Posted by Tim Stobbs on January 29, 2014
I started to reply to a comment from Paul N and quickly realized I needed an entire post to answer it. Here is part of Paul’s comment and question.
I read a few lines on another blog, ” Depriving yourself of everything you enjoy is not a formula for long-term success”. It leads to “Frugal fatigue”. How does one find that balance between?
This reminds me of my early experiences on spending less and saving more. Way back when I started this mad journey to retire early I was entirely focused on cutting back on our expenses. Then after my first son was born 10 weeks early and our house needed its main structural beam replaced (in the same month) we ended up with pile of debt. So in response I cut to the bone for spending and we poured everything into paying off those debts.
I can assure you that hacking expenses to the bone is an effective short term measure but I agree entirely with the quote from the other blog that it is a recipe for disaster in the long run. Why? In summary, you learn to dislike your own life and begin to resent your plan regardless of how attractive the outcome is. I experienced it first hand and so after some of the initial debt repayment I eased off the other savings and looked at our spending carefully then expanded the spending again, but only in certain key areas.
We personally focused on expanding spending on what matter most to us and what we enjoyed about life. For example, my wife likes eating out so we earmarked some cash each month to allow that to happen. Then for a while I can honestly say we found our balance point…well at least for a while. Then over the years I haven’t paid as much attention to the spending and it crept up a bit higher. Not huge amounts, but it moved up, some of that was just having a growing family (we now have two kids and a dog). Yet now I can honestly say I think perhaps we went a bit too far the other way. I don’t agree that all our spending was a good idea from a balance point of view (I won’t say we are hugely over spending, just a bit). So I struggle with asking myself where is the balance point again, because to be honest is shifts all the time.
The shift in some regards is normal, you change over the years and so does what matters most to you. So your spending should evolve with you to keep that balance, but often it doesn’t. We tend to form habits and keep them even when their outcomes no longer really serve us.
So my plan to try to head back to balance again is to go over our spending data with a detailed eye and get some input from my family on what they like the most. Then examine the things we don’t use that much or like and see if we can’t reduce our spending on them. This may free up some cash for savings or it may just end up boosting up others areas of spending, it all depends on the net results of the exercise.
In the end, balance is a temporary state, you have it and then it leaves, so you have to cycle back around to it. Frustrating, I agree, but it is the truth. How do you find your balance point between saving and spending?
Posted by Dave on January 28, 2014
The last couple of weeks, I have written about my past and present financial plans, today I thought I would write about one possible path that my wife and I have looked at.
My plan in retirement is to continue with my frugal lifestyle, spending as little as possible and living off of the investments I’ve made during my working years. One of the benefits of living on very little money, is that we may be able to live essentially tax-free in our retirement years.
In 2013, according to CRA, the basic personal amount Federally is $11,038, Ontario has an amount of $9,574 – both of which are inflation adjusted. Given our current level of spending, we would be fairly close to these minimum amounts, resulting in very little taxes payable to the government. My preference would be to pay zero taxes, because (like most people), I don’t like to pay these at all.
Most major “capital” expenses will be taken care of going into our retirement years. The two major items (our house and car) will be paid off and hopefully well-maintained, and I can’t foresee much in the way of major expenses (outside of normal emergencies like a furnace breaking down or a car accident) taking place, which can hopefully be taken care of out of an emergency fund.
Right now, we don’t spend a lot of money. Like most people, our spending priorities probably wouldn’t make sense to anyone but ourselves. When I look at variable expenses in my monthly spending, the vast majority of it is on gas for the car to visit family and friends, food, and drinks. Other than this spending, we spend almost nothing on “stuff” – we would kind of look like we were living in poverty (compared to a normal North American family).
Our low expenses in comparison to the income we bring in is the main reason we are even able to contemplate an Early Retirement path. I think the vast percentage of people would balk at our lifestyle, but at least for now are more than enjoying the current way we live. What would maybe look like poverty to an outsider, is comfortable and stress free to us. We have savings, we have more than enough food to eat, we have a car to get around with and we can support our various hobbies and interests that we enjoy doing in our free time. Our goal is to increase the free time portion of our life to have more time to enjoy these hobbies and interests.
Do you feel you’re missing out on anything by taking part in an Early Retirement path?
Posted by Dave on January 21, 2014
Last week I wrote about my initial foray into investing and how I arrived at my current early retirement plan about 5 years ago. Sometime in the next few months, I will change over my financial goal from aggressively paying down my mortgage to investing as much money as possible. My intention is to amass enough money to be financially independent from my job employment by the time I’m 45.
Based on my household’s current spending levels, and today’s dollars, I will need somewhere between $20,000 and $30,000 in investment income. I would prefer to go to the lower end, but this is a negotiable number that my wife and I will have to decide on over the next decade, as we continue to work. At some point, we might decide we would rather spend 25% less and exit the workforce early, or that we require more money because we pick up an expensive travelling habit and the budget just isn’t set up to handle that.
I hope to invest my money into cash-producing assets, either stocks or bonds that appear fairly solid (based on the research I carry out) and offer the rate of return that I am looking for. I am assuming I will have to invest approximately $500,000 to achieve the cashflow I need to leave the workforce, which will require as much dedication to that financial objective as I have had in paying off my house.
I look at my current financial objectives as the best return I can get on the time I am spending working. I could choose to not invest the money, and instead spend the money on other things, which may make my life more fun in the short-term. I am looking more at the long-term though – what will make me happier overall in my life? Will a newer, fancier car that will rapidly lose its novelty for me be enjoyable when I’m 70 (which I am hoping to make it to)? Will a larger house bring more enjoyment to my wife and I on a daily basis?
My retirement goal arises because I have the money to do it, and because to me, increased leisure time that I have control of will bring me much more enjoyment than anything else I could spend my money on right now. If I decide I would like to change careers (or am told by my place of work that I should change careers) or work less to enjoy life more now, then my future plans of Early Retirement will have to change as well.
My financial freedom countdown clock will start as soon as my last mortgage payment is done, but until I start seeing investment losses or returns coming in, I will have no idea how close or far away my “exit date” is.
How have you decided how much money you require to retire?