I think taking on debt for education is a sensible financial decision. But the level of the debt that is sensible must be considered.
When I went to college (too long ago) it was expensive, but not nearly as expensive as it is now (in the USA at least – I am not as familiar with the costs outside the USA other than knowing in many places that university education costs are very reasonable).
I don’t have any hard cutoff where I think taking on debt no longer makes sense. But I do think I would include cost as a major factor when deciding what college to attend if I were facing that decision today. From a personal finance perspective I would only consider my debt or the spending of my savings.
If my parents or the school or someone else want to pay for a large portion of the the costs that is wonderful. I do believe the expensive and highly rated schools provide a great education and great benefit. If I were a parent that was well off I would have no problem paying the very high costs if I could afford it (which would mean I was far ahead on reaching financial independence).
The costs of college in the USA are so huge now that it may well be wiser to find a less expensive school in order to create the best personal financial base as a young adult.
As I have said before the reason to chose a career is because that is the work you love, but in choosing between several possible careers it may be sensible to consider the likely economic results. And in choosing how much to spend on your education considering your future earnings is wise.
Providing a health care is extremely costly everywhere. Rich countries nearly universally provide a health care system that allows all citizens to get needed health care. Nowhere is it perfect and nowhere is it cheap. And nowhere is it more of a mess than in the USA.
This is exactly the type on avoiding improvements to maintain the existing (for the last few decades) broken healthcare system those in the USA must live with. Cutting hundreds of billions from the budget to provide health care to the elderly is not improving the health care system.
Making next to no attempts to actually improve healthcare outcomes in the USA shows how flawed the current process is. It continues the behavior of the Republicans and Democrats for the last few decades. It is sad we continue to elect people behaving so contrary to the interests of the country.
The exceedingly costly health care system in the USA is in need of a great deal of work to improve the government policy that results in the mess we have now. Some of the huge issues we face.
photo of the Capital in Washington DC by John Hunter.
Pre-existing conditions – this has long been a huge problem with the USA healthcare system and one of 2 major things ACA dealt with well. ACA greatly improved the USA healthcare system in this area, something that Democrats and Republicans had failed to do for decades. Current attempts by the Republicans are to gut these improvements. This is a completely unacceptable area for all but the most extreme people to even be looking at. That the Republican house members approved this radical removal of health insurance coverage from tens of millions of people and the vast majority of Republican senators has not expressed outrage and such attempts to punish those who have been sick in the past is pitiful. The USA even with the ACA does a much worse job on this measure than any other rich country in the world.
Medical bankruptcy – due to the decades of poor leadership by the Republicans and Democrats the USA is the only rich country with this as a macro-economic factor. The ACA made small moves to improve this but much more is needed. Instead of improving the USA healthcare system to deal with this long term problem the current Republican efforts will great increase the number of medical bankruptcies in the USA if they succeed in their efforts.
Massive cost-tax on all economic activity due to the costs of the USA healthcare system. The USA healthcare system costs twice as much per person as other rich countries (there are few countries with costs that have costs which the USA “only” 50% or 75%… but overall it is twice as costly) with no better outcomes than other rich countries. ACA did nothing to improve this (certain aspects of the ACA did but other aspects balanced those out), the new plans are not going to do anything to improve this (in a minor way it is possible reducing medical care for the elderly could reduce costs by having people die much sooner but given the mess of the USA healthcare system for many reasons the huge reductions in Medicare and Medicaid are unlikely to actually result in cost savings that are material).
Tying health care to the employer – The USA is one of the few rich countries to do this. Combined with refusing or providing only inadequate coverage for those with pre-existing conditions this is a great barrier to small businesses and entrepreneurship. ACA didn’t address this directly by eliminating the pre-existing condition failure it did greatly reduce the harm this causes the USA economy and individuals in the USA. The current proposals don’t address the problem and exacerbate the issue by returning the huge problems the USA system has in dealing with pre-existing conditions (it would be slightly better than before the ACA but much worse than what we currently have with the ACA).
A huge burden on individuals of dealing with insurance company paperwork, fighting with the medical system and insurance companies… Neither ACA nor the current plans made any improvements in this area.
The USA pays much more for drugs than any other country. This is directly the result of decades of failure by Democrats and Republicans to create sensible healthcare system policies for the USA. Neither ACA or the current plans made any significant improvements in this area.
