We Saved $50,000 This Year With Less Effort Than We Spent Brushing Our Teeth
Everyone says that they would like to be rich. People constantly talk about wanting more time to do the things they truly are passionate about. Yet, most people take little or no action to actually achieve financial independence or figure out how to retire early. Why is this? I think that the biggest reason is that most people simply think that it is too hard, takes too much effort or time, or doubt it is even possible. It is assumed that it is easier to just be average.
Building the wealth to achieve financial independence and retire early does require some hard work and commitment. There is also a lot of hard work and commitment (at least 40 hours a week for your entire life) to stay average and continue living an average lifestyle. No matter how hard you work, a few important decisions predetermine your ultimate financial outcome. Your day to day life is basically carrying out habits and routine predetermined by these few key decisions. Think about your typical day. How do you make the decision of when and how many times you will brush your teeth? Will you walk, ride a bike or drive to work? What route will you take to get there? The list could go on. The idea is that most of your day, up to 90% of what you will do, is predetermined by habits and routines that you have developed. Very little of what one does on any particular day involves any effort or making conscious choices. Understanding this is a key to building wealth.
A huge factor in building wealth is to simply figure out what actions would literally make it impossible to not reach your goals and then automate them so they require no effort or thought. For example, we have developed a high savings rate, and have determined that we want to fully utilize tax advantaged accounts for our investments. We therefore look at the limits published by the IRS and then set up automatic deposits into appropriate accounts at the beginning of the year to max out each account. This takes less than one hour of effort one time and then we never think about it again for a whole year. This year we will save $35,000 in our work sponsored retirement plans ($17,500 each in 401(k) and 403(b) accounts) and $11,000 ($5,500) each into our Roth IRA’s. With employer matches, that is over $50,000 saved in tax advantaged accounts before we do anything else with our money or are even able to see it missing from our paychecks. We are guaranteed to keep this money by committing to paying ourselves first in a way that will require effort to stop doing so. We save money every time we are paid, without any thought, action or conscious decisions. For us, saving is a habit. It just happens based on one conscious decision and a few simple actions taken once. This is very similar to how we decide whether and when we will brush our teeth each day. I brush my teeth every morning immediately after breakfast and every night immediately before bed because I decided it is important and made it my routine. In fact, the saving is even easier because these saving habits don’t require any action or decisions on a daily basis. I’ve on occasion fallen asleep with the baby or watching T.V. and forgot to brush my teeth. EVERY time we’re paid, we’re saving money and putting it to work for us.
Unfortunately, making a few key decisions leading to habits and automation are a double edged sword that works both ways. Instead of building wealth, many people automate and habitualize bad habits that guarantee not building wealth. They do things like finance cars they can’t afford. This guarantees paying interest to the bank every single month for the privlage of buying that car, even long after the new car smell and much of the car’s value is long gone. Others may have to have the latest iphone. They rush to get it the day it is released, signing up for the expensive 2 year contract that comes with it. They are not making a conscious decision over and over to not build wealth. In each example, they just made one decision and took one simple action and the rest of the results are predetermined.
If you have been tracking you expenses, then it is very easy to see where every dollar you spend is going. Simply find ways to automate the processes that force you to save money and put your money to work for you. At the same time, put barriers and road blocks in front of any spending that is not in line with your goals and values.
If you want to build wealth to achieve financial independence, retire early or reach any other goal, this concept of making a few big decisions correctly (establishing habits and automating) is absolutely essential to understand. If you think that it would be too much effort to build the wealth to allow you to achieve financial independence and early retirement, then you simply do not understand how wealth is built. Wealth, or not building wealth, are each a result of actions that you take and decisions that you make. However, most of these actions and decisions are not made consciously. By investing a small amount of time and effort to make a few key decisions you can automate most of your future decisions and actions in a way that guarantee success with minimal effort. If you have to spend more time or effort thinking about how and where you will spend your money today than you spend thinking about how and when you will brush your teeth, you’re probably wasting time and money.
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