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Race to FI - Budget vs % savings

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  • Race to FI - Budget vs % savings

    I have been a long time follower of WCI since late medical school and many of the guiding principles in the forum/book have lead me to a very solid financial position now about 4.5 years out from residency, knocking on the door of financial independence in about a year. With the mantra of "live like a resident" I've kept my monthly budget at about 20% above resident level ($5k per month). My wife is also in medicine and while not a budgeter she is frugal and spends about 5k a month as well leaving us with around 10k of total monthly expenses when we review at the end of the year. This lets us live very well relatively speaking however when compared to many in our friends group who are rather well off we don't do any of the things that they often talk about (5 star travel, Michelin star restaurant tasting menus etc). Beyond this is housing, where we have been renting a modest place very close to family which is great, but have seen houses that we could see ourselves living in long term explode in price in our VHCOL coastal city from about 1.3-1.7MM out of residency to around 2-3MM now.

    We currently have a savings rate that is a bit above 50% of gross earnings and 80% net of taxes. A child is on the way, and I think it's crazy that I feel stressed about money so frequently, worried about going over budget, and saving as much as possible while trying to race to financial independence. Compound interest and time value of money dictate that saving more now makes a ton of sense, especially if we both cut back with kids arriving and just let things compound from there.

    Any advice from the group? I like where my approach has gotten me but not always the psychological journey. Additionally, if we were to switch to a 20% or 30% savings rate then I'm worried that expectations and recurring expenses would creep up and push me to continue working as hard as I am now to maintain a standard of living that is backed by a frenetic pace at work. Additionally, I happen to work with a particularly good contract and if that changes and reverts to the mean we could have an immediate 30% or so decrease in income which makes me want to "make hay while the sun shines" so to speak and get us comfortably set up asap.

  • #2
    The WCI rule is at least 20% for retirement. It's fine to spend the rest. You would do well to remember that. And if you've been saving 50% for several years I don't think there's a problem with saving 15-20% in these years where you're getting a family together. Also perhaps readjust your goal...instead of getting to FI ASAP maybe think about Coast FI. It sounds like based on what you've written you're already well on your way and if next year or for the next two years you save "only" 15-20% that might delay your FI date by 2 years. But isn't that delay worth it so you are less stressed in the present?

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    • #3
      Originally posted by Hoopoe View Post

      Any advice from the group? I like where my approach has gotten me but not always the psychological journey. Additionally, if we were to switch to a 20% or 30% savings rate then I'm worried that expectations and recurring expenses would creep up and push me to continue working as hard as I am now to maintain a standard of living that is backed by a frenetic pace at work. Additionally, I happen to work with a particularly good contract and if that changes and reverts to the mean we could have an immediate 30% or so decrease in income which makes me want to "make hay while the sun shines" so to speak and get us comfortably set up asap.

      Firstly Congratulations.

      Start to enjoy life. Don't feel too stressed. You are both in medicine and will always make a ton of money and have a ton at age 65. But what you might not have is the enjoyment of the journey of life. Don't be too budget oriented. It is just a framework. A baby will definitely increase spending but that is what you work and earn money for.

      Save 30%, have emergency cash and start enjoying. Want to buy a house, go ahead and buy it and enjoy it. Most WCIers will have too much hay when they retire and not know what to do with it.

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      • #4
        I would imagine that a baby will not actually blow your budget. You will naturally cut back on 5 star travel and michelin restaurants.

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        • #5
          Originally posted by Hatton View Post
          I would imagine that a baby will not actually blow your budget. You will naturally cut back on 5 star travel and michelin restaurants.
          I think he is not doing the high end travel and tasting menu now and instead putting the money towards the high savings rate. His colleagues are living the high life.

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          • #6
            Originally posted by Kamban View Post

            I think he is not doing the high end travel and tasting menu now and instead putting the money towards the high savings rate. His colleagues are living the high life.
            Everything in moderation. Including saving, splurging, and moderation itself.

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            • #7
              My wife also happens to not like her job as much so will go part time in the spring with the baby so perhaps that is its own form of cutting back. Some of the stress of working a lot is that we aren't home together that much with various odd hours. The total hours worked hasn't been that bad, just the lack of overlap.

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              • #8
                You want to be financially secure and set up. Realize you'll be FI next year. You theoretically wouldn't have to work anymore if you calculated things correctly.

                Being FI doesn't have to be a race. It's a journey. Instead of running so fast you throw up, just jog the rest of the way as you're almost there. Heck you could likely walk to the finish line and still make it there in a reasonable amount of time.

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                • #9
                  Congratulations!

