Let’s think ahead five and ten years down the road. If you are gainfully employed, there are two ways in which your bank account can end up. There can be tens of thousands of dollars sitting there placing you on the path to financial independence or there can be next to nothing.
Chances are it will be one or the other of these two outcomes. Not some measure in between, but either one end of the spectrum or the other; either you will be well on your way or you will be living hand to mouth. Make up your mind, make a few good decisions and it can certainly be 5 figures or more. And this goes for any man working full time, no matter his level of income.
The difference between the two outcomes is not that great in terms of day to day life. The primary skill you will need to get there is simply not spending money. As you will see later on in this article even saving as little as $100 per month invested at 8% will end up as $18,300 in ten years. There are 4.33 weeks per month. $100 divided by 4.33 is $23.09. Certainly, earning a full time living, you can save $23 dollars per week if you made up your mind to do so.
Admittedly, $18K is not going to set you on the path to financial freedom after ten years of effort. But if you do not have that kind of cash in the bank right now, wouldn’t it be nice to have it anyway? It would indeed be a tidy sum available for unexpected expenses or a few months of rent, food and heat if you lost your job. You would certainly be a step or two above the feeble position of having nothing at all in the bank.
Now let’s scale things up here a little bit. If you’re a man earning a middle class income and perhaps have a woman doing the same, how hard would it be for you to save $1000 per month? Let’s say you decided your life depended on it. And as I always say, your life is always on the line. The decisions you make over time will have a compounding effect on the type and quality of life you will lead. If you thought about it seriously for a couple of hours there would have to be a realistic way for you not to spend $1000 per month and save it instead.
The question is, do you have the will to do so? Would it be worth having $183,000 of savings 10 years from now, simply by not spending $1000 per month? Perhaps with a few of the mechanical skills in play from Part 1 of this article, having some proactive discussions with your woman and employing some of the simple ideas below, you will indeed develop the necessary will.
Save 1 Year’s Expenses
As discussed in Part 1, you will need to develop a personal Pro Forma Budget and then manage your finances on a weekly basis. This will allow you to plan for and then achieve a positive monthly cash flow. How much cash flow you achieve all depends on how hard core you and your woman decide to go. With the rules of thumb discussed in this article you will have to decide where you want to end up and if it is worth the effort to get there.
So now that you are cash flowing monthly, your immediate goal is to save $5000 for emergency expenses. The idea is that you never want to have to pay for an unexpected repair or expense via credit again. As a competent man you must have a measure of cash security at the ready. Having $5K is an absolute minimum and it should be considered an emergency to get there. Cut back wherever you need to, but get the job done. Put your foot down with your woman as necessary. Have the word “irresponsible” available for your discussion. That should do the trick.
Getting to $5000 is not only an exercise in utility, but also an exercise in control. You will now know without a doubt you can manage your spending and accumulate capital. My advice is to make a run for 5K even if you have consumer debt because it will then set the standard for financial control. If you have some debt that needs to be paid off you can apply your extra cash each month beyond your 5K to those obligations. And your initial base of five thousand dollars will also act as a buffer against further debt along the way.
Once you are free of consumer and revolving debt the goal is to accumulate one year of expenses as f-you money. The coarse term of “f-you money” expresses an attitude that will allow you to walk around at work as a man unafraid of job loss and with a higher level of independence. In other words, you could fire off an f-you if you had to and walk out the door confident and standing tall.
Of course, this would only be an action to be taken as a last resort. But think of it as you would in terms of a physical confrontation. If you knew for sure you could handle yourself and easily defeat your opponent it would be much easier in the moment to diffuse the situation and acquiesce. In a parallel situation with issues at work, fear and pride will not be a factor so you can take the high road and make your move in your own good time. Better to acquiesce when necessary, play the long game and take full control of the outcome.
Take your Pro Forma and pare it down to the basics. Include only what is necessary to maintain shelter, transportation, food and insurance. This is the Budget you would live off of for a full year if all household income came to a dead stop. Work at it until you have the cash in the bank necessary to survive for a full year. In the back of your mind you would also know that as a Rugged Individualist you would take any work you could to extend the life of your f-you money. In reality then you would have well beyond a full year to get fully employed and back on track to financial independence. This wouldn’t make you bullet proof, but it would certainly allow you to carry yourself with confidence and courage.
In light of cash flowing every month there are of course two ways to get there. You can find a way to earn more income while maintaining your current expense level or plan as necessary to spend less money. Or perhaps you do both. It’s your choice of course, but no matter which way you go you will greatly enhance your long term peace of mind and level of financial independence if you go minimalist.
Taking control of your money and pursuing financial independence is not necessarily about becoming rich. It is more about quality of life, peace of mind, freedom and living life on your own terms. Pursuing a minimalist existence will take you off the Hedonic Treadmill where material accumulation and the extrinsic display of status rule your life and put you on a path to the intrinsic in nature. Intrinsic values are more fulfilling, more reliable and they cannot be taken away from you.
