Are You Financially Fearless?
January 08, 2016I love stories about things that don’t always go together. Sometimes it creates a wonderful combination. That’s why when I read this story about a Siberian tiger that isn’t eating the goat it was fed (and is actually becoming a good buddy of the goat), it brought a smile to my face.
The goat, which could very easily have been dinner for the tiger, is now playing with the tiger and they are learning tricks from each other. The tiger is teaching the goat to hunt for prey and the goat is teaching the lion about the wonders of licking salt blocks. An unlikely duo is now possible primarily because the goat didn’t know it was supposed to be afraid of the tiger and didn’t know he was supposed to be eaten. He walked in, showed no fear, acted like he owned the place and is now actually sleeping in the tiger’s bunk with the tiger moving up to the roof.
So what would our financial lives look like if we didn’t know we were supposed to struggle and have a hard time managing our financial lives? What if our expectation was that we would become financially independent one day? I spoke with a young man recently who graduated from college last May with a modest amount of student loan debt and a head full of dreams. It was an enlightening conversation for both of us.
He was contemplating moving into a very nice apartment. (He is currently living at home with Mom and Dad to enable him to have a low cost of living initially). He hadn’t signed a lease yet and was having second thoughts about his choice in apartments so he came in to talk through his decision.
His rent would have been almost as much as one of his paychecks. (He gets paid twice a month). His student loans and car payment would have consumed nearly half of his second paycheck. That would leave very little to pay for important things like utilities and food, not to mention fun, emergency savings, life experiences, etc. But, it had a great pool and other wonderful amenities and was very convenient to the office.
He was currently not contributing to his 401(k) because he wanted to use the excess cash flow to pay down his student loans. I admire the desire to eliminate debt but question his tactics. Paying down the student loans would give him a return of 6.8% (his interest rate on the debt). Contributing 6% to his 401(k) would give him a return of 100% since his employer matches contributions up to that level.
We did a quick calculation to see what his 401(k) balance could be at age 65 if he started contributing today. By paying off the loans and waiting 7 years to contribute to his 401(k), he reduces that balance by almost $1,000,000. When he saw that, his eyes popped wide open.
He wanted to contribute more than 6% and see how early he could consider retiring. All of a sudden, the “lamb” that walked in expecting to just struggle to pay his bills became fearless and driven to take over the lion’s den. (Yeah, I know the story was about a tiger and a goat, not a lion and a lamb, but a lion’s den sounds so much cooler and I feel bad calling him a goat.)
I was able to see his face change as he started our conversation with low expectations and the preconceived notion that he’d have to work forever and then moved to the real possibility that he could start saving aggressively now and retire at a young age. Instantly, the cool amenities of the apartment didn’t seem so attractive. He was going to stay with his parents as long as they could peacefully coexist while he enrolled in the 401(k) and eliminated one loan after another.
He left the conversation knowing that if he could squeeze a year or two out of staying with his parents, he’d have most of his loans paid off and could always move in with some friends at a very low monthly cost. There was an energy about him at the end of our meeting that I hope he can maintain over the course of time. The fear of a lifetime of drudgery was replaced by a motivation to live a life of financial security.
When you think about your financial life, are you the typical goat that gets thrown into the tiger’s living space and walks around with uncertainty, suspecting that you might get eaten? Or are you a fearless owner of your space, your life and your finances? One way sure sounds better than the other!
Want to learn how you can take advantage of your 401(k) and other employee benefits to take ownership over your financial future? Please consider using our CEO’s new book What Your Financial Advisor Isn’t Telling You and the related Financial Independence Day website. They contain excellent resources for living financially fearlessly.