Of interest to the readers of this blog the current USA healthcare system doesn’t deal at all well with the reality that tens of millions of USA citizens travel and live overseas. This is a complicated issue but it has been unaddressed for decades. It is pitiful that ACA didn’t address it and the current plans don’t address it. Even things that would be able to save tens billions of dollars by allowing healthcare to be preformed overseas (at much lower costs) for say Medicare are not addressed. There are complexities in how to craft policy to save tens and hundreds of billions of dollars this way. So it isn’t something you can expect to be addressed in a year or two. But they have had well over a decade since the obvious huge savings potential has been apparent and nothing. When you are going to cut health care benefits of the elderly to save money and don’t bother using wise policy to save money without reducing the care people receive you are failing as policy makers. And we are failing by continuing to elect these people that decade after decade fail to make wise policy decisions and instead force us to suffer with a poor healthcare system.
To me FI/RE is about creating conditions that allow you to focus on what you value. Some people do focus too much on saving money quickly as though the goal is to save as much as quickly as possible. But that isn’t what FI/RE means. FI/RE doesn’t mean make yourself a slave to saving quickly in order to remove yourself from being a slave to a job until you are 65.
Any concept can be misapplied. Two posts on related ideas:
“I achieved my goal by not my aim. That happens a lot, we honestly translate aims to goals. And then we do stupid things in the name of the goal get it the way of the aim. We forget the aim sometimes and put the goal in its place.” Mike Tveite
FI/RE should be about figuring out what you value and examining the tradeoffs between working, spending and what you really want to get out of life. For some people getting a large investment portfolio quickly is more important than time off, taking expensive vacations, having a job they really like… For some they are happy to have a job they really like even though it pays less and it will take 8 more years to reach FI and be able to retire. FIRE is a process to examine what you value and really think about savings versus spending (largely important because of all the emphasis in our culture to spend and worry about the consequences of debt you took out to spend later).
If you turn FI/RE into an accelerated treadmill of working and not living that isn’t of much value in my opinion (it does have a little bit of value in that you are likely to reach a point where you are free but this is not a good path). You should think about tradeoffs of what you value (healthy living, family, learning, fun…) and what short term versus long term tradeoffs you make. You don’t have to go to the extremes some people do in order to adopt FI/RE principles and create a better life for yourself.
For some people the tradeoffs for achieving financial independence and the ability to retire at 40 are worth great sacrifices up until 40. That is fine if that is what they want. Others would rather make choices from 25 to 40 (lower paying jobs, splurging occasionally…) that mean they won’t reach financial independence until 48. That is also fine.
To me what is most important about FI/RE is examining the choices you make and taking control of the decisions instead of just floating along as so many people do without considering the choices they make. Frankly, doing that and deciding to not even retire early is fine with me (though I do agree it is a bit at odds with the name). Essentially what I mean is even in that case you can apply FI/RE principles, you just do it is a way that make it FI/RR. Where you Retire Realistically instead of as the majority of people do today don’t even come close to adequately considering and planning for their retirement (even at 65 or 70).
Many people are already planning on working for a longer time because they don’t have enough money for retirement. Those reading the blog and focused on taking a different approach from the common one (either FI/RE or digital nomad or something else) already understand the traditional mindset of working hard and buying what you want (even if you go into debt) is more and more difficult. Some specifics of this post use terms that make sense in the USA (like IRA) but the ideas are universal.
The economy is no longer as robust after the financial crisis in 2007. While the recession is over, the cost of living has gone up. What’s more, there aren’t as many options to earn a high income unless you work in the technology sector. There is so much competition for even high skill jobs that it’s easy for employers to pay less than they used to in the past.
Those focused on FI/RE do consider retirement (obviously) but digital nomads for all the other ways I think this lifestyle is appealing often don’t consider the long term at all. And this is a serious problem.
For traditional employees and digital nomad and other freelance type employees one of the biggest challenges with planning for retirement is not the economy. While the economy certainly is a significant factor, it’s not the only one. You also have to take a look at your money management skills. There may be many ways that you are paying too much and saving too little. If this is the case, then it’s vital that you learn new ways of making your money go farther.
With that in mind, here are 6 ways to save your dreams of retiring at age 65 or even earlier.
Are You Adding to Your Retirement Savings With Each Paycheck?
Direct some of your paycheck to a 401(k) or IRA and you will soon be above average in preparing for your retirement.
One of my favorite tips to nearly painlessly greatly improve your retirement life is to put some of every raise you get toward retirement savings. For example, if you get a new job (or a raise) that gives you an extra $5,000 a year in income set aside $2,000 into a retirement account (every year). As you get further raises do the same thing.
Where are you spending your money?
You may have more control of your money than you think. Take a look at your recurring expenses. Can you spend less on cable? Cable companies make millions because of the fascination people have for entertainment. Is it possible that you could spend the same amount of time sitting in front of the TV doing something else — like starting a new hobby that will be more personally enriching? What about electricity? Perhaps, you can use a local electrical supplier if you live in an area that has energy deregulation. This site explains how you can buy cheaper electricity in a deregulated market like Texas.
