DK: What’s the most common mistake you see people making with their money?
MMM: You could probably sum it up as taking a very short-term view on money and life: “I have $5 in my wallet right now, so I can afford this coffee,” or “I make more than $399 per month, so I can afford to borrow money for this car.”
Instead, I try to get people to think of things in 10-year chunks at a minimum and then move on to a lifetime perspective. For example, spending $100 per week on restaurants equates to a $75,000 hit to your wealth every ten years, compared to keeping that money and just investing it in a conservative way.
Instead of thinking of income as a temporary stream of cash that keeps you afloat, think of every dollar as a potential permanent lifetime employee that will work for you as long as you keep and invest it. But once you spend it, that particular dollar is gone.
DK: I really appreciate that you phrase your philosophy on money in terms of happiness. What’s a good way to put that into practice, though — if I’m standing at the store and thinking, “That dress would make me happy,” what can I ask myself to figure out if I really should buy it?
MMM: The first trick is to remind yourself that buying something — pretty much anything — is very unlikely to improve your long-term happiness. Science figured this out for us long ago, but not many people got the memo. Go to your junk electronics drawer and look at your old flip phones or your dusty iPad 1. Look at the clothes you’ve recently pruned from your closet that are now headed to the Goodwill. You traded a lot of good dollars for those, not very long ago at all. Are they still making you happy today?
Then think about what would really make you happy. For me, it was the freedom to choose how I spent my days, with no worries about money for the rest of my life. Again, every dollar that you keep for yourself will immediately start paying dividends towards this freedom. Your stress about money drops away, and you can walk away from a job or a boss you’re not fond of — the options start to open up with breathtaking speed as you step away from the financial cliff.
DK: What do you and your family splurge on?
MMM: I feel that we splurge on everything. For example, we live in a house that looks like it came from the pages of a modern architecture magazine, overlooking a park and within walking distance of downtown. I have not just one car, but two of them, which we never even use because we also have six bicycles between the three of us. We also eat ridiculously fancy food at home and take some pretty exotic vacations. Everything seems really over-the-top, considering the fact that we could be just as happy with much less.
But for other people, my life might seem like the opposite of a splurge: “What? Three people live in only 1,500 square feet? Their cars are from 2005 and 1999? That sounds like a really extreme life of frugality!”
The key to all of this is to zoom out a bit and put things in perspective. Both my life and your life are ridiculously abundant and safe compared to almost every human who has ever lived before you in the history of this planet. If we can’t be happy in this incredible place of privilege, we need to punch ourselves in the face and try again.
DK: How did you get started in the area of personal finance? And what informs your views here — did your parents talk money much with you growing up?
MMM: I was born as the stereotypical engineer kid, which means I was always interested in optimizing everything. Money was just one of those things.
It was only after I turned 30 and had enough money to retire from real work that I started getting these incredulous comments from friends and coworkers, like “What do you mean you are retiring? How will you get the money to pay your car loan and your mortgage? I’d be sunk within a month if I lost my job.”
To me, their stories were much more amazing than my own story of early retirement. They were the same age as me or older, and had equal or higher salaries. I couldn’t imagine having a shortage of money in such amazing conditions. Then I looked even higher up the income scale and found the same phenomenon. It turns out that humans are capable of blowing almost any amount of money, without realizing they are doing it.