The Simple Path To Financial Independence: Ryan Sterling (Transcript)

Here is the full transcript of author Ryan Sterling’s talk titled “The Simple Path To Financial Independence” at TEDxFarmingdale 2021 conference.

Listen to the audio version here:

TRANSCRIPT:

The Vicious Cycle of Consumption

Does this picture look familiar? For many of us, this is an all-too-common occurrence. I know in my house, our record was 17 boxes delivered in one day. My wife and I knew that we needed to be more responsible with our money.

We wanted to break out of this vicious cycle of consumption, but it was hard to stop. That said, we wanted solutions. We wanted to answer the question, “Why is it so hard for us to fight the urge to consume?” So, I did some digging, and after just a little bit of time, I came up with what seemed to be a plausible conclusion.

And that is that deep down inside, we like making other people rich. And it makes so much sense when you think about it. I mean, it’s not only that we can help the heir to that retail fortune get just a little bit richer; there’s a great pride in that.

Or maybe it’s helping the tech entrepreneur get a billion-dollar valuation. I feel like I’m part of the company, like I’m along for the ride. Or maybe, maybe it’s helping the CEO build a brand new mansion; I feel like I’m a brick in that mansion.

Making Other People Rich

Are you with me? Do you like making other people rich? I can hear you. The words out of your mouth say no, but your actions, your actions say yes. Look, this is not a talk about attacking the rich. Instead, this is a talk about how to make you rich. This is a talk about how you can achieve financial independence.

Overconsumption is a real problem today, and we can see it in the data. Scary stat number one: 70% of Americans have less than $1,000 in savings. That’s one car breaking down, one unexpected medical bill; that’s one appliance break away from being completely wiped out.

Scary stat number two: the average American has credit card debt of $7,000. This means that the average American is paying over $1,000 in interest each year alone. That’s $1,000 of wasted money, $1,000 that can be put to so much better use.

Retiring in Poverty

And finally, scary stat three: it is estimated that half of Americans over the age of 55 today will retire in poverty. Today, we are living paycheck to paycheck, and this needs to stop. And the answer isn’t just more money.

I come across people every single day in my practice who are six-figure earners but have serious credit card debts. So why is this? Why is it so hard to fight the urge to consume? Well, the answer hit me one day when I was talking to a friend of mine. My friend’s in the startup world. He was starting a new business, and he was looking to raise some money, but he was having a difficult time.

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And in one of our conversations, he was venting to me, and he said, “Ryan, the VCs, this venture capital firm, they are killing me. They keep telling me I need to reduce the friction points between the customer and the sale.” And that’s when it hit me: friction.

The Lack of Friction Points

More specifically, the lack of friction points is the reason why it’s so hard for us to fight the urge to consume. You see, there used to be natural friction points that existed between us and spending our money. You had to go to a physical store location. You had to dig through inventory, and you had to use cash. Buying something simple like a pair of shoes could be a three- to six-hour event.

Think about cash as a friction point; you can only spend the amount of cash that you have on you. But with each passing decade, the friction points have been removed. Credit cards, easy-pay solutions, e-commerce, and here we are today. You can get an alert on your watch. You can press one button on your phone, and you can have a pair of shoes. You can have 30 pairs of shoes delivered a day later with free shipping. The friction is gone.

An Intentionally Designed System

And guess what? This was all intentionally designed. Not because retailers, marketers, venture capital firms, not because they’re bad or evil people; this is their job. And there are a lot of benefits that come with a more efficient shopping experience.

But in today’s world, we need to be mindful of the fact that the easier retailers make the shopping experience, the more you will spend. Today, we need to fight an intentionally designed system with intention.

Okay, so why are we doing this? Why are we intentionally adding back the friction points between us and spending our money? Why are we looking to save more money? Why is saving so important? Well, saving is about having a safety net for the next recession. It’s about being able to take that train vacation that you’ve been putting off for so long.

Achieving Financial Independence

Saving is about a down payment on your forever home. Saving is about achieving financial independence, so you don’t have to wait 20, 30, or 40 years to control your time. Do you want financial independence? Do you want more control over your time? Do you want more ownership over your life? Do you want to own life on your terms?

