How do you quantify LBYM?

[Tree-dweller]

Before I joined this forum, I thought LBYM means Living Beyond Your Means. Honestly.

Understandable, thanks to Traffic

"The percentage you're paying is too high priced
while you're living beyond all your means.
And the man in the suit has just bought a new car
from the profit he's made on your dreams
"
- Low Spark Of High Heeled Boys (Traffic, 1971)

 

[JoeWras]

Except for the part about the car loan, I agree with you. To me, LBYM means being able to save up and pay cash for anything except a house and staying out of debt except for a mortgage, and an affordable one of course. It also means being able to pay off your student loans before taking on any other "big" debt.

Bingo. You can go crazy on defining LBYM to the Nth degree. But a simple quantification of it is:

• No loans except mortgage or perhaps student
• No credit card balances (must pay off each month if used)

A soft definition would be to listen to the Tubes song referenced above. If you find yourself wanting a "heard of Winnebegos" or a "Gucci Shoe Tree", you are not LBYM.

 

[Apex1]

Thanks and no apologies necessary!

With everyones helpful input, I've come to realize that although I am very LBYM (ie. i spend "only" 30% of my earnings and save 70%) , I might still be overspending. Yes, its been quite a revelation!!

If I apply the "I can afford to purchase____, but i choose to buy ____" train thought, I think I will be that much closer to FIRE. Thank you very much to the poster.

Perhaps, LBYM (income>expense) is not the best term to help achieve FIRE then, rather SAMAR?? (Save as Much as Reasonable). Too many of my friends apply LBYM in the above formal definition in order to justify their purchases and fool themselves, myself included.

Thanks again to everyone to help me understand!!!

Apex1 -

On reflection, I think some of my previous comments in this thread were a bit hasty and judgmental. I see now that your intent is genuine, so hope you can accept my apologies if I spoke out of turn.

Welcome to the forum, and I hope you find the encouragement and information you are seeking.

 

[martyp]

The way I describe LBYM to others is to say that when I retired my spending while w*rking was approximately the same as my spending after w*rking. The difference upon retirement was that I was no longer saving a large portion of my paycheck.

For the the last 10 yrs of w*rking I diverted all or most of any pay increases toward retirement savings. This was easy because my mortgage deduction was going down dramatically because I was in the last years of my mortgage. Saving money in 403b's was basically a tax shelter but it was also easy because I still had enough spending money to live a comfortable life and have some fun. I maintained a sane and "frugal" lifestyle by not buying a big house, expensive cars, expensive vacations, etc. I was buying some pricy wines and that was the first thing I cut out when I retired. I always pay off my credit card bills each month. Also, we don't have kids. But in any case, I wasn't depriving myself of a good life.

I am ER'd and my DW is still w*orking so the plan is still a work in progress. We both have defined benefit plans and access to good health care options. It looks like we can live comfortably off our pension benefits without drawing down our savings and the plan is not to touch savings for the next 10 yrs until we get into our 60's and are close to SS eligibility. I find that I can save about $500/month these days which I use to fund "vacations".

I was living much of the advice others have already given. Sure, LBYM is spending < income but it is also a state of mind and is very individual. Your friend needs to know himself/herself and be mentally prepared for a new phase in life and lifestyle. No one can prescribe a quantitative magic formula. Just a sense of direction.

 

[Major Tom]

Perhaps, LBYM (income>expense) is not the best term to help achieve FIRE then, rather SAMAR?? (Save as Much as Reasonable). Too many of my friends apply LBYM in the above formal definition in order to justify their purchases and fool themselves, myself included.

SAMAR is certainly what quite a few people here do. There are some that also SAMAHP (Save As Much As Humanly Possible) and one or two who SUIH (Save Until It Hurts) although I'm not sure I'd recommend the latter, except for people who really can't stand their jobs.

I wanted to come up with some better acronyms, but it's early on the west coast and I'm still working my way through my first cuppa joe.

 

[Meadbh]

I love the new savings acronyms......future classics?

The difficulty with SAMAR is, what is reasonable, and who gets to decide?

If savings must be sufficient to maintain a lavish lifestyle AFTER retirement, they will probably have to hurt (SUIH). No pain, no gain, after all. That might mean "only" a BMW, not a Lamborghini. If the savings now are just "reasonable", the drop in standard of living at ER could be painful. Or else, it might be just R.

 

[Bestwifeever]

I love the new savings acronyms......future classics?

The difficulty with SAMAR is, what is reasonable, and who gets to decide?

If savings must be sufficient to maintain a lavish lifestyle AFTER retirement, they will probably have to hurt (SUIH). No pain, no gain, after all. That might mean "only" a BMW, not a Lamborghini. If the savings now are just "reasonable", the drop in standard of living at ER could be painful. Or else, it might be just R.

And don't forget the YOLO factor (you only live once). And BOGO helps the budget (buy one, get one).

There is surely some formula for how much percentagewise you need to save every year to sustain the same SOL (standard of living). If one can adjust the SOL, one might not end up SOL (sore out of luck) .

My head hurts.

 

[Sue J]

I was just wondering for myself. Is there any alotment for "madmoney"? As long as income > expenses....then its still LBYM?

