The Savings “Addiction”

I’ve read personal finance blogs for over a decade, since blogging started to be a thing. My tastes in what I read have shifted from when I first started out my financial journey. Initially, I was very interested in authors who wrote predominantly about frugality and major money-saving techniques. This phase was probably the one that drove my wife completely nuts, as I was perhaps a little intense in implementing major money-saving techniques (something that she had never thought about doing). I never went as far as forcing the household onto single-ply toilet paper, re-using ziploc bags, or drying out paper towels for re-use, although if you asked my wife, I did go a little nutty for a while in an attempt to reduce the waste I saw in my house.

One blog that I still read on a semi-regular basis (although probably not as much as I should because there is a lot of goof information and analysis there) is Dividend Growth Stocks. One part of his blog that I really enjoyed reading about when it first came out was his pocket change portfolio.  I think the premise of this portfolio initially was to take the small amounts of money that was being made from writing posts, and turn that into dividend cash flows for a “fun” portfolio. After 7 years, his “pocket” change portfolio is making almost as much money as my wife and I would need to live on in retirement. I really like this idea, and have thought about doing it for a while. As a way of saving my change, I fill up an empty 100-ounce whiskey bottle (Canadian Club, from my younger and much more foolish days) and every year or two I’ve counted it out and spent it. With the abolishment of the penny, it’s taking me a lot longer to fill the bottle up this year, but it expect there to be significantly more money in there than the last few times.

The last time I emptied out the jar, my wife, who enjoys the tedious task of counting and rolling change, came up with a final count of about $450 – I’d think there would be at least $600 in there, which would be a good start to any sort of “mini-investment” project that I would take on. I could put $600 into an investment account and earn dividends off of it forever, much like the writer from Dividend Growth Stocks. This decision would be probably the most responsible thing to do – create more cash-flow for myself from “free” money forever.

My problem with any savings plan I implement, is that I have a hard time spending any money on anything. I allocate so much of the money I earn at my job to retirement savings right now that it doesn’t really leave a ton of money for some “fun” things – I’m more addicted to saving money than I am to spending it on anything – fun or not. While the savings addiction is beneficial to my current goal of amassing enough money, it is not beneficial when all I end up doing is having separate savings account for various future goals that I haven’t even thought of yet.

I haven’t really decided if it’s a good thing or a bad thing – I could use the $600 to buy a new cell phone next year, but my own “pocket change portfolio” funded with free money is probably a better idea – the decision I have to make is when to stop saving.

Expensive in a Couple of Ways

If I were to admit to a major vice that costs me more money than it should, it would be food. I love food – all kinds of it. One of the only reasons that I consistently go to the gym is to offset my habit of overeating on some weekend days, work “pot lucks”, or just a random Tuesday night when I decide it would be a good idea to hit an all-you-can-eat sushi restaurant (these aren’t consecutive food adventures, just inadvisable choices made from time to time).

The problem with eating out is that the cost of the meals adds up to
quite a bit of money over time. The cost isn’t enough to change my savings plan significantly, but between the money spent and the unhealthiness of most of the stuff I like to eat (because who I don’t normally choose healthy food), it’s not the best thing to do.

Six and a half days out of 7 days, I’m able to pretend to be a responsible adult and eat at least home-made food. My lunch staple is ground beef in either some sort of taco / burrito bowl (lettuce, tomatoes, salsa, maybe some avocados, and refried beans) or a pile of frozen vegetables, depending on how ambitious I am the night before. I make my lunch food the night before because I give myself basically enough time in the morning to make coffee and run out the door.

We buy our beef in bulk from one of my friend’s mom, and have been buying half a pig from a local farm over the past few years to add to our freezer stock.  Because of this stockpile of meat, we usually have enough food sitting around the house that I really shouldn’t be eating out at all. I know how to cook a lot of food, most of which is both delicious and much cheaper than something comparable at a local restaurant – I just choose not to some days.

Instead of taking 15 or 20 minutes at night to put together a lunch, which would result in me eating locally raised grass fed ground beef with healthy vegetables, I choose to continue watching baseball or football and shovel some of the worst food possible in my face. It’s one of the things that I do that makes neither financial or health sense, and could be easily remedied. Over time, this “habit” is probably costing me about $20 a week, just so I can eat food out that I already know how to make at home.

I try to spend my money efficiently, and me being lazy and semi-addicted to bad food is kind of the opposite of that. In the past, I’ve been able to talk myself into reducing the number of times I go out to eat to once every couple of weeks, which seems to work until I decide that I “deserve” more of the fun food that I want.

Given more time, I would probably cook for myself 100% of the time – something I look forward to when I’m done working full time in retirement.  I can figure out how to cook some fairly elaborate meals as part of a hobby, instead of rushing to put things in lunch containers for the next day. For now, I just battle my “vice” as
much as possible.

