Yesterday, I found this great article from the New York Times entitled ‘Supersavers’ Focus on the Goal. The article focuses on people like me and like many of you who are putting aside a significant part of their income for the future in order to fund big goals like early retirement.
Unlike other articles that I’ve seen on the topic of “supersaving,” however, this one does a great job of focusing on the actual strategies and tactics that people use rather than just profiling people and their outcomes and acting as if the whole thing were magical.
It’s not magic. It’s just a lot of good choices that add together.
In fact, it’s the sense of “magical thinking” that I find particularly frustrating when it comes to personal finance. Whenever people hear that someone else has a significant amount of money in the bank, the immediate assumption is that either that person has a huge income or they were somehow “lucky” or some other kind of “magic” occurred in their life.
The truth is that for many people – myself included – the money that we’ve saved has come from many years of hard work and many years of making choices that aren’t the choices other people would make. It comes from choosing again and again to plan for the future instead of throwing money away in the present. And, over time, that adds up. It adds up to financial independence and early retirement. It adds up to an amazing home for which you hold the title, not the bank.
And this article in the Times seems to get that. It doesn’t marvel at the stories; rather, it shows the many choices those people made to get where they are.
I wanted to walk through this great article with some of my own commentary, because there are a lot of good ideas in there that deserve some additional notes and a bit more fleshing out.
Early on in the article:
Mr. Reining is part of a small group of supersavers who commit to a number that they say will support their lifestyle in retirement and never stray from achieving that goal. They are the financial equivalent of people who go on a diet, lose the weight and actually keep it off.
“Very few have the discipline and fortitude to set a plan, a budget, and stick with it,” said Jason M. Katz, a managing director at UBS Wealth Management Americas. “The people who are the supersaver freaks, who actually do it, go through an exercise of mental accounting. They designate certain pools of money for certain goals.”
I often talk about dieting and exercise on The Simple Dollar as a parallel endeavor to becoming financially successful. There are a lot of parallels between the two.
For starters, both require a strong degree of internal discipline to get started. They both require a rebooting of your normal life patterns. The things you were doing were taking you down a long-term path that you didn’t like, so you have to find a new path. That means undoing a lot of natural patterns in your life while replacing them with ones that seem pretty challenging, and that’s hard.
However, in both cases, the journey becomes easier once you’ve been doing it for a while. Eating less and exercising more begins to feel natural, just as spending less and saving more does, too. You begin to feel like it’s wrong to do things that would cause you to gain weight or to waste money.
The strategy for success in both endeavors is easy. To lose weight, consume fewer calories than you burn each day, week, and month. To improve your financial state, spend less than you earn each week and month. It’s not hard. It’s just that the implementation of it – the actual act of making it happen in your life – can be really tough.
The people that succeed at either path, whether it’s losing weight or fixing their finances, tend to really stand out from the pack because anyone who has tried either knows how hard it really can be. Sometimes, people think that those who did it must have had access to some secret tricks, but it’s usually just hard work and a lot of determination.
The article jumps right into what I consider to be the key strategy (or at least part of it):
He began saving more: 10 percent at first, then increasing the amount to more than 50 percent. He made as much as he could automatic, to ensure that money from his paycheck flowed immediately from his checking account to his brokerage account and then into index funds. That eliminated the temptation to divert money to the things 30-year-olds might want to buy.
Automation! Automation! Automation! If there’s one key to making investing and saving for the future successful in your life, it’s that.
Each week, I have money automatically deducted from my checking account for all kinds of things. Some of it goes into retirement savings, but I also have separate savings for other goals like our next car replacement cycle and upcoming travel.
The advantage of setting up automatic transfers like this is that I don’t have to think about it. I don’t have to make the conscious decision to save each week – it just happens automatically. The money goes into those saving and investing accounts without me having to lift a finger.
Instead, I just worry about all of my non-saving and non-investing expenses using the pool of money that remains in my checking account. The real impact is just that I can’t spend like a madman. It forces me to have a little bit of self-control over my spending.
