Everything Actually Costs 10x More

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This one’s a quickie.

If you’re reading this, I’m gonna assume you’re around 30. You’re here because you care about Money and Retirement, but you’re also reading this because you haven’t figured it all out yet. You’re not a Millionaire yet. That’s okay. Neither am I… but I can help you get there more effectively. All you need to remember is the title of this post. Here’s why.

Assuming you’re 30, you’ve got 35 years left before a standard retirement age of 65. Every $1 you put into an investment now, generating 7% interest annually, will turn into – wait for it – $10.68 BY 65! Do you know what that means?!? EVERY $10,000 YOU’RE ABLE TO PUT AWAY NOW IS WORTH $106,765.81 BY RETIREMENT!

Before you all jump on me saying 7% annually is unrealistic, I’m obviously talking about index funds that sometimes go up, and sometimes go down. The idea is that 7% is the average growth over a number of years, and you’re not gonna be dumb enough to cash out your index funds entirely right after a crash like 2008. When you decide to cash out, you’ll already be swimming in hundreds of thousands, so you can wait a little bit for the market to recover. You only need to withdraw enough to live on anyway, which should only be about $100/day for maximum happiness! Even that’s kind of extravagant.

For me personally, the US index fund I invested in has gone up 8.2% in the past 10 years. My MER is oddly high (and I’m gonna look into that), but even after factoring that in, my projection for 10-year growth is still about 7%. I’m not just telling you what to do! I’m also doing it!

Just remember: Spending $1 today is costing you $10 in the future. Save it, and invest it. And if you suddenly come across a windfall of $100,000, put it aside so you can become a Millionaire through no effort at all.

$1 + Time = $10.

Simple, right? Even a millennial like you can do it.

The Other Ben, or How to Retire at 33

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Ben is the most successful person I know. I’m actually embarrassed to be writing today’s post, mainly because I know I’ll never be as awesome as he is. Through sheer determination and innate frugality, he’s now on track to Retire For Good at 33. He’s 27 now, so he’ll be done in six years. SIX FUCKING YEARS. Here’s how he did it.

Those who have been with us since the beginning know there are two Bens: the dumb one – that’s me – and the smart one, Other Ben. Where I rack up Debt buying shiny things and drinking, Other Ben quietly drops thousands into his RRSP every month and doesn’t even blog about it like a tool.

He’s the kind of Ben I want to be when I grow up.

*****

Ben grew up in the woods, and never went to school. The year was 1999. He was living in a solar-powered house two hours out of Ottawa, and had no TV. City life was a foreign concept to him. At 11, he learned how to read, and how to code. With basic internet and online tutorials, he started learning HTML, JavaScript, CSS, and Flash. Within a few years, he mastered them, and started working on his own projects. He coded a chat system by 16. He became the webmaster for a local food co-op and started making $20/hour. He made Mac builds for The Battle for Wesnoth. He ported Frogatto & Friends to iOS. At 23, he moved to Vancouver. That’s when I met him.

Ben had many interests, but two stood out. The obvious one was software development. The second, quieter one was financial independence. He wanted absolute freedom from the rat race, and looked forward to a day when his investments generated enough passive income for him to Retire For Good and pursue whatever other project he wanted. He soon found work, and started making double what I do. He stayed there for four years.

*****

I messaged Ben last night. He’s in Brooklyn now, resting up before the first day at his new job. He’d just finished three months at Recurse, and I was asking him details for this post.

“What online resources did you use to learn code?” I asked.

“I started learning from people on IRC,” Ben said. “IRC was an interesting place, because often people were pretty rude and almost intentionally unhelpful when answering questions… But I hung out in the #web channel for a long time, and just sort of gradually absorbed knowledge…”

His new job makes him $100,000+ per year. His education was free.

*****

Ben’s not alone. I mentioned before he’s never had formal schooling. He hasn’t even been homeschooled. This isn’t really a surprise to me since I’ve always believed that modern academia is outdated in the internet age. Why bother memorizing history or doing equations longhand when you can bring anything up at the touch of a button? Mr. Money Mustache even posted an article recently where he mocked “fancy education” and simply suggested “Knowing how to Use a Goddamned Computer”. Ben figured this shit out early. I have diplomas worth tens of thousands and I’m just… me. Ben’s kicking my ass.

Formal education is the pits. In the internet age, you can learn anything for free. According to this article released by the Canadian Federation of Students, those “requiring a Canada Student Loan now graduate with an average debt of over $28,000”. Holy fuck, that’s more than I owe and I basically just partied for five years. Can you imagine what the damage would be if I were going to school too? “42% of Canadians under 30 years old still live in their parent’s home”. I got out and own my 99-year leasehold, and I don’t even have a bachelor’s degree. “In 2014, youth un- and under-employment among Canadian youth was 27.7%”. Well, that’s depressing. I have 2.5 jobs. What are these kids doing with their fancy degrees?

Being a self-starter will ALWAYS trump formal education. Ben is proof of that. Even I’m proof of that. The simple desire to get out there, make money, and be happy is NOT tied to academia. Ben will retire at 33. I take time off whenever I want. We both have a six-figure net worth, and neither of us have a degree.

Want success? Get out there and learn without paying someone to force you.

You’ll be a millionaire in no time.

–––––

EDIT: The original version of this post was edited to hide personal details. Ben has also spoken up, and would like to clarify his goal is financial independence at 33, not necessarily retirement.

Just One Less

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You don’t need a large coffee. No one does.

I was sitting in front of my computer, staring at the sea of 7-Eleven coffee cups in front of me. Many of them were large. Heck, I’d even bought an extra large. What the fuck was I doing? Half of these still had coffee in them. “I should clean up more often,” I thought to myself. It’s far too often I bring a fresh cup of coffee home, and end up taking a sip of yesterday’s by accident. Ew.

