Actually that is a good point. Early retirement saving is a little different than just flat out regular saving since you are trying to typically build an income generation portfolio. Yet I think the theme of the post remains the same: you should not focus on what your not buying…it becomes self defeating.

Tim

As I was putting together the pieces for me to retire in 2008 at age 45, one big piece was finding a bond fund which could generate most of the income needed to cover my anticipated ER expenses. I found one within my risk comfort level and followed it for a few years before I left my company and placed the proceeds from the company stock I sold into that fund. For the last 20 months, it has been providing more than enough income to cover my expenses.

So the question becomes: “how much more income can I generate?” which is a different mindset from “how much can I save?”

I tried having a set amount each week or month for clothing, entertainment, and general stuff (DVDs, books, coffee etc) but I found that once I’d put an amount down, I tended to spend it because in my mind I’d already justified the expense. Now I only plan for the bare essentials (mortgage, utilities, groceries, gas, property taxes and insurance). This generally amounts to 55% of our take home pay. This way if we do pick up a DVD, get a haircut or go to a restaurant it clearly sticks out on the spreadsheet because I have to manually add an extra unplanned item. It makes me far more aware that it was a choice to make this unplanned purchase. I find it also makes me think more before I spend, and when I do spend I appreciate it more because I really thought about it instead of just using up my preset entertainment budget.

After my spreadsheet of planned expenses has been updated with the actual costs for the week, and the pay has been received (we’re on alternating weeks so it’s always a pay week), then I assess how much extra I can skim off to go to the retirement accounts or an extra mortgage payment. If we did any unplanned spending, the amount skimmed off will just be smaller – yet another reminder of the impact of that choice to spend.

The same thing goes with money and budgets it seems. I was restrictive this last month, but I didn’t run out and spend like crazy come July 1st. That’s why I get confused when people tell me that if I temporarily restrict myself I’ll feel deprived and want to go crazy spending afterwards – because I personally don’t. That may be true for them, but it’s not true for everyone.

For me it works if I have some goal. Like right now, I’m restricting myself with groceries for a purpose (to clean out my pantry), and overall spending is moderately restricted until my stock account recovers to the pre-fall levels (lost ~5%). But that doesn’t mean that I’m canceling my August vacation, I’ll just spend less than otherwise and be more mindful of the value I receive for that spending.