The key to financial independence is saving and investing as much as you can. The more you save, the more you’ll grow your net worth. I recommend saving 15% when you’re starting out and shooting for 50% in the long run. We have been saving over 50% of our income for many years. It served us well and we achieved financial independence several years ago. However, it looks like our saving rate will be under 50% this year. Like many families, we are spending more money than ever.
Inflation has been a big problem over the last few years, but it is starting to improve. The Fed increased the interest rate and inflation is under 4%. Prices won’t go back to what we used to pay, but it is stabilizing. Hopefully, we’ll get back to 2% inflation at some point. However, price inflation isn’t the only problem. Lifestyle inflation is another big issue that we all have to deal with.
Lifestyle inflation
Like many families, the RB40 household has been indulging in revenge spending over the last 2 years. Last year, we traveled for 6 months and enjoyed it immensely. This year, we haven’t traveled as much, but we’ll spend about the same amount of money. Travel has gotten a lot more expensive lately. Also, Mrs. RB40 declares she’s tired of being cheap. Now, she wants to spend more on quality clothes, shoes, haircuts, and various things that make life better. This is a big change because she has been frugal since she was a kid.
Mrs. RB40 went on a few business trips this year and visited several coworkers’ homes. Some of them are higher level and some lower. However, they all live more luxuriously than we do. They have nice big houses, new home furniture, and luxury cars. In contrast, we live in a small duplex and drive a 13-year-old Mazda. We haven’t changed our lifestyle much since I started Retire by 40 in 2010.
I told Mrs. RB40 that her coworkers’ retirement accounts probably aren’t in very good shape. But that doesn’t seem to help much. She is feeling envious of her coworkers.
Housing
Currently, we live in a small duplex. We live in one unit and rent out the other one. Our unit is pretty small for 3 people. It’s just 1,000 square feet. It has one full bedroom, one bathroom, a den, and a basement. The den is used as our son’s bedroom and Mrs. RB40’s home office. RB40Jr has a loft bed and Mrs. RB40 has a big desk under it. I have a small desk shoved up against the dining table. This isn’t ideal, but we made it work. Honestly, it’s been pretty tight since Mrs. RB40 started working from home in 2020. Fortunately, she is going back to the office so it’ll be more relaxing soon.
I don’t mind the cozy living space. It isn’t a big deal to me. However, Mrs. RB40 has been griping about it. She wants a bigger kitchen, another bedroom, and another bathroom. This place is too small after visiting her coworkers’ houses. Also, RB40Jr is getting older and bigger. He will want more privacy soon.
However, this is a terrible time to move. The housing price is very high and a 30-year fixed rate mortgage rate is over 8%. Our monthly housing expense is extremely low compared to most families. Usually, we spend about $1,300 per month on housing. That includes the mortgage, property tax, utilities, and insurance. (Repair and maintenance push it higher, though.) If we move to a little nicer house, we’ll spend 3 to 4 times as much for housing every month. Also, we plan to move closer to Mrs. RB40’s parents after our son goes off to college. It’ll be a bad idea to move now, and then do it again in 5 years. We’ll pay a ton of realtor fees and various other charges.
However, I have a proposal! When RB40Jr starts high school, I’ll ask our tenant to find a new place to live. We’ll take over both units. Mrs. RB40 will have another kitchen to work with and her own office in the den. RB40Jr will have a full bedroom and a bathroom. I’ll set up an office in the other living room. RB40Jr and I can share that one. Our housing expenses will double, but it’s still the most economical solution. When we move in 5 years, Mrs. RB40 can go hunt for her dream home.
Compromise
Fortunately, Our housing expenses will stay the same for a couple more years. That’s a big relief. Housing is usually the biggest expense in a family’s budget. Meanwhile, Mrs. RB40 can spend more on clothing, shoes, and personal grooming. Those things cost just a fraction of housing so it isn’t a big deal. We made a compromise.
I’m really lucky to have a great partner like Mrs. RB40. She is becoming less frugal, but I’m okay with that. We’re getting older and we should enjoy the reward of our labor. Being frugal is the way to go when you’re young. It enables you to increase your saving rate. When you’re older and more financially secure, you can be more flexible and live more comfortably. I think we’ve kept lifestyle inflation under control tight over the last 15 years. We’re in a good position to increase our spending a little bit.
What about you? How are you handling lifestyle inflation? Are you spending more than ever like most consumers?
image credit: Sean Robertson
Passive income is the key to early retirement. This year, Joe is investing in commercial real estate with CrowdStreet. They have many projects across the USA so check them out!
Joe also highly recommends Personal Capital for DIY investors. They have many useful tools that will help you reach financial independence.
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