The pleasure of investing for your financial freedom

I'm a long way from financial freedom, but I've noticed a change since I started my switch from saving to investing. There are many definitions for saving and investing so I'll give you my own.

Saving is putting money away without earning interest or earning significantly less than inflation. Saving for me is Emergency fund money or any other money in cash or anything that pays less than 3%. Why 3%?  Current inflation here is about 4.7% (officially). Your typical bank savings account, money market account and certificate of deposit would be savings.  Savings are important. If you have no savings you need to save first and then you can invest.

Investing for me is putting money in stocks, bonds, and any other investment that earns near, at, or above inflation in any case it should earn at least 3% to keep up with "ideal inflation".

Anyway, I had paid off my credit card in 2011 (My previous savings got spent during the recession), and saved up my emergency savings for 4 month's expenses and then I started researching and found how I wanted to invest in a mix of stocks and direct bond purchases earning 4-6%.  I put 3/4 of my emergency funds into those so I'm down to one month of expenses in cash.  I'll probably keep it like that for the near future since my cash earns no interest in the bank. I just keep that there as I might need it tomorrow/real emergency money. The refrigerator could stop working or something else might come up. Still I hate to see the purchasing power drop due to inflation.  In fact yesterday, I noticed that two things I enjoy went up by one peso each.

Yesterday, I got the first bank statement for my new bank account that includes investments. Although only a small part of it was new money from last month's income, I felt just as good as if I had bought a pizza or new shoes.

Every Thursday when I see the new cetes and bonds assigned to my Cetesdirecto account, I get a little excited that I made another small step closer to my goal of financial freedom.  New shoes wear out, and  pizza gets eaten, but investments make you more money.

I've started to ask myself how many 20 or 30 year bonds I'd need to buy a pizza every month with interest or something else I enjoy. I suppose once I start getting dividends I'll do the same thing.

If you haven't yet, start saving so you can start investing for your future. Even if you don't want to retire early, you'll find uses for that new investment income.  Saving isn't fun, but investing feels great!

Measuring Financial Independence Progress and the arrogance of idiots

Last night I was in Messenger, and I said hello to a contact that I haven't met in person, but he was someone with whom I'd chat with about 2 years ago.  All was well until I mentioned to him that I started sharing my bedroom in the apartment I rent.

He didn't ask me why, but he quickly went on to judge me (someone he hasn't even met). He asked my age. I'm 36. Then he went on to ask me about my posessions. Do I have my own house? no
Do I have a car? no, and I don't want one. I live only a few minutes walk from the subway and a major avenue. I definitely don't want to waste money on a car. Then he went on to tell me that I don't even know if I'll have food to eat tomorrow.  That isn't the case, but I didn't feel like correcting him since he didn't seem to care about my situation only my posessions.

He then told me that I have nothing. Then he continued to tell me how he has his own house and furniture and he pays his bills.

The difference is that he lived with his parents most of his life and his parents gave him for free the lot to build his house on. The hardest thing in a megacity is to find WHERE to build a house and actually buy it. The actual construction here is very easy to manage once you own the land. It is very likely he never rented.  I'm not saying anything he did to have his house is wrong.  What I'm saying is that his arrogance is wrong since he basically lived off of his parents while I have had to pay rent and bills and yes, I buy my furniture too.  If he had been renting since his early 20s like I have and had he bought the land his house is on then I'd admire him. Since that's not the case, I think he's a jerk who deserves retribution for being so arrogant.

Should I have my own place by now? I suppose I really should, but my income isn't high, and I'm single. Most of my income isn't considered when applying for a loan. He also works independently, but since his parents gave him the land, he didn't even need to request a loan to build.  Land in a megacity/metropolis is very expensive. If I lived in a small town or even a small city, I probably would be able to buy an empty lot for not so much.

As for his scolding me for sharing my room, I think that was just stupid, but that shows you how backwards people are. Instead of praising you for making a sacrifice to finally get ahead financially, they scold you since you really should spend as much money as possible and somehow manage to buy a house of your own while single on a low income.  Sorry, but I'm not going to buy into that backwards thinking.  That's what leads people into mortgage foreclosure and living on the street or with family, because they spent instead of saved.