Do you need to upgrade your car, phone, TV, laptop so often?
In the past, buying a car every three years made fiscal sense because you would save on repair costs. However, cars are now made much better and will run well for many years. By buying a car less often and looking after it better, you could save tens of thousands of dollars because every time you drive a new car off the lot, it depreciates in value. Computers used to become painful to use (as the new software took advantage of and thus required the big gains made in hardware to work well – this is much less true today). This money could go toward your retirement.
Do you have money leaks?
It doesn’t take much to spend money on small inconsequential things. An evening with friends, a latte when you’re tired, an extra few boxes of your favorite snacks when grocery shopping… all these things can add up quickly. You can also save thousands every year by skipping the convenience of eating out and learning how to cook nutritious meals at home. While it isn’t necessary to become a tightwad overnight, wincing when things are a few dollars above your comfort level, increasing your awareness of how you’re spending your money will help you realize that many of the things you buy aren’t giving you that much satisfaction in the first place.
Do you use your credit card almost reflexively?
Paying with your credit card is convenient, but you do have to remember that even if you keep up with your monthly balance, you are still paying more for the things you bought because you’re being charged interest, perhaps even high interest. Since it’s so easy to whip out a credit card then to carry cash or try to figure out if you have enough money to use your debit card to make a purchase, it’s only too easy to buy more things than you intended. I pay for nearly everything that I don’t buy online in cash.
Do you postpone money management?
Since you are busy most of the time, it’s easy to shrug off the basics of money management—keeping a budget, living within the budget, and saving a little every month. You use excuses like promising yourself that you’ll start your retirement savings when you earn a little more or pay off your credit cards. Unfortunately, life doesn’t stop long enough to give you enough time to plan everything perfectly. Even if you have started to budget, are you sticking with it? And if you have stashed away some cash, are you now looking for ways to keep that money active?
Changing Habits is Challenging
While these six ideas are easy enough to grasp and won’t require any financial wizardry to put into action, the challenge is breaking bad habits and replacing them with good ones. It’s uncomfortable, of course, but if you do, it will be rewarding in the long run. The earlier you get started, the better your retirement options will be.
I started adopting the mindset that set me on the path for FI/RE (Financial Independence/Retire Early) when I was very young. I collected baseball cards when I was a kid and added comic collections when I was a bit older kid.
Early on I was paying attention to the investment potential. I enjoyed not just the collecting but also the idea of making money by buying something and then selling it later for more money (which is the fundamental idea of investing). It came naturally to me.
I never much liked spending money on something that lost its value. For some things, like ice cream, I could happily spend my money even though I would soon have nothing to show for it. But more often I would rather buy something I could enjoy and also believe I would be able to sell later at a higher price.
When I started actually trying to sell baseball cards for money I learned about he difference between reported “value” and the ability to get cash for what you owned. Not only can’t you sell items to a store at the “value” reported in pricing guides you often couldn’t sell them at all (they didn’t want the items at all).
In high school I started renting space to sell at shows. There you were selling to the public (or other dealers). I learned vivid examples of the challenges of turning assets into cash. And I also learned about the weaknesses in the economic ideals such as the market being efficient. I saw how often the very same product (the same baseball card) for sale in the same hall would have very different prices (over 100% more was not uncommon) and the sales were often not close to the best buys. The friction in this situation was much smaller than the typical purchase (all the items were in the same room, just a little bit of walking created the friction).
I have been reading about the possibilities of living in a van (customized to be a small RV) for several months. I am getting more interested in this idea. The cost of living in the USA is so high, especially if you want to travel – which I do.
The combination of where I want to travel (National Parks, National Forest and nature largely) and the cost effectiveness for van living works out very well. You can often park for free in US National Forest and BLM land. Also the cost of campgrounds is much less than any form of lodges, motels or hotels; so even in the instances you pay for lodging the costs are greatly reduced.
Another option for free parking are many Wal-Marts across the country actually don’t mind RVs and vans parking overnight. Many other businesses are hostile to just using their parking lot overnight when it isn’t being used. I must say this is something that greatly increases my opinion of Wal-Mart. I am not a huge fan in general but this is a very real positive action they are taking. It definitely encourages me to shop there.
Stealth parking on city streets or parking lots is another option with van living. Often cities seek to stop such living which is why the stealth part is important. Some cities and residents are more apposed to the practice than others. Obviously if there are negative externalities from you parking your van for a long time that will encourage people to seek to stop that. But if you don’t make anyone’s life worse there is much less likely to be an issue.
