If You Want To Be Bad, Follow A Good Spending Ratio

Bad Spending Leads To Financial Ruin - Follow A Good Spending Ratio

A good spending ratio will help you spend responsibly while enjoying your wealth more. For those of you who lack spending discipline, a good spending ratio is a must.

I have trouble spending money on things I don't need because I value the freedom money buys. After enjoying complete financial freedom since leaving workin 2012, I NEVER want to be forced to go back to work for money again. Once you have financial freedom shooting through your veins, you'll do anything to keep the high going!

At the same time, I struggle finding a proper balance between my earnings and my spending. To earn money is why we wake up at 5am, commute in painful rush hour traffic, tolerate micromanagers, work 80 hours a week, start a business, ignore our spouses, neglect our kids, and do all sorts of other selfish things. Thus, if we sacrifice so much, surely we are entitled to spend a portion of our earnings on things we don't need.

To overcome spending dysfunction, I've come up with a no-brainer ratio to help people spend responsibly. Let's just call it the Financial Samurai Responsible Spending ratio (FS:RS).

The Financial Samurai Responsible Spending Ratio

The FS:RS says that in order to spend $1 on something unnecessary, one must FIRST spend $2 on something beneficial. This is a good spending ratio that will always protect your finances.

For example, I want to spend up to $65,000 on my mid-life crisis car. My current vehicle is a $20,000 Honda Fit which I'm leasing for only $235/month. Because I'm turning 40 in 2017, it's important I get an impractical car to make sure I continue to feel like a man.

In order to spend $65,000 cash on a luxury automobile, I need to first spend $130,000 on something financially beneficial. Well what do you know? I did just that by paying down $130,000 of a mortgage so I could lock in 2.375% and save myself $1,014/month in cash flow!

If you're looking to refinance or get a new mortgage, I highly suggest you do so by checking the latest rates online. Rates are near all-time lows due to the coronavirus and investors seeking the safety of bonds. I recommend checking with Credible, my favorite online lending marketplace today.

Not only did I reduce debt and increase cash flow, I spent several hours producing two, 1,200+ word posts about my experience that may help increase traffic and online revenue as well. The posts should help other people who are struggling through the same mortgage refinance situation.

Use The FS:RS Ratio Along With Targets

If you want to really crush your spending guilt, then I suggest you not only follow a $2 good:$1 bad spending ratio, but also set yourself goals to achieve first before spending any money on big ticket items.

I was very close to buying my mid-life crisis car, but the seller stubbornly wouldn't accept my $60,000 offer after listing his car for $65,000 for one month, and then $63,500 for another two weeks.  He's now off to Asia for three weeks for business.

The day before he left, he did come back and say that I could “have” the car for $61,000, but I stuck to my guns because I wasn't 100% sure two other ongoing projects were complete: 1) finalization of my mortgage refinance; 2) locking in great tenants by depositing their deposit check.

When I gave my $60,000 car offer, my mortgage officer had said my mortgage refinance was complete and that I had nothing to worry about. But given the process took almost four months, I wasn't taking her word for it.

As for the tenants, I received a strong verbal indication of interest, but they had yet to sign the lease or give me a $4,000 deposit check. Of course, the day the Porsche seller goes to Korea is the day I not only see my new mortgage account details online, but I also get a signed lease and deposit check from the tenants.

Having A Target Keeps You Disciplined

I tried my hardest to waste $60,000 on a toy I didn't need. But alas, the spending gods continue to be against me. Or perhaps my marathon mortgage refinance and extended tenant search were blessings in disguise. With a modified black on black race car with black tint, I might be getting $500 speeding tickets left and right.

For those looking to sell things and aren't getting any offers, lower your price for goodness sake. Time destroys the value of unnecessary things, especially cars.

Don't be stubborn like the Porsche seller who originally got a $62,000 offer from me just prior to my trip to Europe which he rejected. If he decides to sell me the car when he returns from his trip next month, I'm going to offer $59,000 because I got one less month of ownership. Oh how I love to negotiate when I just don't care!

Proper Spending Ratios For Financial Freedom Seekers - A good spending ratio
This ratio is ONLY when you want to be bad. It is not a permanent spending ratio habit!

