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My wife and I save for a trip around the world by avoid "lifestyle inflation" which is what I've heard this referred to in the past (possibly from the Millionai
by orofino 14y ago
My wife and I save for a trip around the world by avoid "lifestyle inflation" which is what I've heard this referred to in the past (possibly from the Millionaire Next Door[1]). Each time we received a raise, we would increase our trip savings.
The easiest way to describe it is that we lived paycheck to paycheck. Neither of us would be disciplined enough to follow a strict budget, but we can easily avoid spending the money if it isn't in our accounts. So, each month, we had money withdrawn for retirement, trip savings, 529, and house savings. We increased this amount until we were just scraping by with just enough money each month. This meant I could buy whatever I wanted, so long as we'd have enough money at the end of the month to "pay ourselves".
I'm fond of this method, though I haven't found many others using it. I think typically, if people are disciplined enough to save money, they're able to follow some kind of budget.
A word of warning: Be sure not to be TOO aggressive with this, we almost certainly were. We were living off less than 30% of our after tax income. Remember, you should enjoy yourself while you're making money now, not just save it all for the future.
[1]: http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/dp/0671015206 http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/d...
Edit: formatting, link
- epochwolf 14y agoI have to do this. 20% of my income after taxes goes to charity and savings. I live off the rest and any income left in my account at the end of the month goes to my electronics fund.
- JoshTriplett 14y ago> We were living off less than 30% of our after tax income. Remember, you should enjoy yourself while you're making money now, not just save it all for the future. If you can live off of 30% of your income, the future becomes a lot closer: you can retire in ~8.8 years. (Or round it up to 10 or so and you'll have even more income during retirement.) Try http://networthify.com/calculator/earlyretirement http://networthify.com/calculator/earlyretirement if you want to fiddle with savings rates and find out how long you need to work. Notice that the number of years depends solely on the savings rate, not on the total salary.
- Evbn 14y agoMore like 12 years. If you retire in 10 years, you will need more than 25 years of retirement spending.
- JoshTriplett 14y agoNope, that calculator assumes you want enough retirement savings to cover your expenses indefinitely. The numbers do vary based on your assumed rate of return; a more conservative estimate would put it at ~9.1 years, while a more aggressive estimate would put it at ~7.3.
- jpdoctor 14y agoThat calculator is a terrible way to go about it: They are missing inflation, which will have a large effect on your expenses over time. There are other problems too, but that one alone make it worth looking elsewhere.
- JoshTriplett 14y agoIf you want to account for inflation, just subtract it from your savings rate. The market typically supports a 6-7% return before inflation, or a 4-5% return after inflation.
- jpdoctor 14y agoUmm, you might want to check your math. Or perhaps your assumptions about buying power. There's a reason retirement planning doesn't go down this path.
- nilkn 14y agoThe 5% return rate for investments is taking inflation into account, actually.
- jpdoctor 14y agoEven if you limit it to the investment return: It is ignoring variation in return for that level of return, which is a terrible way to do long-term planning.