Should We Spend More?

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I had an interesting conversation with an ex-coworker the other day about lifestyle inflation.

Since most people increase their expenses when they get a promotion or raise, one of the strategies to get to FI faster is to stop inflating your lifestyle even when your salary goes up. This lets you save money passively towards early retirement.

But what if you’re already retired? What if you have enough to last the rest of your life? If your income/dividends/capital gains increase, but you never need to save another cent again?

Should you inflate your lifestyle?

Would you be stupid not to?

I had the same conversation with Pete (aka “Mr. Money Mustache”) at a Chautauqua a few years, back and they came to very different conclusions.

From my ex co-worker’s point of view, spending is relative. $100K/year might sound excessive if your portfolio is $1 Million, but what if your portfolio grew to $2.5 Million? Then it’s perfectly fine at a 4% safe withdraw rate. And later, what if your portfolio grew to $10 Million? Even $400,000/year spending would be reasonable.

Pete, on the other hand, felt that spending was absolute. Despite the incredible success of his blog, and its ability to make $400,000/year, Pete told me his family still lived on only $25,000/year. From his perspective, spending isn’t relative. It’s fixed. If that’s the amount that he needs to be happy, why spend more? In fact, he even did an experiment where he blew $1000 in a week, just for fun, and tracked his happiness level. The result? The Extra spending didn’t increase his happiness at all. $25,000 was his peak happiness level spending.

This made me think about our current spending situation. Now that our net worth has climbed to $1.8 million, we could be withdrawing $72,000/year using 4% rule and still have a 95% success rate. To get 100% success rate, we could withdraw $63,000/year (3.5%/year) and never run out of money.

And yet, last year our annual budget still came to just $34,000/year. This year, even with lockdowns in the rear-view mirror, we’re still projected to spend less than $40,000 for the 2 of us.

We are at least $23,000/year or $1917/month under budget. Why? Is this some sort of madness? Some type of sickness?

Some people might call it deprivation. Others, insanity.

I call it “winning”

Here are the reasons why I haven’t increased our spending and don’t feel the need to:

Optimizing is Fun for me

I know some people feel like optimizing their spending is a chore, but for me optimizing is like playing a chess game that I never lose. It lets me be creative, challenges my brain, and feels like winning every single time. In fact, I find it deeply satisfying to look at my spreadsheets and marvel at the purchases that are optimized. I’ve never gotten that feeling from mindless spending (*cough Coach purses cough*). For me, optimizing is fun. Mindless consumerism is boring.

Minimalism

I hate cleaning and maintaining things with the force of a thousand waterfalls. Being a minimalist lets me value experiences and relationships over things. Especially since said things will inevitably end up in a landfill and destroy the environment. I prefer the European way of life: living in small spaces, spending time in cafes, exploring nature, and taking public transportation. This alleviates the stress of owning and maintaining expensive things, and gives me time for things I value, like experiences, friends, family, and passion projects.

To prove you can live happily on $40K travelling the world or living in an expensive city

When our story first came out on CBC, people said two people can’t possibly be happy living on $40K/year. Especially in an expensive city. But not only have we been happy living in Toronto for the past year on $40K, we were able to travel the world for 5 years on that amount.

Having grown up China where my whole family survived on 44 cents a day, the perspective I’ve gained from this is: wealth is relative. Someone in a neighbourhood where average salaries are $200K, will be unhappy making $100K, but someone in a $30K neighbourhood will be perfectly happy making $60K. A lot of expenses come from trying to impress other people.  Renting an apartment, cooking, occasionally eating out, going for walks, swimming, and taking public transportation aren’t expensive.

That’s why we continue to keep our original portfolio (A) separate from our post-FI-earnings (Portfolio B), to show you that, yes, we are still living off of 4% of the original portfolio. In fact, we should be increasing that amount to $45,000/year since the 4% rule accounts for inflation, but I just don’t feel the need. I’m perfectly happy living on $40,000/year. And even the occasional splurge doesn’t blow up that budget.

Since retiring, I no longer clip coupons or stress about saving $2 on shampoo. In fact, the other day, we splurged at our favourite French restaurant to celebrate our 10-year wedding anniversary.

The bill came to almost $500 after tax and tip, thanks to an oh-so-fancy meal including sturgeon black caviar. You read that right, people. Me and caviar, together at last.

Absolutely nothing about this spells “value”

Given that we’re $1900 under budget every month, we could eat that fancy pants meal once a week, every week for the rest of our lives and still barely touch our portfolio.

Will I do that though? Nope. I’m just as happy hunched over on a plastic stool in Chiang Mai, devouring a piping hot bowl of Khao Soi, as I am spooning black caviar onto delicately cut wholewheat blinis in an upscale French restaurant.

Ummmm. Tastes like home.

Does that make me weird? Probably. That’s just who I am, and I don’t give a shit what anyone thinks.

And as it turns out, I’m not alone. In fact, I’ve spoken to several Chautauquans who think the same way. In fact, one of them is even a doctor! It’s not surprising for an engineer to like optimizing but a doctor?

This unicorn has a portfolio of $2.8 million but lives on $60,000 with his wife and 3 kids and they travel around the US and Mexico in an RV. He also described the feeling of optimizing as “winning a game”. He wants his kids “to be able to enjoy life without comparing to others and feeling like they need a bunch of stuff to make them happy.” If we ever become parents, this is the kind of parent I aspire to be.

And it’s not just those in the FIRE space, Warren Buffett is like this too. The billionaire still lives in a house he bought for $285,000 and eats $3.89 Mcdonald’s bacon, egg, and cheese sandwich for breakfast. In fact, when markets are down, he downgrades to the $3.19 sausage, egg and cheese sandwich.

Buffett says he simply values experiences and relationships over expensive things, because “you can’t buy health and you can’t buy love.”

I agree.

Since I stopped working, I’ve been the healthiest in my life. I used to have to wear a wrist brace from carpal tunnel, take anti-anxiety and anti-depressants back when I was working. Since retiring, I’ve lost the wrist brace, stopped taking any pills. And because we bought back our time we can hike, swim, and eat healthy home-cooked organic food daily. In fact, after Wanderer’s checkup, his doctor diagnosed him as “obnoxiously healthy”.

