I save and invest a lot. I track my spending and investing and have a goal of investing (between retirement accounts, health savings accounts, and taxable accounts) more each month than I spend. I have successfully hit this goal every month for the last three and a half years.
I recognize that this is unusual.
I have spent a good deal of time preparing taxes for folks in a pretty well-off area, and I am aware that most people don’t save like this. It is especially unusual for young people.
Young Adults and Money
Most young people are not putting much time or thought into preparing for retirement. We’re at (or near) the bottom of career ladders and will likely make more money in future years than we do now. We’re buying furniture and cars and houses for the first time. We’re going out with our friends. We’re going on vacations. We’re buying coffees and drinks for networking.
We have a lot that we need to spend on, so we plan to worry about saving later.
And I get that. There’s nothing inherently wrong with taking that approach. Most of my friends (of those that I have talked money) are saving very little and I hold no judgment towards them.
So why have I chosen a different direction?
A few reasons, actually. Today I want to talk about buying options through financial independence. In future articles we will delve into the value of capital and labor, the future of automation, and the idea of “sacrificing” present life standards to hit those savings and investment numbers.
Financial independence is the point at which you have enough money invested that you don’t need to work for money. I was introduced to the concept a few years ago when I stumbled upon Mr. Money Mustache and read his story of retiring at age 30.
Mr. Money Mustache saved about 2/3 of his take home pay and retired in 10 years. He explained the shockingly simple math that made it possible. He explained how the recommended 20% savings rate is great if you plan on working a 37-year career, but ramping up that savings rate could drastically shorten the number of years that you needed to work.
While I originally saw this and was intrigued by the idea of sprinting to the finish line of retirement, my viewpoint has changed a bit. I am still aiming for the same general target, but my framing has changed.
Now, I am buying options.
The more money I have saved, and the less I spend, the more options I have regarding how to spend my time in the future.
Let me unpack that a bit.
If I have no savings and spend everything that I make, then I can only take jobs at or above my current salary. I also need to line up a new job before leaving an old one so I don’t miss any paychecks.
76% of Americans live paycheck to paycheck and are in this situation. If you are spending every dime that comes in, this has implications on both spending and earning.
First, unexpected expenses become catastrophic. If you are spending everything that you make, then you have no room for error. There is no extra money to cover emergencies.
Second, you cannot decrease your earnings. You cannot take a lower paying job. You cannot leave your job. You have to pray that you don’t lose your job. When living paycheck to paycheck you require each and every paycheck to make ends meet.
Hitting my full financial independence number would be at the other end of the spectrum. This would mean that I have enough money invested that I do not need any paycheck and I can choose to use my time however I would like.
If I want to quit my job and write a novel, then I can do that without worrying about whether it will make money. If I want to spend my time volunteering or protesting or hiking or watching Netflix, I can do that. If I want to keep working at my job, then that is perfectly fine, too.
There is a lot of space in between these two extremes.
Between the Extremes
With regards to options, the space the extremes looks like a sliding scale. The further away from paycheck to paycheck you get the more options you have, even before you hit full financial independence.
You could take lower paying, but more interesting and meaningful jobs. You could take a year or two off before going back to work. You could quit your current job before starting the hunt for your next.
You could switch to lower paying remote work to have more geographic flexibility. You could switch to freelance work to have more control over your time.
Or, again, you could continue to work your current job for as long as you enjoy it.
I want to buy myself those options.
I enjoy my work. I like my coworkers and supervisors. I don’t plan on quitting right now. But coworkers move on. Supervisors change. Personal priorities and interests change. The future is unpredictable.
I’m not planning on quitting, but I want to have that option in the future, just in case.
What about you? Are there options you would like to buy? Are you working towards financial independence? Do you have other reasons for saving at whatever rate you do?