Is The Richer Person the one Who Makes Less/Spends Less Or Makes More/Spends More?
I was thinking about this just today, walking over to a cafe to sit down for a coffee and write. My mind was preoccupied with my recent decision to pounce on an investment property. I am wondering who is richer, the person with less coming in and less going out, or someone with a lot more income sources and a more relaxed spending budget?
Less in, Less Out
Up until now I’ve had a lot coming in from my job as an urgent care doc at Kaiser Permanente and very little going out. I was making somewhere in the $16,000 range monthly, while spending around $3,000/month.
In a less-in/less-out scenario I wouldn’t need much income because I wouldn’t have a whole lot of expenses. With the need for less income I wouldn’t need to work as much, which means a much more sustainable long-term work situation.
If I didn’t have any savings at all, starting from zero, I could work enough to make $5k/month while spending $3k. Or I could make $4k and spend $2k. In either scenario I would save and invest $2k every month – generating a $1.4 million portfolio after 30 years.
I know my numbers are a little low for those of you with children but you can extrapolate. Notice, it really doesn’t matter if you own, rent, live close to work, have a long-ass commute – in the end, if you can set aside $2k month after month, you’re set.
More In, Less Out
Back to this, Dr. Mo’s game plan! The reason I was so adamant about saving my money back in 2013 was that I wanted to get to my retirement date sooner. I wanted to be financially independent as soon as possible. For that, I was willing to trade my free time, working like an immigrant to make it happen.
Working a lot to build up one’s stash makes sense – when you’re young with few responsibilities. I had the most of my mojo back in 2009 when I graduated residency. Admittedly, my hunger stemmed from the possibility of owning some of the nicest shit I could fathom.
Had I started in 2009 I would be worth a couple of million, no doubt. Is it too late for us, hell no! I am fortunate that I won’t be the 40-year-old, the 50 or 60-year-old looking back and saying the same thing. You may not think those docs are out there, you’d be mistaken.
More In, More Out
This is the professional’s mantra, earn more and spend more. They work a lot because they can earn a lot. On the backend, they are spending the majority of the money they are earning on things which they believe is making them happier.
Instead of a $1k laptop they purchased a $3k one. Instead of a $25k car they have a $45k one. Their house is in the better neighborhood, has a few more amenities or a better view. Their kids go to the better school, their clothes are a little newer than their neighbors and their vacations are a bit more mentionable than that of those around them.
This person might have income coming in from a business, some real estate, their job and their partner’s wages. Their income still far exceeds their expenses but they are building a life of abundance, perhaps a life of excess. Regardless, it’s a complex life that can’t be traded in for a simpler one – the simple life is something that takes a lot of training and practice because it’s going against the grain.
Which Method Is Easier?
You know, I tend to be a very hardheaded person. I like to figure something out for myself, do it my own way and I’m somewhat comfortable going against the norm. I feel a little self-conscious at times, I know I stand out, but I still do it.
So, it’s easy for me to get a tiny condo, live in a cheaper city, not have kids, and do my own thing. It may not be as easy for others, that’s important to take into consideration.
Going against the norm aside, it would make sense that needing less income means less time spent at work, means an easier lifestyle. If your boss knows that you don’t need the income quite as much as your counterpart, there might put less pressure on you in certain situations.
Spending less is the tougher part. This goes against societal norms, it requires planning, focus and some sacrifices. I suspect that the reason most people work so much is that they have a tough time lowering their expenses, thinking that a certain expense is necessarily while in reality it’s just something they have gotten used to.
Who Is Richer
I’m not weaseling out of this answer by dropping a cliché on you, “it depends on the person”. No, shit no, it doesn’t depend on the person. You’re always richer when you can enjoy something without all the fluff, when you have more autonomy of your time and when you can live the lifestyle you want without needing 12 online services, expensive cars and fancy gadgets.
In relation to investing in real estate…. well yea, this is how all this thinking came about. I was thinking about why I wanted to purchase an income property. After all, I am easily able to make enough money to live off of. I have been fortunate to have been able to save around $500k. All I would need to do is let that money grow, add a smidgen to it every month and live out the rest of my life in peace.
Now I’m having doubts as to whether I want to complicate my life more by adding in a real estate business. I’m sure I’ll go back and forth over the next few days.