3 paths to spending like a Jedi

empire-strikes-back-poster

Have you noticed that old people spend less on showing off than younger people?

If you want to visualise this, watch The Empire Strikes Back and count how many times you see Yoda going designer shopping or clubbing.

There are lots of good reasons why you might want to speak to an older person now and again; one is to understand how they think about spending.  Whilst there are exceptions, there seems to be a correlation between age and non-ridiculous spending.  In general, the older people are, the less they spend on showing off even when they can afford it.

One practical reason for this is that they’ve already bought all the shit they need long ago. How many more kitchen sinks can a person use? But there is a deeper reason. Many old people have a quality whereby they seem to have realised what brings happiness (or at least what doesn’t).

By definition, old people have got their mid-life crises out of the way and have reached an accommodation with their aspirations.  They’ve had time to think and, as a general rule, most old people seem to have figured out that more spending does not equal happiness.  Donald Trump is definitely in the minority. Is there anything more tragi-comic than an old person who thinks its all about the bling?

I put it to you that we all end up in the same place.  We all eventually realise that money can’t buy happiness or immortality. Some people only get this on their deathbed, others figure it out quicker. Once we get it, we might as well start enjoying the little things that actually bring happiness like walking to the shop to get chocolate.

The question is how quickly we reach that end point and what path do we take to get there? I’ve noticed 3 distinct approaches to controlling spending so let’s dive in and take a closer look at each.

Path 1:  Spend like a student

All you need do to get to FI by 30 is graduate with no debt, get a good job, work hard but continue to spend like a student. You can then save up to 75% of your (rising) income, stash it in a Vanguard fund and then quit when you have about 25x your spending.

This is the Mr Money Mustache path to riches and is the quickest way to FI without living in a trailer park. Oddly, it remains almost as rare as England world cup victories. This is strange given the “secret” is out there and its not very complicated.

The hard bit is to maintain the lifestyle you had at college while your income zooms up.  If you are an intelligent graduate and even halfway hard working, there will come a point after you get a job when your income starts to shoot up and, egged on by advertisers and your fellow idiots, you start to entertain thoughts of Jacuzzis filled with champagne and doing doughnuts in a leased Maserati.

I have done some research on this and it turns out there is no law that says we have to spend all of our income!  When I was a student, I lived on about £3,000 a year. So did everyone I knew.  My first job paid £12,500 a year and 3 years later I was on about £30,000.  Woo-hoo, call the Maserati dealer! I was living and working in London so yes my rent and clothing costs went up, but there was no reason why I couldn’t have saved over 50% of my post tax income.

The trick is to continue the student mindset.  This means sharing a house: the more the merrier.  In the UK, there is a good reason why living costs are most peoples number one outgoing.  Real estate is a scarce resource and the market is incentivising you to use it as efficiently as possible.

Instead of buying a box set of Friends DVDs to watch alone in a highly mortgaged flat, isn’t it better to have cheap rent with free real entertainment and potential friends thrown in? Framing matters here: let’s not call it frugal, let’s call it fun and bohemian shall we?

So why not keep the good money habits you had by necessity as a student?  You don’t have to stop having beers and picnics in the park and start going to expensive bars and restaurants.  Don’t confuse your income with your identity. Just because you are a high earner doesn’t mean you have to be a high spender.  If Bill Gates and Warren Buffet want to play frisbee in the park in their string vests and then shoot the breeze over a few chilled tins of Red Stripe, who are we to criticise them?

Path 2: Cold Turkey

The Cold Turkey method is when you stop spending like a junkie coming coming off heroin in a weekend.  I am not an expert here, never having lived through heroin withdrawal myself, but I have watched Trainspotting, I have cut my spending and I do have internet access so lets just agree that I’m more than adequately qualified to comment.

Cold Turkey is by definition the quickest cure for consumerism, even if a certain amount of discomfort is involved.  This is the path that Ermine writes about over at Simple Living In Suffolk.

There are a number of reasons why Cold Turkey feels so hard.

Firstly all change is hard for creatures of habit such as humans.

Second, it feels like a wrenching experience if you’ve allowed consumerist spending to become your identity.  The entire infrastructure of consumerist capitalism is designed to make you think that you are what you spend. This is why you should remove advertising, junk mail and glossy magazines from your life.

Third, during Cold Turkey you realise that you have not been in control of your own life. You have borrowed, earned and spent to fulfil other people’s agenda and where’s the fun in that?

So most people only go Cold Turkey when there is a burning platform: a lifestyle threatening event such as job loss, illness, debt crisis, eviction etc.  Typically we don’t choose this when easier options are available.

I went Cold Turkey in 2003.  I had a mini career crisis when I hated my job and thought I’d struggle to get another one quickly. Our second child had just arrived and we’d agreed my wife was not going back to work for a few years. We cut our monthly spending down by about 66 -75% over the course of a few weeks and then held it down. At the time it seemed extreme.  When I now look back on it with perspective it is actually quite funny.   We didn’t have a foreign holiday that year. Quelle horreur! In future I will regale my children with tales of deprivation like the Monty Python Yorkshiremen.

