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A recent paraphrase from a Beginner Mustachian:“Hey MMM. I can see the financial benefits of your lifestyle. But I just have different tastes. I like my better wine, and my husband really likes his books and his iPad. So we figure that if we would really enjoy something, we might as well get it. And, you know, at this stage we can really afford it.”
– person who still has mortgage debt and a cost of living that will require them to work for the next 20 years.
Mustachians like you and I are engaged in a lifelong process of increasing our wealth.
In the beginning stage, the goal is mostly monetary wealth, and I see no problem with that. Money is a big and exciting part of our culture. And most of us start out with our arms and legs tangled up in the stuff to the point that it is a source of stress, status, and a loss of autonomy. The need for money is forcing us to set alarm clocks and drive to other cities every morning, give up on the chance of raising our own kids, and sign up for terms of voluntary slavery that can extend 45 years or longer. When you arrive at the door of the Temple of Mustachianism in this condition, it is natural that you’ll have your mind on your money and your money on your mind.
But as powerful as the problem of money seems to a beginner, there really is a solution. Applying the principles of this blog (or many of the other books and websites on financial independence) will almost certainly make you wealthy enough to be free from the need to work for money in a reasonable amount of time.
But then what? The pursuit of wealth still continues, but it just moves to the higher level of accumulating Life Wealth. Freedom, self-actualization, learning, generosity, and other fancy stuff that seems like an untouchable luxury to someone who is struggling to survive, will become your day-to-day challenge. And it’s a happy place, although not one without its own pitfalls.
Now that I’m really old (38 next month), I’ve had a chance to study both sides for quite a few years. And there really is a pattern that shows up as people transition from desperate consumer to seasoned retiree.
That pattern could be summed up like this: “Getting rich is more mental than it is tactical“.
When people first start reading up on how we’re all becoming rich here, their first questions are ones like these:“How could I possibly live on 50% of my income? Or 25%?”
“How can I cut costs? What are your top three tips?”
“Why is your electric bill a third of mine, and your grocery bill half?”
“How will you pay for your healthcare? Your son’s education? Valuable travel experiences?”
They’re all good questions. But you’ll notice that they are tactical in nature. People want tips and recipes for saving money.
Solid tips are valuable resources, but they work a lot better if they are combined with changes to your mind that make the tips turn into real improvements in your lifestyle, rather than temporary deprivations which are simply means to the end of getting more money in the bank.“What do you mean, changes to my mind? We’re all born with a certain mind, and it’s fixed for our whole lifetimes. I just want the money-saving tips please, Mustache.”
If you find yourself agreeing even remotely with that statement, I’m excited on your behalf, because it means we have a lot more to learn together.
Even if you’ve never heard of the ancient art of controlling your own mind, that doesn’t mean your noggin is an untouched virgin which has never been modified. It just means that until this point, someone else has been doing all the controlling. Your cultural values and beliefs, your attitudes towards hard work and struggle, and virtually all of your desires to own anything, from a certain style of house to a vacation destination, have been programmed into you by the outside world. Most of your desires are not your own!
To balance the scale a little, all you need to do is understand that you can program your own mind in completely the opposite way. You can build habits, you can eliminate most of your irrational fears, and you can even eliminate most of your irrational desires. The idea of programming your own mind is extremely powerful, it has been practiced since even before the ancient Greeks (see: Stoicism), and it’s relatively easy to do. And yet it’s a practice so rare that the standard Joe Consumer type will think you are a magical superhero if you have the ability to do it. Don’t believe me? Check out this quote:A man is rich in proportion to the number of things he can afford to let alone.
Old-time Mustachian H.D. Thoreau, 1817-1862
Is this antique, folksy wisdom that no longer applies in the modern world now that iPads have been invented? Or is Thoreau actually a mind-control badass who figured something out that most people who have come after him have forgotten?
The answer is of course option b). You really ARE rich according to how many things you can train yourself NOT to want. But note that this is completely different than just perpetually wanting things, and aching inside every time you can’t buy them. It’s a much more powerful skill.
One of my friends has a $75,000 motorboat. I have more than enough money to buy a boat just like his and park it next to him in the marina. I wouldn’t even have to come out of retirement to be able to afford this purchase. But yet somehow, I don’t even want a motorboat. Even with ten times my current wealth, or one thousand times, I still would not want the boat, or a luxury car, or even a bigger house.
