Early sacrifice means more options later

I guess this post is very Dave Ramsey-esque.  But it’s true, if you “live like no-one else” you will be able to “live like no-one else.”  [Update:  To be clear, this is NOT a Mr. Money Moustache post.  MMM is more about being content with a flat level of consumption rather than enjoying a rising level.]

In economics, we learn about something we call consumption smoothing.  With this idea, if you knew your full lifetime income in advance, you would borrow early on at some interest rate and pay it back when you had money.  At some interest rate it would be worth having loans, even though it means you’ll be less flush later since you paid to borrow from your future self.

This simple model ignores two very important things.  1.  You don’t know your full lifetime income in advance so you can’t actually consumption smooth perfectly, 2.  People prefer to have gradually increasing consumption rather than flat consumption throughout their lifetimes.

Because we don’t know our full lifetime income in advance, there’s always the worry that we might borrow too much and hit a bad time that we can’t borrow our way out of.  Additionally, since lending agencies have no guarantee that we’ll actually pay things off, interest rates are much higher than they would be in a world of perfect certainty.  Plus, it’s not like our lifetime income is fixed– we can take on more or less work if we’re feeling worried or relaxed about finances.

Because people prefer to have gradually increasing consumption, that means it’s a good idea to pay things off early in life (after borrowing for education and/or transportation and/or other things that are true investments in our future potential), even if that means more sacrifice early on.  It’s a temporary sacrifice that will lead to more security and more freedom later, when we will enjoy it more.

This is why it wasn’t stupid to pay off DH’s undergraduate loans and to put money in IRAs when we were in graduate school, even though it was pretty clear we wouldn’t have a combined income of $36,000 in an expensive city our entire lives.

By spending less than we earned and investing the difference in loan-prepayment, retirement savings, and an emergency fund we were able to move for my job with the promise of only one income.  Later when we had real incomes, spending less than we earned and following the “rules” for buying a house (20% down, fixed rate mortgage, etc.) and car and so on allowed DH to quit a job he disliked without another one lined up.  Because of these early sacrifices, we’ve had steadily increasing or level consumption with only minor sacrifices when our income has dropped  dramatically or we’ve had major emergency expenditures.

Early sacrifice also meant that we could take risks that paid off.  Ironically, we probably wouldn’t have been able to make the ridiculous amount of money we’re making now if we were worried about money.  DH would still be working for the university making half his current salary or less because we’d have been too afraid to make that jump to let him quit without another job lined up.  So even though we make a ridiculous amount of money now (IMHO), I’m still glad we made those earlier sacrifices, because without them we might not be making a ridiculous amount of money now (or enjoying our jobs so much).

And now, if we do decide to move again, our lack of debt, healthy retirement savings, emergency funds, and low level of spending compared to our income mean that we’ll be ok for a long while even if we have to drop to one income, even if we’re living someplace crazy expensive.  We don’t want to move (permanently) to paradise right now– DH and I both like our jobs– but we could if we needed to.  Our early sacrifice means we can take a pay-cut and we can move someplace more expensive later.

What does that mean if you’re not a poor grad student in your 20s?  It’s never too late to start.  If you still have loan payments dragging down your monthly expenditures and/or you don’t have an emergency fund and/or you haven’t saved enough for retirement, then you can still drop your consumption and temporarily increase your income to get rid of monthly obligations and to get yourself onto sound financial footing.  It may hurt at first temporarily, but the hedonic treadmill means that as you gradually add consumption back in as you get on firmer footing, you will start feeling pleasure again even at levels that are lower than what you started with.  And you’ll still have hope and you will know that the future will be brighter, as opposed to a future that is full of worry that ends in catfood.

tl:dr:  Often times you have to make sacrifices for financial security, and it feels better the earlier you make them because it’s easier to increase your spending than to have to cut it.  If you’re financially unhappy and didn’t make sacrifices before, now is the best time to start!

Have you ever had to make sacrifices for your financial future?  Do you wish you had sacrificed more or sacrificed less?  Have you been able to have steadily increasing (or steady) consumption over your lifetime or have you had to cut back ever (and how did that feel at the time)?  How did you live when you graduated school?

62 Responses to “Early sacrifice means more options later”

  1. moom Says:

    To me it never makes sense to pay off low interest loans. Of course, you want to make them as low interest as possible.

    • nicoleandmaggie Says:

      His student loans weren’t low interest. But it can make sense to pay down even low interest loans if their interest rate is higher than the next alternative safe asset and you want to mitigate risk or increase your future cash flow.

  2. xykademiqz Says:

    I really think getting your finances on a solid footing before having kids is a great thing.
    It didn’t work out for us, though, as we had an oops baby early in grad school (shortly after immigrating into the US, so literally no savings and no backup and no ability to get decent loans on account of no credit history). We made ridiculously little to pay for apartment, food, 1 car, in-state tuition, and daycare; you also have to account for the fact that we were legally forbidden from working anywhere except on campus and for more than 20 hours total, so the only option for extra income would be to work illegally, which we didn’t want to do in order not to endanger out future citizenship, but some of our friends did (pumped gas, waited tables at restaurants). What we did was supplement on credit cards, with the plan for me to graduate quickly and get a real well-paying job, which I did.