After I’d gone Cold Turkey, my spending never again went over 50% of my income.  The experience proved to me that most spending was discretionary (i.e. on luxuries).  As my income went up in the latter years of the Prison Camp, I allowed my spending to ramp up again but always within the 50+% saving rate constraint.

Path 3: Lifestyle disinflation

Lifestyle disinflation is a gentler process than Cold Turkey by which you slow down all your spending decisions and apply creativity and rational problem solving to reducing your spending. No deprivation or willpower is required and you end up with fewer, better things for much less money.

This allows you to go from being a normal high spender to a FI Jedi over a period of a couple of years.  Its a bit like learning a craft: the longer it goes on, the better and more experienced you get at it. I used to apply all my mental energy to problem solving at work so I rarely had any left to deal with the rest of my life.  But if you have the time and mental energy to attack your spending via a series of marginal gains, big spending reductions become inevitable when aggregated over time.

Reducing spending is easy if you understand the emotional drivers for spending and get your significant other on board. You can then choose only to buy stuff that offers value and that lasts. You can avoid being a forced buyer by planning ahead so you never need pay a premium for speed and convenience.

You don’t have to do this alone: you can use social capital. For example, I asked a friend to come over yesterday and fix my mountain bike. He fixed the bike embarrassingly easily and refused my offer of cash payment.

Cultivate a mindset that says you can get anything for free if you had enough time and are prepared to be flexible enough. For example, if I were still renting in London, I wouldn’t waste time moaning how expensive London rent is. I’d look for a way to live in Mayfair as a housekeeper for an absent rich Russian oligarch or other ways to get cheap accommodation as a property guardian, renting someone’s spare room or living cheap with friends or family.

Once you have started to build the right mindset, you need information.  Track your spending for a few months, follow the money and see where it all goes. Then start looking for the low hanging fruit: the big wins and the quick wins.

I realised I probably had enough about 18 months ago. But since then, I’ve figured out lots of little ways to cut my spending and this has provided an extra margin of safety.  Its strange how much time people spend quibbling over theoretical debates on the Safe Withdrawal Rate. More relevantly, if you are working full time and close to FI now but not confident enough to pull the trigger, you would almost certainly be able to cut your spending significantly post quitting when you are time-rich and rejuvenated.

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16 comments

  1. Cerridwen · · Reply

    If you are an intelligent graduate and even halfway hard working, there will come a point after you get a job when your income starts to shoot up I would beg to disagree – what if you opt to be a social worker, librarian, charity outreach, teacher? overseas aid, and all kinds of other occupations that provide satisfaction that is not purely income related – they do exist 🙂

  2. Fantastic post, TEA.

    I must admit I am of the “student” school presently. Having darted in and out of higher education for about 7 years in total it has become second nature even when not in HE. Admittedly it has necessarily inflated a little as non-student life demands much more on your money just to live but where I can it has remained the same.

    I have never come across the “property guardian” malarkey. Looks quite interesting.

    1. Thanks – I agree the property guardian thing looks interesting…I’ve not done it myself but I’d love to hear from someone who had and how the experience was for them….

      1. So would I. From later this year my job will be increasingly “geographically flexible” so I may have to consider such things which does not seem that bad. Will have to see what Miss DD thinks about that though!

        I will keep you posted if I do indeed give it a go. Certainly sounds intriguing!

  3. We have followed path 3, as we spent more than we do now for several years. Path 1 seems to take away the reward of having worked hard all your life — it’s nice to live like a grown up, and that doesn’t have to mean becoming a mindless consumer.

    On old people and their spending, we recently read that baby boomers are by far the largest users of electricity, natural gas and auto gas. It is the “leave the lights on” generation. Wonder if, as they get older, they will reform their ways or stay wasteful?

  4. Its strange how much time people spend quibbling over theoretical debates on the Safe Withdrawal Rate. More relevantly, if you are working full time and close to FI now but not confident enough to pull the trigger, you would almost certainly be able to cut your spending significantly post quitting when you are time-rich and rejuvenated.

    Amen to that – it is quite shocking how much of the wage-slave spending goes to buying time, because you can’t fit it all in.

    I hopelessly overestimated how much life costs post quitting. You just do while at work, you fear everything you can see losing and have no sensibility of what you might gain, because you’re not living it yet. Many great things are low cost, but you have to spend time – pretty much anything where you hone your craft is like that, but there’s reward for time spend observing and improving understanding in other fields too. Yesterday at dusk I was looking for barn owls on our land because Suffolk Wildlife Trust has told us the box they put up for us had one sitting.

    We never did see the male coming to feed her, but we saw Little owls perching on our water tanks and hunting critters in the grass. Magic – and it’s about time in the field and listening to people smarter than us (we leave the grass ungrazed round two edges of the site because SWT say this is favourable to the owls’ prey).