Separate Lives

I think that most people who meet my wife and I, wouldn’t really guess that we were in what I would call an exceptional financial position compared to an average household. Most people see my wife and I on weekends, when I’m golfing all summer, and we are hanging out at backyard barbecues or patios at bars, the same as any other D.I.N.K (dual income no kids) couple would do in our situation.

Other than the weekend stuff though, we’re mostly pretty boring people. We both read quite a bit, we watch some Netflix, and try not to make our house too messy, but really don’t have many other hobbies that would cost a lot of money. These “intensely indoor” activities are significantly different than our more extroverted social outings that we take part in on weekends with our friends. Our “boring” indoor hobbies are part of the reason we have money to save towards retirement at the end of every month.

I like our separate lives – I’m mostly an introverted person, and if I spent all of my time around other people, I think I would spend a good amount of it in a grumpy state. Additionally, most of the activities that I like to do when I’m out and about involve either eating or drinking or both, which would adversely affect my ability to maintain a healthy body weight if I were to indulge like that all the time.

For me, I try to maintain a balance. I balance my hobby spending, by saving for my ridiculously expensive golf addiction for the whole year, while barely spending anything else on any of my other interests. Health-wise, keeping a low-profile life during most of the week gives me more time to talk myself into going to the gym on a regular basis, as well as to get enough sleep and lets me shove less unhealthy food in my face.

Having Any Investing Plan is Better Than None

I try not to be a money snob. I don’t discriminate between short-term “Early Retirement” planners, the longer-run value investors, or the more average index investor. I think that each method has both benefits and pitfalls, depending on risk tolerance, market conditions, and capital availability. Over the long-term, I think there is probably a “winner” in all of these investing strategies – there have been many studies showing how each will turn out over time, including risks of each method of investing.

One thing I know, is that given the choice between any method of investing for retirement and not investing at all, I’d take something over nothing. I have many people in my life who seem to take a long-term “hope it all works out” approach to retirement planning, and not really do anything (save and/or invest) that may help them when they can no longer work.

I don’t think everyone needs to retire at 35 or 45, or even 60. I think that there should be some recognition however that at some point in a person’s life, they may either not want to get up in the morning to work for money, or they might no longer physically be able to work anymore. It’s so easy to put off that inevitable day in return for vacations, a new car, a bigger house, or any number of purchases that could be made by an “average” middle class household.

For me, working towards financial independence is a long-term goal that I try to keep in mind anytime I start thinking about doing something foolish with lots of money. It’s the kind of goal that stops me from what I would deem frivolous spending. I would rather work towards an end goal with my available funds.

A different, probably less aggressive goal could be anything that would ensure that both my wife and I have enough money when we’re done working. Instead of a 40 – 60% savings rate, a more reasonable 10 or 15% rate would ensure a small fortune in savings over a 35 or 40 year period at even a very conservative rate of return, because the way I see it, any savings and investing plan is better than none.

Fight Lifestyle Inflation

I like new gadgets. I am mostly successful at stopping myself from purchasing too many new things. I don’t like to waste money and I know that within a month or so of purchasing something like a new phone, I’ll be eyeballing the next version that does almost the exact same thing, but looks just a little bit different. I have staved off buying anything new, mostly because there’s nothing inherently wrong with my current phone.

Most electronics have been made to become obsolete fairly quickly. Over time, programs stop working, buttons start being a little finicky in working and the overall user experience just isn’t the same as when you got the item. In the case of a phone, I’ve noticed my 3-year old phone is starting to get really “laggy” over the past couple of months. If all I used it for was a texting machine and camera, this would be fine, but I use it as my main source of reading news and social networks for most of the day and evenings, so it is becoming a bit more of a pain to use.

Phone companies creating the contract dates – Ideally, something that costs between $500 and $700 would last for more than 2 or 3 years (the length of time most people wait between “upgrades” due to changes in cell phone contracts. I know I’ve fallen into getting a new cell phone more than every 3 years, starting with various flip phones, and moving to two different smartphones in the last five years.

Going into retirement, the desire to constantly buy the newest and best stuff would be a huge burden on our savings plans. Living with a 10 year old television that still shows HD, but doesn’t show sports in 4k is something we might just have to live with, same as dealing with an 8-12 year old car or 3 year old cell phones. One of the reasons we are able to even contemplate retiring significantly early is because we have kept our expenses much lower than our income coming to this point in our financial lives.

Buying into the consumer lifestyle too far for things that really won’t change our lives that significantly will not allow us to retire early. Beyond the initial rush of buying and being able to compare the new shiny thing to the old beat up “heap” it replaced, living with the “old” will allow for less of a possibility of outspending our savings.