No, I don't regret not living off of my parents during my 20s and then have the option of being an arrogant idiot like him.  I'm very proud that I've been able to survive without having to ask my parents to support me or to give me land for my own house.  I only regret not posting the roommate advertisement years ago! I'd have a lot more money saved today if I had a roommate sharing a room not only an apartment. I also wouldn't have had to move  a few years ago when times were tough if I had shared the rent of my room with another.

I definitely want to continue to live with roommates and yes share my room (I started sharing this month).  Some of the money I save will go toward bunk beds. The rest of the money I save goes toward my financial independence and early retirement.  I definitely hope to have my own home, but I'm not going to be a jerk about it when I do.  As long as I am single, I plan to have roommates! It just makes sense to share.  Housing costs are normally the biggest expense and rent money isn't an investment. You pay it and it is gone. When I buy my own place, I also plan on having roommates. If I'm lucky their rent money will pay the bills or most of them. I will be able to have my own place and still retire early.

I actually could get a small loan for a tiny house without a yard on the outskirts of the metropolis, but I wouldn't be able to live there while I am working since it would be about 2.5 or 3 hours away and since there is no yard I wouldn't be able to have a garden. Those houses only have 1-2 tiny bedrooms so I wouldn't be able to share. It wouldn't be a very good investment since it wouldn't be a place I'd want except in an emergency. It makes more sense for me to invest in dividend stocks and bonds.

What do you value? Do luxuries like a car make you feel like you have more value that someone who takes public transportation?  I think a better measure of how you are doing is in stability, the ability to cover your basic needs, and safety for the future. Having your own home gives stability, but only as much stability as being able to live in it and pay the bills.  A car doesn't make you more stable, it eats money. A car is a convenience.  How many months could you survive if you stopped working your regular job today?  If I stopped earning money today, I could easily live 7 months and 10 months if I only cooked basic food at home.

Is life really too short to invest for your future?

I had an interesting chat with my other new roommate two nights ago. We were discussing my philosophy which isn't really new to me. Many people believe in living simply and saving for the future unfortunately here in Mexico and apparently in most of Latin America (this roommate is from Venezuela), the habit of saving is only for very short term savings typical reasons for saving money were for a party, for vacation, and for home electronics. Only about 8% of Mexicans according to the survey I read in a newspaper actually are saving anything for their retirement even though over 50% say they have the habit of saving.

Let me get back to the conversation. My roommate mentioned how its possible to die soon and not be able to enjoy your savings and early retirement. That is true but I think the odds are much higher that I'll live to be at least 50 and since all my grandparents ( I believe) were mid-80s or older when they died, unless I get sick or die from an accident I'll most likely live to my mid-seventies or older.

I guess it comes down to two things, how long you expect to live and if you believe that pleasure today is more important than pleasure tomorrow and the day after.  In other words, is it worth it to sacrifice the car or the apartment in an expensive area and the restaurant meals in favor of simple living in a cheap apartment sharing with roommates so that you'll be able to cover emergencies and if there aren't any emergencies in the next 6-10 years be able to retire early?

Only you can answer that question for yourself.  Like him, I also think that life is too short. I think it is very possible that I could die before I'm 67 or whatever the government's retirement age happens to be.  I would like to be able to be financially free and do whatever I want for years before that time. I'd like to travel the world and make destination photo books to sell online. I'd like to meet new people, try new food, and learn new languages. I'd like to have time to take lessons to improve my manual art skills. If I didn't have to work everyday to live, I'd have a lot more time for those activities especially travel.

It is difficult to say if I'll be able to reach the goal since I'm averaging about 50% savings even with my frugal lifestyle. My income isn't high enough to save more. I do know that even a little makes a big difference over time.

Are you one of the 92% who leaves your normal-old-age retirement to God or your children?  It is time to wake up because you might not die young as you planned and your children might be spending their money on your grandchildren instead of you.  What does life is short mean to you?  Does it mean to forget the future and be irresponsible or does it mean to plan for tomorrow?

