Category Archives: Frugal Living

Financial Impact of an I Deserve it Mentality

Frugal Living, Retire Early

There is a powerful mindset or mentality that can affect the decisions we make and the financial habits we adopt. Fortunately the Financial Impact of an I Deserve it Mentality can go both directions. More common is how the “I deserve it” mentality that many people followed took them in the wrong financial direction. Maybe you have felt some of the following. At least you have heard and seen other people make negative impacting financial choices:

I have worked hard and deserve this fill in the blank no matter what it cost.

For many people this seems to pop up more often when finances are actually tight for some reason. I have had instances of this powerful voice. Especially when I was on vacation. Something that I would never consider buying or paying for when looking at the cost suddenly seems OK.

I have to admit that I had a few instances of this when seeing the latest and greatest tool or a classic hot rod for sale.  It happens when I think the price really good. I have to step back and ask myself why I want it so badly. Fortunately financial-reason prevails.

Everyone else gets to, I deserve to fill in the blank.

This is usually the start of someone trying to keep up with the Joneses. I have had feelings of envy when someone shows off their latest purchase that I think is just too cool. But then I find out it is usually heavily financed or came at the expense of saving. Once I see what it really cost then that feeling leaves me.

I deserve to live a little now. It is not worth always holding back now for an unknown tomorrow.

I could get hit by a bus tonight. This is a common and powerful mentality that can keep people from reaching their financial goals. I did have thoughts of this when someone close to me passed away. Also when the economic market collapse stripped a huge percentage of my savings away.

It was really more a case of sadness. Sadness mixed with anger and eventually coming to terms with the fact that in life crap happens and then getting over it.

Many people don’t come to terms with the negative power of the “I deserve it” mentality and blindly head in the wrong financial direction.

The Positive Financial Impact of an I Deserve it Mentality

When Used the Right Way

Financial Impact of an I Deserve it Mentality

 

As powerful as the “I Deserve it” mentality is starting folks down a negative financial path. IF it is flipped around it is just as powerful to help people make positive impacting financial choices:

 

I work hard and deserve the financial independence that I am working toward and have planned for.

When I was on the financial independence journey I was working toward a concept or dream of the life I wanted to live. I couldn’t live it right then or know exactly what it would be like but the dream was very convincing based on all the information I had, knowing how I wanted to live my life and what I believed to be true.

Whenever I did question whether my concept or dream was realistic and worthy of staying the course all I had to do was say to myself that I sure know how crappy the impacts are of making bad financial decisions. Those are certainly known.

Telling myself that I deserve this for being financially responsible when tracking statements and budget was a great motivator.

Everyone else gets to, I deserve to have a happy life and concentrate on what really makes me happy.

That is how I flipped this to my advantage. Too many people believe that stuff is their happiness but those on a financial independence quest know better. What the Jones have doesn’t mean it will bring us happiness.

Even when I would falter I could easily come back to the truth that stuff isn’t necessarily going to have a happiness value. For example, when people would talk about all the movie channels or sports channels their $120+ a month TV service gave them I could easily think to myself that I don’t need that to be happy.

Focusing on the happiness quotient and realizing that I don’t need the stuff others brag about to be happy is the perfect “keeping up with the Joneses” antidote.

I deserve to live a little now.

This happens to be true. If I started feeling deprived for some reason I could figure out what it was that crossed my frugal threshold and make minor adjustments. Living a smart-frugal and balanced life isn’t an all or nothing lifestyle. Although for me the trigger for this was usually something bad that had happened.

If I just say I deserve to reach my goals while living the best life I can I then flip this to my advantage. Rather than throwing in the towel and giving in, the power of the positive Financial Impact of an I Deserve it Mentality is focusing on your goals.

Not by succumbing to the temptations of irresponsible financial decisions. Like going nuts with spending and accumulating stuff or shallow experiences that brings only short-term pleasure and a lifetime of cost to keep or live with.