And since I’ve had the time and headspace to work on my relationships, I’ve been able to forgive my mom, spend time with my dad, and make friends all over the world (aka my “Chautauquan family”). Buying my time back with FI so I can work on my health and relationships is the best money I’ve ever spent.

Instead of lifestyle inflation which doesn’t bring me extra happiness, I’d rather spend it on friends. This year, I’ve been spending portfolio B money inviting friends to dinners, spas, escape rooms, and commissioning art from them. This is money well spent and I couldn’t be happier. After all, what’s the point of money if you don’t spend it on friends?

What do you think? Should we increase our spending? If all your base expenses were covered, what would you spend extra money on?

Should We Spend More?


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113 thoughts on “Should We Spend More?”

  1. What about donating your excess cash to your favorite cause instead of spending it ? Having an overflow of money is amazing ! What a great way to celebrate your prosperity, it might actually contribute to an increase in your happiness knowing that your money is doing very good things in the world

    1. Donating sounds great but be careful of who or what you donate to. Some organizations are inefficient and most of the money is wasted on administration with little making it to those in need.

      Donating your time to a local cause will likely provide the best outcome.

      1. Hey Ever After, thanks for mentioning Kiva. I didn’t know this organization, but lending/donating through them looks like the perfect Christmas gift. Will definitely suggest to friends and family, because it sure beats the mindless exchange of cheap junk. Hopefully, we can have a positive impact on someone’s life.

        1. hi Val … . its a great organisation .. its a loan . so if you need you can get all money back . we just reloan of course

          and add to it every month … .. i recommend loans that pay back monthly . one i have is after 2 years . a long time to wait to reloan

          as you say so much better than unwanted xmas gifts

  2. Sounds like a moot point. If you are spending more on things that matter to you from portfolio B inviting friends to dinners, spas, escape rooms, and commissioning art from them, you are already spending more.

    1. Agreed.

      We live on less than $40k but…oh yeah…we spend more than that through a separate account…yeah…don’t pay attention to that…it’s not really our money but…it is.

      1. I’m okay with this since they are being transparent that one portfolio covers their living expenses, and another covers their ‘fun expenses’ in good times. If there is a crash or recession they can always cut back on the spa days and gifts but they still need portfolio A to cover their living expenses. Many FI bloggers don’t disclose these extra details like FIRECracker and Wandererer do, and since they are getting a bit of an income from their blog and book sales, I appreciate that they keep the original portfolio separate so it can serve as a repeatable model for the rest of us. What’s amazing is that, if you read their January blog post, their total net worth at the beginning of the year was $1,549,000. 2021 saw stunning gains in the stock market, so if their net worth is now 1.8 million it means they enjoyed 17% gains, equalling just under 250k (it’s possible they had a bit of blog/book income as well). This is the exact amount that Vanguard’s VEQT grew by, so anyone invested in a Couch Potato equity portfolio would have realized similar gains. I find this incredibly motivating as a fellow index investor – the more you have invested, the greater potential for gains. I look forward to reading their end of year net worth update.

  3. I love the idea of spending it on friends. Or donating. I’d love to have some maths to back me up though. If I don’t set a “maximum” swr for myself, I’d probably be too paranoid to actually do these things which would bring my joy…a psychological trick, perhaps.

  4. For me, optimizing is fun. Mindless consumerism is boring.

    ———

    So do it your way and it’s fun. Do it any other way and it’s mindless and boring?

    Ok. 🙄

    The survey question seems somewhat silly and immature. Spend what you please. Live however you want to live. All the power to you. It’s your inability to see other perspectives that grates. That’s the actual problem here. Your perspective seems to only be in extremes. Money is only a tool. You can buy stuff (which I’m not an advocate for unless it adds value) or you can spend it on experiences (some experiences are free and some – like flying into space which sounds like lots of fun – cost a few dollars). I think you’ve lost sight that money is just a tool.

    PS: MMM is so orgasmically happy all the time he’s divorced. 👍 Yeah, I’m so aiming for his happiness. He’s a fantastic role model. Everybody should punch each other in the face all the time. Does anyone still pay attention to him anymore?

      1. The purpose of buying the house was to help a self employed friend who would normally have difficulty securing financing fast enough in a hot housing market. By being able to make a cash offer, he was able to beat the other offers and avoid a costly bidding war. His friend is then able to secure financing without being under the gun and will buy the house from him.

        I thought this was a great way of being able to use his wealth to help people he cared about. Money gives you more choices and he was able to capitalize on an opportunity to help a friend. This is much better than lending the money itself (which typically ends up being awkward with friends and family, and may not end well).

        1. MMMs annual expenses are more than $25k/year. That’s my point. I don’t care about the reason behind the purchase. Just pointing out the hypocrisy of stating you spend $25k/year or less or like our hosts, $40k/year or less, when these same individuals blatantly advise all us less enlightened plebs they actually spend far more…but then tell us because it comes out of one of their “other” accounts, they don’t. I don’t have stupid plastered on my forehead.

          Hello pig with lipstick on it!!!

          Also, if the friend can’t afford the house, they shouldn’t purchase…a house they can’t afford. How is that advocating for living within one’s means? Hypocrisy. Hypocrisy. Hypocrisy.

          Are you all willfully blind?

          1. Re “Also, if the friend can’t afford the house, they shouldn’t purchase…a house they can’t afford. How is that advocating for living within one’s means?” In Colorado, where MMM lives (and I assume where he bought the house for his friend), the market is such that cash buyers are the only ones getting offers accepted. MMM’s friend may have been able to afford a mortgage, but if sellers won’t sell to anyone who needs a mortgage, there may be a need for a work-around. That’s what it sounds like MMM did.

            Other than that, I don’t entirely disagree with Dave. There’s nothing wrong with spending more money – just be honest with your readers.

          2. “ Also, if the friend can’t afford the house, they shouldn’t purchase…a house they can’t afford. How is that advocating for living within one’s means? ”

            I don’t think the problem was he couldn’t afford it, it was an issue of getting credit as a self employed person.

