Ernst

There used to be a rich factory owner who lived down the street from us in Germany.

His name was Ernst. His parents built the factory and the wealth that came with it.

Ernst spent it.

He was kind of a baller. Cars. Furniture. Maybe booze and gambling too - I honestly don't know. But definitely cars. And definitely furniture, because we ended up buying some of it.

Then the money ran out. He lost the cars, the factory, the furniture,  and eventually the house.

I remember thinking that really sucked. You get used to living a certain way, and then you have to downsize.

I never knew if I'd be rich. Never really wanted to be, either. Most of the people I looked up to weren't rich. Still true.

But Ernst did teach me one thing. I definitely never wanted to be rich and then have to go backward.

I don't know what you call that. Lifestyle deflation? Whatever it is, the way to avoid it is to fight lifestyle inflation. So I've always looked at my life through two numbers:

• The Now number. How much of my income do I need to spend to keep the life I have?
• The Future number. How much do I want to put away for later?

As a kid working in Ernst's factory, I saved it all.

When I cleaned toilets in college, every dollar went to tuition.

When I started my career in LA, I saved 10%.

After that, with every raise, I increased the Future number.

First raise: spend 85%, save 15%
Second raise: spend 80%, save 20%
New job: spend 70%, save 30%
Next raise: spend 60%, save 40%
Next job: spend 50%, save 50%

At first, the later money is just an emergency fund. Once that's covered, you start investing some of it. Let that compound. Give it enough years, and it turns into the money you retire on.

Money may come and go.  But it’s always hard to go backward on lifestyle.

Know your two numbers (Now and Future).

When your income goes up, bump the Future number first. Your life still gets better, just a little slower than your paycheck.  

Build an emergency fund first, then invest, then let compounding do its thing.

Ernst lived as if the money would never stop. When it did, it all went away. The factory, the cars, the furniture, the house.

I went the other way. Build a life I'll never have to shrink. Spend a bit less than I could. Save a bit more every time.

Ernst was rich once. I want my family to be good for good.

And hopefully I'll never have to sell my furniture.

Some of it used to belong to Ernst.