Don’t waste your time; save smart instead
For many of us these days, saving a million dollars is no different than mapping a route via Google Maps, arriving at your destination, then turning around and taking the same trip — consecutively — another two or three times.
Put another way; it’s like mapping the best route, then purposely taking tangent turns that make for a longer and more arduous process to get where you want to go.
If you can make things easier on yourself, why not do it?
As I wrote in my first two Medium articles and beyond, you don’t necessarily need a million dollars to retire (or whatever you want to call it). So many people fail at hitting this status symbol of a benchmark because it’s hard to amass a million bucks.
It’s also not necessarily necessary.
In this article, I further detail a strategy I recently introduced. An alternative to a million dollars for a conventional retirement. It builds on my cash-focused approach of strategically allocating income to pots of money.
I call it recycling cash.
It’s about working smart. You can also work hard. There’s nothing wrong with that. However, when hard work becomes the primary conduit to success with money and (perceived) success in life, we often have a problem.
Working hard tends to break backs on the way to a retirement we’re less likely to enjoy.
Working smart helps facilitate an amazing life today and into an active and vibrant future.
It might take a while to get there. This isn’t easy. Stuff with money usually isn’t. But it’s a hell of a lot easier than saving a million to rely on when you hit your sixties or seventies.
Once you have achieved this goal — and you have other key conditions in place — you can semi-retire. You can recycle cash on an ongoing basis.
You set out on a race against yourself not to hit a million by 59–1/2, 62, 65, 70, or whatever, but to be nimble with your ongoing cash flow and income allocation.
You can eventually realize the compounding effects of recycling cash.
Here’s what I mean by that.
First, let’s define and provide an example of the traditional notion of compounding investments (via AMG Funds):
Suppose you invest $10,000 into Cory’s Truck Company. The first year, the shares rise 10%. Your investment is now worth $11,000. Based on good performance, you hold the stock. In the second year, the shares appreciate another 10%. Therefore, your $11,000 grows to $12,100. Rather than your shares appreciating an additional $1,000 (10%) like they did in the first year, they appreciate an additional $1,100, because the $1,000 you gained in the first year grew by 10% too.
If you extrapolate the process out, the numbers have the potential to grow as your previous earnings start to provide returns. In fact, $10,000 that returns 10% annually for 25 years would grow to nearly $110,000 — and that’s without investing additional money. Keep in mind that the examples presented throughout this paper are hypothetical, and actual returns will be different, much less predictable and potentially negative.
My recycling cash strategy adapts the definition of compounding.
After you save two years of expenses ($96,000), you pull out one year’s worth ($48,000) and live off of that money for a year.
As you deplete this $48,000, you’re saving almost all of your ensuing cash flow.
If throughout this year, you can decrease expenses and steadily increase income, you operate from an ideal position of strength. In fact, I’d go so far as to say you should not utilize this strategy unless you can decrease expenses and steadily increase your income reliably and consistently.
This is one reason why having pots of money for things like travel is so important. When you travel, you don’t take the money out of what we’ll call your general fund. So, while you are spending, you’re not impacting the expense side of your main budget.
Some people simply can’t do this. They can’t budge on lifestyle. Making more money isn’t a possibility. More traditional or some other method of managing money makes more sense.
However, if you can do what I outline here, you might see something like this transpire —
That $48,000 becomes $45,000 because you cut some expenses.
But the $48,000 you set the goal to save becomes $53,000 because you steadily generated more cash flow.
This results in a surplus of $8,000. You’re effectively compounding your cash flow. Do this repeatedly, and you’re in business!
Again, this isn’t easy. It’s absolutely a challenge. I’m setting out on it myself.
You can’t set a lofty goal and expect to get there overnight despite the hyperbole we’ve witnessed over the last year associated with the stock market.
As hard as putting the pieces for this in place and subsequent execution is, it’s far less stressful and way more satisfying than the standard grind and invest now to live latter plan of attack. At least, this is my take after thinking quite hard about the strategy.
You don’t have to save $1,000,000.
In fact, it might be a total waste of your time.
Why make things more difficult and complicated for yourself than they need to be? If you can somehow organize your work and cash flow to recycle cash to fund life today and for the duration, it can make better sense than accumulating an out-sized nest egg earmarked for some uncertain date way off in the future.
This article is for informational and entertainment purposes only. It should not be considered Financial or Legal Advice. Not all information will be accurate. Consult a financial professional before making any significant financial decisions.