Posted by Dave on October 8, 2013
My wife and I had an interesting conversation the other day, which I thought was an applicable topic for a post here.
The gist of the conversation was – what would we do with the money we are currently using to achieve financial independence, if our income was cut significantly?
We are currently saving somewhere around 65% of our take-home pay, at this time making extra mortgage payments to get our house paid off as quickly as possible. Eventually, this money will be funneled to investment accounts, building our asset base outside of real estate, with the intention of having enough cashflow from investments to sustain our lifestyle – which would allow an exit from the workforce, or at least much less need to work.
So, what if we used the money being spent on our house and retirement savings and just blew it all?
We tried to think about what we would spend all this money on. The amount of excess dollars would be over 10 times the amount we spend on “variable” (usually fun) stuff in a month. We could pay with cash for a new car every few months. We could go on a pretty fun trip once a month, instead of going away once every 18 months or so that we do now.
If we did spend the excess, we would probably just end up with more stuff than we need or really wanted, just to have – we would be like kids who get spoiled at Christmas – too many toys to even enjoy any of them. Like the kids, we’d probably end up back with our favourite activities, which don’t cost very much to do and have sustained us to this point.
My wife and I having more money could probably be compared with most people finding cheap credit, which they see as almost “free” money. Home Equity Lines of credit or introductory credit card offers allow people to think they have way more money than they actually do. Most people I’ve seen in these type of situations don’t use that money wisely, and end up in worse shape than if they had just lived “smaller”.
Part of the reason saving for early retirement works for us is that we don’t have a ton of “wants”. Saving a significant portion of our income isn’t forcing us to make hard financial decisions, and having a low demand for “wants” in retirement will allow us to live fairly cheaply (the other obvious fact is that combined we make a considerable amount of money relative to our lifestyle). I think if I had an expensive hobby (say something car related), early retirement would be much more of a inconvenience and I probably wouldn’t stick to it.
Do you feel like you’re giving up stuff in order to work towards early retirement? Is savings a chore for you?