Income vs. Savings: The epic battle

Published November 30, 2014   Posted in How to Retire

This website is a lot of things, but it is definitely not a resource for learning how to “get rich quick”.  Why?  Not only is getting rich “quick” an idea that was generated purely for revenue by clever marketing geniuses at publishing factories, it also flies squarely against every principle that early retirement stands for.

Never assume income and retirement are tied at the hip. It is almost always easier to retire early based on a high level of savings than a high level of income. The reason is quite remarkable. The magic lies in your chosen lifestyle.

Can you retire early with a huge income? Of course. Bring in $50k a month in income and you will definitely be able to retire. But, how many people do you know who retired early with huge incomes? I don’t know many.

Unfortunately, it flies in the face of human nature.

It only seems to make sense that the more we have, the earlier we will retire. But for most, it doesn’t work that way, does it? The truth of human nature is something much more savage and greedy: the more we have, the more we want, and the more we want, the more we spend. The cycle is wicked, and it is nearly everlasting.

Very few of us become content and comfortable with success – enough to say “I’m good” and spend the rest of our lives enjoying a very satisfying existence.

A high income tends to be akin to some powerful invisible force that keeps people working much, much longer than they otherwise need to, and it all comes back to one very simple reason: lifestyle. We get used to lavishness, and it’s natural to resist giving it all up.

$50k a month?  I could have it all!

Most people would take that $50k a month and quickly build a lifestyle where they live a $50,000 / month life.  A big house, weekly maid service, nice cars, expensive restaurant visits, traveling in 1st class – you name it.

The bigger problem is even if you managed to save more than you earn, without a big change to your lifestyle – which is exceptionally tough after retirement, your investments eventually run out. The money train ends.

The earlier that we retire, the greater the likelihood of this happening.

Income is nothing more than a superficial indication of “success”.  When it comes to retirement, people’s lifestyles are far better indicators of how prepared they are to settle into a life where income is primarily supplied by investments, and true happiness is not simply derived from cash…or what cash can buy.

Let me tell you a little story about Jim. Jim is what most Americans would consider being successful. He is the Vice President of Financial Services at his town’s local bank and makes a darn good salary. Jim works 50-hours a week and often puts in a little work over the weekend. Jim is glued to his phone due to his high-level responsibilities at the bank. As he should, he tucks away 4% of his salary into the bank’s 401k retirement plan because Jim read that’s the norm.

Jim drives around in a brand new BMW 750. His wife drives a Chevy Silverado and trucks their two kids to and from school every day. Jim rolls up to the bank in his expensive Bimmer to the awe of most of his coworkers. Jim tells stories at work about his dinner last Saturday night at the $100/plate restaurant across down. The food was decadent. Wine, of course, delicious and perfectly paired with the meal.  Oversized plates and undersized portions…you know the deal.

Jim has it all. He is turning 43 next week and wants to throw a birthday bash to himself by renting out a luxury box at the next professional sporting event. The nice guy that he is, Jim will invite many of his coworkers to drink some beer, eat some burgers and enjoy themselves, all on Jim’s dime.

Jim is the typical “successful” American.

Now, meet Stacy. Stacy is 27 and is one of the tellers at the local bank. She lives much more modestly than Vice President Jim, of course, because she makes about a 10th of his salary. She chooses not to go out to the nice restaurants like Jim, and she never attends sporting events. Hell, Stacy doesn’t have cable and has a $10/month pre-paid phone service plan. No iPhone 7 for Stacy – she doesn’t need one.

Stacy is a big time saver. Her investment portfolio, while nothing like Jim’s, is respectable. She has enough saved to live on for the next 5 years without working a day. She buys her staple foods like rice and beans in bulk and almost never drives her car – a ’97 Ford Focus – on weekends. Half the time, she takes the bus to work and makes pleasant conversation with others during the ride.

Unlike the majority of the other bank tellers, Stacy is not jealous of Jim’s car, nor his house or his lifestyle. She puts away 50% of her income from the bank and finds happiness in the simple things in life. She loves to ride her bike up to the library and check out her beloved Nora Roberts romance novels.

Stacy has been on the 10-year retirement plan since she started working at the bank at the age of 23. Sensible living and eating like a college student, her life has generally been much more boring than Jim’s. Stacy never “lives a little” and splurges on expensive meals or upgraded “stuff”. How boring.

The difference between Jim and Stacy? Stacy’s lifestyle over the last 10 years will enable her to sleep in on Monday morning by the time that she is 33 – and retired. Jim? He will be getting up at 6am to work his regular 10-hour day. His lifestyle of expensive cars, a big house and wild spending will keep Jim working for another decade, cell phone in hand.

Who has the advantage – Jim or Stacy?

The key to early retirement is the understanding that income, or getting rich fast, is no recipe for success. Increased income is usually tied with a more expensive lifestyle, and your lifestyle is what dictates the magical date for retirement. Controlling your lifestyle opens up the possibilities for retirement.

Spend money like a drunken sailor and waste another couple decades paying for it. Spend like Stacy and, well, enjoy the next 60 years of your life doing what you truly enjoy.

…free of BMW-induced debt.

Even better: Earn a salary like Jim’s, then save 70% of it, and enjoy a long-term retirement plan with a much more comfortable spending buffer. Boom!

We track our net worth using Personal Capital


13 responses to “Income vs. Savings: The epic battle”

  1. Greg says:

    A nice story, but lacking any hard facts or math to back it up.
    Also, a 50% savings rate will not get you retired in 10 years, more like 16-17; see

    • Hi Greg,

      This post was based on my personal observations of society and how income affects one’s lifestyle. The unfortunate coupling of high income with a lavish lifestyle tends to keep people working longer than they would otherwise need.

  2. Syed says:

    This is a great example of the dangers of lifestyle inflation. I have a very similar example when I was about to graduate optometry school. After living like students for many years during college, a few months before graduation many people realized that they will be making pretty good money soon, so they started putting offers down on new cars and houses. This puts them behind the eight ball right away. I chose to continue to live like a student and this has produced immense financial security.

    • It’s way, way too easy to fall into that trap. I did, too. Right out of college I bought a used Corvette convertible and sunk another $25k into it. Sure, that was one sweet car and could practically shatter the ear drums of anyone within 10 yards of it when I revved the engine, but it was a completely and entirely dumb purchase that I wish I hadn’t made. I’d probably have another $100k in net worth if I had invested all that cash instead of blowing it on a car.

  3. […] ability to retire early.  I have argued in the past that although a high income can help, an aggressive savings schedule is a far better measure to determine a person’s fitness for early […]

  4. […] it’s about spending, not […]

  5. Stevie Wonders says:

    Jimmy works just 50 hours a week? That would be slacking compared to the jobs I had, but without the high income to match. 😉

  6. […] was a true American and living a life of excess.  But even with all my “stuff”, I had nothing to show for it.  I saved only the bare minimum for retirement.  I was setting myself up to work for the rest of […]

  7. […] income is in our early financial independence plans. I have written before about the importance of saving and how income alone doesn’t really make you rich. It can, but it’s not automatic. […]

  8. […] I argue that saving is more important than income, there’s no question that my level of income was a critical element in me retiring this […]

  9. Adz Dy says:

    Jim would have been working but would have enjoyed his younger days more than Stacy. So basically it is still mindset that matters

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