Conclusion.

You can unlock your full financial potential by redirecting the power of the Financial Impact of an I Deserve it Mentality to the positive direction so to align with your financial independence goals.

A financial independence journey starts with an idea, then you develop this concept or dream of what financial independence will be like. You then commit to your plan and when negative “I deserve it” thoughts challenge your plans you flip it to your advantage.

I can tell you financial independence is all that you dreamed and more because a weight is lifted and a sense of freedom that cannot be explained is experienced every day.

Have you felt the “I Deserve it” mentality or have been negatively affected by it?

If you experienced it and overcame it can you share how you did it?

Common Mans Journey to Early Retirement

Career, Frugal Living, Retire Early, ,

My Real Life Early Retirement Success Story

My life voyage to become Leisure Freak Tommy could easily be called the Common Mans Journey to Early Retirement. Although I have provided my post-retirement details and what has been a very positive experience living a passion-driven retire early and often lifestyle I have felt uncomfortable discussing details of how I got to my first early retirement. However I have had a change of heart.

One of the knocks that early retirement and financial independence sites/blogs get is that the only advice for the common person to reach early retirement is to adopt extreme frugality and save 50% to 75% of your income.  Doing so is difficult for some to contemplate if you aren’t making a six figure income or close to one.

My thought now is that detailing my journey will show that someone with less than a six figure income, a home buyer, and a parent can set a realistic plan and still find their way to early retirement. So I pulled my Social Security Statement to dump the official wage numbers to help with this article (Numbers will be rounded up/down).

What is early retirement anyway?

I call early retirement as being before the minimum age of 62 when you can apply for early Social Security benefits here in the U.S.

As to what retirement is itself I can’t help but take another shot at the retirement traditionalists and say that the absence of needing to work defines retirement, not never working again.

I only bring any of these defining details up because many early retirement sites/blogs speak of reaching early retirement in their 30s and 40s. That can be a tall task for some on the lower end of the salary curve. It took me until age 51 for my first retirement and I still consider that a very early retirement. So does anyone who is still in their 50s wondering how they will ever retire at any age.

Here is my success story where I achieved early retirement at the age of 51

My Life as an independent adult begins

I grew up low-income so maybe that was an advantage. You know, having lower financial expectations and having the skill to have a fun and an enjoyable life without much money.

I graduated from high school in 1976, married my high school sweetheart in 1977, and we bought our first home (a small starter home) which was new construction in 1978 using a FHA 30 year loan. We did all the interior paint work on the home for down payment assistance. Presto-Bingo, I was a homeowner at the age of 19 because my wife insisted we get out of the apartment life.

I loved the apartment’s low rent to income percentage but it’s a good thing she was insistent. At this time my bride was still attending Community College and working part-time which covered her school costs.

My salary working for a Bank’s operation’s center as a clerk in 1977 was $7200 a year, $600 a month. Our one bedroom apartment on the less than good side of town was $155 a month or roughly 26% of my income so not bad. Although we did have our primary car stolen from the parking lot which was a total bummer.

At the age of 19 a mortgage begins. It took 1/2 my income.

My income in 1978 was $7800 a year, now $650 a month and we moved into the new starter home. We paid $32,800 and now had a $308 monthly payment. That equates now to  47% of my before tax income. At this time retirement saving was nowhere on our radar. My wife graduated from Community College and started working full-time also making around $650 a month.

We started making a home, putting in the landscaping, buying furniture, curtains, saving a little money and living a basic debt-free life  other than the mortgage.

1965 VW

Our primary car (yes previously stolen, later recovered minus motor, new motor installed) was a 1965 VW Bug. We traveled all over the western US and had a blast. Imagine, no air conditioning and little if any heat in the winter. Crazy kids!

My starting a long Telecommunications Career.

I started my career in an entry-level position in late 1978 at the age of 20 as a Customer Service Rep making $167.50 a week ($8710 a year). I have a pay-stub from then showing I took home $330 a payday. It is framed along with my last rat race paycheck.

