“What? That doesn’t even make sense.  Who wrote that?  That’s not a real article title,” Mrs. Burrito Bowl.

“This is my article.  I’m reading you my article,”  Mr. Burrito Bowl.

“Oh…sounds great, honey.”

Such is life.

Listen, kids.  Saving money is hard no matter how you slice it.  I don’t really know what that saying is supposed to mean.  Sayings are weird.

It’s a mental drain to think of your hard earned dollars just being socked away for some day thirty years down the road. We live in a culture where we don’t even earn our paycheck before we spend it and we for sure don’t earn it and let it sit there for a few decades.

A few of us know that saving money is important, but it’s just so hard.  There’s a mental shift we need to make to motivate ourselves to save part of our paycheck.

Mrs. Burrito Bowl and I are about three years into this whole money saving cult of financial independence and there’s a counterintuitive idea that’s really helped us:  Saving half your paycheck is mentally easier than saving $100.

Aca-scuse me?

You heard me…or, read me, as it were.  Either way, I stand by my statement.  It’s mentally easier to save half your paycheck than it is to save $100 per month.  A quick disclaimer: It’s mentally easier, not physically.  For many families saving half their paycheck might be physically impossible.  The point I want to drive home is that it’s not impossibly out of reach.  Saving half your paycheck isn’t only for those families making multiple hundreds of thousands per year.

People living on low to modest incomes are able to get by, but even people living on high incomes seem to struggle to save money.  The reason for this is simple- when we earn more we tend to spend more.

Humans can’t manage to agree on much but there seems to be one constant- we tend to inflate our lives to match our income.  What if we flipped the script and made a pledge to save half our income?  Don’t do that.  Pledges are lame.  Unless you’re into that.  I mean, you should save half your income but you don’t need to make a pledge or something like you’re in the boyscouts, or a treefort.

Sorry, back to the article.  What would that look like and is it even possible? Put away all your own personal ideas on how tight your current budget is and follow me on this thought experiment.

What would our lives look like if we found a way to save half our paycheck?  How long would we have to do that to really change our lives?

Our views on money made a left turn a few years ago when we heard about financial independence.   Neither Mrs. Burrito Bowl nor myself particularly enjoy our jobs.  We hated the idea that we were stuck doing something we weren’t passionate about for the next forty years.

So what do you do?  I keep not getting drafted into any professional sports league, despite making several tweets that I’m available.  Nobody has contacted either of us about writing a tell-all book about our lives. Frustratingly, we seemed to be destined to live a life of grinding away at our jobs Monday through Friday hoping for the weekend.

Then, we learned about Financial Independence.

Learning about the FI movement gave us a seminal moment:  If we saved up around $1 million we could CHOOSE to exit the workforce.

COooool!

How’d we come up with $1 million?

Well, our yearly expenses are around $40,000.  Using the 4% rule, we figured out we need $1 million in order to perpetually fund a $40,000 per year lifestyle.  The 4% rule basically says you can spend 4% of your net worth every year without ever running out of money.

Related: The 4% Rule- How to Know When You’ve Reached Financial Independence

With that goal in mind, we weren’t working on this endless treadmill waiting for our bodies to turn the magical age of 65.  We were chasing a number, not an age.  You might be thinking that age is just a number.  Damnit, well played.  We were chasing a different number.  We didn’t need to reach 65 years old to be free, we just needed to reach $1 million in investments.

For most people, ourselves included, that number seems impossibly high.  Once you understand the math behind it though, it’s actually doable.

Wait, why is saving half your paycheck easier than saving $100?

Oh, right.  Back to my borderline asinine theory.  It’s completely counter-intuitive but it’s true.  Saving half the money you earn is actually easier mentally than only saving $100 per month.  Hang with me.  When you’re saving little bits of money here and there it feels pointless.  When you save big chunks of money it has tangible meaning.

Think of saving money like an exercise program.  When you work really hard in the gym you see progress fast and it keeps you motivated to work even harder.  When you only exercise once or twice a month, you don’t see any results and it’s hard to find a reason to keep doing it. Likewise, when you put as much money into investments as possible you see real growth.  When you only put a little bit into investments, it feels stagnant and demotivating.

If you saved $100 per month after 35 years you’d have $42,000.  That seems like not very much money for three and a half decades of diligent saving.  No wonder people don’t see the point.  You have to save $100 every single month?  I’d prefer to go out to a nice dinner once per month for the next 35 years rather than have slightly more than 40k sometime in 2053.

