Confessions of an under-accumulator of wealth

[laurence]

O.K., I've been on this board for some time, and compared to the average Joe we aren't spendthrifts. But it occurred to me we seemed to have lost our way in my household. When DW stayed home to take care of the kids, we knocked down our expectations for saving money. At first we needed to just to get by, but as DW's consulting work got well established, our household income is now higher than ever, and almost no daycare costs to boot. Yet instead of increasing our savings, we've mostly increased our lifestyle. Nothing fancy, no new cars or things like that. Just spending on projects around the house, tree removals, home depot purchases, some more dinners out, etc.

This year we will have gross earnings right around $170k. But our total deposits towards net worth will be $37,000 - including principle payments towards the house! That's a savings rate of less than 22%!

We are slacking, I'll have to see where we are bleeding our money. Our net worth is under 300k so it's not like we are sitting on a big pile and just cruising to the finish line. I think it's the rapid increase in income that's skewed this, since 5 years ago we earned under $100k combined.

Who else out there is looking at the "I save 60% of my gross" posts on this board and thinking, "how?" Who isn't really a hard core LBYM'er - I know you are out there! I do have two kids, one with costly health problems, but I've also got a 50" HDTV, Nintendo Wii, Core 2 Duo, Nice treadmill, play structure for the kids, jacuzzi, fancy BBQ, so I am living like a king. I think what really did it was the realization that retiring before 55 would take enormous sacrifice as the pension calculus falls off a cliff before then. Scrapping my original plan of FIRE at 45 took some LBYM motivation away. Even if we up this number a bit, I just don't see us ever being a member of the militant LBYM club.

Anyone else not socking away a huge chunk of their income? Am I now officially a leper?

 

[brewer12345]

L-man, you do have a lot of toys, but you also have kids and live in an expensive area.

We have recently "gotten right with the Lord" on expenses, at least a bit, and there isn't that much room to tighten unless we are willing to start taking activities away from the kids, downgrading our groceries, etc. But the fact remains that much or most of our annual savings happens at bonus time, since there is some regular monthly savings and mortgage paydown, but not that much. And admittedly we did buy a toy this year for the first time in years (travel trailer).

 

[Rich_by_the_Bay]

Laurence, it's daunting, isn't it?

But take some comfort in the consumption-smoothing phenomenon, per Scott Burns. There are just some times in your life when you can't and shouldn't press yourself too hard to save save save.

Yes, it's arithmetically best to slam ahead when you are young, but life gets in the way. After the kids are grown and in a stable situation you'll be saving like a maniac and barely missing it. I'd say save what you can (22% or even 15% sounds darn good to me, esp if you took don't count the mortgage principle).

I didn't really start pounding it out until I was close to 50, and while I'm not the wealthiest or earliest pre-retiree around, debt and life got in the way. Yet we'll do just fine. It can be done starting in your late 40s given your nice head start.

 

[FinanceDude]

O.K., I've been on this board for some time, and compared to the average Joe we aren't spendthrifts. But it occurred to me we seemed to have lost our way in my household. When DW stayed home to take care of the kids, we knocked down our expectations for saving money. At first we needed to just to get by, but as DW's consulting work got well established, our household income is now higher than ever, and almost no daycare costs to boot. Yet instead of increasing our savings, we've mostly increased our lifestyle. Nothing fancy, no new cars or things like that. Just spending on projects around the house, tree removals, home depot purchases, some more dinners out, etc.

This year we will have gross earnings right around $170k. But our total deposits towards net worth will be $37,000 - including principle payments towards the house! That's a savings rate of less than 22%!

We are slacking, I'll have to see where we are bleeding our money. Our net worth is under 300k so it's not like we are sitting on a big pile and just cruising to the finish line. I think it's the rapid increase in income that's skewed this, since 5 years ago we earned under $100k combined.

Who else out there is looking at the "I save 60% of my gross" posts on this board and thinking, "how?" Who isn't really a hard core LBYM'er - I know you are out there! I do have two kids, one with costly health problems, but I've also got a 50" HDTV, Nintendo Wii, Core 2 Duo, Nice treadmill, play structure for the kids, jacuzzi, fancy BBQ, so I am living like a king. I think what really did it was the realization that retiring before 55 would take enormous sacrifice as the pension calculus falls off a cliff before then. Scrapping my original plan of FIRE at 45 took some LBYM motivation away. Even if we up this number a bit, I just don't see us ever being a member of the militant LBYM club.

