This is a guest post by Robert, who lives in Calgary and works as a financial adviser. He is married, has three kids and plans to retire at age 35. Robert and his wife then plan to return to school and become teachers, eventually living and working overseas.
I was flipping through a back issue of MoneySense magazine at the library. It was interesting, because it presented a viewpoint so different from this blog. It presented stories of people who were more or less successful in saving for their retirement. It seems like for so many people, saving is a huge sacrifice. Even the editorial weighed in, suggesting that there’s an optimal saving amount. Saving too little would lead to hardship in retirement, having to scale back from the lifestyle the person was used to. I can agree with this. Saving too much was presented as unhealthy, unnecessarily penalizing the current self for the benefit of the future self. “Save just enough to be able to maintain your lifestyle at age 65 when you give up full-time work,” seemed to be the message.
The funny thing, to me at least, is the idea that a person should spend all of their income, except the amount that’s needed for debt repayment and savings. I guess for most people, this is no trouble. In fact, if it weren’t for mandatory debt repayment, such as mortgage payments, most people would probably spend it all. But I started with a very modest salary and, as I earned more, I only allowed my month-to-month spending to increase by relatively small increments. I put all the rest of the money toward debt repayment and savings. It seems that isn’t normal.
According to one of the MoneySense articles, it may not be healthy either. They shared the story of a couple who had managed to accumulate $2 million, but wouldn’t allow themselves to spend on a cup of Tim Hortons coffee. My first response was that they probably bought the expensive stuff and brewed it themselves, but it turns out they went into counseling for their “problem.” I don’t think that citing an extreme example proves the point, but I have advised people to try and find a balance so they won’t have much more to spend now compared to later, or much more to spend later compared to now.
Did I deprive my current self in contrast to my future self? I don’t feel that I did, because my purpose was clear. I spent far less than I was able, but I owe nothing on my house and my lifestyle is sustainable, whether I’m working or not. What’s more important to me and my family is that we’re not sacrificing. We’re spending more than when I first started working (about 50% more). And I doubt that we’re spending much less than most people our age. We have everything we need, and on top of that, I have the time and energy to spend with my kids while they still appreciate it.
Over-saving is better than overspending. But the optimal amount of saving depends on your goals. If you plan to work until 65, you may as well spend everything besides debt repayment and savings. But if you want to retire earlier, saving well over 10% of your income will be very helpful.
After saving large amounts, is it hard to bring yourself to spend? Would you consider that a problem?