The stories we tell ourselves

I had lunch with Sabino yesterday. He’s my accountant — but he’s also my friend (and a loyal Get Rich Slowly reader).

I told Sabino about how our house has been a money pit over the nine months since we bought it. I told him how much fun I’ve been having with Get Rich Slowly since I bought it back, and about how much work it has turned out to be to get the site renovated.

Sabino told me about his businesses (he doesn’t just own the accounting firm, but bits and pieces of several other companies too) and about his kids (who, to the surprise of both of us, are all teenagers now). He’s worked hard all of his life to give his family a solid future, and now — at age 48 — all of his dreams seem to be coming true.

I’ve shared Sabino’s story several times in the past. But for those who are unfamiliar, here’s a synopsis.

Sabino’s family moved to the United States when he was ten years old. They were poor and didn’t speak English. But from an early age, Sabino wanted to be part of the American Dream. He learned English, worked hard, and put himself through college.

After Sabino got married, he and his wife Kim set financial goals. Their chief aim was for Kim to stay home and raise a family. So, while our friends were buying new homes and new cars, Sabino and Kim rented a mobile home in the country for $200 a month and paid $950 cash for a 1982 Honda Accord. They both worked full-time jobs, but they lived off Sabino’s income alone and used Kim’s salary to repay $35,000 in student loans.

“We made sacrifices,” Sabino says. “We made these choices because of the goals we had. We knew what we were working for, and we were happy to do it.” (Back then, I didn’t understand their choices and sacrifices; twenty years later, it all makes sense.)

Today, Sabino is a successful business owner while Kim stays home to raise their three children, just as they planned. Because of their diligence, they now own a nice home in the country (they paid off the mortgage last spring) and new cars that are fully paid for. By staying focused on their purpose, they’ve been able to build the life they always dreamed about.

Rejecting Society’s Narrative

Yesterday over lunch, we talked about the qualities that lead to success. As I often do, I complained about the current narrative that the mass media is trying to sell Millennials: their lives are tough because the economy sucks and the deck is stacked against them.

Bullshit Article with Lots of Reddit Upvotes

“I just don’t believe it’s true,” I said. “The economy doesn’t suck. And now might be the best time in history to be alive. Besides, even if this story were true, so what? If you’re dealt a crappy hand, it’s up to you to make the best of it.”

Sabino nodded in agreement. “I don’t like that sort of thinking either,” he said. “But it’s nothing new. Our culture always has a story they want to tell you about yourself. When I came to this country, for instance, everyone — my friends, my teachers, my family, everyone — had expectations for me and what my life would be like.”

“What do you mean?” I asked.

“When I was young, my parents worked in the fields. That’s how they made money to support us. One day my father pulled me aside. He told me that my future too was to work in the fields — unless I chose to change my destiny. That talk made an impression on me. Nobody expected a poor Mexican kid to graduate from high school, but that’s what I did. Nobody expected a poor Mexican kid to graduate from college, but that’s what I did. Nobody expected a poor Mexican kid to own an accounting firm, but that’s what I did. I decided to live a different story than the one that others had written for me.”

Sabino is one of the inspirations for my financial philosophy, and the reason is obvious. He’s lived it! (And he continues to live it.)

For more on Sabino’s story, check out this interview he did for the Oregon Multicultural Archives at Oregon State University.

Determine Your Destiny

My lunch with Sabino reminded me of a New Yorker article from a couple of years ago. In the piece, Maria Konnikova explored how people learn to become resilient.

She cites the work of Norman Garmezy, a developmental psychologist from the University of Minnesota. Garmezy, who died in 2009, spent more than forty years researching the qualities that lead to success and prevent mental illness. The quality that seemed to matter most? Resilience, the ability to surmount life’s slings and arrows instead of succumbing to them.

[Resilient tree]

Writing about the work of another resilience researcher, Emmy Werner, the author says:

What was it that set the resilient children apart? Because the individuals in her sample had been followed and tested consistently for three decades, Werner had a trove of data at her disposal. She found that several elements predicted resilience.

Some elements had to do with luck: a resilient child might have a strong bond with a supportive caregiver, parent, teacher, or other mentor-like figure. But another, quite large set of elements was psychological, and had to do with how the children responded to the environment.

From a young age, resilient children tended to “meet the world on their own terms.” They were autonomous and independent, would seek out new experiences, and had a “positive social orientation.” “Though not especially gifted, these children used whatever skills they had effectively,” Werner wrote.

Perhaps most importantly, the resilient children had what psychologists call an “internal locus of control”: they believed that they, and not their circumstances, affected their achievements. The resilient children saw themselves as the orchestrators of their own fates. In fact, on a scale that measured locus of control, they scored more than two standard deviations away from the standardization group.

This latter statement sounds like statistical gobbledygook but it’s important. Werner’s research indicates that resilient children — those who are able weather the storms of life — score in the top 2.2% when measuring locus of control. Again: Successful kids believe they control their own fate.

Psychologists are convinced that resilience is a fundamental key to success. But where does it come from? Can it be learned? Why do some people respond better to stress than others? George Bonanno of Columbia University believes it all boils down to perception. From the New Yorker article:

Every frightening event, no matter how negative it might seem from the sidelines, has the potential to be traumatic or not to the person experiencing it…

Take something as terrible as the surprising death of a close friend: you might be sad, but if you can find a way to construe that event as filled with meaning—perhaps it leads to greater awareness of a certain disease, say, or to closer ties with the community—then it may not be seen as a trauma. (Indeed, Werner found that resilient individuals were far more likely to report having sources of spiritual and religious support than those who weren’t.)

The experience isn’t inherent in the event; it resides in the event’s psychological construal.

Konnikova concludes that yes, resilience can be learned, and the best way to do it is to shift from an external locus of control to an internal one. She writes: “Not only is a more internal locus tied to perceiving less stress and performing better but changing your locus from external to internal leads to positive changes in both psychological well-being and objective work performance.”

The Stories We Tell Ourselves

I’ve written about all of these concepts before. I’ve written about developing financial resilience, about how our perception determines our experience, about becoming proactive by developing an internal locus of control, and about how all this relates to mindsets of scarcity and abundance. I’ve written about these concepts in the past, and I’ll write about them again in the future.

These ideas are the foundation upon which the Get Rich Slowly philosophy is built. To achieve your financial goals, you must accept responsibility for your choices and decide that you are in control of your fate. You are the boss of your own life.

I often get frustrated when I hear people complain that they can’t downsize their home, they can’t get a new job, they can’t get rid of their cell phones, they can’t save half of their income. In most cases, these things simply aren’t true. It’s not that they can’t do these things, it’s that they won’t. They’re telling themselves a story that they believe to be true, but they don’t understand there are other plotlines and endings available to them.

Generally speaking, no one story is more true than any other. Each tale is simply a different way of viewing our life. If one story makes us unhappy or uncomfortable, it’s possible to tell ourselves a different version of the story, one that creates a more positive experience. (It’s like the blind men and the elephant.)

Choose Your Own Adventure

A few years ago, I had a conversation with my friend Tyler Tervooren. He and I were both going through a lot of life changes, and we were each trying to re-write parts of the stories we’d been telling ourselves. Tyler shared a technique he was using to change his belief systems.

“I have a list of qualities I want in myself,” he told me. “I’ve written them on index cards in a specific format and I read these to myself every day.”

“What do you mean?” I asked.

“Well,” he said, “one card might say, ‘I am the sort of man who always keeps his promises.’ Another might say, ‘I am the type of man who makes exercise a priority.’ I have about twenty of these cards, and I review them every day. This is a way for me to stay focused on what’s important to me, and to remind myself of my values.”

What a great idea!


The bottom line is this: If you don’t like the story you’re living, only you can change it. You are the author of your own life. You didn’t write the beginning of the story, but you have the power to choose the ending. In so many ways, life is like a Choose Your Own Adventure book. Choose an adventure you love instead of one that makes you unhappy.

