I ran into this article How Much Money Does It Take to Be Happy?, and though I saw some helpful things, it missed one thing: savings.
I believe a person should master the skills of frugality to live comfortably with minimal expenditure of money and resources. Mr. Money Mustache does a good job of advocating frugality, though I’m not as strict about it as he is. It is just flat out stupid to be wasteful of any kind of resources. This includes driving a bigger car or living in a bigger house than you need. MMM takes this to the extent of bicycling almost everywhere. Good for him. I’ll still drive to the lumber yard to get supplies for renovating my rental properties, thank you.
One important lesson MMM taught me is to beware the scourge of lifestyle inflation. We live frugally when we’re subject to straightened means, and after a big raise it’s easy to relax and increase your lifestyle even more. NOPE. Live carefully, frugally, and cut wastefulness. This will reduce the expense side of your budget.
Keep in mind that wealth is accumulated by “Minding the Gap” between income and expenses. If you live humbly, and engage in egotrage whenever possible, you’ll be able to boost your savings rate to astronomical levels. A high savings rate is the El Primo Numero Uno factor leading to Financial Independence.
Let me stress this: your financial independence depends upon keeping your savings rate as high as possible.
Look at any personal finance blogger out there and you will see they are all be rowing in the same direction: cut expenses, increase income, and save the difference. Do this. If you fail to do so you may find you’re burying yourself alive in a box!
Now, the article about money and happiness mentioned above says nothing about savings and savings rates. I can guarantee that if you have a negative savings rate, you’ll find a million-dollars per year is inadequate to get you out of the slough of despond.
Conversely, if you’ve got all your expenses covered by the interest thrown off by your savings (e.g. 25x expenses), then you’ll be content, smug, and happy with no further income. This is how I define Financial Independence.
On the gripping hand, until you reach Financial Independence, a sky-high savings rate will give you the happy feeling that you’re moving toward a good place. It won’t buy happiness, but it’s a big step on the yellow-brick road.