we posted last week that we’re not sharing our numbers and why. but we have plenty of other things to share, including how we’ve saved what is by any measure a lot of money. not enough to retire yet, even at the modest level we’re shooting for, but still objectively a lot. (we probably have enough in 401ks at this point to just let those grow until we can access them at age 59 1/2, part of our two-tiered retirement plan. but we still owe about half of our original mortgage total and are building up our taxable savings to support us for the 18ish years until we can access our “retirement” accounts.)
if we succeed in retiring in 2 3/4 years, we will have been in our careers for 19 1/2 and 16 1/2 years respectively but only seriously focused on financial independence for about nine of those years. fortunately we made some good decisions earlier on, along with some bad ones ($12,000 in credit card debt, plus $10,000 student loan, plus $16,000 car loan, anyone?).
here’s how we’ve saved:
1. contributing enough to our 401ks to get the full company match from as young an age as possible, and likewise maxing out our contributions to the legal limit as soon as we could possibly afford to. that’s why our 401ks are in such good shape now. this is an obvious strategy for a reason — those dollars add up over time in a big way.
2. not increasing our spending when our income goes up. we work hard in our jobs, and have been rewarded with steady salary increases. but when that happens, we put every new cent into savings or investments, or against the mortgage, and try our best not to let our spending creep upward. spending creep is a double-edged sword for early retirement, because it reduces the amount you can save, and gets you used to a higher standard of living which you then have to save more to afford in retirement. we now put more into our vanguard account each month than we spend, thanks to keeping our spending in check over time.
3. hiding money from ourselves. we think it’s harder to spend money you can’t easily get your hands on, so we keep the bulk of our funds at different banks from our checking account, which makes it a slight chore to access that money. we did this back when we were just building up our emergency fund, and it helped a lot then. but even better, we split our paycheck deposits so part goes to checking and part goes to savings. The savings part never touches the “spendable” checking account, so we never feel like we have that money. result: we don’t spend it.
4. being selectively frugal. we think it’s always tough to be frugal, but in a way it’s especially tough when you are earning enough to live more lavishly than you choose to. (like why would you keep yourself on a constant diet if you don’t need to lose weight?) our solution: be mostly frugal, but splurge occasionally. we’re frugal on buying stuff, limiting ourselves to a few bits of athletic gear a year and hardly ever buying clothes or shoes. we also hardly ever buy coffee or lunch out since we work from home. we occasionally have dinner out, though that’s sometimes a splurge area. and travel has historically been our biggest consistent splurge. but it helps make all of the frugality the rest of the time worth it. and splurge doesn’t mean flying first class and staying at the ritz. it just means traveling in the first place.
5. buying less house than we could afford. this one has taken some discipline, since it’s awfully tempting to get a nicer house, especially when the difference in monthly payment is not that big. but we knew that if we had any shot of retiring early, we needed less house than the banks say we could technically afford. we were determined to go with a price that would allow us to put 20 percent down, afford a 15-year mortgage, and pay it off within 10 years. (we’re actually on track to pay it off in under seven years from the mortgage start date.)
6. keeping cars a long time. we have an 11-year-old compact sedan that gets great mileage, and a small SUV for our outdoorsy adventures. we’ll either keep both til they die or go down to just one car once we retire. but we have saved thousands of dollars by not leasing and not buying new cars over the years.
7. getting a little lucky with real estate. this is something that, eight or nine years ago, we never thought we’d say. as the housing bubble kept getting bigger and bigger, we thought we’d be priced out of the market forever, or have to go into uncomfortable levels of debt to ever own a home. fortunately, we had saved enough to save advantage of the main crash, and bought our first place in 2009. we bought our current home in 2011, pretty close to the bottom. we hung onto the first place for a little while, and sold it in late 2013, turning a small profit. and if we sold our current home now, we’d definitely come out ahead. we don’t plan to do that, but it’s nice to know that we could downsize if our cash projections don’t go as planned in retirement. and it’s especially nice that less house than we could afford still got us a house that we love, because of where the market was at the time.
8. tracking our finances. it’s true — by tracking our finances frequently, we are much more motivated to stay on track with our goals. that was one of the best and most impactful things we did for our finances. you don’t have to have as many variations of spreadsheets as we have to get started (or ever), but just tracking progress toward a goal on a regular basis is incredibly motivating. it’s a lot easier to say no to a frivolous purchase when you know exactly how those dollars will affect your bottom line.
so there it is: how we’ve managed to sock away a sizeable and growing nest egg that we hope will sustain us for a long time. not that we’re done yet. but it’s important to celebrate the progress.
what other strategies do you use for saving money?
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Categories: the process
With just tracking your finance, how much/what exactly do you track? I currently track the different categories of spending/saving, dividends, and net worth. Is there anything else you suggest tracking?
Hi Katie — that’s a good list to track. On the net worth side, we track all of our accounts, and keep a running tally of each account category by month over time (categories like taxable savings, 401K/IRA, mortgage balance, etc.). We also do a lot of projecting — how much we need to put against the mortgage each year to reach our goals, for example, or how much should be in our 401Ks by the time we hit 59 1/2.