      1. If that’s the best you can come up with, that’s pretty tame.

        Also, it would be nice if you could actually debate the points I raised versus asking silly nonsensical questions that says more about you than it does about me.

        1. Actually I agree to Dave’s comment even though I would not use the same tone as his. But like he said, MMM used such “punch your face” tone all the time, and he can get away from it; why when Dave used it, it is not OK?

    1. Wow, you are a very bitter person, Dave. I feel sad for you.

      Sometimes, marriages don’t work out and people go their separate ways. Pete and his ex are still good friends and he’s found someone who’s a better match for him. I talked to him recently, he’s perfectly happy. Way happier than many people I know who are still married.

      I also find it hilarious that you think my perspective seems to be “only in extremes”, while you just said Pete is unhappy because he’s divorced and “does anyone pay attention to him anymore”. How is that not an extreme?

      Maybe spend sometime reflecting on your own flaws rather than constantly pointing out everyone else’s?

      And P.S Pete continues to have a huge following and tons of people pay attention to him (more than to you, I can guarantee).

      1. Don’t waste your time on people like Dave. After rereading your article and the feedback of some of the people here, it totally makes sense now why you kept your day to day expenses and your discretionary expenses separate. Keep blogging and we will keep reading and continue to be inspired by your FI journey.

        There will always be FIRE-Extinguishers out there. People who made an attempt to FIRE, maybe found it too drastic of a lifestyle change, gave up and can’t help but to lash out on FIRE and its practitioners to save face by putting the blame on others but themselves.

        All good, can’t win them all.

  5. I love the idea of spending Portfolio B on friends. In the pandemic I anticipated spending way less than usual, instead it ended up being close to my standard spend rate (still low compared to many) because I went out of my way to support small local business to stay afloat. During that time I’ve become great friends with many of these business owners. It has increased my quality of life immensely to have this new feeling of community in my city. Plus, the people who are restaurant owners make the best (and usually very affordable) food in town!

  6. newsflash. youre already spending more than 40k. It’s some mental gymnastics to say that “ inviting friends to dinners, spas, escape rooms, and commissioning art from them” doesn’t count

  7. I personally LOVE living below my means. The majority of my passions are free and require a simple upfront investment (paddle boarding, hiking, cycling, yoga, etc) I’m a health nut and prefer to make my simple protein packed meals than eating at some restaurant paying top-dollar, not knowing exactly what you’re putting into your body. Top physical shape = top mental shape = long term total well being. Having a shit ton of money and high net worth is only icing on the cake. I’m now a FT nomad residing in a van (sold my Breck, CO condo two months ago), net worth well over $1m, tallied my first month expenses of living in a van and I paid $844 ALL-IN (including fuel) – hit 6 National Parks, nine states, 8 14k+ feet CO mountain hikes, paddle boarding session down the upper CO river, 50 mile bike rides through Moab, UT.. EPIC shit all with a run rate well below $20k annually.. it’s laughable. It’s incredible what one can accomplish given some simple strategic planning and a work ethic (and a slightly masochistic personality).. hell, that $844 even includes a little cannabis! Life is GOOD!

  8. All I’ll say is that Ramit Sethi addresses this kind of topic with a little more nuance. It’s not as simple as saying lifestyle inflation is simply seeking higher cost materialistic desires like Gucci purses, there can be some value found spending more money towards deeper exploration of whatever the individual thinks is important, opening up time for you to seek those important things. Spending money towards automation/freeing up more time to spend with friends/family, traveling (even if its to non 5-star hotels/restaurants) or whatever hobbies you do care about. Not hating on the point of this article but it doesn’t seem like your points were fleshed out as much as they could have been.

  9. bravo , i relate … my wife and i have kept same lifestyle since we met . 35 years ago . we backpacked around the world many times . driven old cars well maintained .. ride our bikes daily ( got rid of car and now rent rarely .. environment reason too )

    .. our portfolio is almost $ 3 million . and we live same as ever ..rare splurging
    just more relaxed of course if an unexpected bill comes along .

    frugal is the new / old happy .. . and dear friends … helps climate change .

  10. There’s been only a couple of times I disagreed with MMM and his spending experiment is one of them. When he spent even a small amount on dessert or beer or something like that on other people they were thrilled. That must have brought him some happiness.
    People love giving to others like family or friends when they have money!
    Second time I disagreed was when his sister spent money to cover her inground swimming pool and he agreed with that. I thought that was crazy!
    To each their own and spend as you please. Loved the article.
    I would spend more occasionally especially on special occasions and for experiences!

    1. Her pool wasn’t being used as much anymore but still had ongoing maintenance costs and may not have added much to the resale value of the house. She now simply valued the ongoing savings more than the utility value of the pool. That’s not crazy at all, but is of course a subjective decision that not everyone would agree with

      1. I am a fan of MMM so the times I disagree stand out on my mind. I can understand not opening the pool some years, but to cover it over, I can’t get over that. Pools can have a big resale value in Ontario – but I guess that is subjective! She can certainly do as she pleases with her property but… I still say crazy!😅

  11. I almost missed the line at the end of your article: “This year, I’ve been spending portfolio B money inviting friends to dinners, spas, escape rooms, and commissioning art from them.”

    It does feel a bit disingenuous to imply that you are only spending $40k, and then a little bit extra from the “other portfolio” on “friends”. Are you gifting these dinners and spa days? Are you donating the art? I mean, obviously these things are improving your life as well, its not being given away out of generosity. Maybe you should add this into your spending.

    1. You also missed this one ” This year even with lockdowns in the rear view mirror we are still projected to spend less than $40,000 for the 2 of us. We are at least $23,000/year or $1917/month under budget”. So that means even if they spend $23,000 this year on friends regardless of which portfolio they take the money out of, they still would be keeping with their $40,000 budget. FireCracker and Wanderer deserve an apology from quite a few people

      1. Interesting, Sam. I read that sentence completely different than you did! (Aren’t brains strange!) When she said “We are at least $23,000/year or $1917/month under budget. ” I thought she was subtracting the $63k that they could be spending from Portfolio A utilizing a 100% success rate, from the $40k that they are actually spending this year. I was connecting it to the previous sentence “To get 100% success rate, we could withdraw $63,000/year (3.5%/year) and never run out of money.”

