I recently read a blog post by Perpetual Money Machine titled, “The Curse of a High Income.” The post presents a case study of Bill and Bob (not to be confused with Bill and Ted. or Bob and Doug or, I suppose, Bill and Bob). Bill’s a baller. He makes a lot of money and spends most of it. Bob’s a honey badger who doesn’t give a . . . care about what others think of him. He makes 20% of what Bill makes, but has a much leaner lifestyle. Bill and Bob lose their jobs, and as the scenario plays out, Bob pretty easily makes his payments before he finally lands a job. Bill, however, has all sorts of problems.
The moral of the story is, of course, that even if you make a ton of money, if you spend most of it, your position is perpetually perilous (pun and alliteration intended). Lower lifestyle expenses = more breathing room. ‘Course, it might mean that the author thinks people named Bob are smarter than people named Bill. I would never say such a thing. But hey, who am I to judge?
That sinking feeling
But it occurred to me that if we define “spending” to include investing in ourselves, or “paying ourselves” first, then — so long as the money we “pay” to ourselves is a high percentage of our earnings — spending most or all of our money may be the smartest play. And if we have a job, so long as our income increases and our expenses stay even or decrease — aka, increasing The Spread (between income and expenses) — and we sink the increasing difference into ourselves, then we’ve probably made a good investment and one that will produce excellent returns over time. The payoff is FIRE.
Our most valuable possessions won’t be fleeting material things, such as a great jacket we might one day tire or grow out of, a flashy new Yugo car that depreciates precipitously the moment it’s driven off the lot and ultimately will die, or one too many blowout vacations. Those things may provide temporary highs. But if a crisis hits (to say nothing of one on the scale of the ‘rona crisis we’re in now), their aggregate costs will make it way more likely that we’ll be Bill, and not Bob.
Rather, our most valuable “possessions,” will be priceless, at least in my estimation. More control over how to effectively address a crisis. Control over our time. Control over the work we choose to pursue, should we wish to work at all. Control over the life we want to live. Control over the decision to change the course of the life we want to live. Are you sensing a theme, Dear Reader? Subtlety is not my strong suit.
The more we sink into pursuing FIRE, the faster we can realize the invaluable benefits, whatever we choose them to be. And whereas the quest for material things is a never-ending treadmill of sorts, FIRE has a potential finish line. Once you’ve achieved it, and assuming the foundation is strong and you’ve accounted for the most likely pitfalls (sequence of returns risk, health insurance, a diversified real estate portfolio, etc.), the control is yours. Our personal share price becomes one dwarfing that of even Berkshire Hathaway, the FANG companies, or any other high-flying company.
Sure, you might want to increase The Spread between income and expenses after reaching FIRE. Maybe you want a bump of income to corner the market on Yugos make a one-time special purchase. Or maybe you want to go from barista FIRE to fat FIRE.
All fine and good. But you’re investment already has paid off. Any further investment in yourself just increases the dividend yield. You’ve already reached the status of successful investor.