Anyone else not socking away a huge chunk of their income? Am I now officially a leper?

All those "discretionary purchases" are adding up. The biggest thing I see out there is that most couple's spending habits rise with their income. In other words, when you earned $80,000 as a couple,you spent like you earned $80,000. Now that you earn $170,000, you are spending as though you make $170,000, and so on.

Decide what's REALLY important to you, and that will help. Does your DW share your enthusiasm for FIRE? Because ONE or BOTH of you needs to decide if you WANT a LBYM lifestyle, or you don't. It's not WRONG to be either one, it's a choice.......

 

[Dawg52]

L-man, you do have a lot of toys, but you also have kids and live in an expensive area.

I was thinking the same thing. I was close to 40 before I started putting a good chunk towards my retirement. Your not doing bad.

 

[brewer12345]

I was thinking the same thing. I was close to 40 before I started putting a good chunk towards my retirement. Your not doing bad.

And you could be hit by a bus on the way to work tomorrow. Having the 50" screen hooked up to the game system (and a lot of life insurance) might not be the worst use you ever made of some money.

 

[SecondCor521]

laurencewill,

Something I've noticed playing around with my spreadsheet a lot is that I now can't really move my FIRE date up very much without taking really drastic measures like living under a bridge or becoming CEO of a Fortune 500 company. What appears to be happening is that the savings I have accumulated to date need a certain number of years for the exponential growth to really kick in. What I add to the pile between now and then, and how much I spend affects things somewhat, but not as much as you might expect.

You might be looking at the flip side of things, though. Maybe you've spent more than you think you should have for a few years, but the good news is that your past savings have already probably cemented a FIRE date for you, give or take a few years.

Do some figuring of where you are at and where you are going, see where your FIRE date ends up being. If you and your wife are happy with it, then great! If not, see what you two would rather do - save more, retire earlier, save less, retire later.

2Cor521

 

[Moemg]

Lawrence , I went thru a period of rapid salary increases and what I did was raise my standard of living a little and save the rest of the increases . It was pretty painless . I'm not a hard core LBYM'er . I'm just naturally thrifty and I spend a lot on travel , shopping , entertaining and gifts .
With Two kids ( one with health issues )and a working wife you need your sanity as much as you need money . So if eating out and your various toys bring you sanity I say go for it . Maybe plug up a little hole but it's not as if you have the whole dike coming down . 22% is a respectable saving amount.

 

[mike hall]

We were older, 45 or so be fore we were really able to save in a big way. Even when we were younger
we always had a "direct deposit" to a credit union acct, which we used for
long term items--house down payment, investments etc. Each time I got a raise I also raised the "direct deposit" at least some. Old fashioned idea, but it helped us.

The good news is, it sounds like you have a lot of time for gains to help.

 

[REWahoo]

...and while I'm not the wealthiest or earliest pre-retiree around...

Maybe not, but you can take pride in being our most vacillant pre-retiree.

 

[Khan]

I'm not condemning anybody or pointing out the error of their ways.

My life experiences are so different, I can't comprehend some people's lives and expenses.

I never made more than $75K/yr, and (towards the end) was saving 30% - 50%.

For your age, and living where you do, and having a family; you're not doing too bad.

Just remember your post and get spouse and children all on the same path.

And if you aren't already: track everything.

 

[ProspectiveBum]

Who else out there is looking at the "I save 60% of my gross" posts on this board and thinking, "how?" Who isn't really a hard core LBYM'er - I know you are out there! I do have two kids, one with costly health problems, but I've also got a 50" HDTV, Nintendo Wii, Core 2 Duo, Nice treadmill, play structure for the kids, jacuzzi, fancy BBQ, so I am living like a king. I think what really did it was the realization that retiring before 55 would take enormous sacrifice as the pension calculus falls off a cliff before then. Scrapping my original plan of FIRE at 45 took some LBYM motivation away. Even if we up this number a bit, I just don't see us ever being a member of the militant LBYM club.

Anyone else not socking away a huge chunk of their income? Am I now officially a leper?

[raises hand] My situation is similar in many ways to yours. Mid-30s, 2 small kids, similar income and savings rate. Before I found this site, I was very self-congratulatory about the state of our finances. Having lurked for a couple of years, I'm less bullish on our prospects for a really early retirement. We'd really have to dial back our expenses and ramp up our savings to make that happen. We could move to a lower cost area, but we'd rather work and live here than be retired in a less-desirable area.