    Since then, we have been slowly but surely paying off the debt, but probably not as aggressively as some people would recommend (or in MMM’s case, shout from the rooftops, or rather in your face, drill-sergeant style) because we have been having the kid (joined later by other two), and they are only young once. So we decided we did not want to deprive them of the childhood that we wanted them to have and that most of their peers have (summer activities, travel, owning a house), which comes at the expense of paying off that debt more slowly. We have been paying for daycare for each (amounts to about $100k per kid for the first 5 years of their life), saving for college for Eldest, saving for retirement, and paying off the house. I don’t think we are frittering money away, but yes, we have some credit card debt that would go away at the expense of not traveling going anywhere for a few years and removing much of the more expensive extracurriculars (like Eldest’s swimming).

    Our youngest is starting kindergarten in the fall, which will be a $1k drop in childcare expenses that will be put towards that residual cc debt and we should be out of the hole in no time. By the time the middle one hits college, we will have paid off the house (we purchased with 3% down, but refinanced aggressively two times and shortened the clock and the payment considerably), so that will be a huge monthly amount that we will be able to put towards his college alone.

    What I am trying to say is that when I read MMM say something like “If you have credit-card debt, you should feel like your hair (or your house) is on fire!” it assumes people can plan everything perfectly (like when to have the first child) and that everyone has the same priorities (such as building wealth, riding a bike, and wearing plaid). We still have debt, we are paying if off at a good but not punishing pace, that doesn’t mess with our priorities (kids and their experiences) and, yes, we are okay with delaying off getting rid of it completely in order to do this. We are hitting all the other milestones (retirement, college savings) as we should and we both have very stable jobs with a university (another nontrivial aspect that many people can’t count on, but we can; we don’t make as much as we would in industry, but the stability enables us to do this long-term type strategizing).

    I guess what I am also trying to say is that having some cc debt doesn’t necessarily mean you are dimwitted or irresponsible with money or somehow morally repugnant, which I have noticed a lot of people IRL seem to assume. For us, credit cards were the only option for temporarily getting the necessary money to make ends meet while in grad school (we made really, really little) and raising a kid (that was in the days of Augmentin costing $70 for a 10-day course, and we had zero drug coverage and a kid with recurrent ear infections); the only other options would have been to work illegally or to move back to where we came from. We decided we would do what we had to to tide us over to (quick!) graduation and real jobs.

    (Sorry for the novel. I haven’t blogged in a while, I guess the flood gates swung open! :-)

    • Angela Says:

      “it assumes … that everyone has the same priorities (such as building wealth, riding a bike, and wearing plaid)” – Love this!

      • Ana Says:

        Same, love that line about assuming the same priorities. This is why I had to stop reading those kinds of blogs. I was tired of feeling like I was being scolded for having different priorities, and by the way, my priorities are wrong.

      • nicoleandmaggie Says:

        To be fair though, this post isn’t giving a specifying a specific amount of spending or way of living. It’s just saying that cutting back early on can lead to more opportunities (and more spending) later. It is much more Dave Ramsey than Mr. Money Moustache. It’s not saying to never lifestyle inflate, but that gradual lifestyle inflation is more enjoyable than spending a lot without getting the full enjoyment and then having to cut back to much lower levels.

      • Ana Says:

        sorry, got off on a MMM tangent. your post, definitely different vibe.

      • nicoleandmaggie Says:

        I’m all for people being content with a MMM lifestyle, but most people are happier with increasing consumption!

    • nicoleandmaggie Says:

      One benefit of infertility, I guess, is that it is much more difficult to have an oops baby.

      One thing I want to note though… it doesn’t make any sense to save for a child’s college while you have (high interest) credit card debt. Besides the usual reasons about the market not being able to beat cc interest in terms of investing, there’s also the very important fact that the money in the 529 counts against your financial aid, but the amount you owe in debt does not count towards it. You would be strictly better off taking all money set aside for college and using it to pay off cc debt. (Similarly, if you’re within a certain income range, it may make sense to pay down the mortgage because housing wealth doesn’t always count for college financial aid. And some people buy new cars right before doing the FAFSA for that purpose, though that’s less obviously a good idea.) The only reason to both carry cc debt and save for college would be if you would spend more on unnecessary luxuries if you weren’t saving for college for example, if you’re the kind of person who maxes out credit cards regardless of income (which I doubt you are). It makes more sense to pay off the cc ASAP and then put money on credit while the kid is in college (or better: get lower interest student loans, especially if you qualify for subsidized loans) because that decreases the amount you just throw away in interest.

      (The same is not necessarily true for retirement if there’s a match because 100% return is a good thing. Also, retirement assets don’t usually count for financial aid.)

      • xykademiqz Says:

        I am sure you are right, but I think we found a way that works reasonably well given our level of comfort with the financial system (we are still learning), the cost of living and raising kids where we are, and the timescales on which different major milestones are to happen or have happened. I am aware that we may end up paying more total than someone who’s more shrewd, but I am guessing we accept that.

        The cc’s are not high interest, we’ve been proactive about paying off high-interest first and moving stuff to low-interest cards. And Eldest is a high-school school sophomore, so college is near. I can’t imagine he will qualify for need-based financial aid and we’d like to avoid him having to take loans altogether (at least if he goes in state; if he wants to go to a private school, that will be a different story, he’ll probably have to take loans). But we are laboring under the assumption that no aid or loans are coming from anywhere. We didn’t start saving for him until a few years ago (not all in a 529) so we are being aggressive with it.

        (We have already paid the equivalent of a large house in daycare expenses for the 3 of them.)

        By the time our middle one (now 8) hits college we’ll be on a much more traditional path (cc debt gone, house paid off, ample college savings).