A year later (1979) I got a raise and earned $9950 for the year with overtime. I was doing great but at that time there was never a mention of 401K or retirement saving in our world. The company did have a pension plan if you could last 30 years.

In 1980 we decided to start our family. My wife initially worked part-time after our son was born but once our daughter came in 1983 we decided it best for her to stay home with the kids.

In 1983 when I was 25 years old my income was $23,200 which is more than twice what I made when I started due to my moving to a semi-skilled technical position. That job came with a slightly higher salary because I had to work nights adding a 10% differential. There was also a lot of overtime. My house payment was still in the low $300s which shows how inflation protection is a benefit of home ownership.

In 1985 our third child was born. I was still a semi-skilled tech and working a second job to make ends meet. My income for 1985 was $29,400. I worked a second job in one way or another for 13 years.

Age 27 – Ground Zero for my 401K

In 1985 I started contributing to this 401K thingy I had heard something about. It was ground zero for my retirement savings. I was age 27. We had two fund choices. A guaranteed cash interest account or my employer’s company stock. The company matched 66% of the first 6% contributed with their company stock. I started with the 6% contribution rate and tried to increase each year with my raises.

It was 1990 when my wife started working part-time again when our youngest started kindergarten. My 1990 total income was $32,000 and I was now on my way to maxing out my 401K contributions. In 1990 the maximum was just under $8000 which was 25% of my before tax income.

Promoted to fully skilled technical technician.

In 1992 after completing my engineering course work (two-year course of study through Ma Bell) I finally made fully skilled tech and with my second job that year I made $36,700. I was now 34 years old. We had accumulated $16,000 in credit card debt over the years while my wife wasn’t working which averages to < $2500 debt a year. That total revolving debt amount figures to be 44% of my now yearly salary. In today’s dollars that percentage of credit card debt to salary would still be considered devastating.

We had always had a frugal lifestyle and budget and I was diverting every extra penny to debt pay-off but still maxing out my 401k contributions. Slow and steady wins the race. In hindsight I believe I should have dropped my 401K savings rate back to 6% and kept debt under better control but the thought was we would pay it back once my wife returned to work.

Patience pays off on Common Mans Journey to Early Retirement

Promoted to Engineer but with a catch.

In 1995 I was offered an engineer promotion but I had to relocate to Colorado from our home and the home of our extended family in Utah. My job was going there so staying in Utah meant I was facing layoff or at best getting a clerical position and huge pay cut to start over again.

We took the deal and my engineer income in 1995 was $44000. My retirement savings strategy was limited to maxing out my 401K which was about $9000 a year. That was still pretty good as it worked out to be 20% of income.

Sold our First Home and Bought Another

We sold the first and only home for $85,000 and paid off the rest of our debt. We then plopped $30,000 down on our second and still current home that we paid $157,000. There was a huge difference in home prices between Utah and Colorado. Going from selling for $85,000 to paying $157,000 was a huge financial bite. My house payment was now $1185 a month even with buying down the mortgage points to get it at 8% interest.

My wife took a part-time job as a bank teller in town. Our priority was for her to find a job where she could stay close to the kid’s schools. I was still just maxing out my 401K and living financially responsibly.

Promoted to Lead Engineer but there were cracks in the career dream.

There had been incremental raises but in 1998 I was promoted to Lead Engineer. I was 40 years old with 18, 15, and 13-year-old teenagers at home. My income ended up at $68000 which included a bonus that year. I was really loving what I was doing but I was seeing a lack of life balance and a stressful responsibility load. My job duties had me traveling the country 12 weeks a year (25%) and all of it was wearing on me. I made it to the top but it wasn’t so shiny anymore.

I decided there has to be something more to life than this.

