How do you decide on ER vs buying/spending?

[rai-zero]

I realize people are in different situations, age,income and dependents etc..

But I bet we all have to come to grips if we want to work-and-spend or work-and-save or likely somewhere in the middle. I just wonder where people draw the line.

I mean, I like to live/enjoy while I am here for a long retirement is not gauranteed. But at the same time I want to save for an ER.

Short of winning the lottery it has to be a little of both.

For example who here would not like to go an a vacation to Europe or Hawaii? I'm sure most of us would. However that costs $$.

I like cars so I would spend more money than some on nicer cars. I know cars could be cheap or expensive so do I go the cheap(er) route and miss out on what I like for a few years earlier retirement?

I just got the book "Work Less.." so I have to figure out what is best for me.

But I was wondering if people would say what the think for themselves, I mean is a $10K vacation out of the question or do you still do that but save in other areas?

 

[Meadbh]

$10K for an overseas trip is not unreasonable for a couple. Many of the people on this Board take such vacations, or make large discretionary purchases such as vehicles, vacation homes, etc. That's all part of the quality of life for many of us. The key is to build these expenditures into your budget. It might look good to come up with a budget of $20K per year for basic expenditures, but it's important to account for unexpected events (e.g. roof replacement) as well as vacations.

For me, the annual expenses that I use to model ER finances include $10K per year for vacations and $30K every 10 years for car replacement. that's included in my SWR. Most years I expect to spend less.

 

[W2R]

I think it helps to do a lot of introspection, to determine what your priorities really are. Some people would rather go on a $10K vacation, and others would rather go without so that they can ER just a little earlier.

Knowing yourself takes time and a lot of thought/meditation, but it can make a huge difference in your life. Once you have established what your priorities truly are, you won't be as inclined to shoot yourself in the foot. Remember, you only have one life to live and so it should include some fun. What form that fun takes depends on the individual.

It might help to set up a spreadsheet, to estimate how your savings will compound and grow between now and ER.

You asked what people here do, and I would have to say that a $10K vacation is not something I would personally consider. I don't like to travel very much anyway, except to our potential ER location or other brief trips by car. I have zero desire to go on a trip to Hawaii or Europe, and I went to a lot of effort to avoid a free trip to SF for work a few months back. If I felt that my life would simply be incomplete without one $10K trip to Europe, I would figure out a way to do it (once).

As for expensive cars, I have a Camry Solara that I bought new, though I suppose I could have saved by buying a used Corolla or something even cheaper. On the other hand, I would not consider something like a Lamborghini on my five figure salary.

 

[Marquette]

We have a budget item for large expenses... this goes into the pot o' money but covers trips, eyeglasses, etc.

As far as things like expensive cars, etc. Life is a trade-off. You can choose to work a couple years longer to pay for that new BMW, or you can choose to live ascetically and give up a car altogether. Or, you can choose to shop for a used car that you like.

The biggest thing for me is to be conscious of what I'm buying rather than mindlessly pulling out the card (like that one time a few years ago when, on a whim, we flew to Scottsdale for the weekend and stayed at the four seasons). We have a game plan and we're sticking to it. That game plan maps to our goals and the goals are things that are important to us but might not be to you.

 

[Khan]

In my youth I often 'wanted' what I was told (directly or indirectly) I wanted.

For me, part of growing up was realizing that I didn't want a lot of those things.

As Want2retire mentioned: introspection.

 

[growing_older]

Most people are a lot more complex than stories about ER seem to imply. Sure there are some folks who spend very little so that they can ER as soon as possible and likewise there are folks who spend it all (and then some) and may never retire. But most people are likely to be in the middle. Each person needs to decide for themselves how they want to balance spending now vs savings for the future. For me, I do appreciate luxury goods but in many cases not as much as I appreciate how expensive they can be, so I tend to live simply. On the other hand, I have two kids and I strongly believe that they should enjoy a wide range of activities, trips, lessons and experiences. We spend lots of money in bookstores, activity fees, music instruments, trips and the like. People have to decide what's important to them. I'm not much of a car buff, so I'm content to wait until mine no longer runs well before replacing it, even then I might get a used one. On the other hand, I'm very concerned about safety and willing to pay more both up front and in operating costs to make sure I have a safe vehicle. It's a personal choiice about what's important to me, so I don't expect others to necessarily share my values and choices.

