The Enough Curve: Consider the Ongoing Costs Of Your Purchases

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Our youngest child successfully completed her first semi-autonomous Halloween, but also threw up after eating her candy. Instead of just a case of diminishing returns (stops tasting as good), it was an important life lesson about negative returns! This reminded me of the “Enough Curve” from the early retirement manifesto Your Money or Your Life, which maps the relationship between fulfillment and the money spent.

In the beginning, you are getting a lot of “bang for your buck”. You have the basics: enough to eat, safe shelter, clothing and general safety. After that, you are moving into comforts that help you think beyond day-to-day survival. This is a good thing. However, eventually you start getting diminishing returns where an extra dollar spent isn’t getting you much more in personal fulfillment.

If you keep going, as the TV ads say you “deserve”, you can get to a point where you experience negative returns. You spend more, but get less. Minimalists call this when “Your stuff owns you” vs. You owning your stuff. Here’s a few examples:

Too much housing. The more house you buy, the higher the insurance costs, lawn maintenance costs, home repair costs, heating/cooling/electricity/gas/utilities costs, cleaning costs, security costs, and so on. If you have too much space, you may also find yourself filling the extra space with junk you don’t even need. Extra furniture, extra toys, who knows.

Too much car. The more car you buy, the higher the insurance costs, repair costs, maintenance costs, detailing costs, and so on. You worry more about small scratches and dings. The strange thing is that the most expensive cars are not any more reliable or long-lasting than a Toyota Corolla or Prius.

Housing, cars, utilities, gas, and insurance costs are linked together and add up to nearly half of all household spending as shown in this visualization from Engaging Data :

Housing and car purchases tend to be infrequent, so the next time it comes up, try to take a good hard look at the total cost. One of the central tenets of Your Money or Your Life is that you are exchanging your finite life energy for money. Once you internalize that, you realize that many things are not worth exchanging years of your life working.

I’m not here to draw a line about what is okay and what isn’t, as it will be different for every person and every expense. I struggle with this as well. This is just a reminder that it’s easy to minimize this extra financial and mental baggage when the dopamine rush comes at the time of purchase. Finding enough is hard, but taking a moment to consider the ongoing costs helps me make better decisions.

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Mental Model For Expenses: Past, Present, and Future (With Animated GIFs!)

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The theory behind financial independence is simple. Spend less, save more, invest it into income-producing assets. The reality is complex, full of daily decisions about balancing income and spending. The Morningstar article (yes, M* is writing about early retirement too now) A Simple Plan for Financial Independence presents this simplified graphic of your “personal economy”.

Income can come from labor, capital, or land. Expenses can be put toward your past (debt), present, or future (investing in capital or land).

I’ve been thinking about this “past, present, and future” mental model for expenses, it meshes will with the simple rules that I want to teach my children: Avoid debt whenever possible, and seek out income-producing assets.

Present. There is countless advice to save money on current expenses. Call it prioritizing, call it frugality, call it whatever. These are important, but I’d rather focus on the added ideas of past and future.

Past. While debt is an important part of the economy, I hate that going into debt for non-essentials is so readily accepted in today’s society. Using home equity lines of credit for a kitchen remodels. Credit cards for vacations. The entire microloans trend where you buy a $100 pair of jeans for $10 a month times 12 months ($120) is a dangerous mind game. Debt is having compound interest work against you, and thus making someone else rich. Debt should not be normalized. Debt is an emergency!

via GIPHY

Future. If you look at people who have really achieved financial freedom, where they truly spend the day doing whatever they want and without money worries, they have all have collected a big pile of income-producing assets. It could be rental property, commercial real estate, a laundromat/car wash/business, dividend-paying stocks, municipal bonds, a pension, Social Security or even just bank CDs if you have enough. In most cases, they collected them with purpose. They didn’t just put the minimum into their 401(k) and call it a day. They would shovel whatever extra money they had into their favorite money-making machine. When I buy more stocks, I see a future income stream:

via GIPHY

When you buy one of these income-producing assets, it should get you excited!

via GIPHY

I’m still not sure exactly how to create this distaste for debt and this desire for money factories, but I’m working on it. If you have these two in place, that should help with everything else – earning more income with labor, spending less on the present.