Buying Time From My Employer

Summer seems to have finally arrived in Ontario. This long weekend saw a lot of outdoor time, which resulted in my wife and I getting some pretty good sunburns (overcast skies somehow hide the sun from us) that will start peeling in a gross manner sometime near the end of the week. This is the time of year that we wait all through the winter for – I dream of playing golf while there are three foot snow drifts covering up my backyard, and now I can actually go and play (usually not as well as I dreamed about), life is much better. The problem with my schedule right now, is that there are 40 hours in the middle of the nicest hours of the day that I’m at work.

One of the reasons I have stayed at my current company as long as I have (over a decade now) is the generous vacation policy they provide. I currently receive 22 days of vacation, meaning I really only have to work for 11 months of the year. I have asked around to other companies that I may have interest in joining, and most places don’t offer more than 3 weeks to start. My wife and I take a one week vacation together every year, as well as a few long weekends to relax and maybe go to a cottage. The rest of my time off I tend to use as half days on the golf course – in an attempt to spread out the free time as effectively as possible.

While I would always take more money for my job, the truth is that I’ve almost capped out on my salary for my company, which is a Crown Agency of the Ontario government. I don’t know if I would ever run out of vacation days, but if the summer “eats” up a few days, things might be getting pretty slim by Christmas and New Year’s this year, when I may want to visit friends and family. I haven’t sought “official” company policy on this, but I have been toying with the idea of increasing my vacation time via unpaid leave this year. A few days wouldn’t really impact my financial plans, as long as the money I would be making has been saved up, and I may prefer to have the time off over the money in the fall and winter this year.

For me, I have to look at this as an overall plan. If I looked at the day off costing me “X dollars per day”, I would never do it, the opportunity cost would be too high (mostly because I’m cheap and don’t like to leave any money on the table) I’d work and make money instead of enjoying my leisure time.

Would you take unpaid time off if you were an employee? Does your employer offer this option to you?

Creating a Balance

On comedian Joe Rogan’s podcast last week, had a very interesting guest named Aubrey de Grey, who is a theoretician in the field of gerontology. The goal of Aubrey’s work is to essentially be a science fiction genius. He sits around all day figuring out ways to fix human bodies so that they people don’t break down over time. Although things like vaccines and clean water, along with better hygiene and medicine have helped people live longer, we are currently at a bit of plateau as far as life-extension goes.

My main takeaway from the whole podcast was that currently there is almost no difference (on average) between the lifespan of a super long-life person – the so-called “blue-zone” [link] populations, and the rest of us unhealthy slobs. Aubrey stated that right now, no matter how healthy someone is, the average difference between a “normal” person and a super healthy person is about 4 years (when everything was kept at a constant). I like to think that I’m a somewhat healthy individual, but realistically, all of the sweating and soreness from working out is probably not really adding that much projected time to my life.

Putting mortality into perspective makes me seek balance in my life. Most of my past decade has been spent fully engrossed in retirement planning. I know that there are times when I should probably think a little bit less about my future retirement and have a little more fun right now. I don’t necessarily obsess about my retirement planning and savings, but I still have a bit of a habit of automatically saying no to things from back in my debt pay-down days, which took place over most of my twenties.

With only around 50 years left to live (not a pleasant thing to think about, but it’s true), my goal is to work out a balance to enjoy today, hopefully as much as I’ll be able to enjoy myself in 45 years. Some of this enjoyment depends on money I spend, but a lot of it is how I allocate my time and interests in leading a fulfilling life.

Living Large, in a Small Way

When I first got interested in personal finance, I was probably not the best person to be around. From everything that I read over the first few years, my general understanding of an optimal personal finance strategy was to live cheaply and stay out of debt. I took living cheaply probably a little too far, and trimmed back my spending to what could be deemed an extreme amount. It was a somewhat unhappy existence, but allowed me to get out of the student debt I had at a rapid rate.

I made a lot of bad purchases during that time, by being so cheap (or “stingy”, as my wife calls it when I go a little overboard when I’m looking to buy something now). I would look to save $20 on a frying pan for example, between a good brand and a dollar store brand, only to have to replace my “money saving” purchase a few months down the road because the amazing non-stick surface was ending up all over my eggs in the morning.

Today, I look more at value of my purchases than the actual cost of what I am going to buy. I still keep a budget that I stick to fairly well, but I understand that sometimes it’s better to save for a couple more paycheques and spend the additional money on something that I want to last and will value more in the future.