So How Much Do You Need to Save in Order to Make a Life-Altering Change?

Okay, so let’s do a little thought experiment.  What if instead of saving $100 per month you went crazy and saved $1,000 per month?  Before you balk at the impossibility of it, stop and think what $1,000 per month really means.  That’s only $12,000 for the entire year.  You can drive for Uber part-time and earn $12,000 per year.  You could probably sell a non-essential body part and get at least that much. Or if you wanted to get really extreme you could contribute to your pre-tax accounts, thus lowering your tax burden and helping you save.

Saving $12,000 over the course of a year only requires saving $32.88 per day.  You might have to make sacrifices such as where you live, the type of car you drive or even if you buy yourself a pet tiger.  But let’s get double crazy.  Instead of just saving the money, what if you invested it in the black market?  Sorry, stock market.  If you invested only $1,000 per month you’d have over 2 million dollars after 35 years.

Wooo! $2 million bones.  Helllllsssz yeah! But…35 years? Eff that.  That’s too long.  I don’t want to save meticulously month in and month out for the next 35 years.  Good thing we don’t need $2 million to retire because 35 years sounds awful.

Let’s run some numbers and see how long it would take to get to $1 million investing $1000 per month. Boop beep boop.  Calculations, etc.  Oh, good! You don’t need to work for 35 years!  You need to work 27 years.  Only 27 years!?  Wow! That’s…I guess slightly better than working 35 years!!  Here’s a graph if you don’t believe me.

There’s a few things to unpack here.

First, it takes 27 years to earn your first million if you invest $1,000 per month, but it only takes an additional 8 years to earn your second million.  That’s the power of compounding interest.

Second, yikes.  That’s a long time.  Just to get to $1 million it takes almost three decades of saving your ass off.  Let’s just go buy a truck or something, right?

Third, ok actually saving $1,000 per month will set you up to be sitting pretty come retirement time.  That is better than a depreciating asset like a truck or a tiger.

What if You Want Work to Become Optional in the Next Ten Years?

For the next thought experiment we’re going to go full out with the saving and investing because some of you are super unhealthy and probably don’t have another thirty years left.  For sure less than thirty years if you bought a tiger.  They are very dangerous.  FYI.

Let’s say you’re willing to do whatever if takes to be able to exit the workforce one decade from today.  Remember when Obama was first elected?  That was longer than a decade ago.  So if you want to exit the workforce in ten years what would it take?

Operation Escape in Ten Years or One Decade, Whichever You Prefer to Call It.

If you’re starting from zero and invest $5,800 per month, you’ll have a portfolio of $1 million after ten years.  Oh.  That’s a lot.  Damnit.

In order to do that you’ll probably have to make some huge changes.  Maybe that means going back to school to get a degree in a field where you can make substantially more.  Maybe that means trimming your expenses by house hacking or selling your beloved truck.  It probably won’t be easy, but this is the math of it.

There’s a lot to unpack here.

First, ten years is too short of a time scale to get really accurate readings.  Over a long enough time period, getting an 8% return on investment is reasonable.  Over a single decade that number could fluctuate wildly.  It’s not impossible to have a booming decade and be sitting at close to $1.5 million after ten years, or we could have a prolonged recession where you actually lose some money over a ten year period.

Don’t read the above paragraph if you’re on the fence about investing.  It’s pretty unlikely that you’ll lose money investing over the next decade unless you foolishly choose to invest in something other than low-cost index funds.

Second, $5,800 per month is a bunch of money.  But, we’re trying to do something incredible here- exit the workforce in only ten years.  This is just the math of it.  I’m not saying it’s easy, but math is math.

Third, $5,800 is an entire paycheck for someone with a great job.  You’d be investing $69,600 per year.  That’s a lot of bread.

How can you do that?  I don’t know.  Maybe you can’t.  Don’t look at me.  Ok, ok, here’s some ideas.  To start, in 2019 you can put away at least $25,000 in pre-tax accounts by maxing out your 401K and Traditional IRA. The remaining amount will be post-tax so you’ll need around $63,500 taxed at 30% to be able to invest the remaining $40,450.

