Money has a big role in our lives. Whether we like it or not. And whether we admit it or not!
That’s the world we live in. But how we deal with this reality as individuals can vary a great deal.
Today, I’ll clear up some common misconceptions that I see around frugality and money management. And hopefully give you a new perspective on high spenders versus those with strong money habits.
We’ll look at how two groups of people approach money. In my mind, one of them is delusional. See if you can guess which!
For most of us, our relationship with money is a lifelong power struggle. In fact, we spend most of our waking hours, for most of our week, doing some type of activity to earn this ‘money’.
We need money to pay for everything in our lives:
Food, transport, housing, entertainment…the list goes on.
I know most people don’t think of it this way, but we should. It’s a battle, and we’re losing!
We sacrifice all this time with our loved ones. Leave our poor pets at home. And ignore our hobbies or passions, just to earn money to spend on short-term highs, easing the pain for a little while, until we have to do it all again.
We may feel like we’re in complete control. We choose which car to buy and which restaurant to eat at. We even get to decide how many doves to release at little Emily’s princess-themed 2nd birthday party, that she barely knows is happening and is more about us showing off on social media.
Sure, we feel adult and in control. But our bank account tells us we’re going back to work!
So it would be fair to say, money has complete control over how we spend our time. That is, unless we do something about it!
Here’s where it gets interesting. And while I’m generalising, the claims here are common and I’ve heard them subtly suggested many times.
The Spender would tell you that money has no control over them. In fact, they act, live and spend as they please, without much thought given to money.
This makes them independent of the power struggle. But does it?
They’d say yes. And then point out The Saver is the one who is controlled by money. A miserable chap (or chapette) who agonises over each penny and does little without permission from their spreadsheet.
Are they right?
Well, usually there’s a kernel of truth to these things. But I see it completely differently.
To outsiders, The Saver probably appears to be controlled by money. And The Spender looks to be free as a bird. But there’s more going on than meets the eye.
In reality, The Saver is in complete control of their money. They’ve got that shit sorted, and here’s why…
The Saver is working in partnership with their money, using it efficiently as the tool it is.
Thinking twice before spending money doesn’t make them a miser… it makes them an adult! An adult is capable of making long term decisions.
Who does things before thinking about it first? A child.
In this scenario, The Spender is the financial equivalent of a toddler with its finger up their nose! They might as well outsource money management to Dora the Explorer.
As The Saver tucks away some of their pay-packet, their level of power increases. And with every investment they make, the shackles loosen and another stone is lifted from their back.
Eventually, The Saver gets to a point where the money has no power over them at all.
Because they’ve accumulated enough that money ceases to be a pressing issue. No longer do they have to get up every day and chase more dollars.
The Saver is free from the shackles of money. And now lives forever independent of meeting this need. Life is now self-directed. They can choose to pursue anything they wish, without money being the major driver.
Well, things aren’t as rosy as they look.
Their situation never improves. The need to earn more money never goes away, because their spending means the money always runs out, so it’s back to work they go.
Free as a bird? In control of money? Nothing could be further from the truth!
The Spender is losing this power struggle big time. With every poor financial decision they make, the shackles get a little tighter. Until they join the dark side and start saving, their life is not their own.
But maybe we’ll cut them some slack. I mean, they might not have found this blog yet. So they probably haven’t realised their housing is a choice, healthy food is cheap and the cost of living is the lowest it has ever been.
Maybe I look at this the opposite way to most people. And I know the comparison might be a little simple. But hopefully, you’ll now see the delusion from The Spenders, thinking that it’s The Savers who are controlled by money. In fact, they’re the ones winning this battle!
They know that living a good life and strong levels of saving are not opposing goals.
It may not look like it on the surface. But The Saver is simply counting the days until their power struggle is over.
To repeat: when they shuffle away some of their pay-packet, their level of power increases. And with every investment they make, the shackles loosen and another stone is lifted from their back.
It’s only a matter of time before they’re free. And in many ways, The Savers have already won. So they can happily go about their lives, knowing that financial independence creeps ever closer. It’s not a dream. It’s inevitable.
I share the findings from surveying my audience. See how wealthy the average Strong Money reader is, how much income they earn, and find out the most common money worries.
Why deliberate spending is my favourite money management style. What it really means and how you can use it as your situation and priorities change over time.
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REALLY liked this post. It is hard to fight for a future tomorrow when today is the squeaky door demanding the oil and attention (investing vs spending now). Breaking old habits and have a belief system that goes 90 degrees to the common thought is always meet with some resistance, either by myself in moments of weakness of friends and family. It gets easier though, everytime you make a play for FIRE, the next one is easier. I guess it has to be hard or it would be easier and everyone would be moving towards financial independence. Thanks for the post, needed the boost.
Great comment Paddy, thanks – glad you like it!
Wisdom written really clear right there Sir.
Cheers Phil, appreciate that 🙂
Great motivating article. Keep it up 🙂
Thanks for reading Bob!
I guess always good to put some fresh perspective out there even though I have never cared about people saying that I’m controlled by money as a saver. Thanks for the post!
