Front-Load The Sacrifice

Yesterday’s post was all about sacrifice.  Getting to financial independence requires hard work, planning, and missed opportunities.  This is part of the process.  While some have found a way to climb the mountain while also enjoying the beauty of the local terrain, the great majority of us have an end in mind.  We tend to track that end with laser like focus.  Whether it be early retirement or a particular net worth, we are willing to put in the extra hours, lose sleep, or work weekends to make it happen down the road.  We all, in one way or another, pass the marshmallow test.  I would not be silly enough to suggest that any advice I give you here will reduce the need for such patience and forbearance.  Some things are inevitable.  But, especially if you’re a young person, I have one key piece of advice.  Front-load the sacrifice!

This is not a new concept.  Any of you who have perused Jim Dahle’s book, The White Coat Investor, understand this theory.  He calls it living like a resident.  He suggests spending the first few big salary years out of residency (for doctors) like you are still living on the meager wages of a physician in training.

It’s worth rehashing.  The harder you work as a young person, the less you will have to, as you get older.  Want to retire at 40?  How about 35?  There is no way to achieve such flighty aspirations unless you pay your dues.  So do yourself a favor, pay those dues early.

Front-load the sacrifice.

Failure To Launch

What requires the most energy during a typical transatlantic flight? You’d be correct if you guessed take off.  That’s right, once the plane is up in the air and on its trajectory, fuel needs decrease drastically.  If you can just make it past the original hump, you can expect smooth flying for the duration.

Your financial timeline is no different.  The fuel you create and  burn early in your journey will often propel you even faster the rest of the way.

This is particularly important in your early twenties.  Leaving college, you may face a mountain of debt.  Whether you demolish that mountain or build it up even higher will have profound consequences on your financial well-being.

Although it may seem self-evident, let’s look at a few reasons front-loading sacrifice is so important.

It’s Compounding!

Ok.  You all know about the magic of compounding.  If not, google it!.  Start with a little money.  Invest.  Watch the trickle of returns turn into an avalanche.  Retire!

It goes without saying, the earlier you start compounding, the faster your net worth will grow.  As a resident physician, I moonlighted at my local hospital.  The extra profits originally went into a down payment on a house, and then later into investments.  Can you imagine what that $10K I made in residency is worth now?  I bet you can go to a compound calculator and figure it out.

It’s not just the compounding gains, but also the compounding losses.  That’s right, credit costs money.  So if you have huge educational or car loans, your sapping your jet fuel every month.  You’re paying interest.  That interest will erode your wealth and hamper your path to financial freedom.

My wife, for example, had $15K of educational debt when she finished college.  We both put in extra hours at work in those early years to pay it off fairly quickly.  By becoming free of debt, we were able to maximize retirement savings and start a taxable brokerage account before becoming parents.

The Cost Of Opportunity

You know what other advantage that most have upon leaving college?  No children.  You don’t have children, or possibly a mortgage, or other responsibilities that weigh you down.  You are free to aggressively pursue a career, business opportunity, or side hustle.

As you get older, have children, and settle into suburbia, your time becomes parsed between unyielding mistresses screaming for your attention.

The young also have in abundance something else that we old timers are sadly lacking.  Energy!

As a young physician, I could work 36 hours in a row without getting a wink of sleep.  Now, it takes me weeks to recover from such activities.

In Summary

The money you make as a young person will be the jet fuel for your transatlantic flight.  It will propel you through the stratosphere and prepare the way for coasting at a comfortable altitude.

The young have large reserves of energy, few responsibilities, and the ever important time horizon to take advantage of the magic of compounding.

Front-load the sacrifice.  You won’t regret it!