Wrote this in 2016, so it’s fun to look back and reflect on this attitude, my investments, and my time.
I look forward to retirement
Who doesn’t? I recently went on a road trip to Key West and Sarasota Florida. Seriously, 80 degrees in December with a breeze? Walking on the beach watching while drinking mojitos? Debating whether to buy scallops or tuna at the fish market for dinner? Choosing between waffles and french toast for breakfast? Here is a sunset and a sunrise in Key West. Retirement will be awesome.
Question: What are you doing to get yourself retired?
Passive Income
For me, I think consultants and other folks in the well-paid professional services bracket (yes, talking about you lawyers and accountants) need to more aggressively put their money to work. Right now, we are simply trading time for money. We bill out at $250-$500 an hour. If we don’t give the clients the hour, we don’t get the pay. Simple math and unfortunate math. We need passive income, not get-on-a-plane-on-Monday-morning-and-live-at-a-Marriott income.
Are we saving enough?
At the end of the day, it’s the old-fashion math of spending less than you make (duh), and getting that money working for you. Remember that the average American saves less than 5% of their income. As Dave Ramsey – financial coach, radio host, and author – reminds us, average sucks.
What are you doing with your savings?
Buy assets
This sounds simple, right? Buy things that pay you. Buy things that get more valuable over time. Buy things that help you to buy things in the future. Dividend paying stocks, rental properties, cash-flowing businesses. All assets.
Don’t buy liabilities
Just the inverse. Don’t buy things that go down in value or depreciate over time. Don’t buy things that cost money to upkeep, and cause you to spend more money. Personal homes, boats, cars, electronics are all liabilities.
Return on Equity
We do all kinds of complicated business cases, and financial models for our clients, yet, when is the last time you applied that level of rigor to your finances? Are we eating our own dog food? Are we getting a good return on our equity?
Return on Time
As I get older, I think this is even more important. Time is the only thing you cannot get more of. Are we spending our professional and personal lives on things that give us meaning, move us in a forward direction, and make life good? Retirement is more than just having enough money to do nothing – it is NOT HAVING to work, and putting time to only the things you want to. Amen.
Strange. Didn’t you recommend some not so long time ago to invest in real-estate? So what is the difference between houses and real-estate? I’m confused now.
Best regards
tom
Tom, good clarification. Home you live in is a liability since it is not paying you a return to live there. Rental houses give you a return and are an asset.
In the states, the ROE vary dramatically on rental homes. Expensive places like Los Angeles, and Seattle, it does not pay to be a landlord. Cap rate is less than 5%.
Other places, Midwest, Southern United States, much better. You can get 8-15% ROE as long as you are smart about it.
Home = liability. Rental houses = assets.
Of course, even your home can go up in value. . . And you gain when you sell it, but that is speculation.
Your posts reminds me of Tim Ferriss’ 4 hour workweek book. I think young people like me tend to always “re-invest” in ourselves, hoping for an ever-bigger payoff in the future. In other words, we don’t really believe in saving and compound interest. Except that, this approach is dangerous (see: http://www.nytimes.com/2014/01/25/business/partner-in-a-prestigious-law-firm-and-bankrupt.html?_r=0)
Great article about the NY law firm non-equity partner making $375K, and going bankrupt. Yes, for me, a couple things come to mind: 1) it is important how much your KEEP, not how much you make 2) it is about balance sheet (assets), not income statement (revenue)
Thanks for the comparison for 4 hour workweek – that is a huge compliment.
With all things – there is no 1 answer, life is non-linear, there are season of your life. In your 20s, 30s, 40s, 50s, 60s. . .if you are the same person – that is kind of a fail. We all need to act our age. . . and also as Dave Ramsey says, “act our wage”.
Thanks for reading.
Homes can be a asset as long as you are using it to flip later. Certain rooms of the home can seen as business related and expenses written off during tax season.
Very importand topic, I think there is a fundamental change in relation to the definition of what retirement actually should be about.
People, and especially young generations, don’t want to delay traveling and having time for themselves until they’re old, what actually makes sense since statistically we will live longer then the previous generations and will be expected to be professionally active for a longer period of time.
Could not agree more. Even I am starting to think that way, and I am generation x.
Boomer, consulting engineer (28+ years), financially independent, and semi-retired. Still active, but no longer need to take every job. It is a great feeling.
Got there by living below our means, and stashing away at least 25% a year in a Keogh.
On good years, stashed away more. Average income slightly above corporate wages. (I did get rewarded for taking some risk.)
No fancy cars, offices, or McMansions. No expensive vacations. No need to impress anyone. Had fun along the way, though. Camping vacations, remodeled houses, and even managed to get two kids through college debt free.
So it is doable. It is easy to get caught up in the day to day business, and lose track of the future. But the future has a way of sneaking up on you. Trust me, I know.
Not bragging, just grateful for my interesting consulting career. Also wanted to share some encouragement for those earlier in their careers. You can get there too, but only if you plan for it and work at it. Best wishes!
Winning. Inspirational. Good job.
Thank you. My pleasure to share. More details here.
http://jumptoconsulting.com/consulting-as-path-to-financial-independence/
I enjoy your blog. Keep up to good work.
Nice post…I agree,Don’t buy things that go down in value or depreciate over time.
Thanks for reading.