      • nicoleandmaggie Says:

        I’d still suggest sitting down with some of the financial aid calculators available from various schools and checking out how wealth changes could affect financial aid decisions for your income range. For us, if we were sending DC1 to school right now (or rather when we’re both fully employed– I haven’t run the numbers with me at half salary) it makes a huge difference. Tens of thousands of dollars for private schools and it varies for public. (And we make a ton of money and have fewer kids than do you.) One tiny money shift (from cash to debt payoff) could make a big difference. It might even be worthwhile talking to an accountant who understands college financial aid.

        Why are credit card loans more attractive than student loans? Because you can default?

      • xykademiqz Says:

        Why are credit card loans more attractive than student loans? Because you can default?
        God, no. We just don’t want our kids to have to take on loans if we can help it…

      • nicoleandmaggie Says:

        You can take out student loans though– they don’t have to take them in their name. Or you can take them in their name and pay them off (this is what my parents did because it gave them a 0% interest rate loan for 4 years).

      • xykademiqz Says:

        Yeah, we should probably talk to someone. Thanks!

      • nicoleandmaggie Says:

        Now is a good time too. Your high school guidance counselor might have suggestions or your uni’s financial aid office might. And a lot of schools have extensive estimated financial aid calculators online.

      • nicoleandmaggie Says:

        p.s. Forbes has a series of really great articles about how high income families can maximize their financial aid.

  3. SP Says:

    Sometimes I just feel so grateful to 25 year old me for making all those sacrifices. Financially, just living within my means and feeling obligated to save as much as I could afford for retirement. Taking risks of moving to a new state. And most of all, doing my master’s part time. I can’t imagine doing that today, but I’m so glad I did. 25 year old me wasn’t perfect, but she was alright. :)

    It also helped when I was working full time and the husband was in grad school, because we hung out with a fair number of grad students, so it was pretty easy to live like students. Of course, we took some vacations that it might be harder for a grad student to swing, but our day-to-day lifestyle was modest.

    • nicoleandmaggie Says:

      Us too (feeling grateful to 20-something selves)! We’ve just been in such better shape than so many people with the same incomes whenever an emergency or opportunity strikes. Mainly from taking standard advice to get rid of debt, not take on consumer debt, have an emergency fund, save reasonable amounts for retirement, and to wait to buy a house until we had 20% down.

  4. Shannon Says:

    Generally speaking, I don’t disagree with what you’re saying here, but my biggest problem is when these other sites take it to the extreme – the ” I am never eating out or traveling or doing anything fun because one day I want to be able to retire and do all these things.” I had a friend and a relative with this mindset who both died before they got to that one day (and the former died very young – in her early 40s). So yes – you have to think about how to avoid eating cat food in the twilight years, but I do think you also have to ask the question – if I were to die tomorrow, what would I regret putting off? For us, that means being frugal about some things (smaller house, crappier cars than most of our peers), so that we have more money for experiences, like travel.

    • Ana Says:

      Yes, I was going to say something similar. Granted, the chances of dying young are pretty slim, so I’m not advocating for “living like its your last day”, YOLO, spend it all, the future will work itself out. But…some things need to be experienced at certain times. If you want the experience of carrying 40 pounds on your back for 3 weeks and sleeping in youth hostels in western Europe, you can’t do that when you’re 60, you know? You can’t take your kids to Disney when they are 20 and expect it to be magical (not something I’m super into, but people are). If you want to train for a triathlon (apparently its pricey), you can only put that off so long before the chances of injury go up.
      If its incredibly meaningful for you, and its an experience that necessitates being at a certain life stage, I would understand slowing down debt repayment slightly to allow for those things. I’m certainly too risk averse to take that advice, but sometimes I wonder what I may regret years from now. I don’t even HAVE any debt, I just never feel comfortable with what we are saving. Maybe we should go on an amazing family vacation every few years, though.

      • nicoleandmaggie Says:

        I dunno though. People can save up to go hosteling across Europe without taking on credit card debt– it is a relatively cheap way to travel. And you actually can do it when you’re 60… or even 70. My dad has been doing El Camino in Spain these past few years. You don’t actually need a 40 lb backpack to do it either.

        If you can’t afford Disney, you shouldn’t be going to Disney. Disney isn’t worth not saving for retirement or college or losing money on high interest debt. That’s just the plain truth. Get into a good financial situation and then go to Disney. Your kids will be fine never having gone. (Disclaimer: I went to Disneyland on a school field-trip as a kid. The small world ride was traumatic, they wouldn’t let me go on the fun mountain ride because I was a girl and little, and then they lost me in the gift shop and I had to go to the lost kids area.)

        Similarly, if you can’t afford a triathlon, then don’t do a triathlon. Save up for it.

        Obviously there are different levels of debt that people have. Low interest debt isn’t as worrisome (even student loans) because it doesn’t cost as much to carry and it isn’t like throwing away money every month. But if you’ve got high interest debt, wait to do the expensive luxury activity until the high interest debt is gone and you’ve got a plan for retirement that doesn’t involve either catfood or someone else paying for you who wishes they could go to Disneyland instead.

        There are a lot of exceptions to the general idea of getting on good financial footing before spending extra money, but the ones above are ones that should probably be put off. And, when you’re already on good financial footing (because you paid off your credit cards instead of racking up more debt at Disney) it is much easier to buy those bereavement plane tickets to see your dying grandma or to invest in the graduate degree etc. *without having to worry about money*. Not spending on things that are truly luxuries helps you weather the negative shocks when they happen without the stress. That way you don’t have to make agonizing decisions about what dreams are “worth it” and what have to be put off. Sacrifice early means you can say yes later.

