Buy now pay later or financial independence retire early?

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In the last few years, two opposing philosophies about how to manage personal finances have been making the rounds. What’s the difference between the two? What should you learn as soon as possible to find peace of mind, now that the economy is declining while simultaneously interest rates are rising fastly (not falling)? How could they influence your mindset and investment allocation?

In all likelihood, you’ve heard of at least one of the perspectives from the headline for managing your personal finances and lifestyle. You may even have heard of one and the other. Both are very different and opposing approaches to personal lifestyles that lay the foundation for your future in financial terms.

Both also have an impact on your thinking process and your mental well-being.

Sadly – and less surprisingly – “buy now pay later” (or BNPL) is way more present. Search volumes in the USA for BNPL recently were 5x higher than for “financial independence”. In comparison to “financial independence retire early” the search volume is even nearly 70x (!) in favor of BNPL.

Why this krass imbalance?

Personally, I think it is a mix of insufficient financial education on the one side and a wrong mindset on the other. Additionally, one cannot earn a lot from people that are frugal and savvy. It is way easier to do so from folks that continuously spend on things they do not even need with money they do not have to impress people they do not like or know.

As an investor, both clashing philosophies should be understood, though.

Photo by Bri Schneiter on Pexels

In today’s article, we are going to examine the differences.

You will take home how you could improve your personal finances (if not already done) and what you should brainstorm through for your personal finances.

Buy now pay later – the hamster wheel of loans

To be more precise, it should read “the hamster wheel of consumer loans”.

I am going to stress my point with the general term of buy now pay later as a means of using any form of borrowed money to fulfill certain desires. Briefly, I also explain the new types of services that caught new groups of consumers. But think in a broader sense of borrowed money for consumerism.

According to data from the World Bank, of the five largest consumer markets in the world, four are western countries. In absolute terms, the USA is the biggest consumer economy worldwide. Following are China, Japan, Germany and the UK (Japan counting as “Western” country).

Relative terms have to be calculated manually, because you find different data sets from different years. Reliability of data is another thing… Hence to make it short, the following should be understood rather as roughly-right figures. They will stress the point I want to make, nonetheless.

It is well known that up to 70% of the US-economy is driven by its ever-consuming society. Currently, this figure probably will be somewhat lower due to inflation being on a 40 year high. That is the biggest percentage among the leading economies. In relation to the worldwide amount of consumption, the US takes around 25–30% (see worldwide consumer spending here).

China has a consumer base of around 40% of their GDP. The cut from worldwide consumption is around 10–12%. In Japan, Germany and the EU as a whole, consumption as a percentage of the economy is somewhere in the 50s, give or take. The UK has similar relative figures to the US, but on a much smaller absolute basis.

All have in common, that consumption makes big parts of the respecting economies.

This is not necessarily a bad thing. It gets interesting when we look at the debt levels, hence the financing of the consumer expenditures.

The US has a households to GDP ratio of 78%. The UK has an even higher figure with 86%. Japan has 67%, Germany 57% and the Euro-Zone (not EU like above!) of 60% (see the source here).

This means, more people than not have some form of debt to finance their consumer spending. The majority is living with borrowed money they spend today but earn tomorrow for different conveniences.

Here certain buy now pay later apps or services come into play. Whereas the typical consumer loans are rather based on credit card debt and simple bank loans or mortgages for properties, the BNPL services are a somewhat new “invention”.

The core takeaway for today’s article is nearly the same.

Consumers use Klarna in Europe. In the US, they use “Buy Now, Pay Later with PayPal”, Afterpay or Affirm to finance their immediate desires (not necessities) with money they don’t have themselves. PayPal is even offering a credit line service called PayPal Credit where they charge hefty interest rates and penalties for paying down debt lately.

Nearly every second debtor seems to be in dire straights when it comes to paying down smaller consumer debt.

Buy now pay later is often an interest-free option with mostly low credit checking to pay down consumer debt generally in four installments over a short timeframe. However, it is not accepted everywhere, e.g. you cannot book a flight or rental with BNPL.

There are two problems with BNPL. You could lose the oversight of your finances easily. Plus, if you are late on paying, your credit score could be affected (it could also improve, if always on time).

Interestingly, when you search on the internet “buy now pay later”, the most frequent add-on words are all consumer discretionary items like

  • shoes
  • electronics
  • tv
  • clothes
  • furniture
  • jewelry
  • iPhones
  • amazon…

You get the point?