Even if you don’t it can make residents, police or security guards nervous (which I understand is possible in some instances) and that is something that again makes it more likely you will be bothered and maybe not allowed to park. I am still in the early phase of learning about all this but it does seem a tactic of driving to a sleeping spot at night and leaving early in the morning is a good idea. And moving around so you don’t park in the same spot (that people will notice anyway) for long periods of time.
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One of the words I learned recently is boondocking, which is free camping and at least when I have read about it means also off the grid (no electrical connections, water…) for your RV (or a van that is able to plug in to services). I knew that this was somewhat available on USA Federal Government lands (BLM and forests) but I think it is much more available than I thought (I am still learning so…).
1. Don’t mistake your vocation
2. Select the right location
3. Avoid debt
Money is in some respects like fire; it is a very excellent servant but a terrible master. When you have it mastering you; when interest is constantly piling up against you, it will keep you down in the worst kind of slavery. But let money work for you, and you have the most devoted servant in the world. It is no “eye-servant.” There is nothing animate or inanimate that will work so faithfully as money when placed at interest, well secured. It works night and day, and in wet or dry weather.
5. Whatever you do, do it with all your might
6. Depend upon your own personal exertions
7. Use the best tools
8. Don’t get above your business
9. Learn something useful
10. Let hope predominate but be not too visionary
11. Do not scatter your powers
12. Be systematic
13. Read the newspapers
14. Beware of “outside operations”
15. Don’t indorse without security
16. Advertise your business
17. Be polite and kind to your customers
18. Be charitable
19. Don’t blab
20. Preserve your integrity
From the introduction,
Those who really desire to attain an independence, have only to set their minds upon it, and adopt the proper means, as they do in regard to any other object which they wish to accomplish, and the thing is easily done. But however easy it may be found to make money, I have no doubt many of my hearers will agree it is the most difficult thing in the world to keep it. The road to wealth is, as Dr. Franklin truly says, “as plain as the road to the mill.” It consists simply in expending less than we earn; that seems to be a very simple problem.
The thoughts are worth reading today. You can update things a bit, from read the newspapers, to read the websites, but mainly it is sensible advice today.
My plans were similar to the now popular (within a small but committed group of people) Financial Independence Retire Early (FIRE) movement. I was more focused on lifestyle and increasing my financial independence (as apposed to striving for complete financial independence in order to retire very early).
My thoughts were more along the line of being able to avoid a full time job and possibly do some consulting, run my own business (with a lifestyle goal rather than a make millions goal) and have investments that supplement that income. I also wanted to be able to have that possible from wherever I chose to live. Often you are quite limited on where you can live (especially cheaply) if you require a high paying job.
I also understood by living more frugally I gave myself lifestyle options. Living frugally allows you to save money. But it also lets you experience what living on less is like and you know if that is what you want. It is for me. I would much rather have freedom from having to earn a bunch of money to allow me to spend lots of money.
Combining FIRE and location independent work provides some valuable benefits. If you have some investments saved up that can be tapped as you travel that can meet some of your living costs, this aids on of the bigger challenges – how to earn money while you travel. And if you travel frugally you can reduce your costs (below what you speed where you used to live).
Owning rental property can be a wonderful way to help support your nomad, location independent lifestyle. Rental property can provide a source of regular income to supplement your earnings. Of course, getting a rental property into that state is usually something that takes time, or a huge downpayment.
I have found dealing with property management folks to be extremely annoying. First they charge ludicrous amounts (in my opinion), especially for places that have high rents (they normally charge a % of rent + huge amount to rent the place out). These costs greatly reduce the investment appeal of renting out your property. On top of paying them a huge amount they are not very customer focused (to me paying them, or to those seeking to find a place to live).
15 years ago I started renting out my first house and obviously created a web page for it. Nearly none of the expensive professionals did that back then. Only years later they finally were dragged into catching up. And still today, they post not nearly enough useful information.
Still it can be that even with these costs and frustration it makes sense as an investment (especially in the last few years when investment climate is so challenging).
Often the decision to rent out your home (versus selling it when you leave) is impacted by your long range plans. If you want to move back into your house in a year or two or five that limits your options. You may have to accept a bad investment to keep that option open. Especially if you are just going to go give the nomad idea a try for a year, selling may not be wise (unless you don’t want to return to your house even if the nomad idea doesn’t appeal to you once you try it).
Another consideration, even if you don’t care about moving back into the same house, but plan on moving back to the same city, is that if you sell and real estate values climb you could find yourself priced out of the market.