How To Enjoy Your Money Now, While Also Building Wealth That Will Allow You To Retire Early!

Recently, I sent an article to subscribers of my newsletter (subscribe here) about Warren Buffett foregoing some home improvements in order to let his money compound and how that decision put him at odds with his then wife, Suzie. A reader named Ed wrote to me in response of that article…

I just read last week’s email, that crack about teenagers was hilarious! I’m living that in spades these days, ugh.

That is an interesting story about Buffet and I agree 100%. However, I wonder what your thoughts are regarding the axiom, “You can’t take it with you.” : )

Especially for WB, as you pointed out, he could spend $20K every week and not put a dent in his wealth. If you don’t spend some of your wealth then why build it? If it isn’t for something tangible, why spend all the effort? I understand the illustrative purpose of the story, the power of compounding. I think a follow-on write-up could include how to enjoy your wealth responsibly. I have been reading your stuff for a year now, and it is really good. In fact, a lot of what you talk about is the freedom and peace of mind one derives from financial freedom. I had that discussion with my mother-in-law regarding the decent nest egg she had upon the death of my father-in-law, and the inheritance my brother-in-law (who has absolutely nothing…including a job) just received upon her death. “Don’t touch the principle first and foremost, if you don’t have to touch the gains, even better.” However, for my mother-in-law, I did encourage her to enjoy her wealth which was something her husband (as an orphan who grew up with nothing, including family) never would.

Anyway, I was curious what your thoughts were…

My first takeaway from Ed’s letter is that he’s obviously a very smart guy. After all, he mentioned that he’s been reading my articles for a year now and that he finds them really good. Ha ha.

All kidding aside, this is a very good question and one that comes up from time to time. I’ve written about the benefits of financial freedom before. So, what’s the point of building wealth if you don’t enjoy it? Ed’s right, you can’t take it with you when you go. There has to be more to life, than spending most of your days working only to become a miser like Scrooge McDuck in retirement, right? Can those who want financial freedom ever enjoy their money?

The answer is yes, of course.

I believe that both extreme spending (no savings) and extreme saving (no spending) are both destructive habits. The people who operate their financial lives at either end of the spectrum are usually not very happy…

Yes, the spender will be temporarily happy as they get fleeting joy from buying things. That joy will soon fade as the hangover of debt, an unfunded retirement, and the inability to cover everyday expenses sets in. Similarly, the person who hoards money may have temporary satisfaction knowing that they’ve got money set aside to cover things. But that satisfaction is also fleeting, as they live in constant angst of having to spend their money. People who do this, can find it meaningless to buy necessities, or even go to movies, or to restaurants. This can affect their relationships, causing them to feel isolated, or affect their health as they feel anxiety about losing money or taking-on the responsibility that money brings. That’s not a life friends.

Who Will You Be In The Nursing Home?

My philosophy is that wealth building should be related to a purpose that ultimately brings a person happiness and fulfillment – financial freedom, starting a charity, more time with family, etc… Along the lines of the “pay yourself first” axiom, I believe that after a person first addresses life’s major financial challenges – retirement, mortgage, children’s education, long-term healthcare – what’s left over should be enjoyed and enjoyed thoroughly. Yes, take care of your financial priorities first and yes, then go play golf. Yes, then take the kids to Disney World. Yes, then buy a boat. Yes, then have dinners at the fancy restaurants and travel the world. You see, it’s better to be the person in the nursing home with the most memories, not the most money.

The key here is to not fool yourself. The size and scope of those major financial priorities (retirement, mortgage, children’s education, long-term healthcare) will vary wildly between people. But the priority and responsibility of them will not. Only you know if you’re on track or not. Only you know if you’re spending too much in the “you only live once, let’s spend it” group.

And if you’re not sure, here’s a back of the napkin approach to see if you’re on track:

Most people would like to retire by age 60. You may want to retire earlier or later than that. That’s fine. Let’s just use 60 for now and you can adjust it later if you like.