The items listed above are certainly all nice to have. Some like clothes are absolute basics to a certain degree. No problem with that. This is not the point.

But sadly, often they are bought with borrowings and in excessive amounts. Oftentimes, the consumers are not even aware of that they don’t need this stuff. Or they don’t need to replace stuff that very often, if cared for properly. Please differentiate desire from real need!

Who says, you can’t use a tv for ten years? A car for ten to fifteen years? High quality leather shoes or wool sweaters even nearly for a life if taken care of?

But many consumers have to have it, because… their neighbor is having it? People think they need to continue to spend their hard earned money on… on what exactly? Many don’t even know why they are spending, they just keep on spending and consuming as an automatism. Because the society does. Who is the society?

Of course, there is also this fraction living a hip Instagram-lifestyle that posts pictures taken with their newest phones (bought with borrowings for the full price) of their toast sandwiches topped with organic avocados laying on toxic margarine…

Living today, don’t caring for what will happen tomorrow. I prefer the other way around.

You should do yourself a very big favor and not think in buy-now-pay-later-terms, but instead: “if I can’t afford it – well, I can’t afford it”.
“I want, I deserve” is a way of fulfilling questionable desires with means one does not have.

This is the way many people get in trouble and become the hamsters pedaling for short joys (i.e. for interest payments, loans and for others).

Buy now, cry later is taking care of you if you don’t take care for yourself.

Photo by Markus Spiske on Unsplash

As you have seen and probably know, there are different purposes borrowed money is spent for: student loans, car loans, mortgages, vacations, credit card and BNPL for smaller everyday stuff.

It would be one thing to borrow and pay back everything quickly. Everyone makes mistakes and debt is not always automatically bad. Debt can be very handy when you finance something that brings you more income in the future – in case you are able to pay it off, soon. You could finance your useful education (no, not the study programs with worthless degrees) with debt in order to earn later a respectable income.

But certainly not very favorable when using for consumption.

The dark side of this spending party is that debt makes you not only dependent and unfree. Debt can lead to anxiety. You could feel depressed and pushed around.

The problem is that a lot of the debt just gets rolled over. This means an old sum of debt is replaced with a new one. All time, you are paying for this amenity with interest. There is no free lunch! This interest is accumulating, i.e. snowballing against you!

The hamster in the wheel…

Would you have known that the average Joe in the US spends easily half a million USD during his life just on interest payments alone?

Interest payments alone! You haven’t bought anything for that, yet.

Here is a rough calculation to show you the proof. However, I think that my assumptions are very conservative, because I only looked at ages 20–65, the exemplary property bought (only once) costs just 300k USD and all other expenses tend to be average while interest rates are about to rise further:

source: my own calculation in numbers (to simplify, no inflation was taken into account)

In this calculation, our average Joe has spent “only” 432,600 USD on interest payments alone until he turned 65 years. He should have some more years to live and could have a more generous lifestyle or live in a more expensive location with higher costs… Image for yourself, what you could spent this money on…

Even I found it fascinating that in the single items you can see that “Joe” spent the amount of

  • an additional two thirds of his mortgage for interest (his house actually cost him 532k USD)
  • additionally nearly twice the amount of what one car costs in interests
  • around 74% of his already high student debt was accommodated by interest
  • save the best for last: nearly 7x the yearly credit card borrowings outstanding in interest

Who wants to be a millionaire? Obviously not so many… Otherwise, many could be – or at least could increase their odds massively – with a mindset shift. It gets easier when you get rid of your existing debt as soon as possible. The earlier, the better. Why pedaling and burning out for paying interest?

When you finally leave the hamster wheel, you can start making interest work for you, not against you anymore. Profit from positive leverage and the compounding effect!

You just need to understand some very basics in mathematics.

Additionally, I want to have a look at a different lifestyle and personal finance philosophy.

Both in the next section.

The FIRE movement – financial independence and retire early

From what I know, the FIRE movement (FIRE stands for “financial independence and retire early”) started to influence many – especially younger – people to question their lifestyles and ingrained habits.

The blog of Mr. Money Mustache that started in 2011 (and has been sold in the meantime) is said to be the pioneering force in this completely new way of looking at the meaning of life, spending money and saving for retirement.

