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Old 03-21-2012, 08:07 PM   #21
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. So the question is: Am I overdoing this? I don't intend to call it quits for quite a while, as I haven't even determined what I'd do with my time. Should I be balancing things out a little more and not focusing so much on keeping my spending the same as my income rises? It seems at this rate that I might become so accustomed to saving that I'll never be able to let myself retire, so I'm not sure what the point of doing all of this is.
As a point of comparison, I'm 33 and we save nearly as much as you do, although our spending is a bit higher. Our living costs are low but we do spend money each year on vacations and activities like theater/museum tickets. I'd agree that so long as you are enjoying life, saving a lot is just going to get you to FI faster. FI means freedom, no small thing even if you don't know how you'll use it yet.

I think the trick is to splurge strategically. I won't pay for books when I can download them from the library, but I know I'll get a lot of value out of our theater subscription, so it's cash well spent.

I know we could retire a bit sooner if we never went out and never traveled, but I could get hit by a bus next week. No point in living only for the future.

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Old 03-21-2012, 09:06 PM   #22
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FWIW
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Originally Posted by 1979dreamer

  • My income currently sits at right around $145k/year, with about $20k of that coming from a side business I run and the rest from my dayj*b. That's outstanding, congratulations!
  • My expenses generally run a little under $3k/month including my mortgage. That's discipline, congratulations!
  • By the end of next month I expect to cross the $500k mark in total savings (not including home equity, of which there isn't much). Excellent!
  • Am I overdoing this? Not unless you feel deprived. Obviously you could loosen up where it's worth it to you, but spending just because you can is foolish, contrary to popular culture/opinion.
  • I don't intend to call it quits for quite a while, as I haven't even determined what I'd do with my time. I hope not. You shouldn't even think about quitting if you enjoy your work at all.
  • Should I be balancing things out a little more and not focusing so much on keeping my spending the same as my income rises? Again, not unless you feel deprived. There is no right balance, it's unique to each of us and will probably change over the course of your life. And you haven't mentioned an SO or family, do you expect your expenses to continue as is indefinitely?
  • It seems at this rate that I might become so accustomed to saving that I'll never be able to let myself retire, so I'm not sure what the point of doing all of this is. The point is to reach FI (financial independence). Once you achieve FI, the options expand greatly. You're about halfway to FI based on current spending. When you reach FI, you can spend more, retire, change jobs, start a business, take a sabbatical or whatever you want.
  • Money is security, having it is worth more than spending it more often than not. If you haven't read The Millionaire Next Door, I'd recommend it. You'll identify with the successful examples in the book, you're not alone but you're part of an inconspicuous minority.
  • Unless you feel deprived in some way, I'd continue with low spending and aggressive saving/investing until the world is your oyster...







Wonderful sage advice !
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Old 03-21-2012, 09:56 PM   #23
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Thank you, everyone, for your input. To address some of the questions that have been asked:

- No, I don't feel utterly deprived currently. I travel a decent amount, I eat out, and I enjoy my hobbies. The only potential deprivation is that I drive an older car; I've thought about getting something newer, but I think it would just be because I feel like I should rather than actually caring about it.
- Single and no kids. I'm not sure what will happen in the future.

More & more it does feel that I'm on the right path towards very early FI. Obviously the market will drive some of what happens, but based on my current saving it seems entirely possible that I'll hit $1M by around age 37, and I don't expect my spending to change drastically between now and then.

Interestingly, though, when I think about my spending 10-20 years down the line, I typically imagine myself spending in the $75k/year range as opposed to the current $30-40k/year range. I'm not sure if this is anticipation of having kids in the future, worries about health insurance, or just a miscalculation on my part. As a result, I don't feel confident that my savings will signify true FI in the next 5-6 years.
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Old 03-21-2012, 09:57 PM   #24
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I spent my career working in computers and the money was always good until about 10 years ago when I hit 50. It was still decent but I did not make as much as in my younger years.

