Would you rather spend $1,000 now or be able to spend $10,000 in 30 years? The answer seems obvious, and it was obvious for me until not that long ago: I would rather have $10,000 in 30 years.
But it’s not that obvious to me anymore.
Let me explain: imagine that, 30 years from now, your net worth is $1 Billion. Is it still better to have that extra $10k? How much utility does this amount have in your life? None at all. With a $1B net worth, the daily swings of the stock market make the 10k a rounding error.
Ok, but almost no one will be a billionaire in 30 years. How about a 1 million net worth then? That sounds more realistic. Are 10k going to matter then? Maybe, maybe not.
The key aspect that is often neglected when talking about savings is the utility of money.
As a kid, I would stash all the cash I got as gifts on my savings account. I would consciously NOT buy video games just so that I could use the money "later". Now, I realize how silly it was. The amount of joy I would have gotten from that video game is incomparably higher than the satisfaction of having $30 now. Even if I had invested those $30 back then and netted a 10x return, it would have been a poor trade.
Money is not worth the same all the time. If saving and investing an extra $1,000 today means making your kids renounce saxophone lessons, or not going to the dermatologist because of that weird rash, or even not buying the Rolex you’re dreaming of, I would say that it’s not worth it, even if those $1,000 would turn into $10,000. Especially, if you’re already saving enough and will end up with plenty around retirement age.
Sometimes it’s better to spend money now. Actually, I would argue that if you’re going to end up a millionaire anyway, it’s not worth it to restrict spending at all. Don’t set money on fire (no pun intended) obviously. If you’re living exactly the life you want, and there is still money left, of course you may invest it. Or better: donate it, because you’re not going to need it.
Or even better: don’t earn the extra money in the first place. Start your semi-retirement. Work part-time. Switch to a job you like better that pays less. Yes, I hear you, it’s not that simple. Except that it is, most of the time. We just tell ourselves that it’s impossible because we like the comfort of earning extra money and there is this weird masochist tendency to deny ourselves what we want. I know that, I felt it too. My boss didn’t like it when I told him that I would like to work 25 hours a week because there is no way I would let my daughter go to full-time daycare. It was a tough conversation. But he gave in because he knew that I would quit if he didn’t allow it. And I would have done the same job as a consultant and charge double for it.
Yes, saving less is going to hurt your FIRE date. The question is: are you still going to think about FIRE day and night when your life is already more or less what you want it to be? I know that some people’s ambition is just to play video games all day long and never worry about earning an income ever again. I can relate to that. But tell me this: would you rather live a life you hate for 12.5 years (that’s the time it takes to reach FIRE with a 60% saving rate) or a life that’s not so bad for 17 years (time to FIRE with a 50% saving rate)? Going from 60 to 50 means either spending 20% more money or earning 20% less, that’s one day a week or 2 months’ vacation per year. That would make the journey way more bearable, even if it takes longer.
Plus, everybody assumes that they will never earn an income in retirement again. I just don’t believe that: if you’re smart enough to get a decent paying job in the first place, you WILL have ideas when you do nothing all day long. Maybe you’ll need a few years of nothing to recuperate from a draining career. But at some point, you will do something that produces money. Look at MMM or Mr. 1500 days. And maybe that income will be as low as $500 a month for something that you enjoy doing. But those $500 a month of extra income translate into a net worth that is $150k too high, because it takes $150k to produce a monthly $500 with a 4% SWR. That’s usually a few years of savings that wouldn’t have been necessary. To go back to the example of MMM and Mr. 1500 days, they vastly oversaved. They most likely could have enjoyed the life they wanted much earlier.
I get it, it’s better to be safe than sorry. But I would rather give a little bit of safety so that I could not be sorry that I spent too little when it could have been useful. I don’t want to have a $10 million portfolio when I’m 70. Because that would mean that I didn’t optimize my spending. It would mean that I could have donated much more. It would mean that I could have worked much less.
I’m done saving all I can. I have enough in my portfolio for it to grow to a million and more at some point in the future. In the meantime, I’m going to earn enough to cover my expenses, enjoying life at a slower pace. I don’t want to postpone fun projects anymore because I don’t have time because I have to work because I have to save. I’ve lived in the future for a long time and I can tell you: the future is overrated.