We briefly talked about needs and wants in previous post, why I like the idea of early retirement extreme. We know that there are no needs or wants; it is just people value that determines what kind of consumption level they want. Below is the list I used on that post:
1. Dumpster diving.
2. Heavily processed food.
3. Home cooked food from pre-packed ingredient.
4. Home cooked food from fresh ingredient.
5. Food from hawker center.
6. Food from food court.
7. Gourmet meal from restaurant.
8. Fine dining
As you should know now, the amount of money needed to pay for each item on the list are very different, literally from zero dollar to an unknown amount of dollar (I never been to a fine dining session before, so I don’t know what is the cost there). Having said that, you are not limited to choose only the lower end item from that list, in fact you can choose anyone you like. Everyone situation is different and your income generation ability is unique to yourself. Who am I to tell you which restaurant or hawker center or rubbish bin you can go to for your next meal, right?
The key point is define your ending point, this activity will in turn define your “number”, the number you needs to retire, earlier or later. Questions you can ask yourself when you are going through various needs or wants in your life can be:
1. Do I really need things from this area?
2. What kind of quality can I accept in this area of life?
3. Where can I get them at the cheapest price (or free) at the quality I want?
4. Can I learn the skill to build/grow/fix/ them myself?
Why it is so important to define your enough? Because it cost you 45 years of your life. Let me illustrate through the below table:
|Saving Rate||Working Years|
Assuming you can earn 5% investment return after inflation when you are saving, you will withdraw 4% from your fund every year, you will volume down your expense during year with lower return and you want your fund last you forever. The table is showing the years you need to work with various saving rate.
How long do you want to work?
The basic idea is the more percentage of your income you saved every month, the faster you are to achieve a retirement. Say you only save 10 percent of your income every month; it will take you 51 years before you can retire. Compare to a saving rate of 80 percent, it will only take you 5.5 years to retire, this is why I am saying it is costing you 45 years of you life (actually more than 45 years).
Why the huge difference with just a few more percent of saving each month? This is because what I call twin financial effect. By saving more of your income, you are at the same time reduce the money you need to survive thus it give you the double effect.
Money does not motive you?
If the money part does not motivate you to boost your saving rate, remember that all the stuff you acquire in your life require your attention, which means your time and energy. My weakest link is my obsession with books; I used to buy up to 10 books per month, it happened whether I saw some recommendation from some blog, TV advertisement or ever conversation with friend. After I set my target to retire early, I start to look at my option. What are the other solutions I can adopt to fix my obsession to buy book? I found library. Library is really an amazing place where you can find almost all the old book you want to read and the latest book came as early as 1 month after release. With increase my library card usage, I almost wiped out the expense category called book in my spending tracking sheet.
So, what motives you to cut down your expense and boost up your saving rate? Is it your children? Is it your partner? Is it your parent? Find your enough; spend your time with them.