We already know the main reasons why people go into debt are due to greed, stupidity, entitlement, desperation, and insecurity. The debt article offers five solutions on how to eventually become debt free. Based on a recent social experiment on Financial Samurai I’ve managed to figure out how to make you severely curb your spending to the point of absolute monk-like frugality. Before I show you how, let’s get a snapshot of the overall US personal savings rate to put things into perspective.
As you can see by the chart above the US personal savings rate is roughly 6%. At a savings rate of 6%, it will take someone 20 years to save up enough money to replicate one year’s worth of income. That’s pretty pathetic. At least the 6% is an improvement from the 2.5% figure seen between 2005-2007!
It took a colossal financial meltdown to scare Americans into tripling their savings rate for several years. Now it’s back to spending all we have thanks to the bull market.
It’s my hope that every single reader saves at least 20% of their after tax income every month by maxing out their 401(k)s and IRAs where available. If there’s still disposable income left over after general living expenses, save even more in laddered CDs or open an investment account at Betterment, where they automatically build a low cost, risk-appropriate portfolio for you.
My mission is to get people to build their savings muscle as large as possible so they don’t look back 20 years from now and kick themselves in the face for being so undisciplined. You may have all the enthusiasm in the world for your job after graduation. But trust me when I say your enthusiasm will fade after 10 consecutive years of work. Now it’s time to demonstrate how you can join me in saving a ton of money with this one strategy.
HOW FINANCIAL SAMURAI SAVED ME OVER $100,000 IN A DAY
In a post entitled, “The Cure For Financial Hoarding” I listed out several items that I’ve been thinking of buying but can’t get myself to pull the trigger because I suffer from saving for retirement while in retirement disease.
The Want List:
* A Range Rover Sport = $83,000 after tax.
* A Panerai Submersible watch = $13,500 after tax.
* A pair of Prada shades = $270 after tax.
* A new Macbook Pro 13″ with retina display = $1,560 after tax.
* More vacation spending = $10,000 extra a year.
I thought by being open about some of the things I’d like to buy, the community would give me permission to go ahead and splurge. My current car is 13 years old with lots of electrical and mechanical problems. My laptop is from 2007 and I’m on it for 2-4 hours a day as a blogger. I’m very much into diving now and haven’t bought a luxury watch in five years. Meanwhile, I just need a new pair of shades in sunny California since my $15 cheap ones are falling apart.
But instead of receiving the green light I was hoping for, I got one big stop sign!
Take a look at some of the comments:
“I understand what you are saying about enjoying your life but Frugality isn’t a disease. Yes, I save money for financial security. But a frugal life also comes from a place of morality. Using fewer of the planets resources, finding happiness in yourself and other people instead of in material things, maintaining humility and empathy in face of desperate poverty throughout the world, etc. No matter how “hard” I work, I’ll never feel like I deserved my wealth more than anyone else struggling through our laps around the sun. Profligate spending like $10,000 for a watch will always seem extremely wasteful to me.”
“Spend your money on a off-grid Hawaii house with a killer media room if that’s your thing. Start an emu ranch or a non-profit of your choosing. Live a life that your time and money afford, not a life of buying silly status symbols. Cruises are a great example of how to spend tons of time and money without looking outside the middle-class world as almost everyone blows money on cruises.”
“My suggestion is be honest about what you’re buying with a $12,000 watch that “will last forever”. Sure, it’ll last a long time, but you’ll want to replace it before then… These are status symbols. I have no judgement there, it’s just the truth. We people like to justify these purchases with technical excellence (7,500′ water resistant!), but that’s what the marketing folks have taught us to do. A great book on the subject is called “Spent” and changed my view of items for life.”
“I tried not to sound judgmental, but it’s tough not to come across that way with a topic like this involving watches that cost more than a year of minimum wage income!”
“When I have the feeling that I’m not splurging on myself enough, I usually ask myself what I want, then compare that to alternatives. The alternatives are usually a) save this money for my future family or b) donate this money to a good cause. When you look out how many people out there are living with less, the idea of buying $300 sunglasses seems a little silly.”
