I’ve spend all my adult years living paycheck to paycheck. I never saved a dime and always blew all my money on whatever I felt like in the moment. When I look back, I highly regret my behavior because I’ve to pay with my time today for the choices I made in the past.
As I’ve mentioned earlier, I’ve a debt of around 23,000 dollars in student loans. What does that really mean? In my situation, it means that I’ve to work in a fucking office for more than a year just to pay back my debt! That is, if I only spend money on fixed expenditures like rent and food, and spend the rest of my income on paying back my student loans. Even after a year, I’ll be left with a net worth of zero. I’ll be 30 years old, and with no more money than I had when I was born.
How the fuck did I get into this mess?
My biggest mistake was perhaps that I didn’t really understand the relationship between money and freedom. I’d always thought that thinking too much about money wasn’t good, and I wanted to be free to live my life without concerns about money issues. Therefore, I made a fatal error: I tried not to care about how I spent my money. “Surely, that must be the way to freedom from money”, I thought back then. “If I just don’t care about money, it’ll hold no power over me”. So the years went by and I kept spending money without a thought of tomorrow.
Unfortunately, I couldn’t have been more wrong. Spending money without saving and investing made me less free. I realize that now when I actually have to work in an office all day to make money.
As long as I make money by selling my labor and time to an employer, having debt means that I owe my time to someone else. This is the exact opposite of freedom, it’s modern self-imposed wage-slavery. I reckon it’s my own fault 100%. I’ve put myself in this fucked up situation, so I’m going to be the one who gets me out again!
That means I’ve to get rid of my debt, and I have to save and invest at least 50 percent of my income each month.
I’ll do it to escape the 9-5 rat race. I’ll do it to live a happy life. I’ll do it to future me, to my girlfriend, future kids and family. I believe we’ll be way better off when we have the freedom to design our lives as we wish. Not living our lives around how some random employer can extract the most value out of us.
I look at my co-workers, some of them have two or three kids, and I can see how stressed out they are from working 9-5 every day just to race home and take care of their kids. To me modern work culture and having a healthy family life does not go hand in hand. I’ll do everything in my power to make my future schedule more flexible.
Changing spending patterns
These thoughts about how money is important in order to have more freedom might come off as quite obvious to most people, but it took me a long time to figure it out.
Now that I’ve had the realization, I’m going to reconsider the way I spent money. I used to buy whatever I thought I needed or simply bought what I wanted. I let my emotions control my actions. It felt good to just buy stuff. We’re all creatures of habit, so it can be quite difficult to make lasting chance. Old habits die hard and all that jazz.
There’s a few mind tricks, which can be useful, when you’ll have to decide if the price of a product or service is worth it.
It can be useful to measure the price of a product in how many hours you’ll have to be working in order to pay for it. For example, I want to buy a new bicycle. It’ll cost me around 1000 dollars. With my current salary of around 120DKK (19 dollars) an hour after taxes, it’ll take me 52 hours to pay for the bicycle. That’s about 1.5 weeks in the office. It might be worth it. Just might.
However, an even better way to look at it, is to calculate how much the product will cost me if I’m not willing to sell my time to earn the money. In other words, how much do I need to invest in order to pay the price with passive income?
In FIRE-theory we operate with a 4% withdrawal rule-of-thumb. According to ‘The Trinity Study’ you’ll be able to withdraw 4% of your portfolio every year for 30 years without running out of money. So let’s see what the bicycle will cost me if I want my investments to pay for it. It’s quite simple: 1000/0.04= 25,000 dollars. So I’ve to save 25,000 dollars (160.000 DKK) in order to buy the new bicycle! That means I’ll have to sit in my office for more than a year in order to buy it. Absolutely not worth it! I think I’ll stick to running.
Every time I buy something I’m going to see it for what it is: a loss of freedom. The less I consume, the less I’ll have to work. I want a minimalistic lifestyle with relatively few possessions and generally low spending, so I’ll be free to choose how I spend my time.
The thing is, I don’t think materialistic things makes me happy. On the other hand, getting lots of sleep, exercise and healthy food does. Playing tennis in the middle of the day or cuddling with my girlfriend on the couch makes me happy. Having time to focus on hobby projects like writing this blog or playing guitar also makes me feel good. Sitting in an office having endless meetings about fundamentally unsolvable problems, having a boss who orders me to do this and that, writing long formal documents, trying to get a promotion, work politics, new strategies and all that shit does not make me happy.
Avoid lifestyle inflation
Nowadays, I find it quite easy not to spend money… when I don’t have any.
It’s another story when I’ve just received my monthly salary and my bank account is loaded. After sitting all month locked in the office, I feel so depressed and desperate to get the fuck out and have some fun! After all, what’s the point of working so hard, if you can’t use the money?
It’s a mental trap many people fall into. It’s called lifestyle inflation. The more you work and earn, the more you spend.
Take a look at the lawyers, investment bankers and other high income workers. Many of them earns extremely high salaries, but with the lifestyle comes high expenses. You’ll want to live in a big house or a fancy penthouse apartment. You’d definitely be driving a nice BMW. You don’t have time to cook, so you’ll be eating out in expensive Michelin-starred restaurants all the time. Of course, you want a nice suit (or ten) and an expensive watch to impress the co-workers. It’s not much fun to earn a lot if you can’t show off a bit.
It’s incredibly easy to fall into the lifestyle inflation trap. And the phenomenon is definitely not reserved for those with high income. I for one will try to keep my spending relatively low, and hopefully I wont indulge in too many expensive habits in the coming years.