Let Scrooge McDuck, maternal Uncle to Donald Duck, and Great Uncle to Huey, Dewey and Louie, guide your spending habits. According to his Wikipedia entry Mr. McDuck was, in his first few appearances, characterized as a greedy miser. But in later comics and animated shorts and the modern day he is more often portrayed as a charitable and thrifty hero, adventurer, explorer and philanthropist. I also remember from the old comics is that he is occasionally given to excess….and stress….but it is the other qualities that we need to channel.
Living on half of your income (and investing the rest) is simply a way to achieve financial independence (FI) relatively quickly. Most people are used to spending all of the money that comes their way. To make it worse they carry balances on their credit cards, often borrowing money at 24.99% interest to buy $0.25 worth of coffee mixed with $0.10 worth of milk and sugar. This kind of habit doesn’t disappear just because you started browsing a few blogs and thinking it sounds like a good idea to cut back. You have to let your inner Scrooge McDuck guide your spending – embrace being a miser – at least for now. Achieving FI means you can afford the luxuries that you want without needing to work. But what you are likely to find is once you give up some of the luxuries you have been purchasing your whole life you no longer miss them and may be happier without them. I know a lot of people feel this way about cable or satellite TV.
If you are single (or have a like minded partner) with no responsibilities to anyone but yourself and want to achieve FI as soon as possible then by all means live the life of a greedy miser. Try to save 85% of your money. 85% is a big number – get ready for some BIG changes. There is no need for a home in the traditional sense when you can take advantage of ALL of the benefits of that job of yours. Is that climate controlled office building being under utilized during non-business hours? You COULD… sleep under your desk, take sink baths, and keep all of your perishables in the break room refrigerator. Security guard giving you a hard time? You may be forced to spend $50 per month on a storage unit – just try to be discreet. Soon you will be have enough money saved that you will not need to trade your time for it – you should still be thrifty – but the interest your investments earn will pay for the luxuries, adventures and philanthropy that you choose.
My inner miser is constantly getting beat up by my inner caring father. Inner caring father thinks that his children will visit him more often when he is old if they have happy childhood memories that include vacations, toys, and recreation – the more the better. When inner miser and caring father merge into a single identity they become thrifty dad – a lovable adventurer and explorer who is an expert at getting the best deal and choosing experiences that are high in quality and low in cost. Saving 85% is not a compatible goal, but reaching or exceeding 50% definitely is for a lot of families.
How? It takes a few big steps and a lot of little ones that will get you there. Here is a little one that pertains to the cost of kids’ activities:
Recently my two oldest kids became interested in taking a martial arts class. Remembering the few months that my oldest son took a Taekwondo when he was five years old I shuddered at the monthly hit the budget might take if we went back and signed the two boys up. I visited the website of the place we had taken him and found out that this is what the cost would be. Note that this is for a 1 hour class 2 times per week:
monthly fee child #1: $95 + $17.33 for testing (average)
monthly fee child #2: $90 + 17.33 for testing (average)
$/year (combined): $2428
$/hour of training: $11.67
When I was a senior high school I joined the local Judo club. I have noticed that there are karate, taekwondo, and other martial arts schools in every other strip mall around town, but no Judo. I researched a little bit and found the closest Judo club. They meet at the local police station twice per week for an hour and a half of training, and sometimes have practices on Saturday. I enrolled the two kids and this is what we are paying:
annual USJF membership each child: $50
monthly fee child #1: $30
monthly fee child #2: $15
$/year (combined): $640
$/hour of training (not counting extra Saturdays): $2.05
Note that this comparison does not include uniforms or tournament entry and travel fees. I am assuming the costs for these will be similar for both.
So in this example choosing wisely saves $1788 per year, and is a MUCH better deal on a per hour basis. If you earn $100k per year that savings is about 1.8% of your income. If you earn $50k it is about 3.6% per year. That is one more small step toward being able to save half.
Note: At almost every Judo class I have watched so far there are at least 3 blackbelts who are teaching each session. At the Taekwondo school there was only one.
Another Note: If it helps you stay focused on being thrifty you can emulate Mr. McDuck’s appearance. Pince-nez glasses are a good place to start – as long as you can find them free or cheap. If you find a mirrored pair they can also be used to emulate Morpheus.