I know, I know. All of this is easier said than done. Once you’re thirty or forty or fifty years old, you’ve had decades to tell yourself certain parts of your story. You may have written yourself into a corner. Changing plotlines can be difficult. Still, it is possible — and nobody else is going to change the storylines for you. It’s up to you to live the story you want.

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Cashing in on the American Dream: How to retire at 35

Cashing In on the American Dream by Paul Terhorst

All his life, Paul Terhorst wanted to be rich. Even in grade school, he looked forward to having a corporate job, to joining the world of big business. “I didn’t just dream about money and power and expense account living — I planned for it.” He grew up and made it happen.

He got his MBA from Stanford. He became a certified public accountant and joined a large accounting firm. At age 30, he became a partner in the company. He had “a huge office, a leather chair, and a view of a polluted river”. He’d achieved everything he’d always dreamed about.

But at age 33, while on a business trip to Europe, he overhead two guys talking about a friend who had retired early. Terhorst was intrigued. “I began toying with the notion that if I could come up with a way to live off what I already had, I’d never have to work again.”

It took him two years to figure everything out. But in 1984, at age 35, Terhorst made the leap. He retired. (And he’s been retired ever since.) In 1988 he published Cashing In on the American Dream to share his experience — and the experience of others who made an early exit from worklife to pursue their passions.

“We need to find new opportunities for sharp, hardworking people who leave the corporate structure,” he writes. “Up to now, those outlets have been second careers, the Peace Corps, turning a hobby into a business, and the like. Those outlets give you at least some money to live on. The route I describe in this book offers more freedom.”

It Takes Less Money Than You Think

The first part of Cashing In on the American Dream is devoted to Terhorst’s three-part formula for achieving early retirement:

  • Do your arithmetic, by which he means crunch the numbers to see how low you can trim your expenses and how much you need to have saved in order to cover your costs.
  • Do some soul-searching. Decide if early retirement is right for you. If so, what does it look like? How will you find meaning after work?
  • Do what you want. Terhorst advocates a life of “responsible pleasure”: Do what you love, but don’t spend a lot of money to make it happen.

It takes less money than you think to retire early. “Millions could retire right now,” Terhorst says. But many folks are bound by “golden handcuffs”. Their high incomes fund lavish lifestyles, which means they remain voluntarily shackled to their jobs.

In 1984, Terhorst believed you needed a net worth of $400,000 to $500,000 — which would be $972,000 to $1,216,000 today — to retire early. With this level of wealth, he thinks you could live well on $50 per day. (According to official government inflation data, $50 in 1984 is equivalent to $121.62 in 2018. That means Terhorst advocates spending roughly $44,000 per year.) If you opt for what he calls “bare-bones retirement” — what we might now call LeanFIRE — you can retire much sooner.

Cashing in on the American Dream: How to Retire at 35 Price: Disclosure: If you follow this link and make a purchase, Get Rich Slowly earns a commission (at no additional cost to you).

Tangent: Here’s something fun to note. (Well, fun for me anyhow.) For years, I’ve been saying that you need to save 25x your planned annual spending to achieve financial independence. If you’re daring, you might save only 20x your annual spending. If you’re cautious, you might wait until you’ve saved 30x.

If you extrapolate the numbers Terhorst used in 1984 — save $400,000 to $500,000 to live on $50 per day — you get almost the exact same ratios. He’s urging readers to build their net worth to between 22x and 28x their planned annual spending, with the average being 25x…just like many my colleagues and I preach.

You Can Kick the Work Habit

Math is only part of the equation. Even you figure out how to make the money work, you’ll have to do some soul-searching to figure out when retirement makes sense for you. The key, says Terhorst, is to look for meaning in yourself, not in your job. If you like your work, if you’re doing what you love and getting paid for it, then keep doing it! But those cases tend to be the exception, not the rule.

Enjoy your career and then move on.

Before you make the leap, talk to others who’ve already done so. Learn what they did. What are the rewards? What are the unexpected pitfalls? As you explore the idea, don’t expect your friends and colleagues to be supportive. Early retirement is weird. It’s not normal. Some folks might even find it threatening. That’s okay.

When Terhorst began to contemplate quitting, he faced a lot of pressure — both from himself and from others — to stay on the job. It was the socially acceptable thing to do. Plus, he was bound by those golden handcuffs! “But what kept hammering at my head was that Vicki and I could live without the big income.”

Seeing the MatrixListen to the complaints and move on. Ignore the haters and doubters.

What will you do after you’re done working? Whatever you want. “When you retire you have time to pursue any and all of your interests,” Terhorst writes. But getting retirement off the ground takes a bit of time. There’s an adjustment period.

Financial independence changes your perspective. It allows you to break free from — and to see — the Matrix. “When you retire you change your frame of reference. You move from a world with work at the center to a playful, almost make-believe world with your life at the center.”

Early retirement isn’t about an indolent life of leisure. Terhorst believes it’s important to move from an active work life to an active retirement. He has a rule: Do what you want but you must do something. “The idea,” he says, “is to live, not dissipate time.” Have meaning and purpose.

Note: Terhorst spends a lot of space in Cashing In on the American Dream making the case for early retirement. He’s trying to persuade readers it’s a worthy aim. I’m assuming that in 2018, Get Rich Slowly readers already believe that early retirement is a worthwhile pursuit — even if it’s not something that interests them personally.

How to Get Started

The second part of Cashing In on the American Dream offers a variety of tactics to get started down the path to early retirement. These suggestions will be familiar to folks who’ve read my The Money Boss Manifesto.

For instance, Terhorst rails against what he calls “mortgagitis” or “inflammation of the mortgage”. In 1984 — as in 2018 — Americans paid a third of their disposable income toward housing. This cripples any hope they might have of retiring early. Terhorst calls homeownership “the great American ripoff”.

“Our home is our security, a fuzzy blanket for [adults],” he writes.

To prime your economic engine, you have to control your living costs — starting with housing. “Why do you live where you live?” Terhorst asks. Why do you live in your home? Your neighborhood? Your city? Your state? Your country? He urges readers to move to cut housing costs: “Use your imagination to come up with a way to house yourself for less than you pay now. Start with the option most immediately upon you.”

After that immediate move, begin thinking about the long term. In general, this means moving south. It also means moving to where the jobs aren’t. (This latter piece of advice might be tough to follow if you’re still accumulating wealth. But if you’ve already retired, it makes perfect sense. Places with high unemployment tend to be cheaper. And since you’re retired, the lack of work doesn’t matter.)

For good reason, Terhorst devotes more time to housing costs than any other subject. But he also tackles other ways to cut down your infrastructure, especially transportation. In fact, he offers this radical advice: Sell your vehicles. He writes:

You need neither the expense nor the headache cars can bring. Ride with others or use bicycles, taxis, buses, or airplanes. At first it will seem an inconvenience. You’ll have to learn to call cabs, arrange to meet others, and read bus schedules. You’ll have to allow extra time to walk. But you can adjust if you work on it.


In some parts of the country living without a car may be next to impossible. [Many cheap places to live] are small towns without much public transport. You may have to use bicycles to get around town and have a local cabbie take you shopping. If you absolutely must have a car, buy [a clunker].

After your living costs are under control, you’ll begin building net worth. You can turbo-charge this process by managing your career, continuing to control your spending, and adopting a saving routine. Sooner than you think, you’ll have accumulated the net worth needed to retire.

Cashing Out to Cash In

So, you’ve followed Terhorst’s advice. You’ve moved someplace cheap. You’ve sold your vehicles. You’ve built your career and cut your infrastructure. You now have a new worth somewhere around a million bucks. What now? Now you cash out everything.

