Wanna check out my new house?  Here it is: the new Yeti cave.  OK, after clicking on the link and drooling over the photos, you probably popped over to take another look at my last reported net worth to see if I can even afford this sweet piece of property, and figured out that I can’t.  YET.  But even though I can’t afford the house (yet), it still serves an important purpose for me, as a motivational tool.  What motivates you to save?

A few weeks ago, I was talking to an attorney friend of mine about her adult children.  She mentioned that when her daughter was young, maybe in junior high or so, she found a photo of a gorgeous mansion in a magazine, tore it out, and pinned it up on her wall.  She said her goal in life was to be able to make enough money to afford that house.  From the moment she tacked that photo on her bulletin board, she was focused on her goal.  She worked hard in school and got great grades.  She ultimately landed a very lucrative job at one of the nation’s top financial firms, and is now making money hand over fist.

Motivation can come in many shapes and forms.  It can be based on pure needs, like providing basic shelter or medical coverage for yourself, or pure wants, like a super fancy house or luxury vehicle.  It can be based on an emotion, like fear or anxiety.  It can even be driven by less-desirable character traits, like ego and pride.  It doesn’t really matter much where your motivation comes from, so long as it’s constructive for you, it doesn’t tear down others, and it helps you reach your goal.

What Motivates Me: Wants

I am lucky enough to already have what I need, in large part because I’ve already won the space/time lottery: I was born in the right place (an affluent country instead of in a third world country), the right time (late 1900s as opposed to, say, the 1500s), and to the right family (upper middle class with access to money, education, health care, and a supportive family structure).  I am also lucky enough to have won the genetic lottery in a sense: I’m not supermodel pretty (#notevenclose), but I have been given a highly functioning brain in a mostly functioning body, and that’s better than what a lot of people have to work with.  All of that is luck.  Being grateful for the opportunities I’ve been given has been a pretty strong motivating factor for me, too.  I feel a great sense of obligation not to squander what I’ve been given, and to use it to the greatest extent that I can to propel myself forward and to help others out along the way.

Since I already have all of the things I need, my motivation is primarily based on wants.  I want to have more free time, and I want to be able to spend that time in a really nice house in a pretty location.  I want to be able to travel to fun places, and not to have to stay in the cheapest, crappiest hotel when I go.  Ideally, for longer trips, I want to be able to afford to travel in business class, so I would feel refreshed and ready to go when the plane landed, instead of feeling like I was crammed in a sardine can for half a day and completely beat up and exhausted when arriving.

Once I figured out my wants, I had to prioritize them to see how they would fit in my overall plan.  For example, I could have the extra free time by giving up my job now, at age 36.  But that decision would come at the expense of every single one of my other goals.  I would have to continue to live in my just-so-so house for the rest of my life, and I wouldn’t be able to travel much at all.  That doesn’t sound very appealing.

The only way my goals are all going to get met is if I work really hard in this stage of my life, sock away as much money as I can (including expanding my rental real estate portfolio to generate more income), and hope that everything goes  according to plan and I can retire at age 55 or so, or maybe even a few years earlier.

What Motivates Me: Fear

The other thing that motivates me is fear.  For as long as I can remember, I’ve always been concerned about things not turning out the way I planned.  To be fair to myself, that concern comes from an honest place.  There’s hardly a period of my life that I can think of that happened strictly according to plan.  Because of that, I tend to be a contingency planner.

I know there are loads and loads of people out there who work a regular job, save the prescribed amount, invest their savings in stocks and bonds, and retire right on schedule at age 65, or as soon as they think they’ve got enough money to withdraw 4% per year and live off of it.  Some people are doing even more risky things, such as retiring REALLY early and living super frugally, with the intent that they will continue to do that for the rest of their lives.  Neither of these scenarios makes me comfortable.

First, since one of my goals is to live it up in retirement, the idea of retiring super early just to live out the rest of my years in abject poverty sounds like punishment.  Second, the idea of relying on a fixed amount of money—invested primarily in the stock market—to carry me all the way through retirement, no matter how long I might live, sounds terrifying.  The dividend yield for the S&P 500 is a measly 1.91% as of this writing, which means that if you’re spending 4% of your portfolio every year, most of your return is coming from dipping into the principal.  If the stock market crashes, that could wipe out years’ worth of withdrawals from your retirement fund.  And it’s not as though you can just leave all of your money parked in the market until it recovers.  Since more than half of your retirement income is coming from principal withdrawals, you still have to cash out some of your stock at fire sale prices to live on, meaning it will cost you far more than the expected 2.09% (4% minus 1.91% dividends) in principal to be able to support your needs for that year.  A couple of bad years, especially early on in retirement, could significantly change the financial trajectory of your retirement.

Also, retirement could end up being very expensive.  I think a lot of the very early retirees are kidding themselves when they say that they have lived on $18,000 a year for the past couple of years, so they will just continue to ride out the rest of their retirement at that rate.  That plan ignores the very harsh reality that some things get more expensive in retirement.  WAY more expensive.  Even if you’re enrolled in Medicare (which doesn’t kick in until age 65, by the way, so the early retirees will be paying even more out of pocket to get private health insurance until age 65), you can still expect to pay a significant amount of money each year in premiums.  And that’s just for the basic plans and supplements.  If you need a specialty drug, your costs can end up being that might higher.  Seriously, read this article and tell me it doesn’t scare the crap out of you.  Also, Medicare doesn’t cover in-home nursing care.  You have to buy long term care insurance for that, and it could be very expensive, particularly if you sign up later in life.  About 70% of seniors will need long term care at some point in their lives, and if they’re not insured for it, it can get very expensive, very fast.  For round the clock in home care at minimum wage ($10 per hour in California), that’s a cost of $87,360 per year, on top of all of your other expenses.  And that’s assuming that you can find enough home caregivers to do the work for minimum wage to cover all the necessary shifts with no overtime.  Good luck!

This fear of the high costs of just getting by in retirement is part of what drives me to work harder and save for longer than some of the early retirees.  That doesn’t mean that I will be working until age 80; I still hope to retire somewhat earlier than the average bear.  But I know that I’m going to need more than $20,000 a year in retirement income, so I’m not going to be ready to pull the plug on my working career until I know I’ve saved enough to withdraw a fairly large amount each year, say $100,000 or so, without running out of money.

Fear also drives me to build a real estate portfolio and to rely on that more than stocks.  Rental properties generally throw off quite a bit more income than stock portfolios, and they can have significant tax benefits, too.  By amassing enough rental property, I could build a portfolio that generates more than $100,000 per year in rental income throughout my entire retirement, especially if the mortgages on those properties are paid off.  That would make it virtually impossible for me to run out of money.

What Motivates You to Save?

What motivates you to save?  What are your big goals, and what is the motivating force behind them?