                  You guys are definitely in a great position! I can empathize with how you feel, as I have always been a budgeter. I think being "ok" with cutting back at work, especially once children come, can help improve stressors. You are definitely doing a great job with saving, and yes, children will change things. Getting them out of those more expensive days (aka daycare/nanny) helps, and depending on your thoughts on private school/extras, this is only temporary.

                  You may find things don't change that much, especially if you already are modest in spending. My husband and I recently discovered that despite saving a lot each month towards important things (house, retirement, 529s, savings, investments, etc), we still have an abundance of extra. Not a bad problem to have.

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                  • #10
                    Doesn’t sound like you actually have anything to worry about financially but psychologically, it can be tough to loosen the purse strings. What’s the point of racing to FI if you don’t feel like you can spend anything even while accumulating? I think it will be good for your me to health to try and find that balance now. Good luck

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                    • #11
                      I do not want to stress you out any more and I am sure you already see this but if you go from a 50% savings rate to a 20% savings rate you would likely be no where near FI. Not because you are not saving enough but because you are spending a ton more.

                      Example:
                      Income 500K
                      50% savings 250K Spending ~100-150K after tax

                      20% savings 100K Spending ~200-250K

                      Your nest egg needed for FI just doubled.



                      Now I am not saying that you should not loosen the purse strings. But don't spend just because you can. Spend thoughtfully on what you really want and think it through. You have a huge head start! You really cannot lose unless you try to lose.

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                      • #12
                        Originally posted by Lordosis View Post
                        I do not want to stress you out any more and I am sure you already see this but if you go from a 50% savings rate to a 20% savings rate you would likely be no where near FI. Not because you are not saving enough but because you are spending a ton more.

                        Example:
                        Income 500K
                        50% savings 250K Spending ~100-150K after tax

                        20% savings 100K Spending ~200-250K

                        Your nest egg needed for FI just doubled.



                        Now I am not saying that you should not loosen the purse strings. But don't spend just because you can. Spend thoughtfully on what you really want and think it through. You have a huge head start! You really cannot lose unless you try to lose.
                        I think that this is a good succinct summary of where some of my hesitancy to increase spending comes from. FI is around the corner. Great! Then we increase spending and are no longer financially independent. Right now our fixed expenses are really low and we could likely get by on 2-3k a month indefinitely if needed. However a large fixed expense like a big CA mortgage for a 2.5MM house would definitely change that. My parents had several hard years when I was growing up where my dad lost his job while my mom was a lower income artist and we almost lost the family home several times. I think that makes me a bit irrational about these things. Add in a house + child and a wife who wants to go to part time and decreased family income and the ability for me to cut back goes away with the increased spending.

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                        • #13
                          Put the question another way: is there something that is seriously important to you that you are not spending money on?

                          I think it is easy to look at something like "percent savings rate" with the idea that you are depriving yourself. But you are spending $120k per year. Is there something that you need to prioritize because it's important to you? If so, put it in the budget.

                          On the flip side, if you believe that you are depriving yourself and that spending more will fill this void, that is a never ending hedonic treadmill that will only lead to disappointment.

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                          • #14
                            Originally posted by Lordosis View Post
                            I do not want to stress you out any more and I am sure you already see this but if you go from a 50% savings rate to a 20% savings rate you would likely be no where near FI. Not because you are not saving enough but because you are spending a ton more.

                            Example:
                            Income 500K
                            50% savings 250K Spending ~100-150K after tax

                            20% savings 100K Spending ~200-250K

                            Your nest egg needed for FI just doubled.
                            That's what I find weird about CoastFI. Like people really think they can pretty much stop saving and the lifestyle inflation won't catch up to them? Furthermore, it's tough to just flip a switch like that anyways. Of all the FI's, CoastFI seems the least realistic to me on a practical level.

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                            • #15
                              Originally posted by TheDangerZone View Post

                              That's what I find weird about CoastFI. Like people really think they can pretty much stop saving and the lifestyle inflation won't catch up to them? Furthermore, it's tough to just flip a switch like that anyways. Of all the FI's, CoastFI seems the least realistic to me on a practical level.
                              interesting perspective as I'm on the CoastFI train. I think a lot of us reasonably can spend more than we do. I say I'm CoastFI at this point (while I continue to put more than 20% towards retirement which means at some point in the unknown future I will be fully FI in my 50s and possibly in my late 40s depending on the market) but at least in my situation I do think certain spending will go down while other spending will go up. If your plan is to be mortgage-free once you retire that's a huge expense that just went away. We also pay daycare and that too is an expense that will go away. The elimination of those two things cuts my expenses by 25-33%. So I'm not sure why CoastFI doesn't work in your view.

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