Oh, and here’s a funny-but-sad representation of the paycheck-to-paycheck lifestyle.

via GIPHY

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The Power of Being Open-Minded About Cutting Your Household Expenses

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Here’s the short version of this depressing WSJ article Families Go Deep in Debt to Stay in the Middle Class (paywall?). Household incomes have gone nowhere. Meanwhile, housing prices are up, healthcare costs are up, and college tuition has skyrocketed. Ouch. However, you can’t control that things are worse for you than if you lived in another time period. You can only control your response, and that is why I try to focus on actionable ideas instead of dwelling on “the way it should be”.

“Make more money” advice is hard to pin down. Of course I want everyone to have a high income. I like the idea of spending money on improving your marketable skills, “investing in your yourself”. However, everyone has a different combination of what they are good at, what they enjoy, and what others will pay them to do:

caddell620

Meanwhile, I find that spending advice applies much more broadly. My most general spending advice is that you need to expand what you think is an option. Most people hang out with people around their own income level, look around, and then spend the same money on the same things. The trick is that net worth shoots up when you earn a good income, but spend like someone who earns about 1/2 or 2/3rds of what you make. It may not feel natural, but you have to trick yourself into picking from a wider menu of options. Here are some quick examples.

  • Housing. You could buy a 4,000 sf house with a 3-car garage. A family of four could live in a 1,000 sf apartment (mine did). You could share an apartment with roommates. You could rent a room inside a large house. You could buy a duplex and live in one side, rent the other. You could buy a 4-plex and live in one unit and rent out the rest.
  • Transportation. You could lease a $60,000 SUV and pay about $8,000 year in lease payments – after 3 years and $24,000, you’d have to start all over again. Alternatively, you could buy an entire car for $8,000 and own it for another 10 years. You could downsize from a 2-car to a 1-car household. Many urban residents don’t own a car at all.
  • Food. A single person could eat out at every meal, never touch their stove, and easily spend $1,000 or more per month on food and alcohol. A family of four can cook all meals at home and spend under $600 a month. These days, food has become the ultimate convenience item, but it’ll cost you.

I can be hard to stay open-minded about your expenses. In fact, many quickly become defensive. You’ll often hear a straw-man argument like “I don’t want to sit around sorting coupons, eating lentils every meal, or living in poverty”. I wonder if they have seriously considered all of the options above.

You don’t have to pick the cheapest option in every category. You probably know someone in an expensive house but drives a 20-year-old Toyota. I know someone who makes over $250,000 a year but rents a cheap, single room in a large house (while eating out every night). I know someone who owns a beautiful beachfront house, but AirBNBs the majority of it.

I’ve been looking for over 15 years, and there is no single path to financial independence or early retirement. Even if you don’t want to embrace frugality as the cure for everything, the cold reality is that it’s hard to live at life true to yourself unless you first reach at least $10,000 in savings to ride out the bumps.

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Couples and Money: The Proportional Sharing Method

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If there’s one topic that’s probably more sensitive than people talking about their money, it’s how they split their money with their partners. I am swayed by the method proposed by this post – Why Couples Should Split Expenses By How Much They Make by Tracy Moore.

Let’s say Partner #1 makes $7,000 per month and Partner #2 makes $3,000 per month. That means Partner #1 makes 70% of the total income and Partner #2 makes 30% of the total income. The proportional sharing method would have Partner #1 pay for 70% of the total expenses and Partner #2 makes 30% of the total expenses.

Result: If the household expenses are $5,000 per month, Partner #1 pay $3,500 per month (70%) and Partner #2 makes $1,500 per month (30%). Why not any of the alternatives?

You can act all day long like you don’t mind supporting someone, but you do. You can act all day long like you don’t mind being completely subsidized by someone else, but you do. You can act all day long like you don’t mind going halvesies even though she makes $50k more than you do, but you do. And so on. You can pretend to throw everything together in a blind pot and pay everything out of it, but if the one who makes less spends more, and believe me, they always do, you’ll care.

I should disclose that my wife and I don’t do this, and we’ve always just put everything into a single pot and spent from there. However, I don’t think what works for us will work for everyone. First, we married relatively young with minimal individual net worth. (I did work really hard to pay off my student debt so I could at least start us out on a positive number.) Second, we both agreed to the communal pot idea from the beginning. I’ve always figured that if somehow we divorced, we’d just split whatever assets we had down the middle anyway even if I earned more. Third, although our incomes both varied, we never went through a prolonged period where one person was unemployed and resentment could possibly build up. We have both worked consistently the entire time, even after transitioning to working less than full-time and watch the kids the rest of the time.

In the end, I do know that both sides have to agree that the setup is fair. Our choice to both work and both take care of the kids was definitely a conscious decision to pursue our idea of “fairness”, although I know that setup isn’t possible for everyone. That’s why, for a couple that is starting out with a history of being on their own financially, it seems like this idea of proportional sharing is a good starting point for an open discussion.