“You should convert your home equity to cash,” Terhorst writes. “You should also convert other assets to cash. Assets complicate our lives. We insure, store, haul, clean, repair, maintain, and talk about them.”

Terhorst says to sell everything but sentimental items. (He and his wife kept a piano when they retired.) Sell everything else, including your home and car. Convert all of your net worth to cash. Invest it. Then live on the proceeds. In 1988, Terhorst recommended putting your money into certificates of deposit; today he recommends stocks.

Caveat: The investment advice in Cashing In on the American Dream is dated. In 1988, certificates of deposit yielded 8% and inflation was running at about 2.5%, which mean you could get a real return of about 5.5% through CDs — with no risk. Today’s CD rates are nowhere near that high. I believe your best choice is to invest in index funds. In the long run, stock market returns are about 6.8% after inflation.

If you’ve followed his advice and cut your costs so that you’re living on $50 per day (well, $122 per day in 2018), your savings should last indefinitely. But even if something goes wrong — the stock market crashes, you suffer a catastrophic illness, hyperinflation happens — it’s not the end of the world. The worst-case scenario is that you go back to work. That’s not likely to happen.

Terhorst writes: “The chances of being forced back to work for financial reasons are remote…But if you follow this book’s formula, most of you will never work another day in your life unless you choose to do so.”

What Retirement Means

If you want to heed Terhorst’s advice — and the advice of other early-retirement experts — you might have to let go of existing ideas and expectations. You might, for instance, have to forget everything you think you know about what retirement is — and what you think it means. “You might have to use your imagination,” Terhorst says. He writes:

Later on, when you’re 55 or 65, if you want to you can “unretire” and go back to work. We used to work and then retire. This book suggests you work, then retire, then consider going back to work. Under this plan you devote your middle years to yourself and your family. During those years your mental and physical powers reach their height. You can explore, grow, and invest your time in what’s important to you. You can enjoy your children while they’re still at home. Later, after you’ve lived the best years for yourself, you can go back to work if you want to. The choice will be up to you.

“Stop working and start living,” Terhorst says. It’s okay to have a job — but don’t work for money. Work for fulfillment.

Sidenote: There’s a vocal group of folks who believe “retirement” means only one thing: never working again. Even back in 1988, Terhorst chafed at that definition of retirement. He’s puzzled that retired has come to mean nonproductive:

“Pretty blunt. Also pretty wrong. Retired young people I know are proud to be retired. We view retirement as a move from one active sector of society to another. When we retire we feel we do more, not less. We believe that what we are or do defines our lives rather than what we earn or how we earn it.”

Lately, I’ve been reading about the history of retirement. The more I read, the more I agree with Terhorst. There are many types of retirement. It’s not any one thing.

Cashing In on the American Dream by Paul Terhorst

In the final segment of Cashing In on the American Dream, Tehorst admits that part of the reason he has such a great life is that he was born in the right place at the right time: “I grew up and went to work during the most sustained, spectacular boom in economic history.” You’ve probably heard Warren Buffet claim that he’s fortunate to have won the “ovarian lottery”; Terhorst feels the same way. And so do I.

Cashing In on the American Dream is a seminal early retirement book and its advice was spot-on for 1988. But that strength is now its weakness. Some of the advice is thirty years out of date. If you don’t need specific advice but are instead interested about theory (and story), then seek out this title. (The last half of the book is filled with stories from folks who made early retirement happen.)

But if you do need specifics, you’re better off with something like Bob Clyatt’s Work Less, Live More [my review or Early Retirement Extreme from Jacob Lund Fisker. (Speaking of which, the Early Retirement Extreme book club discussed Cashing In on the American Dream in 2015. Some thoughtful comments here.)

Footnote: In 2014, Next Avenue published a 30-year update on Paul Terhorst (and his wife, Vicki). Where are they now? Turns out they’re still retired and still exploring the world. They call themselves “perpetual travelers”, and they’ve managed to visit more than 80 countries during their three decades of retirement. As expected, though, they’ve had to change their investment strategy from CDs to the stock market. They write about their adventures for the Overseas Retirement Letter.

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The best way to spend less? Cut back on the big stuff!

You don’t need a high income to achieve Financial Independence.

Making more money helps, sure, but if you’re diligent about cutting costs, it’s possible to reach financial freedom on even an average salary.

I want you to meet my friend, John. John is an 81-year-old retired shop teacher. He’s a millionaire — but you’d never know it.

John Little and Prime Time

John started life as a carpenter. In his thirties, he went back to school to become a teacher. He spent the next twenty years teaching shop at a junior high school in a poor part of town. He retired to financial freedom at age 58. He never had a huge income and he didn’t inherit a fortune.

So, how’d he get rich? He pinched his pennies and doted on his dollars. John achieved Financial Independence by ruthlessly cutting costs.

  • John doesn’t live in a mansion. He lives in the same small ranch house he bought for $10,500 in 1962. He paid off his mortgage early, and has now lived in the place for 53 years!
  • John doesn’t drive a brand-new Mercedes or BMW. He drives a 1998 Chevy minivan he bought for cheap five years ago. It’s ugly, but he doesn’t care. It meets his needs and he has no plans to upgrade.
  • John doesn’t take lavish vacations. He spends his summers in southeast Alaska on an old 38-foot fishing boat that he bought with cash in 1995. He spends his winters doing volunteer work on farms and ranches in New Zealand.
  • John doesn’t like to dine in fancy restaurants. He’d rather make his own meals at home. “For me, restaurants are a waste of money,” he says. “I don’t appreciate them.”

Does John sound like a typical millionaire to you? If you were to believe TV, movies, and magazines, you might think most millionaires live like this:

Trading Places

We’re constantly bombarded by messages that wealthy people enjoy lavish lifestyles filled with luxury. From my experience meeting with dozens of millionaires over the past decade, this kind of lifestyle is the exception not the rule.

Most wealthy people I know are like John. They’re quiet millionaires. They practice stealth wealth.

But don’t just take my word for it. Let’s look at what the experts say.

Lifestyles of the Rich and Fameless

In The Millionaire Next Door, authors Thomas Stanley and William Danko share what they learned through years of academic research into the habits of America’s wealthy. Here’s one key takeaway:

What are three words that profile the affluent? FRUGAL FRUGAL FRUGAL…Being frugal is the cornerstone of wealth-building.

They write that millionaires tend to “play great offense” with money — their incomes are much higher than average — but they also “play great defense”. They’re not big spenders. They’re thrifty. They opt out of consumer culture, making purchases based on their personal needs and wants rather than status and fashion.

“Few people can sustain profligate spending habits and simultaneously build wealth,” write the authors. “[Millionaires] became millionaires by budgeting and controlling expenses, and they maintain their affluent status the same way.”

Study after study shows the same thing. To get and stay rich, you have to manage your lifestyle. You can’t outearn dumb spending.

Great. You get it. To achieve your goals, you’ve got to cut costs. But how?

There are two schools of thought:

  • Most money writers emphasize saving on small stuff. They teach how to clip coupons, conserve electricity, and spend less on entertainment. These small wins are usually quick and easy to achieve.
  • A few folks urge readers to pursue “big wins”. They argue that the quickest way to wealth is to spend less on big-ticket items like your home and your car. The downside to this approach? Big wins take a lot of work, and opportunities to pursue them are rare.

I believe that a smart money manager does both. She practices thrift on a daily basis and she seizes every opportunity to slash spending on the big stuff.

Frugality is an Important Part of Personal Finance

You could save maybe 50 cents a day by drinking a glass of water instead of a can of soda. That doesn’t mean much if you only do it once, but over the course of an entire year that single change would increase your personal profit by nearly $200. When taken together, many such small economies make a noticeable difference.

Small amounts do matter.

