10 years after my savings journey began in 2004, I officially hit the halfway point of my $1 million net worth goal.
Along the way, I’ve internalized two concepts that I believe were instrumental in helping me get to this point — minimalism and investing.
To me, minimalism is the philosophy of owning what you use on a regular basis and not much else. In a consumerist society where we’re constantly bombarded with advertisements to buy stuff we don’t need, we’ve become people who end up becoming overburdened by these very possessions. You may get a temporary moment of happiness every time you buy something, but the feeling soon goes away. Adam Baker, who created the blog Man vs. Debt has a very inspiring TED talk about how he was a part of this vicious cycle until he sold all his stuff and starting living the life he wanted.
As a single man in the military having to move every three years, the cost of having too much stuff comes in the form of unnecessary stress every time I have to move. No thanks. At my first duty station in Hawaii, I rented a fully furnished apartment, so I didn’t even have any furniture. When the movers came, they were in and out in about 30 minutes. Compare that to your average family who owns a house and may need multiple days to move. The feeling of freedom that comes with being able to move to another location at a moment’s notice can’t be bought. If your goal is to one day travel the world, it will become increasingly important to take note of your possessions and start paring down to only what you use consistently. One technique that I use is to look around my apartment as if I was going to move the very next day. If that was the case, what would I give away and what would I keep? If I would get rid of it, I sell it or give it away to a thrift store immediately. There’s no use in procrastinating this exercise until moving day when you will be more stressed. Cleansing myself of useless items gives me a sense of freedom the moment I part with it. The battle with clutter is a constant process, not something that you just do once. I recommend doing this at least once a month.
The direct financial benefits of a minimalist lifestyle are obvious. When you don’t feel the need to constantly buy things, you will have more disposable income. More disposable income means you have more money to invest. More money to invest and lower spending means that you can achieve financial independence much earlier. However, it’s the second and third order effects of not having many possessions that pay dividends.
Most of our income is spent on housing. The more stuff we accumulate, the bigger our residence needs to be to fit all of our stuff. Soon, we end up having garages full of stuff and when that gets full, we pay a storage company to keep the rest of that stuff.
Not having many possessions means that you don’t need as much room and can live comfortably in a smaller residence. I fully internalized this after a year-long deployment to Afghanistan. For an entire year, I lived in a room that was only big enough to house a bed, a small desk and a small dresser. That’s it. And guess what? I was completely fine. My current 400 sq. ft. studio feels enormous by comparison.
Having a smaller residence means that I pay less in rent, utilities, and maintenance (if I owned). The savings that I achieve in housing is no small thing. A lot of people try to save money by doing things like cooking at home instead of eating out and avoiding activities that cost a lot of money. While I am not bashing these strategies, many people would be better served by looking at how much they pay for housing first. When I first moved to Norfolk, I had 10 days to find a place to live. After looking at a bunch of apartments in the area, I had to option of selecting places that ranged from $600/month all the way up to luxury apartments hovering close to $1,500/month. Although my military housing allowance would cover any of these scenarios, I settled with an apartment that cost $725/month. Had I selected an apartment that cost $1,500/month, I would have to spend $775 less per month in other areas right off the bat just to match my level of expenditure paying rent at $725/month. Now, I don’t know about you, but $775/month ($9,300/year) is not easy to reduce. I would essential have to stop taking classes I enjoy, rarely eat out, and probably even eliminate the overseas trip I take every year in order get to that level. However, because my housing bill is so low, I can still do all the things I enjoy and still save 60% of my paycheck with relative ease. I don’t take pleasure in paying double the price for a super nice place when all I really need is a clean and safe living space at a reasonable price. I take pleasure in the experiences I have in life.
When it comes to saving money, I’m definitely no expert. I spend a lot of money on travel, eating out, and taking classes in activities that I enjoy such as salsa and Muay Thai. However, I can do those things and still save because I don’t spend much money on rent and buying things.
So what do you do with all that disposable income after adopting a minimalist lifestyle? Simply leaving it in a savings account or tying it up in a CD with low interest rates will do you no good. You need to make those savings work for you.
I’ve talked at length about my investment strategy in prior posts, so I won’t belabor the point. I’ll simply show you a screenshot of my Vanguard account that has been representative of what I’ve done consistently over the past 10 years.
It doesn’t get much simpler than that. Month after month, I buy shares in a Vanguard Target Retirement fund. Market goes up, I buy. Market crashes, I buy. There’s a saying that people use in powerlifting that goes, “Shut up and squat.” As far as investing goes, the saying should be, “Shut up and buy.”
“But isn’t the market due for a correction?”
“Shut up and buy.”
Listen, I don’t know what the market is going to do and neither do you. All I know is that if you are investing for the long term, there is no better place for your money to grow. And I’m not talking about buying shares in the latest IPO you read about either. I’m talking about low cost, boring-ass index funds. Last year, I contributed about $40K to my investment accounts, but my overall net worth grew by over $100K. If you’re starting out with $5K or $10K in investment accounts, it will be slow going at first. Once you hit a certain point, though, your investments start growing at a rate that will boggle your mind. Think about about it. If you have $500K and the market appreciates at a reasonable rate of 7%, you’ve earned $35K passively right there. But to get there, you need to establish a solid base for those investments to grow. That comes from forming the habit of saving and investing CONSISTENTLY over many years. If you’re the type to take out your money as soon as there is a sign of trouble in the market, it is definitely not for you. The more you have, the more you will see your net worth swing up and down. If you can stomach that — and many people really can’t — then the stock market is still be best way for you to grow your wealth.