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.
Something that’s very important to me is the idea of finding meaning in my life. My wife recommended a book that I really enjoyed, called What Should I Do With My Life, by Po Bronson. It is a collection of stories about people who are trying to answer that question. Some do and some don’t find an answer, but it was interesting for me to see the role that money plays. My assumption was that trying to find something meaningful in life was a luxury for the relatively rich. I also assumed that when people cash out, it becomes easy to do what they want with their lives. It turns out that neither assumption is very accurate.
The story that struck me with respect to financial resources was of bond traders (where the author worked). They earned $300,000 a year commission, and many of them were going to do it “just a few more years, then follow their dreams.” Seriously, after just three years of that kind of income, most people could afford to follow their dreams for quite a while without worrying about earning a paycheck. The author turned down that job, choosing to do what he loved: write. But where are the bond traders? 12 years later, most of them are still earning fat commissions.
My suspicion is that they became addicted to the income. I’ve seen it before, and I sometimes call it “lifestyle inflation.” The more a person earns, the more they spend. For one thing, they feel entitled to their quality of life. And then they buy a bigger house and a faster car, and the monthly payments chain them to their source of income. But people also seem to measure their self worth by the size of their paycheck. They may tell themselves something like, “I’m a worthwhile person because I have a house on the lake and two imported cars in the garage. Look how successful I am!” I’m not saying they’re not a success, simply that when you define yourself by your job or your income, how do you ever leave it?
I understand that not everyone wants to leave their job. My father is a prime example. He loves what he does. He’s been saying for the last five years that he’ll retire “in the next five years.” This year, he plans to retire about five years from now. But why would he retire? He’s doing what he loves, and was never a candidate for early retirement. The reason I want to leave my job is that I feel my calling in life is in education and that where I’d prefer to spend my time.
Lifestyle inflation is something I haven’t really struggled with. Part of the reason is that I’ve always been careful with money. In university, my wife and I lived on very little. As we could afford more, we ate better and we committed more to savings. When we took on commitments, we made sure we could handle them, buying a moderate (1550 sq ft 2-storey) home and just one small car (Toyota Echo). I guess I’ve always had a bit of a minimalist streak. As we earned more income, we used some of it to buy investments. Where my wife’s friends would buy shoes and matching handbags, we’d get excited about publicly-traded companies and stretch a little to buy their stock.
But it helped that I defined what I wanted from life before the income became abundant. We had set our plan to follow our hearts to teach in an international school in Asia. That helped us focus on paying off our house and building our investment portfolio. Now that our house is paid off, we have more disposable income than in the past. Sure, we spend more of it, but we are already focused on our version of early retirement.
I wonder if people who spend all of each increasingly larger paycheck will ever be able to make a break. The job may not be meaningful, but the income sure is nice and they couldn’t make this much money anywhere else. That’s probably true, but what makes it all worthwhile? Are they just addicted to income? Have you experienced this? Do you know anyone who has ditched a big paycheck to do what they love?