In 1998 I decided that I wanted to retire early and sought financial advice. There was the internet but it didn’t have information yet like there is today. I settled on a CFP (Certified Financial Planner) who was totally with me on my plans and I set forth on my 10 year strategic retire early plan. In 1998 my 401k balance was sitting around $100,000.

Cutting expenses and saving more.

My plan had me doing more than maxing out my 401K which then was $10,000 a year. I kept to my plan and continued to save through the market ups and downs in my 401K and newly opened Roth IRAs. I also continued to receive salary increases and when I retired in 2009 at the age of 51, eleven years after I got serious about early retirement I was making a bit under 6 figures in salary.

The last few years as an engineer I had saved $30000 to $35000 a year. I took a lump-sum payout of what was left of my raided and diminished pension and rolled it over into an IRA. I have details about my pension decisions on my How I Fund My Retirement page.

My Pension Wasn’t Really Worth It

I am not really sure that the amount I received with the pension buy-out was worth it. Worth the 31 years of suppressed salary, suppressed opportunity, interstate relocation, and being golden-handcuffed to a company that went to hell because of a bad merger. With today’s 401K and IRA investment options and all the information available I believe people have a better chance of creating a successful early retirement plan.

My wife and I had split our budgets long ago. Since I made more than she did I paid for almost everything. The budget has her paying for groceries, anything she wants to buy for herself, and her gasoline. She didn’t retire in 2009 when I did. She was still saving to fund her own retirement expenses for her soon but later retirement. Once I retired the budget arrangement was kept. She joined me in early retirement a couple of years later.

The early retirement message here in this long article.

Hopefully I have shown how I didn’t make a blazing salary. I married, raised three kids, and still retired early. If anything I had a few things going against me.

  • No four-year degree.
  • Married young at age 18.
  • Started having children at the young age of 22.
  • Took on a high amount of credit card debt to support our early family decisions.

I also want to show that even if you aren’t making good money today and can only save a small percentage of income doesn’t mean you will never get there. I didn’t start maxing out my 401k until I was 32 years old. But the early smaller investment rate on my lower salary added up to make a good start.

Patience is a skill that will help make it all happen.

I had no idea where my career would end up until I was already working over 15 years. It would have been totally unrealistic for me to think I could achieve early retirement too much earlier than I did with our decision to have a family and working through the tech-bubble burst and the great recession. Even without that bad stuff that happened my salary couldn’t support much more saving than it did. I also paid for my kid’s education and my two daughter’s weddings.

Certainly had we decided for my wife to continue working full-time and we saved her salary things may have escalated faster but I am happy with how things worked out. We lived the best life we could, making the best decisions for our family.

Maybe retiring at age 51 isn’t as sexy or awe provoking as someone who pulled it off in their 30s or 40s but it is totally awesome to me and has been well worth everything it took to get here. The key is not wasting your money on stuff that doesn’t really add happiness to your life. That boring “frugal” word is key to pulling it off.

My final comments for anyone wanting their own early retirement success story:

  • Live your life
  • Set a smart-frugal and balanced budget. One that is sustainable where you don’t feel like you are living a deprived life. Challenge your frugal threshold and always reassess it to find savings.
  • Pay off debt and avoid debt.
  • Start saving early and increase the percentage of your income saved over the years as your income increases. You just never know where your career will take you or what career you will end up in.
  • Set realistic goals in measurable increments over set time-frames so that you will stay the course and you can track progress.

So, is mine a real life early retirement success story? I believe it is.

Do you have an early retirement plan and date set?

Is your plan realistic?

Is Wealth a Number or State of Mind?

Early Retirement Lifestyle, Financial Independence, Financially Free, Frugal Living, Funding Retirement, Living in the Moment,

Is Wealth a Number or State of Mind? I don’t consider myself wealthy but I am financially free enough to retire early and live life on my terms. A little while back the US Government enacted some tax increases on those it considered as the top 2% of earners and pegged the low-end of wealth at $250K for a couple. Even more tax increases were enacted for those in the $400K income range and above. But is that a true measure of wealth?