I already know to limit my Starbucks habit to once or twice a month, but a working entrepreneur NEEDS coffee. I figure $1.57 for the large coffee at 7-Eleven isn’t too bad. If I had one every day for an entire year, we’re looking at $573.05. When I calculated that out, I was surprised! That’s not insignificant! If I cut out coffee, I could buy a 50” HDTV every year! Naturally, I busted out the calculator and started looking for ways to save.

The next size down is a medium: $1.31. I’d save 26¢ on every transaction if I simply went down a size. Just one less. Maybe I could have only six cups of coffee in a week. Well, I cheated because I found out the 7-Eleven app gives me every seventh cup of coffee for free. I’m paying for “just one less”. Cool, I save $1.31 every week, and since that cup of coffee is free, I can go nuts and even get an extra large like some sort of Russian czar. $1.31 x 52 = $68.12, so I save $68.12 every year solely due to that app. That’s pretty fucking good. And since I’m saving 26¢ on each of the 313 cups of coffee I actually pay for, I’m looking at an additional savings of $81.38. Just like that, by employing the mentality of “just one less”, I’ve liberated $149.50 per year at the most basic level of daily spending. Now, here’s the crazy part: If you invest that $149.50 every year in US index funds generating an average of 7% each year from the time you’re 35 to 65, YOU GET $15,110.42! Doesn’t seem possible? Math it out yourself.

I even find myself thinking “just one less” when I’m buying only one thing. Do I need it? Can I borrow it? Often, I can do enough mental judo to put the item back on the shelf. This has saved me thousands and kept crap from accumulating in my home. It even helps with household necessities. Do I need to have the most expensive dishwasher, or will the next level down do? Is it really worth an extra $5 to feel like I’m wiping my butt with angels, or can I buy no-name toilet paper? Sometimes, you’ll find you really do want butt angels, but simply by remembering “just one less” every time you make a purchase, you’ll figure out your non-negotiables and be far richer for it.

This can apply to healthy habits as well. “Just one less” doughnut. “Just one less” hour in front of the TV. “Just one less” cigarette. By giving yourself tiny nudges over a long period of time, the compound effect builds into huge gains.

Can you live with less? Prove it, and tell us in the comments.

Veblen Goods and Conspicuous Consumption

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In 1899, an American economist named Thorstein Veblen wrote a book called “The Theory of the Leisure Class”. In it, he describes the phenomenon of Conspicuous Consumption, and explains how trying to earn social status through material goods can make for poor buying decisions. This idea became so prominent that modern economists now refer to luxury items as Veblen goods. Basically, Veblen goods are average items marketed at a high price point to prey on The Rich, and The Rich fall for it every damn time. Demand actually increases as the price increases. Examples include Hermes handbags, any Rolls Royce vehicle, and artwork by Christopher Wool. Seriously, have you seen that guy’s “art”? It makes me angry every time (so I guess he must be doing SOMETHING right).

Now that you know this, you can probably sell your Rolex and start ignoring Michelin stars. The entire luxury goods market is aimed at insecure people who have money, but little faith in their social status. They need to SHOW they have money. Think of it as a tax they pay to impress people. What really boggles my mind is there’s zero financial gain from having luxury goods. I suppose you could theoretically say driving a Maserati Quattroporte when you’re a real estate agent could help land higher-level sales, but by then, YOU’VE ALREADY SPENT $115,825. For the other 99.9% of us, expensive cars are bullshit when you can get from A to B in a decent $4,500 commuter car. You’ll rarely hit 100 MPH on city roads anyway, and if you do, enjoy your traffic tickets. I say it’s lose-lose. Had you invested your $115,825 at 35 and let it sit until 65 at 5%, you’d have HALF A MILLION. One shitty luxury decision can ruin your retirement.

So am I saying you should have ZERO luxury goods? No, not exactly. I’m just saying you should look at a product’s practicality before its brand name. Don’t spend $1,200 on a handbag that does the same job as a 0.1¢ plastic bag. Don’t buy a 1961 Cheval Blanc just because you saw it in a movie when you like Barefoot. Don’t spend $500 at a ritzy restaurant and walk away hungry. There’s spending on things that are worth it, and then there are Veblen goods. I actually smirk a bit when I see people showing off their expensive cars now. In many cases, I know they’re financing them, and I can’t help but picture them stuck in traffic behind a Smart car while cyclists blissfully pass them in the bike lane. Everyone these days seems to own a luxury car, but how many can escape 40 hours a week making someone else rich?

Once you pay that much money for something, you also start to lose leverage when you’re dissatisfied. I dined at a two-Michelin-star restaurant in Paris once, and dropped $600+ for the privilege. My fish was unevenly cooked, my sommelier was oddly passive-aggressive, and they deliberately seated me in a corner away from their more opulent clientele. I could’ve complained, but what’s the point? I’m sure their staff regarded me as a commoner anyway, looking to milk an upper class establishment for all they were worth. It’s a different kind of club up there, and it’s not worth trying to get in. I’m still not sure why I tried.

Finally, Veblen goods are particularly dangerous to the faux riche, and I willingly admit I fall into that category. At my current level of Debt, I shouldn’t be buying ANYTHING except basics, but here we are. I have an Apple computer, bottles of $400 Bordeaux in my cellar, and enough PlayStations to run an arcade. That’s why, right now, I pledge to spend only $100/month on material goods. I’ll roll that limit forward if I have any left over, but that means only blowing $600 on material goods between now and Christmas. Bug me and make sure I post updates. With some luck, maybe I can be Rich for real.