        Btw, we did our first family vacation this year that didn’t involve a conference, a wedding, or visiting relatives. It kind of sucked. Vacationing is a lot of hassle. We’re definitely going back to combining vacation trips with things that we have to do anyway.

      • Shannon Says:

        To be clear, I am not advocating spending beyond your means – and we don’t. I agree with you on that. But I also agree with Anna – I think one of the things other people are saying here is everyone has different priorities. For me, I’d rather work until I am 70 (because I enjoy my job) and travel now, rather than not travel now and plan to retire when I am 60 so I can live the good life then. After a certain level of responsibility, priorities diverge, which is fine. But I don’t get the people who do nothing fun now just so they can have fun later. I suppose I am lucky in that I can choose do be fiscally responsible and do these things by only making small sacrifices (smaller house, crappy cars). Some of the people on those other blogs are crazy though – they have lots of money saved for retirement, no debt, etc., but refuse to even ever buy themselves any little thing, like a meal out or a book. Money is a means, not an ends, to the enjoyment of life. So be responsible, but then figure out what is enjoyable to you and make it happen.

      • nicoleandmaggie Says:

        To clarify–this post allows people to have different priorities. It says if you sacrifice early, then you don’t have to sacrifice later. It doesn’t define sacrifice.

        I do put some judgment on not having high interest debt (because high interest debt is a huge drain that keeps you from spending money on actual goods and services) and making sure that you’re on track for retirement (see: catfood). Basic, “here’s how to not be a total disaster when you get hit with a bad shock” advice.

        But this is not an early retirement post or a Mr. Money Moustache post. It definitely includes living like no one else once you’ve set yourself up to be able to do so. Being able to say, “yes” without having to worry about money because everything is on track because you didn’t say “yes” back when you should have been worried about money.

        It’s a be responsible even if it hurts at first post. Because then you won’t have to spend so much of your life being responsible and hurting later. Because people prefer increasing consumption profiles to decreasing ones.

      • chacha1 Says:

        My grandmother traveled all over the world with an outfit called Elderhostel, now Road Scholar. :-) Pretty sure she had more fun doing that at 65 vs. going when she was young-and-broke.

  5. Linda Says:

    Yes, I’ve made sacrifices for my financial future.

    “Do you wish you had sacrificed more or sacrificed less?” This one brings up some radical thoughts I’ve had in recent months. What if I hadn’t filed for divorce several years ago? Would I be better off financially now? Highly likely.

    Reading through this post and others and the liberal use of “we” throughout touches a sore spot. It seems that most of the blog posts I read about financial progress are by people who are partnered. Not just partnered, but married. Marriage has many financial benefits IF one has a spouse who is not a financial drag. The spouse has to have similar values about money and savings otherwise that spouse can be a drag on one’s ability to reach financial goals.

    I did have a spouse like that. He was a saver, not a spender. Being married to him lifted me up from a mediocre level of saving and a small amount of CC debt to a superstar level of saving (including a well-funded retirement account) and no CC debt. I also earned a Master’s degree without incurring any debt, thanks to the fact he was employed in higher ed for several years, and as his spouse I could leverage a free tuition exchange program. Financially, I was on a great footing with him: we had a house (and mortgage debt, but it was an appropriate level), a paid off car, and lots of money in the bank.

    But in other ways the marriage was dissatisfying. After three years of unhappiness with no improvements from couples counseling and other interventions, I just had to get out. I’d been married for 11 years, and I’m sure he would have been OK with us continuing on as we had been doing for several more years. If I hadn’t filed for divorce at the beginning of the economic downturn when our biggest asset (the house) was valued so incredibly high, I could have much more money in my pocket today.

    If I had just continued to muddle through with a marriage where I was treated like a roommate (and one who asked for inconvenient things like a little help around the household), I would very likely have more financial assets than I do today.

    Would I be living in my paradise like I am right now? That’s hard to know.

    Am I OK with making that sacrifice? More and more often I find the “What if…” question popping into my head these days.

  6. chacha1 Says:

    I guess I have not considered any of my financial arrangements to really involve “sacrifice” until recently. I was not brought up in a lavish lifestyle. But at 50, it is clear that me giving self-employment a try is not going to be within my risk tolerance until after we actually “retire,” and I wish it had been possible for at least a while. I am also completely DONE with this city and basically every year we have to stay here is another sacrifice. If my spouse had *not* gone the self-employment route, we probably could be out of here in 5 years; as it is, unless the universe drops a ton of money on us, it’s more like 17. His gross earnings are roughly the same as mine, but his expenses are so high that his net is much lower, and being self-employed he gets none of the bennies (health insurance, disability insurance, retirement plan) he would get were he employed at a hospital. And if we moved out of this city, he would have to rebuild his practice from scratch – not a good scenario at 56.

    fwiw it may be worth pointing out to younger readers that the main reason I was able to undertake multiple courses of study (master’s degree; ballroom instructor certification; personal training certification; paralegal certificate), and support my spouse in his goal of self-employment, is because I’ve generally spent less than I earned. I have never been a clubs + shoes kind of girl, and I’ve only owned two new cars in 30 years, one of which was a gift. I stayed at home at lot, and read books (still do). I did not take any education loans from anyone but Visa.

    Even so, retail therapy added about five years to my freedom timeline. So save early, save consistently, and do not run a balance. Leveraging an unexpected car (or cat) repair is one thing, leveraging your entertainment or underwear is quite another.