After discussing it with DW, we've decided that enjoying the journey is AT LEAST as important as the destination. We prefer to enjoy ourselves as we go, splurging here and there, rather than pinch pennies now so that we can quit w*rking a few years earlier. Neither of us HATES our job, so that makes this approach more palatable.

I've read other posts of yours where you talk about how you're aggressively paying down your mortgage. We're doing the same, and our savings rate will go up dramatically once it's paid off. It gets a bit depressing when you think about how far you have to go, but I think you're doing just fine.

 

[FIREd]

Now that I am done entering past years data into Quicken, I can give you my actual savings rate numbers:

2005: 25.9% of disposable income
2006: 36.9% of disposable income
2007: 40.0% of disposable income
2008: 45.0% of disposable income (estimate)
We are shooting for 50% next year.

Note: I usually calculate my savings rate as a percentage of disposable income and not gross income because, you know, Uncle Sam wants its dues and there isn't much I can do about that. So I define disposable income as the portion of my income I can truly control (and that I can decide to save or spend): Disposable income = gross income - taxes (fed + state income taxes + payroll taxes). Also your personal situation can skew your savings rate if you compare it to your gross number: for example a DYNK couple living in NY will probably pay a lot more in taxes than a family of 4 living in Alabama so even if they have the same gross income, the NY couple will have a lot less after tax money they can choose to save. That's why, I think, it makes sense to use the disposable income number as a reference (especially if you want to be able to compare yourself to others) and not the gross income number.

Saving 60% of our gross would be quite impossible when 24% of our gross income goes to Uncle Sam.

The driving force behind our increasing savings rate over the past 4 years has been our ability to keep a lid on expenses while our income grew. Our annual expenses have remained in the 65K-70K range over the past 4 years while our gross income has increased almost 30%.

We got plenty of toys too, 42" HDTV, a Wii, 3 brand new computers, 1-2 trips to Europe each year... But we make sure that our expenses remain pretty constant YOY while our income grows at a nice pace.

 

[clifp]

Only 22% on a 170K salary I am amazed we let you join the board much less become a moderator.

I think retiring before 50 requires some combination of luck (stock options, inheritance, concentrated portfolio); great pension plan; and high income. It also requires LYBM. It sounds like you are doing very well in the income department and pretty good in the LYBM. A saving rate of 22% is excellent by US standards, above average for China/Japan and mediocre by the board standards. ( I give paying down the mortgage less weight unless you have a 15 year mortgage or are making extra payments.)

On the other hand you are right going from a 100K to 170K should have resulted in big increases in your saving rates. 170K does put you in the top 5% of household incomes and it is clearly possible to save a lot. At this point, I suggest something like automatically saving 1/2 of any pay raises you get.

 

[maddythebeagle]

I am the opposite and might start spending more although once you get into habits like living well on less and having pretty much what you want, it is kinda hard to change...a couple of kids sure would make it tougher, although, I have seen some people talk about 2nd hand cloths, etc., some of the garage sale that I have seen with tons of kids cloths and you bet that they were all bought new...

 

[xynny]

well...the hubby and I make around 170k gross income, too. We save around 48%, but we have no kids at all. We live in the SF Bay Area so it's pretty expensive. We also have a big tv, and a lot of video gaming stuff (the hubby is a game developer so he says he needs it for "research" ). I think you should identify what your biggest expenses are and then try to mitigate it. Ours biggest expense is TAXES, and then housing. We deal with taxes by maxing out our 401k and also putting money in tax exempt money market funds, but a big chunk of it is really unavoidable. I imagine when we have kids our savings rate would fall down, too.

 

[Notmuchlonger]

We don't have children . We do not have a lot of toys by most American standards. We don't save near 60% though..More around 35 to 40 % . We dont deprive ourselves of anything.

 

[ProspectiveBum]

We don't have children .

I think this is the key factor. Child-related expenses take the majority of our after-tax income, closely followed by the mortgage. Most of our heavy-duty saving was done in the DINK years before the kids came.

 

[brewer12345]

I think this is the key factor. Child-related expenses take the majority of our after-tax income, closely followed by the mortgage. Most of our heavy-duty saving was done in the DINK years before the kids came.

Ditto.