Rather than provide some made-up examples of how much you could save, here are actual numbers from my own life. When I dug out of $35,000 in debt a few years ago, I decided to:

  • Switch my cable TV package from $65.82 per month to $12.01 per month, saving $645.72 every year.
  • Get rid of my home phone line (roughly $46.50 per month) and my subscription to Audible ($21.95 per month), saving $821.40 per year.
  • Cancel my magazine and newspaper subscriptions, saving $137 per year.
  • Make use of the public library instead of shopping at bookstores, saving $391.95 in the first year.
  • Plant a vegetable garden to grow my own produce, saving more than $300 per year. (Yes, I’m such a nerd that I kept a spreadsheet to track how much I saved!)

With these changes alone, I increased my cash flow by $2,281.61 per year. That’s an additional profit of almost $200 every month.

You won’t get rich — slowly or otherwise — by cutting your cable bill or growing your own tomatoes. But when small changes are a part of an ongoing campaign of saving and investing, they can bring big changes indeed!

True story: I recently had a friend ask me how to get out of debt. “You can start by getting rid of your $200 cable package,” I told him. “No way!” he said. “That’s the first thing everyone says, and it’ll be the last to go. TV is important to me.” Right. More important than being debt-free, apparently.

The Magic of Thinking Big

While it’s important to save money on everyday stuff, it’s even more important to watch how much you spend on major purchases. By making smart choices on big-ticket items, you can save thousands of dollars in one blow. If you spend fifty grand less when you buy a house, that’s fifty grand (or more!) you never have to earn.


Housing is the biggest expense for most Americans — and by a wide margin. According to the U.S. Bureau of Labor Statistics’ 2015 Consumer Expenditure Survey, the typical American household spends 32.8% of its income on housing, which includes mortgage (or rent), maintenance, insurance, interest, and utilities.

In an ideal world, you’d slash your housing expense by buying an affordable home in a city with a low cost of living.

Numbeo cost-of-living calculator

While relocating to a cheaper home in a cheaper city would probably provide a huge financial reward, it’s not exactly easy. A more practical alternative might be to move within your current city. Sell your home (or move out of your rental) and choose something more affordable.

Think about it: If you’re an average American who spends $1534 per month on a place to live, dropping that expense by 10% would save you $150 per housing payment. Drop it by 30% and you’ll save more than $5000 per year!

“If you’re not yet wealthy but want to be someday, never purchase a home that requires a mortgage that is more than twice your household’s annual realized income. Living in less costly areas can enable you to spend less and to invest more of your income. You will pay less for your home and correspondingly less for your property taxes. Your neighbors will be less likely to drive expensive motor vehicles. You will find it easier to keep up, even ahead, of the Joneses and still accumulate wealth.” — The Millionaire Next Door


Transportation is our second-largest expense in the U.S. We spend an average of $792 per month (17 percent of the typical budget) to get around, including vehicle payments, gasoline, insurance, and repairs. I know Americans love their automobiles. They’re loath to let them go, even in the face of logic. But imagine how much you could save if you could cut your car costs in half! How do you do that?

  • Sell your current car. Replace it with a used vehicle, one that’s fuel efficient. (Side benefit: An older, used vehicle will cost less to insure!)
  • Drive your car only when necessary. When possible, bike or walk to reach your destination. (Side benefit: Increased fitness, which also saves you money!)
  • Make use of public transportation. (Side benefit: Time to read!)

When I recommend people change the way they get around, I’m usually met with a wall of objections. But let me suggest that instead of looking for reasons you can’t do this, instead look for ways you can. You’ll save buckets of money.

Other expenses

Together, housing and transportation consume half of the average American budget. There are enormous opportunities to save if you choose to economize on these two categories. But you can achieve big wins in other areas too.

The Consumer Expenditure Survey shows that the typical household spent $1846 on clothing in 2015, $4342 on health care, $2842 on entertainment, and $7023 on food.

Because each of us is different and we spend in different ways, opportunities for big wins vary from person to person. After tracking my spending for the last half of 2013, for instance, I realized that I was spending way too much on travel. In 2014, I cut my travel costs in half. This allowed me to save money for other goals, such as buying a motorhome.

The Best Way to Spend Less

A few years ago, I asked my friend John if he had advice for young people who want to retire early.

“Here’s the secret to financial freedom,” he told me. “I don’t care how much you make — you spend less than you earn. You don’t have to like it. You just have to do it. Because that is the secret.”

The best way to spend less is to optimize the big stuff.

I’m not saying you shouldn’t make your own laundry detergent or plant a vegetable garden. By all means, do these things! But understand that if all you do is the small stuff, your only hope is to get rich slowly. You can do better.


Pull out your personal mission statement. With that in front of you, brainstorm ways to reduce your spending. No idea is too small. No idea is too big. No idea is too stupid. Do a rapid braindump of any (and all) actions you could take to cut costs. If all your spending were aligned with your goals and mission, where would the money go?

After you’re finished brainstorming, pick three specific ways — large or small — you’ll reduce spending starting this week. (Examples: I’ll walk to the grocery store. I’ll sign up for a library card. I’ll finally cancel my landline.) Also pick one “big win” that you will work to achieve in, say, the next two years. Make this a big, hairy audacious goal. (Example: We’ll go from a three-car family to a one-car family.)

Note: During the month of March, I’m migrating old Money Boss material to Get Rich Slowly — including the articles that describe the “Money Boss method”. This is the fifth of those articles.

Look for further installments in the “Money Boss method” series twice a week until they’ve all been transferred from the old site.

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Fifteen years of semi-retirement: A real-life look at what it’s like to live more and work less

Today’s “money story” is a guest post from Bob Clyatt, author of the outstanding Work Less, Live More, which is one of my favorite books about financial independence and early retirement. [My review.] It’s an update on what his life has been like since moving to sem-retirement fifteen years ago.

I had the good fortune to start a digital design firm in 1994. I sold it during the dot-com frenzy, leaving me with a bad case of burnout and full retirement accounts. It seemed like the right time to pull the plug, so in 2001 — at the age of 42 — I left full-time work.

I embarked on a self-funded post-career lifestyle that wasn’t quite retirement (at least not in the traditional sense). I chose to do part-time, work-like activity in order to stay challenged and engaged while also closing budget gaps. Five years later, I wrote Work Less, Live More, which popularized the notion of semi-retirement.

So, I guess the big question is: Does semi-retirement work? What has it been like for me and my family? What lessons have I learned since embarking upon this path?

Work Less, Live More: The Way to Semi-Retirement Price: Disclosure: If you follow this link and make a purchase, Get Rich Slowly earns a commission (at no additional cost to you).

The Way to Semi-Retirement

The quick answer is: Yes, semi-retirement can and does work. The investing approach outlined in Work Less, Live More has sustained our spending since the day my wife and I quit work in early 2001. Our savings have allowed us to have part-time, low-paid (but intrinsically fun and meaningful jobs) at a time when the normal people in those jobs can’t actually make ends meet — and can’t enjoy them as a result.

My wife works ten or twenty hours a week in a large specialty women’s clothing store. Her job allows her to stay connected to her interests in fashion while spending time with a younger generation of women: her co-workers and managers.

Meanwhile, I got to pursue my dream of becoming an artist. I went to art school, then built a sculpture studio. I now show and sell my work everywhere from Hong Kong to Paris, from trendy art fairs in Miami to galleries in Manhattan. [Check out Clyatt’s contemporary sculpture at his website.]

Bob Clyatt, sculpting

I’ve certainly had fifteen-hour days and eight-hour weeks in semi-retirement, but mostly I putter around in the morning before going to my studio after lunch. I spend an active afternoon sculpting. At night, I’m parked on the couch just like the rest of the country.

Like all artists, I sigh that I don’t have as many sales as I’d hoped after an art fair or gallery show. But then I pinch myself and remember that the art itself is getting better. I remind myself that creating the art is deeply meaningful and our financial needs are still covered by our savings.