Having a few nice things, a solid balance sheet and enjoying peace of mind are signs of a rare breed of man; a man of character, foresight and self-control. Take the pressure off yourself and break away from consumerism. Make your balance sheet and personal independence your intrinsic measures of success. Have the courage and foresight to live below your means. In the long run by doing what most people are unwilling to do, you will someday be able to do what most people cannot do; you will be a free man who at some point will not need to trade his time for money.
Each man’s minimalism is relative of course, but think deeply about what really matters in the long run. Would freedom from the need to work in a job you really don’t like or perhaps even despise, be worth ten years of effort? Would working at something you really enjoy provide you with peace of mind and much better health? Do you really need the biggest house the bank says you can afford? Is that luxury vehicle in the driveway worth you freedom? You will have to answer each of these questions for yourself, but take a close look at your “things” and ask if they are in fact making you a slave to your job and keeping you from financial freedom.
Consider downsizing your lifestyle, such as renting a modern construction condominium instead of owning. Save on your monthly housing payment, utilities, insurance and maintenance expense. Trade in your fancy kickass truck for an indestructible economy compact car instead. Save on the monthly payment, insurance and gas. Eat healthier and save a ton of cash by avoiding restaurants. Lose weight and save money at the same time.
There is no need to suffer here. Get yourself a nice place and drive a sharp, but modest vehicle; have a few nice things. Go Spartan Minimalist and make it a challenge that both you and your woman pursue together. Enjoy a simple abundance.
Create a Plan for Financial Independence
Learn the 4% Rule. This is a financial rule of thumb based on the United States stock market that will essentially allow for a 4% yearly draw from your investments, adjusted for inflation, in perpetuity. The idea is to have 50% of your funds in a total stock market equity fund and the other 50% in a total market bond fund.
Structuring your investments as such will provide tremendous diversification across companies, industries, countries and instrument types. After all, you are invested in every company that offers stocks and every entity that offers bonds. For those of you without access to the U.S. investment markets, this rule should still be a safe standard and applicable investment strategy to plan for in your part of the world.
So the plan is then to accumulate a large enough pool of investments to where you can draw 4% to live off of for the rest of your life. Of course there are no guarantees, but nevertheless your savings will surely take the edge off your breakeven point in the event the markets take a plunge. If the markets do tank and it is necessary to cut back your standard of living or go back to work to survive, then so be it. At least you will have a foundation for down the road when things recover. And if the markets do not recover we are all screwed anyway. But it is my assumption that they will always recover as long as the world still exists and people conduct business each day. The only question is how long the recovery will take.
Now that you understand the 4% Rule, the next step is to determine the desired breakeven point for your future living expenses as you enjoy your financial independence. In other words, how much will you need to draw per year to live your life without having to work. Conveniently, you’ve got some experience now with your Pro Forma Budget and living as a Spartan Minimalist. In my part of the country here in Upstate New York, a man and woman without any debt can live pretty well at 40K per year. Adjust this figure as necessary to your liking and circumstances.
Doing some quick math and dividing $40,000 by 4% produces the nice round figure of $1,000,000. Thus, to be able to draw $40,000 dollars indefinitely (adjusted for inflation) one would need 1 million dollars in the markets invested as described above. The figure for $25,000 would be $625,000. Both of these sums are significant, but are attainable if you work for a living. And they are attainable in ten years if you earn a middle class or above household income.
So how much does one need to save on a monthly basis to get to $1,000,000 or $625,000 in ten years? Assuming a compounded annual return of 8%, the answer is to divide these numbers by 183 (the Savings Multiplier as I call it). Thus, to save $1,000,000 your monthly contribution would need to be $5465. For $625,000 it would be $3415. And how do you possibly get to these monthly savings figures? The answer is to go Minimalist and live off of 50% of your household income.
Get Your Financials On Point
In today’s world a rugged individualist must plan for difficult times. So be proactive and take control of your money as part of that preparation. In this author’s opinion, living hand to mouth is irresponsible and unwise. There is no doubt that having a basic financial plan is a necessary aspect to a man’s life if he wishes to live with dignity and independence.
Make it an emergency to save $5000, regardless any debts you might have. Prove to yourself you can cash flow monthly and accumulate cash. Beyond that point pay down any consumer and revolving debt as fast as you can. Being a slave to debt for the sake of material accumulation is no way for a man to live. It is unworthy and below a man pursuing his best every day. It’s never too late to turn things around. Embrace the challenge if need be and enjoy the process of taking control.
Once you’ve saved your 5K and paid down your obligations, get started on one year of savings for a bare bones survival budget. As a man, it will be a great feeling to develop the level of independence that having one year of living expenses will provide. And from there, develop your target number for freedom and then continue the process. Make it easy and live off of 50% of your income or one of your two incomes if you’ve paired up with a woman.
This is about more than just the money. It’s about living as a man should with independence and self-determination. Make your personal finances another powerful layer in your impressive and dynamic character. Have the courage to live below your means. Create a modest lifestyle. Go Spartan Minimalist and get rid of your material excess.
After all, it doesn’t really take much for a man to live on. Get your woman on board and dream together about a future free from the need to trade your time and labor for money. And make sure to enjoy the journey along the way as you live with principle, control and confidence.
All the best,