  7. bogart Says:

    Interesting post (your claim to the contrary notwithstanding) and still more interesting comments. Besides the two very important things the simple model leaves out, could we add uncertainty about life span (and needs over life stages, e.g., will I have a special-needs child? Will I develop dementia?)? Of course when addressed at the small-unit level (individual or household), these are impossible to predict; a big advantage to group products (like insurance and defined-benefit retirement systems) is that they can account for population-level rates of such things — at least in principle, I know that even these struggle with big blips (like the baby boomers) among other things.

    It has long seemed to me that the only way to have it be reasonably likely (at the individual/household level) that “the future” will be “easier” is to act as if it won’t — to go ahead and Save. Everything. Now (well, save lots now) because it won’t be easier to do so later (except that if you do save now, it probably will, as you note. But if you don’t, it won’t.). So I mostly have done so though, let’s be honest, in a pretty darned privileged and comfortable context to start out with. I mean, sure, I spent half my grad school years living in a substandard single-wide and graduated with no loans, but I also traveled to Europe for a month most summers just for fun (albeit fun in youth hostels/with extended family/in cheap nations. But still). And was healthy. And had good health insurance. Etc. etc. So, you know, pull out the tiny violins.

    I do think other commenters make good points about questioning which sacrifices are reasonable/plausible/good and which aren’t. My mother’s divorce cost her a small (or maybe moderate) fortune and was worth every penny (10 times over). I delayed seeking infertility treatment until I thought I could afford it and ended up discovering I had “old” ovaries and needed way, way, way more treatment than I’d have imagined I’d be willing to do, and only being able to have one kid instead of the two I’d hoped for (despite taking on all kinds of debt). Good decision to delay? Probably not, but I don’t have the counterfactual. Good decision to take on the debt I did take on? Absolutely, 110%. Lucky that I did so in a context where low-interest options were available to me (a function of my previous behavior, but also of when I needed treatment)? Very much.

    • nicoleandmaggie Says:

      Absolutely– the comments are more interesting than the post!

      In terms of uncertainty over the items you mention, those are considered negative (or positive) shocks. So expenditure shocks are similar to negative income shocks when modeled. (And outliving your income is a problem.) More complicated models introduce insurance, so you can pay $ in the good state of the world to smooth out consumption in the bad state of the world (you know, the one where you live longer than you expected to…)

      • bogart Says:

        Ah, right. Insurance = good. Though not necessarily available. My mother has a great LTC policy. I can’t get anything comparable. I know, there are good market reasons for that (even at the population level we are, it seems, not always good at predicting what the future will hold — i.e. the kind of policy that was available when my mom locked hers in was based on assumptions about what the future would hold that proved wrong, or so the market tells me).

      • nicoleandmaggie Says:

        Economists still aren’t sure what causes the LTC insurance market to have market failure. This was a really big area of research a few years back and it seems like people are letting the topic rest for a little while (everyone is busy with the ACA instead!).

  8. Cloud Says:

    We were ridiculously lucky in terms of getting high paying jobs early (yeah, some of that was skill/strategy, but a lot of it was just plain luck in terms of the timing of when we entered the market), so never really had to make big sacrifices. Also, I was ridiculously lucky in that I had a scholarship for college and therefore accumulated very little student loan debt. I guess I sacrificed some in grad school by choosing not to go into debt then, but nothing was really pushing me towards debt- no surprise pregnancies (and yeah, there was a fair amount of luck in that, too). But we’ve never had to make the hard “sacrifice now to benefit later choices”… until now. My decision to go for an independent contractor/entrepreneurial route is presenting some new financial decisions. And I’m discovering I’m *really* motivated to keep the amount of sacrifice low, for some reasons similar to Xykademiqz’s reasoning about enjoying the kids’ childhoods, and for some far more selfish reasons about just liking to travel, dammit.

    However, I also have some long term goals that I consider worth sacrificing some for. And I have a family history that gives me rather high odds of living into my 90s, so I’m trying to plan accordingly (within reason). Neither my husband nor I have actual pensions- we’ve been in the private sector. So our retirement risk is all ours to shoulder, and that can be a bit scary when you look at your grandparents still going strong in their 90s and realize a lot of their standard of living is thanks to their pensions. Our retirement savings are in good shape right now, but one of the risks I’m taking in the early company building stage is that I’m not contributing anything right now, and that is starting to make me nervous. I want to find a good financial planner to talk things through with, but am having a hard time finding the right one, whose approach would be a good fit for us as a couple. Particularly given our wildly different risk-tolerances. So I’m just working hard, trying to build the business and telling myself I’ll sort it out soon.

    • nicoleandmaggie Says:

      “I guess I sacrificed some in grad school by choosing not to go into debt then” … is a sacrifice, even if you didn’t have children.

      Sacrifice doesn’t have to mean you live on rice and beans and don’t go anywhere (for us it did for about a year, but only because DH had 10K in pretty high interest student loans and we were living on graduate student stipends in an expensive city). It just means living within your means and making sure your ducks are in a row before spending additional money. (Economists, of course, assume that you always want to spend more money even if it has diminishing marginal returns, those returns are still positive,)

      There are *plenty* of bloggers who are finding in their 30s and 40s that they’re not doing fine now, even with relatively high incomes, because instead of paying things down in their 20s, they took on additional debt (for housing, for consumer goods, for vacations, etc.).

