Wealth comes from lifestyle choices

By DAVID MOON, Moon Capital Management
January 25, 2004

We recently began doing investment work for a retired schoolteacher. He had worked in public education his entire life, retiring almost 15 years ago. He currently lives on his Social Security payments, augmented by a small fixed pension. His life has been anything but mundane. He's traveled and lived overseas. Been to Africa and Eastern Europe. Met leaders from business and education. He is a fascinating individual, with a life full of wonderful experiences - and probably another life full ahead of him during the remainder of his retirement. As a schoolteacher, he never earned more than $30,000 a year. He never inherited a nickel; never won the lottery. He never took foolish risks with his money.

But his investment portfolio is worth more than a million dollars.

There is no special trick as to how he amassed this money. He simply spent less money than he earned every year of his adult life. Even in retirement, he continues to be a net saver. This is particularly refreshing, since many of today's generation are net spenders most of their lives.

He has a mindset of thrift and value - just as some people have a mindset of flamboyance and spending.

The first time I met with this gentleman, he began asking me questions from his prepared notes. He came thoroughly prepared for the meeting, as I suspect he prepares for most things in his life. It wasn't so shocking that he came to our initial meeting with notes; this is often the case. But I have never seen anyone whose notes were written on the blank side of junk mail. That's right; this guy saved any junk mail that had clear space on a side or partial side of the paper. This erstwhile junk paper was reborn as his free - and quite functional ' notepaper.

A famous and wealthy mutual fund manager used to save the springs from his ball point pens, later using them for all sorts of things. Some of the wealthiest people I know are among the most frugal with certain of their spending habits. This doesn't mean that they aren't generous on the contrary; they can afford to support more worthy causes because they prefer to get full value any time they spend a dollar.

It's good to spend time thinking about and planning your 401(k), IRA and personal investments. The decisions you make with these assets will significantly impact both when and how you can retire. But the single most influential decisions most people will ever make about their retirement assets and income are completely unrelated to stocks, bonds and money market funds. These are day-to-day decisions about the relationship between income and lifestyle.

Charles Dickens observed: "Annual income, twenty pounds; annual expenditure, nineteen pounds; result, happiness. Annual income, twenty pounds; annual expenditure, twenty-one pounds; result, misery." It's a pretty simple formula for improving one's financial condition. And it requires very little marginal change.

David Moon is president of Moon Capital Management, a Knoxville-based investment management firm. This article originally appeared in the News Sentinel (Knoxville, TN).

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