The challenge of living within ones means

[twobone]

Now that I'm a few years north of 40, I've made the commitment that I'm no longer going to live beyond my means.

I'm religiously saving 10-15% of gross income and investing in the hopes that one day I can retire (early?) with a solid financial position. Like a squirrel, I'm storing nuts while I can.

Meanwhile the world around me is trying to kill my plans.
My friends and neighbors are taking lavish trips and spending like crazy.
My next door neighbor just bought a $3500 frickin light fixture...WTF?

Its true, I'm kind of cheap, but the cost of a modern yuppie lifestyle means that we are just breaking even, after I set aside long term savings for retirement and education funds for the two kids. I'm convinced I'm doing the right thing.


My wife complains that I'm too focused on retirement and that we need to enjoy life more now....we could be dead at anytime...

Sorry to rant, but here are my thoughts:

-If I do die soon, you will be damn happy I've put aside money for you and the kids to help support your current lifestyle!

-We live in a big house, have 2 cars, the kids have everything they could ask for

I know its dark and cold and I too would like to sit under a palm tree in January with the kids...but $4,000 for a week down south in peak season?? We have taken lots of trips, but we need to plan and budget for stuff and not rejoin the ranks of the line of credit-pay it back later generation

-I want to retire healthy and young enough to really explore my passions. Working at my current company until I'm 62 will probably lead to my loss of sanity and certainly a loss of hope and happiness

[pwd72s]

You are on the correct path, grasshopper. One book I highly recommend:

The Bogleheads Guide to investing
by Taylor Larimore, Mel Lindauer, and Michael LeBoeuf

Truth be known, at age 68, I could indeed buy a new 911, have the gold rolex, a mcmansion, etc...if I wanted to.

But why go broke just to impress people you don't care about?

Seems to me some people just can't stand having cash that works for them. I can...

[Embraer]

I'd say I'm the top 10% of wage earners in the US, but I live on $1200 every two weeks. The rest of the money goes into savings or retirement. I've found that the more money I make, the harder it is to spend it.

[red-beard]

2-bone: buy gold, food and ammo...

[Evans, Marv]

You are on the correct path (your friends & neighbors aren't), and I agree with the previous comments completely. Look at it this way: nobody plans to die early, and your period of income earning life is for your WHOLE life and that of your wife. I think others on here will also agree the more you save, the easier it is to continue to save more. I can also guarantee that you will enjoy those vacations in retirement as much or more than you would enjoy them now. What you have available for the necessities of life should also include providing for the after-work life. You are doing a great job of providing for the family, and your friends & neighbors are eating into their resources by lavish, unecessary purchases and losses on interest from everything they borrow money for. They will have a far greater chance of having to be scrooges in retirement than you.

[twobone]

Another factor is that I can see my future better than before. When I was 20, my 30s was a distant future.

When I turned 30, my 40s seemed a little closer.

When I turned 40, It freaked me out.

Now that I'm 43, I can see 50 right in front of my face and 55, 60 and beyond are hiding right around the corner! Its a bit like the scene from StarWars when they start the jump to hyperspace. Time seems to be sucking me in

My relatives live well into their late 80s and early 90s

No one else is going to cough up the money to pay my bills and I don't want to live hand to mouth....so yes, I sacrifice some level of current extravagance today to ensure a solid lifestyle.

I also want to be able to give my kids a bit of a head start. Its going to be tough for them to live a good standard of living without help from the old man (house downpayment, tuition, maybe a beater-car, etc.)

[pwd72s]

All good points Two Bone...and congrats on seeing the truth in the old saying that life is like a roll of toilet paper...the closer to the end you get, the faster it goes.

Buy the book I mentioned...you'll be glad you did. I'm not familiar with Canadian tax law & how it applies to retirement investments, but the basics to investing remain wherever you live.

[twobone]

PS - thanks for listening and sharing your comments. Its not an easy topic to discuss in social circles as all people want to talk about is their recent purchase.

I really worry about some of my friends who have given up on planning for retirement. What is your plan B? Sleeping in my basement?

[Tim Hancock]

My wife and I own an older home and are debt free. We buy used cars to drive. We do not typically save much money, but I have been putting 7-10% in 401k's for the last 10 years or so. At 45 and with terrible returns on my 401k I am guessing I will be working for a long time to come.

