Spend 100% of what you earn and you will never retire, spend 0% and you can retire immediately. In his talk for the 2016 World Domination Summit, Mr. Money Mustache, a thirty-something year-old retiree, stated that all middle-class citizens of rich countries have the possibility of retiring within ten years after receiving their first paycheck. Having a financially cautious yet luxurious lifestyle has never been easier.
What is the trap?
As stated by Mr. Money Mustache, “Work is better when you don’t need the money”. There is a big difference between “working” and “having to work”. When the only reason for you to work is because you choose to, your job becomes more fulfilling. Consider Bill Gates as an example; he is not doing nine to five, he wants to build the future for humanity. That is why he does not complain about waking up early, nor about a boss giving him a hard time. He is not stuck in the trap.
The trap is the pursuit of happiness throughout material factors or goods in a consumerist society’s mindset. In this type of society, individuals devote their resources, time and energy to consumption. Spending money on the product becomes more important than the value we would get out of the product itself. The car loan we will never be able to pay, the expensive cosmetic products that will only be used once, or the house rent that takes 60% of the salary will likely make us work for the rest of our lives.
I cannot tell you exactly what happiness is. However, I can guarantee you that if your job is making you miserable now, it will not make you happier over the next forty years either. As working could mean spending 8 to 10 hours per day in a cubicle, this activity should intrigue passion and complement the definition of fulfillment you seek.
How can you escape the trap?
On the one hand, the recipe for the trap is pretty simple. Ariana Grande told you about it in her big hit “7 rings”: “I see it, I like it, I want it, I got it”. On the other hand, the recipe of Mr. Mustache to escape this trap is equally simple: “spend much less than what you earn”.
This graph from Mr. Money Mustache’s blog can show you how long you would need to work depending on how much you save. This would suggest that almost everybody can potentially escape the trap. For instance, if you save and invest 65% of your take-home pay in a basic index fund that tracks the S&P 500, you will be ready to be financially independent in fewer than 11 years. That assumes a 4% yearly return on investment. Even the money that you earn at the lower end of the pay scale can make you happy, as long as you spend it wisely.
Everything comes for a price though. In order to be financially independent you are going to sacrifice a few luxury things. You could save yourself years of work by quitting daily Starbucks coffees, learning to commute by bike or motorcycle and cooking your own lunch. That said, satisfying physiological, safety and security needs is crucial. That means that a portion of the monthly income will automatically be allocated to basic living and eventual expenses.
Earn your freedom
As a young worker, you should think about the things that matter when making financial decisions. Of course, you do not need to renounce your hobbies and the things that make you feel good. After all, money is not happiness, but if used wisely, it can be a strong tool to reach your goals.
Belkiss Ben Farhat
Innovation Time Genève
Last modified: 19 mai 2021