“A $12,000 watch? I’m rethinking this. Why would anyone want a $12,000.00 watch? Why not something cooler and more meaningful? You will gain more pleasure from experiences over stuff! When you are on your deathbed, would you really care about a watch?”
“But Frugality isn’t a disease. Yes, I save money for financial security. But a frugal life also comes from a place of morality. Using fewer of the planets resources, finding happiness in yourself and other people instead of in material things, maintaining humility and empathy in face of desperate poverty throughout the world, etc. No matter how “hard” I work, I’ll never feel like I deserved my wealth more than anyone else struggling through our laps around the sun. Profligate spending like $10,000 for a watch will always seem extremely wasteful to me.”
“Your examples are foreign because I see no added value to expensive shades or new BMW over used Ford? Interesting that your examples put you in top 1- 5% AFTER retirement. Rare circumstances I’d guess.”
ANALYSIS OF COMMENTS
I love these comments! Every comment makes a judgement as to why buying anything on the list is a waste of money. Making price comparisons of the items to yearly salaries, poverty, status symbols, morality, and charity is thrown in to make me feel guilty for ever spending money on something I want. Shame me good baby!
Not one comment used objective mathematics to calculate affordability. For example, nobody broke down the actual annual cost of ownership of a Range Rover if resold in five years compared to an income to get a better picture of cost. I decided to write a whole 1,500 word post on how you can deduct a SUV as a business expense to highlight a potential 30% savings off sticker, but the feedback was still mostly of disapproval.
Despite still saving 50% of my after tax income in retirement, a rate that is 10X the national average, I’m still being judged for being wasteful and amoral. I presume my critiques must at least also save at least 50% of their income, otherwise wouldn’t that make them hypocrites? There is an infinite amount of comparisons I can point to where your spending is considered amoral and wasteful compared to another as well, but I don’t.
So it got me to thinking several questions:
* Can we not help but judge people for their financial choices even if we don’t know the full extend of their finances?
* Will we always think that our way is better than others?
* Why are people so judgmental?
* Shouldn’t we all buy generic?
* Why are people so quick to come to conclusions about others?
* Is there some kind of frugality competition where whoever can live like a pauper the best, wins?
* Should we all be ascetic monks? If so, why aren’t there more monks?
* If you are so righteous about your spending and savings habits, why don’t you donate more to charity or make charity your full time work?
* How can any of us ever spend money beyond basic food, clothing, and shelter when there is so much poverty in the world?
* Why don’t more people decide to start a blog and share their words of wisdom if they want to find a cost efficient way to give back to society?
* Perhaps the US personal savings rate is much higher than 5% since it looks like nobody spends a lot of money and I’m being criticized for spending money even though I save 50% of my after tax income.
* Does America have a conscience since we save so little and eat so much?
It’s impossible NOT to force our way of thinking onto others, especially if we think they are doing things wrong. Religion is probably the most gruesome example of “my way or death.” Even if someone is making $800,000 a year, we will feel they are elitist for sending their kids to private school since we make only $50,000 a year. Even if someone lives in an area of the world that is almost always warm and sunny, we think it’s a waste to spend $270 on a pair of shades because we wouldn’t even dream of spending such an amount living in our cold, dark, and dreary place.
Thanks to these comments from my “Financial Hoarding” post, I’ve decided not to spend any money at all on the things I’ve been thinking of buying. Instead, I’ve earmarked $100,000 to lower risk investments. Buying $100,000 worth of stuff that will depreciate to $65,000 or less over five years doesn’t seem like a good financial proposition.
Why not invest $100,000 in something that has over a 90% chance of appreciating by 5% a year for the next five years to $128,000? A $60,000 gain is huge! Then I’ll have even more money to invest to make even more money to save the world. I promise during this time period I will also stay in ideal shape so as not to ignore the plight of millions who are starving.
The lesson learned if you want to save more money is this: Tell as many people as possible your desires and let them thoroughly judge you. The more they make you feel bad about your spending desires, the more inclined you will be to save and invest for your future. When you can roll hundred dollar bills as toilet paper, you know you’ve got it made!
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Updated for 2020 and beyond.