This freedom from desire is actually making me richer, because it allows me to focus on things other than things. And as it turns out, wanting less is an age-old recipe for having a much better life. But to believe it, you need to have control of your own mind at first. So let’s start getting some of that control right now, with a couple of examples.
Let’s suppose you want the latest iPad. You want it because it is convenient to be able to look at pictures and websites and books and play music around the house. Sure, you already have other computers that do those things, but the iPad is special because it lets you do them while holding it in one hand, sitting on the couch.
Wow, that couch is pretty convenient too, isn’t it? It is comfortable, enjoyable, convenient, and joyful to sit and lie on your couch. In fact, wouldn’t it be best to just lie on that couch all day? Forever? Yeah! Maybe you could even hook it up with a catheter and a bedpan, and a friend or robot could bring you all your food on the couch too. With each release, the latest iPad could be delivered to you, and you’d have the most convenient and comfortable and effort-free life ever.
Maybe you were with me for the first bit of that paragraph, but it probably lost its appeal by the time we reached the end, right? And indeed, with proper understanding, almost any consumer purchase (and almost any bad habit) these days, beyond the necessities, should start to sound like a catheter and a bedpan to you.
“I really like my Land Rover, and I deserve it because I’m a big executive now. It’s much faster than biking those five miles to work. Especially since I don’t want to arrive at work all sweaty”. Uh-huh. And it’s much more convenient than a compact hatchback, because you don’t have to bend your knees to get into the driver’s seat. And you no longer have to wait a whole ten seconds to accelerate to 60MPH, because it has a big enough engine to pull its enormous bulk to that speed in only six seconds. Would you, by any chance, like a catheter and a bedpan to go with that?
“I like running my A/C at 72 degrees, because it’s just so nice to come in out of the Texas heat into a fresh, cool house. Then I do the laundry and use my electric clothes dryer to get crisp, hot clothes ready to wear without all that hassle of hanging them up to dry”. Uh-huh. If only your clothes were equipped with catheters and bedpans, then you’d really be set, wouldn’t you!?
We could go on and on with this theme (and you’re welcome to do so in the comments, because I find it pretty funny). But the bottom line is, virtually everything we buy is actually a form of false happiness, a slippery slope that ends at the catheter and the bedpan, and the earlier on the slope that you catch yourself, the richer and happier you will be.Mental Exercise: The next time you really want to buy some sort of treat for yourself, whether it’s a latte or a Mercedes, try the trick of not buying it instead. Mockingly offer yourself a catheter and a bedpan as a substitute.
Then over the coming months, make a note of your feelings of desire for that item you skipped. How do you feel about not owning it? Are you happy? What are you doing with the time and money that would have been spent in acquiring that item? How do you feel about the accomplishment of voluntarily controlling your urge to buy something? Do you feel more in control of your life in general? Repeat the experiment with more items over time, and note the change in your feelings
Once you master this basic mental framework, you are truly ready to breeze through the tactical aspect of getting rich. Now that you know that virtually no purchases, regardless of their convenience or enjoyability, will actually make you happier, you can instead make the decision based on whether or not you can afford it.
You just need a new definition of “can I afford it?”
If you still need to work for money, or at the very least, if you’re not saving at least 50% of your take-home pay, you can not afford it. Where “it” is anything.
In certain cases, you will still buy things you can’t afford. Groceries are a good example. A bike is another one, because like all good investments it earns you money rather than costing you. Housing, clothing, and plain old FUN with your friends and family are also things worth buying when you can’t afford them. But your decision-making process will simply be made differently – you’ll be maximizing the Lifetime Wealth delivered by each spending decision, rather than the convenience or short-term pleasure.
You’ll have more fun in both the short term and the long term. You just won’t have as much of that catheter-and-bedpan “convenience” we’ve all been spending our money on up to this point.
Only by gaining control of your mind and the conveyor belt of false desires it serves up, can you get true freedom in your life. Freedom, unlike convenience, can really bring happiness. It’s a bit dizzying, and maybe even a bit difficult. But once again, it is the good kind of difficulty.
So who is up for some difficulty?