Our Time in Eden

We have a close family.

Our two sons (now 21 and 25) were short-changed for Mom & Dad Time during the 1990s. Business trips and long hours at the office scarred me deeply and took me away from the kids. This was probably the driving force pushing me toward early retirement, actually.

But were able to spend a lot more time with the boys once we chose the path to semi-retirement. (They probably got too much time with us by the time high school and college rolled around!) We bought a boat and took plenty of family vacations, and there was always time to play catch or Frisbee while the kids were growing up.

Once I left the rat race, I got into yoga. I spent more time working out than the average executive could ever dream. Staying fit takes time and energy. I had plenty of both. We also took the time to to prepare healthful meals at home. As I get older and I’m unable to eat as much without packing on the pounds, preparing exciting, well-made food has been something of a compensation.

Now that our kids and in-laws have moved out, our house is more than we need. It requires plenty of work, but is a source of enduring pleasure for us. The gardens and grounds are Edenic. We entertain a lot at home, and the studio I built on the property a few years back has made me something of a homebody (gladly so!).

Work Less, Live MoreI have the time to think, to read, to putter — and still get my errands done and art created. Mornings inevitably involve a long read of the Wall Street Journal over a big cup of strong coffee, looking out on the gardens and digesting what’s happening out in the world.

Art has been a good avenue for opening up the world further. We’ve met lots of young, interesting people, and enjoyed at least ten trips a year to art-selling or exhibition locations where my work is being shown: art fairs in Miami or fine craft fairs around the Northeast, international symposia in Europe or Asia. We’ve found that it’s always more fun to travel with a purpose, and weaving together art and travel has been something my wife and I enjoy doing together.

Our marriage is no doubt stronger for having gone down the semi-retirement path. I’m convinced a lot of marriages founder out of need for more time and energy for each other. Finding that time and energy can be so difficult when juggling full-time work, commutes, and the inevitable life-maintenance that everyone has to attend to.

We often look at friends who work full-time, especially those at the lower rungs on the pay ladder, and wonder how people can possibly hold it all together given the stresses. So we’re grateful for the gift we’ve been able to give ourselves of time, and the extra bit of cash it sometimes takes to keep irritants at bay: a parking ticket doesn’t ruin our day or cause us to fight, but the irony is we have more time to drive around to find a parking spot in the first place so the issue just doesn’t come up.

Our social lives are active. We have rich friendships among people and couples of all age groups in our community. We participate in community groups and volunteer for causes we care about. We feel connected to our town and the people in it. We never had time for this when we worked full time. But now I pop up regularly in the local paper because of one project or another. (Usually I’m mentioned for helping to bring sculptor friends’ work to our town for temporary installations around our parks and public areas.)

The Downside to Downshifting

All that probably sounds idyllic — and it is. But there are things cropping up after fifteen years of semi-retirement that are less than perfect. I’m not complaining, but I feel like I should mention these in the interest of full disclosure.

My concerns aren’t financial. We’ve kept our lifestyle in check, so we have enough — and then some. While my aging friends have started to show up with flashier cars (Maseratis and Teslas are “in” with my male peers), and they’ve started buying second and third homes, this isn’t a problem for me. I’m not wired to envy them or to feel left out.

What is concerning, though, are questions of identity and accomplishment. When you leave life in the fast lane a decade or two before your peers, some of the folks you know will go on to become Big Dogs at a time when you’re feeling more like a Chihuahua!

Sidenote: It’s rare to be a Big Dog in the art world, especially for a late-bloomer like me. Most artists subsist on the joy of creating and the satisfaction of nudging a body of work into the public sphere to some admiring fans and a few sales.

I’ve always had the respect of my still-working friends. They like having a window into my aesthetic, alternative lifestyle. They admire the chutzpah it took to walk out on the System and chart my own course. Still, the fact is that on conventional metrics they have gone further and achieved more in their extra years, allowing them now, as they approach traditional retirement age, to play the next few decades at a level I hadn’t really foreseen. That world is now closed off to me.

For example, I have friends who are entering their sixties with large career accomplishments are becoming directors of significant public companies, an ideal semi-retirement role. Others who have done well financially are in a position to engage in philanthropy at a level I simply can’t.

In addition to the genuine good they’re doing through their gifts, they’re invited into advisory roles where they can help steer the vision and activities of their chose charities. This work is deeply meaningful for them. These roles also bring accolades that keep the older semi-retiree feeling appreciated, respected, and useful in a significant way, while remaining connected to other high-achievers.

Because I left the fast lane early, I don’t have as many post-work opportunities.

I’m certainly appreciated and respected in the circles I move in. But those circles sometimes feel rather quiet and small. When I chose semi-retirement fifteen years ago, I understood intellectually that this would happen. I made an intention choice to pursue a quieter, more introspective bath. Yet there’s a sense of loss — of missing out — that comes when you realize certain paths are closed off forever.

J.D.’s note: I’ve experienced this in my own life. When I chose to enter semi-retirement, I left near the top of my field. In the years since, others have produced bigger and better websites. Now that I’ve resumed writing about money, I feel like a young pup instead of a Big Dog. I’m glad for the success of my colleagues, but can’t help wondering what might have been if I’d elected not to cash in my chips.

Know Thyself

Of course many readers will have no interest in embarking on any kind of high-profile semi-retirement activity: “Let me have a quiet place to do what I want and leave the living large to others!”

But plenty of early retirees are able to save big precisely because they’re high-achieving, high-energy people. When they’re done working, they want it all: lots of relaxation while retaining the sense that they’re connected and needed. This simply might not be possible if you drift away from the limelight for an extended period.

Don’t get me wrong: I’m glad I made the change to the slow lane. But before you make the shift, think about your own needs to be useful and/or achieve recognition. Make sure your future is going to be a good fit for you in the long term.

To learn more about Bob Clyatt, check out his gallery of contemporary sculpture. You can buy Work Less, Live More on Amazon or visit the book’s website. Lastly, you might want to check out my review of the book.

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GRS Theater: The parking lot attendant worth half a million bucks

In this week’s installment of Get Rich Slowly Theater, we’re going to look at a real-life money boss: Earl Crawley, a parking attendant from Baltimore. Mr. Earl (as he’s known) was profiled on the PBS show MoneyTrack. Here’s a six-minute segment about this super saver:

Mr. Earl has worked as a parking attendant for 44 years — at the same parking lot! He’s never made more than $12 per hour. He’s never earned more than $20,000 in a year, yet he has a net worth over half a million dollars.

Like many successful folks, Earl started working when he was young. At age 13, he got a job at a produce market to help pay the family bills. His mother took most of his income to help make ends meet, leaving her son with just a few cents out of every dollar. This forced saving plan was the start of a life-long habit.

Mr. Earl says he was a slow learner. He wasn’t very good in school. He had dyslexia, so reading was a struggle. Growing up in the 1950s, there weren’t a lot of opportunities for people in situations like his. He knew he was destined for a lifetime of low-wage jobs, so he decided he’d better save what little he earned.

He and his wife raised three children — and sent them to Catholic school instead of public school — despite their meager budget. (Mr. Earl took extra jobs in order to pay tuition.) Meanwhile, he started investing.

Mr. Earl’s investing habit started small. At first, he put his money into savings stamps and savings bonds. He saved what might have seemed like meaningless amounts to other people, starting with pennies and moving up to dollars. For fifteen years, he invested $25 each month into a mutual fund. His balance grew. By the end of the 1970s, his net worth was $25,000.

Eventually, Mr. Earl decided he wanted to “play the stock market” himself. He began buying shares in Blue Chip companies like IBM and Caterpillar and Coca-Cola. He bought just a share or two at a time, but that was enough. (His first purchase was a single share of IBM in 1981.) His secret?

