What They Need to Hear

I was talking to a co-worker the other day who was worried about how her report would be received, since my particular group in the company gets to lead investigations into incidents that occur elsewhere in the company.  We basically get to stick our noses in, find out what went wrong and make recommendations on how to improve things for the company (but we don’t assign blame).  To sum it up, I said “Did you tell them what they needed to hear?  Remember we aren’t here to tell them what they want to hear.”  I hoped that helped, but in reality that phrase sums up a good part of my career.

I’ve never been an ass kisser at work, I just can’t be bothered.  That isn’t to say I’m not thoughtful or polite on how to bring up difficult subjects, but I will always tell people my truthful assessment of the situation.  I figure they pay me a lot of money to think on their issues, they very least they can to is hear the results.  So I know some people don’t particularly like me because I don’t tell them what they want to hear, but I do think the vast majority of people respect me for being honest.

So with that in mind, might I offer a point of advice to people.  The average saving rate in Canada is currently just under 4% and has been as high as 5% in the last few years.  If you continue to save at that rate, you will effective never retire without government help.  What?!?  Why because if you save only 5% of your pay it will take you 66 years to be fully financially independent with no government help (see here for a table of values).  So even if you started at 18, you could be financially independent at 84.  Yes, you are fucked.  Well let’s say, you are bucking the trend and putting away a nice 10% of your pay.  Sorry you still have to work for 51 years, so you will be ready to retire at 69.

The long story short on this, if you want a half decent retirement age (like about 60), you need to save at least 15% starting when you were 18.  That folks is the floor of the saving rate you should have, you shouldn’t go any lower.  Yes, I can hear the screams “But I can’t save that much?!?!?” Actually, you can, you are just choosing to do other things.  If you truly want off this treadmill of work, you need to start saving more immediately.

Of course, that assumed you started at 18.  If you are a 55 year old boomer with crap all saved (oh, and by the way those values don’t include any home equity as savings…so a paid house is required above that).  You are beyond fucked and up the creek without a paddle.  Do you feel that panic settling in, do you want to turn away and bury your head in the sand a bit more?  Good, then you are human, but perhaps let’s give you the good news.

There is of course an alternative.  You need to get your ass to the other end of that table of savings rate, because you can save 80% of your pay you can retire in just 5.5 years, so even if you are age 55 or 60, you can still save enough to have a basic level of comfort.  The trick here is you need to give up your currently lifestyle.  You can’t spend 95% of what you take home anymore, so prepare for some radical discomfort in the short term.  Downsize your home to something half the size NOW, stop buying anything beyond consumables (like food) NOW, sell that second car NOW….I assume you are getting the idea.

Now for your second piece of good news, all of this reduction of spending doesn’t have to impact your happiness much in the long run.  Pardon?!? Yes, I’m being honest here and you can go check out the research, but in fact only 10% of your happiness comes from your circumstances.  So it is entirely possible to be at least 90% as happy as you are now on a fraction of your current spending.

So that is your trade off 10% reduction in happiness to have a worry free retirement starting in just five years.  I know what I would pick, what about you?

7 thoughts on “What They Need to Hear”

  1. And for god’s sake, push to earn more money. I started saving at an accelerated rate back in 2001 earning $50k/year (gross). After less than 2 years, I’d accumulated around $28k or so. By 2003, my salary had only gone up to about $52k IIRC (chronic underearning issues here). Being frugal was not enough – I had to make that income number go up. By 2008 it had gone up by more than four times and has stayed about there (on an hourly basis). Go back to school and change occupations if it makes sense, search for the best paid occupations in your field and become one of those people, move where the high pay is, work OT if you really abhor change and won’t switch jobs (like my son), get that raise, become more valuable at work – you’re spending 8 hours a day there whether you’re a slacker or not and I’ve never seen an instance where some extra drive didn’t pay off.
    I really do believe most LBYM types focus WAY too much on the Living Below part and should focus more on the Means part. Which is odd… they’re willing to make themselves uncomfortable / challenge themselves with semi-ridiculous things like navy showers, never eating out with friends, no Christmas presents, etc etc. but won’t challenge themselves to earn more when the combination of higher means and even moderately increased expenses is incredibly powerful and so much more effective.
    I’m not sure why this is – I suspect that some/most people are more motivated by fear of loss (of the familiar) than the prospect of gain and there could be a sense that the income part is not within their control so they roll over and just passively take what they’re given. I think though that it’s primarily an introverted tendency to move towards contraction rather than expansion and to be too focused on detail vs the big picture. Well, and writing about frugal hacks is pretty easy. 🙂 Just my $.02 rant of the day on what more people need to hear. 😉
    Good post though – and true.

  2. This is great. I had a similar post, essentially to myself, yelling at my 20 year old self to save more. If anyone at 18, 19 or 20 reads it and this post. That is the key. Save more now.

  3. Yep, so true. My general advice is to “save as much as you possibly can without ruining your current life”. Of course people have different ideas of what they currently need, but that’s part of the exercise; to really analyze what you actually need, and need to spend, to be comfortable in the present. It doesn’t take that much.

    And yes, I wish I had thought more about a high income career when I was younger. I only started making in the $50,000 range when I was already 33 or so. Imagine if I’d been making that at 24, instead of $20,000-25,000.

  4. I have been saving since I was 5 years old. I knew that when there is a “window of opportunity” I should push my savings up to 100% when possible. I knew there would be years when savings would be 0% (i.e. buying first home). Currently, my savings is 75% of my net salary. Soon to be 0% when I build my next income producing house. My salary is not high. My first job paid $1.50/hour

  5. I completely agree with what Jacq said above…Just save, I have come to realize it’s that easy. Yes fear of loss and all that, but you don’t have to do it at a grand scale, just do what you can. I recommend reading a book I just read, The Joy of Skinny: Finances, it’s by 2 ladies with a nice practical approach to financial advice. Charla Aylsworth and Marcia Manchester. skinnylivingproject.com, it’s worth a look for those of us that need to see how everyday people do it!

  6. Yes, but this strategy opens up its own issues. When living day-to-day and not able to plan for freedom, one is completely unaware of a whole class of issues.

    Coming from my outlook of potential financial independence before turning 29, I’m extremely sensitive to the inevitable awareness of expansiveness of that freedom. It’s not bad, but it’s an aspect that will hit you in the face after making substantial progress on the content of this post.

  7. While I agree with the first poster that increasing your means can increase your ability to up your savings rates, I think getting your costs under control and learning to live within your means is an important first step. Otherwise, lifestyle inflation can creep in too easily.

    We’re a single income family living off about half of the one income. Currently we’re paying off our mortgage and plan to keep saving once it’s paid off. If we keep with this plan we’ll be financially independent in our mid forties too.

    If I go back to work, if DH gets a higher paying job or if we develop side businesses our timeline will get shorter. But, we’d only speeed things up if we thought it would make our family happier. We’ve actually considered DH taking a large pay cut if it would make him happier.

    To answer the authors question: I would never give up 10% of my happiness for any amount of money. Luckily, I get enjoyment from reducing my unneeded expenses and being creative to make a budget work!

    I think that even though some may not want to read through this article, it has important concepts for everyone to know.

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