Staying Motivated Early On

[Gone4Good]

There are two great ways to stay motivated.

1) Find and follow people who've already done it. Like, um, us perhaps. We used to be regular visitors to the ER Forums in the years before we pulled the plug to travel full time. That was more than four years ago. We've been on the road ever since and now run the travel blog Retirementguy1 linked to above (the article he's referring to is actually this one). There are plenty of people like us out there to look to for inspiration and motivation.

2) What helped keep us on the straight and narrow was a clear understanding of what all those possessions our friends were acquiring really cost. Not in terms of monthly payments, but in how those costs impacted our financial freedom.

Here's an example. A $3 daily cup of coffee is a pretty affordable indulgence for a lot of middle class folks. But when you think about how much you need to save to maintain that habit in retirement it looks a whole lot less affordable ($3 * 365 * 25 = $27,000 in retirement savings needed for coffee.)

After awhile, we started seeing everything in that way. All of a sudden, instead of seeing a fancy car, or a nice house, or the convenience of house cleaning, we saw mind blowing price tags. Those price tags were so totally unaffordable over the long term that it became obvious to us that our friends were setting themselves up for some hard choices down the road. They'll either have to dramatically cut those expenses or they can try to work until they drop and hope that bad health dosen't eventually force them to cut those expenses anyway. That's about how it's going to work for most folks who don't have a good pension.

When you start to realize how badly out of whack the Jones' finances really are, the desire to emulate them kind of melts away.

 

[RISP]

I like to think in years, not only $$. Like, my spreadsheet tells me that I might reach (very) borderline FI in 14 years, and I'm in year 7 of my plan, that means I'm 1/3 there! Of course that is not even remotely true in terms of money, since the big financial gains will come only in the last few years, when compounding has taken over and we have gotten rid of the mortgage. But that doesn't mean the effort I put in today is any less valuable. After all, today's earning, saving and LBYM'ing lays the foundation for the latter successes (or so I hope).

 

[samclem]

Another thing: As I invested in MFs, I tried to keep in mind that I was buying shares in real companies, that each dollar bought a tiny incremental % of a lot of companies. The value of these shares might go up and down, but I still owned .000002% of Caterpillar, etc. And a portion of the earnings of these companies would be mine every year--the folks working at these companies were working to fund my retirement. These shares I was buying were like little money machines, and the value the market assigned to them day-to-day didn't matter very much (though in the long term the value does matter). Ignore the daily/monthly/annual variations, stay focused on the long term.

 

[dvalley]

Staying motivated can be tough at times especially if you're living a deprived life. Personally I don't go to the extreme savings anymore (after my divorce so I may be jaded). Don't get me wrong I save as much as I can (fully automated direct deposits from paycheck to investments to bill pays) but yet I live comfortably (not lavishly) and spend on things that I feel create a decent living experience for me and the family. For e.g. I have one hobby (exploring/camping with the family) and I spend on it as needed whether it's an upgrade to our 4x4 or camping equipment. I don't see that as a waste of money but rather an investment because of the lifetime memories it creates. In contrast I gave up my Starbucks lattes and buying expensive watches/clothes and cable TV. The point is life is short and unpredictable so live a little too.

 

[kaudrey]

Make sure you have a balance. You can't spend your whole life feeling deprived just to reach an end goal. Life is a journey. If you find that balance for yourself, it will be easy to stay on target.

Also - STOP comparing yourself to your friends. I can honestly say I have never felt like I wanted a more expensive car because I have friends who drive BMWs, for example. Be happy with your own life, and your own choices.

 

[aim-high]

Everything you buy, think on how much that delays your retirement in terms of money you will need in 25 years or so.

Spend $1,000 now, that's at least a month longer you have to work. Spend $20, that's another day. And so on.

Keep the faith.

Exactly. Whenever I spent money on anything that wasn't budgeted or was over budget, I consciously made a choice.

This $2,500 vacation is costing $100 per year for the rest of my life. This $7 cold stone sundae is costing $0.25 a year for the rest of my life.

