Savings = Freedom

cancel the debt

Image by Friends of the Earth International via Flickr

I have often heard the phrase “debt = slavery”; when we are in debt, our lives are basically owned by our creditors, our employers, the government, and anyone else whose assistance and support we rely upon. If debt is slavery, then what is freedom? If we have no debt, are we truly free?

When I was a student at university, I managed to keep myself out of debt by working part-time jobs and by doing paid internships, which was a great way for me to build up experience. However, even though I didn’t accumulate debt during this period of time, money was still pretty tight. At the end of the month and at the end of the year, I would have more or less the same amount of money I started out with. This is a great situation to be in as a student, but it also meant that sometimes I didn’t have enough money to pay the bills. An unexpected bill such as a parking ticket might have meant something else would need to be cut that week, at least until the next paycheck would arrive. I was living paycheck to paycheck, which while being much better than being in debt, was still not a good situation to be in.

The problem of course is that my expenses were too high. I was making a low salary, but living as if I made a higher salary. I was not leaving a surplus on the side to carry me over the lean days.

What happens if you carry on the same habits, year after year?

I personally know two families; for anonymity’s sake let’s call them the Blake family and the Dodge family. Here are their stories:

The Blakes

The Blake family are a group of first-generation immigrants. They immigrated from a place where living conditions were a little harder, and opportunities a little harder to come by. They are enjoying their new home, and stashing away most of their income. They don’t spend a lot of money on eating out at restaurants or on other things that can cut over time, but they do save up to take the family on the occasional family vacation every now and then. They look for extra opportunities to make money when it makes sense, such as paid overtime.

By the time the little Blakes have grown up and left the home, the Blakes are nearly ready to retire. They still live in the same home, paid off long ago. They still work hard even though they are nearing retirement age. They haven’t gone on as many trips or spent that much during their live, but the trips they did go on were memorable and excellent. They’ve been able to provide for their family and have a nest egg to last them the rest of their lives. Some would say that the Blakes are fortunate, and indeed they are, but they also positioned themselves to be in a good place to take advantage of this good fortune!

The Dodges

The Dodges also have an immigrant heritage, but unlike the Blakes they are actually a second-generation family. They have experienced the benefits of growing up in a wealthy country, and their parents did everything they could to ensure they didn’t experience any hardship. The Dodges want to experience more freedom than their parents had, and they see money as a tool to be used to experience life in the moment; they often go on trips to the Caribbean, purchase a lot of jewellery, and they don’t hesitate to live it up when the occasion calls.

Before I go on, let me be clear that there’s nothing wrong with the Dodges choosing to live their life a bit differently. They also love their family, and they are not better or worse people. There is a difference though: the Dodges simply have a different weighting of the present versus the future.

Things go on like this for a while, but the Dodges become overleveraged over time. Instead of paying off their home, they add a second mortgage. Paycheck to paycheck living eventually turns into debt-based living. When the economy grows lean one year, they are no longer able to afford the payments and lose the home. The Dodges are forced to move to an apartment, and the kids stay at home to help out with the rent payments.

They are no longer in debt, but without savings, they are forced to live an austere life. The Dodges are entering a time in their lives when they should be able to sit back and breathe a bit, but unfortunately they now have to work extra-duty to make up for all of the spending in the previous years. Some would say that the Dodges are unlucky, and in a way they are, but they also did not position themselves to be in a better position to ride out the lean years.

Savings = freedom

Being out of debt is good, but the only way we really improve our lot in life is by saving and investing for the future! This is true both individually, and of us as a whole. The Dodges have it rough, but they are doing great compared to people a hundred years ago. They are able to indirectly benefit from the accumulated savings and investment of other people which has led to all of the things in society which we enjoy today.

When we save & invest, it’s selfish in the sense that we want to improve our own lives, but we actually help out everyone just a little bit at the same time, and when a lot of people are saving & investing, these effects lead to everyone being better off down the road.

