Never Retire - When Cash Security Matters Most And Friends And Strangers Just Don't Understand

Not having a cash cushion can set you up to fail, practically and psychologically, with money

When I write an article about debt—particularly one with the theme, there’s no such thing as good debt—I get a response.

Lots of people—even people with mortgage debt or a car loan (for the record, I have the latter!)—agree with me.

They see debt as circumstantial. As a necessary evil. They make choices on the basis of their own unique situations and psychological profiles.

Personally, I can’t afford to own a home in Los Angeles. But I don’t need or want one. So there’s no way I would take on debt—and go the personal financial lengths—to buy one.

However, I need (definitely) and want (kind of) a car, so I took on debt to finance one. I hope to clear that debt within a year or so and never have a car payment again.

Lots of people don’t agree. Which is fine. However, they fail to see the nuance—such as the aforementioned individual nuance—in the conversation.

They blow off charts like this—

They respond with some—let’s face it—bull shit that the value or their home or their investment returns render their 3%, 4 %, or 5% mortgage rate insignificant, if not—in some strange way—a positive.

Bottom line—you’re still on the hook for a 30-year obligation that will drain you of six figures’ worth of interest payments.

Which leads to another bottom line that’s not quite as practical, but most certainly individual.

It’s an ironic twist—the more cash security you have, the more you’re willing and able to spend freely, albeit within reason.

Cash security—which I define as having a cash cushion (surplus) most months and over time—might be the most important intangible in personal finance.

When you take on debt—any type of debt—you not only commit to pay somebody a certain amount of money each month, but you agree to pay it back with interest.

A basic definition worth simply stating.

As I noted in a recent Medium article, debt appears super attractive to many people. There’s no individual deficiency here. It makes perfect sense from a psychological standpoint—

Bottom line — debt, in the near-term, makes your lifestyle seem easier.

If you’re struggling, swiping a credit card can help you make ends meet. However, it can also contribute to lifestyle expansion. To living beyond your means.

I know this from my experience as a 19-year old — in 1995 — living in Miami on a $26,500 salary. Even then, $2,208.33 a month — before taxes — was barely enough to get by. I also didn’t hold my current views on cost of living.

Throw credit cards into the mix and I felt like I had money — lots of money — left over every month. It never felt like I was living paycheck to paycheck until the debt became too much to handle.

Because I wasn’t living paycheck to paycheck. I was living on my cash flow from work and the borrowed time of outsized credit limits.

At some point, the shit hits the fan and you learn your lesson.

Some people make robbing Peter to pay Paul work for months. Even years. This makes them think they can live like they’re making $100,000 a year on a $26,500 salary.

Today, I keep one credit card, with a $2,000 limit. Lesson learned. There’s no need for anything more. I use it for some automatic payments and traveling.

When you’re in debt and get into money trouble as a result, at some point, that sense of cash security evaporates.

Suddenly, you have to pay back what you borrowed to finance your lifestyle. Therefore, you can’t have that lifestyle any longer.

This can be an incredibly difficult pill to swallow.

It leads some people to find ways to take on more debt and put themselves in a vicious cycle of paying interest on much of what they consume.

They’re constantly robbing Peter to pay Paul.

Throwing good money after bad.

They’re in a hole with debt so they use more debt to get out of it and even more debt to get out of the most recent hole they dug for themself.

Others respond the way I did—

They swear off debt completely. Or to the most realistic extent possible within the confines of their needs and wants.

The thought of a 30-year mortgage literally turns my stomach. It makes me anxious.

However, I love renting relatively small spaces in dense urban cores. The plan is to own something someday, but only if my partner and I can pay cash—or close to it—in a place we can afford and will absolutely love living in.

Others don’t see it that way. They don’t like renting. Maybe they don’t like apartments or cities. So they make the choice to finance a home that gives them the things they value. Maybe a backyard or less blight.

Not my thing. But I get it.

Ultimately, you swear off debt—to some extent—because it results in consistent cash security.

If you only pay cash for the things you buy, you’re less likely to overextend yourself. You view the money you spend as money you have to part with now. Not money you’ll have to pay back over time.

And, here’s the ironic part—you feel more free to spend money and enjoy life.

If you’ll Never Retire, you probably manage your money differently than the person on a traditionial retirement trajectory.

In my case, every dime doesn’t go to a mortgage and retirement savings.

Instead, it gets allocated across short- and long-term pots of money all designed to keep my cash flow where it needs to be so I can live the life I wanna live now and for the duration. I prioritize a low cost of living so I can work less—each day, week, and month—across the lifespan. And so I can travel more, yet still have pots of money to cover unexpected expenses and the aforementioned cash purchase of a place to live someday.

Simply stated, it’s a good feeling to take some money every month that used to service debt and stuff it in these various saving accounts.

It’s powerful.

Your money isn’t financing a lifestyle. Rather, it’s financing a future.

If I know I am growing my pots of money to where they need to be so I can meet my needs and achieve my goals. If I know I always have money left over each month or have a cushion in my checking account, I am less anxious about day-to-day spending or taking some time off.

Cash security breeds confidence. Confidence that you can drop $5 on a latte or $500 on a weekend trip or a couple thousand on an international journey and not feel worried about money every step of the way.

Unlike a traditional scenario that emphasizes acquiring a particular level of lifestyle today, increasingly Never Retire scenarios focus on living lean—yet comfortable—so you can sail into relative old age with considerably less uncertainty hanging over your head.

We’ll dig into this uncertainly—in specific detail (with numbers)—in an installment within the next week or so.

There’s a double whammy that holds quite a few people set on traditional retirement back.

Subscribe today and we’ll explore it.