Keep Your Finances In Check

Having a financially responsible spending ratio works because no matter how irresponsible you get with your money, you'll probably always be fine because you did something twice as good.

Here are some other examples I can think of:

1) Sell $2,000 worth of clothing, shoes, electronics and other household clutter before paying $1,000 for the latest ultra high definition TV.

2) Pay down $10,000 of student loan debt before spending $5,000 on an international vacation.

3) Buy your parents a $500 gift before purchasing those stretchy designer jeans.

4) Fund $15,000 of your child's college savings plan before buying a Rolex Milgauss.

5) Pay down $1,000 in mortgage principal before paying $500 for concert tickets.

6) Contribute $2,500 to your digital wealth manager before spending $1,250 on a Louis Vuitton handbag.

It's important to spend the good $2 first before spending the bad $1. After spending responsibly, you'll probably think more carefully before wasting any money.

Millions of people are itching to spend more money once we achieve herd immunity. We've been locked down for a year and our savings have gone way up. If you do decide to splurge on a revenge spend, you'll feel good knowing you had a prior moment of responsible spending.

Invest In Real Estate

One of my favorite good types of spending is to invest in real estate. However, in the past, it was hard to just buy a rental property or single family home due to the down payment retirement. Now, you can invest as little as $500 in real estate through real estate crowdfunding.

Take a look at Fundrise, one of the largest real estate crowdsourcing companies today. Fundrise is the pioneer in private eREITs to give you real estate exposure and earn you 100% passive income.

Real estate is a key component of a diversified portfolio. Real estate crowdsourcing allows you to be more flexible in your real estate investments by investing beyond just where you live for the best returns possible. For example, cap rates are around 3% in San Francisco and New York City, but over 10% in the Midwest if you're looking for strictly investing income returns.

Sign up and take a look at what Fundrise has to offer. It's free to look.

Fundrise Due Diligence Funnel
Less than 5% of the real estate deals shown gets through the Fundrise funnel

Stay On Top Of Your Money 

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About The Author

67 thoughts on “If You Want To Be Bad, Follow A Good Spending Ratio”

  1. Love the examples list at the end of your post. I just reviewed my 2016 budget and how things went this year. I saved $15,000 in my eldest son’s college fund (he is 3 years old). Therefore, I guess this means I can go buy a Rolex now (HAHA!)

    I have been searching your blogs to see if you have an article on saving for kid’s college fund and your thoughts on that. I can’t find a blog post but hope that you will write one soon.

    My spouse and I are already fully funding our 401k’s maxing out at $18k each, in addition we contribute to additional investment accounts – approximately $10k annually.
    Next year, our parents are moving back to Hawaii… they’ve decided they’re too old for babysitting! So next year (just a matter of 4 weeks) we will have the biggest expense in our lives… Child care at $25k annually.

    What are your thoughts about prioritizing college savings in the grand scheme of things? Obviously we have to cut back our college savings since we’ve got to pay for child care. We have 529 plans for both kids and we don’t expect to pay for a full ride for them – but we at least want to fully fund half of it.

    We’re older parents so we also have to keep retirement savings on the forefront. I’ve been searching for articles or blogs about financial recommendations on how to budget/save when you’re a pair of older parents (mid 40’s) making good money but trying to properly plan for your kid’s futures. BTW my spouse is 50…. and our youngest is 1.

  2. commoncentsmike

    Really liked this article! Thank you for advocating to take care of the important things first when it comes to personal finances. Way too many people come from the opposite approach, and this is coming from someone who works at a financial institution.

  3. I love this! I think it’s important to have small rewards here and there, but only when done reasonably. We’re still trying to figure out when it’s appropriate to have a little fun with our money, since we still have debt to pay off. But I think it’s easy to fall off the wagon if you don’t allow for a few fun things every now and then.

  4. I like this ratio a lot, and I think it’s helpful when considering major infrequent splurges like your midlife crisis car or the purchase of a vacation home. But for smaller, frequent indulgences it would be too hard to track – and too easy to justify ongoing luxury spending by pointing to random “good” financial moves like paying down a mortgage or contributing to a 401k.