[pwd72s]

Originally Posted by Tim Hancock

My wife and I own an older home and are debt free. We buy used cars to drive. We do not typically save much money, but I have been putting 7-10% in 401k's for the last 10 years or so. At 45 and with terrible returns on my 401k I am guessing I will be working for a long time to come.

Tim, that depends on how much you are allowed to control what's in your 401K...DO buy the book I mentioned above. It's chock full of info, written in a language anybody can understand.

[twobone]

Not to get off topic, but I've been fairly successful with Canadian Bank stocks and the like. We have a nice little oligopoly up here is a highly regulated low risk environment. My big long positions are in TD and RY. Plus some exposure to TransCanada Pipeline (sorry Nebraska), Exxon Mobile and Intel. No more farting around with small stocks. Give me dividends and long term growth

[Tim Hancock]

Originally Posted by pwd72s

Tim, that depends on how much you are allowed to control what's in your 401K...DO buy the book I mentioned above. It's chock full of info, written in a language anybody can understand.

To be honest, I just had it taken out of my check and put it in whatever the investment company thought sounded good based on my age/risk/category. Once a year or so I occasionally have it adjusted/balanced. I HATE dealing with/worrying about financial matters. In fact my wife pays all bills and does all the banking. So long as my PayPal account works when I need to buy something for a project, I am good and would rather not think about/deal with finances.

Yeah, I should be more involved, but I enjoy life most when I am spending my time thinking about hobby projects vs how to make more money.

[pwd72s]

Nobody cares about your money more than you...but many brokerage houses are very good at hiding fees in their statements.

Fees matter...a LOT!

Like I said, buy the book...

[Aggie93]

Needing less retirement income is a nice side effect to living below your means. If your standard of living becomes 85% of your income, you only need to replace that amount - Ceteris paribus. This has actually come under attack since retirees are generally healthier now and are more active. But, I think the point is valid.

As someone else said, it gets easier with time for two reasons. First and foremost is the physiological impact of keeping up with the Jones. Once this is gone, you won't mind buying a 3 year old car, staying at a lower priced hotel…It all adds up.

Also as savings grow you are able to pay for items that were previoulsy financed. This can make cash flow a little messy, but is better in the long run.

I’d also suggest accelerating payments on your mortgage. I think it has lost popularity with interest rates so low. I just paid my off because I didn't think I'd be able to get the same return on my money, especially on a risk-adjusted basis.

[myamoto1]

I'm just South of 40 and always try to live within my means. I say "try" because there is the rare exception when I spoil my kids or wife. However, I do my best to live the words carved by my school's founder:



I'm amazed at how many people don't follow this simple, yet basic rule. A neighbor of ours just lost his job. He's a great guy, has a wife and 2 kids that my kids play with all the time. I feel bad he was laid off, but you could see the writing on the wall that his position would not last. He had left a stable position in a stable (for this economy) industry in pursuit of greener pastures in the pre-fab home industry (yes, in the middle of the real estate crash). What was the first thing he did - bought a bigger boat. Now he's scrambling to make ends meet, but they have yet to put the boat up for sale.

I experience similar actions through my wife's friends. They're always running off to here or there, buying this or that. It's a little tough on my wife, since she can't join most of their girls nights out. They have no problem buying multiple bottles of $100+ wine. I know their husbands make more than me, but not to the extent that there should be such a difference in our ability to "consume." My wife finally found out they all just float it on credit cards. They're carrying balances of $10k or more!

You're on the right path. It's hard not to stray, when so many others seem to be getting along just fine with their lavish spending. However, if they die tomorrow, their kids will have nothing but a pile of debt to remind them of the good times.

[Porsche-O-Phile]

I hate to be the one to say all this since it IS historically good advice to sock away what you can for the end of life years, but I'm starting to seriously question the wisdom of it. The government WILL be coming for peoples' 401ks and IRAs. I'm 100% certain of it. This isn't a question of "if", it's a question of "when" and "to what degree will I lose".

I also believe we're in the waiting period before we see explosively high inflation (probably in the next 3-5 years). Again, this isn't a question of "if", it's a question of "when". When this happens, will your retirement accounts keep pace with inflation? Maybe but not likely. Still, it'll cut the real-dollar losses by getting some kind of return versus blowing it or having cash holdings that will devaluate considerably.

