Minimalism / frugality vs impulse spending / buying

[Rooscooter]

I like to think I'm fairly frugal on everything besides the TJ, but I know I'm not. I'm in a pretty good position as a 21 year old. No debt whatsoever and my retirement accounts are already growing, but I'm already looking at liquidating a lot of my investments and spending a significant amount of my savings on a diesel truck . I was in the right place at the right time and was able to buy in to a good amount near the bottom of the recent corona virus crash. And now I'm going to fork it all over for a truck I honestly don't need that much.

You don't take money to the grave when you die. As someone with 40+ years to retirement, I see spending money and enjoying it as a better plan than dying with a huge savings account. To me, it is a balance between enjoying your life and creating a bulletproof financial situation.

Before you do that do a time analysis on that money. At 21 you could invest in fairy aggressive investments and let them sit for over 40 years. Over that time you could expect a 12% or so return. Say that amount you'd take out to get that truck was 25K. In 40 years that would be $2.3M. What will that truck be worth in 40 years?

Also, if that money is in tax differed accounts you'll pay taxes at 20% + a penalty for early withdrawal.

 

[Rooscooter]

The compound interest formula is either your worst enemy or your best friend...... depending on which side your on.

 

[JDS123]

Before you do that do a time analysis on that money. At 21 you could invest in fairy aggressive investments and let them sit for over 40 years. Over that time you could expect a 12% or so return. Say that amount you'd take out to get that truck was 25K. In 40 years that would be $2.3M. What will that truck be worth in 40 years?

Also, if that money is in tax differed accounts you'll pay taxes at 20% + a penalty for early withdrawal.

I agree it is a terrible idea. My accounts are all setup for aggressive growth currently. Only thing I have going for me is that I don't need to pay any capital gains tax (within reason).

I'll probably be able to convince myself to not buy anything for quite a while, at least until I graduate hopefully.

 

[cliffish]

My wife and I were raised by depression parents and learned that the most important thing in your life is independence from the systems. With all but a couple dozen or so paychecks we've "paid ourselves first" in that we save at least 15% off the top. Over the last 32 years of my career that's worked well for us. We don't live anywhere near our means and don't owe anyone a cent.

This day and age that's counter intuitive in the "gotta have it now" world we live in. If people don't have it they want to find the ones who do and take if from them either directly or through government intermediaries.

I saw my father go bankrupt at age 57 when the defense industry crashed in the 80's. He had a very successfull business with 35 people built from scratch. I saw the cars get repoed, house sold to go to a smaller house in a less expensive area. I changed from a private college to a state school to lessen the expense/loans....so it was kind of a family depression that gave me the saving bug...kind of glad it did, as we have set ourselves up pretty good @53 years of age.

 

[Starrs]

I like to think I'm fairly frugal on everything besides the TJ, but I know I'm not. I'm in a pretty good position as a 21 year old. No debt whatsoever and my retirement accounts are already growing, but I'm already looking at liquidating a lot of my investments and spending a significant amount of my savings on a diesel truck . I was in the right place at the right time and was able to buy in to a good amount near the bottom of the recent corona virus crash. And now I'm going to fork it all over for a truck I honestly don't need that much.

You don't take money to the grave when you die. As someone with 40+ years to retirement, I see spending money and enjoying it as a better plan than dying with a huge savings account. To me, it is a balance between enjoying your life and creating a bulletproof financial situation.

That is one way to look at it. If you want to retire early tho that’s not the path to take. At 21 and even into my mid to late 20s I had that same mindset. Then I got married and in a month now our house will be paid off and my 401k will be getting maxed out. You can’t take the money with you, but that money later down the road can be very useful.

 

[Zorba]

I saw my father go bankrupt at age 57 when the defense industry crashed in the 80's. He had a very successfull business with 35 people built from scratch. I saw the cars get repoed, house sold to go to a smaller house in a less expensive area. I changed from a private college to a state school to lessen the expense/loans....so it was kind of a family depression that gave me the saving bug...kind of glad it did, as we have set ourselves up pretty good @53 years of age.

I saw a movie about a family that went through something very similar - at an impressionable age. Between that one movie, and my depression era parents, I've been a skinflint my entire life! As a result, I detest un-necessary expenses and all the modern tech that is designed to suck money out of my wallet.

 

[JDS123]

That is one way to look at it. If you want to retire early tho that’s not the path to take. At 21 and even into my mid to late 20s I had that same mindset. Then I got married and in a month now our house will be paid off and my 401k will be getting maxed out. You can’t take the money with you, but that money later down the road can be very useful.

I think saving 100% of your disposable income is dumb, but not as dumb as spending 100% of your disposable income. People often confuse "better to enjoy your money than die with it" as a way to justify spending 100% of whatever money they can. There should be a balance between enjoying life and saving for the future. If your goal in life is to maximize your expected average happiness (weighted towards the current day rather than later on slightly), this is definitely the way to go IMO.

