Trading your way to financial freedom
And I ain't talking about trading stocks...
Good morning!
Just a few years ago, I was tipping the scales at about 40 pounds heavier than I weigh today.
I shared a little about that here:
The essay above, titled “Inputs and outputs”, lays a good foundation for what I want to share this week.
But first…
I like to eat. And not always the healthiest fare.
But, I hate jogging. 🏃♂️
I mean, I really DO NOT LIKE it.
Yes, I know jogging isn’t the only way to burn calories, but I seem to have a particular aversion to it.
I’ve done plenty of running in my life, especially growing up playing sports like baseball, tennis, soccer, football, and basketball.
I even played a lot of recreational ultimate frisbee in college.
I enjoyed the opportunity to run. To compete.
But jogging?
No thank you.
I have a client who, a few years ago after his retirement, committed to running 5 miles every day for a year.
And rain, shine, hot, cold… he did it.
He was in his 60s at the time.
And asking him about it back then, I’ll never forget him telling me something along the lines of,
“One of the benefits of running 5 miles a day, is I can pretty much eat as much as I want of whatever I want.”
This was because he had to consume enough food to offset the calories he was constantly burning.
This same client shared an email update with me just last week:
“I also have made a game of the mileage some years. I keep track of all my miles and then put a couple of dollars against each mile and then donate it to charity. It keeps me motivated on those cold and rainy days to get up and hit the bricks.”
And while I don’t plan to start running 5 miles a day so I can cut loose with my caloric intake, I can see the appeal.
In simple terms, my client made a trade.
He ran 5 miles every day for a full year.
As a result, he could eat pretty much anything.
Of course, he could’ve injured himself.
Running 5 miles a day isn’t just about Twinkies and pizza. 🍕 Or it wasn’t for him.
But, his deliberate action in one area of his life (running daily) essentially created more options, choice, and freedom in another area of his life (the content and amount of food he consumed).
Your money can work much the same way.
There are many - consumers and professionals alike - who believe they can “trade” their way to success.
They think that “beating the market” or “picking the latest winners” will afford them the luxury of uninhibited spending… the financial equivalent of eating whatever and whenever.
And while they might call it investing, it’s really speculating.
Or gambling.
But if I’m saying you can’t reliably “trade” your way to financial freedom, does that mean your spending is always going to be dictated by your current earnings or how much you have in a savings account?
Maybe…
But then what do you do when you no longer have a paycheck coming in?
In my experience, there is a way to be able to spend relatively freely.
But it’s not without its own risks.
The simple solution is to spend less than you earn, and the sooner you start this behavior (and make it habit) the more it will compound to your benefit over time.
And while this is simple, it’s not always easy.
I’ve touched on this idea before in a podcast episode:
And I’m not suggesting you join the “FIRE movement” where you’re saving and investing 75% of your earnings and living super frugally on what’s left.
But if you’re willing and able to start saving and investing 10-15% of your income early in your career and you stick with it, you’re essentially “buying” yourself more choice and optionality down the road.
If you can get your savings level up to 20% of your income on an ongoing basis, you’ll be waaaaaaaay ahead of most folks in securing a comfortable and confident financial future, including retirement.
Am I saying smart, long-term investing doesn’t play a role in planning for the future?
Of course not!
But my clients aren’t investing to get rich.
They’re investing to preserve the wealth they’ve already accumulated so they can stay ahead of the insidious, wealth-eroding, destruction of inflation.
And we’ve all seen - and felt - the impact of inflation over the last year or two.
Imagine the impact - even at lower inflation levels - over the next 2 to 3 decades of your life.
For example, if you’d retired in 1999 and were spending $100,000 per year, you’d need to spend almost $189,000 in 2024 dollars to continue to support a lifestyle that cost $100,000 25 years (the typical length of retirement these days) ago as you can see with this calculator:
My clients are also using their accumulated wealth to provide a reliable source of retirement income as I covered in detail just last week:
I know I sound like a broken record player, but yet again it’s all about trade-offs.
If you eat whatever you want in whatever quantities you want, you’ll pay a price… on the bathroom scale and at your next check-up.
Likewise, if you fall prey to the “fake it till you make it” money game that so many - of all ages - seem to be playing, there’s a price to be paid.
You won’t be able to retire in the manner or on the timeline you want.
Sure, you’ll be able to retire.
But will you retire with a lifestyle you’re accustomed to, or one that pales in comparison to the YOLO spending you’ve been doing?
And let me be clear… this isn’t always about save, save, save.
Delayed gratification - while important - is not the only tool in my toolbox.
In fact, I regularly tell people they can and should reduce their savings based on their current financial situation relative to their future goals and aspirations.
Saving is just one of a few crucial levers (or trade-offs) you can push or pull based on your personal financial plan.
The other BIG financial levers are:
Spending (closely related to your savings)
Timing (when you want to retire, for example)
Risk (how much short-term portfolio volatility can you stick with - or not - over long periods of time)
And each of the above levers are within your control.
Investment markets are not in your control.
Which is why it’s silly to think (or hope) you can invest (or speculate) successfully enough to stay ahead of your unchecked spending and other financial misbehaviors.
I’ve shared this great quote many times before:
“There are no solutions. There are only trade-offs.”
― Thomas Sowell
I’ve been writing about financial trade-offs for the past 15+ years.
While I don’t enjoy jogging, I do enjoy eating.
And I have a sweet-tooth that can quickly get me in trouble.
Why have just a couple scoops of ice cream when that entire half-gallon carton is just begging me to destroy it? 🍨
Despite this, I don’t plan to start jogging.
As much as I love eating, I’d rather be a little more prudent with my food consumption than I want to lace up my Brooks and start pounding the pavement.
That’s not a “trade” I’m willing to make.
But it may very well be a trade that works for you. Which is where the “personal” part of personal finance comes in. 😉
I mentioned that spending below your means isn’t without risks…
The biggest among them is your willingness and ability to actually start spending your money once you can afford to, whether that’s in retirement or well before you retire.
I’ve encountered this many times with clients that have made such a habit of saving and investing for the future that once their future arrives, they’re unwilling (or psychologically unable) to start enjoying the financial fruits of their labor.
They run the very real risk of dying on a mattress that’s figuratively stuffed with money they could have spent, or given away, or done something with…
As with all things in financial and retirement planning, it’s about balance:
So whether you’re “trading” jogging for more choice and freedom at the dinner table, or you’re saving enough today to provide more financial choice and freedom in the future, I wish you the best.
For me, I’ll stick to walking… 🚶♂️
What about you?
What’s a deliberate “trade” you’re making in your life right now?
Links & things
I regularly discuss estate planning with my clients… everything from Wills & Trusts to their beneficiary designations.
But what about estate planning for your digital life?
1Password is the password manager I use, and I wanted to share their recent article with you:
Questions? Feedback? Suggestions?
I love to hear from you, so feel welcome to reply or leave a comment.
Until next Wednesday,
Russ