When people find out I live on a graduate student stipend and still manage to save nearly 30% of my income, their eyes often fill with pity and they start giving me “advice” like the title of this post. As if I’m stuck in a world of self imposed poverty, living on beans and bread and missing out on all of life’s pleasures.
As I ponder my actual life in a nice apartment with a view and 24-hour doormen in a prime location in a large city, cooking up awesome food that’s way better than the $10 lunches people buy every day, purchasing electric bicycles on a whim, spending time with friends, travelling by plane multiple times a month while enjoying airport lounges along the way, and spending hours a day pursuing my hobbies, it’s difficult for me to take suggestions like these seriously. This is not a life of poverty; if anything, it’s a life of excess!
Indeed, many people incorrectly believe that the only way to have a high saving rate is to severely restrict yourself and not enjoy life. In reality, building wealth is all about implementing a few, common sense Rules that will likely greatly improve your quality of life! Here are some of mine.
- Do not pay for things that are free. Seems like a no-brainer, but some people just like leaking money. Water is free. Most books (including audio/e-books) are free1From the library. Money from credit card rewards is free! Storage is free. Filing your taxes is free.
- Don’t pay 10x more for something that’s only marginally (if at all) better. A $60/year cell phone plan will do everything your $60/month plan will do. A nice, spacious apartment in an older building will provide as much or more comfort as a tiny studio in a “luxury” apartment building. A used, compact car will have better handling and utility than a new pickup truck complete with fake engine noise.
- Don’t spend money on things that will do nothing to increase your happiness or well-being. This includes buying lunch instead of packing leftovers, ordering takeout because you’re too lazy to make a basic meal, buying gadgets that have no real utility just because they’re there.
- Invest the money you save from #1-3 is a total US stock market index fund. Which is also free 🙂2Or almost free, at a typical expense ratio of ~0.04%.
Really, that just about covers it. Is it easy to follow the above steps? Absolutely it is! And even if it wasn’t, hardship is the spice of life! That’s why I occasionally do things like go without the heat all winter, or (unsuccessfully) try to spend less than $80 on groceries in a month. Those things are done for FUN. Pursuing a longer term goal to completion is exactly the type of life experience I don’t want to miss out on!
But to be honest, you won’t really quench your thirst for being challenged with this stuff. It’s pretty much all on cruise control after a while, just watching your net worth increase with minimal effort. And what will your reward be for imposing so much restriction on yourself? Well, within a few years I won’t have to work for money and will be able to do whatever I want, whenever I want, for the rest of my life. Man, that sounds like fun!