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Old 03-20-2009, 10:17 AM   #21
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Also, I pack a lunch for work every day because I don't want to spend $5 on lunch ...
My wife packs my lunch, a big salad that would have cost $8 at the megacorp cafeteria. It's not just the money, as the salad counter looks pathetic compared to my fresh veggie.

And by the way, I am back home from the trip for w*rk, and have a really good sleep last night. I am also taking today off. That's the nice thing about working part-time on a contingency basis, and have the choice of whether to accept a short-term assignment. I may never totally retire if things continue to work out this well.
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Old 03-20-2009, 10:20 AM   #22
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"I thought the idea was to maximize the enjoyment of your resources. Wouldn't this suggest the smooth and constant expenditure of resources?"

That's it. I used to be extreme LBYM. Now I'm just LBYM, even though it means still saving 1/2 of our gross income. But our household income has more than doubled since I started working now that the wife works. So we are still living much better than 4-5 years ago, although we are also saving much more. I guess it depends on what you are used to. I very rarely spend $10 on a lunch out, but I try to get out of the office 2-3 times a week for the social time spent with friendly coworkers. The places vary from fast food to quick asian bistro, and the prices vary from $3-8. But it is money well spent IMO given the variety of food, experience, and social activity (hanging out, chilling, drinking beer, watching the game, etc). And I would have to pay for food from the grocery store if I didn't go out.

DW goes out every day at work, but frequently brings home delish leftovers that provide another meal for her or I (or the kids). The result is that neither of us really wants to go out to eat on the weekends anymore, so it all balances out. I haven't looked lately, but our total monthly "dining out" expense was running just below $200. Average cost of meals is below $6 each.
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Old 03-20-2009, 10:33 AM   #23
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"I thought the idea was to maximize the enjoyment of your resources. Wouldn't this suggest the smooth and constant expenditure of resources?"

That's it. I used to be extreme LBYM. Now I'm just LBYM, even though it means still saving 1/2 of our gross income. But our household income has more than doubled since I started working now that the wife works. So we are still living much better than 4-5 years ago, although we are also saving much more. I guess it depends on what you are used to. I very rarely spend $10 on a lunch out, but I try to get out of the office 2-3 times a week for the social time spent with friendly coworkers. The places vary from fast food to quick asian bistro, and the prices vary from $3-8. But it is money well spent IMO given the variety of food, experience, and social activity (hanging out, chilling, drinking beer, watching the game, etc). And I would have to pay for food from the grocery store if I didn't go out.

DW goes out every day at work, but frequently brings home delish leftovers that provide another meal for her or I (or the kids). The result is that neither of us really wants to go out to eat on the weekends anymore, so it all balances out. I haven't looked lately, but our total monthly "dining out" expense was running just below $200. Average cost of meals is below $6 each.

That was another thing I was wondering about. It seems like... IF you are going to dine out, then it would be wise to take advantage of the lunch specials. Also, if you have children then it is a good time to socialize without having to either pay for the additional meals (i.e. take them along) or hire a sitter.

Going to lunch may be (gasp) LBYM, all things considered.
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Old 03-20-2009, 10:34 AM   #24
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I dunno. You tell me: Is it better to have spent the money I lost in my investments and still hav stuff (motorcycles, boats, snowmobiles, electronics, cars, houses, planes) and experiences (vacations, concerts, restaurant meals) or to have the money simply go "poof".

Poof is not an experience and leaves nothing behind.
Well, clearly you can take either approach to an extreme 1) spend every penny the day you get it or 2) die with every penny you ever earned. However, I think a 50 yo who probably makes 250-350k/year should not be in a position that they have to worry about finances, given you can enjoy a lifestyle above 95% of the population and still save 25% of your income.
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Old 03-20-2009, 10:36 AM   #25
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Culture, if your friend lost $350K, and had a 60/40 stock/fixed allocation, then he probably has about $850K left. If he had all stocks, perhaps he has $350K left. But I guess for him, that wouldn't last long.

Similar story: we have some retired friends who spend a lot of money. For example, they bought a big fancy house that had just been completed. It had wonderful deluxe Corian counters. They didn't like the color, so they had them replaced with granite counters. Two years later they sold the house and bought another.

They got out of equities last October. Apparently, now he is thinking about going back to work in LA.
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Old 03-20-2009, 10:37 AM   #26
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We certainly practiced LBYM when we were younger and raising a family (so the kids could practice LABY:-) I can probably count on the fingers of one hand the real vacations we had -- every other trip was to see family or take care of something or other. Now that we're retired, the last thing I want to do is to keep LBYM. We want to take advantage now of everything we sacrificed for. Not that we're big spenders, we never developed that personality. But, if we have the money to spend on a vacation, on a hobby, or whatever, we spend it. As LOL said, that's better than to have it go poof. Besides, if we really believe our spreadsheets, and if we stay within our SWR, then we should be fine.
I would argue that if you are past the accumulation stage, and spending at a reasonable SWR, the idea of LBYM is not applicable. The point of accumulation is to allow spending AT your means in retirement.