        It sounds like you took it to mean that they are spending $23k below the $40k? So you are thinking they only spent $17k this year from Portfolio A!? I think you are reading this totally wrong. She meant that they are spending just below the $40k, but “way below” what they COULD afford to be spending. Meaning they are close to the $40k, and any from Portfolio B would be over that. I’ll take my apology now. 🙂

        1. Nah you would still be wrong. Thats because they said they are still under the $40K mark for this year with 2 months to go. It could be by a little or by a lot. They have not stated their final total spending. We indeed read it differently, I chose to read they were under by a lot and you by very little. You owe them an apology for calling them disingenious for stating that they spent less than $40K for the 2 of them. And thats only for this year. They have been quite true with their $40K spending for the past years, they are saying that THIS YEAR they are using some money from another portfolio to spend on others but their lifestyle spending is still under $40K on themselves. How is that disingenious? They are voicing that they are already trying to spend more THIS YEAR and people are already making negative comments about them. You still owe them an apology.

          1. Its their Money, they dont have to declare or be open about what or how much they spend to the rest of us. But they are being open about their spending to give the rest of us courage and reassurance that FIRE works. They are putting themselves open to hatred, jealousy and online abuse to help us. And I am one to talk as I have made quite a few comments against them and chose real estate as my pathway to FIRE. But I am genuinely grateful to them for this site and Firecracker and Wanderer for I would not have reached FIRE without them.

  12. great topic and tricky question. If you end up inflating you are proving to your self that you need more money to be happy, but on the flip side, I’m sure you have (I know we have) delayed in purchasing some things or doing some things until we have enough. Wehn you do then spend it (some people call this midlife crisis) but it should be baller status =)

  13. Support small businesses in your community or on marketplaces like Etsy. Donate the items if you don’t want/need them.

  14. I LOVE THIS POST and how you guys think about life!
    Obnoxiously healthy, what could be better than that, you are definitely doing things right!

    Thanks for the work you do sharing this blog and these ideas, loved your book, we are fully inspired for the past 5 years or so to optimize as best we can!

    thanks again
    Curtis and family.

  15. I wonder if Mr. Money’s frugal spending contributed to his divorce. I mean if his blog alone is making $400k/yr and he is not spending it on a few luxuries or comforts, it may lead to marital strife.

    1. MMM addressed this somewhere on his blog. We’ll never know for sure, but he says his frugality didn’t have anything to do with his divorce.

  16. There’s also the question of how ridiculous inflation here in the US is currently. I think that some of this discussion time should go into why everything is like 20% more than 2 year ago. When buying 2 Big Mac “meals’ cost $24 how can a family NOT spend more money? I think the Firecracker and Wanderer can keep their cost down due to geo arbitrage but for people that need to say put (especially in the US) I think that inflation will pack a punch soon.

    I have to concur with some other comments…there shouldn’t be ONE way to live your life. Although I agree that spending more doesn’t bring you more happiness I also know that I am not like everyone else. I can be just as happy on an $80 used bike because I’m a novice rider but someone who is obsessed with cycling might spend $4,000 on a bike and not bat an eye. Are they wrong? Are they mindless spenders? Not if that makes them happy and they can afford it. We need to be more mindful of giving people space to be themselves and not so judgmental.

  17. Hi FireCracker,

    In all due respect, your math is wrong here. 😉 The correct math is :

    Withdrawal rate = Spending amount – Active Income = Spending Portfolio A + Spending Portfolio B – Active Income Portfolio B

    Your “real” withdrawal rate should be reducted by the active income in Portfolio B.

    For example, if you spent 30K$ in Portfolio B and had an active income of 40K$, this is a net inflow of 10K$. If your “base spending” is 40K$ (in Portofolio A), then you have a total spending of 70K$ for the year and a 40K$ active income, allowing you to keep a withdrawal rate of only 1.67% (30K$ on a 1.8M$ total portfolio A + B).

    This would mean your withdrawal rate is WAY BELOW the 4% or 3.5% SWR in your article.

    I think the intention was good when you split portfolio A and B. But the math doesn’t work. And the psychology is still worse than the math ! Because, it’s really not the same thing to have 1.8M$ portfolio with nothing else to rely on and have 1.8M$ portfolio with another 100K$ on the side and an active income bonifying your financial situation.

    I don’t think that’s good or bad. It is just your situation. But I think you should do the math the right way…

    ——–

    That said, does that mean you don’t spend enough ? No. I agree with you that you should only spend money if you feel it is worth it.

    I think donations or activities with friends enter in this category.

    And since you already do it in Portfolio B, we can’t say you are not spending enough.

    ——–

    The only problem that you will face eventually is that this 1.8M$ portfolio will continue to grow over time, which will be a very good problem to have…

    In addition, if your active income become so big that it covers all your expenses (portfolio A + B), this mean you could eventually have a withdrawal rate of … 0% ! Or below. Meaning you are still saving money even if not working at a 9 to 5 job !

    Just as an indication, a portfolio of 1.8M$ at 7% will double in around 10 years, if there is no withdrawal. This mean you could have 3.6M$ in 10 years, 7.2M$ in 20 years, 14.4M$ in 30 years and 28.8M$ in 40 years.
    (note : this is all in today’s value of money assuming a 10% nominal portfolio return and 3% inflation rate)

    ——–

    You are not there yet, so let’s not put the cart before the horses… But we could still wonder : what would you do with all that money, if you get there ?

    ——–

    In the meantime, if you asked me what you should spend money on, I would say : buy a piece of real estate !

    I don’t care if it’s a vacant land you could build a house on or a small condo in a well-maintained building.

    The stock market and bond market have been very good in recent years, but it’s not always been the case. You should, at least, have some real estate to diversify your assets.

