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being frugal/saving vs investments
Old 06-23-2016, 06:54 AM   #1
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being frugal/saving vs investments

What had a bigger impact-saving/being frugal or investments - on reaching FIRE? Can you quantify or give one suggestion?
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Old 06-23-2016, 06:56 AM   #2
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What had a bigger impact-saving/being frugal or investments - on reaching FIRE? Can you quantify or give one that suggestion?
I have always been on the Savings bandwagon. Frugal yes, but not so as it deprives you of life's pleasures.
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Old 06-23-2016, 06:58 AM   #3
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Isn't this a bit like asking which of your children is your favorite?
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Old 06-23-2016, 06:59 AM   #4
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Unless you are in a truly unusual position, you can't have meaningful investments without LBYM.

In our case, investments have been huge addition--but LBYM came first, and enables us to retire with far from enough to spend 80% (or whatever) of our present income (no matter how measured).
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Old 06-23-2016, 07:00 AM   #5
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I have saved a LOT more than my investments ever returned. If I was not LBYM, I would not have been able to save as much, nor be able to leave my job.
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Old 06-23-2016, 07:00 AM   #6
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Remember to live life along the way, but for us, in our early years, savings and being frugal got us the "base" that now allows our investments to lead the charge ...... even in this low rate enviroment.
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Old 06-23-2016, 07:01 AM   #7
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Isn't this a bit like asking which of your children is your favorite?
My siblings have spent years discussing that same question.
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Old 06-23-2016, 07:10 AM   #8
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We have always been very big on LBYM without being cheap and always saved the max in 401K plus other savings.

But we were also invested in 100% stocks throughout all of the 80's, 90's, and 2000's (except when we pulled out before the early 2000's crash and got back in just before the recovery) until retirement.

The returns were great, but without the savings, the compounding would never been possible.
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Old 06-23-2016, 07:18 AM   #9
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Savings is the key., investing is the door the key opens.

We could always save quite a bit if we chose. 10% of our salary was typical in early years, 40% or higher in later years.

Couldn't control return on investments but probably got 5-10% on average per year over the years. As savings pot grew larger, the absolute value of the investment gain was more important than our yearly savings but it never would have gotten there without the ongoing savings.


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Old 06-23-2016, 07:21 AM   #10
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My siblings have spent years discussing that same question.
Parents always love their children equally.
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Old 06-23-2016, 07:28 AM   #11
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We've always lived the frugal life in one way--and not frugal in others.

For example, my wife worked and she always took her lunch and drank water. I don't like anyone to help me do anything, including cutting grass and doing home and auto maintenance. If I don't know how to do something, I can learn on UTube.com. We seldom hire anyone to do anything for us.

We only eat out 1x most weeks, and even then it's at very inexpensive places. This one item allows us to travel to Europe most years--vs. what most people spend eating out. Small money saving measures really add up over time.

One of our close friend and his wife's whole social life was centered around going out to eat--mostly to medium priced restaurants. Money that they should have been putting into IRA's and saving for a rainy day was going into their stomachs. Fred's MegaCompany went bankrupt and liquidated, and he wasn't fiscally prepared for unemployment. Then he had a brain aneuryism and was off work 6 mos. or longer. They had to cash out 401K's prematurely, and now Fred's unprepared to ever retire. He does look at all his savings daily--when he tries to see his feet.
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paying debt early
Old 06-23-2016, 07:50 AM   #12
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paying debt early

Do you count paying home mortgage early as part of your savings ratio? We live on my salary and send hubby salary to our mortgage.
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Frugal but balanced
Old 06-23-2016, 08:08 AM   #13
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Frugal but balanced

We have always lived as savers, lived fairly frugally, but also balanced. We have taken some of the most expensive vacations with family in the past ten years, but also not had the most expensive cars to drive. We set our retirement goals with a combination of saving and predicted (hopeful) investment returns and kept living our lives to the fullest. We never wanted to save and scrimp so much that we had regrets later on for what we missed. On track to FIRE late this year.

But I was a saver decades before I was an investor, so there....
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Old 06-23-2016, 08:16 AM   #14
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Do you count paying home mortgage early as part of your savings ratio? We live on my salary and send hubby salary to our mortgage.
You may want to put this in separate thread....

Anyway, we do. Reduces debt on the balance sheet. And serves to reduce future spending.
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Old 06-23-2016, 08:19 AM   #15
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I think it really requires both. You need to be frugal to have money to save, and to be able to live off of your own means without a paycheck. You also have to invest to build on your savings. Of my current financial assets, 3/8 of it is what I saved and 5/8 is return on that over time.
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Old 06-23-2016, 08:21 AM   #16
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Saving > investing in most cases.

Take two people each earning 100K. Assume for the purposes of this example both put their money away on Jan 1st each year and don't add another dime all year.

Person A saves 20% and gets a modest 7% annual return = $21,400 at the end of the year.

Person B saves 10% and gets a nearly-impossible-to-achieve 100% annual return = $20,000 at the end of the year.

Saving more gets person A a higher total than person B.

A more realistic example of DCA and variable returns will result in different end of year totals, but the concept is the same. Saving more is generally more important and more likely to result in higher totals than the best investors in the world can hope to achieve.
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Old 06-23-2016, 08:21 AM   #17
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Being frugal and saving a large chunk of your income is obviously a major part of getting to FIRE, but it's pretty unlikely you'll be able to do it without making sound investments along the way. For example, someone who's 25 y.o. and whose household income is $100K might decide to save 30% of their income every year. (I'm ignoring taxes for simplicity, but the principle is the same.) So, each and every year they put away $30K into their retirement nest egg and live off the remaining $70K. This, in itself, is a pretty aggressive savings plan, one most people would have trouble pulling off. Yet, if they don't invest that $30K/year wisely, then by age 55 when they might be thinking of early retirement, they will have only amassed around $900K. Considering they have been living at a $70K/year standard for many years, this $900K will only provide about 12-13 years of living expenses. Not exactly what most people would consider a rosy or secure retirement outlook.

So, moral of the story is you need to save aggressively and make sound, consistent investment decisions to get you where you want to be. The only exception to this would be if you're making a ginormous income (say, $500K/year) and can save like 90% of that and live off the remaining 10%. If you can do that for 30 years, then investment is probably less of a factor.
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Old 06-23-2016, 08:21 AM   #18
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Saving > investing in most cases.

.
agreed
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Old 06-23-2016, 08:41 AM   #19
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I'm not 100% FIRE yet, I'm like 75% of the way there. Anyway brute force saving has been the most important so far. Investment returns take a long time to ramp up. Now my investment returns are finally significant, but it took about 10 years of saving to get to this point.

I live on less than 50% of my w-2 income and my investment returns are now almost equal to what I am able to invest from savings.
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Old 06-23-2016, 08:55 AM   #20
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What had a bigger impact-saving/being frugal or investments - on reaching FIRE? Can you quantify or give one suggestion?
For me the answer depends on the basis for making the comparison. My savings rate ramped from about 30% of pretax income three decades ago to about 60% now, during which time my net worth CAGR was about 10%. If my net worth CAGR had been 3%, today it would be about 40% of what it actually is, so from this perspective investments had a somewhat larger impact dollar-wise. But since the S&P500 CAGR over this timeframe (including dividends) was also 10%, my investment return was only average and it was my elevated savings rate that set it apart.

I think because my actual savings rate combined with average stock market returns (at a typical 50:50 asset allocation) would have far outrun a typical savings rate combined with my actual investment returns, I would say the bigger impact for me was from savings.
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