My friend is clearly in the accumulation stage.
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Old 03-20-2009, 10:39 AM   #27
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I would argue that if you are past the accumulation stage, and spending at a reasonable SWR, the idea of LBYM is no applicable. The point of accumulation is to allow spending AT your means in retirement.
I would think so. For example, you don't need to save for retirement when you are IN retirement. But that also means that you have to make sure your budgets at a "reasonable SWR" is realistic because there won't be any slack in the cash flow if not.
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Old 03-20-2009, 10:42 AM   #28
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I thought the idea was to maximize the enjoyment of your resources. Wouldn't this suggest the smooth and constant expenditure of resources?
In theory, yes. The problem is that the return on our investments is not smooth and constant, so we might have to LBYM more now just in case there are future downturns.

Also, in balancing current and future expenses while still working, you have to decide whether retiring a year earlier might be better than, say, buying a boat now.
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Old 03-20-2009, 10:42 AM   #29
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Culture, if your friend lost $350K, and had a 60/40 stock/fixed allocation, then he probably has about $850K left. If he had all stocks, perhaps he has $350K left. But I guess for him, that wouldn't last long.
Based on his personality, I suspect he was close to 100% equities. However, I have never ask about this.
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Old 03-20-2009, 11:06 AM   #30
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Ive come to the conclusion do whatever makes you happy. If its LBYM or LAYM do it.
Or Live Above Your Means and wait for the govt to bail you out.
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Old 03-20-2009, 11:18 AM   #31
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I've notice a lot of financial advise books tend to spend a lot of time on the "Latte factor", the small expenditures that add up to a lot over time, but often don't address the big expenditures as much.

I just read The Two Income Trap by Elizabeth Warren, and was struck hard by her point that most people are having problems because their fixed costs are too high, not because they are wasting their money on frivolous stuff. She points out that the frivolous people are actually in better shape than the people with high fixed costs, because when they have a job loss they can stop spending the frivolous money fairly easily, while the person who stretched to buy a house is in real trouble.

That was a revelation to me. I've always avoided high fixed costs reflexively, but I have a friend who stretched to buy a rental duplex, and he is always broke because it sucks money from him. He doesn't have the income to deal comfortably with his fixed costs.

It is just a little counter-intuitive to realize that the person who spends all their money on travel, eating-out, and gambling is better off after a job loss than the person who used all that money to pay a mortgage on a nicer house.


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When I was younger, I did not think about spending $5 either, I admit! But if I had saved it and invested it, I probably wouldn't be working at age 60 as I am right now.
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Old 03-20-2009, 11:24 AM   #32
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you don't need to save for retirement when you are IN retirement.
But, but, but...?

Personally, I DO plan to save while in retirement. For example, if I want "expensive item X", I will save from my monthly living allowance (that I will give to myself) until I have enough to buy it. That way, I am sure that my portfolio will remain intact and I will also be sure that I am not going hog wild.

As another example, if the market is tanking as it has in the past year, I plan to spend less than my dividends so that I can re-invest the excess and maybe do some damage control on my portfolio.
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Old 03-20-2009, 11:29 AM   #33
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I've notice a lot of financial advise books tend to spend a lot of time on the "Latte factor", the small expenditures that add up to a lot over time, but often don't address the big expenditures as much.

I just read The Two Income Trap by Elizabeth Warren, and was struck hard by her point that most people are having problems because their fixed costs are too high, not because they are wasting their money on frivolous stuff. She points out that the frivolous people are actually in better shape than the people with high fixed costs, because when they have a job loss they can stop spending the frivolous money fairly easily, while the person who stretched to buy a house is in real trouble.

That was a revelation to me. I've always avoided high fixed costs reflexively, but I have a friend who stretched to buy a rental duplex, and he is always broke because it sucks money from him. He doesn't have the income to deal comfortably with his fixed costs.

It is just a little counter-intuitive to realize that the person who spends all their money on travel, eating-out, and gambling is better off after a job loss than the person who used all that money to pay a mortgage on a nicer house.
That can be true. But then the one who buys a slightly nicer house may not feel the need to travel, eat out, and gamble so much.

To get serious for a minute - - what has helped me the most in reducing my expenses to the level that I wanted to spend, is to reduce the recurring expenses. For example, if my food for lunch costs about $3 at the grocery store, vs $5 at work, that is a savings of $10/week. I don't always take my lunch, but in a year, I have probably saved enough to pay for my Wii.

