Job security is dead. You are one earnings call, one technological innovation, and one denouncement away from losing your job. Hopefully you have a skill that allows you to be re-employed immediately, but most men are not immune to such a sudden lost. Let’s take a look at what happens when two men netting $5,000 a month lose their jobs at the same time.
The first man works for the government and lives alone in an expensive condo. He likes the finer things in life and is quick to pick up the tab when going out with friends. He spends $4,500 a month and saves $500. He’s read that saving 10% is better than the American average of 4%. In one year, he has $6,000 saved.
The second man works as a bartender at a popular club. He lives with four roommates. He wishes he could live alone, but the club industry isn’t stable and he doesn’t know how long his current gig will last. He makes it a point to network with other bartenders to get as many free drinks as he can when going out. He spends $2,500 a month and saves $2,500. In one year, he has $30,000.
Both lose their job at the same time. The first man enters a full-blown panic, because he only has one-and-a-half months of money to survive, which simply isn’t enough time to find a job in his bureaucratic field. The second man, while upset at the loss of his job, knows he can take a one year vacation without a single change to his lifestyle.
Which strategy is superior? The man who has no leeway but lives a high-profile lifestyle, or the man with a large savings but basic lifestyle? The answer you receive from them will likely depend on whether they are fully employed or not.
I live like the second man. I save about half of my income, preparing myself for possible irrelevancy if game gets outlawed or my books stop selling. I have created a fund where I can live for several years without income. I figure that that’s enough time to come up with a new way to provide for myself.
Do I wish I had a luxury condo, a BMW, and all the accouterments of rich living? I sure wouldn’t say no if you gave them to me, but I refuse to spend more than 50% of my income on living. It’s hard, because I know I can spend more, but I rather live simply with security than live lavishly with anxiety. I find it hard to imagine how people live paycheck to paycheck, knowing that their life will be in total turmoil if something bad happens. If I have a bad month—or even a bad year—you wouldn’t even notice a change in my output or demeanor.
Financial freedom is the most important type of freedom, because it lubricates all other forms of freedom. You have to be able to walk away from anyone who tries to limit you, whether your boss or your critics, and still live on your own terms. You can’t do that when your monthly expenses are so large that you spend most of your earnings. Unless you can go a year without any income, you are in a very fragile economic state. I lived like that before, but I won’t do it again.
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