More Freedom: Living Economical or Working Life Away?

Some Lovely Thoughts
Unusual people live economically, below their means, work hard, save bulks of their income and pursue financial independence aggressively with a sophisticated investment strategy. However, other people work and spend their money for expensive new cars or nice watches. They are not able to build up net worth, sacrifices are too large because of binding habits and social conventions. So, does economical living makes people really free?

What elders say?

If you want to have a 250 k portfolio, wise people say you need to pay your debt first, live frugal, get up early, work hard and long, spend tons of time managing your portfolio, analysing stocks or other investments over years. After about one decade you will reach your destination and get a yield out of it. Lets say 5 %, equals 12.5 k per annum.

But, are benefits of this abstinence greater compared to alternatives? 

You could buy a jacuzzi or a new car, build a brand new house out in the sticks or do many vacations far away from home. This lifestyle leads to ongoing sacrifices simultaneously with a lifelong dependence. Sacrifices and dependencies are present in nearly all decisions. Every action in life comes with a unique combination of drawbacks and benefits. All possible actions are competing with others. On the other hand, no universally right or wrong decisions exist. Decision makers should just stick to their goals and check possible scenarios.

What most people do?

Described benefits shape a typical european or american middle class life – becomes perfect with a big mortgage, nice car, plenty of meals out and a negative household net worth. Since most people see their work as an income-tool rather than an inner eager, every hour people spend at work they do not like is an hour they not spending doing what they really want.

Temporary or livelong dependence?

Choosing a lifestyle that requires you to work for most of your life means your sacrifice as well as your dependence continues until retirement. People trade their limited time for an income, in order to keep up with bills and pay loans. Alternatively, you could start compounding net worth, use precious time for compound interest and create a passive income steadily. Every € or $ invested today will be more worth tomorrow. You could sell time (work rewarded by income) and capital together today and buy more money and time tomorrow. For such a build up, expenses must be located below earnings.

What those people aim in detail?

Once people reach expenses via passive income by dividends, bond yields or others, they are not working at a standard day-to-day job any longer. Imagine you could choose what you will do day-to-day in the morning. We at Eternal Yield enjoy managing our portfolios, do analysis on stocks and discuss with others. We encourage others to follow their dreams. Most people on earth, would like to exit their jobs immediately and do not like most regular social activities with colleagues. However, people work hard at their jobs, and some in the face of fear, due to financial dependencies like mortgages or consumer credits. In contrast, a economic thinking and acting person would like to substitute work by capital as fast as possible.

But, what should you do, if you cannot do this?

Maybe a beginners approach for saving and investing would be appropriate. Like 20-30% savings rate and diversified easy investments like a cheap Exchange Trading Funds (ETF) or savings plans. Think about what you really want in life! Especially long-term, since most doors close early in life. In case you decide to live without all the standard consume products, in want of more time, because you think others are spending their time in a rush, blindfold, for a low reward: Check your attitude towards capital and time. Avoided consume can free up both, capital and time. Time to spend with loved ones, pursuing your passions and live with purpose and presence, doing things you like. It is quite hard to live a passionate life when you are spending most of your limited time running in a hamster wheel, and upgrade to a golden one later. It is truly worth thinking about value creation in exchange for money at work.

Do you really want to work most of your life?

All the things you pay off like new cars, travels around the world, golden watches, houses, gardens, good locking brand-new gadgets and all the useless expensive stuff. Are they worth it? If you can answer this question clearly with yes, then stay where you are! Every man has his own lifestyle, values and unchanging habits. But, if you feel like your time is more valuable compared to what you are selling, then please rethink your actions. Open your eyes wide. Maybe the truth sacrifice is throwing away time at your job from 9 am to 5 pm untill 67. Realizing, that there is no financial salvation at the end of the road. The way is the target, always. Life equals time. If you are selling time against precious money and give it away completely, you will end yourself without time one day. And you will not be able to change your way and miss out a bulk of your life time on planet earth. Once live time is gone, it is gone forever.

You could get in exchange for changing your live a significant portion of the time you have left then. We are all dying one day. Some realise, that their biggest mistake was to trade their time and money so extremely hasty, cheaply and freely away. Living economical and pursuing financial independence aggressively is not a limitation – it is freedom.

What do you think?

2 Responses to More Freedom: Living Economical or Working Life Away?

  1. Slava says:

    Nice one. I think there should still be a balance since we dont know when exactly we will die and therefore might want to fullfill at least parts of our dreams now which might require some investments. And by the way dont you think that time as you are young is more valuable to you?

  2. EY-Team says:

    Chapeau, Slava! You figured out several major assumptions at the first moment. Some points I would like to add:

    1.) Of course consume must be done, especially due to basic needs of the Maslow pyramid as security, nutrition or heat. But I think, some higher needs like social status or sexual needs, can be achieved much cheaper compared to common approaches, using non-material ways like good habits, confident behaving or strong non-verbal communication, instead of capital-expensive status symbols as golden chains, watches, luxurious offices or costly hobbies. And, you are right, the whole idea stands and falls with the value of time during live and your personal life expectation.

    2.) Value of time during live: Some economists say, first years of one’s life are the most precious and the final are the least, with an exponential fall. Biologists say, there is a peak between 20 and 30 because before your body is not fully grown and afterwards your body ages (in both cases experiences are blocked). Some engineers say, the last years are most valuable, justified with the technical and social progress, so you can experience stuff which was unthinkable before (like wireless communication, couchsurfing or facebook today). In each case, we are living now and this time only matters, but indeed we do not know how many now we will have and how quality will look like.

    3.) Personal life expectation: I think that can be deduced from your parents and grandparents. In case your ancestors were drug addicted skydivers, died with 25 and you live the same risky lifestyle, I think you should not save any money. On the other hand, if your ancestors were living very risk aversive, ate healthy, done sports and died with 120 and you follow them, you could expect to be very old and save some money for later.

    The royal road will be somewhere in between and heavily depends on one’s personal capabilities and point of view.

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