I recently read a post comparing a “normal person” who gets student loans, car loans, home loans, and runs up credit cards and a more fiscally responsible person who saved and paid cash for things. The post made it sound like the second person never did anything their whole lives while the first had a full life with lots of memories and ended up just fine in the end. Of course in the post the person who saved and sacrificed died just before he was ready to start enjoying the wealth he had saved while the spender somehow was able to retire to a comfortable living with grandchildren. In real life things often work out differently for both people.
I find that it is just the opposite and that managing your money more carefully leaves you free to do a lot more. You get to the point where you have the cash to do all sorts of things that others cannot because they’re drowning in debt. When you get paid it’s like you have several hundred dollars more in your paycheck because you don’t have car loans and credit card interest to pay. If you’ve been investing, you’ll have money from dividends and stock sales that you can tap as well. It gets to be like a well that you can draw from only to have water rush back in while you’re sleeping. If you only spend a reasonable portion your portfolio continues to grow and your freedom to do things increases. At some point you can start to do big things each year or buy luxuries like second homes or nice cars with no budget strain at all.
It is really just a matter of making a few sacrifices while you are younger and building wealth that really don’t matter that much. Which sacrifices you make are up to you. If you dream about backpacking through Europe and staying in hostels while you are young before college or before you start your first job, feel free but then buy an older used car and drive it for a while to build up cash. Maybe instead you’ll save the money while you are young, work a few more hours and put the money away, and then go to Europe in style in your forties or fifties. Maybe you want to buy a nice sports car or 4-wheel drive when you are young to look cool in front of your friends, but then you buy a smaller house or rent a room for a few years to build up cash. Maybe you live your dream of going to an elite school, but then live in a modest apartment for ten years and work an extra job while you pay off the student loans.
Of course, the more sacrifices you make while you are young, the faster you get to the point where you have the most freedom. Even using loans, you are limited in what you can do when you are in your early twenties. If you go to a state school and work your way through to avoid student loans, wait a few years to buy a house or buy a small home for the first five to ten years and then trade up once or twice, eat in most meals, take vacations costing no more than a couple of weeks salary each year, and buy older used cars for cash you can get to financial independence in your late thirties or early forties. At that point you can take better vacations, buy nicer cars, and buy nicer homes and vacation homes if you so desire, living a lifestyle that few get to live. You’ll have the cash and not need to think about getting a loan.
Better than the stuff you can buy is the secure feeling and freedom you have. You don’t need to worry about losing your job because you can support yourself easily while waiting for the next one. If things like home repairs or medical expenses come up you have the cash to just pay them so finances are not an issue that causes stress. When you find someone needing money or a cause that you would like to help, you can give generously without a second thought.
Certainly there are some experiences that are for the young. Go to Spring break at the beach while you’re young if that’s what you want to do. Go for that through hike of the Appalachian Trail while you have the time to do it before your work becomes too hectic. If you can’t see yourself living your life without going to Harvard, then do it. Just realize, however, that there is a different lifestyle and peace that comes to those who sacrifice the things that don’t matter to them that much for a while.
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Disclaimer: This blog is not meant to give financial planning advice, it gives information on a specific investment strategy and picking stocks. It is not a solicitation to buy or sell stocks or any security. Financial planning advice should be sought from a certified financial planner, which the author is not. All investments involve risk and the reader as urged to consider risks carefully and seek the advice of experts if needed before investing.