Do you think there is a better “default” method for merging finances if you’re a couple with different incomes?

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Spending Diary: The Most Commonly Ignored Personal Finance Advice?

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After finishing The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helaine Olen and Harold Pollack, I found it to be a solid all-around personal finance book that joins others like If You Can by William Bernstein and The Richest Man in Babylon by George Clason in the category of “recommended books about money that are short and easily digestible”. All good ideas for gifts for recent graduates.

They don’t shy away from what I think is the most commonly-ignored financial advice: TRACK YOUR SPENDING FOR THREE MONTHS. Even if you don’t track your budget closely after that, this initial spending diary can be eye-opening. Yes, it takes a bit of effort and can be rather uncomfortable psychologically. Here are some book highlights:

Track ALL of your spending…

For three months, keep track of everything you spend money on, no matter how small. That $1.50 bag of Cape Cod Waffle Cut Sea Salt potato chips? It counts, just as much as your four-figure mortgage or health insurance payment.

… for THREE MONTHS.

If you monitor only one month of spending, you won’t gain a full picture of where your money goes. Routine but sporadic expenses such as car repairs, doctor bills, and the emergency trip to the cat’s vet are more likely to occur over a several-month period.

Now, you can pick your “must keep or I’ll wither away” purchases and the things what won’t hurt as much to cut.

You need to determine what day-to-day spending is necessary and unavoidable, what is a luxury but helps you get through the day, and, finally, what is excess. Only then can you avoid falling prey to spending traps.

This allows you to make trade-offs: I’ll take advantage of the office coffee machine, but I’ll use the money I saved to travel to Italy next summer to attend my best friend’s wedding. I’ll drop my landline phone to pay for my gym membership or boost my child’s college savings.

Final tips. You can put everything on a single credit card or debit card, and then go through your purchases line-by-line. If you use cash, take a picture of your receipts and/or purchases on your phone. If you feel comfortable with it, link your account to Mint.com (or similar) and they will help you categorize things automatically. You’ll need to spend a few weeks teaching it (check in every few days), but it gets better over time.

If you can manage to track everything for three months to get an honest (if uncomfortable and scary!) view of your finances, you may find a big gap between what you think you spend vs. what you really spend. Where does your money go every month?

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The Personal Finance Index Card: Book Version Differences

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After rediscovering the young adult versions of fitting personal finance advice on an index card, I decided to go back and read the book The Index Card: Why Personal Finance Doesn’t Have to Be Complicated by Helaine Olen and Harold Pollack. (I was able to find it via library eBook.)

I noticed that the book version of the “index card” was slightly different. The original card had 9 items, but two of them were merged away into each other (401k/IRAs) and (Pay Attention to Fees/Buy Index Funds). I bolded the new additions below. (You can see all chapters on the Amazon page.)

  1. Strive to Save 10 to 20 Percent of Your Income
  2. Pay Your Credit Card Balance in Full Every Month
  3. Max Out Your 401(k) and Other Tax-Advantaged Savings Accounts
  4. Never Buy or Sell Individual Stocks
  5. Buy Inexpensive, Well-Diversified Indexed Mutual Funds and ETFs
  6. Make Your Financial Advisor Commit To a Fiduciary Standard
  7. Buy a Home When You Are Financially Ready
  8. Insurance – Make Sure You’re Protected
  9. Do What You Can To Support the Social Safety Net
  10. Remember The Index Card

Here again is the original:

Here are my notes on the newly-addressed topics of home-buying and insurance.

Home-buying. This will always be a hard topic because it mixes in emotion, personal history, peer pressure, and all that fuzzy stuff. If you want to own a home, you need to make sure the purchase won’t blow up your overall financial picture. Nothing really surprising, but still good advice.

  • Get your debt under control first.
  • Save up as close to a 20% down payment as you can.
  • Stick with a 15 or 30 year fixed-rate mortgage.
  • Prioritize what you really want and need in a home. Stay within your budget.
  • Location, location, location.

Insurance. There are low-probability events that can destroy decades of hard work, and that’s why humans invented insurance to spread the risk. Here are their cut-to-the-chase bullet points:

  • Emergency fund – Maintain one!
  • Life insurance – If you’re young(ish), just buy 30-year level term insurance.
  • Property insurance – Raise your deductible as high as you can handle.
  • Health insurance – Always sure you stay in-network.
  • Liability insurance – Coverage for at least twice your net worth.

