Having finally arrived at financial freedom, I’d like to write a series for Funny about Money on how to achieve financial freedom before you drop in the traces. We’ve seen that SDXB managed to escape in early middle age and that he’s never had to go back to a day job. So we know that with luck and smart financial management, it can be done.
If and when reasonably priced universal health care coverage becomes available in this country, quite a few Americans will be in a position to get off the treadmill. Too many of us work in miserable day jobs, pushing paper or waiting on other people who are in equally miserable day jobs, for no other reason than that we must have health insurance and there’s no other way to get it. When we’re freed from that trap, the possibility of running our own daily lives becomes a realistic choice…but only if we can achieve financial freedom: freedom from debt and from the pervasive cultural and psychological influences that herd us toward debt.
To engineer financial freedom, several components of personal finance need to be dealt with and brought under control:
• Education
• Work
• Debt
• Housing
• Transportation
• Savings
• The health insurance hurdle
• Strategies to maintain financial freedom
Though none of this is nuclear physics, it’s a process takes several years. Short of inheriting a fortune or winning the lottery, you can’t achieve financial freedom overnight.
To begin with, you need some education or training that will allow you to earn something more than minimum wage. While you don’t need to earn big bucks to find your way to financial freedom, you do need to earn above the bare subsistence level. You need enough income to pay off debt that can’t be avoided (such as student loans and mortgages), to stay out of credit-card debt, and to build savings.
Then you need to find housing that’s affordable, not only in terms of what you earn but within the framework of your goal to escape the rat race. The cost of your roof, whether it’s rent or mortgage payments, has to be low enough to leave something to put into savings.
The same is true of your personal mode of transportation. If you live in one of the few U.S. cities that provides good public transport, you’re in luck. The rest of us have to own a car. We need to find ways to keep the cost of car ownership from consuming funds that could keep us out of debt or be invested in savings.
The foundation of financial freedom is freedom from debt. All debt, including mortgage and car loans. This is tightly linked with another key component of Bumhood, building and investing a fund of cash. Debt and savings have been talked to death on the personal finance blogs, but we’ll review those issues in the coming series.
Finally, there’s the question of how you manage to stay free once you’ve managed to break free. Any number of issues bear on your continued financial freedom, ranging from adult children who need help to the lifestyle you want to (or can) sustain. Since that exploration is about to become the subject of FaM, over the next few months we should make plenty of discoveries along that line.
Financial Freedom
• An Overview
• Education
• Work
• Debt
• The health insurance hurdle
The roof over your head
One problem is that there is no safe way to invest. When I bought my house, my money market acct was paying 9% and mortgages were 10%. Now mortgages are 5%, but my mm acct is paying almost 0 and “high yield savings” are at 1.5%! Why the huge spread?
I loved reading about SDXB, but he is a very special case. He began getting a military pension and health benefits at 60–so his period of “bumhood” was really from 47-60, Plus he was able to command $90/hr for occasional work!
@frugalscholar: Well, I don’t know: IMHO, what makes SDXB a special case is that he worked up the nerve to do this. The period where he earned ninety bucks an hour was very short — probably not even a full year. The S&L industry collapsed shortly after he walked off the job.
He played his cards cleverly, and he took some long chances that some of us would be unwilling to do. The military thing, for example: by choosing the Air Force reserve as his part-time job rather than, say, substitute teaching or selling men’s colognes at Macy’s, he engineered a military pension and got the health benefits early. On the other hand, he put himself at risk of being called up, and indeed he was called up for Desert Storm. Fortunately, he was posted to San Antonio and not to Iraq, but he was yanked away from his quiet life of bumhood and told he would be on active duty for the duration. I personally would not have chosen to join the military reserves for a number of reasons, not least of which is I don’t believe I’d be good in a combat zone.
Nor would I have ever dreamed of investing in foreign currencies. HOLY mackerel! You understand, he came very close to losing his shirt. It took over a decade for exchange values to shift in his favor, and during that time he seriously thought about cutting his losses.
Even more terrifying, to my mind, was going bare. I can’t imagine risking the farm by going without health insurance. True, he got routine care once a year and some treatment for various chronic ailments, on the taxpayer dime. But all it would have taken is one heart attack, one stroke, one serious car wreck to pauperize him once and for all. When I would mention this to him, he would say that if he got sick he would just go back on active duty. I would say, “How are you going to get them to put you on active duty while you’re in the ICU?” He would just shrug that off. It’s far more risk than I’d have been willing to take.
But overall, if you look at what he did, the strategy of quitting your job and supporting yourself with part-time gigs is, under specific circumstances, not that dangerous and not that exceptional:
* He paid off all debt, including mortgage debt.
* He lived below his means.
* Because he lived below his means, he had money left over most of the time.
* He invested any left-over funds, conservatively (this guy has most of his money in CDs; whatever he has in the stock market is in blue chips).
* He worked part-time, usually on his own terms or something close to it.
* He engineered a kind of skeleton medical-care “plan.”
* He never ran up new debt.
Except for the business with the foreign currency, the biggest risk he took was going without real health insurance. But if and when Americans get something resembling universal coverage, that problem will go away for most of us: we no longer will have to hold day jobs to be allowed to go to doctors.
SDXB pulls off Bumhood because he feels no need for cable TV, no need for expensive cell phone service (he resisted getting any cell at all until quite recently), no need to drive an expensive car or live in a fancy house or go out to dinner or hire workmen to do jobs he can do himself, no craving to buy brand-new clothing when what he can find in a thrift shop or yard sale fills the bill. He lives very frugally.
His point is that anyone with a marginally salable skill and a willingness to get out of debt and live frugally can become a Bum. And I think he’s probably right.
Are you serious!?! You really think universal healthcare is going to set us all free? Free from the self-inflicted bondage of living beyond our means? Most people could afford their own health insurance if they didn’t pay $6.50 a day in cigarettes or Starbucks coffee or other rediculous ways of wasting money.
I agree with your strategies for achieving finacial freedom, but those principles apply with or without socialized healthcare reform. In fact, your strategies have a greater relevance in a capitalistic economic environment.
@ Dominique: It certainly will help set us free from bondage to insurance companies. Also from bondage to day jobs that we have to keep because we have no other way of getting health insurance.
Where’s the connection between access to health insurance and foolish spending habits? I think I’m missing something here. My point, as I recall, was that if you can get decent, affordable health insurance outside of the workplace, with no screwing over “pre-existing conditions” (some of which, in my experience, are trumped-up), those of us who have the skills to make a living through self-employment would do so. Many people would be in a position to quit their day jobs if they didn’t have to keep a full-time job to get health insurance.
You are giving sound advise for financial freedom, we in comes to living within your means. There are several ways to achieve financial freedom. The first thing people have to understand is that is hard, and they must do it themselves. That doesn’t mean BY themselves though. Find someone who has achieved what you want to achieve, and mirror yourself around them.