    Anyway, that’s only my opinion. In the end, do what you feel is the right thing to do for your situation and what you want in your life.

    Wish you the best.

    1. I reckon FireCracker and Wanderer will most likely have kids in the next 5 years, buy a more permanent place to stay but still travel every year for a few months a time. Also both their parents would be getting older and would require more support. So I predict their spending will eventually increase nevertheless.

      1. Maybe, maybe not. Sometimes it’s not up to you, whether you end with kids or not. I’m happy either way 🙂

        As for our parents needing support, that already happened this year and it didn’t increase our spending.

    2. If you want to be nit-picky, then yes, you can say 4% of just Portfolio A ($1.4 million) is $56,000. That’s still $16,000/year higher than my $40K spending. So I’m still $1333/month under budget.

      1. I’m not nit-picking. You can’t calculate a withdrawal rate on just Portolio A.
        This is a big mistake in behavioral finance …

        In science, would you calculate a different sets of calories goal for your arms or your legs bases on your exercice plan and target weight for each part of your body ? Obviously not.

        This is the same.

        Money is fungible, meaning it doesn’t care where it come from and where it is going to. It has to be considered as a whole. The same as your body is a whole, meaning it doesn’t care if it’s feed or entertained by money from Portfolio A or Portfolio B.

        If you are interested to read more about this subject, you can look for more information about the “Mental Accounting Biais”. There is plenty of information about it and it’s easy to find on the Internet.

        Here is a quick link as a starter :
        https://www.investopedia.com/terms/m/mentalaccounting.asp#:~:text=Mental%20accounting%20is%20a%20concept,their%20spending%20and%20investment%20behavior.

        Don’t be stuborn as to not seeing your own mistakes. You are doing an amazing job with your finance blog. Why miss an easy opportunity to improve your knowledge even more and share this information with everyone ?

        It doesn’t mean we should never do “mental accounting”. If we do it on purpose to facilitate our life, and knowing it’s not appropriate in all circumstances, then it’s ok. What I mean is that we should always take into account the whole picture when taking big life decisions, like investment, budgeting or retirement decisions.

        Anyway. I’m just trying to help here. I’m not here to be mean or be … “nit-picky”, like you say ..

  18. Just before FIRE-ing, we met with a financial planner who said, “You might want to consider spending more, on things that are fun and meaningful to you.” (We had a higher FIRE number than planned in part due to a high commuted pension value late in the FIRE journey.)

    This really made me think: what did we want to do with the extra money? I remember MMM’s absolute number for spending, but found for myself that there is quite a range of additional expenses that bring additional value:

    – education: a yoga teacher training course that cost $3000. It was wonderful and I would not have had anything approaching an equivalent experience with free options
    – more frequent and lengthier vacations with our three kids
    – gifts and donations
    – a few Hotwire hotels for overnight dates
    – hiring help for our rentals (we don’t love the work so it’s nice to buy the time instead)
    – hiring expensive but very effective tutoring for our kid
    – fancy skincare (a rare personal indulgence that I really enjoy)

    No dollar value here, but there’s also a lovely freedom in not having to focus on money in the same way – I don’t weigh expenditures against my freedom as I did when I was working.

    I still won’t spend money on things I don’t value. I still love the thrift store (value, eco-friendly, fun) and buy almost no clothing new. But a meaningful occupation of mine now is how to spend some of the surplus to improve our lives and, in some small way, the world we live in. It doesn’t feel inconsistent to me to be both frugal and a good steward of our resources, while also spending more on thoughtfully chosen areas as both are value-based.

  19. Should we spend more? I’ve been having the same thoughts lately since my portfolio, and my gf”s, have nearly doubled since we quit Corp America 5 years ago. The money doubled in 5 years while we were goofing off? What’s next? Well, I think you (and all of us for that matter) should do as much of what makes us happy as possible without regard to money… within reason. For us, spending $1300/night (for real, and this doesn’t include cocaine or hookers) in a “Luxury” ski resort would just piss us off. Staying at a hotel on points in a the nearby town? Victory! We enjoy optimization as well.

    1. “my portfolio, and my gf”s, have nearly doubled since we quit Corp America 5 years ago. The money doubled in 5 years while we were goofing off?”

      Nice! Welcome to the miracle of compounding. Your money works harder than you. Amazing isn’t it? Glad to hear your enjoy optimizing as well 😀

      1. During my days in Corporate America I cannot remember ever meeting a single person that was not dragging themselves to work every day, feeling like a prisoner in their own life. Admittedly, most of this was from past bad (easy) choices, but this could really be helped by some fundamental education in high school about personal finances and relationships. Nearly all the married couples I met HATED each other with an indescribably pure black venom but they “can’t afford to get divorced”. Yikes! Are the McMansions, fancy cars and, my favorite, “we have to pay for private school” really worth it? Sadly, the answer was always yes and happily, these people didn’t want to talk to me ever again.

  20. Happy anniversary FIRECracker and Wanderer! 🙂

    I think we all want to know what the name of the French restaurant is, and what else was on the menu?

    1. Awesome posts as always! Love optimization. Like you said, it’s fun and when you win it feels good. Love it when I get free stuff with points, coupons, surveys,etc. I would like to spend more on experiences as things don’t really please me as much. Visited a local hotspring with a friend in Tokyo last night and trying a new spa this morning. Feels great!!!!

      By the way, thanks for reading my blog https://expatcanadianintokyo.com

  21. Can confirm. Khao soi is way better than caviar. 🙂

    We have the same conundrum. Still spending $40k-ish/yr as we watch the portfolio double (and then some). We’re trying to spend more, giving ourselves permission to stay in nicer places, consume more luxuries, upgrade stuff etc. It’s just that spending money is a chore in many respects.

    1. Oh yeah, I should add you, Justin, to my list of Optimizer unicorns who don’t feel the need to inflate expenses even as our portfolios go up.

      Are you enjoying your travels around the U.S? I saw your posts, looks like you guys are having fun 🙂

      1. We’re trying to spend more! Basically taking the reins off and just doing whatever at this point. Inflation is certainly helping but unlikely we’ll break 40k this year.