As I have always said, It’s not what you earn it’s what you keep that matters. People who make a lot of money but have high debt and an undisciplined spending habit won’t be feeling wealthy. Certainly the government has put a number to wealth but the number itself can’t be a true measure of wealth.

Is Wealth a Number or State of Mind: How do I define wealth?

I suppose I define it like many people do. Having an abundance of valuables, money, etc. but in the back of mind it’s always those millionaires and billionaires I read and hear about. The rich and famous, movie and rock stars, the big money CEOs and Wall Street movers and shakers.

So subconsciously I too have a soft number that I associate to wealth. I really never gave it much thought until today other than I never think of myself as wealthy. However something happened to make me think I was wrong and that I am actually wealthy. Wow, I said it out loud as I typed it here and it feels pretty darn good.

Financial Freedom Wealth Through Frugal Living is at Odds With What We Equate to Wealth

Is Wealth a Number or State of Mind

I think what caused me and I am sure others who are working toward financial freedom or those who are financially free to not consider themselves as wealthy is we tend to live a frugal lifestyle. We don’t make the big bucks and the only way to get to this point is we cut spending, payoff all debt, and increase our savings rate.

The less we need to spend to live our choice lifestyle the less it takes to pay for it. The flaw that I and I am sure others out there in my same situation have mistakenly embraced is that we compare ourselves to those who we subconsciously equate to wealthy and we are nowhere in the same ball park.

That is a mistake because wealth can’t just be a number. Wealth must be a state of mind. Once I realized that I can live life on my own terms where my needs are financially covered by my portfolio and I could pursue opportunities of passion I should have also realized I just became wealthy.

Wealth is Having All That You Need and Really Want

It has nothing to do with how much my account has in it. It has to do with the fact that I have enough to be content with what I do have. Once I reached the point where I didn’t feel like I was deprived of wants and needs I was wealthy. Once I could focus on what really made me happy like family instead of serving a heartless corporate monster and career I was wealthy.

Now there are a lot of people who have far nicer homes, cars, vacations, you name it, than I do but they aren’t necessarily wealthy. If they are enslaved by their money and lifestyle costs then they can never reach a wealth state of mind. That is far worse than my living a wealthy and free life and not being aware that I was wealthy. Wealth is YOUR state of mind and can’t be something you compare to others.

She Said I was a very rich man

So what happened today to make me ask myself is Wealth a Number or State of Mind? I had a conversation with a nice woman who moved here from Armenia. I have never met anyone from Armenia before and we talked about our families, how I just returned from a vacation with my daughter’s family including a 2 and a half year-old, where we have lived and traveled and want to travel. Just life stuff.

At no time did she ask or did we discuss our occupations or my work or early retirement status. She then asked me how many grandchildren I had and I told her 4 with another coming in December. She looked at me and said, you are a very rich man. Initially I was taken back and then I thought for a second, yes, yes I am.

How about you. Do you consider yourself wealthy when looking at where you are in your life and your financial freedom status? Or do you think there really is a number before you can consider yourself wealthy?

Mormon and Hippie Life Lessons

Financial Independence, Frugal Living, Living in the Moment, Retire Early

I have to credit some Mormon and Hippie Life Lessons that shaped me to become financially independent, retire early, and be the Leisure Freak I am. You might be thinking that those must be some pretty extremely polar life lessons. A super conservative rule-laden religion and the most liberal freedom seeking lifestyle movement of the 60s and early 70s. Well you would be right. But somehow it’s when things ring true and challenge what you thought where your truths you begin to see your world differently.

First some background.

I was born into a semi-active Mormon family. I attended services regularly through age 16 and then sporadically until age 18. I completed 4 years of Mormon seminary 9th grade through 12th so I know a bit more about Mormonism than the average non-Mormon Joe. Even though I have been what other Mormons call an inactive-member or Jack-Mormon since then. This post isn’t about that.