 

[Starrs]

I think saving 100% of your disposable income is dumb, but not as dumb as spending 100% of your disposable income. People often confuse "better to enjoy your money than die with it" as a way to justify spending 100% of whatever money they can. There should be a balance between enjoying life and saving for the future. If your goal in life is to maximize your expected average happiness (weighted towards the current day rather than later on slightly), this is definitely the way to go IMO.

Enjoy that diesel truck.

 

[Zorba]

Saving 100% of your disposable income is dumb, but what's dumber is WASTING money. "A fool and his money are soon parted." as my mother would have said.

 

[Rooscooter]

I think saving 100% of your disposable income is dumb, but not as dumb as spending 100% of your disposable income. People often confuse "better to enjoy your money than die with it" as a way to justify spending 100% of whatever money they can. There should be a balance between enjoying life and saving for the future. If your goal in life is to maximize your expected average happiness (weighted towards the current day rather than later on slightly), this is definitely the way to go IMO.

I get this but this will change when/if you have kids/wife etc.

Anyone saying they had rather not die with money seem to be justifying a lack of fiscal control. Typically they die thousands in debt that will complicate any finalization of their affairs.

For me, fiscal responsibility equals basic respect for the people in your life. I don't know anyone saving 100% of their disposable income. I know many who spend 150% of their disposable income however.

 

[Mr. Bills]

. . . having a truck can be very useful. It’s not like buying a 2 seat convertible.

When I lived at the beach in my late 20's and early 30's I found a 2 seat convertible to be quite useful for meeting attractive women. In fact, I own one now.

But just for fun of course.

I don't really need it to meet attractive women. I don't think.

I'd rather not find out so I'm keeping it.

 

[Alex01]

The best way to save money for retirement is often to take full advantage of your companies retirement plan. For example, if your company matches contributions up to 5k at a minimum you should be putting 5k into your plan. By doing so you're instantly getting a 100% return on your investment and the money contributed is tax-deferred. I find that the best way to save additional money is to have it directly transfer out of your paycheck each pay period that way you never really consider it as disposable income. Whether that number is 4%, 8%, or 40% that is up to you. If you choose to put that money into a taxable or non-taxable account and manage it yourself the best advice I could give would be to buy low-cost ETF's that follow the index, figure out a risk tolerance you can stomach, and let it sit. A good balance between large-cap, mid/small, international, and bonds. Picking individual stocks is difficult and market timing is even harder. You likely know people who rant about buying a stock at X price and making Y off of it but they typically don't mention when things went the other direction.

Even if you're 65 and just retiring you are still a long term investor. Assuming you die around age 90 that means you still want your money working for you for the next 25 years, at a lower risk level though.

 

[Starrs]

The best way to save money for retirement is often to take full advantage of your companies retirement plan. For example, if your company matches contributions up to 5k at a minimum you should be putting 5k into your plan. By doing so you're instantly getting a 100% return on your investment and the money contributed is tax-deferred. I find that the best way to save money additional money is to have it directly transfer out of your paycheck each pay period that way you never really consider it as disposable income. Whether that number is 4%, 8%, or 40% that is up to you. If you choose to put that money into a taxable or non-taxable account and manage it yourself the best advice I could give would be to buy low-cost ETF's that follow the index, figure out a risk tolerance you can stomach, and let it sit. A good balance between large-cap, mid/small, international, and bonds. Picking individual stocks is difficult and market timing is even harder. You likely know people who rant about buying a stock at X price and making Y off of it but they typically don't mention when things went the other direction.

Even if you're 65 and just retiring you are still a long term investor. Assuming you die around age 90 that means you still want your money working for you for the next 25 years, at a lower risk level.

Yesssss. Everybody is aware of this to some extent, but would rather buy now than later. It’s the American way! Haha I’ll just loan it rather than save. Lots of people will be working into their 70s. Glad I won’t be

 

[JDS123]

I get this but this will change when/if you have kids/wife etc.

Anyone saying they had rather not die with money seem to be justifying a lack of fiscal control. Typically they die thousands in debt that will complicate any finalization of their affairs.

For me, fiscal responsibility equals basic respect for the people in your life. I don't know anyone saving 100% of their disposable income. I know many who spend 150% of their disposable income however.

I think I'm saying the same thing as many people who are responding to me. Maybe the idea of a 21 year old with no financial responsibility is easy to get stuck on.

I'm making the point that stressing about saving every last penny and never enjoying life is a sub-optimal way to live life. I know some people who live that way. Sure they have a lot in savings, but they don't have much fun and every expenditure is another instance of stress throughout the day. That is no way to live. We all own TJ's here. At some point in time, everyone on this forum has agreed with me about spending a little to have fun.

I don't need a TJ. I don't need a truck. But I am easily able to afford both considering my expected future income streams (this is slightly different than what I wrote above about savings, but that is due to being in college for another year). They are non-essential fun expenditures that I have no problem making.

Those who take on debt to finance non-essential items are on their own. I'm very averse to debt even to the point of a mortgage mostly due to the way my parents functioned. They bought a house with a wire transfer.