        We spent the summer on a big road trip. Back at home now and I’m slowly posting the trip reports! Next up for us in the travel department is Caribbean cruise over Christmas!!

        1. SAY WHAT? You’re going on a cruise? Whoa. My brain is struggling to comprehend 🙂 I honestly didn’t expect cruises to ever run again. Enjoy and looking forward to seeing your posts!

          1. They’ve been running since July. Some of the safest places on earth (other than perma-hermitting @ home) with 100% vaxed crew and passengers!

            Considering we’re running about 60-70% vaxed among the general public here, I’m willing to take my chances. Also triple vaxed with Pfizer and Moderna so not too worried at all for me personally. 🙂

  22. If spending brought happiness then all the actors, actresses, athletes, tv personalities, CEOs, VPs, etc, basically anyone who has an unlimited budget, they all would be happy. Not the case! Many get divorced, commit suicide (Anthony Bourdain, Robin Williams, etc), cheat on their spouse and aren’t happy. So, happiness cannot be bought. Absolutely buy into using our $$ to buy freedom though and yes, that makes us happy, like you two. We live on the coast of Spain, enjoying our days, hosting anyone who can visit and just love life. I served in the US Army and with that plus our investments we are sitting better than most. But, as you state, why change it if it ain’t broken. We will splurge when we want and not feel guilty about it, but living our lifestyle makes us happy.

  23. Awesome posts as always! Love optimization. Like you said, it’s fun and when you win it feels good. Love it when I get free stuff with points, coupons, surveys,etc. I would like to spend more on experiences as things don’t really please me as much. Visited a local hotspring with a friend in Tokyo last night and trying a new spa this morning. Feels great!!!!

    By the way, thanks for reading my blog https://expatcanadianintokyo.comyロ

    1. Ahh, Tokyo spas. How I miss Japan. Hope we can go back soon. How are things there? Do you think they’ll open to international tourists any time soon?

  24. I think you should spend a lot more… On “inviting friends to dinners, spas, escape rooms, and commissioning art from them” 🙂

  25. Should you inflate your lifestyle?

    Absolutely, as long as the extra spending will upgrade or improve your own quality of life further.

    Plain vanilla saving is meritless. There is no point having lots of money while leading a life of a beggar. Self-enrichment is necessary for an even better future. Money is a resource. If it is not spent wisely for personal upgrade, then it becomes an unused resource. However, most people spend their money on junks, or on things that do not last, or on junks at highly inflated price such as branded “luxury” stuff, and this kind of spending is not recommended. If only people do not spend money the way of dumbass, they would be able to enjoy satisfying life even if they are not rich. This is because good stuff does not cost much. And stuff that cost much is because of overpricing. Refer to “diamond is forever” fraud perpetuated by the diamond cartel even though diamonds are actually plentiful as an example. Another example is buying sports cars with crazy high maintenance or luxury cars merely because of the high price tag just so the buyer can showoff to others that he/she can afford such high priced car. There are plenty examples of mindless spending on unnecessary stuff merely because that stuff is priced at lofty level. And such spending is not about improvement of life quality but rather about showing off.

    A lot of good stuff worth spending money on does not need much money to do so.

    1. “A lot of good stuff worth spending money on does not need much money to do so.”

      Yup. Totally agree. I’ll take a nice hike over driving a luxury car any day.

  26. Glad you have enjoyed your year in Toronto. But you are not paying income tax as “non residents”, nor is there mention of charity contributions. Guess the rest of society needs to pay for hospitals, roads, schools, subsidized public transport, help the marginalized, CPP (pension for seniors) etc? Hope that caviar was enjoyed with a clear conscience.

    1. If you read their blogs carefully, they are still Canadian residents for tax purposes, so they file Canadian taxes.
      But because they’re smart, they position their portfolio so that they hardly pay any taxes. Legally.
      Also, if I remember correctly, they put an educational account for a relative.A charity.
      There’s nothing wrong or conflicting conscience here.
      I give FC and Wanderer 3 thumbs up for being good with their money and life.
      (You may wonder about the 3rd thumb)

    2. To be fair, as Canadians they still have to pay taxes on their dividends and realized capital gains after a certain amount, and the more their non-registered accounts grow the more tax they will have to pay. They also pay HST on any air bnbs, restaurants, spas etc.

    3. Clearly you don’t know how taxation or tax residency works. We never established tax residency outside of Canada. We are absolutely paying income tax on blog and book earnings. In fact, we paid taxes even when not using services while living outside Canada. So you’re welcome for us paying for YOUR services while not using them for all those years.

      Highly recommend you read our free investing workshop to learn how taxation works.

  27. Happy “Tin” Anniversary! Awesome post! Love it!

    I am in agreement, we don’t need lifestyle inflation. I suppose we could if we truly wanted to but it is really not necessary. I could think of better ways to do with the “gap” so we are perfectly fine as is.

    Love the analogy of the “optimizing” to a “chess” game. Finally, someone who understands how we feel. You are definitely speaking our language!

    ImmigrantOnFIRE

  28. My wife and I, with financially stable grown kids we do not support, spend over twice what you budget but still live extremely frugal lives in comparison to our other multimillionaire friends. We could very safely double or perhaps triple our current spending but the thing is we already buy everything we want, take every trip we want and fund every hobby we have time to fund. We also donate a healthy percentage of our money and a good bit of our time to nonprofits so we just don’t feel the urge to spend any more money. I look for opportunities to spend more that would add to our lives but usually can’t find any. We love our lives the way they are. And so our kids will inherit a lot of money some day, and that’s OK.

  29. One thing I am not seeing here is long term healthcare funding for you and your family. As healthy as your lifestyle is, it’s still possible that you or a loved one will be involved in a catastrophic accident or get hit with an unpredictable chronic medical condition such as dementia (which doesn’t GAF how healthy you are otherwise) and need long term medical care.

    This is top of mind for me right now as my spouse has had to temporarily but indefinitely move to another country to care for his ill parents. They have socialized medicine there, but it doesn’t cover daily home health care or assisted living. This type of private care is very expensive, and unaffordable on their fixed pension. In the US, skilled nursing care costs for elderly relatives can wipe out people’s entire retirement savings.

