When I started earning a real salary, now almost 50 years ago, I was naive: I started with a short list of needs, TV, car…, and thought that within a few months I would be saving large sums of money. Surprise! That list of ‘needs’ became longer: after four years I had little savings to show for my work. I needed to acquire a keen sense of opportunity cost. One evening I sat down and started with my W2 income, as an estimate of after-tax income. I then subtracted from it all of my contractually committed expenses: rent payments, car insurance… I then divided the residual by 52 to convert this net sum to a weekly amount of ‘free’ money, which is not the same as ‘disposable income’. Each week I would write this sum at the top of a 3x5 card and carry it in my pocket. During the week I would deduct from the beginning sum every little expenditure. Within a short while my behavior changed from feeling I had more money to spend with each pay check to seeing how much of the beginning sum I could end the week with. Since that change I have never really worried about saving again, and my wife and I now have no difficulty spending less than 5% annually, and that includes increasing gifts to charities.
Each of us might find a different way to gain a clear sense of opportunity cost. Those of us who don’t are unlikely to obtain financial independence.
Such an excellent read. Thank you. Raising so many uncomfortable questions. Wealth. What is it? Based on what definitions, standards ? How badly have we exercised, misjudged our 1st level thinking when 2nd level thought process was pulling in the opposite directions - lifelong in so many cases ?
Urban‘s point about „time“ being most scarce of all resources isn’t new yet, so accurate. My own experiences, when looked at from the rear view mirror of life, reminds me of driving off that road so many times in a mighty effort & search of the holy grail of „wealth“ my conscience mind said was great yet subconsciously „wealth“ has proved to be so simple yet, uncomplicated. Right in front of me. Health. My family. Time. Without health, time is largely burdensome. With it, what joy you receive from caring for & starring into the eyes of your grandchildren when you get to tell them stories is worth millions & more. Their response & questions. Your response to them. Especially after they finally go back home - leaving you to recuperate over a beer or glass of wine. Priceless. That is my wealth. Thanks for the thoughtful piece🙏
Excellent article. I think it is broader than family: time gives you the opportunity to focus on many relationships, for example friends and neighbors. Time also allows the pursuit of other interests.
I once had a partner ask, "How much is enough? Why do people keep combating themselves and others for more money when they obviously have enough?" If he had actually stopped not long after he made that statement, because it was obvious that he had "enough," he could have distanced himself from this world, and committed his time and talents towards his family and fellow man.
Today, 25-years, three homes, and a King Air later, he continues striving for more. I sit here in the house he once owned, looking from afar, wondering if it was worth the price he paid in relationships and reputation, and whether I should have been more like him . . . wondering if what I have is, indeed, enough.
When I started earning a real salary, now almost 50 years ago, I was naive: I started with a short list of needs, TV, car…, and thought that within a few months I would be saving large sums of money. Surprise! That list of ‘needs’ became longer: after four years I had little savings to show for my work. I needed to acquire a keen sense of opportunity cost. One evening I sat down and started with my W2 income, as an estimate of after-tax income. I then subtracted from it all of my contractually committed expenses: rent payments, car insurance… I then divided the residual by 52 to convert this net sum to a weekly amount of ‘free’ money, which is not the same as ‘disposable income’. Each week I would write this sum at the top of a 3x5 card and carry it in my pocket. During the week I would deduct from the beginning sum every little expenditure. Within a short while my behavior changed from feeling I had more money to spend with each pay check to seeing how much of the beginning sum I could end the week with. Since that change I have never really worried about saving again, and my wife and I now have no difficulty spending less than 5% annually, and that includes increasing gifts to charities.
Each of us might find a different way to gain a clear sense of opportunity cost. Those of us who don’t are unlikely to obtain financial independence.
So true. We have to live simply to keep our freedom. Splendid Rational Relectiions, keep em coming!
Such an excellent read. Thank you. Raising so many uncomfortable questions. Wealth. What is it? Based on what definitions, standards ? How badly have we exercised, misjudged our 1st level thinking when 2nd level thought process was pulling in the opposite directions - lifelong in so many cases ?
Urban‘s point about „time“ being most scarce of all resources isn’t new yet, so accurate. My own experiences, when looked at from the rear view mirror of life, reminds me of driving off that road so many times in a mighty effort & search of the holy grail of „wealth“ my conscience mind said was great yet subconsciously „wealth“ has proved to be so simple yet, uncomplicated. Right in front of me. Health. My family. Time. Without health, time is largely burdensome. With it, what joy you receive from caring for & starring into the eyes of your grandchildren when you get to tell them stories is worth millions & more. Their response & questions. Your response to them. Especially after they finally go back home - leaving you to recuperate over a beer or glass of wine. Priceless. That is my wealth. Thanks for the thoughtful piece🙏
Excellent article. I think it is broader than family: time gives you the opportunity to focus on many relationships, for example friends and neighbors. Time also allows the pursuit of other interests.
I once had a partner ask, "How much is enough? Why do people keep combating themselves and others for more money when they obviously have enough?" If he had actually stopped not long after he made that statement, because it was obvious that he had "enough," he could have distanced himself from this world, and committed his time and talents towards his family and fellow man.
Today, 25-years, three homes, and a King Air later, he continues striving for more. I sit here in the house he once owned, looking from afar, wondering if it was worth the price he paid in relationships and reputation, and whether I should have been more like him . . . wondering if what I have is, indeed, enough.