early retirement extreme Archives

Are We Doing Personal Finance Wrong?

March 4, 2013 By Shane Ede 40 Comments

As you can probably imagine, as a personal finance writer, I think about personal finance quite a bit. Often enough that I write several articles a week on the subject. I don’t consider myself an expert, but I do think that I know a great deal about it. And I’m beginning to wonder if we aren’t going about it in the wrong way.

The problem with Personal Finance

We rail on the Joneses constantly. That, by itself, isn’t really a problem. The Joneses just aren’t very smart with their money. But, for all that we rail on them, we spend an inordinate amount of time trying to find ways that we can go about having things that are similar to what they have for less money. And that is the problem. The Joneses have the fancy cable television package? Try Netflix, Hulu, or Amazon Prime! The Joneses have a fancy new car? Try a newer off-lease car! The payments are half what they pay, and the car is almost as nice! The Joneses have a fancy house? Try making it affordable by DIY, gardening, and renting out a few of the rooms!

We aren’t the Joneses. We know that. We know that we really don’t want to be the Joneses. But, some part of our natural tendencies somehow pulls us back to them, time and again. We strain hard to become less like them, and find ourselves back where they are. That is the problem with personal finance.

Are we doing personal finance wrong?

Maybe the issue isn’t the Joneses. Maybe, just maybe, it’s us. I alluded a little to this recently (The Joneses and Jealousy), when I suggested that our tribal human history pulls us towards the leaders of our “tribe”, and that we should be looking for a new “tribe” that espouses the same values that we do. I think that we all end up returning to our Joneses because we haven’t fully made that switch yet. Because we’re afraid of what the rest of our tribe might think. What our families might think. Heck, what our spouses might think. And, maybe all this frugality and saving aren’t really what we’re looking for. After all, where does that lead us? A cheaper version of the Joneses lifestyle? Isn’t that what we’re pushing away from?

Changing personal finance

I think what we are really looking for, and what we are really jealous of the Joneses for is financial freedom. It may only be perceived in the case of the Joneses, but it’s still there. Freedom, financially, to be able to do the things we want to do, go the places we want to go, and have the things we want to have. We emulate those who have those things without giving much thought to how they got there. Maybe the Joneses did it through a boat load of debt. We rail against debt. Which only gets us so far. So many of us struggle with even that part of it. I know I have, and sometimes still do. But, I can tell you with certainty, that had my perception of debt not changed drastically from where it was when I began this journey, I would be in a far worse place than I am now. But, even that is only one small change in the way I think about personal finance. Our entire perception has to change.

What’s the personal finance endgame?

What is it that we are really looking for. We decide we want to change how we handle our finances, abandon the way of the Joneses, and make our way to a better life. But, what is that better life? If you’re thinking that a secure retirement is it, I think you’re wrong. I think there’s a better way. There has to be. HAS TO BE. There has to be a better way that doesn’t involve working for 40+ years, pinching every penny, saving every dime, only to end up at 65 or 70 with enough money to make sure you can pay for the medical bills your advanced age brings with it without having to live on welfare. That can’t be all there is to personal finance, is it? My word. What if you retire at 65, and die at 66? I submit to you, that what we are really looking for is personal finance independence. We don’t want to have to count on a job. We don’t want to count on a paycheck to (hopefully) cover the bills this month.

What is personal finance independence?

Here’s the tricky part. I think it’s going to vary based on the individual. What personal finance independence means to you is likely going to be a bit different from what it means to me. Take, for example, Jacob. Maybe you’ve heard of him, maybe you haven’t. He writes a blog about early retirement. He wrote a book all about it. It’s got more scientific content than some of the science books I remember from school. They guy is crazy smart about the subject. But, when he says it’s early retirement extreme, he’s dead right. If going to the measures that he went to in order to retire early is what is required, count me out. In fact, it seemed for a long time that it was either extreme or not. Nobody had really talked much about the in-between area. Enter Mr. Money Mustache. He, too, retired early. And, while he has his extremities, it’s not quite the same thing. It’s different for each and every person. What one person thinks of as retirement isn’t what someone else will think of. Heck, most of us have been so pre-conditioned to think that retirement should consist of afternoons golfing followed by bingo down at the VFW that it’s no surprise that we scoff at people like Jacob and MMM.

How do we get there?

Oh. Well, the truth is, I just don’t know. I think that, with a little help from the Jacobs and MMMs of the world, and a little trial and error, we can find our own personal finance independence. I think that we can take what we learn, adapt it to our lives, and make something brilliantly wonderful out of it. I know we can. We just have to try. We just have to change personal finance as we know it, and embrace something better.