    We are in our 50s and approaching FI, but this was never in the plan, and it’s made me think long and hard about providing for our own long term care. I never want to impose this kind of a burden on my own kids (millennials are struggling enough as it is), so we are talking about adding long term care insurance to our budget. It may not be an issue in Canada, but still something to explore when considering how your financial needs can increase over time, sometimes unexpectedly and though no fault of your own.

    1. “So we are talking about adding long term care insurance to our budget.”

      Makes sense to me. That’s why we bought expat insurance when we lost our gold plated Canadian health insurance when travelling.

    2. It’s a bit less of an issue in Canada. I participate in cycling forum..for past decade. 90% are Americans. It’s pretty surprising how much Americans have to pay for health insurance premiums and actual hospital bill, etc. once they are retired. Medicare in U.S. seems to be only helping partially. I’m saying all this when my father had cancer for 7 yrs., he died in hospital pallative care in Toronto and also a grand nephew of 3 yrs. old died of brain cancer at Canada’s top pediatric hospital last yr. Sure there was paying for wheelchair, etc., some drugs. But not on the scale what Americans would have to pay annually. I have several family members who work in hospitals in Toronto..including a sister who is a physician. So I really do have an opinon about our health care system…not perfect. But you won’t be bankrupted on our system. Sure I’ll build in additional health care costs at retirement.

  30. At some point during the Covid stock boom/inflation our net worth started to exceed our 4% target by a ridiculous amount. We decided to spend more for fun but still aim to avoid lifestyle inflation. The way we do it is that we keep necessities at a certain level to avoid over reaching, but we sell off a percentage of net worth each year and use it as “fun money” – money which cannot be spent on necessities but must be spent on “fun”. It makes things day to day a lot simpler. I’ve been frugal my whole life and enjoyed optimizing finances, but I’m happy to give that up for a lot of small decisions now. “Does it fit the fun budget? Okay, done!”

  31. In this situation, as in most, I think the best approach is to just do the experiment (as you and MMM have done, to some extent) – when you’ve got a nice savings cushion, you’ve got room to try things.
    I sometimes splurge when I’m under-budget or when I feel like I deserve it (eg after surviving a lockdown), I do enjoy it, but not enough to be tempted to do it regularly. I’m not naturally frugal so it was a struggle for me to get my spending under control, but since I have I haven’t been tempted to go back to overspending.
    If only I had such a healthy relationship with food – every single time life throws a pebble in my way I fall off the healthy eating wagon, eating junk brings me a joy that can’t be bought!

  32. Good post, thanks! I’m 41 and became FI last year. I’m still working but planning on a sailing sabbatical for a couple of year with the kids next year as I wrap things up at the office. Since I became FI and am still earning a high income, I have relaxed more and spent money on eating out more and the vacations have become fancier. I read two books in particular: “Die with Zero” and “4000 Weeks.” I’ve realized that chances are I’ll have way more money than I’ll ever need, even after loosening the purse-strings. My parents are in their 70s and after a lifetime of frugality (think immigrant Chinese), did some calculations and found out that if they spent $300k a year, they’d still have money left over at age 100. Alas, dementia and arthritis is setting in. So yes, money at this point does not bring happiness in itself, but employed strategically and with purpose, I think one can direct it to make life more interesting and enjoyable.

  33. Sounds like you and MMM have a pretty balanced approach to things there in North America… they are keeping strict control on the virus here… all the students in Haidian etc are getting virus checked again this week etc … they want zero cases… will you have a year end analysis on your returns and spending? … It would a good example to show the readers etc etc

  34. My rule of thumb for spending is to avoid at any cost to increase fixed expenses. If the portfolio performs well, we don’t mind to have some extra pontual discretionary expenses.
    When I look up to the annual budget of FIRE people, I try to identify not only the amount spent. MMM spends $ 25.000 a year, but he lives in a nice house located in great neighborhood. He feels better owning a house. Other people prefers to invest the money and pay rent. If you opted for pay rent, it is impossible to live like him for $ 25.000 a year. He alread enphasized this in some posts. There are conditions related to peoples budget. Some people can live the same lifestile, spending $ 25.000, $ 50.000, $100,000. The difference is, you pay rent or you put a chunk of money in a property and is rent free? are you in a high or low cost of living area?

  35. My grandparents were teens/young adults during the Great Depression (1930’s), and although they were very well off in retirement(1970’s-1990’s), they still felt the sting of having lived through the depression. Despite their wealth in retirement, they were super frugal, which I believe was a result of latent and unfounded fear that they could somehow end up in the same depression era type situation.

    For people who FIRE’d from a job they had a visceral hatred towards, I suspect they have a similar sense that my grandparents had. These FIREees will be super frugal for at least a year or so, at least until they know the danger has passed.

  36. OMG I’m drooling! I miss having Khao Soi in Chiang Mai. Please keep us posted when you folks set to travel back to Thailand again. I can’t wait for SE Asia opens up!
    I totally agree that spending more money doesn’t buy happiness but also have a range within your budget. Something more that an anniversary dinner, perhaps an experience. For me that would maybe watching for great sales on flying business class (even if it’s only one way and on the longest portion of your flight).

  37. Dear Firecracker and Wanderer, your article above got me thinking…and that too deeply. Heck, I had to meditate to clarify my thoughts and get my own answer – :). I pondered why I did not want to move out of California…an expensive state to live in every sense of the word, be it buying/renting homes, property taxes and state taxes, and cost of every-day life..be it with regard to eating out or traveling or gas prices or even purchasing clothing. I know you get the point. I finally arrived at the conclusion that its the quality of life associated with having a great community of friends, and opportunity to interact with them on a frequent basis at different forums and events. Those include sports, singing, hiking, parties, church activities and occasional group travel. I am grateful that don’t have any debt (home included), and have a solid nest egg. So the key point here is that experiences, good group of friends, quality of those relationships and the ability to interact with them often are key to happiness over anything else…even cost of living. Just moving to a cheaper state like TX (for example) is not going to bring me the happiness or the quality of life I have now just because I don’t have to pay state taxes and/or I can own a much bigger and fancier home or due to reduced cost of living. I won’t get the friends I have there and neither will I be able to build the much needed happy relationships. So I agree with you 100%.