I also look at purchases in a much more binary way. If, after research and probably too much contemplation I decide I actually want to buy something, I’ll spend extra money to make sure it’s something I will continue to enjoy. The best example of this line of thinking is a cell phone. My current phone (a Galaxy S3), was top of the line 3 years ago when I bought it. I had been stuck with “lemon” phones for years because I cheaped out on the initial purchase to save a bit of money. In reality, all cell phones in Canada are pretty close in cost, and I am still happy today with spending the extra money then. My initial decision was “Do I actually want / need a cellphone”? Once I decided yes to that, it made sense to me to spend money on something that would stay relatively up-to-date for a few years, and I would continue to enjoy.

My wife and I were in Mexico last week, vacations South being something that she enjoys quite a bit. After some groggy drives home from the airport on previous trips, we now budget in the extra hundred dollars or so for a car service to get us to and from the airport (compared to driving and parking our own vehicle). Our initial decision was whether or not we wanted to go on a vacation at all – after that, spending a small percentage of extra money to get picked up and dropped off right at our terminal in Toronto makes our trip more enjoyable.

There are many things that I decide not to buy at all. I realize that they are experiences or items that I really don’t value at all, and will either be a waste of time or space – it’s just taken a few years to sort out where the most effective places to spend the limited funds we have .

More Fun….Now or Later?

I’m by nature a cautious person. I’m overly conservative when it comes to how I spend my money – I’ve kept a pretty strict budget since I actually knew what that was. I over-save, because I think too much about what could go wrong with my finances – broken furnaces, blown-up car engines, floods, or any number of things that would cause significant hardship to my wife and I. Although this is a “safe” way to live, it’s not necessarily the cheapest way to get by. This level of savings takes quite a bit of money and holds a large opportunity cost, due to the inefficient use of money.

Everyone needs a certain amount of money to live. My family of two tries to keep as small of financial footprint as possible, but we are still going to need quite a bit of money to survive in the near future as well as to survive into retirement when we either won’t want to work, or won’t be able to work. I look at people who choose to work part-time jobs at a subsistence level, in order to enjoy the hobbies they’re interested in now, and instead of jealousy, I get really stressed out. I really don’t understand how anyone would get by without planning for their future, when money isn’t as easily made.

I figured out that I worked around 1,700 hours last year (I’m sure that I’m not the only one who does these kind of calculations). I would prefer to be doing much different things than the current number crunching and report writing that I end up doing with most of the 40 hours per week I work, but I know that about a third of those hours are gaining me free time in the future, with the other two thirds being split between taxes and living today.

Because our house is paid off and our expenses are reasonably low, my wife and I could probably get by working 1,000 hours per year at minimum wage, or around half the hours we work right now. Our issue is that when we’re done working, we would prefer to be completely done working, and not have to keep going. This is the reason that we’re stockpiling money as quickly as possible, and why we’re continuing to work full-time jobs, even as hobbies that we enjoy doing more than work continue to pile up.

I’m sure there are more enjoyable uses of my time, but I’m too much of a “scaredy cat” to take the plunge at this point to enjoy it.

Total Investment, or Cash Flow?

The question of when to exit the workforce is something that will probably stress me out quite a bit as my wife and I near retirement. Making a decision when to stop working (and providing savings) is a large one – re-entering the workforce is possible, but is a little more difficult than just staying at a job a couple of years longer.

I read a lot of personal finance books, blogs and subreddits that have to do with money. There doesn’t seem to be a general consensus other than to have a massive amount of money. For me, there is a large opportunity cost to the extra years working – my preference would be to exit as soon possible so that I can enjoy more free time and focus more on the hobbies I do now when I’m not at work.

My wife’s and my thinking is that we would rather keep our expenses pretty low, requiring less investment income (and therefore initial investments) instead of living a “lavish” lifestyle that requires a lot more saving to support. Our seemingly boring lifestyle is relatively cheap to pay for, which is the main reason we can even contemplate making an earlyish exit from the workforce.

For me (who is the main “money person” in our family of two), the decision of when to exit is a little unnerving. Do we exit when our investment cashflows are greater than our low expenses? Do we wait until we hit a larger number to have a big cushion to protect ourselves from some unknown event, or significant downturn in the market? If we build in a cushion to the retirement calculation, how much of one is reasonable – 10% over our average expenses just in case? Maybe 25% extra? I’m not sure how to completely factor that in, or do I just shoot for a targe investment value and assume the “safe” 3 to 5 percent withdrawal rate from that is generally agreed upon by people who know more about this kind of thing than I do.

I’m not sure I’ll be 100% happy with any decision I make – possibly working an extra couple of years to build a possibly unnecessarily bigger nest-egg, or just making a clean break from work and enjoying the extra free time. Right now, it’s still nine and a half years away from my target date of my 45th birthday…maybe it will all work itself out for me?