So you didn’t start out with a silver spoon in your mouth?
When I was a young man just getting started in life, I struggled. The product of a broken home and with little education, I struck out at the tender age of 15 to make it on my own. I remember those times when I woke up knowing I would have to earn money that day or I wouldn’t be able to eat that night. Too proud to accept handouts from others and unwilling to turn to the government for help, I embarked on a journey that led to a most important discovery. I learned what is required to live the lifestyle of success. Although my first concern was providing for my immediate needs, I couldn’t help but notice people around me who by middle age were living what appeared to be charmed lives. I never missed an opportunity to pick their brains and try to learn how they did it.
What was one of the first things you learned?
The first thing I learned was that it is nearly impossible to earn your way to wealth. Sure, high income earners often had big houses, fancy cars, expensive clothes and other trappings of wealth, but I found very few who could sustain their standard of living if they were suddenly unable to work and earn an income.
I also learned that truly wealthy people were the ones who were able to live on the income from their investments and didn’t need to rely on earned income. They also seemed to be more relaxed and better able to enjoy life. They weren’t facing the daily pressures that having to earn an income to support a lavish lifestyles can bring. I wanted to be like them!
You talk about ‘functional retirement’. What does that mean?
My quest for their secret led to the stark realization that getting from birth to death has a cost. What we spend today pays for the days from birth to the present. It’s what we save and invest that pays for the days from death back to the present. Once the income from your investments is adequate to cover the cost of your remaining days on Earth, you have reached what I call “Functional Retirement” and there is no age limit associated with it. It’s the point in life where you are able to choose what you do going forward. If you wake up and want to play golf or go fishing, you can. On the other hand, if you enjoy your work and want to keep doing it, you can and you will become even better at it. You will be more able to apply yourself because you won’t have the pressure of having to do it to earn a living.
What stops people from getting there?
Many people lack patience and try to reach “Functional Retirement” too quickly. They play the lottery, invest in high risk speculative ventures or turn to illegal activities in an attempt to get there with little sacrifice. They can’t see themselves ever becoming wealthy so they resign themselves to working the rest of their lives or scrimping by on a meager Social Security check in their elder years.
Another telling sign of impatience is people who mortgage their futures by committing tomorrow’s income to buy more today. They spend everything they make plus borrow more to live it up today and don’t worry about the future. These are the ones who struggle to make payments on cars, boats, motorcycles, RV’s and run up big credit card bills. Too many people in America suffer from an “I-Want-It-Now” syndrome. They fail to see how this mentality guarantees an “I-Will-Have-Less” lifestyle later in life.
The only way to enjoy a lifestyle that exceeds your ability to earn is to invest part of your earnings and let those investments start earning. Life is like a bank account; you have to make deposits before you can make withdrawals. If you deposit part of your earnings each time you get paid and live on what’s left, gradually your bank account grows. If you keep at it long enough, eventually the earnings from your investments can replace your paycheck. That’s “Functional Retirement.” I use a bank account merely for example, but there are also many other safe and secure investment vehicles; stocks, bonds, real estate, et cetera.
You make it sound simple. Is it?
“But,” you say, “How can I invest when I can barely pay my bills now?” Answer: It’s simple. You reduce your standard of living for a period of time just as you would if your income was suddenly cut by 10, 15, or 20 percent and you couldn’t find another job to replace the loss. Is that easy? No. Is it possible? Absolutely. Are you willing to do it voluntarily? Maybe . . . Maybe not.
Here’s a tip
Here’s a tip! Pay yourself first. Each time you get paid, take a portion of your earnings and put them aside in some type of savings account. Then force yourself to live on what’s left. Pretend you never got the part you saved. It may mean you live in a smaller house or apartment, drive a smaller car, eat out less or make other sacrifices, but doing so will result in a much higher standard of living in the future.
When you’re getting started, it’s not the amount you save, but the fact that you do save that’s important. Developing the habit of saving is the secret to financial success. As long as you are saving and investing regularly, you are on the road to financial independence. The amount you save determines the length of time of time required to reach “Functional Retirement.”
Many young people tell me that money isn’t everything; they want to be happy too. But, is one mutually exclusive of the other, or have we just been brainwashed into thinking that way? If you want the real answer, ask elderly people who are struggling to keep a roof over their heads and food on the table. I’ll bet they’ll tell you they wish they had saved and invested when they were younger.
