Common wisdom holds that the Financially Independent (FI) outspend typical wage slaves. But the FI benefit from powerful paradoxes. Because they’ve nurtured small nest eggs into big nest eggs, they actually spend less on many expenses than those who live paycheck-to-paycheck.

Let’s compare the spending of the FI to that of the indebted; or to put it in a snappier way, let’s compare the wage savers to the wage slavers. Fair warning: for those uninitiated in the ways of fervent thrift, this might sting a bit (several times below, you’re asked to appraise your own finances).

Paradox No. 1: The FI don’t pay interest.

Most Americans are awash in debt from mortgages, student loans, auto loans, and/or credit cards. By ingrained habit, they buy first and pay later. Not so the with the FI. They’ve banished debt from their lives. In place of indebtedness they’ve built up impressive reserves. When they choose to spend, they tap into these reserves (or into their current income). Since they rarely borrow, they rarely pay moneylenders.

How much do you spend each month in interest? Multiply that figure by twelve. That’s your annual cost of being a debtor. That’s also the amount you could save each year by ditching your loans and paying out of pocket for purchases.

Paradox No. 2: The FI enjoy free housing.

Those who rent have no chance of ever recouping their housing costs. In contrast, those who buy homes and pay off their mortgages early can enjoy decades of rent-free or near rent-free living. Yes, it’s true that much depends upon the state of the housing market upon sale. But the longer anyone stays put in the same place, the more likely their accumulated appreciation will offset their mortgage interest, real estate taxes, repairs, remodels, and homeowners insurance.

And here’s a kicker: when married homeowners sell their appreciated home, they get to enjoy up to $500,000 in profits sheltered completely from any capital gains taxes. See IRS Publication 523. Renters don’t qualify for this lucrative tax break.

Paradox No. 3: The FI don’t spend for “show.”

Many debtors camouflage their financial distress by spending on showy luxuries: cars, watches, jewelry, the latest smartphones, and other baubles. This expensive facade telegraphs a false prosperity. But such status seekers condemn themselves to a downward spiral where (1) insecure finances trigger (2) luxurious spending which perpetuates (3) further insecurity. In contrast, the FI have no reason to show off. Most are comfortable enough in their financial security that they don’t need to broadcast it to the world at large. In FI households, Toyotas tend to replace Jaguars, Timexes replace Rolexes, birthstones replace diamonds, and Carhartt replaces Ralph Lauren. When you don’t need to spend for show, you tend to save a lot more dough.

How much do luxuries cost you each year? Could you comfortably shift such spending to your savings accounts? Which life result would you prefer: (1) having others perceive you as prosperous; or (2) having others perceive you as less than prosperous while you secretly enjoy a net worth that places you in the top 10 percent of American households?

Paradox No. 4: The FI skip insurance that most can’t live without.

Those who live paycheck-to-paycheck force themselves into buying certain insurance policies. There’s no responsible way for them to avoid this. They can’t possibly leave their dependents defenseless if death or disability stops the regular paycheck from coming in. But those who have saved enough get to live a different paradigm. They responsibly dodge insurance premiums because their existing assets are large enough to cover their dependents’ needs.

Not only do the FI save on life and disability insurance, they also can skip buying mortgage insurance (because their home’s equity exceeds 20 percent of its market value) and long term care insurance (their assets are substantial enough to cover this risk as well).

Paradox No. 5: The FI pay lower premiums.

The FI still pay for home, auto, and health insurance, but they pay lower premiums than wage slaves. Insurers offer price breaks in exchange for higher deductibles. Since the FI only need insurance to cover risks that would materially dent their net worth, they can afford to undertake the incremental risk that higher deductibles represent. The happy results are lower premiums.

Insurers also extend price breaks to consumers who boast superior credit ratings. Since the FI tend to score high, this provides yet another source of savings on premiums.

Paradox No. 6: The FI get paid to shop.

The FI pay off their credit cards each and every month without fail. They could use cash if they wanted to, but they prefer credit cards that offer reward points. An FI household can easily earn $600 or more each year through these rewards. In debtor households that carry credit card balances, any such rewards are wiped out by punitive interest rates.

According to the Federal Reserve Board, 55 percent of cardholders carry a monthly balance. Do you pay your cards off each and every month without fail? If not, how soon could you pay off all your outstanding balances?

Paradox No. 7: The FI pay lower taxes.

The FI know that the fastest way to build wealth is to shelter their income from taxes in federally approved savings accounts such as IRAs, 401(k)s, HSAs, SEPs, and others. They can afford to max out their contributions to these accounts because they’ve acquired the habit of spending much less than they make. As decades pass, they avoid hundreds of thousands in tax bills.

How much do you contribute each year to tax advantaged savings and retirement accounts? Do you contribute the maximum allowable by law?

Paradox No. 8: The FI waste less.

Common wisdom holds that the wealthy shouldn’t care a fig about smalltime household waste. But most of the FI have earned their wealth the old fashioned way—one dollar at a time. They’ve learned to abhor waste. Despite their accumulated wealth, they still dial back thermostats in the winter, they still wash clothes in cold water, and they still toss expiring foods into the freezer instead of the trashcan. In other words, they chill to the maxim of “waste not, want not.” In contrast, many wage slaves are stuck in a never-ending cycle of “waste much, want much.”

Do you regard saving electricity and reducing food spoilage as bothersome details? What steps have you taken to limit your household waste?

Paradox No. 9: The FI spend less on big ticket items.

The FI have achieved wealth because they’ve planned for it. While those living paycheck-to-paycheck have spent years playing checkers, they’ve spent years playing chess. As a result, the FI by habit are more proactive. For example, when a furnace shows signs of approaching failure, wage slaves stick their heads in the sand and pray the unit doesn’t fail in mid-winter. This puts them at the mercy of furnace salesmen. But when the FI are confronted with a failing furnace, they take the time to research replacements and shop around for the best prices well in advance of the actual failure. This approach doesn’t only pay off on furnaces, it works for all major purchases—appliances, repairs, remodels, and even vacations.

Do you face any crumbling household infrastructure? Have you made any plans to deal with it or are you instead relying upon the winds of fate?

Paradox No. 10: The FI divorce less often.

Nothing fractures nest eggs like breaking up nests. But the FI stand a better chance of avoiding divorce than couples who labor under huge debt loads. Why? Research shows that fiscal strife is a major cause of break-ups. Financial independence reduces these stressors and keeps FI couples out of divorce court.

Would building up a secure store of assets help your relationship?

* * *

Strange, isn’t it? The FI inhabit a paradise of paradoxes. They practice the virtue of saving and this begets still more savings on all kinds of living expenses. Whether we’re prosperous or debt-ridden, we all get one life to live. Does it make any sense to lurch precariously from paycheck to paycheck? Consider instead the peaceful path of the devout saver. Consider taking a pleasant stroll down the road of life instead of mounting an uphill struggle with a load of debt piled high upon your back. While debtors rave, savers save. Why not give the path of financial independence a try?

Photo by Vegar Nilsen

Get Articles Via Email