Without this kind of automation, it would be really easy for me to talk myself into using that money to buy things I don’t really need (and likely won’t even want in a few months) while skipping my savings for the week. I’d tell myself it will be okay and then two years later I’d have almost nothing in savings or investments.
Automation keeps me on track because it removes my ability to make bad day-to-day choices from the equation completely.
This bit about “flyover country” made me smile:
Mr. Reining, who has been dating his girlfriend for three years, has done some calculations around the cost of children that parents might find a tad low. He thinks they could raise a child from birth through high school on $85,000.
“It won’t go very far in New York or San Francisco, but if you live in flyover country like I do, $85,000 goes a long way,” he said.
I live in “flyover country.” Around here, you can buy a livable house for $50,000, a very nice house for $100,000 and buy an incredibly nice country estate with a huge house and a tract of land for just a few hundred thousand dollars.
If you live in an expensive real estate market like New York or Boston or San Francisco, those numbers probably seem unbelievable, but they’re true. They also indicate why you don’t need nearly as much money to live some version of the “American dream” in other parts of the country.
My “target number” that will pay for all of my retirement is comparable to the cost of a decent house in New York or San Francisco. That’s not a joke.
Yes, of course there are more cultural opportunities in those places, but there are plenty of interesting cultural opportunities here as well, particularly if you look around and don’t expect them to be spoon-fed to you. It becomes even easier if you live near a college town – I live fairly close to Ames, Iowa, where Iowa State University is, and there are several other universities within an hour or two of our home.
I don’t feel as though I am living any sort of culturally deprived life. In fact, I have more cultural, educational, and entertainment options than I possibly have time for in my life. There truly is an abundance of options out there.
I really liked this section on prioritizing:
For any supersaver, it all starts with prioritizing. Diets sometimes fail because they are too restrictive; these supersavers realize that all saving and no fun is not sustainable.
Mr. Reining and his girlfriend go on an overseas vacation each year, last year to England and Italy, the year before to Argentina. They are planning a safari in Tanzania in January.
“These are not inexpensive trips,” he said, though he added: “We’re not staying in $300-a-night hotels. We stay in a small, clean budget hotel and spend more time at museums or spending that money on a tour.”
I absolutely splurge sometimes. My family goes on a vacation of some kind each summer. I like going to tabletop gaming conventions. I have several hobbies that sometimes require money. I enjoy good foods and good drinks probably more often than I should.
The catch is that these things come after saving for my goals and if there isn’t enough money left over after saving, then I have to make hard choices about how to splurge.
It comes down to priorities. For me, things like early retirement are of the highest priority. The only things that rank above it are meeting the basic needs of my family – food, clothing, shelter, and so on.
I choose to make financial independence a higher priority than travel. It doesn’t completely blot out travel, but it does put some restrictions on where I can travel. I choose to make financial independence a higher priority than my hobbies. It doesn’t completely blot out my hobbies, but it does put some restrictions on my hobby spending.
The money I’m saving for the future comes first. I save enough so that my life isn’t miserable, but it is at least a little challenging. In order to spend money on enjoyable things, I simply have to budget and be careful with the money that’s left. If I don’t do that, then I will end up either back in debt or tapping some of that retirement savings, and neither one of those options fills me with any kind of joy.
This section about the importance of finding friends on the same financial page as you also hit home:
Mr. Stammers said that often, people who find friends with similar investment goals did better. They are like supersaver clusters, where peer pressure works the same way it does with people who overextend themselves to match what their neighbors have.
Most of my social circle has a similar perspective on personal finances that I have. We’re all in our thirties. All of us have our student loans completely paid off. All of us own our own homes and have paid off our mortgages in full. None of us have any debts of any kind.
While we’re not all saving for retirement, we are all saving for bigger goals in life. I have one friend who is buying up farmland and leasing it to farmers, which is an interesting angle. Another couple that we know are visiting their “bucket list” of places around the world.
Sarah and I just want to walk away from our jobs in our forties and while our children start to establish their foothold in the adult world, we’re camping in Acadia and Denali and I’m writing a novel and we’re both working for charities and building permaculture in our back yard.
