I was reading this article on Freefincal.com on Should I Make More Money or Spend Less?. The article started of with giving thumb rule "invest for retirement as much as you spend for essentials". The author came up with this fantastic idea from out of the blue.
The article follows with a case study of Anita and assume that she saves 40% each month for her retirement. If she invest in stocks for 26 years, she will have 13 crores in her portfolio and she can live well?? [she will be 55 years old] from that point of time. If she decide to buy a house, she will not have enough savings, so she cannot live well. So the author suggest an ideal way "use the retirement template, generate a figure and start saving for it".
The author do point out that "As regards earning more, the standard ways are getting a better paying job perhaps with higher qualifications." Investing does not mean saving the money and putting in mutual funds. There are other ways of investment or doing business or higher qualifications or migrating to other countries and earning more salary.
The money in stock market is gaining some interest of 12-15% every year. A successful business can generate ten time volume than that. You can take a loan from bank or friends and start a business. If you follow the thumb rule shared by the author, you will end up wasting your life with some crores in your account [if you do not have any unexpected expenditure in all these years] [What if she saved all this money and stock market collapsed when she retires]. The thumb rule shared by the author is mathematically right but not practical in life.
What should I choose? To make more money or spend less?Making more money is obvious choice. You can start a profitable business from money from real estate, partnerships, loans and other means. For a middle class person, it is almost impossible to start a business due to lack of capital investment.
The saving money and spending less path will lead you to a 9-5 job for years without any enjoyment in life. Your life is not a tool to be used to become financially independent. Use it create more source of income instead of saving it or merely investing in mutual funds. Saving money will take you a lifetime to get financially independent but not rich. Now if you follow the path of investment in mutual fund and became financially independent, you can only live barely with the inflation adjusted monthly money. So you saved for 26 years by living with minimal money to live more years with minimal amount. How bad that would be.
Always think about making more money and do things that you are passionate. No need to follow the savings path. When you have enough money, start a business and do not keep investing in mutual funds.