This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
Last week, I tried to understand why some people spend everything. I think they see money as a renewable resource, something that they’ll always have more of (assuming they continue to work). That’s not how I see money, however. I tend to view my money as a non-renewable resource. When I was young, my parents gave me money and were careful to show me that I could either spend it, in which case it would be gone, or I could save it. I learned early that I couldn’t have my cake and eat it, too.
As in classical economics, I see my time and money as limited resources. I cannot ever get back time that has already been spent. Likewise, after exchanging time (and effort) for money, I can never get back the money that has already been spent. If I were to never spend any of the money that I earn, I would still have it all, piling up like Scrooge McDuck. On the other hand, if I spend all my money, I won’t have anything left in the case that I want to buy something special. I really see life as a series of tradeoffs. This attitude causes me to save a large portion of the money I earn.
Because money is produced in exchange for my work, I have trouble viewing my source of money as unending. I know that I won’t live forever; I know that I won’t work forever; I know that I won’t always be healthy. Because of the limits on my ability to earn income, I prefer to save my money for future use. This pool of savings moves me toward the day when I won’t have to depend on my work to produce income. It also offsets the risk of me not being able to work, due to illness or injury. In this way, I address many of the risks inherent in my and my family’s dependence on my ability to work.
Since the supply of money I have to work for is limited, I prioritize how the money will be used. I see life as risky, so the first goal is financial independence or not having to rely on others (or myself) to be able to maintain my lifestyle. My next priorities align with my values: I eat healthily and I do fun things with my kids. When a spending decision comes up, my wife and I tend to view it in relation to our goals. Sure, we could buy a new car or go on an expensive vacation or buy an iPad, but that would delay our goal of financial independence, and it wouldn’t really make us and our kids any happier. On the other hand, horseback riding lessons is something that’s not cheap, but that us and our kids are happy to spend time at together.
When the inflow of money is limited, it affects the way we relate to money. Since it’s a resource that is limited, we apply it only to our highest priority goals. We are careful with how we spend it, and we stockpile as much as we can for the future, when we won’t earn any more. We also save some for interruptions in my earning ability. Some people wonder how those with a goal of early retirement can save so much. I think the answer is that we are more worried than average about the limit to our ability to earn income.
Do you tend to relate to your money as a renewable or a non-renewable resource? If you save, what are you saving for: a goal, or a feeling (eg. security)?