If you’ve ever lost weight, you may appreciate the comment more than if you haven’t and I will expand.
A number of years ago, I saw a documentary on “the Fat Smoker” and his answer to losing weight was “Eat Less and Exercise More“.
Simple right? Well, it could be that easy, but what proportion of each contributes to weight loss best? Anedoctally, I’ve found the equation to be ~ 0.8(Eat Less) + 0.2(Exercise More), which indicates that eating less contributes to my weight loss by a 4:1 ratio when I’m losing weight, or the Pareto Principle 80/20 rule. The eating less (or better) contributes 80% of the benefit I receive. Not to nullify the 20%, it’s important, but if I could only do one, I’d eat better in an instant. In times of stress / high volume work its a lot easier to simply maintain my diet and not exercise than try to find the time to exercise long hours.
What does this have to do with early retirement? I think the simple equation for saving for retirement is “Spend Less and Make More”. Like exercise more can be more complicated, such as weightlifting versus cardio or HIIT versus crossfit, for example the make more could be broken out into higher salary, more side hustles, better investment returns, etc. For simplicity purpose, we will lump those together into ‘make more’.
Why am I bringing it up? In an early post I noted that I’ve always focused on the credit side of the income statement, being revenues, which equates to ‘make more’. Fortunately, I realized I needed to focus on the debit side of the income statement, being expenses, which equates to ‘spend less’. Unfortunately, I’ve not been good at getting there.
The early blog that started me on this journey, Mr Money Mustache, showed family expenses in 2014 of $25,000. Having one extra child than the Staches and living in a city with a high cost of living, at most I’d guess that I should be $15,000 higher in expenses or $40,000. Unfortunately, last year I spent closer to 7x the Stache number or $175,000. Absolutely unacceptable, how can I do that???
We’ve set a goal this year to get our number down by at least $50,000 and I’d like to continue pushing to get it down below $75,000 per year, which would give us an awesome savings rate!
Why do I want to push the spending reduction so much? I believe that the spending less is the eating less I talked about above. If I can spend a lot less, my models indicate I would be on the way to early retirement so much sooner and there are other benefits aside. First, we would be training our family to live in less so if I lost my job or health, we’d be able to thrive on less. Second, you end up actually ‘making more’ because you have higher investments earning a great return. Most importantly, third you’re able to retire sooner because your retirement nest egg needs to support lower spending, which is the key benefit!
Would the equation be 0.8(Spend Less) + 0.2(Make More)? What do you think? What’s your vote? How do you structure your early retirement road map?
To expedite our journey to early retirement, I’m going to push this equation with the frugaler family and target at least a 30% reduction in spend this year and 20% per year thereafter, always finding ways to save more and get down to between $50,000 and $75,000 per annum.
What do you spend? What were you spending when you started your FI journey?