    I make my FS:SR ratio automatic each month by putting 50% of my gross income toward financial goals (investing, debt repayment). My basic living expenses hover around 25% of my gross income (insurance, utilities, groceries, and the like), so if (I mean when…) I blow the other 25% on dining out, vacations, golf, and massages I don’t have to analyze it. I’m already following the 2:1 ratio – automatically!

    Now if I DID want to splurge on something major by shifting cash or investments to cars or jewelry, I can’t really justify that on a 2:1 FS:SR with my monthly budget. I’d have to get a special bonus or windfall and use only a third of it on the special splurge. Otherwise I’d be fooling myself when I claim to save 50% of my income, meaning my treasured ongoing splurges would be out of line.

    Thanks for this post! Lots of good thoughts being provoked. :)

  5. Throwing away $60,000 on a luxury vehicle is not the Sam I grew to admire. What in good heavens name has gotten into you? Put the checkbook down Sam and walk away. For goodness sake, put the checkbook down before you hurt someone. Midlife crisis indeed. Lol

  6. earning paper

    I’ll try the 2:1 when I’m looking to make purchases exceeding my norm and once I have a safety net to fall back on. For now about 12% of my Net goes to fun/entertainment, I haven’t strayed from that since I’ve started budgeting. I’m looking forward to the day of a 6 month safety fund!

  7. I don’t use a spending ratio, but whenever I buy a luxury item or go on a big vacation, I add up the expenses on a spreadsheet, and then force myself to spend below my monthly budget until I cancel out the additional spending. It does suck trying to save an extra few hundred a month, but the peace of mind is worth it in the end.

  8. Financial Slacker

    I never really thought about using this approach – spend 2x on something good before spending 1x on something not good. I guess it creates something of a roadblock that requires you to stop and think, “do I really need this?”

    I approach more along the lines of reallocation of current spending. What can I give up to cover the cost of the new purchase? Or, how can I generate additional income to pay for the new item? Essentially, zero sum budgeting.

  9. I had never consciously used a spending ratio before, but I really like the idea.While I’m still in debt, I think I should go with a 3:1 or 4:1 ratio. I want to kill the debt, but to still enjoy life & my girlfriend would suffer too much if I could never go out to eat. Moderation will keep the love coming.

  10. Dude, I think you really need to just buy the car. You’ve created the 10% income rule, the 5% net worth rule, and now the spending ratio to justify it. You’re even buying a pre-owned car and proved your frugalness with the Honda Fit for the year or two. It’s time. Enjoy! =D

    1. I tried man. He rejected my $60,000 all cash offer and wanted $61K! When he returns end of the month and asks again, I’ll see if he will accept $59,000. Not my fault he believes cars go up in value over time even though nobody has bit for the past two months on CL! :)

  11. Sam,

    I love this idea. I’m going to be buying a new phone soon and will use this method to do so. The phone will cost me 300 so if i invest 600 into my Amazon business than I’ll get the phone guilt free.

  12. I like your 2:1 philosophy. However, I like my invest to enjoy philosophy even better.

    I pay for things with investment returns. For example: I need to replace my car. I’m frugal and think a $22,000 vehicle will be just fine. I have $22,000 to pay for and own it if I wish. However, I am able to invest $22,000 in a Real Estate Investment Club to which I belong and get a Simple Interest 10% annual ROI. The monthly pay out is ($2,200/12) $183.33. That investment will make the payments on an Amortized 3.4% car loan and then continue once the loan is retired. I can sell my Real Estate Investment to another of the 180 club members anytime. Sell opportunities happen several times a week. So, it’s pretty ‘liquid’. I could pull it out and reinvest it if something better comes along.

    I don’t like the Amortized type of car loan, or any loan for that matter. I really like the facts that my money is not tied up, the return buys me a car and then continues till I say stop.

    Invest to get a good Return On Investment for each specific project on your goal list! I wish I had started doing this when I was 21!

    1. Sounds like a good plan. What do you do if your investment returns each year is much greater, like $200,000 for example and you don’t live off a single dollar of it? How do you decide then?

  13. Hey Sam,

    True enough! I personally believe in 5:1 ratio, though it’s not always practically possible for me to sustain that position. 2:1 ratio is rather more reasonable for me.