The Dodges fell into the trap of lifestyle inflation, and their expenses grew faster than their income. They enjoyed life while the times were good, but everything moves in cycles and you need to be prepared for the leaner parts of those cycles. At least without debt, there is a chance for the Dodges; they lost everything, but they also have a shot at a fresh start.

Saving / investing in oneself

Being part of the blogosphere, I am constantly reminded by the need to save & invest, especially in oneself. Budgeting in the Fun Stuff is one of the most hard-working bloggers I know, and her success is an inspiration and a motivation to me. She has been investing in herself and her brand, and the results are starting to show!

Canadian Finance Blog recently blogged that “freedom 55 is just a dream“. 55 is a long way off so it’s hard to say, but I’ll probably be in better shape if I stash away a few of those nuts today. I feel for the Dodges of this world, and hope we can spread financial education to more people so they don’t follow down the same steps.

Another fellow blogger, Andrew Hallam, believes in the same thing and is coming out with a new book titled “Millionaire Teacher: The Nine Rules of Wealth You Should Have Learned in School“. I feel that financial education is getting better, especially through the efforts of so many fellow bloggers. What do you think? 


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  1. says

    This pretty much sums up my entire financial strategy! I don’t make a big enough salary to be able to just go on a trip on a whim (or, hell, to be able to buy a new pair of jeans on a whim!), but I want to be ABLE to just go on a trip on a whim, or buy a new whatever, if I so choose. So instead of loading it up on credit, I consistently put a good chunk of my income into savings, earmarked both for short-term things/planned spending, and long-term goals. So if someone says to me, “Hey Melissa, want to go down to Florida this weekend,” and I know I have $1000 in the bank, I can say “heck yes!” and not bring my credit card to tears!

    • says

      Melissa, I with you, I want to be able to say yes when something cool comes along so I save my money to be able to do so. I also save my money so I don’t HAVE to work but that is just me.

      • says

        Hey Ginger,

        I should have practiced a big more frugality when I was a student — I could have saved myself a bit more time and possibly have boosted up the grades a bit, too!

  2. says

    I wrote about saving today too, specifically – When to STOP saving. :)
    Lifestyle inflation is an enemy in the shadow. It creeps up on you and before you know it, you’re in debt and are in a financial struggle.
    Great job Blakes! As for the Dodges, why do 2nd generation always worse off when it comes to saving? It’s probably because they never knew real hardship.

    • says

      I don’t think it’s true of second gen families across the board, but I would say that a substantial percentage of them do fall prey to consumption. I would say my second gen friends and acquaintances are about evenly split between a Dodges model and a frugal model where they take advantage of their situation to improve upon their families’ finances.

      One friend whose 1st gen parents payed for undergrad for him used his savings he’d accumulated working during school and summers as a down payment on a house for graduate school since the rent to buy over the 6 years of his PhD was huge and he could rent out the extra rooms as well. His long term plan involves FI and making sure his parents are well taken care of as they grow older.

      Retire by 40, I don’t think you should worry too much. If you lead by example (which you so are) and have frank discussions with your kids about money, your kids will likely pick up on your value set and follow through as they grow up.

      • says

        Hey No Debt MBA,

        I like the final paragraph, in fact, I think a key is to let your children be involved in your finances and in financial concepts from a young age and teach them that money isn’t something shady, or something to be avoided, but something to be embraced and managed well in order to achieve your goals. Leading by example is also a better way to teach than “do as I say, not as I do”. 😉

    • says

      I’m not sure, but I think in many cases it can be because they saw their parents sacrifice too much, so they go too far in the other direction. Sometimes it’s also because the parents, meaning well, give everything to their kids, but sometimes they do so in the wrong way and don’t allow the children to stand on their own two feet. They thereafter grow up dependent and don’t learn how to manage affairs on their own.