I would say bank the money while you can, however, do not loose sight of enjoying life.
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Old 03-21-2012, 10:53 PM   #25
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Bank what you can; it's amazing how burned out you'll feel at 45...never mind 50.... But I would also splurge a little more on small things that make you happy. And don't forget to find a good mate - there's more to life than work and savings.
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Old 03-21-2012, 11:19 PM   #26
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$1M by age 37 would be a great achievement but probably not enough to safely retire unless you can live very cheaply.
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Old 03-21-2012, 11:40 PM   #27
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$1M by age 37 would be a great achievement but probably not enough to safely retire unless you can live very cheaply.
If you can cover expenses and a couple pts for inflation, 1M is fine.... We live quite well down here or most states on $35-40k...$30k in Mexico is high on the carnitas.
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Old 03-22-2012, 12:11 AM   #28
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- No, I don't feel utterly deprived currently. I travel a decent amount, I eat out, and I enjoy my hobbies. The only potential deprivation is that I drive an older car; I've thought about getting something newer, but I think it would just be because I feel like I should rather than actually caring about it.
- Single and no kids. I'm not sure what will happen in the future.

More & more it does feel that I'm on the right path towards very early FI. Obviously the market will drive some of what happens, but based on my current saving it seems entirely possible that I'll hit $1M by around age 37, and I don't expect my spending to change drastically between now and then.

Interestingly, though, when I think about my spending 10-20 years down the line, I typically imagine myself spending in the $75k/year range as opposed to the current $30-40k/year range. I'm not sure if this is anticipation of having kids in the future, worries about health insurance, or just a miscalculation on my part. As a result, I don't feel confident that my savings will signify true FI in the next 5-6 years.
You sound like your spending reflects your values, not someone else's expectations. If you're happy then it's "frugal" or happy living. If it's painful then it's deprivation.
Frugal living is not deprivation | Military Retirement & Financial Independence

If you're interested in playing with your 401(k) options or other advanced investing techniques, then take the time to learn how to do it right. If you're not so interested then don't feel obligated to "streamline your upside potential". Just keep socking it away in your asset allocation and occasionally rebalancing.

Once your portfolio is handling your $36K/year living expenses then you can decide whether working longer is worth getting it to support $75K/year. Or you could decide to quit your day job and focus on part-time employment with your side business.

As far as the spouse/kids/family situation: nobody ever predicts that one.
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Old 03-22-2012, 12:53 AM   #29
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If you can cover expenses and a couple pts for inflation, 1M is fine.... We live quite well down here or most states on $35-40k...$30k in Mexico is high on the carnitas.
It does look like you are doing great where you are right now. But, what happens if inflation goes crazy sometime during your life? If you and the OP were 20 years older the chances of inflation destroying the value in your savings would be much less and you would have fewer years to have to spread the remainder out over. $1M is a lot of money today. 10 years of 5% to 7% annual inflation and it would not seem like so much. Even 3.5% average annual inflation over the 40+ years you guys have left in your lives will cause serious reductions in your lifestyles. If the OP marries someone who does not share his live WAY below your means mentality he is probably going to need more than $30K a year in todays dollars to live.
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Old 03-22-2012, 01:46 AM   #30
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Now to get to the point: Since my spending runs under $3k/month and I'm already maxing out 401ks and IRAs, I find myself saving another ~40-50k/year in taxable accounts. Mind you, this level of saving is a somewhat recent development for me, but it appears to be something I'll be able to continue going forward. I expect another significant raise some time this year, which will only solidify my ability to keep this up. So the question is: Am I overdoing this? I don't intend to call it quits for quite a while, as I haven't even determined what I'd do with my time. Should I be balancing things out a little more and not focusing so much on keeping my spending the same as my income rises? It seems at this rate that I might become so accustomed to saving that I'll never be able to let myself retire, so I'm not sure what the point of doing all of this is.
DW and I averaged a pretty high savings rate over the years as we kept our expenses fairly constant while our income grew rapidly. We reached financial independence in our late 30's. Do I think we overdid it? No. Of course, you may not feel this way.

What is the point of all this? Even if you don't retire right away, financial independence gives you choices (choice of location, choice of activity, choice of lifestyle, etc...). To me, this is invaluable.
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Old 03-22-2012, 08:23 AM   #31
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dreamer, one thing I'd point out....as this has started happening to us the past 2-3 years.

Once you get your portfolio to a certain level, the amount you add each year becomes less important to its growth than simply the time it stays in the account at a reasonable rate of return. Let's say you get to $1M by 37, and earn 11% that year. That's $110,000 that your account will grow by. Contrast that with an amount you may contribute...let's say you make $125k and add 20%...so you're adding $25,000.