    I have sold my 6-month-old Xbox one and titles worth $500.99 for $325 and invested the money in buying a new PS4. I also tend to invest on clothes, but don’t have too much affection for food. I guess you’ve pointed out what I must do to control my urges towards bad spending, thanks a lot.

    1. Nice job Patricia! Up early? :)

      Perhaps try to shift the proceeds of sale of something non-beneficial into something more beneficial? e.g. use the $325 to pay down debt or build your emergency fund. Otherwise, we’re kind of just shifting money around.

      1. Hey Sam,

        Thanks a lot for your reply…yeah, didn’t sleep that night at all, had a party :P

        Of course, I’ll keep your words in mind. I’ve already started building my emergency fund in a big cookie jar :D. I have also saved $125 by selling a couple of old high heels at a garage sale yesterday which I’m gonna put in my fund too.

  14. I recently found your website and i love it! I saw so much similarities about the way i see things with money.

    Your FS:RS Ratio, is a great mindset to have. I’m a music producer and i can tell you that these type of mindset are the way to go if you don’t want to be broke quickly.

    In the music industry, you don’t have salary, but income based on royalties (about 4 payments per year), it’s very rare to earn same amount of money each year.
    Most of people in life use their annual salary as benchmark of their everyday spending habits.
    But if you earn $150k royalties during a year? How would you based your quality of life, knowing you can earn $70k the year after and $30k$ the year after ($250k for 3 years, average of $80k per year).

    I had hard time the first years (earning like $30k per year) where you just survive, and can’t do crazy thing.
    But once i started having music success and having bigger royalty checks, i started using my own way of visualizing the amounts.
    I was keeping approximately 1 to 2%, and investing 98% of it.
    Then my income (and my standard of living) was based on the interest of the 98% invested.

    When you receive $1million, you can go crazy and say “alright i’m rich and i’m gonna earn more next year” so you travel business, you pay restaurant for your friend, fancy clothes, bigger apartment etc..
    But when your $1million invested become $4000 of monthly interest, you move from high income to middle class income (no more business class, fancy clothes etc…)

    My spending will always move accordingly to my monthly interest.
    Even if i earned millions, i still can’t live like a millionaire. (unless i have 8 figures investments, which is not the case)

    I believe in the power of standard, and never going down standard wise.
    Nobody will complain or will be sad about flying economy, unless you started having business/1st class habits. And it work with everything else.

    Every time my standard grow (travel, house etc..) i always make sure that i will be able to keep the same standard even if my income completely stop.

    Sorry for my bad “french” english, i’m sure there is plenty of spelling mistake here :)

    1. Thanks for sharing your insights into how musicians get paid! The volatility in earnings must make it a little more difficult to budget and invest. It’s the same way for entrepreneurs. We eat what we kill, and fluctuations in online revenue can swing 20% month on month and easily 50% year over year as well!

      I like how you invest 98% of your money and try to live off it. That’s smart. Keep building that financial nut so it will grow so large one day where the stress of money just disappears. You end up just doing what you love, and that is a beautiful life!

  15. Elliot @ Our Growing Wealth

    Great idea! I had never thought about this, although I’m hoping I do it subconsciously already, but I’ve never given it the kind of thinking that I’m going to now I’ve read this. Maybe it’ll be my way of justifying getting myself some kind of sporty and impractical car too! (Major petrolhead over here, which probably isn’t great when it comes to personal finances, always having to resist the urge to splurge!) Hope the negotiations go your way and you get yourself that Porsche!

  16. I love this concept! You have so many great ways to approach personal finance and financial independence Sam! I definitely have months where I barely spend anything. I’m trying to do a little bit of spending this summer but on practical things. I sold $250 worth of stuff on Craigslist last month so I suppose I can spend $100-125 without feeling that guilty. :)

    I am patiently waiting to splurge on a new laptop this fall when the new MBPs come out. So I’ll continue to pay down some extra mortgage principal before that day comes. I’m excited!

  17. comfortable with life

    Many years ago a I heard ” a dollar per use” and it is this strategy I have taught my children and saved hours of negotiation. It separates needs from wants and works most of this time. For intangibles we define the ‘use’ as memories and still abide by the rule.