This post is about how the teachings and experience impacted me to become what I am today. I am sure many people have had similar influence in their lives from various past and current religious experiences that form their current self.

As for the hippie life lessons. Let me start by saying I never became a hippie. Although I rolled with some right-on groovy long hair. Again, this is about experiences that influence us.

I was too young to experience or really understand the hippie movement in its mid to late 1960s heyday. I did see some of that. We lived in the Bay area of California then. My dad promised his sister, my aunt, that he would look in on my cousin who was an ex-Southern California surfer turned hippie. He definitely was part of the San Francisco Haight-Ashbury scene. My dad would bring him and sometimes a friend of his to our home on Friday evenings after my dad got off work. That way my cousin and friend could get their clothes washed, bathe, have a decent meal and get a good night’s sleep. I was only about 10 or 11 years old during those days.

My Formative Teen Years is when Life Lessons take hold

My hippie life lessons occurred many years later in the summer of 1974 when I was 16. The hippie movement was all but dying out. I was living in Salt Lake City then. During the summer my friend and I would ride our 10 speeds into the city. Just seeking adventure and something to do. One day we came across a hippie group at one of the city’s major parks where they invited us to join in some spirited Frisbee tossing.

This led to us hanging with them for a two-week period until they moved on. They were crashing nearby at the home of someone’s relative. This little band of hippies had 4 young men and 3 young women who were traveling through enjoying our city’s scene for little while.

Although society and my religious upbringing warned of depraved and drug crazed hippies. My previous experience with my cousin and his buddies left me not only tolerant but open to their hospitality. It turned into a short summer friendship where we had many fascinating conversations about their group’s lifestyle and philosophy.

I learned a lot and some of it resonated within me. It wasn’t all drugs and sex as we had been warned about. They were very philosophical and passionate about their freedom-lifestyle.

Mormon and Hippie Life Lessons that Influenced Me

These Mormon and Hippie Life Lessons influenced me so that I would become financially independent:

Money –

Most Christians know about how Jesus felt about money and wealth and where he said it is easier for a camel to go through the eye of a needle than for a rich man to get into heaven. He was destroying the notion that those with all the money somehow are especially blessed by God as somehow more worthy. Money shouldn’t be what we worship and put before all other things.

These hippies had the view that money had its uses. Its use to pay for what you need like shelter, food, and other basic necessities. They didn’t worry about getting more money than needed. Money corrupts, just look at the rich who run the country and those that try to dictate everything. They were the ultimate threshold earners and earning lots of money toiling at work, especially something they really didn’t want to do was nowhere in their mindset.

What I got was perspective. Money is not what is most important, freedom is and that later evolved to freedom through financial independence. However, I knew when enough is enough instead of continuing in a career that I was no longer passionate about just adding more and more money to my savings. I had just enough to be free, so then go and be free. It’s a need vs. greed mindset.

Be Prepared and Self Sufficient–

As a Mormon it is drilled into your head. Everyone has probably heard of the Mormon 1 year supply of food and water for any future catastrophe. They are the original doomsday preppers and being prepared and self-sufficient is a mainstay. They sponsor the Boy Scouts and I participated in that too.

The hippies, not so much. They were all about living in the moment, trying to challenge and change society for a better world. They didn’t change the world like they intended but they did change me and some others a bit.

What the lessons did was give me balance. It is one thing to save and prepare for tomorrow and beyond but try to not lose sight of what is happening now, enjoy you’re moments. Living a balanced life is a life well lived.

Anti-Consumerism –

It was preached over and over at church, everything in moderation and it applied to all types of consumption. I did take it to heart.

The hippies were the original re-purpose, make it yourself and recyclers. Travel light and don’t want more than you need. They didn’t buy and keep a lot of stuff. What they had they shared. To them the world had been corrupt by over-consumerism. Frugality as a way of life.