Sorry that’s a lot of numbers.  Basically, if you use your pre-tax vehicles to shave off $25,000 from your $88,500 salary, that leaves you with $63,500 (that we’ll assume Uncle Sam will take 30% of), which leaves you with $40,450 you can invest.  The $40,450 added to the $25,000 you saved pre-tax gives you $69,450, which is close enough to $69,600.  I might delete this section, there’s a lot of numbers.  I’m barely reading this section when I proofread it because it’s too many numbers.

Bonus Key Takeaway:  Despite what it may look like, Mr. Burrito Bowl proofreads his articles.  Suprising, isn’t it?

That Was a Lot of Numbers.  How Does This Help Me?

Excellent question.  Hopefully this article is a roundabout way of showing you the more you put away the faster you’ll be free.  I realize that’s obvious, but when you really see how powerful compounding interest is, it gives you hope.  If you’re like me, you don’t want to sacrifice little bits of money for the next 35 years but you might be willing to sacrifice a lot of money for a much shorter amount of time.

What about ten years?  Can you buckle down and change your life over the next decade?  Maybe that number is out of reach. Can you save half that much?  Even if it takes you twenty years to reach financial independence, you’ll still be free from the daily grind of a job a couple decades earlier than many of your peers.

Ask yourself if you’re maximizing the happiness you’re getting compared to the amount you’re paying for housing, vehicles, food, entertainment etc?

You don’t have to go hardcore and ride a bicycle everywhere and live in the back of a Denny’s dumpster.  Can you drive a reliable but less fancy car?  Can you pick up a part-time job or pick up more hours at work?  Can you stop spending money on dumb sh*t?  Remember, you don’t have to do this forever.  The goal is to buckle down for a set period of time in order to change the rest of your life.

The natural reaction is to say, “My situation is different, this would never work for me.”  That’s a limiting belief.  Whatever amount of money you’re currently making, there are people getting by with less.  If you’re earning two solid incomes and spending it all, you’re leaving a lot on the cutting room floor.  That’s a real saying.  Mrs. Burrito Bowl didn’t believe me, but it is.

What if You Can’t Make the $1 Million Mark?

A lot of people might be reading this article and be thinking to themselves that this isn’t for them because they’ll never be able to save THAT much money.  I have a few quick thoughts to wrap up.

Any amount you save is worth way more in decreased stress than whatever you could have bought.

There is nothing you can buy that will give you the peace of mind that having some money saved up will give you.  Even if we never save another penny, Mrs. Burrito Bowl and I will never have to worry about money when we reach retirement age.

We’ve given up a lot of vacations and trips home, driven an old Honda Fit, lived in a tiny apartment and never purchased any tigers.  Those sacrifices have let us build up a nest egg of investments.  Having money set aside means you don’t have to stress or fight about money.

Mrs. Burrito Bowl is able to find lots of other things to stress about.  Here’s just a quick stream of conscious list of actual things she’s worried about recently- Listeria, horrible one off events, natural disasters, unnatural disasters, tires losing air pressure slowly, tires losing air pressure suddenly, heart burn, bpa, what if our baby girl doesn’t grow enough in the womb, what if our baby girl grows too much in the womb, skin cancer, salmonella, the bumper of our car falling off mid-drive, raccoons, the list goes on and on.  Money, however, is not on that list.  That is worth way more than any material possession we could have spent our money on.

The sacrifices we’re making don’t feel like sacrifices because material possessions don’t make people happier.

Spend your money on things that add real value to your life.  Don’t cut out so much from your budget that you hate life.  Life is to be lived and tomorrow isn’t guaranteed.  At the very least cut out the fat.  Cut out the areas of your life where your spending doesn’t equate to additional happiness.  A $60,000 Lexus wouldn’t make us any happier so we drive a $5,000 Honda Fit and invested the remaining $55,000.  A $3,400 downtown apartment would soon lose its flare so we rent a $1,000 tiny apartment above a garage and invest the remaining $2,400.  Mr. Burrito Bowl owning a really great electric guitar doesn’t make Mrs. Burrito Bowl happy so we compromised and spent our money on yarn for her hats, and we invested the rest.  Find the areas of your life where your spending isn’t buying you additional happiness and cut them out.

Hopefully this article helps change your perspective on saving money.  It’s hard to save money, but the more you save the easier it becomes.  We don’t feel like we’re giving up anything when we spend our disposable income on investments instead of possessions.  Time is your most precious commodity and pursuing FI is a way to spend your time on your own terms.

What do you guys think?  Let us know in the comments!

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