If you're anything like me, you're constantly trying to figure out ways to make yourself better. Whether it's full-blown habit changing or learning a new hack to improve your life, bettering yourself is never a failed experiment...successful or not.
I'm not going to link to the ubiquitous "most New Year's resolutions fail" article because you've read them already. You know the failure rate. Let's face it, change is hard and humans are not known for handling change all that well. So what do we do? Set ourselves up to fail, but not all the way.
Make a list of the things you want to change in your life (I really don't care what they are...they're yours). Then add this one thing to that list:
Commit to spending less this year by 10%
Doing this 1 thing will change your life drastically. And if you can do this every year...I guarantee you will retire earlier! GUARANTEE, I say!!! How does this work? I'll tell you.
Go dig up the last bank statement you had last year (or if you use a service like Mint, use that). Somewhere for the end of the year it will tell you in dollars and cents how much you had outgoing. It might say something like "Annual Spending", or "Yearly Expenses" or something like that. Write this number down. I hope this number is not higher than where it tells you how much you deposited (i.e. how much you made).
Subtract 10% from the amount you wrote down. That's the most you can spend this year...of everything. If you are like most people your income might go up a little due to annual pay-raises or other increases that happen naturally over time. This is a one-two punch that will help you retire earlier. So not only will you not be spending that 10%, you're also going to be making more than you did last year which will grow the amount you can invest considerably. You'll continue to reduce your spending every year until you are saving at least 50% of your income.
A dude named Bob...
Let's pretend Bob (and his household) make $50k a year and spent $47k. First off, Bob is a dumb little shit and will never retire early if he only stashes away 6% of his income. Enjoy working until your 80, Bob! But Bob decides that he is going to fail at his diet resolutions, forget to call his mother more often (again!), and instead really focuses on not spending so much because he would really like to not have to work until he is in adult diapers.
So Bob tells his wife and kids that they can only spend $42,300 this year, or $3,525 a month. And they stick to it (that part's important, folks). Now Bob's employer was nice enough to give him a 3% raise this year. That means that Bob will be investing $9,200 this year as opposed to the $3,090 that he would have before under his 6% plan. Bob's family reduces their spending every year by 10% from the previous year until 5 years later when they cross the 50% savings threshold (in Bob's case it's actually 52%) and they are saving MORE than half of their income. They have almost $113,000 invested in the stock market. Now they get to increase their spending each year, but only enough to cover inflation (usually around 3%). They continue saving 52% of their income, which keeps going up due to Bob's employer giving him annual increases and maybe the occasional promotion.
12 years later...
Bob has upgraded from 'dumb little shit' to 'retired'. By saving more than 50% of his income, he is now able to retire if he wants. Bob has about a million dollars* in his investments and if he wants to keep his current lifestyle he could retire, not work another day, and die with money left to spend. He didn't have to get a second job...his wife didn't work...and his kids have moved out (or are about to). He is a millionaire. If Bob loves his job and wants to keep going...he can. If he works 5 more years and keeps saving the same rate, he'll amass about $1.7 million. He would be able to almost double his standard of living once he quits working. Since Bob and his wife are so accustomed to not spending so much, they will be set for life. Even during stock market crashes and recessions. Bob now has what we like to call "Fuck You" money.
'Dumb little shit' Bob...
I can hear you whining already...."But Chris you can't seriously think that I can cut my spending so much, what will I live on...yada, yada, yada?"...or something very similar. Well let's see what would have happened if Bob didn't wise up and stayed a dumb little shit. Bob's 6% savings rate, even with his annual increases and earning the same rate of return in the stock market would mean that in the same 17 years compared to "Smart Bob" he'd end up with $126,515 (and 13 cents). Holy shit, Batman! Same job, same pay, same stock market, same inflation, BUT different spending turns everything into a $850,000 fuck-up. Just because you think you need the latest iThingy or a $5 latte to spill on your new outfit.
To retire with the same amount as his Smart Bob counterpart, dumb Bob will have to work 21 more years to end up with the same amount of money. Which is funny because in 21 years Smart Bob will have more than he started with (a little over $1.2 million). Dumb Bob will actually never catch Smart Bob unless he wins the lottery, which as we know is highly improbable. Smart Bob accomplished in 17 years what will take Dumb Bob 38 years. But hey....Dumb Bob got his wife something really nice every year for Christmas. Which he will have to continue doing while he makes up excuses why they aren't retired in the Bahamas.
You have to decide!
So...you have to decide. You really have two choices. Either you are a dumb little shit or your are smart. I bet you are going to be a dumb little shit and do all the same dumb things with your money that you did before. You're gonna post on Facebook about how your goal in 2017 is to lose 10 lbs and forty-four of your friends will re-tweet your status and you'll gain 2 extra pounds. Then you'll take a selfie of the new sunglasses you bought to make yourself feel better so you can post it on instagram.
Or maybe...just maybe...this is the year you get smart. Like, Smart Bob smart. This is the year you find a way to cut back a little. Ten percent is not really that much if you look at how much crap the average person consumes/buys. After a few years you won't even notice it. Then when you are 45 and all your friends are trying to figure out how they're going to get from $125k to one million before they're too old to enjoy it...THEN you'll be the one posting what retirement looks like. Where you can rock those new sunglasses with purpose because you're doing it from a beach in Portugal, never having to work another day in your life because you decided to be like Smart Bob for a little more than a decade.
Now that's a decade well-spent and one hell of a New Years resolution if you ask me!
*Note: Figures in this post were done assuming:
- Bob started with $0 in retirement
- Average annual inflation: 3%
- Average annual stock market return: 8%
- Average annual pay increase: 3%
- Income was net after taxes/reductions, not gross