I also believe that people are no longer in control of their own destinies when it comes to retirement. It's becoming increasingly difficult to plan for simply because you might be (probably will be) shown the door well before 65. There are literally millions of people who were in their 50s and 60s (prime earning years) who were first-targeted during recent layoffs simply because the beancounters could get the most payroll reduction for the minimum amount of bad press (headcount). Don't count on being able to work until the age YOU want to unless you're fully independent.

Also (like I had to recently) if you do end up un/under employed you might find yourself in the unenviable position of having to cash out your retirement account early (assuming the government hasn't seized or frozen it by then) just to live on. Something to consider... And with real rates of return so lousy (especially after all those management fees are factored in), it's worth really questioning whether "max out your 401k" is sound financial logic anymore.

I can't believe I'm saying this but I think one of the best moves long-term a person can make right now is Real Estate. The market has cratered (maybe a little left to fall but not a whole heck of a lot in most markets), rates are low and given the surge in demand for rentals, it makes some sense to snap up what you can now, hold it, rent it and be paying it off with highly deflated rental revenue dollars down the road. I'm seriously considering this - I recently bought my first place for many of the same reasons and may very well buy a rental property (or two or three) as a retirement/long-term revenue generator. I certainly am NOT counting on Social Security and honestly I'm not counting on my 401k/IRA very much these days either...

Food for thought/discussion.

[pwd72s]

The happiest day in my life was when I sold some commercial property that also had a rental house on it. Some folks enjoy being landlords. I didn't.

I also don't see any huge gains in the housing market until most of the reposessed homes have been sold. So, guess it depends on how long term you look at things.

[Z-man]

two-bone - I too, am just north of 40, with my birthday coming up in a couple of weeks, as a matter of fact.

I too, believe you are on the right track. You are living with the old-fashioned way of managing your finances: if you can't afford it, you don't spend on it! That is the mantra I try to live by.

That doesn't mean I can't spend on some frivolous stuff -- just ask my wife about the techno gadgets and such that I've amassed over the years! However, especially when it comes to stuff like that, it is the LAST thing that I spend on -- ie: when all the bills are paid, when all the savings are put aside, if there any anything left in the kiddie, spend some of it on unneccessary items.

Keep out of debt is part of this old-fashioned way of thinking. To that point: last summer, we re-did our kitchen - it was a huge expense, yet we didn't incurr any major debt! (I took out a zero-interest loan for the appliances.) This fall, we had to do rip up and replace our garage floor, and again - we didn't take out any loans for that project. How did we manage to do that? Well, we skipped a couple of vacations, and focused on saving up $$ for these bigger ticket projects. Matter of fact, after finishing the garage last month, I had some saved $$ left over to pay off my truck (owed about $4000.00 on it.) BTW: When I bought my 944 ten years ago, I paid cash. When I plan on updating to a (used) Cayman S next year, I will most likely not take on a loan for it.

Now some may say "Take out a loan and invest that $$ in something that yields a higher interest rate than the loan does." I do NOT adhere to that type of thinking -- the market is too volitile right now to guarantee a higher ROI than your interest rate. I think that type of playing with money is too risky -- kinda like those folks who got caught when the housing bubble burst. Besides, these are the same people who SAY that, yet instead of actually DOING that, they are too tempted with that money, and start spending on toys they really have no business buying.

Sorry for the soapbox sermon -- but I get tired hearing too many people over-extending themselves and then complaining about not having play money to buy the latest Mercedes, or the biggest house on the block, boat on the dock, or the latest iPhone 4S...

-Z

[Porsche-O-Phile]

I'm sure I won't either, but I'm trying to look at it rationally. RE is a great inflationary hedge right now. This was a HUGE motivator in getting me to go out and buy the place I have now. I'll be sitting pretty when high inflation hits and I'm paying off my reasonably-priced mortgage with dollars worth 1/2 of what they are today down the road.

Why not do the same with more units? If nothing else, just get them to "break even", hold for 20-40 years and then sell off as necessary in retirement. At least you'll have preserved your buying power against the effects of inflation.

I really think that inflation (not deflation) is going to be the BIG worry here in very short order. You don't just pump trillions of dollars into the system without consequences, and the Fed is continuing to do it every chance they get.

Take advantage of the cheaper money of tomorrow today... That's my strategy anyway.

[vash]

simple really. quit using credit.