How to Keep the Challenge Alive
A recent post on Mr Money Mustache highlighted a common problem. Once you have your finances organized it all starts to feel too easy and you lose some motivation to do better, especially as you watch other people blowing up their finances. It’s easy to see that when you’re deep in debt and bleeding interest at 20-30%, you’re getting a good push that encourages you to pay off large amounts in a short time.
On the other hand when you have a positive and growing net worth, you aren’t paying interest over 3%, and you’re investing a lot every month you don’t really have the same motivation. That’s pretty much where we are now. So how can you make sure you keep improving and don’t fall back?
Turn it into a game
A simple way is to create artificial scarcity. We have a few accounts we use to manage monthly cashflow, and we push things far enough that we sometimes have to juggle things a bit and time payments. Whenever things are going well enough we move the extras to savings or investments in addition to the regular automatic transfers. So while those continue to go up, it still feels like we have to be very careful so we can avoid reversing the flow. We’ve been able to do this successfully without disrupting our long-term plans even while having surprises come up.
For example, last year we made a large payment to a student loan to ensure it would be gone by the end of the year. The next week we discovered we had approximately 2 months to research and buy a high-efficiency furnace before losing access to a major grant program. It took some “loans” from other cash accounts (which are all paid back now) but we managed to fit this into the monthly cashflow without disrupting long-term investing and saving plans. Of course this made it a bit harder to spend money on things we didn’t need.
This kind of arrangement is ideal if you sort of like the thrill of living on the edge, but you don’t want the constant danger of ruin.
It goes beyond the way you manage your accounts. I knew there were several areas of my business that could be doing better but I thought I had to wait a few years to do that. With more personal stability I took more business risks to get faster improvements, more enjoyable work, and an increasing income. So far it’s working out. Even if it doesn’t, there’s not much to lose. We could take a permanent 60% reduction in income now and still do better than average in retirement. If that comes with the immediate removal of things I don’t like doing from one of the areas where I spend a lot of time, it’s a good deal.
Use your short memory
Another key to this is that we do adapt to everything we experience regularly. After a while we don’t notice it or remember the initial pride of reaching that goal. This is part of the problem, since what seemed like a large amount to add to your investments every month just seems normal now (until you talk to someone who puts in less than that every year). The growing account balances don’t seem as exciting as they did at first. You can take this as boredom, or you can take it as a challenge. What can you do to invest more every month? What can you do to grow the account faster? What amount would get your mind racing again with plans for how you can reach a higher goal?
What’s it all worth?
Finally you need to ask yourself if you really need to do better. Eventually anyone will reach the limits of getting more and more. We’ve just passed a milestone of independence recently. If we never added another dollar to our investments, there’s a good chance that we could retire at a normal age with an above-average investment account and no debt. We could even extend our mortgage by another 25 years and accomplish this. So at a minimum we’re ok if we just pay the bills for the next few decades. Even if we had a sudden leap forward next week and never had to work again, it wouldn’t change that much. Although it feels like there is a long way to go, we probably have more than we need already.
You can see this clearly in people who have reached early retirement. Mr Money Mustache and Financial Samurai both write about how they gave up an income ranging from above-average to mid-six-figures in their 30s. Most people would think that’s about as safe as driving along a cliff blind-folded. Yet if you read about their plans, they already have so much margin of safety that they probably have 3 – 5x what they really need. And they are still pursuing (sometimes even rejecting) things that could generate an income that is equivalent or higher with far less work. So what’s the real risky move – giving up the income, or spending more of their lives chasing it when they have enough?
That level of financial planning and income creation is a skill that pays off, but if we don’t use it for anything else what is the real payoff? Income and assets only serve to support other things in our lives. Although many people think early retirement is impossible, I’m starting to think that it’s waiting too long. If you follow the logic a bit further, do you need to wait that long to do what you really want, or do you have enough stability to start today?
This comes back to the motivation. If you’re doing something you don’t like to get something you don’t need, why would you push yourself? How do you continue to motivate yourself? What really drives you to accomplish bigger things?