(Image Credit: Stef Schrader)
An Acura NSX is a nice place to sit. You ride low in a comfortable leather-wrapped cockpit designed for driving pleasure and speed. But when you know what that 573 horsepower supercar is capable of, being forced to drive it slowly and responsibly over normal city roads is the worst.
(Full disclosure: Acura flew me out to the Seattle area and paid for food, travel and lodging to test out their new MDX Sport Hybrid. They also briefly let us drive their other hybrid cars, including the NSX.)
While we were testing the MDX Sport Hybrid, Acura let us out for a short loop around the little town of Snoqualmie, Washington, in the 2017 NSX at our trip’s mid-way point. This was ostensibly to “see how the hybrid system worked” and actually to get us hyped up about Acura’s awesomeness. (It worked.)Photo credit: Stef Schrader
Perhaps if you left the NSX in silent mode, driving through town would be okay. Silent Mode only uses the car’s electric power, which makes it soothingly quiet and tame. There are no noises emanating from the NSX’s 3.5-liter mid-mounted V6 to remind you that it’s there, yearning for full throttle.
Like the MDX, the NSX has several drive modes. I enjoyed its most aggressive setting, Sport+, the most, as it was the loudest and most responsive. There was an even fiercer, stiffer and faster Track Mode we didn’t get to test, but that sounded relevant to my interests and where I’d rather be driving this car.
The knob that swaps to the more aggressive drive modes sits right in the middle of the dashboard, and it’s huge. It’s even fun to use. Rotate it over and pop! You’re in the fun zone.
It’s large, shiny, and tempting to twist. Anybody remember Ren and Stimpy’s History Eraser Button? Sure, you’re told not to fool with it, but come on...
You want it in Sport+ mode. The knob knows it. You know it. Twist it, and hoon.
If you’re in even the tamest of the regular, non-electric-only NSX drive modes, the car is a tease. Tantalizing noise gets piped back into the cabin for maximum loudness. The steering is responsive, and the brakes are reassuringly grabby. The whole package feels overkill at normal road speeds.
Worst of all, I used to live in the Seattle area, and part of the loop we drove was on a road that went straight to Pacific Raceways in nearby Kent. That’s right: a magical land where you don’t get tickets for speeding was within my grasp, but I wasn’t there. That fact alone was torture.
Places like Pacific are the NSX’s natural habitat. On normal roads, you can have some fun flooring it up to 40 or 45 mph or whatever the speed limit is, but that’s kind of a knob move. Certain less populated spots on our loop allowed me to press the throttle down and giggle like a madwoman, but I felt shorted when I had to lift off so as not to exceed the speed limit. It’s the world’s biggest bummer.
In a normal car, that kind of floor-it-everywhere thing is easy to resist, but the NSX’s engine growl and rush of torque encourage you to act a fool in every single way possible. It plants you back into your seat. It’s fun.
Perhaps this is the problem with the modern supercar. They’re brilliant on race tracks, twisty roads and even out on the open highway. The NSX is even comfortable inside. The ride is deceptively smooth, and you could even daily drive it with ease if you’re just hauling yourself and another person.Another NSX on the trip. Photo credit: Stef Schrader
Supercars also have a spectacle-factor that’s undeniably kind of fun. The mere presence of such a rare car can put a big, dumb grin on someone’s face. In a more populated area, I probably would’ve enjoyed making a few car geeks’ day in Acura’s latest, greatest supercar.
However, for our short loop through a small town, I actually would rather have been in something with a lower limit of capability. If I have to behave myself, I need something that’s more engaging at low speeds. Less power that forces me to rev the snot out of every gear is always a solid bet for low-speed action. You can’t do that in the NSX. The NSX’s limits are so high that even on wet roads, it practically begs for a reprise of Patrick George’s article about getting jailed in Virginia. At low speeds, the NSX is mostly a big, shiny reminder that you’re not having enough fun.
Too Good For Its Own GoodThe 2017 Acura NSX Was Absolutely Worth The Wait How The New Acura NSX Compares To The Original Yes, The 2017 Acura NSX Can Beat The Nissan GT-R
House prices, mortgage balances, and debt-to-income ratios get all the headlines, but car loans have quietly emerged as one of the major risks to Canadians’ household finances.