      • Cloud Says:

        Yeah, I guess you’re right. I just don’t remember it feeling like I was sacrificing all that much. Maybe it helped that I was dating someone with a “real” job- but he sucked with money, so I’d often be the one buying dinner at the end of the month (or we’d stay in and I’d cook). But maybe the dinners he bought earlier in the month made it all OK? I wish I could better remember my frame of mind back then. I had a decent apartment, a reliable but boring car, and never felt like I was scrimping a lot. I was more frugal with my groceries, and I didn’t travel as much. My clothes were probably a notch or two less nice, but I was in the lab all the time, so… that didn’t matter. Maybe it helped that I was in grad school so no one in my immediate social circle was spending it up.

      • nicoleandmaggie Says:

        That’s a good point that you bring up– with increasing consumption, sacrifice doesn’t *feel* as much like sacrifice. Especially if the way you’re living is better than it was before. You haven’t hedonically adapted yet.

        Imagine now going back to what you were living like as a graduate student (or perhaps at a point somewhat later in your career but with debt from living large as a graduate student). Having to be frugal about groceries, living in an apartment, not being able to contribute as much to charity or to throw money at problems etc. (or worse– having to stay at a job you hate). That’s the kind of thing that people who never sacrificed and are now (in their late 30s and 40s) having to deal with when they hit their credit limits or realize retirement isn’t so far away as it used to be or who have other kinds of negative shocks that they haven’t prepared for. Or maybe they don’t have to drop to quite graduate student levels of spending, but the idea is still the same.

        It feels good to be able to increase your consumption and it hurts to be forced to drop it, even if the end level is still the same level in both scenarios.

      • chacha1 Says:

        Negative shocks fall into the “la-la-la I can’t hear you” category for an awful lot of people, it seems. (Right along with estate planning.) My husband lost essentially two months of income last year while dealing with the fallout from his father’s death and the financial disasters we discovered while trying to get his mother back on her feet.

        “Live now” is a great philosophy but if you have living parents, or other old people you feel responsible for, well … those situations can’t be solved with a credit card. Our Old Parent situation could only be solved by a person taking a lot of time off from work. And because we were all “live now” in our 30s, it has set us back.

      • nicoleandmaggie Says:

        What I’m seeing with a lot of negative shocks is this total disbelief that negative shocks could ever happen (which is why no emergency fund and debt already) followed by catastrophe (because of said lack of emergency fund and already high levels of debt). Often followed by a (not wealthy) extended family member bailing the blogger out, but sometimes a 401K loan or occasionally credit restructuring or bankruptcy or some combination of all of the above.

        What I like is when people take the negative shock as a reason to get finances in order and there are yard sales and cutting expenses and just overall learning about how to be responsible with money. But there isn’t as much of that coming across my way these days.

        Of course, I am also seeing more people getting their finances on track *before* the cluster@#$@# which is even better to read about!

      • chacha1 Says:

        Our situation was not a catastrophe only because we are both high-income to begin with, and I had wiggle room in my budget, and he was willing to cut back severely on his personal spending so as not to clusterf@*! us. He actually paid down some credit card debt last year in spite of everything. :-)

        But yeah, at 56 a person making a good income should not *have* credit card debt. It was a habit from his 20s that he never grew out of. I use an operational credit card myself, and it is all too easy to let that balance ride.

      • bogart Says:

        You know, it’s funny to read this because reading it, and particularly the bit about consumption going up or down, has made me realize that I am kind of expecting my consumption of many things to go down dramatically as I get older — and not to mind, or indeed, that I am expecting to enjoy this. I’m watching my mother prepare to sell her house (the 3 br home on a 1 acre lot that she raised her family in) and downsize, and remembering my own grandmother who lived in a simple 2 br apt. with simple furniture (the kind of stuff that had no family history, functional but not valuable either in the sense of cost or in the sense of care), and seeing lots to envy. The actuaries would have me live as a widow for 2 decades or more (a function of age difference and other health factors), and in many ways my DH is much “higher maintenance” than am I, so it’s easy to imagine myself as a single older woman happily living a pretty pared down version of what I do now. I’d clearly need less house and e.g. would eat so many fewer sit-down, cooked meals as a single person than I do as a wife/mom, and I would enjoy that (not eating those meals, and particularly not preparing most of those I do prepare).

        Of course, I’d need more of other things, including some kinds of help/support (DH is my IT team!) — even if I stay healthy — and need to be prepared for negative shocks. And even if I do downsize/scale back, I want to do so by choice, not necessity.

      • nicoleandmaggie Says:

        That’s part of the lifecycle hypothesis, which is another theory. Though we’re not really sure if people spend down because they want to or because they have to. There’s also the fact they’re not caring for kids, so the per-person cost in the house will be higher than the total household cost. Retired folks tend to eat out less and prepare more meals at home. But then you get all those increasing health care costs…

      • bogart Says:

        Yes to all that. And I already know about myself that I like to be able to spend money to get the medical care I want, and have seen nothing about aging in those I’ve been around who are doing it (including right up to and through death) to suggest that that would be a good time to change approaches. Not that I anticipate wanting lots of invasive treatments as I decline — if that’s a detactable process, because who knows for any individual? — but even decent palliative care can be costly.

      • Solitary Diner Says:

        Count me as one of the “plenty of bloggers” you mention. Although I’ll have a positive net worth again within the next six months, so at least I’m heading in the right direction.

  9. Leah Says:

    I made sacrifices that let me explore career options. I made very little in my 20s, but I really enjoyed the options I explored, and I think I’m happier now because I know I am doing what I want.