Its just that.... I hear the term LBYM used in many discussions to insinuate/interchangeably with being frugal. When I first started reading the boards, I used to think LBYM was a pretty decent goal to achieve FIRE. But more I read/think about it, for many of us, LBYM may be "too easy" and being truly frugal is really the ultimate gold standard to achieve FIRE.

Define "mad money".

Is this impulse spending on junk or frivolous things? Is it just unexpected stuff that comes up? Or is it a surprise gift? Is it a treat for yourself?

I'm not an emotional spender so I never think of a category like "mad money". DH and I have our monthly pocket cash that doesn't get tracked or documented. It's just for spending on whatever you want. In my mind, the best use of that is saving it because I didn't spend it during the month. For DH having anything left at the end of the month would be a shame because it's for spending!

I see in your later posts that you save PLENTY, so you don't seem to be worried about LBYM.

 

[Independent]

I believe that the OP understands that LBYM means "expenses < income".

However, he likes to quantify it. Well, there has not been a committee to define an "LBYM factor", but it is clear that the lower the expenses are with respect to income, the more LBYM a person is.

For example, around here, a poster may declare that he saves 30% of income, and another may say that she saves 40%. We can say that the second poster is "more LBYM" than the first.

So, I propose that the LBYM factor to be defined as the ratio of savings rate over expenses. A person who saves nothing has an LBYM factor of 0. A worker who saves 1/2 of his net income has an LBYM factor of 1. A worker who lives under a bridge and dumpster-dives for food may have an LBYM factor approaching infinity.

This simple LBYM factor can be useful in this manner. Suppose we ignore taxes, inflation, investment gains/losses, we can have an easy rough order of magnitude (ROM) estimate of how long a person's working life should be.

If the LBYM factor is 1, then it means this person's income for 1 year pays for 2 years of living, as he spends only 1/2. So, the LBYM factor of 1 means "work 1 year, retire 1 year". In this case, he spends 1/2 of income.

If the LBYM factor is 2, then it means that this person saves 2 years of expenses for each year that he works. Then, if he works for 10 years, he will have saved enough to cruise for 2 x 10 = 20 years. In this case, he can spend only 1/3 of income.

When taxes, inflation, investment returns, mortgage pay down, etc... are taken into account, of course it is not so simple. Still, a person with a higher LBYM factor can still feel virtuous over someone with a lower number. It's similar to the BMI number, which does not take into account other health factors, body shape, or fat content.

Nice post.

Sometimes, young people ask themselves "How much should I save for retirement?". There are so many variables and so many future unknowns, that an extensive calculation is overkill.

Your approach gives a nice answer:

"If you don't expect any real investment return, and you save as much as you spend, then every year of work gives you one year of retirement income.

If you figure you've got 60 years left, then you can work for 30 and live in retirement for 30.

OTOH, if you can double your money between the year you save it and the year you spend it, than spending 2/3 and saving 1/3 would provide one year of retirement income."

 

[Apex1]

Define "mad money".

Is this impulse spending on junk or frivolous things? Is it just unexpected stuff that comes up? Or is it a surprise gift? Is it a treat for yourself?

I'm not an emotional spender so I never think of a category like "mad money". DH and I have our monthly pocket cash that doesn't get tracked or documented. It's just for spending on whatever you want. In my mind, the best use of that is saving it because I didn't spend it during the month. For DH having anything left at the end of the month would be a shame because it's for spending!

I see in your later posts that you save PLENTY, so you don't seem to be worried about LBYM.

For me personally, Mad money = Discretionary Savings after I've already achieved my savings goals for the year. Money that I use to treat myself rather than saving even more.

 

[dessert]

For me personally, Mad money = Discretionary Savings after I've already achieved my savings goals for the year. Money that I use to treat myself rather than saving even more.

You're right Apex1. Like I said earlier, "you have to enjoy your life during the journey". I have seen more posts from you and I believe that you understand LBYM and are doing just fine. Welcome to the forum.

 

[MBAustin]

One other point that is important to me - LBYM always includes sharing generously with organizations advancing causes that are important to us.

Whether you go with the biblical concept of the tithe (10%) or some other measure, we have always found that giving generously "off the top" (not from what is left) has set the tone for our other spending. I firmly believe that by giving our "first fruits" we managed the rest more effectively and thus ended up with more than enough for everyone.

 

[easysurfer]

I think quantifying LBYM is having a realistic budget then at the end of the year having a surplus.

 

[Apex1]

You're right Apex1. Like I said earlier, "you have to enjoy your life during the journey". I have seen more posts from you and I believe that you understand LBYM and are doing just fine. Welcome to the forum.

Thanks! think I got it

LBYM (income >expenses) = net worth is increasing rather than spiralling further into debt

SAMAR (save as much as reasonable) = balanced saving and spending, on track for one's personally defined retirement goals/age, enjoying the journey until one reaches retirement

SUIH (save until it hurts) = live/spend like increasing net worth is the end all/be all of existence, in order to FIRE at the fastest possible pace

LBYM > SAMAR > SUIH in order of "difficulty"

I think I've found my happy place! What is yours?

