Get a student loan. Get a college education. Get a mortgage and become a home owner. Have a career. Put 15% of your income in a 401k/IRA for 35 years. Plan to retire at 60… any of this sound familiar?

That’s because it is the standard recipe for a “successful” life in middle class America. It is designed to maximize your consumption at the earliest time possible through the use of debt as well as maximizing the number of years you need to spend on the job market. Happy Joy!

Depending on your affinity for bling-bling and living it up, being in debt and working from your early twenties to your late fifties or early sixties may be an okay deal for you, but for those who lend you the money and sell you shares, it is a GREAT deal.

If you’re fresh out of college, I’ll cut you a deal. Despite you not having done much of anything productive so far, I will lend you enough money so you can buy a house. How does that sound? Good, all you need to do for me is to pay me 6% on top of the price of the house every year for the next 30 years and you can “own” a house right now! Just sign here at the dotted line on this mortgage. Mortgage is French for “death lock”, but don’t you worry about that. I also have some other deals. Here’s a car and here’s a plastic card that makes money come out of so-called ATMs without any apparent effort on your part. Please sign at the dotted line.

Of course before you know it, you are on the hook for a house, a car, the basic human need of cable TV, a fancy diet, cell phones, a gym subscription, … things you CAN afford, because you no longer need to save to buy a house, or a new car, or a plasma screen TV, … all you have to do is to work and pay the bills as they come in.

After a few years with all this stuff it will be hard to imagine life without it. Therefore you have no other choice than to keep working in order to pay for all the things you signed up for. You now live in a virtual debtor’s prison, only you can’t see the bars except when you have trouble making payments. However, if you have debt, you are not a free person. You are explicitly owned by your debt and implicitly owned by the creditor.
Meanwhile, we realize that you can not keep working forever. We also realize that you do have some extra money which we like to get our hands on. Therefore we will sell you shares in the companies we own. This is not a problem since we, unlike you, have the time and connections to start new companies, do an IPO and create more shares to sell. This of course creates much more wealth and rightfully so compared to regularly buying a broad basket of stocks at any price. Doing that you are practically counting on selling your shares to younger people who are saving for their retirement. Better pray that there are more buyers than sellers when you retire. If not, your share of the pie might just be worth less than you think.

Now this may sound like an okay deal to you or it may not. However, if this sounds as outrageous to you as it did to me, here’s an alternative plan.

Instead of signing up for things you can not yet afford and promising to work for the rest of your active life with the hope of eventually joining a retirement community which like schools are where we keep unproductive individuals … please be aware that I do not intend to insult anyone personally, rather my vitriolic rant is directed at the system or structure we work under … you can do the following.

Your twenties is a good time to make sacrifices. Most likely, this will be the healthiest time of your life. Thus suffering a little hardship like renting a room or even sharing it with another person rather than renting a house will not be so much of a challenge as when you are less able to suffer some discomfort. Furthermore, now is the time to put in those 80 hour weeks instead of doing it when you are 30 or 40 and all nighters no longer feel natural. It is also a time to learn what to appreciate and what not to appreciate and gain some life experience. If you pull this off well, you will have more than one hundred thousand in the bank when you are 30. These are your retirement savings. More importantly, you will know what is worth spending money on and what is not. In retrospect many people at the same age will be looking back and wondering what they have to show for all the money they have earned.

In your 30s and 40s the time for sacrifice is over. You can forget about saving 15% for retirement. You don’t need it, because you have plenty of time for compound interest to work and you have a large principal to compound on. Now is the time to explore things that are meaningful to you. Travel. Work in another country. Try a different career. Start a business. Volunteer. Take a few years off to pursue a different education. Catch fish in Alaska. Become a tour guide or drive a forklift. While you still need to work to some extent, you don’t need to work full time for twenty more years to pay off a massive debt. Thus working from time to time is a viable solution. If this sounds appealing, I suggest reading Charles Long’s How to Survive Without a Salary. Alternatively, you can work hard for a few more years and build a second retirement fund which would cover the years between 30 and 60. Once this is established you are truly financially independent. Now the main challenge becomes one of living a life in a “strange” society that is tailored towards everybody spending 2 hours a day driving to and from work, 8-10 hours a day working, and the rest of the time eating, sleeping, and watching TV. The problem is almost one of having too much freedom. If you have credit card bills, car payments, mortgage payments, etc. you have to go to work. Life is simple that way. On the other hand, if you have no debt obligations and your main responsibility is not to work and pay bills, it becomes something else. The big question is what? Well, whatever you make of it. It seems to me that life is a journey and since I am currently in the middle of exactly that part of it, I can’t tell you just yet.

I imagine that when we get older and getting close to the conventional age of retirement or maybe even a little older since conventions no longer apply, we will be done with the bungee jumping and the sailing across the ocean in a sailboat. Perhaps then we shall know the meaning of life. I imagine us buying a small house in cash where we spend time reflecting, and writing. At that point I hope to know what the “question” is!

Originally posted 2008-01-12 07:15:39.