“Instead of taking the dividends and pocketing it, I let it set — or let it reinvest itself — and increase my shares. The more shares I had, the more dividends I had. And eventually, the more money I had down the road.”

Like any good money boss, Earl built a wealth snowball.

How did Earl become so savvy with money? It’s not just because of habits he developed when he was young. You see, his parking lot is in the middle of a financial district. Over time, he picked the brains of the folks who passed his way. He picked up tips on how to save and invest.

“I talked to everybody and listened to the advice everybody gave me,” he says. Because he had trouble reading, he made a point of listening.

Today, Mr. Earl’s stock portfolio is worth more than $500,000. He owns his home free and clear. He has no debt.

Mr. Earl is a prime example of a money boss. He made the most of the cards life dealt him. He found a way to turn a losing hand into a winner. And now he’s paying it forward, teaching others how to save and invest.

The dude is awesome.

For more about Mr. Earl, check out this short interview at Kiplinger.

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The power of compounding: How your wealth snowball grows with time

So much of financial success involves good habits practiced over long periods of time.

Yes, you can still have a positive impact on your financial future if you’re starting late in life — but if you’re 59 years old and just beginning to think about financial freedom, you have a lot of work to do.

But if you’re 19, you have an extra forty years to set yourself up for financial success. This extra time makes a ginormous difference!

A lot of this is due to the magic of compounding. Over the short term, your investment returns don’t help a whole bunch. But over the long term? Over decades? Wow! Compounding can help you create a truly impressive wealth snowball.

I once received email from a reader named Anders who testified the power of compounding:

I used to save money in funds without knowing more than it gave a better interest than ordinary savings accounts. Then a few years ago I came across a book that explained compound interest and showed graphs of how it works. I was blown away by the idea!

I think, for me, that was the biggest impact on my way of thinking about savings and it got me more interested in the stock market too. So in my opinion, the things people who don’t know too much about savings/investing need to hear is about how compound interest works and how the stock market works.

We’ll leave “how the stock market works” for another day. (If you want to know more right now, check out my articles on stock market returns and how to invest.) Today I want to look at why some folks consider compounding to be the most powerful force in the universe.

The Power of Compounding

On its surface, compounding is innocuous — even boring. How much does it matter if you start saving now? Will it really affect what you can spend in the future?

To illustrate the power of compounding, I spent far too much time playing with spreadsheets. (Seriously. Kim managed to get like three major projects done in the time it took me to generate the following numbers and graphs. But I had more fun.)

Note: All of the numbers that follow are based on certain assumptions. For each of the three asset classes — stocks, bonds, gold — I’m using the long-term average real return: 6.8% for stocks, 2.4% for bonds, and 1.2% for gold. That’s what these investments return over decades (not year to year) after accounting for inflation. However, it’s very important to undertand that average is not normal. Returns can (and do) vary widely from year to year.

First up, here’s a basic look at compounding in action. This table assumes you invested one dollar into each of stocks, bonds, and gold. Based on historical averages, I’ve calculated how much your dollar would have grown to at the end of each year for fifty years:

Compounding $1 Table

As you can see, compounding doesn’t really do much during the first few years. After a decade, your $1.00 would nearly double if invested in stocks. (Remember, this is inflation-adjusted. The nominal number would be greater. But this is what your dollar would be worth.) If invested in bonds, that $1.00 would grow to $1.27. And if you invested in gold? That $1.00 would grow to $1.13. (For the record, my research shows that real estate offers long-term returns similar to gold. Others say real estate returns are worse than gold.)

The longer your money remains invested, however, the more powerful compounding becomes. After ten years, your $1.00 in stocks grew to nearly $2.00. Afters sixteen years, it will grow to nearly $3.00. In 20 years, it’ll grow to nearly $4.00. In 24 years, it’ll be worth more than $5.00. From there, the growth becomes even more rapid. By year 40 — which, yes, is a very long time — you’re earning more than a dollar every year.

Compounding a One-Time Investment

That’s a fine hypothetical example, but nobody invests just a dollar. Let’s assume instead that you made a one-time $5500 investment in your Roth IRA. How would your future returns on that investment vary depending on where you put the money? Here’s a table that demonstrates:

Compounding a One-Time Contribution (Table)

As you can see, compounding can make a huge difference — especially when time is allowed to magnify the difference in annual returns. (This is one reason index funds outshine managed mutual funds. Index funds, as a whole, earn that 6.8% average annual return that the overall stock market earns. Managed funds earn that less fees, which average about 2%. That’s not much in the short-term, but it’s a huge amount in the long-term.)

For the visual thinkers out there, I’ve created a series of charts that dramatically demonstrate the difference that compounding can make over time.

Compounding a One-Time Contribution (10 Years)

Compounding a One-Time Contribution (25 Years)

Compounding a One-Time Contribution (50 Years)

Over fifty years, compounding can make a dramatic difference if you’re able to earn higher returns on your investments! (Who has a fifty-year investment horizon? Well, your typical college student does, for one.)

The Importance of Saving

Now, it’s often said — sometimes even by me — that your investment returns are less important than your investment contributions. That is, how much you invest matters more than where you invest it. Here, for instance, is an XKCD comic belittling the power of compounding:

XKCD on compounding

How true is that? Let’s look at another hypothetical example.

In this case, assume you invest $5500 on January 1st for the next fifty years. How would your investments grow in this case? Here’s the table:

Compounding Ongoing Contributions (Table)

And here are the charts:

Compounding Ongoing Contributions (10 Years)

Compounding Ongoing Contributions (25 Years)

Compounding Ongoing Contributions (50 Years)

Look at that! Investing more does make a difference. Shocking! Sarcasm aside, there are a couple of things to note about these numbers:

  • First, investing more absolutely produces better results. The more you contribute, the more there is to compound. If you want to build a wealth snowball — and I hope you do — the best thing you can do is invest as much money as possible.
  • Second, when you invest more, you erase some (but nowhere near all) of the difference between the rates of return. Take a look at our one-time investment example. In that situation, stocks double gold by year 13 and they double bonds by year 16. But with ongoing investments, it takes stocks 21 years to double gold and 26 years to double bonds.

Yes, the amount of you save is more important than the returns you earn. That said, there’s no denying the extraordinary power of compounding over time. Real-world numbers bear this out.

A Real-Life Example

Finally, let’s look at a real-life example or two. These are actual numbers from actual accounts.

To start, here’s the balance history for the 401(k) I started back when Get Rich Slowly was throwing off huge wads of cash:

Real-World Compounding on My 401k

The blue line represents my actual balance over time; the orange line represents my balance if I had not been invested. (In other words, if I were earning no return because I stuffed my money under a figurative or literal mattress.)

I’ve contributed a total of $60,518 to this 401(k) since the end of 2008. In that time, it’s grown $117.121.19 so that my balance today is $225,331.75. That’s 193.5% growth in just over eight years (or 12.31% annually).

Here’s a second example, this time with the moved money from my box factory retirement plan to a rollover IRA:

Real-World Compounding on My IRA

Here, I’ve contributed a total of $65,027.41 to the account — most of it in 2009, but a few thousand just last month. (I closed a smaller IRA and moved the proceeds to this account.) In that time, I’ve gained $86,425.88. That’s 132.9% growth (9.73% annually) in under eight years — all because of compounding.

The Bottom Line

Based on all of this, there are three keys to make compounding work for you:

  • Start early. The sooner you start, the more time compounding has to work in your favor, and the wealthier you can become. The next best thing to starting early is starting now. Yes, if you start investing at age 19, you’ll enjoy better results by the time you’re 65. But even if you’re 59, compounding is your friend and you shouldn’t hesitate to invest.
  • Stay disciplined. Make regular contributions to your savings and retirement accounts, and do what you can to increase your deposits as time goes on. Your goal should be to generate as large a saving rate as possible, to widen the gap between what you earn and what you spend. Don’t be tempted to cash out a retirement account when you switch jobs. I see so many people make this mistake, and it makes me want to cry. Don’t be tempted to sacrifice your future security for a few bucks today.
  • Be patient. Don’t touch your investments. Compounding only works if you let your money grow. Remember: You’re creating a wealth snowball. At first, your returns may seem small, but they’ll become enormous as more money accumulates.

