Discovering what life is about

How to be happy in the long run

Ref : http://earlyretirementextreme.com/how-to-be-happy-in-the-long-run.html


Published on October 7th, 2010 - Posted by Jacob in Finance, Health, How to, Philosophy, Strategy, Work

The following is a list of the things I’ve learned during my first 30 years about how to live a good life.

Take it for what it’s worth.

1) Decide what your priorities are

Your main priorities are your health, food, shelter, and who/if you marry in that order.

Your other priorities are your children, your friends and your network, your career, and your financial situation.

Selecting the right flat screen TV, keeping up with current fashion, or getting season football tickets is not important.

I think if you follow these priorities, you’ll do well.

2) Your health

“Take good care of your body, because where else are you going to live?”

It’s hard to feel the difference between a healthy body and an unhealthy body when you’re 25. It’s very easy to feel the difference when you’re 55, because you’ll look like you’re 40 and feel like you’re 25.

Being healthy will make you feel good. Feeling good will make you look good and looking good will make you feel sexy.

Exercise daily. A little is better than nothing but do not settle for mediocrity for your top priority.

I believe the best forms of exercise are: crossfit, kettlebells and clubbells in that order. They’re each so good that you can stick with just one.

Make exercise part of your lifestyle!

The discipline required for this will first transform your body and then your mind.

Also don’t forget to floss daily How to be happy in the long run

3) Food

Eat good food.

Five servings of fruits and vegetables is not just recommended. It’s vital.

Good food does not mean a hearty steak with sauce and potatoes. It means a well-balanced meal with the right amount of calories and the right composition.

Pick either the Zone diet if you’re into bean counting, the Warrior diet, if you’re an austere Spartan or the South Beach diet, if you think you’re a movie star. These are lifetime diets and not quick short term fixes.

Do not eat “many small meals” as this will never give your digestive system any rest. That approach is only recommended if you for one reason or another needs to eat massive amounts of food.

Never get on a short term diet – they set your hormonal system up for all kinds of trouble! If it took you five years to get fat, it will take you about five years to get lean again.

4) Simplify your living quarters

Avoid stuff and clutter. Make your possessions low-maintenance and low-volume.

You are not what you own despite what the commercials try to tell you.

On the same note, sitcoms are basically designed to portray what the perfect consumer-life.

Resist the brainwash. Eventually 0% APR offers will seem like a joke to you.

Most people buy houses which are way bigger than they need them to be. The reason is mainly to have a place to keep all the unused or rarely used stuff they accumulate. Resist the temptation.

If you already have a lot of stuff, do the following. Divide your stuff into three equally large piles: essentials, probables and unneeded. Take your unneeded pile and give it away to charity or your friends and make them happy. Take your “probable” pile and do a yard-sale. Now you have your remaining pile of “essentials”. Repeat the exercise again with your “essentials”. Your remaining essentials should be able to fit into a couple of suitcases. You’re done.

Do not buy a replacement until you have gotten rid of the previous item.

Now, for every item you buy, buy it as if you’re not going to replace it again for another 10-20 years. Do not buy into fads. A high quality jacket can last you 20-40 years. Major appliances 10-15 years. Utensils a life time.

Notice that businesses do not purchase crappy tools. They buy the best they can afford. Do the same.

When deciding where to live, try to live close to where you work, so you can walk or bike to work. If you must have a car, buy a new Toyota Corrolla or a new Honda Civic. Keep it for ten years. Then buy a similar vehicle. If you must have a bigger car, get the Camry or the Accord. You do not need an SUV or a van unless you’re a family of seven. Four people really do fit into a compact. You are not what you drive.

5) Who to marry

If you are going to marry choosing the right partner is very important. You want to get it right the first time! Be engaged for more than a year before you marry. Get a pre-nup. Try to estimate how your partner is going to turn out in the long run.

Note that people have different personalities depending on whether they’re in love or not. Most couples are only in love for six months – it’s a hormonal thing. Many couples run into a make or break crisis after two years.

One of the best ways to get under the skin of another person is to see how well they do during a crisis (The boat is sinking!). Do they freak out and start praying? Do they overreact? Do they think “everything is going to be alright and someone will rescue them”? These are the people you do not want to marry. You want to marry a survivor.