 

[Alex01]

Yesssss. Everybody is aware of this to some extent, but would rather buy now than later. It’s the American way! Haha I’ll just loan it rather than save. Lots of people will be working into their 70s. Glad I won’t be

Not all debt though is bad. For example, if someone is so keen on paying off their mortgage, assuming they have a low rate, that they are putting off an employer match they are actually doing more harm then good.

I do understand what you were saying though.

 

[JDS123]

Not all debt though is bad. For example, if someone is so keen on paying off their mortgage, assuming they have a low rate, that they are putting off an employer match they are actually doing more harm then good.

I do understand what you were saying though.

The common advice they give to students coming from college with loans is that you should pay off your debt as slowly as possible if you can find a return on your money greater than your loan's interest rate. From a math point of view, this is true, but there is some risk.

You could have bought the S&P at 1700 in summer 2013. Doubled your money by this February. About a 10% annualized return. But if you panic sold the bottom of the Covid crash at 2200, you're up 29% over the course of 6.5 years total. That's an annualized rate of return of 4%. Well if your loan is 6% interest, you've made money one way and lost it the other. I'd rather just get rid of the debt quickly.

This isn't really related to the matching thing you described since that seems like a guaranteed rate of return that is above your interest rate. I would keep the debt if I had a setup like that. But I wouldn't try to outperform my loans interest rate on something that isn't close to risk free.

Unrelated tangent over.

 

[Jramos013]

When i was younger and first got a decent paying job I would buy every crap you can imagine. It was a habbit that was leaving me broke 2 weeks into the month, i lived with my parents back then so it wasnt that much of an issue. FFW to the present, All debt paid, canceled all credit cards, just kept one for emergencies with the card locked away.

I learned that the impulse of buying is just that, an impulse and can be control too. Just think how long between you buy something until you want another thing that you dont need or get bored of it.
Now I just see money as a necesity to substain a decent living for me and my family. Luxuries are just overcompensation for something missing IMO. For example, If your cars works and suit your needs, why change it just because a new one is out? Theres nothing wrong in buying a toy every now and then as long as a it doest not interfere with everything elses and is not made into a habbit.

 

[AMS417]

Balance is the key here. No one can live your life, but we can all learn from each other. I grew up poor and made some big mistakes early on. I had to grind it hard for about 10 years to get back to where I wanted to be. Now I am taking it easy, getting lazy and miss the grind. I like to hustle, it makes me feel alive, but burning out is real too. Again balance. I still make bad decisions, at least on paper. Bought a brand new Ram last year with a $59k sticker, but got it for $43k out the door. My 3rd new truck in 9 years. I rationalize it with my vehicle allowance from work essentially paying the depreciation. I paid it off when I got the first payment notice in the mail. Would that $43k (really $30k since I traded in a paid off car for $13k) have been way better off in my stock account, yep it would have been. So am I keeping this truck for at least 6 years as an offset. I also increase my 401k to max last year and started diverting a large portion of my check to my stock account. If I keep myself broke, I wont overspend.

 

[Squatch]

Man, I keep hearing all these success stories. How 'bout a sure fire way to screw it up? Allow me...

Married in 1981. Bought my first house for $35,000 in 1987. Making regular mortgage payments. Divorced in early 1990, and just handed her the house and walked away.
Remarried later that same year. Bought my second house in '96 for $45,000. House was appraised at $72,000, so I was already doing well. Quit contributing to my 401K after the September 11th attacks wiped out over have of it. Divorced in 2005. Refinanced the house for $200,000 to buy out her half. She also got half of my retirement (401K) benefits, which left me with virtually nothing, compared to what it once was.
Remarried in early 2007. Divorced later that same year. Refinanced the house again, but for just enough more to pay off her Harley ($10,000).
Continued paying on the house. Remarried in mid-July of 2011. House is now appraised at around $320,000. I owe around $90,000 on it. Very happy in my marriage, and the plan is to have the house paid off in 5 years, barring any unforeseen circumstances. Then we sell, and get the hell outta Washington state. If this marriage were to collapse, then fuck it. I'll live in a van. Too old to start all over again.

So, the take away from all this? Hell, I dunno. No one is promised tomorrow, and if tomorrow gets here, who's to say it's gonna go your way? Make all the plans you want, but realize that don't mean shit when shit starts happening. When you're young, you've got life by the balls. You can accomplish anything, right? Right. Hang onto that happy mindset. It'll give you something to reflect back on in your old age.

I wish all the younger folks here well with their dreams and plans. I really do. It's great to have goals. Just don't dismiss the fact that things can happen, and often do, that you cannot foresee. And remember, us older folks have been where you are, but you haven't been where we are, yet. Here's hoping you live a long and prosperous life.

 

[jazngab]

You don't take money to the grave when you die. As someone with 40+ years to retirement, I see spending money and enjoying it as a better plan than dying with a huge savings account. To me, it is a balance between enjoying your life and creating a bulletproof financial situation.

I agree with this mindset. While saving is good and being financially independent and debt free are important, it’s also important to enjoy the fruits of your labor as you can’t take it to the grave.