It has been a foregone conclusion that one must have a new leased car every few years, a big mortgage-financed house, a dog, the newest branded clothing and fancy electronics, take on expensive far-away vacations…

Does one really have to? Is this all really that fulfilling or rather a secure way into a burnout and the ever-spinning hamster wheel?

Suddenly, the goal for those pursuing this new approach of financial independence became not to earn more just to be able to spend more (and having nothing left at month’s end, anyway).

It was about perceiving life more consciously.

When possible, being your own boss and traveling more. Or working part-time and having a day more to spend with family. Being content with the most necessary became en vogue. The rest was saved and invested into stocks via ETFs in order to be able to decide one day for yourself when, where and how to retire early.

You are not forced to do anything, but you have the power and the means to decide for yourself. Or take a longer time out, if you wish to. If you lose your job – so what…

The FIRE community spread all around the world. It is not just a Western phenomenon, but actually can also be found in parts of Asia, Australia and nearly everywhere.

Photo by Ali Naderi on Pexels

Here in Germany, the idea was popularized by Oliver Nölting and his blog With the creation of his blog, Oliver also brought new words (Frugalismus, Frugalisten) into the German language and gained some media attention. I find his blog worth reading.

However, I have a slightly different approach to lifestyle, my personal goals, spending and saving.

For example, I like buying (irregularly) quality products that lasts me long. I am looking for ways to buy especially branded products cheaper and hold on to them for a long time. This is because I am a believer in a lower average cost of use over time in comparison to buying more frequently cheaper stuff.

Another difference is my investing approach. I don’t invest neither into actively managed funds nor into ETFs – I manage my money myself. I know what I am doing. With my blog, I want to share my knowledge and experiences with my readers.

But Oliver’s ideas, frugal living hacks and transparent financial reporting are respectable and inspiring, nonetheless.

A lot has already been written about frugal living ideas and frugalism as a whole. Unfortunately, oftentimes especially in corporate MSM, being frugal is portrayed as something rather negative.

Frugalists are mean, abandon the most joyful time of their lives, miss on all the amenities consumerism has to offer – this is the narrative being sold.

But is it really something to be ashamed of trying to get financial independence and retire early, as you like? Having your destiny in your own hands?

What is the real idea behind this concept?

Photo by Castory Stock on Pexels

The goal of this FIRE philosophy in general (sure, there are also extremes) is to live a frugal and savvy life, but without being cheap and living by sacrificing your whole life. You don’t have to live a miserable life and just eat rice and beans everyday.

It is more about turning just a few big screws in your everyday life for a noticeably better, less stressful and more enjoyable living.

Start with tackling the big expenses to cut your costs dramatically. Housing, insurances, debt and interest payments. A cut here an there can save rapidly a few hundred bucks a month. The leftover money can be invested into longterm independence. This is the concept, in a nutshell.

You can be an extreme minimalist, but you don’t have to. Just some simple habits and changes can completely rebalance your life to the better instead of being a lifelong slave for someone else.

Focus on what you really need, not what you don’t need or what someone else makes you think you need.

When you consciously know what you really want and need in your life (YOUR goals), it will be easier to resist the temptation of consuming irrelevant stuff which doesn’t bring you any meaningful joy (the goals of other’s).

Those that try it out can attest that simple living is a lot less stressful.

Suddenly, you have less to care about, less to repair, less to clean, less to replace regularly.

What has helped me a lot is the following mind model: Manage your personal finances like a good company is managed. Effectively and efficiently.

Try not to think in salaries and debt to finance your dreams and desires. All your money was not earned to be spent forcefully. Instead, think in revenue you generate, operating cash flow (operations = living costs) and free cash flow (FCF).

FCF is what you have left over after your living costs and all investments into yourself are paid for. An investment into yourself for example is a useful education or a further training on the job to learn new skills.

What is left over as free cash flow, can and should be invested into income generating assets. You can pay yourself dividends later. Stuff you consume is neither an investment nor an asset. It is a liability that forces you to be dependent and work for it.

Assets are generating income for you. Hence you need to invest your free cash flow into income generating assets.

I have never been a friend of bonds or savings accounts that pay you interest (or not). They only limit your upside for pseudo-security and most often the earnings are below inflation, anyway.

However, the concept is applicable in the following, too.

Earn interest instead of paying it.

