. The alternative is to follow the three stage path.
Which would you prefer?