6) Education

There is a big difference between getting an education and being educated.

Learn to think and learn on your own. This is a highly valuable skill which is not taught in college. Rather what is taught is what information to repeat and how to repeat it. That is a big difference.

Do not drop out of high-school!

Do not delay finishing your education, because you don’t feel like it. You’re losing valuable time.

Learn a useful skill. Universities frequently suggest that you should study what you like. The reason for this is that if you study what you like, then you’re most likely to stay in the educational system for a longer time and thus be a good “customer” of the university system. If you go to grad school you’ll even serve as a very cheap source of highly skilled labour. The university does not care what happens to you after that. You may have a Ph.D. in ancient Egyptian algebra, but what is it good for?

Sometimes a degree in needed as a stamp of approval to get your foot in the door. Get the lowest degree needed for the doors you plan to enter.

Highly recommended fields of study are: Engineering, accounting, medicine, copy writing, and other applicable “rocket science” skills in high demand.

Not recommended are useless skills such as archeology, ancient history, and strange languages or any kind of skills that can easily be outsourced.

7) Career

You are not your career. Do not put all your self-worth into one basket, because if your career is temporarily failing, you’ll feel like a failure.

Try always to exceed your job description. Put in extra effort.

Work towards getting recognized in other areas/sectors of your company or other companies. That way you’ll always have a job offer waiting for you.

A good network is just as important as good skills.

It’s better to be employed at a lower wage than unemployed on a higher dole. Aside from money, employment also earns you experience and it builds your network.

If you’re stagnating in your current job, seek another.

Learn about management even if you’re not a manager. Even if you not managing other people, you’re still managing yourself. It will also allow you to spot bad management decisions of your manager – try to stay clear of those.

You do not have a right to work and you do not have a right to a minimum wage. Your working is a transaction you make with your employer and you are both free to end the transaction if the terms does not satisfy either of you.

Children

You must consciously decide why you want to have children and if they are worth the 18 year commitment.

Your job as a parent is not to provide fun activities and special programs for your children in the hope that they may grow up to be successful high-income earners like yourself.

Your job as a parent is not to give your children gifts and money so that they will be happy and love you.

Your job is to provide a good role model whom your children will try to imitate. They will do this because they are children and you are their parent.

They will try very hard to live up to your standards, if and only if you set equally high standards for yourself.

You can not change your kid’s IQ or personality. However, you can change how they behave and what they learn.

Remember, children are gullible and they will believe anything you tell them. The best thing you can do for them is to teach them to think for themselves and be skeptical.

If your kid’s turn out to be well-adjusted adults who can take care of themselves and stay out of trouble, you have done well indeed!

9) Financial independence

Start saving and start saving hard! Put $1500-$2000 into savings every month and increase that amount by the inflation rate (about 3-4%) every year. If you can’t do that you must either adjust your consumption downwards, get a better paying job or a second job.

$1500-$2000 each month is the key here!

For most people it is usually more effective to cut consumption rather than increase the income. Cutting consumption means cutting your liabilities. Move into a smaller house/apartment – maybe in another part of the country even, get a smaller car, cancel the gym-membership and train at home, cancel the cable, get rid of the cellphone, do your own nails/hair, stop going out, stop renting movies, stop buying the newest computer games or DVDs, agree on more modest xmas presents, get a hobby which doesn’t cost much money (computer programming, reading, or singing) or even better, get a hobby which earns you money (like crafts, fixing cars, gardening, blogging, or investing).

Work on delaying your gratification. Don’t let your immediate desires determine your consumer habits. If you think you must own something, write it down on a list. At the end of the month, check your list, most likely you will have forgotten why you wanted some of these items in the first place. Keep making a list every month. If an item shows up on a list five months in a row, then get it, but only if you think that it’s really worth it.

Do not envy your neighbor’s possessions. Remember that most people are all “Big hats, no cattle”.

If you have credit card debt, cut the cards up and pay them off. Do not get a home-equity loan. Do not get a car loan. If you have any of those pay them off as fast as possible. These are deadly to your financial independence.