I’m glad that this book still retained its “quick-and-dirty” nature. No single rule will cover every scenario, but it’s good to have a clear and concise collection of the big points along with just enough explanation that you understand the basic reasoning behind it.

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US Household Spending Breakdown: Top 20% vs. Bottom 20%

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Engaging Data has another neat visualization tool up, How do Americans Spend Money? US Household Spending Breakdown by Income Group, using household spending data from the US Bureau of Labor Statistics. Below is a screenshot of this interesting visualization technique (the full version is more interactive). The biggest contrast is seen when comparing the spending breakdown of the top 20% of income earners with the bottom 20%. (Click to enlarge.)

There are a lot of complex interactions going on inside this data visualization. Here are just a few things that I noticed:

  • The average household in the bottom 20% of income only has 1.6 people and 0.5 income earners. The average household in the top 20% of income only has 3.1 people and 2.1 income earners. Is there any causation to this correlation? Does having a high income make you more likely to have a bigger household? Or do bigger households tend to make more money since there are more earners?
  • The bottom 20% by income earns about $25,500 annually while saving absolutely nothing (and either spending down savings and/or going deeper into debt). The top 20% earns $188,000 and saves $50,000 of that annually. For the top 20%, that’s a savings rate of over 25%. Instead of a generic goal like saving 10% of your income, perhaps it is more appropriate to judge yourself by income group. Should a household earning around $200,000 a year expect to save $50,000 a year or be considered an “under-saver”? Or do the ultra-high income earners skew this savings number?
  • The bottom 20% by income has the biggest chunk of their income from “Borrowing and Savings”. The top 20% has the vast majority of their income from salary and/or self-employment income. What is “Borrowing and Savings”? The tool says it could be students living off loans while in school, folks spending down cash savings during unemployment, or retirees drawing down savings. How much of this is people going into debt?
  • If you only looked at the “average” of all households, you wouldn’t see this big difference. You would see a total income of $73,500 a year (mostly from a salary) and a relatively solid savings rate of about 13%.

Bottom line. You see a lot of statistics that use average or median numbers. However, I think that hides the fact that most people aren’t average. The top 20% and bottom 20% of households by income are leading very different lives, at least according to their spending patterns.

You can also view household spending breakdowns by age.

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The Most Common Sacrifices Investors Make to Reach Their Financial Goals

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According to a Wells Fargo/Gallup survey of U.S. investors, 78% say they are at least fairly disciplined in reaching their financial goals. About 50% of investors say they will have to sacrifice a “fair amount” or “a lot” to reach their financial goals, while the other half only expects to sacrifice “only a little” or “nothing”. Investors are defined as adults with $10,000 or more invested in stocks, bonds or mutual funds, either within or outside of a retirement savings account.

In what areas do they expect to sacrifice? Here is a chart showing the most popular ways in which the polled investors say they have and/or expect to sacrifice to reach their personal financial goals:

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Forced Retirement: The Time to Prepare is Now

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Here’s a random thing that happened after becoming financially independent. When I caught this opening scene of people getting fired from the movie “Up in the Air” on TV, I felt sympathy but I remember it used to give me stress and anxiety.

Ever since starting out with a negative net worth due to $30,000 in student loans, I’ve saved money every pay period because I worried about what would happen without a job. I wanted my financial life to be a robust fortress. It was a gradual process and not black-and-white, but one day I realized that I longer had to worry about a boss (or worse, a mercenary consultant that looked like George Clooney) firing me ever again.

Barron’s recently had an article So, You’re Retired but Don’t Have Enough Money to Be Retired. Now What? (possible paywall but it worked for me) which is really an excerpt from the book 55, Underemployed, and Faking Normal by Elizabeth White. Essentially, it is about people who had well-paying jobs for a long time, but hit hard times in their 50s and 60s:

I never thought it would happen to me. All my life—working at the World Bank, getting my M.B.A. at Harvard Business School, starting my own retail company—I thought of retirement as golfing in Florida (not that I really wanted to). Even after my business failed—taking most of my savings with it—I bounced back. I reinvented myself as a consultant and earned a six-figure salary. But in my 50s, the Great Recession hit, and the clients were slower and slower to call back. By age 60, it was crickets.

With nothing to speak of coming in, I was running through what was left of my savings. I started to notice friends in the same boat, trying to keep up appearances. A small group of us began to talk. All were 55 and older, well educated, with a history of career choice and good incomes. And then the bottom fell out. None of us expected to be here: in our 50s and 60s, scrimping and scraping or borrowing money from our adult children or 84-year-old mothers.