A wonderful vacation trip for 10K sounds pretty reasonable, if that's something that you value.

 

[maddythebeagle]

Also agree on finding value and balance...I also think some people were "trained" differently growing up which drives their frugality and would simply never spend 10k on a vacation...

 

[TromboneAl]

There's no good way to decide. But it helps to know the total cost of things. For example, you can say "If I go to Hawaii, it will cost $3,500. If I save that $3,500 instead, I will be able to retire three months earlier." Or, "If I hang up the clothes outside and not run the dryer, I will save only 25 cents, OTOH it's nice outside and I will enjoy hanging them on the line."

However, knowing how nice retirement is, if I were starting over, I would be much more frugal, and would endeavor to retire at 43 instead of 53.

 

[travelover]

If you want toys and to still live below your means, it really help to have a higher income. Sometimes that means going into a field that might not seem glamorous but pays well or by really applying yourself at work to advance your responsibility (and pay).

 

[WM]

I agree with others who've said introspection. There are plenty of things I'd like to buy, or might buy if I thought we were saving more than enough for ER, but I also keep in mind something I heard a few years ago - in a survey, most people said that if they had about 10% more money, that would be enough. It didn't matter how much money they had, they all wanted about 10% more. I think it takes some serious introspection to figure out what will make you content, and then it's easier to prioritize.

I frequently remind myself that instead of wishing we had just a little more money so we could buy new furniture (low priority), I can instead choose to appreciate our old couches because they are helping us FIRE earlier and they're still perfectly functional. On the other hand, I spend a lot of money on yoga classes because I found a great teacher to study with and strengthening my yoga practice is a high priority. DH spent 9K last year on triathlon equipment and training, but 10K for a vacation? No way.

 

[mickeyd]

Life is a series of continual choices for we humans. Many folks decide to live below their means (LBYM) while they are working, while others decide to have their fancy cars and fab vacations to Europe while employed.

When ER comes along, many of those who LBYM while working find that they can afford a fancy car and European vacation when they are retired because what they delayed spending $ on has developed into a tidy sum of $. Many of those who chose to spend while working and not LBYM often find themselves with a limited nest egg when they retire and wonder why those "other folks" have the cash to do all of that fun stuff when ERd.

It's all a matter of when and how you make your choices.

 

[Midpack]

But I was wondering if people would say what the think for themselves, I mean is a $10K vacation out of the question or do you still do that but save in other areas?

To me one of life's great questions, and one I struggled with until my early-forties. When I was young and FI wasn't a primary focus I worried a lot about what I spent and usually never knew if I was making the right decision on big ticket items. But once FI became a real goal, saving and reaching "my number" became a priority and I naturally became reluctant to spend on anything I could live without. Reading "Your Money or Your Life" shaped my thoughts too. I also decided not to make impulse buys. a key to me. From there we all have weaknesses (I do), so if something comes along that I "just can't live without" despite my FI priority, I think about it for a few days and if I still have to have it, I buy it without hesitation or second thoughts. It's nice.

And ultimately I finally realized no one else's 'rules' or thoughts on questions like the one you pose would work for me - so I never ask anyone else.

Fortunately I can easily afford a $10K vacation, but I'd never do it. But that has no bearing whatsoever on what's right for anyone else. So for your $10K vacation, you'll know...

 

[toofrugalformycat]

How did we decide what to spend money on before ER?
Both DH and I had thrifty habits when we met, developed during periods of low-to-no income while adventuring in our young adult lives. We never got into the habit of spending all or more than we made, because we always were planning another adventure. I guess how we decided adventures were the important thing is another question. For me, I blame it on Jack London.
Now that we're ERed, we still spend significant bucks on travel (although we're budget travelers), and we set aside money for that because it's a priority. We save money in all other areas. I really need one of those bumper stickers "MY OTHER CAR IS also a piece of junk".
It also helps to live in a modest neighborhood so there's no pressure to keep up with the Jones's.
At one point I wanted a nice car, but somehow I managed to live without it and now I'm glad. But if cars were my passion, that's what I would have set aside the money for, and enjoyed.

