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1 Simple Decision That Gives You Financial Independence

A recent survey showed that 60% of us don’t keep a budget. Close to 20% hasn’t a clue where their money goes each month, yet 43% do spend more each year than they earn. Almost a third pay no attention to interest rates on their credit cards, even while carrying an average debt of $15,000 per household.

How can this head-in-the-sand approach to managing money end in anything other than disaster? Look at our economy over the last two or three years and the answer is obvious: it doesn’t. You can’t ignore the basic laws of economics. You can’t spend more than your take in without paying the consequences.

For over thirty years I have followed a very simple plan to financial stability. It allowed me to treat my family to Christmas in Hawaii several times, maintain a timeshare condo in Florida for 20 years, have a vacation home in the mountains of Arizona, live in a nice home with a pool and spa, and stop working when I was 52.

I didn’t hit the lottery. In fact, I wouldn’t buy a lottery ticket under any circumstances. I didn’t hit it big in the stock market. In fact, I am extremely conservative in my investments and suffered no major lifestyle changes during the last several recessions.

What I did is so simple, so easy to implement and so effective that anyone in virtually any financial situation can do what I did. It doesn’t matter if you are single, have a family, take care of your elderly parents, or live in a yurt in Mongolia. It doesn’t even matter what your income is. So, what is the one key?

Live beneath your means. That means spend less than you make. Ignore the siren call of instant gratification. Realize that credit costs you. Understand that risky investments are called that for a reason. Don’t be greedy. Remember the Turtle won the race.

As I’ve noted, we didn’t spend the last 30 years in a tent in the wilderness, living off road kill and fish. Our lifestyle was comfortable. We were not (and still are not) minimalists, though I like that approach to living. My wife and I agreed very early that we would do three things without fail: spend at least 30% less than we made, save and invest that 30%, and never carry credit card debt. We lived beneath our means.

Living this way means turning your back on the consumer society that fills our every waking moment. TV is not a medium for entertaining you. It is a delivery system for making you feel unsatisfied. Magazines and newspapers contain more ads than editorial content.  Every sense of yours is under assault to buy more, spend more, charge more, and risk more. To not do so is almost unpatriotic.

I am not going into detail on how you live beneath your means. Common sense will get you most of the way there. Thousands of books and web sites can educate you on the basics of budgeting and smart investing. There is really a very simple path to financial independence and anyone can follow it. Maybe not at the 30% level we managed, but if you spend less than you make and are committed, it will work.

Written by Bob Lowry. Bob hosts a blog, A Satisfying Retirement Lifestyle,  to help you achieve the type of retirement that leaves you happy and productive.

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  • http://www.uncommonlybrilliant.blogspot.com Mike C.

    Good stuff Bob.

    It really is nice to have no debt. And I mean no debt.

    Debt is akin to a heavy smoker. For every puff he takes, or at least somewhere in the back of his mind, he must think–I’ve got to quit doing this. And the frustration knowing that he must stop, but knowing that the reality is, he’ll never stop.

    It’s like a chronic stress that never goes away, constantly eating at you.

    • http://satisfyingretirement.blogspot.com Bob Lowry

      Glad to see my guest post hit a a positivbe note for several. Living beneath your means is not the normal course, but it pays tremendous dividends.

    • http://satisfyingretirement.blogspot.com Bob

      “Debt is akin to a heavy smoker.” Great analogy. Debt is a killer and is aways a worry.

  • Paul Danon

    Living within your means has ethical advantages too. You’re less likely to damage the environment with frivolous purchases, you’ll take public transport and you could have a surplus from which to give to the genuinely poor. If you’re financially independent, you’re less likely to be a burden on your nation’s welfare-system and charity-sector. Living frugally is also a spur to humility; we are less likely to parade our possessions and judge ourselves (and others) by what we or they own. We can thus become less materialistic and (because of all that getting on and off buses in the rain) fitter.

    • http://satisfyingretirement.blogspot.com Bob Lowry

      Over-consumption is quite bad for the environment. So much of what is bought is unnecessary. Good point, Paul. There is a real freedom when you can control your own financial destiny.

  • http://lookingtobusiness.com Daniel M. Wood

    Such an important point!
    Great stuff Bob,

    Most of my friends have no clue where their money goes and they are overjoyed each time the pay check arrives.

    To me it is the opposite, I know exactly where my money goes, where I spend it, where it comes from and know that day 30 of the month is no different from day 1.

    To me the pay check just means that another month has gone buy, for good and for bad.

    Planning your budget is to me the only way to become financially independent.

    • http://satisfyingretirement.blogspot.com Bob

      Living paycheck to paycheck would scare me to death. Delayed gratification and credit card sanity are two disciplines that not enough people have decided to embrace.

      Thanks for your feedback, Daniel.

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  • http://www.glimpsesindia.com Glimpses India

    This is the smartest decision you will ever make. NO Debt!

    • http://satisfyingretirement.blogspot.com Bob Lowry

      No debt is so easy to say, but so hard to achieve for so many. It takes real discipline. But, as you noted, it is the smartest decision one can make.

  • Keith Serxner

    As soon as it was possible (about 4 years into marriage) my wife and I started living on just one paycheck. The other went to: savings, taxes, vacations and emergencies.
    We were able to send 2 kids thru college, having them finish with no debt, and a safe working car. Our house, cars and possesions are paid for. We’ve never felt underpriviledged in any way. At 55, we can retire any time, but continue to work because we want to. We will retire at 60 and God willing, have 20 years of playtime to enjoy before age slows us down.
    Our children saw our partnership and financial plan and seem to have assimilated many of our values. We have enough tucked away to live comfortably without touching principal. I hope my kids do the same.

    • http://satisfyingretirement.blogspot.com Bob Lowry

      Keith, your situation sounds like a page from my playbook. We buy our cars for cash, we even bought our last house for cash. The freedom of no mortgage and owning our home free & clear is fabulous.

      Congrats on passing the lessons on to your children. Your comment really nailed the reasons to do what you did.

  • ahmed

    oh yeah ,, American Western -especially Americans i guess – spend too much across their life ,, they say this is our life style ,we can not change it ,,Everything could be changed and this article is a step on the road ,,
    N.B
    In Islam ,Lottery is illegal activity ,and considered a sin ,, This is no choice to accept it or not ,, it’s condemned activity ,and indeed it’s a waste of time and money

    • http://http//satisfyingretirement.blogspot.com Bob

      Everything can be changed: behavior, attitudes, expectations. The problem has always been to break a pattern that has been one’s standard for a long time.

      Thanks for your comment. I doubt one article can change much, but may be a person or two will rethink how they approach their finances.

  • http:satisfyingretirement.blogspot.com Bob Lowry

    Living on one paycheck just four years into your marriage. Excellent! That shows foresight and discipline. You will be a major winner with this strategy.

  • http:satisfyingretirement.blogspot.com Bob Lowry

    Good job! Sending kids through college takes a lot of planning but is something any parent should do if at all possible.

  • http://satisfyingretirement.blogspot.com Bob Lowry

    Living without a budget is like driving with a seat belt. You may not crash, but if you do without one, you will pay the price.

  • http://satisfyingretirement.blogspot.com Bob Lowry

    Very true. Unnecessary purchases account for a good portion of the economy!