      It’s certainly not true of every case — my girlfriend and her brother are second generation and definitely independent and while spoiled a bit, not too much. 😉

  3. says

    Savings can be freedom. I think about my wife’s current situation. She was working and hated it – hated waking up, hated being there, it was just awful. However, we had plenty of savings, and I finally convinced her that quitting wouldn’t jeopardize anything. She did, is now super happy, and is most likely going to get a job offer this week!

    • says

      Glad to hear that things are working out for her! Being stuck in a rut is no fun… good to see that savings gave you the flexibility to jump out of it!

  4. Super Frugalette says

    When I graduated college, I lived at home with my folks and paid minimal rent. When my company was going to relocated…at the last minute I changed my mind. I could easily walk away because I had saved a ton of money since I was not paying a lot of rent and I did not have to fear breaking a lease. My choice to live at home gave me more freedom than I had anticipated.

    • says

      That is definitely a big advantage of staying at home, if you can do it. Best time to save money is while young!

  5. says

    I liked a number of things about this post. I loved the fact that you pointed out how important savings AND investments are for the future. Doing both and learning from investment mistakes is great in helping to build wealth over the years and, in my opinion, increases your wealth more than saving alone. I think that investing in yourself and your knowledge etc is greating for building the skills necessary to keep making wiser decisions and to stay focused when things are going slowly and are difficult!

    • says

      Oh, definitely. When I say savings, I mean both savings & investing and I definitely don’t mean stashing it under the mattress or the modern-day equivalent of dumping it in a “savings” account. 😉

      Investing in oneself is also important, and savings goes beyond countable dollar bills to the capital we have invested in ourselves and for the future.

  6. says

    Great post.

    Savings are great, but passive income from those savings is even better; dare I say the very best. That is really freedom IMO. Your money is always working for you so you don’t have to 😉

    • says

      I know how much you like that passive income. 😉

      I definitely agree, I think being able to live off one’s capital, or even better, live on only a portion of one’s capital, is the true definition of financial freedom. Having enough to get out of the rat race is a huge step to be sure, but you won’t be as free if you don’t have the capital, too.

  7. says

    Reducing is great, and life is even better when you can invest and be debt free at the same time!

    We hope to be financially independent within 10 years, but who knows. We have 3 kids to get through college, and you never know what will happen with your health. However, we are saving as much as we can, and the mortgage will be all gone in a few years. My goal is truly to have the ability to do what we want. If I want to visit one of my kids (assuming they move far away), I want to be able to maybe rent a condo nearby a few months a year if we want.

    In other words, I don’t want money to be the deciding factor on my decisions, if at all possible.

    • says

      You never know what will happen, but that is true at all phases during life. Great on paying off your mortgage soon, you will definitely appreciate the lowered monthly payments! That day is still far off for me… 😉

  8. says

    Absolutely, savings equals self-reliance equals freedom. With a healthy savings account (or investments) and paid-off debt, former Dodges can better pull through financial storms or life events. They could turn down a move to another town, out of a fear of losing a job. They could pay for a medical emergency or house repairs out of savings, instead of incurring more debt. There’s good reasons for terms like debt servitude.

    • says

      Indeed; the debt lifestyle has a lot of benefits early on but one will eventually wind up in servitude if they keep going down that path. Debt can almost be like a drug in that sense. It takes a bigger hit to keep going and eventually you OD.

  9. says

    I would be a blake anyday. I know a lot of folks in their 50’s who have had a tough time re-entering the workforce after a layoff. I hope by the time we are in our 50’s, we have enough of a buffer that we can do a second career that doesn’t require as large of a household income.

    I constantly worry about my kids becoming dodges though because they have a lot more than my husband and I ever did growing up.

    • says

      Some aspects of personality which come from nature you can’t really change, but you can still involve them so that finances are not a mystery to them and lead by example. Kids are actually really smart and chances are if you get it, they can get it too. The problem comes when they don’t make the logical connection and assume that it grows on trees!