The point is that I have a circle of friends who all have long term goals for their money that they save for by sacrificing some of their minor short term pleasures. We don’t go out together and drop $300 at a restaurant. Instead, we have potlucks and play board games. When I hang out with the guys, we don’t go drop $200 at a golf course on a round, a box of balls, and some time at the clubhouse. We usually sit around a big table at someone’s house and play a game of some kind. We don’t go on expensive trips together; instead, we camp at state parks in Iowa.
Our conversations about money are pretty rare, but when they do come up, they’re often about money-saving tactics. We’ll share really good coupons with each other, for example, or tell each other about some major deal that one of us has found that the other person might find particularly useful. We don’t sit around and talk about specific investments very often, if at all, but it’s understood that all of us are investing in our various ways.
The point is that I do a lot of fun things with my friends and with my broader social circle. They aren’t necessarily expensive things. At the same time, most of my social circle is making a lot of smart financial choices about their lives, so that encourages me to continue to make smart financial choices.
Another interesting part touches on how bad money experiences can help:
David Houston, her brother and adviser, who works at Northwestern Mutual, said his clients who had become supersavers had a trait in common: They were coachable.
“What you find is, someone who has had a bad experience or seen someone have bad experiences is much more coachable, because they don’t want to fall into that ditch,” Mr. Houston said. “Then you take someone for whom life has been easy — they get out of college and they don’t get on a track.”
This is a fairly broad generalization, but it makes the point that having a plan and listening to someone knowledgeable may keep you from fooling yourself.
This sounds an awful lot like me. Sarah and I went through a very painful financial period in the mid-2000s, and it was that rough patch, in fact, that led to the birth of The Simple Dollar.
I believe that part of what led to our financial turnaround was that I was truly afraid of going back there. I didn’t – and still do not – want to be in a situation that’s anything at all like that, ever again. There’s a fear element there.
One interesting part of this section is Houston’s reference to being “coachable.” I never participated in personal finance coaching per se, but I did check out a ton of books from the library and read a ton of websites about personal finance and I absorbed that material like a sponge. I think that part of my openness to such ideas was due to my understanding of how bad things could actually get.
In a way, I was “coached” by personal finance books and websites. They provided me the material and ideas I needed to make things happen, but they didn’t provide the motivation. I provided that myself, and it was borne out of a fear of ever returning to the tenuous financial state I found myself in early in 2006.
This bit at the end about being a “supersaver” while balancing social relationships also hit home:
For Mr. Reining, the hardest part is not maintaining day to day the financial diet he has put himself on. His solutions to that are “just automation” and “pretending like you don’t have that money anymore.” Then there’s the part about turning down friends.
“Sometimes people ask us to go out for the night, and you have to say no,” he said. “Sometimes you have to suggest doing something else other than going out to a fancy restaurant and spending a few hundred dollars. You have to be cognizant of that alignment of your spending with your values.”
One thing this whole financial journey has taught me is that you have some friends that like the experiences that you shared more than they actually like you, and you have other friends that value you more than the experiences you share.
When you start suggesting more frugal things to do, that first group melts away pretty quickly. It really can hurt. I know that it hurt for me when it happened, as I had golfing buddies and other friends that basically vanished out of my life at that point.
The thing is, that second group will stick around, and you might just find that you have more in common with them than you thought you did. I had a group of about three friends that were friends with me when I spent money like water and remained friends with me when I turned that ship around. Those people are actually pretty frugal in their own right – they just didn’t judge me when I did expensive things and went along with it when I suggested expensive stuff to do. They’re also very happy to do things like going to (and hosting) a potluck dinner party and a game night. They don’t require that we go out to a club or a restaurant and blow hundreds of dollars to have fun.
The New York Times is spot on with this article. Being a “supersaver” is all about having big goals, building a plan for achieving those goals, automating that plan, and then enjoying life with the remaining money.
Yes, that probably means you won’t have a luxury car, but it also means you’ll have a lot less stress in your life and you’ll have a strong sense of moving toward goals in your life, goals that will enable you to take on challenges and enjoy things that might have otherwise seemed impossible.
Sure, it might not be the easiest path in the world, but nothing worth doing is ever easy.
Good luck, you supersavers out there (and those who want to become one).