My friend with One More Year Syndrome has finally decided to retire.
She met with her financial advisor earlier this year, and was assured that she has plenty to support herself (and spouse) if she stops working.
However, she came back from that meeting with a notebook and a mission to track her spending. I guess she didn’t really know what she was spending her money on.
In the weeks since, I have heard about her canceling subscriptions, and cutting back on smaller purchases.
Which leads me to wonder: would I rather screw down the clamps on my spending early, perhaps feeling pinched (or at least careful) for most of my high-earning years; or would I rather start watching my spending in the 6 months leading up to retirement?
Starting early
This is the approach I went with, so obviously it has a little more appeal to me.
Inspired by the Shockingly Simple Math post by Mr. Money Mustache, and J. Money’s Challenge Everything! post(s), I examined our expenses 9 years ago, and decided to limit spending.
The advantages were two-fold:
- I widened the gap between income and spending, leaving more money to save and invest. Thereby growing the retirement accounts.
- With a lower base of living expenses, I have more flexibility. If my expenses don’t change, I require less money to support my retirement. If I choose to spend more, I get to enjoy an increase in spending (and hopefully in my standard of living) for a smaller total outlay.
I think that last aspect has not been written about much–possibly because the people finding out about financial independence are speaking to people who need to discover saving, investments, and a little frugality.
However, I have very much enjoyed loosening the purse strings over a few years, while still being able to put money aside to invest.
Waiting until later
From the outside, this appears to be my friend’s approach.
She has obviously been putting money aside for retirement for years.
And, in discussions we have had in the past, she has not been living beyond her means. However, I know there were some leaner years, when her private practice ran into trouble; or when medical expenses for the family were high.
Nevertheless, she got to enjoy some of the small luxuries that go with a doctor’s income. No worries about ordering new clothes, eating out, entertainment. That’s a very pleasant way to live, and a reasonable way to lead your life if you make a physician salary.
It feels like suddenly tracking your expenses just as your income changes is very scary. It can be a wake up call to stop wasting money on little things, possibly with an overlay of if you don’t do this, your impending retirement may be doomed.
As I think about it, though, concentrating on your budget–really scrutinizing it and making decisions about what value you are getting from your purposes–can be a great exercise before retirement. It can give you something else to think about–something new to concentrate on–besides the fact that an epoch in your life is about to end.
Your lifestyle and needs are about to change. You may find that some spending that made sense before (e.g. your parking lease, or disability insurance) no longer bring you value. Canceling those types of expenditures can mean more money available for fun and frivolity.
Make it irrelevant
Not everyone loves tracking their spending or keeping a budget.
If you are one of those people, a different approach is to make this whole exercise irrelevant.
A number of personal finance bloggers use the reverse budget. They decide how much money they need to put aside, and live on the rest.
It doesn’t matter what they spend their money on–private school, daily takeout, luxury vacations, the big doctor house with professional landscaping, new cell phones every year for everyone in the family–as long as the money is there for the spending, they’re fine.
Of course, they are usually making some budgeting decisions along the way. Unless they make tons of money, they have to choose which luxuries they spend on. Otherwise, they are just outspending their income and run into trouble.
However.
If you use this method, and know how much you need to live on, then once it’s clear that you can bring in (by which I mean, you retirement plan is sufficient) that much income every month or every year, you can continue living as before.
No need to track your spending and decide what to cut before your work paycheck goes away.
When would (did) you start tracking your income?
I started tracking really when we bought a house. But before that I was a poor grad student who lived within her means so I was used to being frugal to the point of cheap. *I was not saving anything for retirement* but I did avoid debt. But I refused to fully combine finances with my spouse — we do a joint account to which we contribute proportionate to income. (My spouse is DEFINITELY cheap, or was, and I didn’t want him judging my spending any more than he already did.) So when we started that with our big joint house purchase we — or at least I –had to track at least a little more (because I am the keeper of the spreadsheets). I also wanted to figure out what I could spend without guilt because I wanted to live well (not stress about money all the time when I’m making six figures even though HCOL) and still save enough for retirement. I will say that I tend to be more of a consumer than I think I should be so I haven’t wholly figured this out. In part because I sometimes have a hard time figuring out which things I will genuinely enjoy (because I do find that some things are totally worth it and I get a lot of value out of). And some experiences are relatively ephemeral to me.
Thanks for commenting, C!
I really only track my spending once a year these days. After doing that for 2023 (post to come…eventually), I find that I am thinking more about whether I am getting good value for my money: not whether I got “a deal,” but whether I enjoyed whatever I spent the money on.
I don’t remember a time when I didn’t track our income and expenses. For me, doing that puts us in control and lets us be intentional about what we spend (or don’t spend) our money on. It also increases my confidence approaching retirement of just how much income we’ll need.
Hi Michelle, since I only track our expenses once a year, I find that I am more careful about purchases early in the year, but not super careful by late Spring. I’m not sure that I have the energy (or Mr. PiN the patience) to track more often.