  18. nicoleandmaggie

    I think I consider more about our overall wealth than just our income when deciding on discretionary purchases. I definitely don’t connect our savings decisions, most of which are automatic or made 1x/year, to our discretionary purchases. If anything, when we put more (as a %, not in absolute terms) away in long-term investing, we spend less on frivolities, not more.

  19. I don’t see how this makes sense, for me at least. Every dollar I make already has a job. If I decide to pay down my mortgage by $1000, that is $1000 I have less in savings. If that was a ‘Good’ move then I was just sub-optimal before and should have done that already. But I guess this advice is for people whose discretionary spending is determined by how much is in their bank accounts at the time?

    Perhaps I could start a side-hustle I guess to validate against a bad purchase though.

  20. Great way to think about it. Right now we’re probably 1:1.5, with my wife spending probably $10 bad for every good $1 and I’m probably $3-4 good to $1 bad. Since I’d like to retire in the next 15 years, need to get that ratio better.

    1. Rob – You are a good, strong man to allow your wife to spend at a $1 Good : $10 Bad ratio! I think I might purposefully quit a well paying job to be a tennis bum in the park all day to put some spending responsibility fear in my spouse’s heart!

  21. How would you quantify donations, if at all? For example, if I donate 2X amount of clothes, does that ‘justify’ buying 1X of new clothes? Or do I need to try and sell my old clothes (note I’m too lazy for this, I prefer to just donate them)?

    1. Donations = GOOD! But use the donation value for the figure. Hence, whatever you are donating is probably going to be valued at 25 cents or less on the dollar, which means you will have to donate 8X or greater amount of clothes to spend on new ones!

  22. Kate @ TaxOptimizedInvestment

    To be honest, I don’t have a budget. But I cut all unnecessary expenses in my life. For example, I haven’t gone clothes shopping for over two years. I only spend when it is absolutely necessary, such as on groceries or trips to Asia to visit my family. That did help me save more than 80% of my pretax income, which in turn helped me achieve a six-digit growth in my net worth every year. Right now I am trying to learn how to balance being frugal and “live a little.”

  23. I think a lot of folks could struggle with this because they rationalize non-productive/essential spending as normal “cost of living.” Maybe they view the $150-200 (or more) a month on new clothes or shoes or whatever as a non-negotiable part of their monthly budget when they could most certainly do without. Determining the threshold for what qualifies as productive spending is key to making this framework successful and like any part of saving, it comes down to willpower and honesty with yourself. However, as with all of your ratios and financial guidelines, this can only be helpful to at least make people think about the money that is leaving their bank accounts and where it is going. Great job once again.

    1. Thanks Kendall. I have a default assumption that people already have a budget and are responsible with their spending. The FS:RS ratio is for larger ticket one off items.

      Maybe I am naive to assume most people already track their money carefully to build wealth and one day have enough to have more options. But I believe in rational thinking!

  24. I have never focused on how much I spent. I solely focus on my savings and net worth increase. As long as you continue to grow your net worth each month, then if you need to spend a little to keep the motivation going, there is nothing wrong with that.

    Bad spending only becomes an issue if it impacts your net worth. For me, this has meant working an enormous amount on my side hustle the last 18 months, so that I can take 6 months round the world vacation, and remain net worth neutral during that time.

  25. Two steps forward, one step back. :)

    I’m not sure what my ratio is, but I’d bet is more like 3:1. Not because I’m Mr. Frugal or some financial bada** – it’s out of necessity. 1 income + 6 people = high good spending ratio.

  26. Brian Robben

    This rule is great. And without any data, just based on your audience, I assume that the majority of FS readers will have a hard time being “bad” since they’ve trained their brain to save as much as possible and spend as little. A good problem to have for sure, especially compared to opening your wallet every way the wind blows.

  27. Fiscally Free

    I appreciate the intent of your spending ratio, but I think Average Joe would quickly use this to justify a lot of excessive spending.

    Maybe I’m strange, but I typically use common sense to tell me what I should spend money on, and it almost never includes luxury goods, even if I’ve just spent twice as much money on “good things.”
    Following a budget is another way to keep “bad spending” in check, but I know that’s tough for a lot of people.

