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....I see people who live frugally their whole lives and just save and save and save. Yes they can retire early, but usually they do not, because if they keep working, they can save even more! Finally they die having never lived and their kids or grandkids or some unknown relative spends all the money in six weeks.
Really? I'm sure these mythical people do exist but I think they are pretty rare.
Over the years, we developed the habit of living within our means (aka: not spending more than we earned ... unlike our government). Thus, when increases came, we were already spending less than we were making. It was, therefore, easy to simply increase our savings ... in lieu of always looking for something else to buy. -- Our lifestyle, however, was always comfortable. One of the 'tricks' we learned to 'spending less than we made' was to tithe first ... knowing full well that everything we had, was not really ours, but, God's.
In this manner, we were always able to pay for housing, college, weddings, tithing and everything else that comes with life. Plus, when the time came for 'early' retirement (4-years ago), we were able to simply pay-off the mortgage and all other outstanding debt .... and retire with plenty of money for travel, hobbies, giving, etc. --- BTW, through it all, we only worked and saved, -- with no inheritances, 'windfalls' or any other special financial circumstances.
As my income has risen, so has my spending but along with spending, my retirement contributions and saving amounts have as well. Because I make more, I spend more on leisurely activities particularly my boat and traveling. When I was making $50k/ year, I couldn't afford to stay at luxury hotels or afford the cost of maintaining and operating a boat. Now that I make a much more decent salary, I can afford to spend more enjoying my life. Of course I also contribute more to my retirement, but I feel no compulsion to shovel everything I make into savings or investments.
A take my niece and nephew one weekend each month and we go do fun things that my sister and her husband don't do with them. A few weeks ago they decided they wanted to go to the beach so we spent the weekend in San Diego; probably cost me $1500 but in my book, that's money well spent. Things like this are what I most enjoy with my extra money.
In our case, it did not happen. However we were very focused on the topic.
We both took courses on budgeting and became certified as budget counselors. We both took IRS courses [VITA] and were certified as tax preparers.
My employer assigned me the separate duty of preparing tax filings for most of my co-workers;
and as 'Financial Specialist' every time any co-worker got into financial trouble they were sent to me for counseling [or else they stood to lose their security clearances].
My Dw volunteered at a non-profit 'Relief Society' my employer has at their facilities. Spouses are encouraged to go anonymously to the 'Relief Society' for budget counseling, emergency pantry supplies, new-born infant supplies, and they offer zero-interest loans and grants.
We stayed on a written budget. When our gross income climbed, our living expenses stayed the same. Our tithe went up and our investment into our portfolio increased. Our taxes did not increase either, as we planned our portfolio to keep us fully tax sheltered; so we had no tax obligation [we paid no income taxes]. Even when we had five children at home, our cost-of-living did not vary much.
I was fully able to retire the day that my employer put me on pension when I was 42.
My in-laws however are an entirely different matter. We do their tax filing each year. Their gross income peaked at over three times more than what ours peaked at. They have never done any tax-sheltering, so their taxes have gone up a good deal. Their investments are minimal, and really it is only because of employer offered 401ks that they have any portfolio at all. Very expensive home with gardener, maid service [including laundry], and a part time handyman. New leased luxury vehicles every 2 years. New wardrobe monthly. They were doing quarterly trips, but now it seems to have gone up to nearly monthly. They attend every rock concert that comes to their town, and every art opening. They are working far later in life then I did. They are not financially ready for retirement at all. Retirement will be a severe let down for them. They have allowed the increase in their income to completely control their cost-of-living. We have watched them do this for 30+ years.
Really? I'm sure these mythical people do exist but I think they are pretty rare.
Actualyl i think they are fairly common. Depressin era people do this a lot and people who read all of those panic books about how you have to save and have gold and cash assets on hand for emergencies. No amount is enough. I once had an evaluation by an "expert" who said I needed to save up $6 million to be safe and be able to retire. Also I should maintain an emrergency account of $150,000.
A great aunt and one uncle did this. A friends grnadparents and parents. My Dad even does it some. He is obsessed with retaining some $ to leave for the kids. We do not deserve it, Dad get out and enjoy yourself. My brother seems to be on that track. However they are not planning to leave it to anyone (no kids) I think they just feel more comfortable with savings in the bank, so more savings will make them feel even more comfortable. Meanwhile despite good income, they drive cars with holes in the floor and choke on the exhaust coming in, they eat bland cheap meals, do not go out much. . . . Not sure what they are saving for, but it is their business. I do not care what choices they make. I just do not understand it.
The other thing that is sad is people save and save, but it either goes to the government to pay for aged care, or when they die, it is no longer a significat amount of money. grandma and Grandpa saved their little bit, but evnetually ended up in a program where you give everyhting you have to the government programs and then the government programs pays for your aged care in a nursing home for however much longer you last. If it is short, the program makes out, if it is long, you get a "bargain" However if you have little or no money, you stillg et the same program.
Another Grandma saved saved saved and left maybe $50,000 but she had 7 kids and 56 grand and great grandkids, it really is not going to amount to anything for anyone. Besides her kids were in thier 60-70s, grand kids in their 40s - 50s, they (we) were all pretty much established even a bigger amont would not have changed anyone's life in any significant manner. However grandma could have had a signficant good time with the $50,000.
