Tag Archives: Saving

How many times have you blown $1,000?

Ever wondered how many times in your life you’ve blown $1,000?

$1,000 x 300 = $300,000

Image courtesy of graur razvan ionut / FreeDigitalPhotos.net

Image courtesy of graur razvan ionut / FreeDigitalPhotos.net

In past posts, I’ve noted a few of my focus numbers for pretirement. For example I’ve targeted a goal of around $300,000 (plus paid-off mortgage) as my freedom number. (Think $600,000 for a couple.) I’ve also remarked on how many households pin their core monthly non-mortgage expenses at around $2,000 per month ($1,000 per person). This includes my own.

So if you’ve been aggressive and paid off your mortgage in record time, you are likely looking at monthly core expenses near that magical $2,000/month (for two people). And, of course, if that seems insane, you’ll probably want to examine your spending rates. However, if we accept that number, then we can safely say your Pretirement Fund number is probably somewhere around $300,000 for each person. It might be a little higher or a little lower based on your personal investment yield, taxes and other factors, but just to keep things simple, we’ll use round numbers for now.

In my own situation, I’m a little shy of that number, which is why I’m only semi-pretired today. I have too much net worth locked up in my house and, of course, made many dumb investing and spending mistakes over the years.

Which begs the question: How many times have I blown $1,000? It’s an important, but troubling question. Have I done it 300 times? More? It makes me want to go back and slap earlier me across the face.

Let’s take a look: (Making guesses at the exact amount in most cases.)

Over-improved my first home$30,000+30
Luxurious vacations over the past 20 years (At least $3,000/year on average)$60,000+60
Bought new car (Stupid, stupid)$40,000+40
Eating out (Maybe $40/week on average for the last 10 years)$20,000+20
Over-improving current house$30,000+30
Various electronics over past few years$15,000+15
Furniture purchases$10,000+10
Random other crap$20,000+20
TOTAL$225,000225

So because I’m Pretired Nick, you might assume I’m some sort of Frugality Ninja (hey, good URL, someone should snag that!). But, really, I’ve been just as much as a big American spender as anyone else. OK, maybe not as much as most people, but still pretty bad. But I’m not here to shame myself before all of you, but rather to show HOW EASY it is to reach pretirement by doing nothing more than staying employed and cutting back on the spending.

$100 x 10 = $1,000

So you don’t think you’ve blown $1,000 all that many times? Let’s break it down: how many times have you blown $100? Dropping a hundo is easy. I sneeze a hundred bucks into a tissue just about every week! My numbers above are definitely under-counting the drip by drip of small purchases. Gas for the car, art, gifts, new shoes I didn’t really need, tools purchased unnecessarily and so on.

Have you dropped $100 just 10 times in the past year? Month? If you dropped $100 per week, that’s $5,200 each year. Doesn’t sound like that much money until you realize that’s five $1,000 bills that could have gone toward your pretirement fund — nearly 2 percent of what you needed right there!

I listed out just my big, memorable purchases above totaling to $225,000. If I had cut back just by $100 per week on average for the past 15 years (something that would have been very easy for me at various times), I’d have more than the remaining $75,000 needed to reach my Pretirement Fund goal.

$30,000 x 10 = $300,000

Or to frame things in terms of time, let’s say you’ve realized 40 years in a cubicle isn’t for you and you’d like to tough it out through 10 more years of your career and then be done. You’d need $30,000/year ($2,500/month) for each of those years on average (again, ignoring your mortgage and growth on the money).

But $2,500 a month seems like an impossible amount to put aside month after month! The thing is, many households have monthly budgets of $6,000-$8,000 or even more. Obviously housing costs are by far the biggest drag on people, but it’s also TVs, vacations, clothing, random plastic crap, lattes and car expenses.

I realize it’s too late for many of us. We can’t go back and add many years of savings to our lives. But like the Chinese proverb says: There are only two times to plant a tree — 20 years ago and today. Regardless of where you’re starting, build a spreadsheet, decide on your goals and build a plan to get there.