Student loans are more benign. If you can lock in a low rate, pay them off slowly while increasing your savings.

Start a cash position with your savings. ING Direct, Everbank, and First Immigrant are good. When you have more than a few months worth of pay in that account buy a low-cost low-risk mutual fund and stick to it!

Do NOT buy an index fund. Now is not the time. Find a fund manager who can think on his own and invests in value stocks. If his cash position is currently large and he has a low turn-over, he is likely to know his stuff.

If you want to invest on your own, realize that you’re initially like a person who wants to treat his own appendicitis using kitchen utensils only.

If you learned everything you know about investing from a TV infomercial, you should probably stay away. Whenever you see currently lots of brokerage ads on TV, the general market is very likely peaking, whence these guys need to dump their high-priced stocks on chumps like you. Spend several years educating yourself! Start slowly.

Do not buy Google unless you know something about marketing and advertising that the rest of the world does not!

After about 15 years of high savings, you should be able to retire and keep living a low-consumption life-style. At this point you will be a millionaire, driving a Honda Civic, and your meaning of existence will go way beyond shopping.

10) Buying a house

A house is a consumer object. It’s used/consumed, wears down and has to be replaced. People only get rich buying and selling houses during good times and they go bankrupt just as often when good times turn bad. Generally nobody can predetermine when good times become bad an vice versa.

A house is an expensive proposition, so do NOT speculate/gamble on the direction of the house price. In other words, do not take out a loan, hoping that house prices will go up. Historically, house prices rise with inflation (at 3-4% a year) and not the 15-20% we have seen during the past few years. In addition, historically what goes up must come down. Things revert to their normal. Otherwise there would be no normal.

Approach house buying as if you were investing for the long term. The NAV formula can be used. With the current numbers, if the house price is lower than 110 times the monthly rent for a similar house (look around), you should be buying the house. If the house price is higher than 110 monthly rents, you should be renting. Currently, the most financially sound strategy in the US is generally to rent.

 

 

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Originally posted 2008-01-30 07:20:50.

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27 users responded in " How to be happy in the long run "

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chef said,

 

Long, BOLD, post. I have to disagree on Index funds. I’ve never personally beat the stock market and I’ve never seen proof of someone else who could do it consistently. Index funds for me.

 

I also noticed the lack of a reference to any type of faith. Are you an atheist, by chance, or do you feel that spiritual issues do not merit being mentioned in a lifestyle post?

Moneymonk said,

 

I have to also disagree on idex funds. Low expenses and no fees. A index fund is the way to go. Also you priority should be health, food, shelter and CLOTHES.

 

Nevertheless I see the point you are making.

 

The problem is that no one wants to live like a pauper for 15 years. Most people CARE what other people think. Therefore, most live paycheck to paycheck.

Brooke | DollarFrugal.com said,

 

I wish I would have read this as an impressionable 18 year old…and followed it!!!

 

I’m with these guys about the index funds. DH didn’t even want to invest in the stock market, let alone risk! Holy cow, we might lose some money. But I bowled him over.

 

I’ll argue with you on one more point: the foreign languages. I’m not sure if you’re talking about all foreign language or only “weird” ones (not sure what constitutes weird here, since all languages are pretty much different), but foreign language is an excellent skill, especially with our globalizing economy. Maybe you were talking about old, dead languages?

 

Thanks for all the advice.

SJean said,

 

There is no one formula for happiness, the only firm advice that I like on here is “determine YOUR priorities”, the rest of the post was sort of “follow MY priorities”

 

If my parter were to panic in a crisis, so what? Most days, we have no crises, and I’m happy to be with someone who makes me smile. If we can work together through a crisis, great.

 

Also, agree with other commenters on index funds, but… whatever. Do what works for you.

Beany said,

 

Excellent advice. I especially liked the fact that you defined a house as a consumer object. I hate it when people refer to a house as an “investment”.

