Two Different Lifestyles; Two Different Retirement Consequences

Two Different Lifestyles

Meet two ordinary women, of the same income, with two different lifestyles: one earns freedom to choose what excites and fulfils her life at her age 50, yet the other has very little control over her future.

Sometimes it’s the smallest decisions that can change your life forever —Keri Russell.

1. Meet Susie & Penny

Penny and Susie are both single, 32 years of age, both managers bringing home $5,000 net per month. They live in metropolitan Vancouver Canada and they both are responsible citizens and always live within their means. They are environmentally conscious and value friendship and people connections. They both love travelling and wish to make a positive impact on society. So far they are like identical twin sisters. Considering that they have very similar values, one may expect very similar lifestyles. However, their lifestyles reflected in their consumption show their differences.

Susie is a representation of the majority of our society

Susie hasn’t taken time to reflect on her spending yet. She’s always had enough money at the end of each month and a little left so was always able to pay her credit card bill. She’s even been able to pay for one vacation abroad each year. She has decided to find one-bedroom apartment because she can afford it.

She connects often with her friends mostly over drinks and dinner out. She doesn’t enjoy cooking for herself, hence most of the meals tend to be take-out or ready-made food. Although she understands the devastating impact of climate change, she hasn’t quite yet thought it through as to how her everyday life could make a difference. She drives to work every day and parks her car in the company parking lot for which she pays $150/month.

Penny’s spending aligns with her values

Penny is a more conscious spender and tries hard to reflect her values in her consumption. She decided to share a 2 bedroom apartment with a friend, a bit away from the city, yet close enough to commute on public transport to her work downtown. She has company at home and someone to share her meals with as well as some of her expenses.

She knows that there would be a bit of compromise if she were to meet someone special, in which case she thinks she would consider a different arrangement but for now, this is a good, practical situation.

Cooking at home for your loved ones

She enjoys cooking and especially for good friends and loved ones. Most days she cooks at home and shares her meals with friends. Making her own food is not only more economical but she is also able to make use of natural and locally sourced ingredients as much as possible.

She usually brings her own lunch to work unless she has occasional lunch appointments. Where she values looking professional, she doesn’t follow trends in fashion. She first looks into second-hand stores when she goes shopping for fashion items. She is aware that each time she buys a new fashion item made far away, she is responsible for a rather large carbon footprint.

She uses public transportation for her everyday purposes and occasionally rents a car to run errands if needed. Because she doesn’t own a car, she rents out her designated parking spot in the building garage to another family who has a second car.

“Every time you spend money, you’re casting a vote for the kind of world you want.” – Anna Lappe

An examined & intentional life promotes alignment with our values & consumption

The above scenario is not an example of a frugal versus an extravagant lifestyle at all and I am not necessarily advocating frugality as a virtue. These are rather two realistic and common examples of how the disconnect between our values, beliefs and spending can lead to wasteful finance and disappointment, instead of a more sustainable, fulfilled life.

Zooming in on the expenses of our two lifestyles

Let’s take a look at what Susie and Penny’s monthly expenses look like in reality.