What is her advice for surviving forced retirement? Well, it sounds a lot like what you would read in an early retirement article.

The key question is not just how to tighten our belts. The real question is: Can we cut way back and still have good quality of life, still find ways to be connected to who and what we love? I believe that the short answer is yes.

A big first step in securing our futures is adopting a live-low-to-the-ground mind-set, which means that we have to drastically cut our expenses to fit our new income realities. But it also means figuring out what matters to you and what your priorities are and then cutting way back on everything else.

Once I get beyond the basics, it’s really about good health, family, and friends for me. I used to eat out a lot, and that’s something I still miss. But the women friends I rely on for sanity are all still here. It turns out we didn’t need fine dining and $12 glasses of Chardonnay to bond us.

You should happily spend money on your priorities, cut back on everything else, and realize that happiness is not about stuff. Sound familiar?

The key difference is that this is presented as a last-ditch solution after your hand has been forced. If you combine aggressively prioritized, lean spending with a solid six-figure career for a while, you have the basic recipe for financial independence. It may be much harder because of our various human tendencies, but it can be done.

We live in a culture that creates need where none existed before and defines quality of life as a metric of income. When you’re making money, all of that mindless consumption goes unchecked. When funds are tight you have to think about it. What do you really need to feel deeply grounded and content? You’ll discover that you actually need very little. It really does not cost much to be happy. I’m spending a tiny fraction of what I used to spend, and the world hasn’t ended.

What if you realized that at age 25 instead of 55?

Bottom line. Forced retirement may make you realize that you can live on a lot less money than you spend now. However, perhaps this book can help those who still have a solid job right now that they can also streamline their spending and thus be better prepared for whatever may happen in the future. I enjoyed the writing style in this excerpt and find it relatable.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.

Learning to Cook at Home: A Valuable Investment

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Cooking at home can save a lot of money as opposed to eating out all the time. We all know that, right? If not, here’s a big green chart to drill it in, taken from How Much Money Do You Save by Cooking at Home? by Wellio:

Here’s what that means on a monthly basis:

Being a good home cook should be viewed as a valuable skill – one that takes an investment of time and effort, but can pay dividends forever. You may not eat at a restaurant or do meal prep every day, but I know that some of you dual-income high-earners are dropping around $1,500 a month on food. That’s closing in on $20,000 a year. Your grandparents probably spent a fraction of that. Converting even a couple of those meals a week can multiply into real money. (Not to mention that home-cooked meals have helped with my weight loss and health goals. Eating out a lot seems to always correlate with weight gain for me.)

The problem is that if you haven’t developed the skill, it’s just too painful. You work hard and are exhausted at the end of the day, why tackle another difficult project? For me, if I have to make an extra stop at the grocery store, I’d rather just stop at the korean BBQ place and buy it ready-to-eat.

If you are just starting out, you can’t expect to be able to whip up a nutritious and tasty meal with the ingredients in your pantry in 30 minutes. You need to set yourself up for success. You need to divide and conquer. On the weekend, you should pick out one or two “easy” recipes that look appetizing to you and buy all of the ingredients that you need. Don’t wait to “pick it up on the way home”. Buy it on the weekend, and carve out 30 minutes of prep time on two weekdays. Remind yourself that it takes time to prepare a meal prep kit too, or even drive somewhere to get take-out. (Okay, Uber Eats and Grubhub are pretty darn convenient. But those delivery fees and tips add up fast!)

This is summarized in my Cooking at Home Flowchart:

dinnerflow2

Once you have some “go-to” weekday meals, you can schedule them and rotate as desired. Once you get a lot of recipes into memory, then you can start to improvise. I’m sorry, but newbies can’t go straight into thinking of recipes as Salt, Fat, Acid, Heat. Maybe if you were the culinary equivalent of Beethoven. I’ve made hundreds of sheet-pan dinners (I like Melissa Clark recipes) and one-pot meals and I still get stuck if I don’t have things thought out ahead of time. If you learn to prep, then that one weekend grocery stop can equal 5 weeknight meals.

Wellio is a food prep company that offers to help you out with recipes and shopping lists. I haven’t used them, but I like that they are trying to attack the pain points in home cooking. I’ve mentioned them previously in Which Meals Offers The Most Nutrition Per Dollar?