Heidi said,

 

“With the current numbers, if the house price is lower than 110 times the monthly rent for a similar house (look around), you should be buying the house. If the house price is higher than 110 monthly rents, you should be renting. Currently, the most financially sound strategy in the US is generally to rent.” – Excellent advice!!! Although, I would add that I would be much happier in a VERY modest home that I owned versus a home that I was renting… Probably a lot of people feel the same way, so it would make sense to adjust the equation accordingly.

Jacob said,

 

@ all – everybody seems to love index funds these days which is almost sufficient reason for me not to like them. This probably warrants a separate post.

 

@ chef – The faith question can best be answered by the first two paragraphs in the education entry (#6).

 

@ moneymonk – Ah clothes, I wasn’t advocating going shirtless, but the clothing problem can be fixed with a few days of shopping each year. It’s not a ranking priority, but sure it’s more important that the particular kind of flat screen TV that goes on the wall.

 

@ brooke – English is my second language, so I’d say if it isn’t your first language – learn it. Beyond that it is not something I would use up an entire degree on. For instance, I was educated in science and I probably speak English more and better than my fellow English majors.

 

@ sjean – I agree that advice often reads like someone’s autobiography. Maybe a better title would have been “how to be successful in the long run” or “how to avoid trouble in the long run”. Of course this would set me up due to different definitions of success and different strategies for avoiding problems. I know a person who thinks that as long as he can postpone impending disaster for another quarter, he’s good, and in principle he is right.

 

@ beany – an investment is some asset that one intends to make money with. It could be an asset but in many cases it isn’t.

 

@ heidi – I think it depends on the individual. For instance, in my job I have to move every 2-3 years, so owning is kinda out for me for now. I have a post planned on mobile homes which might solve that problem. I am actually tired of having to move continuously every few years. Maybe I’m getting old.

Ron@TheWisdomJournal said,

 

Very complete list Jacob. Saw your post on my site and just had to check out yours.

 

I agree with you on the index funds. They may have a place in a portfolio, but they don’t need to be the only thing in the portfolio.

 

And “Big hats, no cattle” LOL! I spend quite a lot of time in Texas and that is one I hear there occasionally.

 

On children, most parents will say that the commitment is lifetime, not just 18 years!! :)

 

Oh, btw, I added you to my feed reader!

SJean said,

 

Thanks for the response to my comment. I think that if i read it as not direct advice but as some specific things that worked really well for you, I get a different perspective.

 

I think you should write a post on why you don’t like index funds. You’ll be the rebel of the pf blogging community with that one!

DNA said,

 

Most of this advice is well worth following. I’m very much enjoying your blog entries, but you are also a thoughtful and polite respondent to the commenters which is more rare.

 

With regard to your advice on index funds, it makes a difference that your advice is aimed at living off of dividends within a relatively short amount of time (within 15 years), so most indexes would not be appropriate with this goal. For example a total international market fund is not going to pay over 2.5% dividend because of it’s inclusion of growth, mid- and small-cap stocks. And some indexes are exceedingly narrow these days (index of allergy and dermatology stocks offered by HealthShares). A large-cap value index might work for the purposes of your goal, however, if the fees are very low.

 

One point on which I disagree is with the advice about which higher degrees are worth pursuing. I have 2 doctoral degrees from the “useful” list, and I love my work; but I wouldn’t say that I consider what I do more or less important than, say, an archaeological researcher/academic. Humans have always engaged in creative practices such as music or art, so at some level it must be necessary, inspiring and interesting. Same for historical research. It’s as well to spend an afternoon looking up salary ranges for some of these pursuits, however, before jumping into an 8-yr PhD program because of the realities of the compensation.

fathersez said,

 

It will be great to get more views on the important No; 5, who to marry.

 

This, if done right, should compensate a number of mistakes we make on index or non index funds.

 

The rule I like, (actually given by a close friend) was also to search inside and ask ourselves if the intended spouse would make:

 

a) a good wife/husband

b) a good friend to us

c) a good mother/father

d) a good in law to our brothers and sisters

e) a good daughter in law to our parents

f) a good friend of our friends

 

What do you think? Can choosing a spouse be like deciding on a fund?

Brooke | DollarFrugal.com said,

 

@Jacob…okay, I’m with you now – I went back and reread the article, too – you’re right, a Bachelor’s in a language is pretty crazy these days.