What if Everyone Was a Frugaler?

June 15, 2011 By Shane Ede 16 Comments

What if everyone in the world was as frugal as the most frugal? Inspired by conversation on the Early Retirement Extreme forums about the ethics of the Early Retirement Extreme lifestyle. So, the beginning of that linked conversation (if you haven’t read it) is based on the premise that if everyone did as Jacob does and lived the ERE lifestyle, would the world collapse? And, if so, doesn’t that indicate that the ERE lifestyle is not socially responsible (ethical)? Which, got me to thinking. What if everyone was as frugal as most of the frugalers we know? What if frugal was normal?

I’m not talking about the people who hand wash their Mercedes, either. When it really comes down to it, the ERE lifestyle is pretty similar to the frugaler lifestyle. Each has their extremists. So, what if everyone was frugal?

Would we all make our own shampoo? Would we all have a sustainability garden? Would we all coupon? Would coupons still exist?

It’s an interesting question. Many of the things we all see and do each day exist because a much larger section of the population use them far more regularly than we do. Disneyworld, for instance, probably wouldn’t exist if it’s only customer base were frugalers. What about those Mercedes cars? Probably not in the U.S. But, if you think about it, there wouldn’t be very many used cars available for purchase, since we’d all be busy driving them until the wheels fall off. What would that do to the auto industry? If all the people who buy a new car every year, or even every five years, stopped doing so? You thought they needed a bailout a couple of years ago! They’d really need one then.

We might see more local farms growing a larger variety of goods because more people are shopping at farmers markets and taking advantage of the Co-Op farms. We might see less McMansions and more smaller houses with big yards and gardens. We might see some pretty drastic changes in the pricing of some things. Without all the willy-nilly spenders out there paying whatever the manufacturer asks for the product, you might see more reasonable pricing to get people to purchase a product. We would likely see a return to a more craftsman foundation, much like the early retirement extreme lifestyle. People might be interested in making things themselves if the market dynamic shifted that drastically towards the frugal side of things.

How do you see the world changing if everyone was as frugal as the most frugal?

photo credit: kenteegardin

Is Personal Finance Really Important?

November 19, 2010 By Shane Ede 2 Comments

In case you haven’t noticed, this site is all about personal finance. Well, mostly. We certainly talk a lot about personal finance. But, is personal finance really all that important?

How much time do you devote to your personal finances? To your budget? To coupon clipping? In the end, does any of it make a difference? Or are we merely just going through the motions because of some larger issue? Ever since my Junior year in high school when my english class went through a whole section on propaganda, I’ve (rightly so) questioned anything and everything. We don’t deal with propaganda on the level of that they did in war times, but we still deal with it on a regular basis. And at it’s root is the necessity by those companies who are spreading the propaganda to further the consumerism society that we’ve become.

Over the last few months, I’ve been reading a lot of books on the subject of breaking free of what you are, and becoming what you should be. Books like “No More Mondays” and especially “Early Retirement Extreme” have brought me to take an even closer look at the consumerist lives that we live. Jacob (the author of Early Retirement Extreme) lives on somewhere around $10,000 a year. A Year! Could you even make it 3 months on that? I know that I would have an incredibly tough time even trying to come close to living on 10k a year. It would take some very radical changes for me, but I might try working towards that by reducing my consumerist habits.

And, when you reduce your consumerist habits, a funny thing will likely happen. Your expenses will go down. And you’ll be able to “live” on less and less. And another thing that will happen, is that personal finance will become less important. We worry about the most frugal way to do this or that, or the proper way to save for retirement or buy a house or pay off debt, or even the best way to negotiate a better deal on your next car when what we really should be worrying about is why we are living the lives we are. How many of you are working jobs you don’t want to because you have all this debt from your house and your car or from all the fun “stuff” you bought on credit? I know my hand is raised. How LIBERATING would it be to walk out of your office today and not look back. And not have to worry that someone was going to come and take your house away.

Do me a favor. Take 15 minutes and watch this movie that Adam included in his post on focusing on what truly matters.

*direct link to youtube video if my embed doesn’t work for some reason: http://www.youtube.com/watch?v=3Cakm2nIQWo

Now, tell me. Could you stop and not keep going if you had to? Or are you so tied to your “career” and “job” that you have to “keep going”? Take the steps today to free yourself of the consumerist lifestyles that we live. Free yourself from the eternal “going” that we experience every day. You likely won’t accomplish it in a day, or even a month or year, but if you take a little step every day, you can get there. I’m taking that journey, step by step, and it’s difficult. It’s difficult to give up some things that we don’t really think about. But, if we want to be able to stop whenever we want to, we need to be able to do that.