For me it became a habit not blowing money buying stupid things. I have a few toys now associated to my hobbies but we never fell for the latest and greatest sparkly-doodad that came along. I learned that sometimes less truly is more.

Conclusion.

There were a lot of things that I learned in my early formative years but the above Mormon and Hippie Life Lessons are just a couple of simple lessons I wanted to express as influences in my financial mindset.

When I look back at my life I think that I had a lot of unique experiences because I was always open to new ideas and my soul has always believed that when it comes to life, it is an adventure so live it that way.

As one of the baristas at my favorite coffee shop always jokingly says as I leave, “Drive Fast and Take Chances”.

How about you. Can you identify what your earliest influences were for you that has set you on the path of financial independence, a passion-driven life and freedom?

Extreme Frugal Life to Retire Early?

Automotive Hobby, Early Retirement Lifestyle, Frugal Living, Retire Early, Saving Money

Does it take living an Extreme Frugal Life to Retire Early? I believe there is no one plan or way for everyone to retire early. There are many sites and early retirement based articles. People who detail how they were able to retire early. Or articles providing advice on ways to reach your early retirement goals.

An article I read recently on Yahoo Finance was about people who successfully retired in their 30s by practicing what many consider an extreme frugal lifestyle. Based on what was expressed by many of those who commented on the article, the subjects of the article have retired to a lifestyle that would not be enjoyable. I am paraphrasing as some comments were a bit more negative.

I am not sure why articles about anyone who details THEIR successful early retirement strategies brings out some haters in the commenting world but I think people should read about their methods and take from it what will work for them.

There was a point made in the article which I feel is totally valid about figuring out what really makes you happy and living that life. That life shouldn’t be defined by stuff. I am sure that the frugal lifestyle that they live doesn’t feel deprived or extremely frugal to them at all.

Certainly anyone trying to accomplish early retirement should figure out what their idea of a life will cost. If you are aggressively saving for retirement you are probably already living that life. Obviously living an Extreme Frugal Life to Retire Early isn’t for everyone.

The definition of extreme frugality is different for everyone too as we all have our own thresholds of what that is. However it is a fact that the smaller your lifestyle expense footprint is, the less it will take in savings/investment money to support an early retirement. Everything has tradeoffs. I can see how living an extreme frugal lifestyle would certainly kick-start your savings. Maybe one could live that lifestyle for a predetermined period of time to pay off debts that are in the way of early retirement. A strategy of depriving oneself temporarily for a short time until financial goals are met. That would certainly be a valid strategy.

Did I Live an Extreme Frugal Life to Retire Early?

So how does Leisure Freak Tommy live in early retirement? I haven’t always lived below my means. In the early years when starting out and having 3 children I didn’t make enough to support us fully once my wife stopped working outside the home. Even with my working a second part-time job. I had enough to pay the monthly bills but any living costs above that ended up on a credit card. There were no emergency funds or vacation accounts.

We did have to live a somewhat extreme frugal life to keep expenses as close to income as possible. You do learn to be more self-sufficient. Learning how to repair things yourself, restrict going out, shopping primarily during sales and using coupons. Even though something was used when we bought it, it was still new to us. Most of the people I knew lived the same way. As salaries increased and the kids became older we really didn’t increase our lifestyle as it was time to pay off all of those debts and start saving more. Eventually there was a little more give in our budget, debts were all paid off, and we ramped up saving.

Some might say that my current lifestyle budget is a frugal lifestyle. It doesn’t feel that way to me, it’s just my lifestyle. I still have extended basic cable and I did keep my hot rod truck and sports car in retirement. I find enjoyment in my automotive hobbies. It’s my trade-off and accounted for in my budget. No different and possibly far less expensive than being a golfer. I would like to make this point. Being frugal is the easiest way to early retirement as it frees up more money for saving and then of course takes less to fund your retirement.