  • Housing/Utilities: These expenses take up the biggest portion of the monthly budget for most of us. Susie lives alone in a one-bedroom apartment and pays $1650/month whereas Penny shares an apartment with a roommate and pays $1200/month.
  • Car/transportation: another large expense category for whoever owns a car. Susie bought her own car a few years ago (a big “I’ve made it” kind of moment in her life/mind). Because she has her own car, it seems obvious that she would drive every day to work. This ends up costing Susie $625 every month including insurance, gas and parking. Penny uses public transportation and occasionally rents a car to run larger errands. Her monthly transportation expenses add up to $150.
  • Grocery/households and entertaining out: Susie eats out a lot other than her breakfasts and even when she eats dinners at home, it’s often take-out. Her actual grocery bill is small ($200/month) but eating/entertaining out is expensive at $1,200 every month. Penny on the other hand mostly cooks and entertains at home: Her monthly grocery bill is more than twice that of Susie’s at $500 but her expenses entertaining out is much smaller around $300/month.
  • Internet, cell phones and other subscriptions: Susie’s cell phone is with one of the major vendors and pays a hefty price for calls and data. As well, she needs to pay for her internet and other subscriptions on her own so her total ‘communications’ expenses add up to $225 per month. Penny, on the other hand, did a bit of research and found a low-cost cell-phone provider plus she shares her internet and other subscription costs with her roommate so only pays $75/per month.
  • Grooming: Susie entertains a lot out and spends quite a bit of money on fashion items and cosmetics, while Penny tries to make her own skincare products and buys some of her clothing at local second-hand stores. While Susie spends $500/month, Penny manages with $100/month.
  • Gym/fitness: Susie took out a gym membership costing her $100 per month whereas Penny usually works out at home and in her neighbourhood ($0).
  • Other incidental costs: Both spend $200 a month on various incidentals, gifts for birthdays, cards for family/friends, an occasional treat, etc.
  • The total expenses for Susie per month add up to $4,700 and for Penny’s $2,525. Out of their net income of $5,000, Susie has $300 left each month whereas Penny saves $2,475. Penny also makes $50/month for renting out her parking spot to her neighbour, shared in half with her roommate.

Penny tries to reflect her values in her spending, whereas Susie hasn’t arrived at this process yet. Penny with her sustainable earth mindset spends much less money and time on consumption but more time making things on her own, re-using and resulting in a much smaller carbon footprint.

As for satisfaction in life, one could argue that Penny is a happier person as she is solidly grounded in her values but for now, we can leave that argument out of this discussion. Back to the final numbers.

2. Two very different places at the age of 50

Susie & Penny have both lived within their means, each leading a comfortable life. Yet, Penny has a lot more to show for it

Both Susie and Penny continue to live within their means. Susie has about $300 left every month, whereas Penny manages to hang on to about $2,500 each month. They both will travel abroad for their vacation and spend $3,300 each. After that, Penny has $2,200 per month left and Susie $0. Penny then invests $1,100 from her bi-weekly paychecks into her RRSP and TFSA accounts (as much as she’s allowed) and the rest goes into a non-RRSP investment account.

At Age 50, Penny has built her wealth to $757,000

Penny will earn more income as she moves up the company ladder over her career and so will Susie, however, for simplicity’s sake, let’s assume that Penny saves at the current level of $1100 bi-weekly for the next 18 years. At a conventional 4% net return rate, she will have grown her investment to $757,350 by the time she turns 50. This nest-egg will be sufficient to provide her with living expenses of $2,500 which means she will no longer need to work for money at all.

“Someone’s sitting in the shade today because someone planted a tree a long time ago.” – Warren Buffett

Two Different Lifestyles; Two Different Retirement Consequences Photo by Mārtiņš Zemlickis on Unsplash

Susie has no investment to call her own

Susie, however, not having saved/invested any money, must continue to work whether she likes it or not. Spending first and waiting to see what happens next is likely to perpetuate even after her earnings grow. As she makes more money, she will most likely also spend more money. Unless there is an awakening, she will continue her spending patterns.

Many things can change in Susie’s life – one day she may not enjoy her work, her boss may change, she may no longer feel valued at work. If this happens, she may look for other opportunities with another company. But chances are she will find a fairly similar job as it is easier to find work with proven experiences and her happiness will heavily rely on her new company and its leadership.

Susie wonders how Penny did it all

She wonders how Penny found the confidence to ask for half a year of unpaid leave so that she could take off on a 6 month-long back-packing trip overseas. What if she doesn’t get it and only upsets the boss? What if she is not welcome back when she returns? How does she have the money to be away for 6 months without earning any while travelling? She must have rich parents.

Penny’s confidence comes from knowing where she is financially. Money doesn’t intimidate Penny at all.

Penny has enough money saved that she will be okay even if her boss says no to her request for time off. She feels that she has considered her work needs as well as her worth in the company. If her company is unable to accommodate her leave, she will find another job when she returns from her trip. It may take some time to secure a new job that is worth her time but she has saved up enough money to last her several years.