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Why Inflation Feels High

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Here is an interesting chart of price changes from 1997 to 2017 for various good and services as measured by the BLS (which tracks CPI and inflation). The Carpe Diem blog author argues that the stuff that got more expensive was heavily regulated by the government, while the stuff that got cheaper was subject to free market forces. I don’t agree completely with that explanation.

My reaction: The red lines were purchases that were quite hard to avoid (medical costs, childcare, education), while the blue lines were mostly optional consumer items. I buy cars, household furnishings, TVs, and (sadly for you fashionable folks) replacement clothes only about once a decade. I can put off buying a new car or TV, but I can’t put off my childcare bill.

pricechange2

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Absolute vs. Relative Standard of Living: What is Enough?

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I’m currently reading University of Berkshire Hathaway: 30 Years of Lessons Learned from Warren Buffett & Charlie Munger at the Annual Shareholders Meeting by Daniel Pecaut and Corey Wrenn. As opposed to a rehash of the BRK shareholder letters, it contains highlights from listening to Warren Buffett and Charlie Munger live during the shareholder meetings in Omaha, Nebraska from 1986-2015. (The equivalent of a live Beyonce or Springsteen concert for investing geeks.)

I’ve always appreciated that Buffett and Munger are very rational and practical people, and one theme that I picked up from this book was the concept of absolute vs. relative standard of living.

What is enough? You’ve probably heard some variant of the phrase “live like a college student” when talking about how to save money. I certainly used this tactic successfully for many years, and Buffett explains why it makes sense:

Buffett contended that the average college student has the same standard of living as he does. Same food. No important difference in clothes, cars, TVs. After you have enough for daily life, all that matters is your health and those you love. Likewise in work, what really matters is that you enjoy it and the people with which you work. Munger concluded humorously, “What good is health? You can’t buy money with it.”

Ask yourself: Does this make me healthier? Does this let me spend more time with the people I love? Does it give me valuable knowledge? Think about how a large portion of the luxury world exists without actually improving your quality of life: luxury cars, designer clothing, fancy purses, fancy watches.

Stop comparing yourself to others. Buffett reminds us that envy is the worst among the seven deadly sins. You feel miserable with no upside at all. (The rest are gluttony, greed, lust, sloth, wrath, and pride.)

If someone else is getting rich, so what? Someone else will always be doing better. He asserted that the notion that an investor or investment manager should be “required” to beat everyone else is nonsense. The real key is to know what you really want to avoid and give those things a wide berth (such as a bad marriage, an early death, and so on). Do this and life will go much better, he advised.

I think this concept is under-appreciated in the investment world. You manage to lose a little less money than a benchmark and you still “win”? Think about the people who have quietly gotten rich with rental properties. They don’t worry about benchmarks, they just make sure the rent checks come in and the building is maintained. When they can, they buy another property. Over the long run, it works out just fine. You could do something similar by regularly buying a Vanguard Target Retirement Fund, Vanguard Balanced Fund, or even Vanguard Wellington Fund.

Money vs. Quality of Life. Make no doubt about it, Buffett enjoys having a lot of money. I imagine he treats it like a video game with dollars instead of points. However, he separates money and quality of life. That’s what has let him decide to give almost all of it away to charity. He’s donated over $27 billion already, with a total amount that could be over $100 billion (depending on the future value of Berkshire stock):

Buffett added that as far as he’s concerned, he hasn’t given up anything. He hasn’t changed his life. He couldn’t eat any better or sleep any better, so he really hasn’t given up anything. Someone giving up a trip to Disneyland to make a donation is the one making a real sacrifice.

These simple quotes can provide a basic outline for early retirement. First, try your best to stop comparing yourself to others, as that’s a game you’ll never win. Besides, if you act and spend like everyone else, then you’ll be working as long as everyone else. Next, decide what kind of daily lifestyle is “enough”. Does that require spending $30k a year? $50k a year? $80k a year? Now work to save 25 times that amount. $30k a year = $750,000. $50k a year = $1.25 million. (You might want to revisit the “enough” question after doing this multiplication…) That’s a nice rough number. Now work on the income side of the equation while keeping your spending side in check. In the meantime, enjoy your awesome quality of life. Appreciate the good stuff like nourishing food, hot showers, comfortable beds, nature, air conditioning, friends, and family.

My Money Blog has partnered with CardRatings for selected credit cards, and may receive a commission from card issuers. All opinions expressed are the author’s alone, and has not been provided nor approved by any of the companies mentioned. MyMoneyBlog.com is also a member of the Amazon Associate Program, and if you click through to Amazon and make a purchase, I may earn a small commission. Thank you for your support.