  38. I think it’s an interesting question for the Fire Community. Many of us worked so hard at optimizing our savings rate, that once we FIRE we end up the first few years, working extra hard to optimize further to make sure our retirement plans work. Weird thing is we never felt deprived. However, as time goes on, we have come to value our time very highly, so many things we did for optimization like couponing, spending time shopping for the best price etc, we just don’t do. Not worth our time, though for some they do it as a hobby. We just sold most of our real estate portfolio because of the insane valuations, so our annual income has increased substantially. We are faced again with the same question do we spend more now? We decided to sell our home and buy another with much more land and a pool, because we knew those are things we would enjoy. We also spend a lot more on groceries….again our priorities.
    For you two, i think it’s great that you spend on friends, that definitely contributes to your happiness. And perhaps the things that bring you joy may change and your spending will reflect that.

  39. I’m like you, I can only spend a certain amount of money. Spending anything more actually physically hurts me and so spending more is not the solution at all for me.

    I do wonder sometimes on what it feels like to spend money and not care about the price tag or my budget. Some days, I do want to see what it feels like but I have no clue when I’m going to get there.

  40. Silly question.
    When you use your money from the portfolio B portion of your funds for spa visits, escape room etc. Are you including those costs into your 4% total?

  41. I’ve read in some FIRE post that a good rule of thumb is to allow 1% of your net worth for your annual spending on luxury items.

    This may not make sense if you’re just starting out in your career since 1% of, say, $20K saved up is only $200/yr. But I think the point is to be quite spartan as you start your career and once you hit a certain threshold you allow yourself to do 1% of your net worth on spending on things that aren’t completely necessary.

  42. Crackers…when you have the time, look at the ANATOMY of RELATIONSHIP illustration (somewhere on my Blog or Youtube videos).

    It will give you a greater CLARITY and FOCUS for the investment of your precious time and hard earn personal resources.

    Once you have located the SOCAIL NICHE on that RELATIONSHIP map, you will advance further from here.

    You both are ready to “amp-up” your game for the challenge.

    Good luck!

  43. I love the points about optimization and minimalism! While I’m not FI yet, I love to optimize and think it is totally possible to do so without being so frugal you’re denying yourself fun experiences, foods, etc. Great post. No need to increase your spending if it doesn’t feel natural!

  44. Congrats!
    Amazing that your portfolio has grown to $1.8m

    You could use about $0.8m to buy a property without a change in lifestyle

    Here in Singapore, you could use about $0.3m as downpayment for a 2 bedder condo worth $1.1m back in 2018

    if you had invested the same money in the US stock market, perhaps the $0.3m could have doubled to $0.6m.

    The same condo is now worth about $1.3m – the question then will be, would it have been better to invest in the stock market instead of a condo?

    Guess who bought the condo?

  45. This was an interesting and thought provoking post, but the comments really made it with so many diverse views, some seemingly angry or perhaps a little sad. I’m really looking forward to next months post: “Should I cheat on my spouse?”, followed up with “God doesn’t optimize”, and then something related to FIRE, Democrats and Republicans.

    1. While out walking I realized that next month’s post topic needed a FIRE relevant titlE, so, “Will cheating on my spouse/partner impact my savings rate?”

  46. Hi! I always enjoy your writing and congratulations on your happiness, portfolio growth, and continued blog success!!!

    I didn’t see this addressed in the comments, but with the 4% rule, aren’t you supposed to maintain the same spending rate you started out with (which is what you guys are doing) and add the cost of inflation to it each year, if you feel the need? I always thought you had to stick to the 4% rule since this buffers you when the inevitable downturns come. I completely understand if you start with a portfolio of $1M and it grows to $3M the likelihood of a crash ruining you is small, but if the 4% rule isn’t concrete how do you know when it’s “safe” to increase? When your portfolio doubles, triples? Any thoughts or insight/advice are welcome. We are about 2 or 2.5 years away from FI. Thanks!!!

  47. Great article, it is all about choices, some my choose to increase their spending some may not choose to. The good news for You you have the choice in contrast to
    the others who don’t have this choice and has to stick to limited budget.

    Your active income from the book, blogging and etc … can substitute your portfolio as source of income.
    I noticed even Jackub of ERE generate an income from his book which equal 5 times his current spending although he does not blog so often.

  48. Good questions..on whether to amp up spending if porfolio looks good and “dependable” for future.

    One thing for sure: I’m spending abit more money working from home. (My employer is govn’t) –expensive latte nearly daily, ploughing through home tea ALOT and toilet paper…) I normally biked to work or took LRT. I actually had free coffee at work, which is a rarity in our organization. For sure, home Internet use for work has paid off in dividends like never before since Mar. 2020. However, won’t be travelling overseas, etc. probably not for next 2 yrs. I bought walking shorts for cycling around city and running shoes to replace a broken 6-yr. old pr. It felt good not to buy dressy fashion stuff when unworn nice clothing still hangs in closet since covid. Therefore no point looking for sale price on running shoes when I needed something fit a custom orthotic.

    Since you have strong memories growing up in China and living in the way that your family did, yes wealth is all relative. I have strong memories how parents raised 6 children on my father’s restaurant cook’s salary.

    Maybe a better way of thinking about this when one’s portfolio is healthy: is one doesn’t overthink about buying groceries and all the ordinary stuff to live. Look for the deals if available but not worry if sale is not there. Not pay outrageous prices, but not worry so much.

    Wow, $500.00 for dinner for 2. I think the most we ever spent was $175.00. But great that you enjoyed your memorable meal together. i’m sure there’s lots of photos for it.

  49. I only go to Tim Hortons when I have a gift card.
    I mostly shop at Dollarama/No Frills/ FreshCo.
    I get most of my entertainment from the Library, the Internet and walks outside.

    And I am perfectly happy!

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