Who would you rather be: Susie or Penny?

By now, it’s a pretty obvious answer. When you don’t have to work for money, you can leave your current company and/or current profession in pursuit of your own agenda. If money isn’t a restricting concern, there are many things you could be doing instead. Perhaps you would travel for a while. Or finally write that story that’s been percolating in your head. And if you don’t know yet, maybe you just take a year off and think about your next exciting chapter.

3. Align Value-Based Spending

The life you desire doesn’t reside in your dreams only. Achieve it by adopting value-based spending. Your financial freedom is most certainly within your reach

I don’t know many people whose values align with vanity, wasteful spending and material accumulation. Our wasteful consumption is purely due to the detachment from our values. When I first started contemplating my consumption and looked at my values, I would question: what value will this sixth pair of dress shoes satisfy? Does this organic produce that I pay three times more for than conventionally grown veggies support my values? One of my strong values is to live a sustainable life. The sixth pair of shoes does not support this value but organically grown produce does.

Mindful consumption

I attended a silent retreat a couple of years ago. We were asked to practice our mindfulness in our eating as well. The whole action of eating is observed closely, lifting the food, putting it into your mouth, chewing and swallowing.

Consumption can also be mindful. We can take a pause and be mindful of our needs, wants and impulses. As more mindful chewing reduces eating mindlessly and overeating, so does mindful consumption. You tend to align your consumption with your values better. You also tend to spend WAY less – naturally. Spending less leads to having more money to invest and it is a surefire way to your financial freedom.

“The best thing money can buy is financial freedom.”-unknown

Evaluate your expenses regularly

Are you Susie or Penny? Here is your first step to your financial freedom.

  1. Get your credit card bill out (especially if you pay for a lot of your expenses with your credit cards). Otherwise, you can still list your expenses on paper or electronically. Next to each expense, write down what value of yours this particular purchase supported.
  2. Which purchase would you repeat, which one would you do away with, which ones would you alter? How aligned are you?
  3. Next, how much would you save the following month without altering the quality of your life but by just aligning your values and adjusting your spending? Now add up your numbers and enter the number on this site.
  4. You can decide what kind of return (% interest) you think you can get annually on average. A conservative estimate is 4%. The results will vary of course depending on which number you put in for your starting money, bi-monthly contribution (if you get paid every 2 weeks), the interest % and how long you want to keep investing without taking any money out, etc. But regardless of what precise numbers you put in, you will be surprised at the power of compounding.

The power of value-based spending

Once you have seen the power of aligned spending, you will become a believer. In order to establish this validating process as part of our consumption habits, we need to build it into our decision-making process each time we make a purchase.

I want to stress again that this is not about deprivation of fun or taking pleasures out of our lives. We will continue to spend whatever adds to our values. Hence if anything, our different spending ways should support our life satisfaction level and enhance our life quality.

You don’t need a lot of money for your financial freedom

Once you have your new spending parameters, you are likely to start spending less. Because you learn to spend less, you will also be likely to need a smaller nest egg to support quitting your job for money (also known as financial freedom). Penny will need a nest egg that provides $2,800 per month but Susie will need a nest egg capable of paying out $5,000 per month.

This example makes it clear that Penny will only need $750,000 of savings whereas Susie will need a whopping $1.5 million in order to support their current lifestyle. Of course, the irony is that Susie hasn’t saved anything whereas Penny has.

Help yourself & help our Planet Earth

In real life, there will be inflations, promotions, marriages and many other events that will change our approaches and goals. But let’s start with what is now. Our current circumstance. We will then of course adjust accordingly to future changes. The value-based spending applies now and forever still and I hope you will join me on this highly rewarding journey – rewarding both financially and in a self-fulfilling way too. More consumption chokes our precious earth. Mindful consumption based on our values is not only helpful for our future selves but for our planet as well.

Celebrate your full life!
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