An article that stuck with me...
I came across this article this past weekend via another blog (It takes $75,000 to earn $3,000 a year in interest income, assuming a 4% return. Each $3,000 in annual expenses that Rob's family cuts means they have to save $75,000 less for retirement -- thus moving their financial independence closer to reality.If that's not the simplest, most convincing argument I've ever read for cutting your expenses, I don't know what it. It's been in the back of my mind for a couple days, as I run numbers, think of scenarios, and try to figure out how much money it would take if we want to retire at various ages. I read this and think about how smart my parents are for not trading up their house in the recent boom, despite having the means to do so. Goal setting becomes easier when put in such simple terms. We spend $X today, adjusted for inflation that number is $Y. $Y/$3,000*$75,000 = nest egg required for retirement. Labels: goals, retirement |
posted by savvy at 9/18/2007 02:06:00 PM
Comments on "An article that stuck with me..."
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mapgirl said ... (4:38 PM) :
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Tiredbuthappy said ... (5:00 PM) :
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Anonymous said ... (3:19 PM) :
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Poor Man said ... (2:44 PM) :
post a commentWow. I really like that article. The first profile of Rob Bennett is inspiring since I live in the same county as he did and my mortgage is about the same as what is in the article. Granted, I did a record search and he must have done this transaction a really long time ago, it's still intriguing.
I bet you found this via Boston Gal.
This is a pretty mindblowing idea. It makes sense, but I had never thought of it this way. I've always thought, the more I cut spending now, the more I can save for retirement, and the more I won't have to cut my spending to retire.
But this article is saying that if I cut spending now, I'll be used to living on less when I get to retirement, so I won't need to save as much and I'll be able to retire sooner.
Same goal, just a different way of thinking about it.
You saw it in Boston Gal's Open Wallet, perhaps?
I have two gripes with that article.
1.Simple living as a main goal is pretty stupid!
The real goal should be to generate sufficient automatic revenue from investments to cover all of our living expenses for the rest of our lives and more.
Lets not forget that Simple living is a just tool that can be used to help maximize the money left in your pocket at the end of month. It is not in itself the goal. I personally advocate monitoring your expenses and of course spending less than you earn. But my main focus is and will remain in finding ways, creative or not, to generate passive income.
Of course, if you REALLY enjoy the process of eating only rice and beans, of staying at home playing cards in the dark, of not traveling and just generally trying to hold on to every penny you've got. Then great, go ahead and live simply! But it's not for me.
2. 75 000$ @ 4% interest will not give you 3 000$/year for retirement!!! Once you pay taxes on your interest and count in inflation of consumer prices, your only gaining a few pennies if not losing money. Your actual dollar amount will increase every year if you reinvest your interest, but your actual buying power will stay the same, increase only slightly, or will even drop lower every year. You might as well spend that 75 000$ right away to buy some stuff you'll enjoy now instead of waiting 40 years and end up only able to buy a pair of cheap running shoes with it.
If you live in the US, you can use this calculator to get a feel for the inflation rates from past years, it uses data released by the US bureau of Labor statistics.
If you live in Pakistan, and are investing at 4%, you're in deep trouble! You're losing money every year!
The bottom line is that if you spend your energy and creativity only thinking up ways to spend less money and don't learn how to invest your money and how to make it grow, you end up losing too much. You will create a life of scarcity for yourself and you will be forced to accept losing money year after year in poor investments because of your lack of knowledge and experience.
To close, note that I'm highly opinionated and not always right. I always believe in what I say today, but may not believe it tomorrow if I find that I was wrong.
PoorMan
www.PoorManBlog.com