 

[rai-zero]

Good thing both my wife and I are high earners so we can make up for bad spending.

She and I have different ideas of what we want. For example she would like a baby grand piano (for what I have no idea). I say that's silly but then she informs me she makes a good income and so she thinks she should be able to buy what she wants.

etc..

It's hard to have one person saving for ER and have the wife spending for today.

 

[RunningBum]

My feeling is that it's ok to splurge once in awhile but don't make it a habit.

$10K for one vacation doesn't really put a big dent into a retirement. $10K for such a vacation every year (especially if you take smaller vacations through the year as well) really throws off a plan.

Besides, if you splurge just once in awhile, that trip is all the more special than just another yearly trek.

 

[youbet]

Or, you may determine that you're going to be dead for a long time and maybe it would be nice to have a little fun now!

It is very possible to wind up FIRE'd, 60 yo, and wishing you had a few more memories and pics in the album even at the expense of a few hundred grand less in the portfolio!

Balance. Easy to talk about, hard to obtain.

 

[Nords]

I realize people are in different situations, age,income and dependents etc.
But I bet we all have to come to grips if we want to work-and-spend or work-and-save or likely somewhere in the middle. I just wonder where people draw the line.

You have to figure out what brings you value, without crossing the line from frugality to deprivation.

It helps to have a job where you're working so much that you don't have many opportunities to sit around thinking of creative ways to fritter away the money.

It also helps to live such a low-key lifestyle (submariner) that you realize you need very little in the way of material possessions. When you're paid to put up with a standard of living below that of federal prisoners, you realize that you don't need the latest stuff. Or much stuff at all.

It also helps to develop hobbies that tend to pay for themselves... Buffett-style investing, home improvement, handyman repair, or other fixit skills.

Develop a low threshold for cheap entertainment. Surfing's not paying for itself financially but it's free after buying the equipment, and the physical/psychic rewards are epic.

 

[toofrugalformycat]

She and I have different ideas of what we want. For example she would like a baby grand piano (for what I have no idea). I say that's silly but then she informs me she makes a good income and so she thinks she should be able to buy what she wants.

DH and I saved and invested a (large) set percentage of our take-home, and contributed equal amounts to the necessities like food and housing. Any left over was fair game to play with. If you're both high earners you can probably save for ER, and she will have enough left over for the piano out of her money.
DH and I have always both have our own checking accounts. DH was and is not allowed to decide whether or not my purchases make sense to him, as long as I'm on budget. And vice versa. It's a big relief to both of us.

 

[FIREd]

On a month to month basis we keep a very tight budget. Once our paychecks hit our checking account, some money is transferred automatically to investment/savings accounts, our bills are then paid from what's left, and when that's done, if there is any leftover, it is also transferred to investment/savings accounts. There is almost no room for thoughtless extra spending insidiously inflating our budget. We both have a $300 monthly allowance (which is part of our "bills") and that's it. But it does not mean that we don't splurge on big ticket items a few times a year. And I must say that without those splurges, life would be a bit dull.

Everytime we spend a large amount of money on a single item, we ask ourselves whether the purchase is worth delaying ER for. A vacation to Europe (to go visit family), worth it. An expensive car, not worth it (for us a car's only purpose is to take us from A to B as safely and reliably as possible. We don't care about anything else). A 10K watch for my wife's 40th birthday (a watch she has been dreaming about for 10 years), worth it. An Armani suit (that I will probably outgrow in a few years and wear only a few times), not worth it. People call us tightwads because we don't spend money on what matters to them (expensive cars, big homes, brand name furniture and clothes, etc). But we are far from being tightwads. We just spend on what matters to US and diligently save the rest. It's a question of balance, choices and priorities.

 

[TromboneAl]

A 10K watch.

 

[REWahoo]

A 10K watch.

A watch that provides an annual summary report of a company's performance to the Securities and Exchange Commission?

Wow, that is some watch!

 

[Walt34]

DW and I are naturally frugal, we grew up that way. I was overhauling a car engine at 14 because we had to, she was babysitting to buy clothes at 13, so I think that's part of it. She is often more frugal and has better impulse control than me. When we ER'd and moved to a larger house I was the one ready to write a five-figure check for new furniture and she was the one who went apoplectic. The irony is not lost on me. First wife wanted to do all that on borrowed money and was content with a $0 bank balance.