What does this mean? Well, it means a few things.
1) Once you reach that level, you can afford to cut back a bit on what you contribute and just watch it grow...and therefore spend more of what you make

2) Realize that the exponential impact of TVM is working for you...it's a great feeling!

In 2010, we earned more in our combined plans than our income! That won't happen every year....but when you get to that point, it's pretty exciting.

Think of it this way. If you have $1M in a portfolio that's 70% equities (let's say S&P500), and the market (S&P) goes up by 1% on a given day, then you've just increased your balance by $7,000. While that doesn't sound like a lot...that's one day. There are approximately 250 "business" days in a year...so the amounts can be significant quickly.

I just thought I'd point this out because when your balance is low...you don't really notice this...and it was quite enlightening for us when this started happening. We cut our savings back recently from ~32% of gross to ~20% of gross so that we can pay down the mortgage on our rental properties. But even with this, our account keeps growing.
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Old 03-22-2012, 09:08 AM   #32
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You've done an awesome job. But you are young and should enjoy life too.

Personally, if in your shoes, I would continue to be very disciplined with savings, but allocate up to 25% of my "disccretionary" money (all your expenses plus fully funding IRA and 401k in this case) to a fun account and enjoy life. No one knows how long a job lasts, or life. Keep building that account so that if you choose to retire early at any point, you can live comfortably and pay for things like medical insurance.

Ask yourself, "If I had 3 months left to live, what would I want to do before I die?". This may help clarify your priorities.

Be sure to set up a will etc if you have not already done so....
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Old 03-22-2012, 04:28 PM   #33
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dreamer, one thing I'd point out....as this has started happening to us the past 2-3 years.
.

Think of it this way. If you have $1M in a portfolio that's 70% equities (let's say S&P500), and the market (S&P) goes up by 1% on a given day, then you've just increased your balance by $7,000. While that doesn't sound like a lot...that's one day. There are approximately 250 "business" days in a year...so the amounts can be significant quickly.
.
Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...
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Old 03-23-2012, 12:11 PM   #34
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Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...
I'm still working on the first million, but I can definitely say the first $100k was hardest. I'm still measuring in 100k milestones but don't really pay attention when they happen (I have the million milestone in my eyes). I am guessing we passed by 2 $100k milestones this quarter although the books aren't quite closed yet. Market movements this quarter so far have dwarfed our entire annual salaries.
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Old 03-23-2012, 03:34 PM   #35
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Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...
The second million is absolutely easier due to magic (the power of compounding).

Say you are saving 20k a year and your contributions are increasing 3% a year and your nestegg earns 7% each year.

After 19 years you would have ~$1 million and it would be roughly 1/2 contributions and 1/2 accumulated investment earnings.

Only 8 years later you would break the $2 million mark and your additional contributions in that 8 years would only be 300k and the rest would be interest.

And $3 million would be just 4 years after $2 million all else held constant.

YearContributionInvestment returnBalance
  7% 
1 20 1 21
2 21 3 45
3 21 5 71
4 22 6 99
5 23 9 130
6 23 11 164
7 24 13 201
8 25 16 242
9 25 19 286
10 26 22 333
11 27 25 386
12 28 29 442
13 29 33 504
14 29 37 570
15 30 42 643
16 31 47 721
17 32 53 806
18 33 59 897
19 34 65 997
  502 494  
    
20 35 72 1,104
21 36 80 1,220
22 37 88 1,345
23 38 97 1,480
24 39 106 1,626
25 41 117 1,784
26 42 128 1,953
27 43 140 2,136
  312 827  
    
28 44 153 2,333
29 46 167 2,545
30 47 181 2,774
31 49 198 3,020
  186 698  
    
  1,000 2,020 3,020
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Old 03-23-2012, 04:38 PM   #36
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Would you say the second million is easier than the first then? We're on the long slow slog to our first million, and your post gives me some hope that a larger balance can speed the way a bit. Subject to market returns of course...
Yeah, "the rich get richer" is true, provided Mr. Market delivers.
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Old 03-24-2012, 12:20 AM   #37
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No, I do not think you are overdoing it, as long as you don't feel deprived.
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Old 03-24-2012, 08:36 AM   #38
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