We’ve seen a concerted high-profile effort from Ottawa to limit the ability for Canadian home buyers to stretch themselves too thin, including limits for federally-regulated mortgages, increased minimum requirements for down payments on more expensive homes, and stress testing of applicants when qualifying for mortgages.How to prevent buying more car than you can afford (The Globe and Mail)
In the meantime, auto-loan amortizations have gone off the deep end. Nearly three-quarters – 72 per cent – of new-vehicle loans taken out in Canada last year were for six years or longer, according to market research company J.D. Power.
To get a sense how much new vehicle financing with amortizations of five years and under has dropped and how much so-called “super-amortized” new vehicle loans have risen, consider the following data from J.D. Power.
From 2011 to 2016, seven-year vehicle loans, as a share of all new-vehicle loans issued, jumped to 44 per cent from 31.7 per cent. Eight-year loans? They rose to more than 10 per cent from 2.2 per cent.
Conversely, the good ol’ five-year car loan dropped in share to 18.7 per cent from 29.9 per cent.
The Financial Consumer Agency of Canada also released a report on trends in the auto finance market, in February of 2016. Among the alarming findings is the increased number of consumers trading in old cars with negative equity. That means that instead of getting a credit for the value of a trade-in to put towards their next car, they owe more than the car is worth.
It has become common to roll this negative equity into new vehicle loans, and buying a $30,000 car can now, for example, come with an initial loan balance of $35,000. In fact, the average amount of negative equity rolled over into a new car loan stood at $6,659 in 2016 according to Canadian data from J.D. Power. To clarify, that data only refers to those who are underwater at time of trade-in.
I’m a staunch believer that you shouldn’t borrow to buy depreciating assets, such as cars. It used to be common sense that if you didn’t have enough money to buy something that didn’t retain its value, that was a sure sign that you couldn’t afford it. And in spite of years of lacklustre economic and wage growth, we’ve seen four consecutive years of all-time vehicle sales records.
Indebted drivers whose current vehicles are on their last legs have a choice: continue on the treadmill of continuously financing every single car you’ll ever own, or make a change.
Maybe that change should be a big one. Like buying one of the least expensive cars. If you don’t have a large family, and often find yourself wondering why you’re surrounded by vehicles where humans take up less than 10 per cent of the seating and storage space in rush hour traffic, go small. Really small.
The convenience factor of a small car is underappreciated. It’s easier to find parking. They tend not to have a lot of grunt, so they consume less fuel. They are cheaper to insure. And the financial savings can change your life. The speed limit for them is the same as it is for a high-end vehicle.
Full disclosure: Nissan Canada invited me to drive a race-prepared version of their Nissan Micra, a car that has a starting MSRP of under $10,000, during a full blown race weekend, so I’m going to use the street version of that car as an example of how one could overhaul their finances, although you could consider any other small car.
The Micra is one of the least expensive new cars available on the market, starting at a paltry $9,988. After adding taxes and fees, and factoring in incentives, an Ontarian could drive it off the showroom floor for $11,713.
Using the average loan payment for a new vehicle in 2015, $570 a month, for one of the 44 per cent of new-car loans in 2016 that were for seven years, let’s see how our cash flow would be affected if we only had to finance $11,713.
Simply matching the amortization of seven years would require a monthly payment, including tax, of $167. Factoring in insurance and fuel savings might save another $40 per month, for a total monthly savings of $443. That would free up $5,316 per year for each of those seven years, for a total of $37,212.
But what if we opted for the now unconventional three-year loan? Our monthly payment would be $349, and again factoring in the insurance and fuel savings, we end up freeing up $261 per month.
After the loan ends, if we took that $349 monthly payment and committed that to saving up for our next car purchase, and assuming we needed a new car every seven years, we would have socked away $16,752, enough to buy a more expensive car outright. We would have successfully jumped off that auto-loan treadmill, while having freed up money to accomplish other financial goals all the while.
The Micra is just one example of cars we could buy to achieve these kind of savings; there are several other makes of small cars on the market that deliver similar results, such as the Chevrolet Spark, Mitsubishi Mirage and Hyundai Accent.
Pie in the sky? Maybe. But you know what they say. If you want to achieve things you’ve never achieved before, you have to do things you’ve never done before.Report Typo/Error
Follow Preet Banerjee on Twitter: @preetbanerjee