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Are You Just Treading Water?

July 31, 2014

As much as some would have you believe otherwise, you are in control of your own destiny.

I was guilty of not believing this myself, treading the financial waters of my life for years and living paycheck to paycheck.

But just treading water means you’re one leg cramp away from drowning. And if you like to avoid drowning as much as I do, it’s important to recognize the importance of building as large a spread as possible between the income you take in and the expenses that flow out.

5% Savings Rate

As I discussed recently, the power of frugality is real. Earning more income is no doubt wonderful, butkeeping more of what you make is even better.

Americans’ savings rate oscillates over time, naturally. And exactly how much Americans save is difficult to determine exactly, as there is a lot of conflicting data out there.

However, according to this data from the St. Louis Federal Reserve, the personal savings rate is under 5%as of just a couple of months ago. And that rate seems to jive with everything else I see.

5%?!

It should be noted that saving 5% of your income means you’re not only not going to retire early, but you might possibly never retire.

Now, this is a savings rate based off of disposable income, which would infer that this is not including the savings of pre-tax income in traditional retirement vehicles like a 401(k). But those numbers aren’t looking good either. According to a tally by Fidelity Investments, and published by CNN Money, the average 401(k) balance hit $89,300 at the end of last year. Even worse, those aged 55-64 years old and on the verge of retirement had average 401(k) balances of just $165,200.

I don’t write this to freak you out – but I can guarantee you that $165,000 will not provide a very comfortable retirement. Rather, I write this to inspire you to not just tread water.

I’m No Longer Treading Water

I was treading along for years. I felt like at any second I could drown. Taking my attention away from the energy required to keep floating for even a second meant I was going under. I lived all of my life with no care for the future, living life for today. YOLO!

But guess what? Odds are pretty good that tomorrow is going to come. And as an optimist, I’m quite confident I have a lot of tomorrows still coming my way. How do you want to live those tomorrows? Treading water, scared of drowning? Or chilling on the beach with a drink in your hand?

I decided to stop treading water and swim to shore. I drastically cut expenses while simultaneously adding as much income as possible. This aggressiveness on my part created a large spread between income and expenses, and I’ve been able to save more than 50% of my net income for four straight years.

I sold my car and rode the bus. I stopped going out to restaurants on the daily. I bought a scooter. I moved to a cheaper and smaller apartment. I canceled cable television. And I focused on being present rather than the objects I may not have had. Being alive is already a gift, and I think we too often lose perspective of that.

Living below my means allowed me to build a six-figure portfolio in three years on a modest income. And now that portfolio is spitting out almost $6,000 per year in passive dividend income all by itself. The spread continues.

The key is to realize you don’t need as much as you might think you do. Sure, we all have needs. It’s nice to have a roof over your head, food in your belly, running water and electricity in your home, and a bed to sleep on.

But do you need a new SUV? Steak for dinner? Six pairs of shoes? 2,000 square feet or more of living space? A 70-inch television complete with a cable package? Granite counter tops?

See, our wants are insatiable.

These are the things that can weigh on you and make it hard to swim to shore. It’s tough to float when you’ve got an anchor weighing you down, and our insatiable wants are that anchor.

And what’s awaiting you ashore besides a cold beverage and a seat next to me? Well, that’s already enough, isn’t it? No? Okay, I kinda figured as much.

Well, how about the path to financial independence? You know, the magical place where you can set your own schedule, spend more time with loved ones, walk and bike around instead of driving everywhere,exercise more and optimize your body, work on projects and passions that drive you, volunteer to make your community a better place, travel, write, read, and just be a better overall person.

The Choice Is Yours

Now, if you can save 40-50% of your income and have everything you could possibly want at the same time then that’s great. But most of us don’t earn the type of six-figure income necessary to have it all while still saving enough for financial independence.

Thus, choices must be made.

And what you want out of life all really depends on you. Some want financial independence. Some want a big house and a new sports car. There’s nothing inherently right or wrong with either of those life paths, but it is important to be honest with yourself and walk the path that befits you.

You don’t want to be working for 50 hours or more per week to afford a luxury lifestyle if you’re miserable every second. Likewise, you don’t want to live frugally to attain financial independence if you’d rather just work until you’re dead to afford all the fancy stuff you see in glossy magazines. I naturally assume few people who actually live in the real world would prefer the latter choice, but so be it if that is you. Nothing wrong with that, but be honest with yourself and live accordingly.

I found nothing gained by having my wants satiated. I simply found myself wanting more. And that’s the hedonic treadmill that forces you to run faster and faster, yet with no more distance covered. You just find yourself exhausted, in the same spot you started. And that’s because you can’t escape yourself.

Personally, I’ve come to the point to where you could give me $100,000 more per year and I’d probably save and invest just about all of it. Happiness truly comes from within, and that requires no money at all. I believe all of us have a baseline happiness level. Earning and spending a ton of money may seem pretty exciting at first, but soon thereafter you’ll realize you’re still just you. Your natural happiness level will reset back to where you started, and that’s that. Except you’re probably stuck holding the bag full of debt and a job that requires most of your waking hours.

So you can choose to continue spending to momentarily and temporarily inch that happiness up, or you can embrace who you really are. But you have to live inside of yourself, which is why it’s so important to live within yourself.

Conclusion

If you want to stop treading water you have to lose the anchors. Cast off insatiable wants and swim to shore. I’ll have a cold beverage waiting for you.

Are you treading water? Or are you already on land enjoying the fruits of living below your means?

Thanks for reading.

About the author:

Dividend Mantra
Trying to retire by 40 by investing in dividend growth stocks and living frugally, valuing time over money.

Visit Dividend Mantra's Website


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Comments

AlbertaSunwapta
AlbertaSunwapta - 1 month ago

Great points.

In my case I haven't found a term for what I want to do, except maybe to call it rolling sabaticals. I've never had a plan or expectation to retire at 50, or 55, 60, 65,... (maybe 75, 80 years of age but we'll see) however, a few years ago, at middle age, I quit a farily long term position and have taken a couple years off and worked a one year contract. Now I'm looking for something else, maybe permanent or maybe term. And at my age, salary doesn't matter, fulfilment matters.

With that being the case I'm doing with time what I've done with money which is spend some, save some. Saving and investing started early (in my teens), and as for working, I once held two full-time jobs (with one letting me go early to get to the other.) With my time now, the plan is to now work some time, then take some time. I didn't want to be one of those people that work flat out to the end, often ending up hating their jobs and dragging down everyone down around them all because they need retirment now. Then they are lost for things to do in retirement. And I've worked with a lot of people in their late 50s that do exactly that - counting down the days until they pack it in. Instead, I'm "diversifying", or more accurately interspersing my work time and retirement time. No one wants to be the guy that drops dead they day after they retire! So I'm instead in some sort of interval retirement.

nolan
Nolan - 1 month ago

What a great article. In one of Nietzsche's works he says something to the effect, "insatiable, but always unsated". Don't quote me exactly on that, but that is the idea.

Yeah you are right on. I am obviously in your camp. Now the question is whether you will have the courage to retire early when you "get there". The big danger is that we become unsated in our pursuit of resources for retirement in the same manner that we tend to be unsatisfied in acquiring stuff and we never "get there". We just keep working. Good luck. Great article

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