    My best choice, even these many years later, was saving aggressively in my first post-college job. I saved a ton in high school but spent it all while studying abroad in Europe ($6k in 4 months!). I graduated with very little and used my graduation money to get into my first apartment. I made something like $10 an hour working for the state I lived in. The job was just a 4 month job. I lived an extremely spartan lifestyle and saved over 50% despite living in my own apartment for $450ish a month (my one big splurge). I used that money for a trip to New Zealand and to build my nest egg. My only regret from this time is not plugging even small amounts into a Roth IRA. I did go on a few dates with a microsoft employee who bought lots of stocks and saved a lot for retirement, and he gave me some good tips, but I was nervous about getting started.

    I’ve found that the money I’ve saved has helped me time and again, either for traveling or for trying new life experiences. I’d have more in the bank if I hadn’t traveled or had worked better paying jobs . . . but life is to be lived. So I like a balance. To me, money = freedom

    • nicoleandmaggie Says:

      Yeah, it’s not about never spending money, but about keeping on track and saving so when the future provides opportunities (or emergencies) that you’re happy with the trade-offs you can make and have made. Those sound like great opportunities!

      • Leah Says:

        Yes, I love the traveling I’ve done. Right now, travel is focused on visiting family (especially with a young kid), but I’m looking forward to the years when our kid(s) are older and we do more adventure traveling again. Hence, I am in a saving mode, mostly, these days. A good chunk to retirement, tho not putting everything there, some to college savings for the kid, and other to general savings for future happiness.

        At my height of savings, my mental conversation for every purchase was “$20 on X or a night in a hostel?” Easy answer there.

        I remember having convos in grad school with people who clearly made more than me. They all marveled at how I could afford to travel so much (I did a lot through my 20s). I marveled at how they could buy 3-5 drinks at the bar on the regular. It’s all about decisions and trade-offs.

  10. First Gen American Says:

    My biggest sacrifice was having roommates the first 10 years out of college. I never lived alone and that saved a crap Ton of money. We even had a roommate after getting married for a while.

    For a lot of people, Living alone is a non-negotiable must have. To Linda’s question above, she can still get a roommate. Splitting chores will still be an issue whether you are married or not, but it is an effective way to save money.

    I did go backpacking through Europe after studying abroad in college and I agree that it is a lot easier and cheaper doing that as a single 20 year old vs a 40 year old with 2 kids and spouse in tow. The days of the under $1000 vacation are over. Traveling on the cheap before kids was a priority. Most of our vacations now don’t take us that far and I have far more competing expenses that take priority. I am glad I spent the time and money back then.

    • nicoleandmaggie Says:

      You can go backpacking across Europe again when the kids are gone! Like I said, my father is in his 70s and has been doing it for the past 3 years, staying in hostels with only a small backpack.

      In any case, there’s nothing wrong with backpacking through Europe or even doing a luxury tour of Europe if you aren’t racking up debt or jeopardizing your financial future to do it. If you financed a 1K vacation at credit card interest rates and let it float with a lot of other credit card debt, then it might end up costing the same as a full vacation for a family of four later.

      It’s not really that important what luxuries you spend money on so long as you can afford them and are prepared for the future. Go to Disney World Europe to run a triathlon so long as you don’t put it all on a credit card that you’re still paying off when you should be enjoying life instead. (Not you personally since I’m fairly sure that European trip of yours was not debt financed.)

  11. Rosa Says:

    There were a few things that felt like sacrifices at the time – I really liked New York, and I love Chicago, but I looked around and realized I couldn’t really afford to live in either place, and moved to a smaller Midwestern city, in my mid-twenties.

    But other things I did – traveling by bus, backpacking, hanging with the punk kids and dumpster diving, biking to work, not having a phone or a car, living with a lot of other people – didn’t feel like sacrifices at the time. I didn’t want to work a ton, and I didn’t want to be in debt, so I didn’t spend money. Just lately I’m running into a lot of people describing about exactly the life I lived in my ’20s (or a much more luxurious, car-owning, restaurant-eating life!) as a horrible privation they are suffering because of the economy or lack of living wage laws or whatever.

    I know people get to have different priorities, but sometimes I think the psychological effect of debt, including just having to decide every time you have the opportunity to buy something “do I want to add to my debt or do I say no to this thing?” is a creeping anxiety/unhappiness that people then blame on the “sacrifices” of not buying things instead of the underlying debt. Partly because I know firsthand that having a crappy job or a crappy apartment is not nearly as bad as being *trapped* in a crappy job or a crappy apartment. Even if the situation is exactly the same, knowing I have the freedom to walk makes a huge difference in how i feel.

      • Rosa Says:

        it is starting to make me really angry, though, when people talk about how they are “forced” to have roomates or wait to have a second child or OH MY GOD they have to always take the bus because their rent is a thousand dollars. A thousand dollars is a lot more than I ever paid for my share of rent, and that was luck…but the choice I saw people make if they wanted to be in New York or London or San Francisco or Chicago, 20 years ago, was couch-hopping, squatting, or renting half a bedroom in someone else’s place. I lived alone for six months one time and, yeah, it meant I couldn’t afford to buy groceries. That was a choice I made, that I regretted, and then I never did it again. It wasn’t a horrible privation, it was a temporary cash flow issue.

        On the other hand, I never had the creeping terror of no safety net; I always had a couple hundred dollars in cash (which is enough for a Greyhound ticket back to someplace where I could crash on someone’s couch indefinitely, even now) and $0 in monthly bills aside from rent. I’m certainly not any less whiny than The Kids These Days, so I have to think that was why I didn’t feel so trapped and let down.