Do these things, and your wealth snowball will grow. Sure, there might be some years where your investment balance decreases rather than increases. Again, that’s normal. The examples I’ve used here assume stocks, bonds, and gold return a stead annual average. They don’t. Their returns fluctuate — sometimes wildly. But, over long periods of time, your investment accounts should steadily swell.

For a brilliant example of compounding in real life, turn to American statesman Benjamin Franklin. When he died in 1790, Franklin left the equivalent of $4400 to each of two cities, Boston and Philadelphia. But his gift came with strings attached. The money had to be loaned out to young married couples at five percent interest. What’s more, the cities couldn’t access the funds until 1890 — and they couldn’t have full access until 1990. Two hundred years later, Franklin’s $8800 bequest had grown to more than $6.5 million between the two cities! True story.

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Your saving rate: The most important number in personal finance

In order to survive and thrive, you need to earn a profit.

You already know profit is the lifeblood of every business. It’s like food and water for the human body. Although proper nutrition isn’t the purpose of life, we couldn’t exist without it. Food and water give us strength to do the stuff that matters most. So too, profit isn’t necessarily the purpose of business — but a company can’t survive without it.

Here’s a secret: People need profit too.

In personal finance, “profit” is typically called “savings”. That’s too bad. When people hear about savings, their eyes glaze over and their brains turn to mush. Bor-ing! But if you talk about profit instead, people get jazzed: “Of course, I want to earn a profit! Who wouldn’t?”

Profit is easy to calculate. It’s net income, the difference between what you earn and what you spend. You can compute your profit with this simple formula:


If you earned $4000 last month and spent $3000, you had a profit of $1000. If you earned $4000 and spent $4500, you had a loss of $500.

There are only two ways a business can boost profits, and there are only two ways you can boost personal profitability:

  • Spend less. A business can increase profits by slashing overhead: finding new suppliers, renting cheaper office space, laying off employees. You can increase your personal profit by spending less on groceries, cutting cable television, or refinancing your mortgage.
  • Earn more. To generate increased revenue, a business might develop new products or find new ways to market its services. At home, you could make more by working overtime, taking a second job, or selling your motorcycle.

When you earn a profit, you don’t have to worry about how you’ll pay your bills. Profit lets you chip away at the chains of debt. Profit removes the wall of worry and grants you control of your life. Profit frees you to do work that you want instead of being trapped by a job you hate. When you make a profit, you truly become the boss of your own life.

With even a small surplus, the balance of power shifts in your favor.

Tom the Turtle: Profit is Power

The Most Important Number in Personal Finance

If you’ve ever calculated your net worth, you know that number is a snapshot of your current wealth. But it’s more than that. Your net worth is the grand total of years (or decades) of profits and losses.

As the authors of Your Money or Your Life put it, “[Your net worth] is what you currently have to show for your lifetime income; the rest is memories and illusions.” Ouch!

Your Money or Your Life: 9 Steps to Transforming Your Relationship with Money and Achieving Financial Independence: Fully Revised and Updated Price: $10.21 Disclosure: If you follow this link and make a purchase, Get Rich Slowly earns a commission (at no additional cost to you).

The greater the gap between your earning and spending, the faster your net worth grows (or shrinks). This may seem obvious, but it’s important. Everything you do — clipping coupons, asking for a raise, saving for a retirement — should be done to increase your profit and wealth.

But profit doesn’t mean much on its own. Is a $1000 monthly profit good or bad? Well, it depends on your circumstances.

  • If your income is $2000 per month (or $24,000 per year), a $1000 monthly profit is great. That’s a saving rate of 50%. Congratulations!
  • On the other hand, if your income is $20,000 per month (or $240,000 per year), a $1000 monthly profit gives you a saving rate of 5%. That’s average at best.

You see, it’s not your total income that determines how wealthy you are and will become. Nor is it your monthly surplus. No, the true measure of progress is your saving rate — how much you save as a percentage of your income.

In business, saving rate is called profit margin. I think it’s useful for everyday people — especially folks who have decided to act like the CFO of their own lives — to think of saving rate as profit margin too.

Pull out your personal mission statement. Look at your goals. Your profit margin directly affects how quickly you’ll achieve these aims. A saving rate of 20% will allow you to reach your destination twice as quickly as a saving rate of 10%. And if you can save 40% or 60%, you’ll get there even quicker.

The growth of your wealth snowball is directly dependent on the size of your saving rate.

Profit is Power

Now I’d like you to meet my friend Pete:

Mr. Money Mustache

Some of you may know Pete as Mr. Money Mustache.

Pete’s personal mission is to enjoy a rich life with his small family in a small house in a small town in Colorado. He wants to pass his days slicing through canyons on his bicycle, building things in his workshop, and sharing quiet moments with his wife and son. And Pete doesn’t want to be tied to a job.

Following the standard advice to save between 10% and 20% of his income, it would have taken decades for Pete to achieve these goals. Pete is an impatient man. He didn’t want to wait that long, so he deliberately pumped up his saving rate.

After college, Pete and his wife worked long hours at jobs that paid well. They moved to a town where the cost of living was low and they could bike anywhere they needed. They bought a modest home. The Mustache family generated a lot of revenue while keeping overhead low.

As a result, Pete and his wife set aside more than half of their combined take-home pay. After ten years with profit margins near 70%, they were able to “retire”. He was thirty years old. Now, a decade later, Pete and his wife continue to pursue their mission, happily ignoring detractors who say what they’ve done is impossible.

The more you save — the higher your profit margin — the sooner you can have the things you really want out of life.

This is the bottom line, the entire thesis of the Money Boss method: Profit is power.

Profit is Power

Computing Your Profit Margin

My mission at Get Rich Slowly is to give you the power to choose the lifestyle you want. That means helping you boost your saving rate. If you promise to do the work needed to generate greater “profits”, I promise to share the strategies and mindsets that will help you do so.

To find your current saving rate, you need two other numbers: your monthly income and your monthly expenses. For now, let’s look at only last month. (You’re free to run the numbers on past months or years, but for this exercise last month is enough.)

Here’s how to find your income and expenses:

  • If you’re a money geek who already generates a monthly income statement (a.k.a. profit-and-loss statement), just grab your total income and total expenses from the form.
  • Many of you track your money in Quicken or through services like Personal Capital. These too make it easy to find your monthly income and expenses. Some will even compute your profit for you. Here, for instance, are my own numbers from Personal Capital. You can see I had a $3214 profit in this example month, which means my saving rate was about 32%. (By the way, these numbers aren’t normal for me. Both income and spending were high!)

Monthly Cash Flow

  • If your finances aren’t yet automated, it’s not too tough to run numbers by hand. Collect your brokerage, bank, and credit-card statements from last month. Use these to total your income and expenses. (You shouldn’t have to do this line by line. Most statements total income and expenses separately in some fashion.)
  • What if you don’t track your money? Start! If you owned a business, you’d keep books. Well, a money boss keeps books too. It’s the only way to spot trends and to measure progress. Pick a tracking method — many GRS readers like YNAB — and make tracking part of your weekly financial routine.

Now it’s time for a little math. To find your monthly profit, subtract your income from your expenses. (If your income was $3500 and your expenses were $3000, your profit was $500.) To find your profit margin (or saving rate), divide your profit by your income. (Using the previous example, you’d divide $500 by $3500 to get 0.14286 — a profit margin of 14.3%.)

Burn this number onto your brain. We’re going to spend the months and years ahead making your profit margin grow.