Well maybe I wasn't that much of a killjoy, but you get the idea.

 

[Greencheese]

Great advice everyone, I truly appreciate it! I might need to clarify that I don't exactly deprive myself of fun, I do eat out a bit more than I'd like and buy a reasonable amount of "fun" stuff for myself each month. The people I associate with live in the city so of course they're going to eat out more than I do since there's just so many more options than what I have available by me. But for everything they do they really are great people. I get to enjoy the boating on the lake for free, stay at their apartments when I go out in the city, and have great times doing stuff with them. Basically they buy the nice things and I get to enjoy it from time to time for free, which is probably why I want those nice things.

I went ahead and organized my retirement accounts to track the monthly or quarterly progress for them like some of you had suggested. It really does help to see some of the percentages go up each month since I started saving. Now if I could just figure out what my final number would be I could get a percent towards goal calculation and really get that motivation going...

 

[jollystomper]

I think it's tough to be focusing on ER in the early stages of your career. I always tell people to find a career they love since they will be spending so much time at it. I had no desire to ER in my 20's or 30's. It wasn't until my 40's that burnout began to take place. It's best to find a way to really enjoy what you do, and others have said, find friends who also support LBYM so that you can enjoy some fun times together without spending substantial amounts of money.

+1

Don't focus so much on "ER"; focus on a career you love and want to get better in, as that is how you increase your earning power. As your earning power grows always "pay yourself first" - grow your spending lifestyle at a much slower rate than your income growth and save/invest the difference.

 

[walkinwood]

Automatic investments into mutual funds. Decide how much you can afford to save each month while allowing yourself enough money to be happy, and then automate the investment. All mutual funds have means to do this. Find a book that advocates index funds (like Bogle's) and follow a moderately aggressive AA (80/20?)

Then, just forget about it for a year or until your next raise - then adjust it again. Ignore all stock market related news.

Worked for me. All the best.

 

[RISP]

follow a moderately aggressive AA (80/20?)

Actually LOL at 80/20 being *moderately* agressive. Different strokes for different folks, I guess.

 

[Walt34]

Actually LOL at 80/20 being *moderately* agressive. Different strokes for different folks, I guess.

Well, if the investor is in his early 20's that is about right if one is going by "Your age in bonds and the rest in equities".

 

[RISP]

Well, if the investor is in his early 20's that is about right if one is going by "Your age in bonds and the rest in equities".

It may even be the optimal allocation, but I would consider that "really aggressive". And I believe the OP to be a few years older than early 20s. But whatevs, everyone's risk perception is different. For me, "moderately agressive" is something like "slightly more stocks than fixed income".

 

[38Chevy454]

Actually LOL at 80/20 being *moderately* agressive. Different strokes for different folks, I guess.

Well, if the investor is in his early 20's that is about right if one is going by "Your age in bonds and the rest in equities".

It may even be the optimal allocation, but I would consider that "really aggressive". And I believe the OP to be a few years older than early 20s. But whatevs, everyone's risk perception is different. For me, "moderately agressive" is something like "slightly more stocks than fixed income".

I guess I have a much different perspective, to me 80/20 is too conservative for a young person. Should be higher equities IMHO. Use some lower cost mutual funds, have diversity between large cap, small cap and international. Maybe throw in some value type funds, or specific sector funds even. But almost no bonds, unless the person is too risk sensitive. YMMV

 

[Options]

Studies have shown those who possess and develop the skill of delayed gratification are those who will succeed in life.

A study out this week showed that 1/3 of Americans are delinquent on their debt--that's one out of every 3 people you see on the street. Think about that. Would you rather be you, or them (with all their debt financed "toys" and "lifestyle")?

At your young age, with your self-discipline and self-control you are ahead of most in this country (see study just mentioned), and perhaps in the world. One way to stay motivated is to be rightfully proud of the kind of person you are and the fantastic future that you are sculpting, shaping, creating by your actions right now.

 

[Walt34]

A study out this week showed that 1/3 of Americans are delinquent on their debt--that's one out of every 3 people you see on the street.