      I have a feeling you won’t have a problem with this though. My third-gen cousins are doing pretty well; them and their second-gen dad and many-gen mom do spend more than your immigrant family would, but they also work hard for it. The kids were intimately involved with the same professions and the parents took an active stake in their kids finances, teaching them how to buy land, invest, and save money away for retirement. Nobody went to college and they all work in the trades, but they are pretty well off overall, in some ways better off and more useful than some who do go to college!

  10. says

    Savings=Freedom is also at the core of my personal finances. The concept is motivating me to avoid all debt in getting my MBA and to save for FI.

  11. says

    It was my great-grandparents that came to Canada from Switzerland. I certainly benefited from growing up in a wealthy country. However, I had always put some savings aside since I started to work. Although, I would not have liked to spend it, when tough times come, I had far less stress to deal with they others you had no savings to fall back on.

    During my working life, I had my company bought out, I went through down-sizing (and right-sizing, just another way to down-size), lay-offs and a company that went bankrupt. I was lucky because I always got new jobs right away or survivied the down-sizing.

    What I wanted to point out is that I did not have to also deal with a great deal of stress when tough times came. It might also have help in getting me my new jobs.

    • says

      Hi Susan,

      Thanks for sharing your story. Savings can bring freedom in so many ways including reduced stress. When I was younger I was more focused on the short term, but this would get me into trouble. 😉

  12. wendy lyric says

    Absolutely, savings equals freedom.Now,i’m still the Dodges. But i don’t afraid of losing a job. Yes, maybe i would don’t have the enough money to pay for a medical emergency or house repairs out of savings, instead of incurring more debt. But life is for wasting or enjoy, isn’t it?

    Ps, this is my blog. Hope you will love it !

    • says

      I think by default we can think this way, but tomorrow usually comes. I aim for a better tomorrow as well as today because without saving/investing for tomorrow at t will be the same. Sacrificing a bit today can make me better off overall.

  13. says

    Great post Kevin,

    The Blakes have learned to develop “muscles” because they had to. And that’s what will make them stronger for another generation or two. But if they don’t teach their kids how to fish, the cycle will start afresh.

    • says

      I’m curious if any family has ever kept their wealth beyond a few generations aside from a royal family. It seems very important to pass the lessons on every generation because even billions can be squandered in a single generation!

  14. Kurt O'Keefe says

    Good post.
    It does not take long for the culture to change, one generation.
    My parents and my in-laws never used credit cards.
    My parents never had a car loan.
    My father was a stockbroker, so his income was uncertain, and he minimized monthly obligations.
    I was able to work my way through college and law school with only one $1,000 loan to re-pay.
    Nowadays? So many problems, lending standards out the window, the higher education bubble fueled by government student loans.
    The Chinese are saving at or above what the U.S. savings rate was in the 1920s.
    That is how you get growth.

    • says

      I agree and I believe that conclusions that show that consumption = wealth are based off of faulty premises. It always goes back to savings whether material, social, or technological.

      The education bubble is sad. Education is important but this isn’t the way. I feel for those that were duped into accepting large loans that will take ages to payback… if they can find a good job.

  15. Sunil from The Extra Money Blog says

    IMO: saving = partial freedom . . . but saving = peace of mind

    i know where you are getting at and i am with you – that said debt used the right way is extremely powerful and worthwhile (i.e. investment properties)

    • says

      Hi Sunil,

      I definitely do make a distinction between consumption debt and investment debt. Even the latter is a tool to be treated with care but it does have its place.

  16. says

    I still have debt dragging me down but it’s safe away in a debt management plan. Meanwhile I am working hard on savings so that eventually I can pay the debt in one swipe and still have a sizeable amount on the side for other security. Better late than never but wish I had taken the right direction earlier.

    Great post Kevin.

    • says

      Better to make the mistake while young and learn from it, too! I wish I had learned younger myself but much of life is about learning what doesn’t work, so we can focus on what does. This is normal so no need for regret. :)


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