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A wit once remarked that the secret to avoiding poverty in America is to abide by three don’ts.
- Don’t drop out of high school.
- Don’t have kids unless you’re married.
- Don’t be allergic to work—always be gainfully employed, regardless of how humbling that may be at times.
Brilliant. I defy anyone to unearth a guy or gal who has diligently abided by the above three don’ts and is living on skid row.
But what if you want more out of life than just avoiding poverty? What if you want a solid middle-class life? What if you want to build wealth?
Sadly, the above three don’ts won’t cut it. They’re a great strategy for avoiding poverty, and they’re a great base for taking your finances to the next level. But by themselves, they’ll leave you poorly equipped to build wealth. You’ll need a few more don’ts.
What I want to do now is start a series that builds on the above don’ts. These are the extra don’ts you have to abide by if you want to build wealth. And the first extra don’t in The Groovy Don’ts of Building Wealth is don’t rent your job.
Don’t Rent Your Job
Okay, what the hell do I mean by, “don’t rent your job?” Never sign up for a temporary gig?
Not exactly. To show what I mean, consider the primary argument homeownership advocates use against the notion of renting: Renters aren’t building equity. They’re throwing their hard-earned money down the drain.
Now I’m not saying that the equity argument is a slam dunk. Between 1928 and 2013, the typical American home returned 3.7 percent annually. During that same period, stocks returned 9.5 annually. But there are occasions where home prices spike dramatically. I, for instance, bought a one-bedroom condo in Long Beach, New York, for $70,000 in 1998. I sold it eight years later for $340,000. The price of that condo rose roughly 22 percent annually during my ownership stint. So real estate can be a spectacular “investment” at times.
But even if homeownership turns out to be a mediocre “investment,” you still walk away with some equity. And that’s a nice perk. No landlord is going to hand you a check for tens of thousands of dollars when your lease is up.
So how does one “own” one’s job rather than rent it? Simple. If your employer has a 401k or 403b plan, enroll in it and use a portion of every paycheck you receive to buy shares in one of the plan’s stock mutual funds. And if your employer doesn’t have a 401k or 403b plan, open an IRA with a brokerage firm such as Vanguard and use a portion of every paycheck you receive to buy shares in one of its family of stock mutual funds.
Contributing to a retirement plan, whether it’s work- or DIY-based, is analogous to making a mortgage payment. You’re building equity. If you’re not contributing to a retirement plan, you’re renting your job.
How Much Should Your “Mortgage Payment” Be?
Owning your job rather than renting it is going to cost money. That “mortgage payment” won’t be free. My suggestion is that you invest the monthly amount necessary to have a quarter of a million dollars in your retirement plan by the time you reach 65. What this amount will be is obviously dependent on your age (see the table below). Let’s suppose for argument’s sake that you’re 25 and you make $30,000 a year. To have a million dollars by the time you’re 65, you’ll need to invest $444 per month. To have a quarter of million dollars, you’ll need to invest $111 per month or 4.4 percent of your gross paycheck.
Is a quarter of a million dollars enough to have a zippity-f*cking-doo-dah retirement? Hell no. But it’s infinitely better than having jack sh*t in the bank when 65 comes a-knocking. And that’s what you’ll have—jack sh*t—if you spend your whole working life renting your job.
| Age | ||||||||
|---|---|---|---|---|---|---|---|---|
| 20 | 25 | 30 | 35 | 40 | 45 | 50 | 55 | |
| Monthly Savings in Order to Have $1 Million by Age 65 (courtesy of Money Magazine) | $306 | $444 | $645 | $942 | $1,396 | $2,126 | $3,406 | $6,055 |
Final Thoughts
Okay, groovy freedomist, what say you? Is my notion of “owning” your job and building equity a worthwhile contribution to the financial independence movement? Or is my admonition to not “rent” your job a trivial twist on the attitudes one must have to build wealth? Let me know what you think when you get a chance. Peace.
Oh, Just One More Thing
In honor of my Great-Uncle Phil, I decided to paint the American flag on the side of the Groovy Ranch garage. Seventy-five years ago, he was a paratrooper at D-Day. He was 18 years old, and his country gave him a parachute and a rifle and asked him to liberate Europe. When I was 18 years old, my country gave me a university system with dirt-cheap tuition and asked me to hone my mind for the betterment of society. But unlike my Great-Uncle Phil, I failed miserably to make my country proud. The only thing I honed in college was my thirst for cheap beer and the only thing I liberated in college was my capacity for making excuses and being a lazy sh*t.
The funny thing is that I don’t think my Great-Uncle Phil and his Band of Brothers would have had it any other way. They braved German and Japanese bombs and bullets so future Americans would have the luxury of being a**holes in their youth.
Thank you, Great-Uncle Phil. And thank you to all the soldiers and sailors of WWII. With each passing year, I have a greater appreciation for how truly heroic and selfless you guys were.
Love your posts and of course the ranch. American flag painted on is pure inspiration. I like the way you think out of the box, I’m like that too and what surprised me so much when I was younger was that so few people can see and understand the concept of finances that are done differently than the norm.when I was twenty I took one look at what it cost over a 30 year mortgage for interest cost (of course that was in 1976) and said who the hell does that? Turns out to my surprise almost everyone. So I took my skills as a second year carpenter and saved my check each week and bought building materials every Friday evening when I got my check and worked each weekend installing what I had bought. Took a little while but first thing you know I finished the house and didn’t owe a penny. I had a lot of my friends naysaying me the whole time bacially telling me that’s not the way its done. Finished the house and on the weekend I finished it I asked my sweetheart to marry me while kneeling down on the front porch I had recentally nailed down.