Ron said,

 

Jacob, you posted to a comment of mine over at The Honest Dollar where the discussion had turned to buying vs. renting your primary residence.

 

You touch on the subject in this post so allow me to add a few thoughts of my own:

 

You wrote: A house is a consumer object. It’s used/consumed, wears down and has to be replaced. People only get rich buying and selling houses during good times and they go bankrupt just as often when good times turn bad. Generally nobody can predetermine when good times become bad and vice versa.

 

Well, that is, indeed, one half of the story. A house is a consumable but it is also a store of value that, in general, appreciates. And people get rich in real estate not just by buying and selling in good times. My brother invested in residential real estate for forty years. His strategy was buy and hold and he weathered at least three down markets.

 

He passed away on the young side leaving an estate of almost $12,000,000, all of it generated by his RE holdings. And, when he died, his monthly NET income was over $30,000 in rents alone.

 

And, as you write and just like in the stock market, it is usually not a good idea to try and time the market because no one has ever proven to be able to do so consistently. So we agree, if you stay invested in either the stock or RE market for the long-term, the odds are (based on historical returns) you will prosper.

 

You wrote: A house is an expensive proposition, so do NOT speculate/gamble on the direction of the house price. In other words, do not take out a loan, hoping that house prices will go up.

 

Buying a house is only expensive if your purchase is not accomplished in a fiscally prudent manner such as buying more house than you can afford, more than you need, or using some funky financing scheme. And, besides, owning a home is as much a lifestyle choice as it is a financial one: Surveys and statistics show that homeowners are generally happier and wealthier than renters.

 

And even in the hyper-markets it is almost always possible to find something that makes sense to buy. Now, should you speculate in housing? That depends on your level of expertise and financial resources. A blanket statement that one should never speculate in RE will not apply in every situation.

 

You wrote: Historically, house prices rise with inflation (at 3-4% a year) and not the 15-20% we have seen during the past few years. In addition, historically what goes up must come down. Things revert to their normal. Otherwise there would be no normal.

 

Historically, housing price appreciation has exceeded the rate of inflation by a point or two; and sometimes it will blow the rate out of the water (both ways). And what is “normal” is that markets go up and down on an incline (stocks and RE, in particular).

 

My parents bought their home in San Diego for $11,000. Since then the value has gone up and down but it will never be sold for $11,000 again, ever! And, presently, it would sell for $350,000 or so (down from over $400,000). And five years from now it will probably sell for over $400,000 again.

 

You wrote: Approach house buying as if you were investing for the long term. The NAV formula can be used. With the current numbers, if the house price is lower than 110 times the monthly rent for a similar house (look around), you should be buying the house. If the house price is higher than 110 monthly rents, you should be renting. Currently, the most financially sound strategy in the US is generally to rent.

 

Real estate prices and NOI rates, in general, are local and specific to the market and the deal. And even in markets where NAV applies, there will still be homes available in that market where buying still makes sense.

 

According to NAV one could conclude, “Do not buy in San Francisco.” But why not, if you can afford it, plan to be there for the long-term, and you prefer to live in a home of your own and can accept any additional expense (above the cost of renting) as an acceptable cost of living the kind of life you want to live?

 

You have posted about the difference between rich and wealthy; IMO, owning a home of your own is part of a rich life and we here in the US should be profoundly grateful that you still don’t need to be wealthy to own a home of your own.

 

You wrote: Currently, the most financially sound strategy in the US is generally to rent.

 

Another blanket statement that is difficult to support with the facts. For some people, this is a great time to buy; a down market will always present opportunities. That is the basis of the concept behind dollar-cost averaging in the stock market.

 

I just bought a house for $95,000 that had originally listed for $178,900. The sellers were happy to get rid of it and I was happy to help them. Going into the deal, I made more money than the average US household will earn by working all year!

 

Enjoy reading your posts. Thanks.

Jacob said,

 

@ ron@thewisdomjournal – finally someone that agrees with me that index funds are not the answer to all investment question! :-)

 

@ sjean – I think I was born to disagree, so there will be a post on index funds some day.