To retire by 60 obviously means your nest egg also needs to be ready by 60. One way to see if you’re roughly on track for your nest egg to be ready at 60, is to look at the value of your current nest egg relative to your current age and 60.

For example, if you’re 30 and want to have a $5 million nest egg at 60 you’re nest egg should be about 50% of $5 million now ($2.5 million) since, at 30, you are roughly half-way to age 60. If you are age 40, your current nest egg should be about 66% of your goal, as 40/60 equals 66%. And so on…

Now, let me stop here and address some anticipated responses:

1. “Are you freaking crazy?!? I’m 32 and I don’t have anywhere near $2.5 million saved. There’s no way I can retire!” First of all, the $5 million number is just an example. Use whichever retirement nest egg number you realistically think you’ll need. But be realistic, you’re not going to retire on $10,000. Secondly, this is back of the napkin math, so use it as an approximation or signpost. If you’re nowhere near your number, see it as a wake up call. Start making some changes today. Get serious about retirement. Ask yourself hard questions – “What changes can I make to get on track financially?”. Remember, it’s never too late to start becoming the person who manages their money well.

2. “This calculation doesn’t take into account the fact that people tend to earn more later in life. I don’t need that much in my nest egg now because I’ll make it up later in life!” True, people do tend to earn more later in life, but guess what? They also tend to spend more – bigger homes, additional cars, kid’s college, and health expenses add up. Not to mention the unexpected job loss due to layoffs and illness. Remember, it’s better to be approximately right with your retirement nest egg calculation than exactly wrong. Which is better, overshooting and have a surplus of funds to enjoy or underestimating how much you’ll need and having to go to work as a “greeter” when you’re 80? Exactly. Err on the side of having too much. Trust me, you’ll find a way to spend the money if there’s too much.

3. “What about Social Security and inheritances?” I personally wouldn’t account for these in your calculations. Maybe Social Security will be there when you retire, maybe it won’t. Same for an inheritance. I’ve read more than one story about elderly couples needing to needing to use money that was intended for their children’s inheritance, for an unexpected expense such as major healthcare problems. The point here is to look at these things as a nice bonus if they happen, but don’t count on them. Build your financial future with things you can control and consider it a blessing if you get a windfall later in life.

So, what if you are on track for retirement? Great! Now, go live a little. As they say, there’s no room in a Ferrari’s trunk for a cane. The time to travel the world is now, not when you’re 90.

I’m not suggesting that people throw caution to the wind and spend money like there’s no tomorrow. I’m saying, ‘Spend it while you can still enjoy it.'” Assess your financial situation relative to retirement and you may conclude that you can live it up a little, without affecting your retirement.

Celebrate The Good Life

As you build wealth, enjoy it. Reward yourself for working hard, sacrificing and living responsibly. Don’t be extravagant and throw your money away, but find a happy balance between building wealth and enjoying some of what your success can buy.

Also, don’t put off enjoying life until you are able to retire. Do what you couldn’t do when you were younger, things that you might not have been able to afford or take the time to do. Since you worked so hard to build for your future, remember that your future has finally arrived. So take care of yourself and live a good life.

That’s what I do. In fact, my Instagram page description states just that – “Celebrating the good life.” Look, when I was a poor kid in Louisiana, I couldn’t afford nice clothes, expensive restaurants and world travel. Now I can…and I do. I never consider spending money on a good meal, travel or charity to be a waste. I enjoy eating well. Travel broadens our minds, teaches us understanding and realigns our perspective. It also gives us priceless memories. With my philanthropic activities, I get to help others and sharing my good fortune with those in need. Being charitable is an honor and privilege; it’s one of best ways I know to enjoy your wealth responsibly – seeing your money help those less fortunate.

I make it a point to enjoy my life. I don’t want to be the richest corpse in the cemetery. At the end of my life, I don’t want to regret that I didn’t spend more time with the person I love, help others and do what was most important to me.

Remember, the best revenge for old age is a life well-lived!

Be free. Nothing else is worth it.