When I first started working in High School, I used to think, “man, this is so easy!”. By investing just 8 hours a day during the weekend, I was able to make enough money to buy a videogame… in a SINGLE day! $60 a day, or $7.50/hour seemed like a pretty significant chunk of change to an energetic, yet naive freshmen. Before long, I had my sights set onto bigger and better (more expensive) things. After all, working 8 hours was a small sacrifice to help me buy all the things I wanted. Heck, I only wish there were more days in a week so I could work more hours!
I still remember the first major purchase I made that year, as it basically took the entire school year and Summer months to save up for. The apple of my eye was one of the first HDTV’s to hit the market, the Pioneer SD-532. This was a mammoth 53″ rear-projection CRT that I just had to have. The total cost for the beast came out to be $3250. I still remember “negotiating” the deal on the telephone, proud of myself for having “saved” hundreds of dollars off the retail price. Hey, I was 15, what did I know?
A slight detour here, but just for curiosity sake, let’s say that instead of “investing” my hard-earned cash on future e-waste, I instead had the insight to invest in the stock market. I could have blindly picked any blue-chip stock, say Procter and Gamble, and my money could have gotten me 113.54 shares, at $28.63/share. I picked July 01, 2000 as the date of transaction (which was about the time I purchased the TV… also, conveniently after the dot-com crash ;)) At PG’s current payout ratio of $0.56/share, this would have netted me $254 annually in 2012 ALONE (ignoring DRIP). Total dividends would be close to $1900, so I would already be close to recouping my investment on dividends alone. Dividend growth is a powerful thing, right?
*Not to mention the stock price would have pushed the value of the shares alone just north of $7800.
Still, what strikes me most is not the amount of money I wasted during my freshmen year, but rather the contrast in energy level that I experienced then as compared to now. Back then, even work seemed trivial, and it was just so easy to balance – school, homework, work, social life, girlfriend, etc. Reflecting back, it just seemed like I never got tired, and could basically do anything I wanted. Unfortunately, this level of energy has been difficult for me to sustain as I’ve gotten older. Especially because of work, I find my energy rather limited these days, so I must allocate my time much more carefully. I’m 28, so still relatively young. However, just observing this difference gives me better perspective on how to chart my gameplan moving forward.
For most people, even those who stay active, energy levels gradually decline as we get older. The wear and tear of everyday life starts to take its toll, and we don’t recover quite as fast. As an extreme example, football players can be used to illustrate this fact. Most running backs peak around 24 to 27, stay consistent from 28 to 30, and then start to fall off the cliff after 30. Again, the exact range this occurs is subject to debate, but it cannot be denied that an athlete in his mid 30’s to early 40’s is past their physical prime.
Applying this idea to everyday sedentary life basically assures me of this – someday off into the future, I will be much less capable of doing physical and mental work than I am capable of doing today. Younger, more vibrant employees will enter into the workplace and be competing for my spot. The worst-case scenario would be: I hate my job, I know I am no longer qualified to do it, but I desperately need to cling on to it because I need that paycheck!
By committing to early financial independence, I am basically shielding myself from this inevitable decline. With a savings rate of 70%+, I should be able to hoard off enough money to exit out the game before the wheels come off. This is similar to the aforementioned running back signing that one “big-time” contract before hitting the twilight of their career. Since money no longer becomes an issue, they can retire “on top”, something I very much would also like to do.
Financial independence would be great because it would buy me the one thing I covet most – time. By achieving it early, I also get the bonus of never having to worry about working when I am no longer capable of doing so. Often times, I observe my older co-workers and wonder to myself, “are they simply doing this because they have no other choice?” I dread the thought of being like the athlete who hung on too long because they needed that extra paycheck – resembling only a shell of their former self. I want to check out, and still have an abundance of energy to pursue my true desires and passions. I prefer to be like the early bird that catches the worm, kicks back during the afternoon, and enjoys the sunset on a full stomach. Considering how badly I screwed up my financial prospects in high school, it’s the least I can do 🙂