 

@ dna – there are indices for those strategies as well I believe. Even the S&P 500 is quite narrow. Only ten companies (mostly energy and internet) make up a quarter of that index. In terms of degrees worth pursuing, I did not mean in terms of what is important but rather what people will pay for. I have a phd in a semi-salable field, but I realize that I’m making about as much as a bachelor in a highly marketable field (and I have less options in terms of jobs, not more). Frankly, I had no clue about salary ranges and didn’t even bother to look when I signed up and I wish I had somehow gotten a reality check. Of course a doctorate means that one had other freedoms and riches and this is the main reason why so many salaries are depressed compared to industry.

 

@ fathersez – I absolutely think that choosing a spouse can be like choosing an investment or a fund. It is a very personal/psychological choice but at the same time one has to consider the present, the future and how everything fits together.

 

@ ron – (The discussion is “Grokking the Strange Land” at thehonestdollar.com). Thanks for the comment. That will take some time to digest. Luckily I’m not looking into buying for at least another few years and hopefully at that time the bubble will have worked itself out.

Hannah said,

 

You are like the Tyler Durden of personal finance. I absolute LOVE it! I’m 21 yrs old and majoring in business-accounting. I grew up in the foster care system, so upon my 18th b-day, I found myself homeless. Quite a shock. After living in temporary shelters for about a year, I finally earned a scholarship to a local state school and am in my third year.

 

I can’t thank you enough for keeping this blog. My traumatic early experiences with money (or the lack thereof) have made me really think about finance in philosophical/functional terms. I believe financial independence tends to be the goal for very precocious, “think outside the box” independent types. Once again, please keep up this blog… it’s amazing the things I have been learning. Your philosophy and outlook on simplifying, using the system (not letting it use you) to take control over one’s life and finances, and the no-bullshit pragmatic “be time rich, not consumer-goods-rich” perfectly meshes with my quality over quantity perspective on life.

 

Thanks again!

 

~ poor college student

Jacob said,

 

@Hannah – Haha, Tyler Durden, I got a kick out of that one. Rule #1 You do not talk about early retirement. Rule #2 You do not talk about early retirement. Rule #3 No excuses Rule #4 No lies Rule #5. You have to trust Jacob :-P

Steve Austin said,

 

“If this is your first time at Early Retirement Extrem, you *must* retire early.”

Steve Austin said,

 

“If this is your first time at Early Retirement Extreme, you *must* retire early.”

Matt said,

 

I must start exercising again. Must…feel…sexy!

Salis Grano said,

 

Interesting post and lots of good advice. I don’t agree on the education bit. Egyptian algebra might be the thing that makes your retirement worthwhile. There’s more to being educated than being skilled and most people do well in jobs because of their innate skills. Ability will always outpace knowledge, although I agree that thinking skills can be enhanced by education.

 

I tend to agree about index investing. It might be a reasonable strategy in part, but it’s boring.

Josh said,

 

I’m not sure if I missed this post the first time around, or if it just didn’t really sink in until now. Either way this a great post and should be bumped way more often than once every 2 years!!!

Josh said,

 

@Salis – the point is not about how useful Egyptian algebra is or might be — the point is someone should not get a doctorate in Egyptian algebra while racking up $100k in student loans and expect to ever come out ahead financially.

 

If this really were someone’s true desire, I would bet they could get an equal education/level of expertise by studying on their own much, much more cheaply.

» Link Roundup: Spambot Edition said,

 

[...] How to Be Happy in the Long Run [...]

AJ said,

 

Under “education” you said: “Do not drop out of high-school!”

 

I’m curious as to your reasoning. Because employers look down on a drop out? Or because you feel the education is worth it?

Jacob said,

 

@AJ – The former—you’d have to be quite successful to get rid of that stigma. There’s not much actual education going on in high school. Dropping out or not going to college is somewhat more accepted for those who don’t want/need to go there. I’m sacrificing a principle for expediency here.

whoa said,

 

This is the most moderate post I have ever read from Jacob and I love it.

Jacob said,

 

@whoa – I actually wrote this one a year before I started this blog for another blog, so that explains it :)

 

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