Actualyl i think they are fairly common. Depressin era people do this a lot and people who read all of those panic books about how you have to save and have gold and cash assets on hand for emergencies. No amount is enough. I once had an evaluation by an "expert" who said I needed to save up $6 million to be safe and be able to retire. Also I should maintain an emrergency account of $150,000.
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I actually think it's funny that so many financial experts advise their clients to have savings in the millions, while according to a recent study, the retirement savings for the average US worker (aged 43) is currently around $18,000. Maybe it's wishful thinking by the advisors. I'm really not sure how much I will need, but I think it's way less than the retirement calculators.
As far as spending more the more you make..... I've tried to keep my spending the same although I'm making a lot more money than I did 2 years ago. I still shop for bargains, don't over pay for stuff, and never charge anything I can't pay off at the end of the month. I live incredibly below my means and will never again live a flashy lifestyle that I really couldn't afford.
Last edited by florida_boy; 10-17-2012 at 03:05 PM..
Reason: forgot to address the original question
Part of the reason is that your time becomes more valuable to you. Thus, you are less likely to work on your own car, carve your own ham or beef, mow your own lawn, clean your own house. Also frequently you earn more by working harder. Thus you simply do not have time to do the chores and you hire people to do them for you.
Further I cannot see anyone not spending some more when they earn more, otherwise what is the purpose of earning more? earn more just to save more? Save for what? How much do you need to save? Saving is fine and danady, but I see people who live frugally their whole lives and just save and save and save. Yes they can retire early, but usually they do not, because if they keep working, they can save even more! Finally they die having never lived and their kids or grandkids or some unknown relative spends all the money in six weeks.
That's one way to look at it. And based on our spending issues in America, you're in good company.
Actualyl i think they are fairly common. Depressin era people do this a lot and people who read all of those panic books about how you have to save and have gold and cash assets on hand for emergencies. No amount is enough. I once had an evaluation by an "expert" who said I needed to save up $6 million to be safe and be able to retire. Also I should maintain an emrergency account of $150,000.
A great aunt and one uncle did this. A friends grnadparents and parents. My Dad even does it some. He is obsessed with retaining some $ to leave for the kids. We do not deserve it, Dad get out and enjoy yourself. My brother seems to be on that track. However they are not planning to leave it to anyone (no kids) I think they just feel more comfortable with savings in the bank, so more savings will make them feel even more comfortable. Meanwhile despite good income, they drive cars with holes in the floor and choke on the exhaust coming in, they eat bland cheap meals, do not go out much. . . . Not sure what they are saving for, but it is their business. I do not care what choices they make. I just do not understand it.
The other thing that is sad is people save and save, but it either goes to the government to pay for aged care, or when they die, it is no longer a significat amount of money. grandma and Grandpa saved their little bit, but evnetually ended up in a program where you give everyhting you have to the government programs and then the government programs pays for your aged care in a nursing home for however much longer you last. If it is short, the program makes out, if it is long, you get a "bargain" However if you have little or no money, you stillg et the same program.
Another Grandma saved saved saved and left maybe $50,000 but she had 7 kids and 56 grand and great grandkids, it really is not going to amount to anything for anyone. Besides her kids were in thier 60-70s, grand kids in their 40s - 50s, they (we) were all pretty much established even a bigger amont would not have changed anyone's life in any significant manner. However grandma could have had a signficant good time with the $50,000.
Sooo... instead of save, save, save we should spend, spend, spend? I'm sure you don't mean it in such an "either/or" manner.
I got a $20k raise, after starting a new job. Rent went from $850/month to $900/month. IRA contributions went from $1,000 to $10,000 for the year. It was $5k in March 2012 for 2011 contribution year and another $5k for 2012. I contribute 6% of that $20k to the 401k, which is $1,200.
I bought a new 2012 SUV for $525/month and spend $300 on gas instead of $200.
SUV +525
Gas +100
Rent +50
-----------
Expenses $675
IRA +900
401k +100
----------
Savings $1000
Savings $1000 - Expenses $675 = $325 difference
Even if your salary stays the same, people usually spend more money due to inflation. The apartments raise the rent at least $50, every time my lease expires. Gas is more expensive now than before. The money that went towards savings is $325 more than expenses.
I actually think it's funny that so many financial experts advise their clients to have savings in the millions, while according to a recent study, the retirement savings for the average US worker (aged 43) is currently around $18,000. Maybe it's wishful thinking by the advisors. I'm really not sure how much I will need, but I think it's way less than the retirement calculators.
This is actually one topic that interests me quite a bit. I generally feel that to retire with a reasonable level of comfort, you should have an income that is 70% of what you were making when you quit working. If you're making $100K/ year when you retire, to maintain the same type of lifestyle, you should probably have around $70K/ year in income from S.S., investments, pensions, IRA's, land rent, etc.
My parents have been fully retired for a couple of years now and their personal spending has actually gone UP since they retired. They have a beautiful home in North Scottsdale and travel between Iowa and Arizona twice each year. They also spend money on eating out quite a bit, traveling to destinations that they couldn't when working, and generally enjoying their golden years.
When you retire, you probably don't plan to sit around and watch the grass grow. You likely want to travel, maybe have a second winter home, maybe take classes for FUN, maybe participate in leisure activities...all of these things cost money. Maybe you won't be spending $300/ month on fuel but you might transfer that amount to your golfing hobby or airplane tickets.
In all honestly, I'd want at least $2 million in retirement accounts and investments before I'd even consider retiring unless I had an income from land rent that was a reasonable amount to cover living expenses.
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