What Needs to be Done Frugally to Retire Early:

  • Determine what YOUR ideal retirement looks like and save, invest, and work just long enough to fund that life.
  • Find that sweet spot where you are living responsibly, below your means, and live it before you retire.
  • Try not to go into early retirement feeling like you are living a deprived life or one that doesn’t fit your vision of what your retired lifestyle should be.
  • Research and see what others have done to successfully retire early and take the parts of their strategies that works for you.
  • If your freedom is worth some extreme frugality then make that decision and go into it without feeling deprived.

So, is it worth it to you to live what others may consider an extreme frugal Life to Retire Early?

Retirement Savings vs Expense Reduction

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When looking at retirement savings vs expense reduction, which gives you the best chance to reach early retirement? First let me define what I mean by expense reduction. Usually you see the question posed with debt reduction rather than expense reduction. I use the term expense reduction because it is all inclusive with debt being a part of it.

Debt is a killer if you are planning to retire young and early. It will require a low expense footprint in order to reach super-level retirement saving rates. I am no financial guru but I believe that the answer to retirement savings vs expense reduction is that you need to do both.

The whole retirement savings vs expense reduction question comes down to your own personal strategy. Everyone’s situation is different. Don’t ever accept a cookie-cutter all inclusive answer to this issue.

Here is how I looked at this question and developed MY STRATEGY. Obviously the lower my expenses. The less savings it will take to retire early. I bring it up because it is real easy to concentrate only on what you are saving without looking at expense.

My work journey was a slow moving climb. From an entry level position to engineer. With that climb the associated slow increases in income. I had to increase my income to make my strategy work. So I worked a 2nd part time job for 13 years to eliminate the debt  we gradually picked up supporting a family of 5.

You must have a plan and stick to it. So make a list of priorities, goals, and your strategy to get there.  The answer to the retirement savings vs expense reduction question is different for everyone.

Retirement Savings vs Expense Reduction – What Needs to be done

401K

Pay yourself first was the advice that I received and lived by. When I started contributing to my 401K I was only able to make the minimum contribution to get the full company match.

Always take advantage of your company’s 401K and if there is a match you are getting a hell of a return on your investment the day it goes in regardless of what your investment gains may be.

Being it is before taxes means it isn’t a dollar for dollar reduction in your take home pay. Once you have accomplished your debt and expense reduction you can then ramp up the savings rate.

Emergency Savings Account

Once again, pay yourself first. I know it is said you should have 6 months or even a years’ worth of living expenses to cover you if there is job loss or any other catastrophe. For me that was a formidable amount to achieve and still make strides to reduce expense.

Just allocate a percentage of your take home pay check and slowly build that account up to a figure that would carry you through a rough patch. Once comfortable with that balance, redirect you allocation to either Debt or 401K/IRA savings.

Expense Reduction

Go on an expense diet. Like a food diet, you need to be smart about what you are going to cut from your lifestyle. You need to decide what is really important to you, what really makes you happy, and what you can trim and stick to it. You don’t want to feel like you are living a deprived life where you will relapse and reverse any gains you have accomplished.

Targeting your debt

I knew that if I ever wanted to retire early I would have to be debt free. I did retire with a mortgage and knew that I wasn’t going to have it paid off for my first Leisure Freak retirement so I refinanced it for the least interest rate possible so that my payment was as low as possible.

There are many theories out there about paying off the smaller accounts first so you feel like you are making progress. I believe it’s best to make your money go where it will have the biggest bang for the buck and that is on the highest interest account. That was my strategy and it worked.

Eventually we had enough home equity to consolidate to a home equity line of credit and take advantage of the lower interest rate and receive the tax advantages. Once it was paid off, I was able to super-size my retirement savings rate and build my accounts up to pay cash for cars, my kid’s college and their weddings.

Final note

During this entire time I did increase my 401K allotment with each yearly raise until it was maxed out.

Sit down and form your own strategy and then stick to it. Allow some flexibility but keep your eyes on the finish line. These things don’t happen overnight.