Staying Rich After You Retire
Here’s a story about two people who think about money in totally different ways.
Gary Kremen founded online dating site Match.com in 1995. When The New York Times interviewed him in 2007, he was 43 years old and worth $10 million.
A huge success by any standard. Still, he didn’t feel rich.
Kremen lived in Silicon Valley with friends who were far richer. He “logs 60 to 80-hour workweeks because, he said, he does not think he has nearly enough money to ease up,” the Times wrote.
“You’re nobody here at $10 million,” Kremen said.
Now meet Pedro. He runs a popular blog called Mr Money Mustache. He’s 44 years old and has been retired for almost a decade.
Pedro lives in Colorado with his wife and 13-year-old son in what he calls “a badass life of leisure.” He and his wife quit work at age 30 when they owned a house outright and had around $600,000 in investments, generating enough money to spend $25,000 a year for life, “which goes quite far if you have no rent or mortgage to pay” he told MarketWatch.
One of the most important money mind set is that wealth is relative. Someone with millions in the bank can feel broke, while someone with a modest stash can feel like they’re on top of the world, so rich that they can retire at 30 years old.
Think about this. The top 1% of wealthiest Singaporeans hold a quarter of the nation’s wealth and the group belonging to the “1%” richest Americans has become a global symbol of the rich elite.
But if you earn more than $34,000 annually in America, you are part of the richest 1% of the globe, even adjusted for differences in purchasing power, according to World Bank economist, Branko Milanovic.
We always think about how to get rich enough to retire. To be wealthy enough, how rich do you need to be? We think of wealth as an astronomical number. But isn’t it really a product of one’s expectations?
To get rich is easier to think about. It involves things like making more money, saving harder, invest diligently.
But to stay rich after you retire, you have to do something else. It helps if you can ensure that your expectations don’t grow faster than your wealth.
I once had a friend who worked at a private country club. The clientele had more money than he could dream of, with private jets, yachts, and Lamborghinis. But the more he worked with them, the more he realised they were some of the most unhappy, uptight, cranky, and unsatisfied people he had ever met.
Society tells you these people should be walking orbs of happiness. They were anything but.
Part of this is because for every dollar of wealth they gained, they moved the goalpost of success two dollars down the field. The only thing that grew faster than their bank accounts was their desire for another house, another car, and another boat.
Anyone in that situation won’t feel rich, regardless of how much money they have. It’s worse than running in circles. It’s running backwards, 60 – 80 hours a week.
A person who makes $50,000 a year but only needs $30,000 to be happy is much richer than the person who makes $1 million but needs $1.1 million. This seems obvious, but it’s shocking how many people ignore their own expectations when trying to improve their financial lives.
I’m convinced that the key to becoming a successful investor and retiree is the ability to anchor your expectations, just as Pedro has done. Otherwise you end up like Gary – lots of money, but forever unsatisfied with what you have.
After basic needs are covered, each dollar in extra income doesn’t produce much extra happiness because you get used to your new car and nice clothes nearly overnight.
What tends to increase people’s happiness, more than anything, is having control over your time, autonomy in your work, and flexibility in your schedule.
The rich folks at the country club didn’t feel rich because the more money they made, the more stuff they wanted, which required them to work harder, which made their lives more busy and complicated. Pedro felt rich because he kept his expectations low and used his modest savings to take complete control over his time. In his own words:
“The quickest way to turn things around [in your financial life] is to realise that you are in much more control than you realise. The time to reach retirement depends on only one thing: your savings rate as a percentage of your take-home pay. And this depends entirely on how much you spend. So the moment you can learn to live a less expensive life, suddenly the clouds clear up and the financial picture brightens considerably.”
Story credit: David Francis