Substitute “interest” with dividends or capital gains. The point is, you need income generating assets.

The start will be slow and leaps forward hardly noticeable. With time, however, this concept gets you more and more cash flow. You will be able to substitute your active income you have to work for with a passive income stream.

This comfortable position and feeling of being free, of knowing you are flexible and at any time can, but don’t need to spend, will boost you massively and make you want rather put even more aside.

Photo by Karolina Grabowska on Pexels

Allocate money to the goals you really have, not to stuff to impress other people you don’t like.

The earlier you understand this the better. If needed, read the lines above again.

It is so important to internalize, because the more time you have to enjoy interest compound FOR you, not AGAINST you, the bigger the effect of this snowball. Self-explanatory, the higher the interest that compounds for you, the more disproportionately your gains. But time is the more important factor.

Here is a basic calculation I did to stress my point:

source: own calculation and diagram, created with numbers

What you need to take home from the diagram above:

  • the longer compounding works for you, the better
  • the higher the rates at which interest can compound for you, the better
  • the biggest absolute gains are made the closer you look to the end

The last point is interesting, but often misunderstood.

An example: You are on a seven day vacation. Every day you visit a pond with water lilies. Every day the amount of those water lilies, doubles.

Now the question: On which day did the most water lilies appear in the pond?

Obvious answer: On the last day.


Because on the last day alone, there appeared as many new water lilies as on all other days before – together.

If you understand this example above, you understand the power of compounding.

Should water lilies be an idiot-example, change water lilies against the jump in processing power of computer chips.

Or just look at a real life-example:

Warren Buffett (born in 1930) who started investing in his 10’s, became

  • a millionaire for the first time in his 30’s during the 1960’s
  • a billionaire for the first time twenty years later in 1985 at the age of 55
  • four years after his first billion, he quadrupled it nearly to 3.9 billion USD in 1989
  • another seven billion USD came on top (!) until 1995 to reach more than 10 billion USD

What will blow you away is this: After he qualified for social security in his 60’s (in the mid 1990’s) he earned an additional 100 billion USD per his 92nd birthday today (30 August) to reach 113 billion USD. Happy birthday and well done!

Thus, Buffett earned more than 90% of his net wealth after he could have been a pensioner!

Photo by Andrea Piacquadio on Pexels (no this is not Warren Buffett)

How to start and what to do to change your life for the better?

You could:

  • understand the difference between the buy now pay later and the financial independence mindsets (and lifestyles)
  • cut all unnecessary costs, but without becoming cheap; start with the big ones
  • focus on your true goals
  • pay down all your debt; the one with the highest interest rates first
  • have an excess cash reserve for bad times, urgent needs or unforseen costs
  • educate yourself about interest, compounding and investing
  • start investing and always think critically on your own
  • always buy what you need for cash, not for debt (remember: “if I can’t afford it – well, I can’t afford it”)

But where to invest? Many representatives of the FIRE movement advocate for investing into ETFs. Mainly, they like putting money into ETFs that are a rebuild of the MSCI World Index or the MSCI Emerging Markets Index (see a factsheet here). Sometimes supplemented with exchange traded funds that invest in bonds, in real estate or in gold.

But does anybody really know and understand in what stocks or other underlying securities they actually invest?

Would you like to invest in Southern European or Emerging Markets bonds (you maybe don’t even know where they are on a map) directly? Or into companies that have low margins and high costs in times of high inflation, like currently?

Maybe many are rather investing in strong belief and good faith that everything will go well through?

What sounds like a good idea in the sense of “investing for beginners”, has also its pitfalls and disadvantages. I am going to elaborate on this in the next Weekly.

Wouldn’t it be better to know exactly where you invest your money? To be able to explain your investment ideas in easy words?

As you might know and will definitely see later on our journey, I am a big proponent of investing directly into stocks of businesses you understand and can explain. With my free Weeklies and soon to be launched research reports for my Premium Members, I will try to do my part with hopefully inspiring ideas.


Being debt-free gives you peace of mind. It makes you flexible and simplifies your life, once you understood todays Weekly. Managing your personal finances disciplines you and lets you focus on what really counts in your life.

Work decisively towards your personal goals. It is the progress that matters and that motivates you all along. Every “level-up” works like a booster.

Don’t be the hamster in the wheel! Enjoy life, because no one can either buy more time or buy back time due – not even the wealthiest.