"Screw you" money

Have you ever heard the term "screw you" money, or some variation thereof?  Probably not, since it's not generally used in polite company.  But you probably understand the concept, and it's something you definitely need.  "Screw you money" is having enough money to be able to tell almost anyone to fuck off.  Most people would call it financial independence.

Is your boss a jerk?  Do you hate your job?  Legal troubles?  Medical issues?  Creditors?  There are very few situations in life where having enough money wouldn't remedy your problems and make you not have to kiss anyone's ass.

You need this, because the most important thing money can buy is freedom.  Freedom from a toxic work environment, a crappy neighborhood, crushing debt.  Freedom to do what you want (within reason) and pursue your passions.

Those who live paycheck to paycheck are slaves.  Those who carry debt are slaves.  You need to get out of debt, and work on having enough money to not have to work if you find yourself unwilling or unable to.

What would happen if you lost your job and couldn't find another one?  What if for some reason you didn't qualify for welfare, unemployment, or any other kind of assistance?  I've been in both situations and it's terrifying.  Too many people spend their entire paycheck on frivolous bullshit because they think they'll always have one, or if they lose their job, they'll be able to find another one.

The concept of "screw you" money is very appealing, but most people think they'll never be able to have it, unless they win the lottery or something.  I'm here to tell you that's not true.  As I've mentioned before, all you really need to do is save up enough money so that when properly invested, it's producing enough income to last you for the rest of your life, a self-sustaining "fuck you" fusion reactor, if you will.

Like this, but like, throwing off money instead of heat and radiation

You may also think you need an amount greater than you'll ever be able to save, but that's also not true.  All you really need to last you forever is 25 times your annual desired expenses.  So say you wanted to retire today with an $80,000 annual salary for the rest of your life (which would increase with inflation, so you can buy the same amount of stuff today as in 50 years), you'd multiply that $80k by 25, and it gives you $2 million.  All you'd need is $2 million dollars.

Alright, so maybe that's a lot. But say you lower your expenses a bit, to $30k a year (which is very doable, depending on where you live).  You would only need $750,000 invested in the stock market to throw off $30k in today's dollars for the rest of your life.  You could walk out of your office proudly baring the one finger salute, and never have to work again, as long as you maintain your standard of living.

Here's John Goodman explaining the concept.  In case this gets removed from Youtube or something, it's from "The Gambler."  The position of fuck you:

To place yourself in the position of "fuck you" it's important to start early, save as much as possible, and invest it.  There are many people who have retired super early.  You do not have to work until you're 65.  I'm currently working on my "screw you" money, and as long as things go according to plan, I'll be financially independent by 45 or so.  Maybe earlier, though I doubt I'll stop working.  It'll just be nice to be able to finally relax and free myself of the worry that comes with poverty,  I've encountered some setbacks in life that have left me cynical but realistic, and have shown me how truly necessary financial independence is.

I hope you get it too.

Life insurance example

I've previously talked about the different kinds of life insurance and how term is best for most people.  I say most because I'm sure there are people out there who could benefit from the other kinds.  Getting to the point of this post, here's an illustration of a real insurance policy one of my friends was kind enough to share with me.  Obviously, the name and information of the person and the company have been redacted for privacy, and so the company doesn't sue me or whatever, but I've circled the points I'd like to draw your attention to.

This particular policy is a variable life insurance policy, which is a permanent life insurance policy with an investment component.  The policy has a cash value account, which is invested in a number of accounts similar to mutual funds.

Now that you've all snoozed off, allow me to put that in plain English.  Not only do your dependents get paid a bunch of money if you die (like a regular life insurance policy), but the insurance company helpfully invests your premiums for you, and you don't even have to croak to get paid!  How fucking cool is that?

"Of course, it costs a little more, but it's worth it."  
"What was that?"

"Oh, I was just mumbling that it costs a little bit more that term, but let me redirect your attention to something else."

"Wait, how much extra?"

"Ah, don't you worry yourself about that.  It's worth it.  Let me just dazzle you with a bunch of figures."

That's the gist of the spiel most insurance salesmen (or women, whatever, I'm equal opportunity) will run by you, and to the uninformed schmuck, it sounds awesome.  And it IS all fine and dandy, except for one crucial point they tend not to cover - these policies charge fees; a lot of them.

This particular policy you can see above was purchased at the beginning of November 2007, when the insured was 19 years old, for a death benefit of $400,000.  The monthly premiums are $116.50, and the current cash out value is just over $5,200.  To put that into perspective, a term policy for the same amount costs maybe $25 a month.  To date (11/2007 - 09/2015), this person has paid out $11,067.50 in premiums.

Did you notice the difference between the cash value and what was paid?  It's less than half.  That's not even taking into account the stock market returns.  Let's pretend this same person had purchased that $400,000 term life insurance policy for $25 a month, and invested the remaining $91.50 in an S&P 500 index fund.  The cash value today would be just over $12,000.

In summary, you're probably throwing your money away if you purchase anything other than a term life insurance policy.  If someone is trying really hard to sell you something (other than advice), they're not doing it to help you out.  They're doing it because it's lucrative.  And more fees for them equals more costs for you.

And they'll probably say something like this as well

Now for the obligatory disclaimer: I'm not a licensed financial anything (yet) so I can't legally give you advice for money.  This is all my opinion, and if you take my advice, that's on you.  However, licensed advisors like Dave Ramsey and Suze Orman (and pretty much anyone not trying to sell you a product) tend to agree with me.