Man, with all the posts I’ve been doing lately about money this is starting to look like one of those personal finance blogs. That’s okay though, because money is definitely an important aspect of personal development and life in general.
The purpose of this trial is to increase my savings rate while decreasing how much I spend. So, what is a savings rate? Well, let’s assume you make $1000 a month to make it easy. If you’re like most people, you spend that entire amount (and then some) without saving any of it back. If you save even 10% of that $1000, then you’re considered highly responsible.
This is what most people end up doing. They save back a very small amount of their income for the purposes of retirement throughout the course of their career. Typically this rate is 10-15%, and assuming you work roughly 40 years, you will have enough to live on in retirement. The problem is that I, and many people like me, have no intention of working that many years. Even 20 years is asking a lot. It’s a values thing. If you value luxuries like a big house and a bunch of stuff, but it makes sense to work a long time for them. But if you value freedom and time, then making some sacrifices upfront so you can choose how to spend your time for the rest of your life sounds like a pretty good deal. And that’s what this trial is all about.
The reason I’m only doing it for 14 days is that I thought it would be easier to start with a simple 2-week commitment right when I got paid. While I could go for a month, I don’t want to just yet because I’m going so extreme with this trial. It seems like a much better idea to try it out for just a couple weeks of first and see how it suits me.
Did I mention I’m going extreme? Like I said, consumer culture would have you spend about 90% of your income while saving 10%. What I’m looking to do here is to nearly reverse those two numbers, that is, a 80-90% savings rate and a 10-20% spending rate. And if that’s going to happen then I need to limit my spending much more than I already do.
Changing how I handle money
I’m actually not much of a spender. I don’t buy many new things, and when I do, it’s usually because they are immediately useful for me, like the pair of gloves I bought last month so my hands wouldn’t freeze when I deliver mail. I don’t collect anything (except for maybe books, which I need to sell actually) and I don’t buy anything just for the sake of having it.
While this is all good, one thing I have been known to do is to waste lots of money on eating out. Going out and getting food, whether it be fast food or dining in at a restaurant, has been a form of entertainment for me for quite some time. I can remember a few years ago when I had a nice summer job, I ate out every single day I worked. If I had to estimate how much that cost me, it was well over $500 just for those three months. What a waste of money!
I’ve cut back my spending in that regard lately to a maximum of $200 a month, but that’s still a lot of money, especially with the kind of lifestyle I’m trying to create (more on that in an upcoming article). So rather than trying to tone down the spending to a smaller amount, I’m going cold turkey. I decided that for this two-week trial, and probably for a long time thereafter, I’m going to cut spending to a bare minimum.
What this really means for me right now is I won’t be eating out anymore. I didn’t spend money on much else before in terms of non-necessities, so while this isn’t a HUGE sacrifice, it will require some discipline. It will also have the side benefit of making me consciously create a cheap form of entertainment that doesn’t involve unhealthy food and spending money.
Spending less means saving more
This also means a lot for my savings rate. Like I said, the, convention at least here in America is to save approximately 10 to 15% of your money for retirement. While this works for some people, I’d rather not work 40 years and retire when I’m 60+. If you can switch those two rates (yes, it is possible.. more on that later) and save 85-90%, and spend only ~10%, then you’re looking at retirement, at least in the sense that you could quit your job and live off the interest you have in savings and investments at any point, in about 5-10 years.
I don’t want to get too far off topic though, as I’m going to go into early retirement in an upcoming post. If you’ve been following my Twitter then you already know I’m talking about. Still though, let’s do some math just for fun.
Right now, I’m living with my parents. My necessary bills consist of gas money and car insurance. That’s about $130 a month total. I’m also going to give $50 a month to a friend I’m staying with part-time, as I don’t think it’s all that fair to eat her food for free. I quit the gym a few days ago in favor of running, so my only other bill is hosting for this website, but luckily the site has paid for itself for the past six months or so and then some. Therefore, my bills cost a grand total of $180 a month.
Even after I move out I’ll still be under $400 a month, plus my income should be much higher by then. Read my article about avoiding a mortgage if that figure made your brain explode.
If I can get a piddly part-time, minimum wage job to supplement my income, I could easily earn enough per month to save back well over $15000 a year. It simply requires that I don’t waste money on junk I don’t need.
Now, almost everyone spends more than they have to, especially if you live in a consumer-based culture like the United States. The real question and purpose behind this trial is to find out if I can lead a satisfying, happy life without doing that.
Can I substitute free hobbies in place of expensive hobbies and enjoy them just as much? Can I choose to eat at home instead of going out and have just as much fun? Can I be perfectly happy without a bunch of “stuff”?
I’m guessing the answers to these questions are all “yes”, but I’ll know for sure at the end of the trial.
Oh, and I’ll soon be covering why on earth I’d want to save a whopping 80%+ of my income as well as how I’m going to retire by age ~30 while still making less than most people.
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