I've never been particularly fond of the term retirement. Retirement makes me think of an elderly version of myself lounging on a golf course and feeling annoyed because I never liked golf to begin with. In a way, retirement represents an all or nothing mindset: work tirelessly for 45 years and then promptly stop working in order to relax until you die. That sounds pretty grim to me. So instead of focusing on retirement, I think it's better to focus on a slightly different topic: financial freedom.
What is Financial Freedom?
Financial freedom is something that can occur at any point in life, whether working or not. It is simply the ability to not have to worry about money and as such it can mean slightly different things to different people. Essentially, financial freedom means having enough money that it doesn't matter whether or not your are employed. This sounds much better than a sharp divide between a life of work and a life of relaxation.
There are several nuances to the idea of financial freedom, but it boils down to the fact that money in the bank is more valuable than money spent on things. For example, if you had $10,000 you would have many options. You might be able to pay your mortgage for a year, feed yourself and your family all year or even invest it for the possibility of more money in the future. Or you could buy a couple of Louis Vuitton handbags. Now, those handbags would be nice, but they wouldn't really enhance your life and they wouldn't be able to protect you if you suddenly lost your job. I don't know about you, but I'd certainly rather take the $10,000 than the handbags. If you multiply this example many times over and repeat these decisions over a period of time, you tend to end up with financial freedom.
Why is Financial Freedom Great?
In the most fundamental sense, financial freedom represents choice. If you have the ability to decide what to do with your life everyday without regard for earning an income, your range of possible decisions expands greatly. Suddenly you have the power to choose. If you are working at a job that you hate, you are not longer stuck; you can quit and do something else. If you would rather take some time away from work to lounge on the beach, start a charity or build more meaningful friendships, you can do that too! Reaching financial freedom makes you your own boss, and the peace of mind that comes with this is sure to be wonderful! Not to mention all of the detrimental psychological effects that are associated with debt and financial stress.
How to Achieve Financial Freedom
Conventional advice would say something to the tune of "save 10% of your income if you can and then you can retire in a few decades." This seems a bit foolish. I personally don't want to wait until the age of 65 to have "freedom." So I'm advocating a different approach. Save as much as you can as quickly as you can. In practical terms this means saving somewhere around half of your income.
Now before you reject what I'm saying out of hand, consider the fact that saving 50% would mean that for every year of working you earn one year where you do not have to work. This is an oversimplification, but if you have an after tax income of $50,000 and you save $25,000, this means that you also spent $25,000. At the end of the year you will have another $25,000 in the bank. If you wanted, you could take the next year off without changing your lifestyle. Or better yet, you could continue to save, invest and accumulate more wealth. If you don't believe me, check out this other blog that says it much better!
Save, Save, Save!
It is very possible to create a lifestyle that requires a very small amount of money without making any major sacrifices. In most parts of the country a single person could live on $1,000 per month if they really had to. The most basic expenses are food and shelter. If you choose to live with roommates and prepare your own food, it is reasonable to assume a cost of $1,000 per month. I'm not saying that this would be fun, I'm just saying that it is possible. So if you have an after-tax income of $24,000, which is a relatively low amount, you could reasonably save half of it if you chose.
In a future post I will talk more about how to cut specific expenses, but it is important to understand that it is very possible to save, regardless of what the mainstream media claims. And the reward: if you save 50% for 10 years you will reach financial freedom!