    1. Common sense doesn’t work for many people over the long run because it doesn’t have specific goals and action points.

      It’s common sense to get straight As and be the captain of a varsity sport or extracurricular activity in HS, but how many kids work that hard?

      It’s common sense to save and invest as much as possible b/c there are no guarantees anybody will save you when you’re old. But why are retirement balances are so low?

      It’s common sense to be nice to colleagues and bosses, come in one hour before everyone and stay an hour after everyone to get paid and promoted. But how many people do this?

      The FS:RS framework helps people who want to splurge on something take action on doing something twice as good before spending on anything. Simple, effective, solution!

  28. As a hesitant spender, I like the idea of using this rule to make me feel better about a splurge. You can almost look at the cost of the item at 3x the price because you have to do something good worth twice the potential price.

  29. This is interesting. I have no idea what our ratio is, but I’m pretty sure it is less than 2:1. The only big frivolous purchases we spend on is vacation and it’s not really a bad purchase. I got some new clothes a while ago. Our normal cost of living is pretty high so I guess our ratio is around 5:1.

  30. Mr. Tako @ Mr. Tako Escapes

    What a clever way to think about spending! We all waste money on stupid stuff…but keeping that waste under control is key. This sounds like a great way to do that!

  31. It seems like a $2:$1 spending ratio is just allowing yourself to waste money in a more responsible way – why would you waste money? That’s not the FS way!

    Wouldn’t a better theory be that you can’t spend money on stuff you don’t need unless you’ll remember spending it one year from now?

    If it’s important enough to you that you’re going to remember it a year from now (like this car), then okay sure! Live a little and enjoy your wealth.

    If you’re not going to remember it one year, I’d say don’t spend the money.

    1. I’m not Sam, but it seems to me that his motivation for creating this ratio is to allow himself to live a little, i.e. overcome his natural monk-like inclinations.

      Though his article doesn’t heavily emphasize this, Sam also mentioned that the “good spending” would likely make you think twice before committing the act of “bad spending.” So, I can see where you are coming from in stating that this is a mechanism to facilitate bad spending; yet on the flip side, it is equally a mechanism to prevent bad spending.

      A merger of your ideas (2:1 ratio and the one year rule) could be very effective for most consumers, IMHO.

    2. There will come a point in everyone’s lives where their expensive law school debt is paid off, they’ve been as disciplined as possible with their finances for a while, they reach the middle of their life, and they realize they will have more than they need for a very long time. Yet spending becomes a problem because saving and investing is all they’ve ever known. Creating a spending framework helps overcome these problems.

      And at the same time, there are folks who don’t care about freedom now, who therefore spend like there’s no tomorrow. But there’s usually a tomorrow, and then there is regret for not being more financially disciplined while young. I’ve seen this play out hundreds of times.

      The solution? This post to address both sides.

  32. I’m probably closer to Monk status. My favorite meal while traveling Europe was $0.50 cucumbers with $0.50 rice cakes. People call me weird and they are definitely correct haha. Th 2:1 rule seems great for the normal person though

      1. thin guy here, the secret is 90% of the time, i really only eat because i know i have to- not because i want to. it makes it easier to eat healthy when you don’t really even want to eat in the first place…

        soylent FTW

  33. Stefan - The Millennial Budget

    Your chart stated my thoughts throughout the article. There are many different ratios that people will fall under. Some are very extreme (like the monks) while others are perfectly reasonable (1:2 and 2:1). Unfortunately I think most people are stuck in the 1:2 ratio, or even more, due to consumerism and lack of financial knowledge.

    I just got an additional scholarship for my MBA and that refund (I already paid for the semester fully) went 80% into investing/saving and 20% into my “fun” account as I do not have any student loans. Luckily I only paid 2.6k for my entire MBA thanks to scholarships and a graduate assistant job.

  34. I love this ratio, Sam! Although I tend to overspend on food (restaurants, expensive groceries, etc.), I don’t buy a lot of physical things. Instead, I’ve tried to spend on things that help generate income. Right now, that’s mostly my blog and online business. Tools that save me time have been huge!