Get excited over small improvements for Financial Independence

On the road to early retirement or financial independence, it is easy to lose motivation due to the fact that it takes time to save and invest enough money (especially for someone with a low income)  Unless you plan on dumpster diving and camping in the woods, you will always have some basic costs which require at least 300 times your monthly expenses in investments to be considered safe (4% annual withdrawal)

So what can you do?  To stay motivated enough to make a difference?

• First realize that every month that you live frugally by not buying things you don't need, packing lunches for work, drinking water or tea instead of soft drinks, and sharing your home (and therefore rent or mortgage and utilities) IS an improvement.  That's one month you didn't dig yourself deeper in debt or that is one month more in your emergency fund or investments.  Even if you stop next month, it did make a difference.
• Second, look back on your progress since you started to take actions. (Thinking about it doesn't count) When did you start making large payments to your emergency fund?  When did you get the new roommate? When did you start seeing your bank account balance grow even though your income didn't go up?  Start from that point. Either compare bank, credit card, and investment (including retirement) statements from then and now or check your personal finance spreadsheet if you have it there in a net-worth spreadsheet. I always enjoy seeing my AFORE account grow when I get the statements every four months. It isn't a lot, but I know that I don't need the retirement funds yet (almost 36 years old), and even if I stop saving now that money will grow. Also the AFOREs have INFONAVIT funds for purchasing an urban lot or buying a home. The loan they could offer me right now would be for a really tiny townhouse at the edge of the suburbs without a yard and limited in services.  While I might not mind that for retirement, I can't do that while working since I'd have at least a two hour perhaps even 3 hour commute. I can't justify doubling my commute right now. However if I regularly save a large percent of my money every month I should be able to either buy a large house on the edge of the suburbs or a tiny condominium close to the city center. Both have advantages and disadvantages, but through each month's saving and investing, I know I'm a little closer to the goal even if it is just 1% of what I need to pay in cash.
• Keep a progress report:  You could use a tab in your spreadsheet for an informal report on how  you're doing. Make a rough net-worth page dividing your assets and liabilities. Make one row for each. Each column can be a month. As you get your statements for each account make an entry for that month. Make a field for totals for both assets and liabilities and finally one for the net worth which is the difference.  Celebrate going from debt to zero and celebrate short term goals like saving at least 50% of your income consistently. 
• Don't feel bad when you make a mistake or can't save one month due to an emergency or other setback.  It happens. Learn from it and move on. I probably will only be able to save money 9 months of the year because I normally only teach half of April, December, and January. Half the income means I just lost my 50% savings. I still have to live the entire month! Instead of feeling bad about those three months I should feel good about the nine months I worked on paying off the credit card and saving my 4 month emergency fund.  The next 9 out of 12 months should make a big difference in investments. 
• Get excited about firsts. What do I mean?  The first time you have something good for your financial health, take a moment to feel good about it. Knowing that your financial future (independence or retirement) is good should be just as exciting as the new purse or 3-D LCD television.  I just got a first yesterday when I finally got access to check my AFORE statements online (including current balances).  Instead of having to wait every four months, I can log in and get a report showing how each sub-account is doing.  I was excited to see that my voluntary deposits earned 14.50 pesos in the last month and a half. Yeah I know that's the cost of a sandwich, but over half of the savings were deposited 14 days ago. 
• Take time to dream about your future.  I see 14.50 pesos in growth of my voluntary deposits and I can imagine 25 next month, and 40 the next as I double the amount and later increase it by a third then a fourth. (as the balance increases my monthly deposits increase the total by a lower percent, but every pesos I add helps earn that month and the following until I spend it on one of my goals or need it for an emergency.
• Imagine what you could buy using the interest from your investments to motivate you to keep investing (sacrifice the short term to enjoy the long term)  No, you didn't buy the TV this month, but that $1000 USD should earn you at least 4% or $40 USD a year. Don't buy the TV and instead invest it and eventually you'll have enough interest to pay your electricity bill or your vacation once a year even if you don't reach early retirement or financial independence even a few months of effort will make a big difference.