But each to his/her own! We each have a different path towards the same goal.
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Old 03-20-2009, 11:32 AM   #34
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I just read The Two Income Trap by Elizabeth Warren, and was struck hard by her point that most people are having problems because their fixed costs are too high, not because they are wasting their money on frivolous stuff. She points out that the frivolous people are actually in better shape than the people with high fixed costs, because when they have a job loss they can stop spending the frivolous money fairly easily, while the person who stretched to buy a house is in real trouble.
This is true. Not that it justifies a spendy lifestyle, but someone who spends too much without debt is in better shape than someone who may spend less on current items from month to month but carry a lot of debt. It's easier, as you mention, to cut excessive spending than it is to get rid of debt if your income drops substantially.

This is why we have our small, paid-off house and haven't fallen prey to the "upwardly mobile" siren song. Upwardly mobile means debt and higher property tax, insurance and utility bills in an environment where I want to be capable of living as cheaply as possible. I've spent the last 3+ years trying to configure our financial position to survive economic conditions like the one we're seeing now -- crank up the cash reserves, have no debt, be able to live reasonably well on less than $30K a year if need be.

As for the latte factor, I think personal finance coaches often focus on that because many people don't think about how the little things add up to be as much as a big thing they'd consciously think twice before buying. No one needs to be told that a once-a-month $150 splurge can be a budget buster -- most people clearly feel a single $150 purchase -- but many of the same people wouldn't think twice about a $5 a day Starbucks habit, even though at the end of the month it's all the same financially.
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Old 03-20-2009, 11:39 AM   #35
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The real reason we have been living below our means: We are afraid our means might shrink, due to job loss when we were still working full-time, and now due to portfolio shrinkage.

As it turns out, in our career we have been fortunate that we have never suffered an involuntary job loss. I have seen megacorps shutting down entire plants where everyone gets affected, the talented hard workers along with the dead-wood slackers. So, our fortune has to do with luck too.

We'd rather save to build up a portfolio, so that we can have options. Some people don't seem to get the same idea, but it's their life. I'd say "Let them spend".

What happens if all Americans become LBYM'ers? Look at the Chinese, whose savings rate of 50% makes the Japanese look like spendthrifts. If the Chinese loosen up their purse, internal consumption growth is plenty to help their production. I think they are getting there, and try to invest accordingly.
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Old 03-20-2009, 11:45 AM   #36
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I personally don't care if people want to live above their means as long as they can deal with the consequences without impacting me. But they rarely can. I am finding that those people who most vocally criticized my LBYM lifestyle a few years ago, are the same people who are now clamoring for a piece of my money.
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Old 03-20-2009, 11:52 AM   #37
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I live below my means because I am constitutionally incapable of anything else.

As my security and income has grown, I have increased my spending and relaxed quite a bit. Even so, I find spending money on certain categories of more frivolous purchases and experiences to be, at times, physically painful or nauseating. This can be a problem during dating, for example, but mostly I wish I could get over it so that I myself do not have to experience that discomfort.
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Old 03-20-2009, 11:53 AM   #38
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So I guess the consensus is to figure out how much you want save for retirement (10%, 20%, ...) include that in your Living At Your Means budget. No need for this below or above hoopla.
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Old 03-20-2009, 12:05 PM   #39
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Hamlet, that is a great book! I really enjoyed it, and it comes close to home for me. My sister and BIL have a nice, not lavish home, 3 kids in private school and two modest larger cars. They are right at the edge of their income with expenses. With two of them working, they can keep it all up, but there is no room for "extras"--no time, money or bandwidth. I think it would be a hard way to live.

All our "extra" money is spent totally frivolously, and we could cut it out if need be. Very different story.

I found the premise in the book interesting regarding the big upswing in house prices being due to the sudden move to 2 incomes in this country from the primary breadwinner model in decades past.
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Old 03-20-2009, 12:06 PM   #40
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By the way, I've never really known one of those classic "big spender" types. Perhaps I unconsciously avoid them.

The people in my life that have money troubles didn't buy the McMansion and the SUV, they have kept a much lower profile. They graduated with substantial college loans, had lower paying jobs, and continued to slowly but surely get over their heads until their credit card balances were crushing them, or they lost a job and didn't find another soon enough, etc.

I've been surprised and at times shocked at the financial naivete that is out there. "But it's just another $150 a month on my card" leaves me stupefied. "Yes, it's another $150 a month, essentially for life!" is my response, but these are hopeless cases that are in denial and who are unwilling to take the uncomfortable steps that will end their debt.

On the other hand, I've been gratified that some friends in financial straits have been self-aware, motivated people who come to an epiphany and turn their financial lives around. That is wonderful to watch.
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