  12. Tara Says:

    I made a “sacrifice” “early” in moving from Canada to the US after undergrad for a job. I say this in quotes because if I lived closer to my family or to my SO’s family, I would make significantly less money. With today’s exchange rates, we would each take a pay cut of about 67% if we moved back to Canada. The market is much hotter in our fields in the US than in Canada. For him, this resulted in paying off his student loans much faster than he would have been able to had he stayed in Canada. For both of us, it has resulted in much, much faster wealth building. I am guessing that we would have a much lower savings rate if we were still in Canada and would have much smaller assets. I want to move back sometimes, even with the pay cut, but the pay cut is too big for my SO to want to move back. It doesn’t help that we would take such significant pay cuts AND the cost of living is much higher. If we converted all of our US bank accounts to CAD today though, we could put a pretty significant down payment on a house at least to help with the pay cut.

    A friend from undergrad called it an “economic decision” for me to move to the US, several years after I did. I mostly don’t regret it, but there are definitely times that I wish I didn’t make career decisions based on immigration situations. It’ll probably feel less like a sacrifice to live here once we both have green cards and we’re not including immigration in our career decisions. My original plan was to save up money from living here and then move back with a huge down payment on a house, but I don’t foresee that really happening.

    • nicoleandmaggie Says:

      Good luck with the green cards!

      • Tara Says:

        Thanks! I’m looking forward to making career decisions based on career goals and not maintaining immigration status soon / being able to leave a job more easily. That will be very valuable, more so than the financial freedom I’ll have by that point.

  13. gasstationwithoutpumps Says:

    The comment “Imagine now going back to what you were living like as a graduate student (or perhaps at a point somewhat later in your career but with debt from living large as a graduate student)” elicited an immediate reaction from me—I am living much the same as I did when I was grad student, though I’m in my 60s now. I donate more to charity than I did then, and I’m saving more (though I saved enough on my grad student stipend to have the down payment on a house when I got my first real job). My expenses haven’t changed much—I probably spend less on books now (allowing for inflation) than I did then, because I have less time to read, and probably less on clothes also (I’m not outgrowing things any more, so I have things from the past 20 years to wear). Most of my furniture was bought 30 years ago. I travel less than I did as a grad student, though it is a bit more expensive (my wife doesn’t like youth hostels). My hobbies take up time, but not much money (less than 1% of my salary).

    My biggest expenses are maintaining and upgrading the house, but the average cost per year is less than rent would be, and I paid off the mortgage about 20 years ago.

    I recently noticed that I have quite a bit of money saved for my son’s college and for retirement—more than I think is needed. I blogged about it https://gasstationwithoutpumps.wordpress.com/2015/11/27/why-dont-i-feel-rich/

    • nicoleandmaggie Says:

      To be fair though, a 20-something just moving to Santa Cruz would have to spend a lot more on housing. Prices have gone way up but prop 13 protects long-term homeowners from the cost of that. And a grad student wouldn’t have all the stuff you’ve accumulated, so truly living like a graduate student would mean starting from scratch without all the stuff.

      But yes, this is a good example of being financially responsible and ending up in good shape later.

      • gasstationwithoutpumps Says:

        Yeah, the rents here have gotten ridiculous (a studio is about $1500 and a 1-bedroom about $2000) and grad student stipends are not as generous compared to cost of living as they were 40 years ago when I was a grad student.

        Housing purchase is even worse here, with price/annual rent ratios over 25. I was very lucky that I was able to buy my 2-bedroom house 29 years ago and not need to move since.

        I think that Prop 13 is one of the worst things that has happened to California, though it keeps my property tax low—it definitely serves to perpetuate inherited wealth and increase wealth inequities in the state.

        I’ve definitely accumulated a lot of “stuff” over the decades, but the things we actually use are not much more than what I had as a grad student. I’d have to clear out a lot of stuff to move into a grad-student-sized space again, and grad-student-sized income would be spent mostly on rent, so I’d have to reduce how often I eat out. I don’t see other big changes that would be needed in my lifestyle, though.

  14. Becca Says:

    Special needs kids. Cancer. Hepatitis C. Alzheimers.

    I don’t trust my ability to ever save “enough” for emergencies.

  15. J Liedl Says:

    I wish that I had been better focused on savings in earlier years but, wow, looking back, it was a wonder we managed so well for so long on one salary and various consulting gigs. Now I earn excessive amounts and we funnel money into savings in various ways but it feels a bit like endless catch-up. In reality, we’re not in bad shape but it could have been better had we made different choices in our thirties.

    I saw upwards in the comments Tara’s wistful observation about how she feels kind of stuck away from Canada to get the maximized pay for her work in the US. My situation is reversed – even with the currency collapse up here, I make a surprisingly hefty salary with an amazing benefit plan. We couldn’t afford to relocate to the states where any comparable professorship would pay me a fraction of my salary up here, not to mention the worries about health insurance coverage, even with the improvements of the ACA.

  16. Revanche Says:

    I’m glad that I made sacrifices to support my family and pay my way through college but at the same time, I’m wistful for the years of youth and better health (not that I knew it was “better” at the time) that I can’t get back too. It’s not that I think it was the wrong one, or that I had the luxury of a different choice, but it’s certainly informed my choices since then to make the most of whatever we have now. Not lifestyle inflation, definitely never ignoring debt for them, but deliberate choices to spend on better food, time with our family, some travel together to make memories together.

    We know, perhaps more acutely than most given the string of family and friends who have died way too young, that we could die at any time and I don’t want to have regrets but we also won’t carry debt to do that. It doesn’t have to be one or the other.


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