 

[samclem]

"Hey, everyone! Lawrence just left an opening--pile on!"

The decline in the markets can also take a psychological toll. When a single day shows your net worth declining by more than you'd planned to add to your savings in the entire year, it can be hard to muster up the resolve to deprive.

Some folks here have mentioned tracking monthly expenses carefully, and I suppose that is important for some people. DW and I made one or two Spartan monthly budgets when we were first married, and that helped us greatly in setting a baseline for our spending and our expectations. After, that, for the last 18 years i was working full-time, we never had a budget. Instead, we did what Mike Hall did--took a huge chunk out of our paycheck and put it right into direct deposit. When we got raises, 40-50% of the new money went into that retirement direct deposit. That money was off the table, our long-term interests were taken care of, and we really didn't worry about what we spent month-to-month, as long as we didn't go into the red. I also didn't fiddle with the IRA money much--rebalance once per year at tax time. I think that not obsessing over the balance helped us stay on track.

You've got a full plate at home. The truth is, the performance of your investments will play a big role in your retirement date. Sure, saving more will speed the arrival of the glorious day, but 22% isn't slacker territory. We're a strange mix of hermits, plastic-bag-washers, dryer-sheet hoarders and a few who raked in ungodly incomes in a short period. If you compare your nest egg to those of your officemates you'd probably find you're well ahead of the pack.

Okay, back on your head! Buckle down and pump up those savings! You guys were happy earning and spending $100k, you should be socking away gobs of money now!

 

[Lusitan]

I'm in roughly the same boat as you (age, income, kids ...) so I understand where you're coming from. I think a certain amount of lifestyle creep is unavoidable while your family is growing.

Sometimes, you gotta let yourself go a little bit before your gut kicks in and regulates your spending a little more.

2Cor521 made an excellent point. Take comfort in the fact that what you've saved thus far is more important than what you're saving this year, and quite possibly more important than what you'll save in between now and FIRE.

Edited to add: I just did some quick calculations, and to spur you on I'll note that we're on track to save 40% of our gross income this year. Biggest helpful factors are:

(1) minimized our housing costs by living in a small home up until now (we'll have to see how much longer we can continue this, with the family growing ... but thankfully house prices are sinking back down to Earth)

(2) driving one old, beater, Japanese car that require little in the way of ins., maint., and fuel

(3) in an odd way, having a kid ... how the heck do you have time to play Nintendo with two little kids around? I barely have the free time required to spend any money these days! (gone are the days of going out with the guys and dropping 100 bucks on drinks) My fun time on the weekend now is usually spent swimming at the town pool, going to the playground, trying to find a moment of quiet time to hang out with my better half, and other free stuff.

 

[clifp]

"

We're a strange mix of hermits, plastic-bag-washers, dryer-sheet hoarders and a few who raked in ungodly incomes in a short period. If you compare your nest egg to those of your officemates you'd probably find you're well ahead of the pack.

Hey I don't wash plastic bags to save money, it is to save the environment, now not using dryer-sheets that is to save money.

 

[aenlighten]

Well, 22% is good

if you started from a young age. If not, it is almost impossible to retire early. Now even counting principal, you are likely doing somewhat better as inflation diminishes your debt, although price declines are working against this currently. This decade hasn't been kind to stocks but that shouldn't last forever. You have to like the feeling of money more than what it can buy to really get ahead. I have a 50in plasma but it replaced a dead 20yr old tv. Next up is a 20yr old refrigerator.

 

[FANOFJESUS]

We save about 75% of our income. I guess simple things make us happy. We also live in the midwest where it does not cost much. I do not have a 50" HDTV(I am happy with the 1980's 19 inch we have), Nintendo Wii, , Nice treadmill, jacuzzi, and fancy BBQ. The refrigerator is 26 years old but works good. The washing machine is 12 year old but works good. The 14 year old car also runs great. I do not have alot of things, but I do not want alot of things. My father was one of the happiest person's that I knew and he grew up in a house with dirt floors. I had a good friend that said the only thing that matters is if you go to heaven or hell. It was a simple statement, but it made me think alot about what he said. He was right that is all that realy matters. Could we spend more money? Yes, but what would be the point if we are already happy. I think alot of people try to buy happiness, but it can not be bought.

 

[HFWR]

Aged 33, I was making $30k-ish a year, owed several thousand bucks, and only had a 1971 Impala to show for it...