 

[kaudrey]

Hi Alex,

This has been a great discussion! I think my "happy place" is at SAMAR.

I save about 25% of my salary. It used to be closer to 35-40%, and after a while my spreadsheets for retirement planning basically showed that I'd have more money than I knew what to do with at the rate I was going. I am now 43, and plan to FIRE at 57 with a FERS pension. I have to stay until 57 due to the desire to keep my gov't health bennies until Medicare kicks in.

With that realization, I decided to spend a bit more now, to enhance my "fun" time. My boyfriend and I bought a cabin in the mountains about 2 1/2 years ago, and I have not regretted it for an instant. We love the town, the mountains, the peacefulness. We go out there as often as we can, and invite friends to stay with us, etc. Yes, it means I have another mortgage, but I can afford it and still save and reach my retirement goals.

I am enjoying the journey even more, while still feeling comfortable with where I'll be in retirement.

 

[ziggy29]

For some reason, the acronym LBYM is starting to bug me. A whole cult seems to have built up around these 4 letters.

Sort of, especially since the market crash and subsequent [-]depression[/-] recession it has suddenly become "cool" to be frugal again. Whereas "power savers" used to be called miserly, cheapskate and any other number of somewhat denigrating terms, these days it has become a badge of achievement for many folks. Now the opposite is true -- some people who save 2/3 of their income may scoff at those who save "only" 1/3 of a similar income as being irresponsible spendthrifts for not exorcising every last dollar of discretionary or "luxury" spending from their budgets.

In other words, people used to laugh at their cheapskate grandparents who never forgot the lessons they learned in the 1930s, and many of them stopped laughing in the last few years.

 

[jdw_fire]

Hi Alex,

This has been a great discussion! I think my "happy place" is at SAMAR.

I save about 25% of my salary. It used to be closer to 35-40%, and after a while my spreadsheets for retirement planning basically showed that I'd have more money than I knew what to do with at the rate I was going. I am now 43, and plan to FIRE at 57 with a FERS pension. I have to stay until 57 due to the desire to keep my gov't health bennies until Medicare kicks in.

With that realization, I decided to spend a bit more now, to enhance my "fun" time. My boyfriend and I bought a cabin in the mountains about 2 1/2 years ago, and I have not regretted it for an instant. We love the town, the mountains, the peacefulness. We go out there as often as we can, and invite friends to stay with us, etc. Yes, it means I have another mortgage, but I can afford it and still save and reach my retirement goals.

I am enjoying the journey even more, while still feeling comfortable with where I'll be in retirement.

how would an early out (with immediated pension and health care eligibility ) fit into your plans?

 

[Mulligan]

Hi Alex,

This has been a great discussion! I think my "happy place" is at SAMAR.

I save about 25% of my salary. It used to be closer to 35-40%, and after a while my spreadsheets for retirement planning basically showed that I'd have more money than I knew what to do with at the rate I was going. I am now 43, and plan to FIRE at 57 with a FERS pension. I have to stay until 57 due to the desire to keep my gov't health bennies until Medicare kicks in.

With that realization, I decided to spend a bit more now, to enhance my "fun" time. My boyfriend and I bought a cabin in the mountains about 2 1/2 years ago, and I have not regretted it for an instant. We love the town, the mountains, the peacefulness. We go out there as often as we can, and invite friends to stay with us, etc. Yes, it means I have another mortgage, but I can afford it and still save and reach my retirement goals.

I am enjoying the journey even more, while still feeling comfortable with where I'll be in retirement.

A pension certainly can change ones view on what LBYM entails. I also, have a pension, and consider myself LBYM. Oddly enough probably more now than ever. I save between 15-20 % of my take home not counting my PT work that also gets squirreled away. Since I am on a monthly cash flow type of living, I think one can borrow for a car payment and still be considered LBYM. When my vehicle finally dies off in the next year or so, I will get a loan for it and still will continue to save, so in my mind I will still be LBYM despite some short term 0% financing of a few things and a car payment. Once a dollar gets socked away, it will never come out of its cage. Everything must be financed out of my monthly check while the saving also continues.

 

[traineeinvestor]

The pedant in me says that "LBYM" is not limited to annual time periods but means spending less during your lifetime than the total financial resources available to you from all sources during that lifetime - i.e. your estate having a positive value.

Of course, that's not how the term is used but I would still look beyond a simple annual evaluation of income and expenses. Taking into account longer term spending issues during periods such as early retirement when income is more limited is also relevant (IMHO). A person who saves some money each year but then retires with insufficient savings and other sources of income to last for all of his/her expected retirement is not practising LBYM.

 

[nun]

While you're working LBYM is spending less than your take home pay.

In retirement LBYM is spending less than the sum of your pensions, SS and investment returns

 

[gcgang]

Before I joined this forum, I thought LBYM means Living Beyond Your Means. Honestly.

Being new here, I agree with KingB. I'm lost on many of the acronyms used on this forum. Literally, what do the letters stand for?

 

[REWahoo]

gcg, this should help: http://www.early-retirement.org/for...slang-frequently-used-on-the-forum-34884.html