$10K for a vacation is out of the question for us. We have the money if we wanted to, but the ROI for is not worth it. However;

Now we are having an intermittent discussion about a travel trailer. We have a nice big pickup truck with the tow package, an option I chose at purchase just for the extra cooling that comes with it. Now I'm looking at two to four year old small travel trailers on Ebay & craigslist - there are some really good deals on them - and I'd like to get one and take a few grand out of savings and "just head west". I've never seen the Grand Canyon, Yellowstone Nat. Park, the Pacific Ocean, or the Golden Gate bridge. Always too busy with other stuff. She doesn't want to spend the money and feels no need to travel. That's part of why I'm going back to work - I made some promises when she quit her job, and I could not stand myself if I went back on them. If I want it, then it's up to me to find the money. I think I could use the TT for a few years and then sell, and get back most of what I paid for it. Some RV site had a spreadsheet that calculated 27 "use days" is the break-even point for TT vs. hotels. Not gospel, but it sounds about right. Besides, hotels are gross. Trust me, you don't want to go through a hotel room with luminol and a UV light...

On the whole though, ER and the move was good for both of us as we are more relaxed than we were five years ago so no regrets on that.

In the meantime, I'm going to do what I did for cheap entertainment after the divorce; get a bicycle, find a local touring group, and go on day trips and such. And who knows; after a year of work maybe I'll decide I didn't really want that TT anyway...

 

[FIREd]

A 10K watch.

Yeah I know not real LBYM! But I am partly responsible for her wanting such an expensive watch. The first time I took her with me to Europe (to meet my parents), she was glued to watch store fronts as soon as she stepped out of the airplane in Geneva. Plus you know in Switzerland, you gotta have a nice watch when you have a bit of money, it's almost a patriotic thing to do. And quite a few people in my family have Rolex watches, so she just feels like, heck why not me? Personally I am very happy with my $500 Tissot watch and I would never buy such an expensive one for myself, but I think she deserves it, so I'll break the bank.

 

[Marquette]

Good thing both my wife and I are high earners so we can make up for bad spending.

She and I have different ideas of what we want. For example she would like a baby grand piano (for what I have no idea). I say that's silly but then she informs me she makes a good income and so she thinks she should be able to buy what she wants.

I appreciate the contributions she's making to stave off the recession. I guess one good way to look at it with large expenses is to think about how many hours it took to make the money for the item. I'm not sure what you're looking at in a piano, but the nice baby grands I played with were about $20k. If she makes $150k a year, then that's $75 gross. Is the piano worth ~260 hours of work? If she loves playing piano, then it probably would be. If she's just looking for something to fill that formal living room, then she may decide a nice piece of furniture will do just fine.

It's all personal... in my case, I'll work more now so I can check out early.

It's hard to have one person saving for ER and have the wife spending for today.

Very, very true. Not to get up in your business (immediately followed by me getting up in your business) but I think it's worth spending a few hours to have a heart to heart discussion about goal setting. Where do you want to be in the following years. Where does she want to be. How can you blend those dreams together to come up with an outstanding future together. Marriage isn't just about co-habititating.

You both may very well find that you want to do certain things now, like $10k trips to Europe every year. And, you may find that some things are worth compromising on (she doesn't get the baby grand just yet, you get a used Infiniti instead of the new Lexus). Or, worst case, and maybe this is why a lot of people don't sit down and talk, you may find neither of you are on the same page.

 

[TickTock]

People call us tightwads because we don't spend money on what matters to them (expensive cars, big homes, brand name furniture and clothes, etc). But we are far from being tightwads. We just spend on what matters to US and diligently save the rest. It's a question of balance, choices and priorities.

This really hits home. DW and I have a reputation of being tightwads/miserly/depriving ourselves.

But we don't consider that we deprive ourselves. We spend money on what matters most to us.

For example, we spend less than average (for our income) on housing, food, vacations... yet when we went to Hawaii last year, we spent $600 on a helicopter tour! Of course, we also brought instant oatmeal over to cut down on meal expenses - but what do you remember after a year, the breakfast buffet or the experience of flying over the island?