From Pixabay/Nathan Kanpranachat
A few days ago, a friend on Facebook commented on a recent article in CNBC about a relatively young woman who managed to save $2.5m by her mid 30s and then retired. My friend was annoyed. Sure, it’s easy if you sign up for a job on Wall Street!
Fair point, but my friend’s consternation missed a key theme in the article. The young retiree was able to save millions through some unusual strategies. First, she targeted high paying jobs. Second, she graduated 1 year early from college, which saved a ton of money. Third, she and her husband live in a 650 sq ft apartment. It is not hard to imagine that most folks could use analogous strategies in their own life. A lot of people could live in smaller homes. Many people can cut back on education in lieu of more well-paying jobs.
The rejoinder is simple, and it raises a profound point: Why should I search for the highest paying job? What is so bad about pursuing lower paid work? Why do I have to be a machine for generating money?
The critic is correct. Aside from extenuating circumstances, there is no moral obligation to maximize money in your life.* The critic might claim victory over the youthful retiree, but I wouldn’t. The reason is that folks who criticize such extreme savings strategies are doing so to justify, or garner sympathy, for people who carry debt longer, pursue lower paying jobs, or do not pursue such extreme saving strategies. I also suspect that the critics might also be suggesting that they are forced into a different financial position, or they are literally unable to use such strategies.
The issue is that life requires trade-offs that people find extremely uncomfortable to talk about or confront. The critics probably could use and benefit from the youthful retiree’s strategies, but I suspect that they wouldn’t pay the costs. For example, a very simple and powerful idea is to cut back on higher education. Why? Education is hideously expensive and education loans carry interest that borrowers will take years to pay-off. Furthermore, many well-paying careers require modest credentials.
However, there is a huge trade-off when you cut higher-education. Some jobs will be inaccessible. You may lack the prestige of someone who has those multiple graduate degrees. And the psychic costs - you might have to give up on a dream where you walk during commencement to pick up that PhD degree. These are real costs, but they may be worth it in order to create a path to financial stability.
At this point, you might expect me to side with either the cheap-skate young retiree or the critic. My point is different. Both are valid life paths, but you shouldn’t pretend that that there won’t be serious costs associated with each path. Cheap-skate retirees cut back on decades of enjoyment in pursuit of the bigger bank account. The critics enjoy more things in life, and they enjoy them earlier in life, but they may have to spend more time working to pay for those things. Both lives are valid and good.
The trade-off view on money in your life has some immediate consequences. First, it is totally acceptable to pursue these wildly different life paths, but you can’t pretend that there aren’t serious trade-offs. If you want to be a poet with an MFA degree and teach in a large city, be prepared for financial instability. Similarly, the cheap-skate retiree is not allowed to complain when her 30-something friends take a trip to Cancun while she’s at home watching Netflix.
Second, it probably makes sense to begin with the “basic” approach to life and then build a set of financial trade-offs around that. That probably means saying “no” to some pretty big things and smoothing out your consumption. Aside from limiting educational debt, many folks should probably think very carefully about housing. Either minimize size or simply find a job in a less expensive place. Once you apply these rules, you will discover if you need, or want, to go cheap-skate or the opposite way.
I’ll wrap this up with a sociological approach to personal finance and life planning. Usually, sociologists will frame things in terms of inequality. Due to their race, gender, or social class position, some folks simply have more and better access to certain paths in life. I don’t reject that point, but I compliment it. We live in a large and complex society that is constantly evolving. That means that many paths in life have cheap and expensive versions and there many paths that are equally enriching, but not equally costly.
Bottom line: Choose your path with full information, but then you’ll have to waive the Right of Complaint.
PS. Readers may wonder how this has guided my life. I have used two strategies. One is to avoid expensive college degrees, even to the point of declining offers from Ivy League schools who gave little financial aid. A second strategy is to live in a very inexpensive small town and not move unless I received an extremely large salary that counters cost of living increases. I may not go to the opera every night, but I sleep well.
* For example, you might have an obligation to max out income if you have a large number of kids to support.
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My books: Grad Skool Rulz - cheap advice manual for grad students / The history of Black Studies / Obama and the antiwar movement / A Social Theory book you will enjoy reading / Intro Sociology for $1 per chapter
You could go to the opera every night & sleep well b/c opera is inexpensive here. Just sayin'.