$100,000 x 3 = $300,000

It always comes back to real estate with me. Like I have mentioned many times, we really have more house than we should have given our goals. Should we choose to downsize — something we’re seriously considering — that should free up at least $100,000 that I can put toward my Pretirement Fund, putting me over the top! Or I could work a couple more years and save that up quickly given that I have very low expenses.

Which way will we end up going? We really have no idea at this point. But you’ll be the first to know as we wrestle with this final step toward pretirement right here in front of all of you!

Hopefully the math lesson wasn’t too silly for everyone. The point isn’t to teach my readers basic division and multiplication, but simply to remind that breaking big problems into smaller problems always makes things easier and that small spending, even $1,000 here or there, can really add up and keep you working much longer than you want. I’m living proof on both the negative and positive sides of that equation.

So what do you think? Does breaking your goals into bite-sized chunks help you get there? And how many times do you think you’ve blown $1,000? 

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Convert spending into winning and trick yourself into saving

Money is inherently psychological. If we as a society lose our faith in our paper currency, it loses all its power and instantly becomes worthless paper. In a way, we only believe money is real because everyone else believes that everyone else believes it’s real. If you follow me.

But it’s also psychological in other ways. If we loan money to a friend, it immediately changes our relationship. We don’t feel that way when we loan tools or clothing. Why is money so different?

Fortunately we can also use money’s psychological powers in clever ways that become money-saving tricks. Next time you’re likely to make a mindless impulse purchase, try this trick out and let me know how it works. I do this from time-to-time and it helps me stay out of trouble.

The trick is this: convert the dollar amount you’re about to spend into money you just won or found. By employing this method, you can reset the importance of that money to your brain, helping you make different choices.

For example, say you’re about to blow $6 on a delicious, hot latte. Mmm, hot latte! Now, logically you know you’ll just be draining that latte into the toilet in about an hour, but oh, it’ll taste so good! But would you just throw $6 into the toilet? Hell, no! To resist the temptation, try converting the dollar amount in your mind to money you just found. Ask yourself how you’d feel if you reached in your desk drawer and found $6 you didn’t know was there. You’d be psyched! But by not buying the latte you’re saving the exact same amount! Remind yourself of the happy feeling when you find money and it’ll help you hold back.

Money can seem small or large depending on the context or price of what you’re buying. If you were buying, say, a TV, one unit might be “only” $200 more than the next one. You rationalize to yourself that it’s not much more to spring for the slightly better model. You whip out the card and make the purchase. But if you remember the exhilarating feeling you got last time you won with a lottery ticket* you can trick yourself into remembering what the real value of $200 is and restrain yourself. Congrats, you just won the lottery!  Or if you found $200 in an old jacket pocket. Would you be so casual about that?

Imagine a van pulls up to the side of your house one day and a guy runs up to your door to hand you an oversize check for $200,000! Wow, that’s a lot of money! What a great feeling! But by downsizing your house some of you might be able to get that $200,000 in your hands, but you ignore it. Don’t you want to win $200,000?

Pretty much the only casino game I’ve ever enjoyed playing is craps. It’s complex, fast-paced and I generally make some money at it. The fact that it’s relatively easy to walk away with cash is probably why it’s getting harder to find craps tables in casinos. Instead, the casinos are packed with slot machines which are very carefully designed to relieve idiots of hard-earned money.

One of the calls I’ve been procrastinating on making lately is to my insurance agent. I need to make several changes to my policies, but I’ve been waiting until I sold some real estate so I could do everything at once. I figure my family should be able to save $100/month once the changes are in place. That’s $1,200 every year! I would be psyched if I won $1,200 playing craps! That would be an amazing amount of money to walk away with! Yet, here I sit with my thumb up my butt waiting for the “perfect time”. OK, that’s it, I’m going to call today! See? It works!

What about you? Do you have any clever ways to trick yourself into saving? 

*I hope none of you have ever really done anything as stupid as buying a lottery ticket.

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