The Power Of Expenses

Expenses Will Ruin You!

“I don’t know where you possibly get the money to retire early”

A phrase we hear an awful lot. Our family and friends probably think we are crazy for a multitude of reasons, including our lifestyle, but the statement that bothers us the most is people questioning whether early retirement is a real possibility and HOW they could POSSIBLY come up with enough money to pull it off.

We try not to stand on any tall pedestals lest they collapse under us… We probably spend $10,000 a year on traveling. Most people likely think this is excessive and a poor choice for spending hard earned money. We don’t, and that’s the point. We feel strongly that to each his own, and your money is yours to spend as you see fit. We just wanted to put that out there as we criticize what others make for spending decisions, but we can only do so from the lens through which we view other’s spending decisions. Here we go…

How Much Do You Spend?

As part of our expense tracking this year, we want to not only achieve a better understanding of how much we are spending in each category and where we can do better, but it also fits in a longer-term goal of determining how much we need saved to retire. We will get into more detail on these topics in the future, but suffice to say, we can only spend about 4% of our total investments yearly to not damage our nest egg we will be living on (Known as the 4% rule or Trinity Study) so if we found that our projected expenses per year were $40,000, we would need roughly $1 Million in investments to safely pull $40,000 each year. We are hoping to find that our projected living expenses are well below this number. Time will tell.

We will cover in the next blog about our investments, but like we talked about in the last blog, investments only matter if you have money to invest… So here we are.

Excuses Or Blind To Expenses?

“There is no way I could come up with $5,500 a year to invest”

Let’s preface this argument with the fact 50% or more of expenses is human behavior, not finances. We make decisions every day that spend money or save money, over long periods of time, those expenses add up to large or small numbers. That’s it. No magic.

21.3%. What if we told you we could save and earn 21.3% of the American public $500,000 by the time they were 50 and they wouldn’t have to do anything other than NOT do something they are doing AND know isn’t good for them? Sounds too good to be true right?

Smoking Costs You 1 MILLION DOLLARS!

Well, 21.3% of the American public smoke cigarettes. It’s killing them and killing their bank accounts. By simply NOT smoking a pack a day of cigarettes, and INVESTING that $8 or so a day expenditure into an index fund instead, they would have $477,930.64 by the age they are 50. And that’s just if they want to EARLY retire. If they continued to commit that for another 10 years until they were 60 it would be worth $1,285,528.78! And we didn’t even start that calculation until they were 20. That’s 2 full years of adulthood to make terrible health and financial decisions before they even have to start putting away that $8 a day. Now, we are assuming a few things here, including a 10% stock market return on the investment (Depending on who you source, the stock market has since 1926 yielded roughly 11.69%), but you get the idea.

Can You Identify AND Control Your Behavior?

So, that leads us back to human behavior. Rory will happily talk about this psychobabble stuff in the future, but the take home message for today is that humans are much better at immediate gratification than delayed gratification. We simply make decisions daily that make us feel good, and because we “deserve it”, ignoring the long-term implications of our decisions. We can’t help it… Well, we can, but we don’t.

Not a smoker? Great… Are you a coffee drinker? Been to Starbucks lately? A Mocha Choka’ Bullshit is probably pushing $5 right? Can you see where we are going with this? We all have those little convenience indulgences in our lives that could (and should in our opinion) be replaced by low cost alternatives. Rory used to get a breakfast sandwich and large coffee every day on the way to work, until he realized his little habit was costing him upwards to $300/Month. We will talk about opportunity costs in the future, but that $300/Month translates to a half million dollars by the time he is 60… So its homemade breakfast sandwiches and coffee for him from this point forward.

Are You SURE You Don’t Have Money To Invest?

So ask yourself “Do I really not have any wiggle room in my budget for investing?” and the question we ask ourselves is “Do we want this crap so bad that its worth working another 5 years before we can retire?”

In an upcoming blog we will go into detail about what investments we are making, how they function, and what other possibilities there are for investments.

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