Savings is a difficult art form. I say an art form because how you do it is all rather personal. You might shop for clothes second hand, I may eat less meat or someone else might skip their summer vacation. The methods of getting to your goals are all very different.
I would say in my savings progress I went from spending a bit more than I should to spending almost nothing I didn’t need for a while. Then more recently I’ve been moving a bit away from savings and beefing up spending again. Why? I realized I don’t need another dollar for the pile. Saving more at some point becomes a bit meaningless.
I had a raise from work in January and most of it did go to savings, yet at the same time I did increase our spending. Now with my wife sent to go back to work she might make more than I’ve forecast in my retirement plan. If that is the case I’ve decided I don’t want to increase our savings again. I ran the model to find out how much early we could retire if I put that money in savings. The result we could retire a year earlier at best. That seems like such a minor amount of time for the lose of potential in the present.
I’m happy with our savings rate right now and the plan requires a certain amount of compounding to work. So to cut that time down any further requires significant more savings. How much? Well I ran the numbers with putting even extra dime at savings and assuming decent raises for myself until I quit. The result was retirement at age 42.
Three years earlier for being a miser for the next decade or so. That just doesn’t seem worth it to me. I want to enjoy my life now and in retirement. So I don’t feel the need to push it much further with my savings plan. Yet at the same time I don’t want to fall into the trap of lifestyle inflation where my lifestyle spending expands every time I get a raise.
So I’m likely going to cut the difference. Half of each unexpected income increase will go towards long term savings. The other half will go towards spending in the near term. Perhaps I’ll take a nicer vacation next year or we may do a renovation to the kitchen a bit earlier than I planned. I’m not sure where the extra money will go but I imagine I’ll come up with something that will make me happy.
So have you ever ran into this? At what point was saving that next dollar a bit of a waste for you? How have you dealt with it?