Well, if so, saving, saving is step one. It’s a really important step, but it’s just step one, because saving, saving is not going to get you there alone. You need a little bit of help. You need someone at your back. So what’s step two? So step two is we now need to take our savings, and we now need to change our mindset away from being a consumer to being an owner.

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Owning Appreciating Assets

Own capital.

Own assets. More specifically, own the assets that go up in value over time. Own appreciating assets: stocks, real estate, the assets that work for you even when you’re not. It sounds so simple, but we do the opposite. We overconsume depreciating assets, the assets that go down in value over time.

This shirt that I’m wearing, this is a depreciating asset. There’s no way you would buy this shirt from me at a price for more than what I paid for it. I’ve already worn it. In fact, the value of this shirt is probably close to $0. Let that sink in for a moment. Now, look around at all of your stuff.

The Cost of Depreciating Assets

Look inside your closets, and now think about how much money you spent over the years to acquire this stuff. I have a new client of mine who estimates that over the last 10 years, she spent over $100,000 on shoes, shoes that she will likely be donating. But what if instead of spending $100,000 on shoes, what if she took that $100,000 and bought an appreciating asset like stocks?

Well, here are the common excuses I get. Number one is that stocks are just for rich people. Number two is that the stock market is way too risky, and I don’t want to lose all my money.

Well, this thinking is 100% false. Let’s start with excuse number one, that the stock market is just for rich people. The stock market is the most inclusive force for building wealth. You can buy stocks today with as little as $5. So instead of just buying the gadget upon release, how about instead, why don’t you buy stock in the company? Don’t be a consumer, be an owner.

Owning the Stock Market

And don’t stop at just one stock, own many stocks. You can own the 500 largest companies in the U.S. today by buying an S&P 500 index fund. So instead of spending $500 on clothes, shoes, gadgets, accessories, why don’t you take $500 and own your share of the U.S. stock market?

Small actions today do add up over time. Let me show you the power of small actions. Let me tell you a story. Jody graduated college in 2006, and she committed to a process of saving $500 a month and investing in an S&P 500 index fund. Well, let’s see how she did over time.

After year number one, Jody had a balance of $6,500, close to it, after total contributions of $6,000. Not bad, but certainly not life-changing. Okay, how about year number two? Well, year number two, she had a balance of just over $11,000, after total contributions of $12,000.

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Staying Committed to the Process

She’s actually losing money. This is the start of the 2008 financial crisis, and it only got worse. This is a time where Jody had a balance of $9,500, after total contributions of $16,000. She felt discouraged, but she stayed committed to the process: $500 saved every single month and invested in an S&P 500 index fund.

She was rewarded, because the stock market rebounded, hit a 10-plus year bull market run, and today, Jody has a balance of close to $200,000, after total contributions of just over $80,000. Jody said no to mindless consumption and yes to ownership, and her small actions were rewarded over time.

Okay, how about excuse number two? The stock market’s way too risky, and I don’t want to lose all my money. Yes, the stock market does come with risk. We can see it in Jody’s journey. You invest in the stock market, make no mistake about it, you will experience periods of volatility. Look back over the last 30 years.

The Risk of the Stock Market

The stock market has experienced a negative return in about 30% of calendar years. Okay, but think about the alternative. So let’s say, because stocks are too risky and you don’t want to lose money, you decide to buy clothes, shoes, accessories, gadgets.

How have those assets done over the last 30 calendar years? Those assets have lost value in 100% of calendar years. When you think about it this way, what do you think about risk now? Think about yourself 10 to 15 years in the future. Think about that future version of you. Would future you rather have a closet full of accessories, clothes, shoes, gadgets, all collecting dust, all losing value?

Or does future you, would they rather have $200,000, $200,000 that will get you closer to living life on your terms? The simple path to financial independence equals intention plus ownership. Intentionally add back the friction points between you and spending your money and with your savings, own appreciating assets.

Own the assets that go up in value over time. Go from being a consumer to an owner. It really is that simple. Intention plus ownership equals financial independence. Thank you.