Earning Enough

Someone who earns a lot of money can still not have enough. The outsiders perception of most rich people is that they have so much money that they must have enough — indeed, it is the logical conclusion. However, in many cases, those who have accumulated a lot of capital do not actually have enough. A few days ago, I wrote an essay on wealth and in that essay I concluded that we should be focused on how we can achieve financial independence. After all, it is not having a lot of money that will bring us happiness, but rather having what we need to spend our time as we want.

One of the most impactful — yet underestimated — benefits of having money is that it provides you with more control over your time. Wealthy people have the ability to do more of what they want, when they want, for as long as they want, because they settle with earning enough money and thus don’t spend their time working more so they can earn higher salaries. Wealthy people are those who earn enough to cover their costs and have spare time to explore their passions.

Having Enough Gives You More Control

If you only spend 75 percent of your salary each month and invest the rest, you become more financially independent and so you have more control over your time. You don’t need to work every minute of every day to earn more money — you have enough. When we are young, we often think that having bigger and better things is great. Indeed, in some cases owning better things can bring us pleasure, but the extent of that impact is limited — we often forget about it a few days after getting the better thing. But if you have control over your time, then you have complete freedom to do more of what matters to you. Having wealth means that you can spend more time with family or pursuing side projects because you know that you earn enough to cover your costs. Being able to control your time is significantly more beneficial over the long-term because it provides you with more freedom in your choices — you know that you can afford to pursue new ventures because you are still earning more than what you need to. That is why saving money is so important — it is a long-term investment in your becoming financially independent.

Let’s say that we have two hedge fund managers. The first earns an annual return of 10 percent, and the second earns an annual return of 15 percent. The first only needs to earn a return of 5 percent to cover their costs, whereas the second needs every dollar of their 15 percent return to be happy. The first hedge fund manager is therefore better off because they are getting a higher relative return on their investment — they earn what they need to cover their costs, and they have some extra capital which makes them more financially independent. Think about how much work the second hedge fund manager has done to achieve those higher returns. The manager is indeed earning more, but they need every dollar to cover their costs. Therefore, the value of their returns to them are lower than in the case of the first hedge fund manager because they don’t get any extra money to save, despite their extra effort.

Be Frugal

This is exactly why it is important to try to settle with enough. Benjamin Franklin made frugality one of his thirteen virtues because he believed in the benefits of financial independence — it would allow him to pursue more projects. If I am earning $20,000 per year and only spending $15,000 and you are earning $100,000 and spending every dollar, I am still better off. I have more control over my time, and I can save more money which will help me become more financially independent in the future. If we become too focused on earning high salaries, then we will end up giving many of our best hours away in the name of earning more money. That time could be used more effectively if we were to spend time with friends and family, and work on side projects. There is a significant opportunity cost that comes with earning more money. As you earn more money, you will likely need to work harder — or at least spend more hours in the office. This means you have less time and energy to spend on the other things that matter to you which provide you with a significant amount of personal fulfillment.

I could likely work a lot more than I do, but I am happy with the life that I am living right now. I am earning more than I spend, and when I do spend money I try as hard as possible to be frugal — I have a resistance to spending money on unnecessary stuff. If I were to work more, I would have less time to write and pursue personal projects, and I would likely end up spending more money with a higher salary which would make it more difficult for me to get back into the routine of spending less. Warren Buffett has earned a significant fortune but is still a very frugal person: he spends very little on his breakfast, he is living in the same house he bought in his youth, and he does not like spending money when he doesn’t need to. By being frugal and having more control over your finances, your money will go further, which leaves you more with freedom. And with that freedom comes the ability to pursue more passion projects and spend more time doing things that you care about.

Become Financially Independent

Being financially independent takes a lot of time. But with every dollar you save from earning enough, you can become more independent and thus you will have more time to spend doing the things that you enjoy. You have reached true financial independence when you have invested money in assets that return most of the money you need to live — in that case, you have almost full control over your time. Saving a dollar is an investment in your future time. This is more difficult to quantify than other types of investments — there is no metric to value time. But time is more valuable than anything else. You can earn a lot of money if you have enough time; you can’t buy more time if you have a lot of money. Becoming financially independent at an early stage gives you more autonomy over your life, and allows you to become wealthy — which, as I wrote in my essay on wealth, is more important than having a lot of money.

Spending less is difficult, but it all comes down to realizing that you have enough. Many people earn a lot of money and then spend it all, which makes them feel as if they are not earning enough. People like me, however, earn a good salary but spend very little, which makes me feel as if I am earning enough. I would rather have more control over my time than a higher salary — that control gives me the liberty to do more of what I enjoy outside of work. Being frugal gives you more options on how you spend your time, and optionality matters a lot. If we internalize the fact that what we have is enough, then we will be wealthy. There will be no need to work those few extra hours at work — we will already have what we need to live a good life. Indeed, this does not apply to people who do indeed need those extra few hours, but it does to anyone else who is spending less than they need to live. It is very difficult to adjust to having enough — owning a better car or house is very lucrative — but it is worth it in the long-run. Enough is a very simple word, but most people fail to consider just how important it is to have enough.