Being an owner requires us to make a decision to purchase something, in a purchase we are choosing to exchange or trade one thing for another. In our modern world we use government backed notes to facilitate trade of goods or services. Unfortunately many in today’s society choose to not take ownership of their decisions and actions but instead place that power into the hands of government. In a free market society, prices are determined on what an individual is willing to pay for another individuals goods. However when things are given out for free, it takes away both the decision of the individual who is purchasing the goods and the person who is selling the goods. We could look at any government subsidy from housing projects to social security and see how it has caused a ripple effect in not only the markets but in society. Any time you take from or force someone to pay for someone else’s goods you take not only their drive but the pride of ownership. Pride in ownership is what drives us to innovate and create new and better products and services, it is also what drives us to work towards acquiring something we value. When one party is forced to pay through taxation for another party to enjoy something they did not work for it hurts both parties, the person being taken from loses drive and motivation to continue to create because they know that what they acquire from their efforts will be taken and the person receiving something for free is having their drive and motivation to earn taken from them. In my beautiful state of Tennessee they have decided to allow every resident to attend a two year college for free. At first glance it seems like a huge blessing but let’s take a closer look. First I like many fathers have saved in a 529 college savings account to pay for my kids education, I could have allocated that money to many other investments. Second it devalues the associate degrees of everyone who had to pay for their degree. It will also cause the students receiving the free degree to not appreciate the degree as much and most likely cause the colleges to jack up tuition rates because now they have the tax payer footing the bill. It will also cause the associate degree to be worth no more than a high school diploma and require this generation to attend a four year university to have any chance at a decent paying job, this is already happening as student loans have become so easily attained.
When someone decides to become a true owner of their life and decisions, they realize that nothing is free no matter how easily it may seem to acquire. To be an owner of life you need to own every decision you make. Own your choice to eat healthy, to exercise, to save money, to not go into debt, to plan for retirement and not expect other fellow citizens to pay for your life. In this blog I hope to not only educate people on saving and retiring but on the importance of owning everything they do. If you can’t afford something DON’T buy it. If you want to have nice things earn them, if you want to retire with confidence and dignity earn it. Being an owner starts with educating yourself so you can make smart decisions and then having the self control to live within your means.
Early retirement is all about living below your means and saving a large portion of your income. This has a huge snowball effect. First saving at least 30% of your income creates a huge cushion between your income and bills so that if anything ever happened you can weather the storm. It also means that when you retire you don’t need your current salary to live off you only need 70% of it. Second the large savings rate allows you to amass a large portfolio of assets that will eventually pay for your lifestyle without you having to trade time and energy to someone else for their goods. Let’s look at a quick example. Joe earns $45,000 a year and wants to retire as soon as possible. Joe saves 30% ($13,500) of his income in pre-tax accounts, $45,000 – $13,500 = $31,500. Joe uses his company’s 401k plan and they happen to match his contributions up to 3%, so now Joe is really saving around 33% of his income ($14,850) and only needs $31,500 to live off to support his current lifestyle. Most financial experts agree that 4% is a safe number to pull out of your retirement account without running out of money, this is based on the market earning a much higher return on average than 4%, in fact many times people will end up with more money after 30 years of retirement than they started with even after withdrawing 4% a year to live off. So how much does Joe need to save to retire? Lets say 25 times his current cost of living, so $31,500 x 25 = $787,500 is what Joe needs to have in assets to never have to trade time or effort for money. Let’s assume Joe invest mostly in stocks due to his age so we will say he set his 401k at 80% stock and 20% bonds, let’s also assume he will earn an 8% average return per year on his investments. In 15 years Joe will have saved/earned $482,572. So lets assume Joe is now 35 with no debt, he has paid off his student loans and has 15 years worth of equity in a home, if he sells the home and buys something smaller that is fully paid for he will effectively have no bills. Joe could now pull out almost $20,000 a year to support himself with. If Joe originally needed $31,500 to live off to pay for student loans and a mortgage he should be fine with $20,000 a year and no bills. Now Joe could retire at 35 years old and not worry about a thing or he could decide to work part time or take a job he loves doing. If Joe decided to continue working till 40 he would have $803,146 saved which would give him $32,000 to live off of, now with no bills Joe could pretty much do anything he wants because now he has $32,000 of pure disposable income and not just earnings. Joe got here by making good decisions about savings and debt. Saving can be a tough decision in the beginning because you don’t see many gains from your investments and you see all the things you are forgoing purchasing but as your investments start growing the power of compound interest begins to take over and eventually your savings are earning more per year than you are by laboring. How is this possible, well the free market system allows us to invest in companies run by individuals that require capital to innovate and invent new products and services that others can purchase, this cycle then creates jobs and opportunities for others to work at these companies and begin investing in the greatest economy ever known to mankind. This wouldn’t be possible with a barter system because items don’t meet and discuss how to increase profits for shareholders. If we had taken all incentive away from Joe to save because he knew it would be taken to give to someone else he wouldn’t be in this position, in fact he would probably say what’s the point, I’ll just let someone else earn and take from them, unfortunately if everyone adopts that viewpoint eventually there aren’t any earners to take from.
So in life choose to an owner and not a taker, choose to own all your decisions and be accountable for them. If your life isn’t what you want it to be take control of it and make it better. Once you improve your life I think you have an obligation to help others improve theirs by teaching them to be owners.