I am sure we all became familiar with “The Tortoise and the Hare” story growing up.
The tortoise was a slow fellow, while the hare was always running around doing things in a hurry. The hare challenged the tortoise to a race to prove his way of doing things is more time efficient. Needless to say the tortoise won the race and the hare couldn’t believe that he lost to such a slow opponent.
Here is how I would talk about their life in a personal finance way.
Reduce Taxed Income
Mr. H is an overachiever that works 60 hours a week and has an annual realized income of $200.000, thus earning the hare title of our story. Mr. T (no not that Mr. T, This one doesn’t pity da foo) is a person who values his time in his own way and therefore works 40 hours per week having an annual realized income of $10.000.
Based on the income produced by each of the two characters, the state would take 33% in taxes from Mr. H and 10% from Mr. T.
Mr. H has a lot of money left in his pocket after taxes and being overconfident of his high paycheck he gives into consumerism through the course of his life; he saves close to zip and although having the option to invest in the company he works for he chooses to live a luxurious life by purchasing a home in a great residential area, followed by two cars, which he proceeds to change along the years. He has his children attend the best private schools and takes vacations around the world while indulging in house parties and other leisure activities to prove to his neighbors that he is well above them, all activities that cost a lot of money.
Save for today & Invest in your tomorrow
Mr. T having a smaller income has learned to live on less. He is frugal. He budgets and plans every cent on the dollar. He invests a minimum of 15% of his paycheck on a monthly basis and also has a savings account set up because he wants to be financially independent by the age of 65. He begins to allocate money for his children’s college fund well before they are born so the fund is in place and maxed out by the time either one of his children attend college.
Which one of the two will be able to retire at the age of 65? You guessed it: Mr. T.
How has Mr. T. with a small income managed to achieve such a victory in front of Mr. H? He planned ahead and was extremely patient in following the course of his plan. He took into account that it doesn’t matter how much money you make but how much money you keep from what you make.
By taking small steps and investing small amounts through time those small amounts become a large amount. His dollars began receiving more and more interest and thanks to compound interest, the sum grew even more reaching over 1 million $ by the time he reached 65.
Instead of spending make investing your favorite activity. Make the Stock Market your Piggy Bank. Through investing you will also diminish your direct income and increase your passive income, thus reducing the percentage you pay in taxes. By careful observation if you take the path of the tortoise, and invest a small amount but do it slow and steady, you will soon financially outgrow your neighbor, the hare, regardless of his six figure salary. You will be financially independent and a steady accumulator of wealth.
How have you been the tortoise…or Hare?