Being rich is relative

So when will you feel rich? Will it be when you can afford to drive around in a brand new Ferrari? When you can move to a five bedroom mansion? When you can afford to buy a tropical island or have your own private jet? Presumably your interest in personal finance is motivated by a desire to rise up out of typical consumer mediocrity – but rise up to where exactly?

The desire to be ‘rich’ by typical consumer standards is what fuels many people to spend well beyond their means and to end up with crippling debt. This is because most people equate being rich with the having lots of stuff. No matter where we are on the economic food chain, it is human nature to always want a little bit more and to aspire to being on the next rung up.This is as true for the extremely wealthy as it is for the middle-class.

Why trying to accumulate possessions to be ‘rich’ is stupid

If you have ever lived as a poor student then you probably realize what it’s like to not have money to heat your house, to not be able to eat out, or not be able to eat anything other than two-minute noodles. A typical student diet has just enough money for alcohol, rent and food – normally in that order.

If you have experienced that lifestyle, you probably don’t look back and regret having to live through that awful deprivation – you probably remember the people you met, the big nights you had at home drinking or playing games, the things you learned and all of the amazing experiences you had.

It’s a good reminder of two important principles:

  • Lasting happiness is not derived from possessions
  • We unnecessarily expand our spending as our income increases

Other than social conventions and expectations, there is no reason why we can’t continue to live spending not much more than the typical poor student. We choose not to for a variety of reasons, mostly along the lines of ‘I deserve the good life because I’ve worked hard for it’, or ‘why should I deprive myself if I have the money to buy <insert completely unnecessary consumer purchase>?’

Source: Investor Spot

Many people fail to realize that their debt problem is caused by a series of decisions which begin with ‘I deserve it’, or ‘I worked hard for this’. It’s hundreds of little decisions every week which add up to a huge problem. Rather than start with a budget and fret over all of the things you won’t be able to buy this month, start by trying to realize that the path to happiness isn’t through your wallet. If you can reduce your desires, you have less to try to meet.

“I have learned to seek my happiness by limiting my desires, rather than in attempting to satisfy them.” – John Stuart Mill

In order to achieve an early retirement you have to prioritize

To retire early means that we have to go without things that the mainstream thinks are must-have items. Following conventional ways of thinking and following financial societal norms will lead to a life of working until you’re 65. If you follow the herd when they buy an ipad, or a new car, or upgrade their house for no reason then you aren’t going to be able to afford to retire early. Having a high income won’t save you either because you’ll just have more wealthy friends to try to emulate.

If you aspire to stop working for other people for the best of your adult years then you have to choose to see being rich as something other than having a sports car or owning an NBA franchise. Why shouldn’t we view being rich as being financially independent? The point where your passive income exceeds your normal monthly expenses is being truly rich in my books. It means you can follow any of your passions endlessly, pursue any line of work no matter how poorly it pays, do charitable work – or anything you want!

Not having to work is being rich. The most effective way of reaching that point is to reduce our desire for an endless stream of stuff. It allows us to save more money and means that we need less in our retirement.

If the idea of early retirement appeals to you then the first step is to try to reduce your spending as much as you possibly can. As I have alluded to above, this requires a fundamental shift in the way we think about money and what we want to achieve with our finances.

My aspiration is to live on 25% of my income so that I can retire in ten years, but it will be different for everyone – the more you can save the faster your retirement will be. At a 75% savings rate it means I am saving 3 years of living expenses every year I work, meaning I’ll accrue a 30 year stash in ten years.

I have found the process of cutting back relatively easy because I have always been relatively frugal, and I’m able to enjoy pass-times that free. Having a DIY streak also helps. The day I get to walk into work and announce proudly that I’m retiring keeps me going and motivated to keep my spending under control. I now derive significant happiness from doing something other people say is too hard and from finding my happiness in people and ideas rather than in iPads and internet-ready reclining refrigerated cup-hold wielding sofas.

I encourage you to make the switch – think of being rich as being free with your time rather than having more stuff than your friends.


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Being rich is relative — 5 Comments

  1. Best of luck in reaching your goal! I do wonder…is a 30 year stash enough to retire on? Or even more importantly, what od you plan on doing in retirement? How do you personally define “retirement” and what does it look like?

    • Hey DC, thanks for the great questions.

      Firstly, traditional wisdom suggests that a 30 year stash is definitely enough to retire on no matter when you retire. If you want to live on $100,000 per year in retirement, a $3,000,000 nest egg (in the sharemarket) will last you 30 years across all available 30 year periods known since before 1900. 30 years is held to be equivalent to an infinite period, because it if lasts that long, it will tend to be growing at a faster rate than it’s spent, and the maths says 30 = infinite (more or less). See to run some numbers.

      Secondly, see

      Thirdly, I personally define retirement as the point at which I can live on passive income (that is totally passive, not including things like rental properties that have to be managed, or blogs that have to be updated, but truly passive like index funds and the like) – and then actually stop work to live off that income. I would count small part time work that happens to coincide exactly with what I want to do at any given time as being part of a retirement. If someone wants to pay me to do something I want to do, that I don’t have to do to pay bills then I wouldn’t count that as a return to work.

      For me retirement will be living by the sea (as I do now), fishing, growing vegetables and drinking beer. I want to mentor young people who are either in the justice system or at risk of entering it – I think a lot of young people need mentors that don’t get any at home. I think that would make me happy and make me feel like I’m contributing something valuable to society.

      Thanks again for the hard questions. :)

  2. GREAT post dude!

    Lasting happiness is not derived from possessions

    People need to understand this. It is unfortunate that we live in a culture where people pay off one mortgage only to get a bigger one and a bigger one. Upgrades because they can and to keep up with friends/family/colleagues. It is a sad state of affairs. Im with you on the early retirement!

    • The awesome thing about early retirement and financial independence is that it’s not restrictive. You can continue to work if you want to, but if you get laid off or just want to tell your boss to get fucked, you can! It’s such a liberating idea. We only have so long on earth and then it’s curtains. You may as well aspire to spend as much of that time doing what you want and helping other people – or whatever makes you happy.

  3. I said to my husband last night,despite our insane debt load I feel ”rich”. We have a home, car, baby and each other…if we never bought another thing in life we’ve done better than a lot of people!

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