  35. Tech Services Consultant

    This is basically a variation on the well known %-of-income-invested metric which allows you to calculate years to FIRE assuming a 4% SWR and investing in VTSAX.

    I could do 5:1 (which is the same as investing 83% of income) if I spend no more than $14,000 this year. I could have done that, except that leaves little room for treating myself, that’s paying the mortgage, bills, groceries, gasoline, insurance, and not much else. I decided to treat myself this year by investing 75%, and spending $22,000. That’s still a 3:1 ratio and will allow me to FIRE before 40, perhaps at 35 which is only 10 years from now.

    Once I finish buying these items I want, the spending level will drop back down to 14k. I’m buying things such as a treadmill desk which will last for years, I’m not spending on silly things like eating at restaurants.

    1. Some good points. May I suggest reducing your Safe Withdrawal Rate closer to 2% in order to not touch principal?

      I think you’ll find that after 15-20 years of being a disciplined saver, it will REALLY pain you to start withdrawing an amount that will cut into principal. I’ve spoken to many early retirees and have observed my own actions, and once you retire, you will STILL want to build your financial nut further.

  36. I don’t know if I’ve ever thought of it this way before. I think on a purchase-to-purchase scale it would be a bit difficult to implement, especially if you don’t use a budget.

    However, I DO use a budget (YNAB specifically), and it’d be easy enough to adjust my spending allocations in that program. Yay for budgeting!

  37. Sam, I like your approach and appreciate your humor even more! I have a similar strategy. Whenever we receive any “extra” lump sum money, i.e. bonus, tax refund or disbursements from my wife’s business, we divide it into thirds. One third goes to pay down the mortgage, one third goes to the college funds (two kids) and one third goes into our spending account for fun stuff.

    It works well for us and keeps us honest with a nice good/bad spending ratio balance!

    1. That’s a great balanced approach! And very responsible too.

      The FS:RS is meant for extraneous one off purchases of things one doesn’t need b/c I expect everyone to already have a very disciplined budget of their own like yourself.

  38. Matt @ Distilled Dollar

    Excellent analysis. I liked how you told the 10:1 ratio to spend a little.

    My ratio now is 3:1, since we mostly spend on things we need. Depending on the view, we might even be higher at 4:1 now.

    A few years ago I was closer to 2:1 because I did take international trips that cost me multiple grand. If I could do it again, I would, but I did save diligently in other areas of my life so that I could maintain a good ratio before and after the trips.

  39. The Green Swan

    This is great! If anything it forces you to think before you buy, which many people don’t do and can get in trouble with. Simple purchases still need to be thought through beforehand… otherwise they can spiral out of control.

    The Green Swan

  40. I can’t see why this wouldn’t work. The problem most people have is that they spend lavishly first, then try to save something after the fact. It’s better to take the opposite approach – save, save, save and then spend. It sounds like you have it figured out to me!

  41. Apathy Ends

    We have just been spending “less” but I like the idea of putting an actual ratio into play.

    2:1 is a good ratio for extra purchases, it would really keep you away from making a large purchase as you would need to save 3x the purchase price and that would take the average person awhile.

  42. That’s interesting to consider. Even though we are FI, as natural “non-spenders” the 2:1 ratio would be hard to wrap our heads around. We’d be more likely to be at the 5:1 ratio I think. Maybe as we embrace our new found freedom, we can move in that direction though! I think more of the spend will be on travel and experiences though!

    1. +1

      We budget by ratios also, more along the Millionaire Mind approach : long term savings, financial freedom, charity, and fun. But our fun is only 5%.

      Rationalizing a large pointless purchase is a nice problem to have, but it doesn’t change it from being a large pointless purchase. Given your recent post on your team estate performance, I’d expect you to want to put the $60k there. You must really really want this car!

      At lteast you can write it off as a business expense!

      1. Yes, writing a car off as a business expense is a wonderful perk. And if you have two cars, and use one solely for business, then you can write off pretty much 100% of the business one. And if not, just the percentage use of the car for business.

        Right now I’m struggling with desire versus simplicity. Two cars means two sets of keys, two parking spots, two insurance payments, two maintenance schedules, etc. What a PITA. I think the best solution is to probably just have one very fun car and take Uber Pool to get around the city for cheap.

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