If you want to get fancy, run the numbers again. This time subtract your mortgage and car loan and credit-card payments (and so on) from your expenses before calculating profit and profit margin. See how much profit you’ll have once you’ve paid off your debt? Cool, huh?

Note: During the month of March, I’m migrating old Money Boss material to Get Rich Slowly — including the articles that describe the “Money Boss method”. This is the third of those articles.

Look for further installments in the “Money Boss method” series twice a week until they’ve all been transferred from the old site.

The post Your saving rate: The most important number in personal finance appeared first on Get Rich Slowly.

Hello, former readers. Get Rich Slowly is back — and so am I.

Hello, and welcome back to Get Rich Slowly!

My name is J.D. Roth, and I founded this site in 2006. I sold GRS in 2009, but I bought it back last autumn. I’ve been publishing new material regularly for the past five months. It’s been awesome!

This announcement will seem strange to folks who have been following along since last October. I apologize. However, I just now reclaimed the old subscription management account from the site’s previous owners. That means — in theory — that when I publish this short blurb, up to 120,000 former RSS subscribers will suddenly discover that I’m back and that the site is back.

Plus, if things work correctly, another 28,406 people will get an email tomorrow morning letting them know that GRS has returned from the dead. This announcement is for these former fans — not for the people who have been reading right along.

(There’s a distinct possibility that nobody will see the announcement because I’ve reconnected things incorrectly. If that happens, I’ll have to make fixes then re-announce.)

If you are a former reader who is shocked to see this news in your inbox, welcome back! Look around. I hope you’ll be pleasantly surprised to see that GRS has awoken from hibernation, and that we’re publishing awesome articles. There’s a lot of maintenance to be done behind the scenes to get the site modernized, but we’re working on it.

As part of this process, the old email system is going away. (It’s been dead for several years, anyhow.) If you’d like to read Get Rich Slowly by email, subscribe to the GRS newsletter here. Every Friday, I send an update profiling three of the week’s best blog articles plus three additional outstanding money-related stories from other sites. I hope the 6692 people who currently subscribe to the newsletter would agree that it’s both useful and fun.

In any event, welcome to all readers — new and old. I’m grateful to have you here.

The post Hello, former readers. Get Rich Slowly is back — and so am I. appeared first on Get Rich Slowly.

Traditional advice is wrong: Here’s how much you actually need to save for retirement

I’m generally an even-keeled guy. I don’t get worked up about much. I understand that different people have different perspectives, so I try to be respectful when others disagree with me. Having said that, there are indeed certain things that piss me off.

For instance, I get mad-dog lathered up at traditional advice about how much to save for retirement, such as this article at Business Insider (echoed here at The Wall Street Journal):

So how much are you supposed to be saving in order to finance 20 to 30 years post-work? The commonly accepted rule of thumb is that you’ll want about 70% of your former annual income — at least — to continue living at or near the style to which you’ve been accustomed.

Let me be blunt: This rule of thumb is asinine.

This “rule” (which is used by most retirement calculators, both on the web and from financial planners) estimates how much money you’ll need by using your income as a starting point. The 70% ratio is commonly used, but plenty of places use 80% or 90%. Regardless the percentage, estimating your retirement spending from your current income is ludicrous. It’s like trying to guess how much fuel you’ll use on a trip to grandmother’s house based on the size of your vehicle’s gas tank!

  • Say you make $50,000 a year but spend $60,000. In this case, your income understates your lifestyle by $10,000 a year. If you based your retirement needs on your income, you’d be screwed.
  • On the other hand, if you’re a money boss who saves half what she earns, you’d only spend $25,000 of a $50,000 salary. Basing your retirement needs on your income would cause you to save much more than you need. You’d be working long after the point at which you could retire safely.

Predicting how much much to save for retirement based on income makes zero sense. (Zero!) It’s one of those pervasive financial rules of thumb — such as “buy as much home as you can afford” — that does more harm than good. There’s a real danger that if you heed this advice you won’t have enough saved in retirement. If you’re proactive like many Get Rich Slowly readers are, you run the risk of saving too much, meaning you’ll miss out on using money to enjoy life when you’re younger.

Instead of estimating how much to save for retirement based on your income, it makes far more sense to plan your retirement needs around your spending. Your spending reflects your lifestyle; your income doesn’t.

So, how much do you need to save for retirement? How much will you spend? It depends.

For many people, expenses drop when they stop working. They drive less. The kids are out of the house. The mortgage is gone. And, ironically, they no longer have to save for retirement. Meanwhile, other expenses increase. (Most notably, health care costs tend to balloon as we age.)

That said, it is possible to get a general idea of how much you’ll need in the future. According to the 2016 Retirement Confidence Survey: about 38% spend more in retirement than when they’re working. 21% spend less, and 38% spend the same. Past iterations of this survey have shown that roughly two-thirds of Americans spend the same (or only slightly different amounts) during retirement as they did while working.

Translation: In general, your pre-retirement expenses are an excellent predictor of your post-retirement expenses. That’s why I prefer this rule of thumb: When estimating how much you need to save for retirement, assume you’ll spend about as much in the future as you do now.

Forget the “70% of your income” bullshit when planning for retirement. Use 100% of your current expenses instead.

When I originally published this article at Money Boss in July 2016, financial planner Michael Kitces — who has an awesome blog — sent me a note to explain why advisors use the “70% of your income” rule. The answer? “Because it works.”

Generally speaking, the 70% of income replacement ratio works because once you subtract taxes and work-related expenses (plus savings), it’s close to 100% of expenses in most cases. I still think this is a crazy way to come at it — why not just use 100% of expenses? — and that it’s completely off-base for folks with high saving rates. For more on this subject, check out Michael’s article in defense of the 70% replacement ratio.

The post Traditional advice is wrong: Here’s how much you actually need to save for retirement appeared first on Get Rich Slowly.

Mind-boggling sale on digital comics at Amazon!

Okay, I know this is sort of strange thing for me to post at Get Rich Slowly — although it’s not really that strange if you’ve been reading me for any length of time — but this afternoon, I want to share a mind-boggling deal on digital comics at Amazon.

I’ve been reading comic books all of my life. Over the course of 40 years, I built a masssive (and valuable) collection. Then, about five years ago, I sold most of my comics. I only kept the non-valuable stuff that had nostalgic value. (My complete run of Micronauts, for example. I love Micronauts.)

That said, I’ve continued to read comics on my Kindle. They’re cheaper than physical comic books and they carry less mental baggage.

Generally speaking, a collection of digital comics runs about $8 to $12 for a book that contains maybe ten individual comic books. That’s not a bad deal, but it’s not such a good deal that I can spend indiscriminately.

Right now, however, Amazon is having some crazy sale that I cannot fathom. A few hundred Marvel comic compilations — there doesn’t seem to be a rhyme or reason as to the selection — are on sale for ninety-nine cents each.

My fellow nerds in the comic book forums cannot believe this deal either:

Comic Book Deals!

I’m sorry, but this is like a once in a lifetime deal. I feel like I would be a bad blogger if I did not share this news so that my fellow nerds could take advantage. I have zero clue how long the deal will last. I only know that it’s been around since Monday. In the past 48 hours, I’ve spent $72 on comic compilations, but that $72 has netted me 73 books (or about 730 individual comics).

Here are some examples of the stuff that’s on sale:

There are many more titles available with this ninety-nine cent sale, but I’ve reached the end of my patience (two hours) typing these out. Feel free to browse.

If you want to take advantage of this sale, I suggest you do what I did: After you follow a link to something you like, root around the suggested items to find other ninety-nine cent gems.

As soon as I hear that this deal has gone away, I’ll pull this post. Non-nerd readers, I apologize for taking up your valuable time. Fellow nerds, rejoice!

The post Mind-boggling sale on digital comics at Amazon! appeared first on Get Rich Slowly.