I saw that. Stuff like that never ceases to amaze me. Okay, some are in dire straights - layoffs, uninsured medical expenses, stuff like that, but that can't be a third of people.

It would be hard for us to get behind on debt. We don't have any to get behind on.

 

[RISP]

I guess I have a much different perspective, to me 80/20 is too conservative for a young person. Should be higher equities IMHO.

The thing is, anything beyond 80/20 doesn't do much to increase returns, while adding significantly more risk.

A quick Google search pulled up this Vanguard study:
Portfolio allocation models

They used historical data for the time period 1926-2013, for various different indices. You can see it explained at the bottom of the page in fine print, if you are interested in the details. Moving from 80/20 to 100% stocks adds just 0.6% to your annual return (9.6% -> 10.2%), while increasing the biggest annual loss by -8.2% (-34.9% -> -43.1%).

OTOH, it probably doesn't make much difference for very young investors either way. They will likely not have saved much, so there's little to be lost, and little to be gained.

Chevy, is this your general perception, or is it maybe influenced by the currently bleak outlook on bonds? Personally, I don't hold any bonds at the moment; all my fixed income investment are in CDs.

 

[RISP]

Plus, I don't know if the study considered this in any way (probably not), but going 100% stocks deprives you of the possibility to rebalance. Rebalancing should have some small positive effect on your returns as well.

 

[sengsational]

I guess I have a much different perspective, to me 80/20 is too conservative for a young person. Should be higher equities IMHO. Use some lower cost mutual funds, have diversity between large cap, small cap and international. Maybe throw in some value type funds, or specific sector funds even. But almost no bonds, unless the person is too risk sensitive. YMMV

What I suggested to my daughter, just now in her first professional job is exactly that. My warning on risk sensitivity was more blunt: Don't do it if you're going to get spooked out WHEN it goes down (not IF it goes down).

The thing is, anything beyond 80/20 doesn't do much to increase returns, while adding significantly more risk.

I'll admit to not reading the link, but "not much" adds up over the long haul...we all agree on zeroing in on low cost funds for tiny fractions of a percent, yes?

Plus, I don't know if the study considered this in any way (probably not), but going 100% stocks deprives you of the possibility to rebalance. Rebalancing should have some small positive effect on your returns as well.

Your weekly or bi-weekly paycheck dollar cost averaging is your time to turn cash into equities. You're always "rebalancing" into equities with each paycheck.

Not saying this is 100% correct for everyone, just MHO. I even told my daughter, if you think the financial system might completely fall down before you retire, then saving anything more than enough to smooth the spending bumps is a fool's game. Nobody really knows. We all hope the house of cards continues to stand, and we spend many hours noodling on how to optimize on that.

 

[38Chevy454]

Chevy, is this your general perception, or is it maybe influenced by the currently bleak outlook on bonds? Personally, I don't hold any bonds at the moment; all my fixed income investment are in CDs.

It is kind of both my general perception and my observation of bond results. I do agree there are other non-bond fixed income type investments; but given the low interest rate environment we are in, it is hard to get returns that will even keep up with inflation. As interest rates (eventually) rise, it is only bad for bonds in general.

I guess I am just not risk averse and so have confidence in the long-term results of the equity markets. Been investing in equities since I started real job out of college and have stayed that course even now, at 50 and nearly 100% equities for me. Still working unfortunately for now, but will probably become a bit more conservative once not in the saving/accumulation mode. However my thought is to have sufficient cash that a small correction does not cause any concerns. So I guess the cash portion would be considered the fixed income portion.

 

[Cassius King]

Another word of advice I can provide from experience. I got caught up in my portfolio value increasing constantly. Most of the increase in value was from my contributions early on. Don't fret when the value of your portfolio doesn't grow as fast as you like. Keep reminding yourself that you are in the accumulation stage. You want stocks/funds to stay cheap while you are buying them. Look at the share quantity column of the portfolio. The total portfolio value will take care of itself with time!