    1. Thanks Ermine. Great to have your contribution as someone who has walked the walk and spent time in the field (I still consider myself a bit of a newbie). Rare and valuable.

  5. My favourite Yoda quote!

    I’ve gotten onto path 3 – still a way to go as there can be improvements but I’m heading in the right direction!

    My boss is an exception to the rule of older people spending wisely. The other day, he was raving on getting one of LG’s new 1mm thick televisions, despite having only bought his current 50+ inch 3D/whatever screen a year ago. I asked him what was so “rubbish” about his current tv that he had to replace it so soon. He looked at me as if I’d come from a different planet and replied “Because it’s not the latest technology”. He must have money to burn!

  6. red kite · · Reply

    I love the Yoda quote too, although I’m not so good at putting it into practice…
    I have to say I never had a big plan to save aggressively to quit work early. It simply never occurred to me. Such plan that I had involved putting as much as I could into my (public sector final salary) pension, knowing that it was A Very Good Deal and also that my OH had no access to such things so it needed to cover both of us; and paying down the mortgage early. Clearly today’s younger generations will have much inferior pensions, together with much greater debt burdens, and so will have to have a better plan than I did…

    We have also essentially chosen to trade time for money earlier, rather than maximise our income and working hours up front in order to quit work early. We both went part time when the children arrived, thus foregoing quite a lot of income in order to actually be able to experience family life first hand. To be honest I cannot see us ever going back to full time work as I now certainly have sights set on retirement…why work more than is needed, if you have enough?

    I do however agree with Cerridwen. I think the elephant in the room is earning power. It is without doubt far easier to save from a higher salary, since essentially all the extra beyond essential spend is surplus. I am fortunate to have a well paid job, which means that I can live well and save without really trying too hard even on part time pay. Halve my income and it would all be a lot more effort. And, among my peers (families in the provinces, mainly with good jobs, private or public sector) I see relatively little ‘ridiculous’ spending a la MMM. Sure, some people’s money skills are better than others, but mostly what I see is people trying pretty hard to achieve a balance between giving their kids a) enough time and b) enough opportunities in the way of new skills and experiences. I don’t see many of them spending crazy amounts on self indulgence, high end gadgets or even any new cars.

  7. dangdog · · Reply

    Is it older people that spend wisely, or those who have been in long term relationships for a while (which so happens to mostly be older people)? Across all ages, single people are more spendy on average. Maybe it’s like the stereotype of people “letting themselves go” after marriage; spending geared towards impressing the opposite sex is heavily reduced (fancy clothes, beauty, status goods). Just like Mr Money Mustache’s article on work trucks, I’m inclined to think most people’s irrational spending is socially driven, to impress the ranks of one’s own gender (for status, which is indirectly about sex) or to impress potential mates directly (sex).

    Cutting excess spending when young is difficult because it often damages social ties (think restaurants, bars, coffee shops). This is probably another reason why it’s seems only introverted engineering types pursue FIRE: not only do they have the maths and planning skills required, they are usually more willing to opt out of the typical spendy social activities.

  8. Another explanation for the elderlys spending habits is the psychology of ‘anchoring’, they will anchor what they think is a reasonable price to pay for something when they are young and forever moving forward believe everything to be ridiculously expensive due to pernicious inflation. I think a reasonable price for a pint is about £1.50 because I am anchored in the mid nineties.

  9. BeatTheSeasons · · Reply

    I have to say that my baby boomer generation parents are far more spendy than I am. I honestly believe I’ve seen the light before them, and they probably now never will. Maybe it’s a hangover from the war, as their own parents had experienced real scarcity and turmoil. After growing up in the 50s and 60s they’ve then experienced housing wealth and wages going up throughout their careers. Having benefited from free university education, fantastic pensions, cheap housing, etc, etc that generation is now so wealthy that many of them can afford to show off.

  10. Another ageing student aper here. Most of the time I am kicking about like a bum on the back (albeit in West London).

    My neighbours always look shocked on the rare days they happen to see me heading out on a workday wearing a suit (I wear them more for social events — and that’s rare too!)

    I think they believe we’re growing pot in the back of the house for a living. (It’s really aquarium lighting…)

    I have a massive post that’s been half-written for years on living like a student, but I’ll have to up my game now! 🙂

    1. Brilliant…bring on the student lifestyle article!

  11. Excellent post – thank you.

    I think there is a route 4; in fact I think it strongly enough to have set up my blog about it. This is: optimise your investments to increase your returns / income, rather than compress your spending. For the first few years after I had some money I parked it with ‘professionals’; it took me well over 5 years to confirm how poor an investment decision this was, and another five years before I had the confidence and expertise to start investing the way I am now comfortable with. By doing this I have increased my after-tax returns about threefold, and moved from ‘not yet financially independent’ into ‘financially independent’ without altering my spending.

  12. Peter · · Reply

    > My first job paid £12,500 a year and 3 years later I was on about £30,000.

    I suspect that’s very unusual. It took me 9.5 years to get to £30k from 13k.

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