I know it’s a long story but now I’m 64 still married to the same girl and still living in the same house. Although I have done several houses like that just keep ending up back on the farm in the same one.
Keep up the good blogging my friend, I appreciate what your saying.
“So I took my skills as a second year carpenter and saved my check each week and bought building materials every Friday evening when I got my check and worked each weekend installing what I had bought. Took a little while but first thing you know I finished the house and didn’t owe a penny.”
Talk about inspiring. You’re my hero, my friend. Our biggest enemy is that box of conventionality you so eloquently described and you smote that box at a very young age. Bravo.
Thank you Mr. Groovy! That is very kind of you to say.
Amazingly to me I have only been able to convince two other people to do what I did with building thier houses paid for, apparently the status quo mind set is almost impossible to overcome but it is a faith thing too, when you totally put your mind and hand to do the impossible thing God shows up and breaks come to you and things work out in amazing ways.
Hey Mr. G! I haven’t been over here in a while but I still love ya but have been busy with offline life. I agree with this concept of owning one’s job. I am putting the max into my company sponsored simple IRA. I can hardly wait until I turn 50 so I get catch up contributions. 😉
More importantly, thanks to your Uncle Phil for his selfless service to our country. I am grateful.
That garage is beautiful!! I love it!!
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“I can hardly wait until I turn 50 so I get catch up contributions. 😉”
I love it. Only a true FI enthusiast looks forward to turning 50. Thanks for stopping by, D. Your visit warmed the cockles of my heart.
In Australia, we have compulsory superannuation, where every employer has to put 9.5% of your pay into a retirement account. If people want to kick in extra, salary sacrificing is only taxed at 15%, so it’s very attractive. You can put in as much as 25K a year overall.
You can access it from around 60 years of age. This ensures that most people have at least a few hundred thousand tucked away by the time they get old and wobbly.
Of course, if you want to retire earlier you need to do additional investing. But the compulsory super at least gives a glide path.
“You can access it from around 60 years of age. This ensures that most people have at least a few hundred thousand tucked away by the time they get old and wobbly.”
I love the Australian system. We could learn a lot from our cousins Down Under.
That’s not bad. Getting some equity back is a form of forced saving, just like the 401k. It’s good to get something back when you move away. I still think buying is better than renting. Renting frees up some cash, but most people just squander it.
Nice paint job.
“Renting frees up some cash, but most people just squander it.”
Exactly! We all need a nudge and things like mortgages and 401(k)s are great nudges.
Great point on using an employee retirement account to build equity and equating it to owning a home with a mortgage payment.
So many employees enter the job force and do not give much thought to retirement which can be decades out. They think that they don’t need to concern themselves with retirement so early but nothing can be further from the truth as these early contributions have the most impact with the factor of time/compounding doing the heavy lifting.
Most employees offer a match to retirement funding and if you don’t at least contribute to get the full match you are giving away free money (actually it is not free because your employee has factored this in to your salary, so you are getting paid less for your work because of this perk).
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Thank you, my friend. I couldn’t agree more. Why is the obvious not so obvious?
“Don’t rent your job” is a creative and convincing way to illustrate the importance of saving for retirement. And using the home ownership anaology is brilliant.
And here’s to your Great Uncle Phil and all of the others like him!
Also, Groovy Ranch and the garage look great!!
Thank you, my friend. You’re too kind. And, yes, we all owe a tremendous debt to the WWII generation. It’s the only generation I know that liberated three continents from German and Japanese evil in four years.
Did you seriously paint that? It looks fantastic! I want one, LOL.
Haha! Even though I’m a moral reprobate, I was somehow blessed with a little artistic ability. I think somebody up there likes me.
Your garage in truly inspirational! Well done!!
Thank you, my friend. I couldn’t agree more. We already have gotten tons of superlatives from our neighbors. And every time Mrs. G and I return to our house and we see Old Glory proudly affixed to our garage, we smile. It’s amazing what twenty hours of work and a little red and blue paint can do for your soul.
Nice article! Agreed, equity needs to be built in work. Both for retirement and advancement. Everyone can tell if you are there just for the paycheck. so make some effort and stick around for a while.
“Everyone can tell if you are there just for the paycheck, so make some effort and stick around for a while.”
I love it. For the first ten years of my working life, I mailed it in. I just did the bare minimum not to raise the ire of my boss. But for some reason, I came to the realization that being “Mr. Mediocrity” wasn’t serving my wallet and soul very well. And once I dedicated myself to do my job exceedingly well, everything changed. My income and self-respect made considerable advancement. You got an awesome mind, my friend. Thanks for stopping by and sharing your wisdom. Cheers.
I like the concept of owning your job, and I think you could take it another step. Rental houses and rental cars, well it is a truism that they are often treated poorly by renters because they don’t own them. To me owning your job means investing yourself in it, treating your responsibilities as if you owned the company, not just doing the minimum to get by. It has huge payouts too, it’s much easier to save millions when you earn many millions during your career. And the people who earn millions are usually the ones who own their jobs rather than renting them.
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Awesome, my friend. It didn’t dawn on me that the “pride of ownership” we associate with real estate is just as valid in the workplace. Yep, those who “own” their jobs are more likely to take pride in their work than those who are “renting” their jobs. I’m now a little wiser for reading your comment. Thank you.