Cheers mate. It’s implied quite often from what I’ve seen/heard/experienced and it’s really irritating as I find the opposite to be true – hence the rant about it 😉
I work 45 hours week and my partner works 28.
So far we have 15k total invested in argo afi and mlt.
At what point did/can you say that is us done, no more work…considering you still had mortgages/houses to run?
When the investment income will be enough to sustain your living expenses for the foreseeable future.
For us, that was a little messier as most of our equity was in property (much of it still is). But basically we guesstimated how much we’d have after paying capital gains tax and selling fees etc and judged how much cashflow that would generate if the money was all in dividend paying shares – and the answer was that we had a little more than enough.
Bottom line – The more you save the less time it will take 🙂
Does your 700k pay 40k a year and the govt takes 32.5%?
It depends. If the income is 40k including franking credits, then you pay tax at your own rate. If those earnings are split between a couple, then each earns 20k and due to the tax free threshold and low income tax offset, there will be no tax owing. Result is 40k of income after tax for a couple with 700k of Aussie shares paying 4% fully franked dividends (5.7% gross). Obviously if franking refunds are removed, the income will only be the 4% dividend, so 28k per year after tax.
I have just recently discovered your blog and I love it, mainly because I can relate your approach to my own experiences.
I started out investing in property, but after a few years (actually, after a couple of decades), I found that residential property is more trouble than it’s worth. At the same time, I was also dabbling in shares. I have since sold all my property investments, apart from my inner-suburban Melbourne home, and I am debt-free with most of my investments in the Aussie stockmarket. My largest shareholdings are AFIC, Argo, and the big 4 banks. I have also invested in other LICs such as AMH, WLE, DJW, CIE and GVF, and also a couple of ETFs. And I have 10% of my investment portfolio sitting in cash. My dividend income is around $170,000 (including franking credits), and I haven’t had job in 15-20 years.
One of my biggest problems after retirement was my perceived social isolation. But I put structure into my life – daily sessions at the gym, reading, doing courses, voluntary work, and other hobbies. I’ve never been happier and I’ve never been healthier. I recommend this early-retirement stuff to anybody.
Thank you for your blog, and I’ll be keeping an eye on it regularly.
You must have over 5 million in your portfolio to get that much dividend income?
Given that income is including franking credits and it sounds like a portfolio with a decent yield, my guess is it’s worth a little over half that amount.
Indeed, it’s around 3 million (including the cash component). But I don’t really take much notice of what value the market places on the portfolio; I treat it as a business which generates income. Most business-owners don’t check the value of their businesses every day; they are more interested in profits and cash flow.
Very well put Robert. As you would’ve noticed, that’s the type of message I’m trying to preach around here too – forget the quoted value and focus on the cash earnings/dividends 🙂
Cheers Robert, great to have you here.
And thanks for sharing your story, that’s quite remarkable!
It’s a great example of early retirement and life in general being whatever you choose to make it – it can be boring or it can be incredibly enjoyable, it’s all about finding the right balance of health, free time and engaging activities to be involved in. Hope to see you around here in the future dropping some more wise retiree perspective 🙂
Great to hear from those who are at this stage as well as those on the journey
Great writing Dave
Just started to reading your blog
Well done mate. Keep up the good work ????
Thanks for the support Nhan 🙂
I agree the comparison might be a little simple, but you usually need to keep things simple to send a clear message – and I like what you’re saying.
Perhaps the only risk for the saver is that they become ‘obsessed’ with saving, and no matter how much they have they can’t break the cycle? At some point, you need to be willing to spend on the things you really value – and working out what you really value is probably the hardest part.
Can’t deny the fact that the more you save and the less you spend, the more potential freedom you have!
Cheers, Frankie
Thanks for the comment Frankie!
Yeah you’re right – each party can potentially become hooked on their own habits whether saving or spending. Though in all honesty, I do believe the saver has less potential for this, because they are generally exercising self-control on a regular basis, so addiction seems less likely.
You summed it up very well – we need to decide what’s worth spending on and what’s not, keeping in mind we’re trading our time (lives) to spend on those things.
This probably summed up what I was thinking as well.
I am a decent saver and in the last 5 years have been putting that into shares.
I am a late starter, so I probably won’t achieve the early retirement, but I hope to achieve a more comfortable one.
I like saving, but I do find myself quite anxious at the thought of spending, and feel it makes me a little miserly. So I have to balance it with being more strategic about what I buy and trying to maximise the enjoyment from the things I buy.
Sometimes I am envious of my friends who are more relaxed with money. Yeah, I might be saving for my future, but in the present moment it can feel a bit heavy.
Try to give yourself a break and avoid the ‘grass is greener on the other side’ mentality. As long as you’re building your life around what’s important to you, that’s all that matters. If you feel your saving is doing long term damage to certain things, like relationships etc. then work on that. But most of the time, the same enjoyment and happiness levels can be had without higher spending 🙂 As always, life is a trade-off.
Best quote of the article – so true “We even get to decide how many doves to release at little Emily’s princess-themed 2nd birthday party, that she barely knows is happening and is more about us showing off on social media.”