Retirement and Spending Growth
A lot of people think the key to retirement is savings: packing all those little pennies you find in your budget into an account that grows and grows through compound interest. The real key is to keep your spending from catching up with your salary growth. The temptation is to spend a vast majority of your raises. You shouldn’t do this. If you can somehow keep your hands off that money, you can add years to your retirement. Why? Because pacing yourself is key. Deny yourself now, slow down just 1%, and you’ll gain a couple years on the other end. To illustrate this, pictures! (This is for a single person with a lot of missing factors, but suffice to say the general trend continues whether you’re a family of four or currently homeless).
Look at the increase in years as spending growth tops 4.5%. This is for two reasons: you’re saving less and you’ll expect to spend more in retirement. Nobody is the “I’ll live in a cardboard box” stage straight out of college is predicting that they’ll need a giant house and three cars in twenty years in order to be happy. Moderating this compulsion is key to financial independence (which, I think, it fairly critical to doing good work on this Earth).
You can play with the Excel sheet here. Now, why do we do this? Because the sooner we can free ourselves from the bondage of spending, the sooner we can get around to doing things that we actually want to do. You can do this by foregoing the $20,000 car now or the $400,000 yacht when you’re a millionaire. Both are equally difficult, but one will save you years and years of slavery. People budget, but none of that number dumping and recording actually matters if you’re not doing the central act of saving: not spending.