Enjoy your cats

Of course there will still be many people with intense, unsatisfied purposiveness who will blindly pursue wealth-unless they can find some plausible substitute. [...] For purposiveness means that we are more concerned with the remote future results of our actions than with their own quality or their immediate effects on our own environment. The “purposive” man is always trying to secure a spurious and delusive immortality for his acts by pushing his interest in them forward into time. He does not love his cat, but his cat's kittens; nor, in truth, the kittens, but only the kittens' kittens, and so on forward forever to the end of cat-dom. For him jam is not jam unless it is a case of jam to-morrow and never jam to-day. Thus by pushing his jam always forward into the future, he strives to secure for his act of boiling it an immortality.

— John Maynard Keynes, Economic Possibilities for our Grandchildren, 1930

There is no virtue in denying yourself things you value. You must spend within the limit of your means, but developing a habit of spending as little as possible can backfire.

The Simple Path to Wealth, considered one of the best books on financial independence, says you should aim to save 50% of your income, or more. But Your Money or Your Life, the original modern financial independence book, defines frugality as spending only on things you value and not on things you don't. It doesn't recommend not spending or to save a certain percentage of your income, only that you should not spend on things you do not value. It does encourage saving as much as you can as path toward financial independence, of course.

Die With Zero comes at the problem from the other angle. While Your Money or Your Life and A Simple Path to Wealth encourages saving money to become financially independent, Die With Zero encourages spending money based on the season of your life. This includes spending early in life, when you have more energy than money. You can enjoy and value different things when you are younger vs older, and if you avoid spending when you are younger, you will miss out on experiences in your younger season forever. Life is short, and life seasons are even shorter. Don't skimp on the things you enjoy just because you want to retire early and think spending less than 50% of your income is the way to do it.

It's probably not worth it

I don't remember when I realized that deferring certain experiences and conveniences for a tomorrow was not worth the opportunity cost. Maybe it was the time I complained to someone about the price of a $20 game and they felt sorry for me. Or, maybe it was when I noticed that my friends had the audacity to order a drink when we ate out. I wondered, "What is it like to have a drink in a restaurant?"

It's easy for me to laugh at my misguided self-deprivation. After all, that $1 invested really did grow into $5¹. Present-me is now benefiting from those extra dollars past-me invested, but I don't think it was worth it. I'm sorry, past-me.

If you are looking to become financially independent and think saving 50%+ of your income is the "correct" way to go about it, here are some arguments for spending a little more when you are younger (which might mean saving less than 50%):

1. Experiences and money are worth more when you are younger. Experiences and memories compound too.
2. Your earning power will probably dramatically increase later, dwarfing a seemingly large increase in spending when you are young.
3. Eventually, your money will make more money than you can save. Even if I spent $1,000 more per year to travel or buy nice things and experiences, it would have delayed my financial independence by maybe 3 months.

Case Study

After I wrote that last point, I got curious. Is that really true? Am I just being facetious? Let's find out.

$1,000 in 2024 is equivalent to $657 in 2006, when I started working. If I contributed $657 every year to a portfolio of VTI and adjusted my contribution for inflation every year until today, I would have $46,192.

This year, I intend to contribute about $100,000 to my portfolio (including 401k). That's about $8,333 per month. If I were going off just my contributions, my increase in spending would have cost me about 5-6 months of contributions.

But, by the power of the market, my portfolio does not solely rely on my contributions to grow. My personal portfolio (excluding my wife's) is about $2,648,000 today. Let's subtract $47,000 given this increased spending scenario, which would be $2,601,000. Let's assume a 7% average return after inflation (I know, not every year returns this, but this is a hypothetical average year). That's an average gain of $182,070 per year, or $15,172 per month. It would take me 3.04 months for my portfolio to make up for $46,192 without any contributions. Pretty close to my 3 month guess!

But, what about combining the power of my portfolio growth with my contributions? $8,333 contributions + $15,172 gains per month is $23,505 total portfolio increase per month. That means I would have made up for my increase in spending in only 1.96 months. That's 17 years of occasional meals by the world's greatest chefs, or nicer clothes, or all the games I ever wanted, or a nice piece of furniture every time I moved, or a massage almost every month, or an international trip every other year. 17 years of enjoyment for just 2 months of work.

While $657 ($1,001 in 2024) seemed like a large amount when I first started working, I would not have regretted increasing my spending by double the amount.

But... what about compound interest!

It's true, compounding is amazing, but so are experiences and little things in life that sometimes cost money. You might be thinking this is the opposite of what we are often told: "Save just a little bit now so it can compound and grow massively in the future. Skip your lattes and avocado toast, they will cost you a fortune in the future! Lifestyle inflation is the devil!" That's not quite true. $46,192 is not a fortune, nor is it a small amount. But once you translate the money to time, 2 more months of work, it sounds like a bargain for what is priceless: experiences, joy, and stuff you only enjoy when you are younger.

The devil is in the crystal ball. If you told my past self that increasing my spending by $657 more per year (and increase by inflation every year) would only delay my retirement by 2 months, I would not have believed you. I didn't know my income or market trajectory. Let's say I was off by a factor of 5 and it would actually take me 10 more months of work. I think that's still worth it.

Unfortunately, while I have the gift of hindsight now, I could only have made this decision 17 years ago. If you are someone who prides themselves on self-control, frugality, and fears lifestyle inflation like a scarlet letter: your spending muscle is probably weak. Spending is a skill, just like saving. Try experimenting with spending on things you want, but hesitate because "that's not FI." If you regret it, you can always stop (that's part of the spending muscle).

Learn how money can bring you joy and you will figure out a healthy balance, even if you aren't saving a lot early in life.