It’s Not How Much You Make, It’s How Much You Keep

Ludicrous. Another dose of boohockey. There’s no way this makes sense. If Aldrich, who drives and Aston Martin, is a high-profile lawyer or big-whig executive, he is certainly more well-off than Roland, the local repairman. Self-evident, case closed.

At least that’s what you’d think……

There’s a subtlety to this idea – that what matters is how much you keep – because it’s completely counter-intuitive to what we see, hear, and do in everyday life. Whether it be through advertising, word-of-mouth, a desire to shape other people’s perception of us, or some combination of them all, there is an implicit driving force behind the recently-resurfaced term ‘conspicuous consumption’. There is something that compels us to believe “Once I get/have/do ________, then I will be successful.”

Have you had this feeling before? If so, have you noticed that the moment you get/have/do _______, then you really feel the exact same and your thoughts have already darted to the next acquisition item? (If you answered “No” to either of these questions, then please click here to start your journey home, because you are not human).

For the rest of us, the grip of this beckoning is so tight that we typically are not even aware that its influence “has us chasing cars and clothes, working jobs we hate so we can buy things we don’t need” (thank you, Tyler Durden).

But, in fact, the secret sauce that the truly wealthy keep at the top of their financial cookbook is:

It is not about how much you make; it is about how much you KEEP.

But how could this possibly be true? To validate this idea, let’s look at some of the “math” that backs this up. Don’t worry, it’s pretty straightforward.

For starters, let’s say that I spend 100% of my income. In this case, I will have to work forever in order to maintain my current lifestyle and cannot take any time off since I don’t have any surplus to live off of.

Now, let’s say that I get a little wiser and decide that I can save 10% of my income and spend the remaining 90%. This means, in effect, that I can work for 9 months and then take 1 month off.

Now if I become a little more curious of this inverse savings and time-to-vacation ratio, I may decide to save 20% of my income and spend the remaining 80%. Now, I only have to work for 4 months before I can take 1 month off to maintain my current lifestyle. (This obviously scales either up or down; i.e. in this case, you can take 2 months off for every 8 months worked, 3 months off for every 12 months worked, so on and so forth.)

Now if I get VERY ambitious I may decide to save 50% of my income and spend the remaining 50%. This means that I only have to work 1 month/year/decade in order to take 1 month/year/decade off!

As you’d expect, this trend continues up to the extreme points of, for example, saving 90% of my income and spending the remaining 10% would allow me to only have to work 1 month/year/decade in order to take off 9 months/years/decades.

This trend can be summed up in the overly-simplified statement that:

The more that I am able to save, the quicker I will be able to take time off of work and still cover my current expenses.

Notice that these numbers do not account for income, because it is irrelevant in determining how your savings rate directly correlates with your ability to forego the need to make money. Now, if you want to uphold a certain lifestyle, consumption level, or simply stay on the treadmill of “I’ve Made It”, hoping to one day get off, then of course you will have to increase your income.

The fact here is, the ‘mathpath’ to maximizing our most valuable currency, our time, is simple: spend less than you make.

This concept is simple, its execution is not. What difficulties have you faced in trying to save more? Comment below.

 

Chris

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