Let me first state, I have no issues about living frugally. My wife and I aren't big spenders. I typically don't wear expensive clothes. I have one expensive watch (which, ironically, I rarely wear). I don't go out shopping that often, nor do I like to shop.
Our cars are nothing fancy. We own a 2007 Honda Odyssey and a 2010 Hyundai Genesis. The book I just reviewed, “Stop Acting Rich” , says the most popular car among millionaires is the Toyota Avalon. Assuming the car will be able to stop, that is the car we were looking to purchase.
In many ways we fit Thomas Stanley's “The Millionaire Next Door” profile. I think it's great that Thomas details the life of an average millionaire and differentiates them from the glittering rich. Last year we saved over 30% of net income (that's before taxes).
I suspect the audience that reads my blog saves at least 15% of their net income per year. If you aren't, you should be doing this at a minimum to ensure a decent retirement. From the research I've done, if you save 30% of your net income you'll be pretty set. Of course it's relative to your net income. For most people, it's easier to save 30% out of $250k net income than out of $50k a year.
How Much Is Too Much?
When it comes to saving, is there such a thing as being too frugal? Is it possible to save too much per year? At what point are you saving too much? One way I've looked at it is saving should have an end goal in mind. What's the purpose of saving?
After all, it makes no sense to be the richest man in the graveyard. When you die, you can't take it with you. I'm not saying you shouldn't leave money to your children, relatives and your favorite charity. But wouldn't it be better, while you are alive, to give a portion of your money to these people?
Unfortunately, you never really know when your number is up. Today you could get hit by the proverbial bus while crossing the street, and your savings will be for naught. Shouldn't we plan for tomorrow because in most cases tomorrow will come? In addition, shouldn't we also live for today — the here and now?
This is something I've wrestled with for many years and come to the conclusion, like most things in life, it's about balance. I should save and set specific goals yet also not be afraid when I hit specific targets to buy some material things.
We have set up savings goals for some of the material things we would like to have in our life. If you work hard and make sacrifices, shouldn't you be rewarded in the end? We aren't doing it to impress our neighbors or friends. We are doing it for ourselves.
For example, I've always wanted a nice big-screen TV for the media room in our basement. In 2009, I setup a goal of how much income we needed to make and how much we needed to save for the year. We hit both marks and rewarded ourselves by buying the TV.
The TV wasn't cheap and came to $5,000. Could I have taken the money and saved it instead? Could I have invested the money into some stock, bond or business? Of course, yes, but how much do I want sacrifice in my life?
The classic saying, “You can't take it with you,” is something that should always be considered. We met our yearly goals and rewarded ourselves in the process. In Thomas Stanley's latest book “Stop Acting Rich and Start Living Like a Real Millionaire” (which I just recently reviewed) he states:
I don't mean to suggest that one live like a miser; the occasional guilty pleasure is perfectly acceptable. If you work hard and save accordingly, you should enjoy a treat from time to time. The problem is people have come to enjoy the guilty pleasure every day to the exclusion of working for a financially independent future.
My recommendation is paradoxical: plan for tomorrow, but live for today. You never know when your number is up. This applies not only to money, but any aspect of your life.
Readers, what do you think about being frugal? Is it possible to save too much?