A recent Forbes article featured a story that stands out from the run of the mill extreme-savers-turned-millionaire blogs that are out there for those of you that are familiar with them. The story is of JP (not her real name) who after graduating college, moved to NYC, worked for 8 years for an investment firm and managed to accumulate a net worth of $2.25 million. The author points out that this story stands out to her from other blogs because JP managed to do this while living in NYC. I love to hear these success stories and on the surface, JP has definitely earned it. She kept her budget bare bones for many years and seems to have lived in the same 325 square foot apartment with her now husband, for the whole time. She recently quit her job and is living as one of the extreme retirees at 28 years old, enjoying her time with her family and managing her investments. Hopefully, with a lower income and a high net worth she gets a chance to read my post on how to buy an affordable apartment in NYC, which is right up her ally in terms of income and purchasing power. She has a great blog, which you can find here, I especially enjoyed her extreme retirement advice on how to take the leap of faith from the point of view of a worrier like me.
Apart from being a young extreme retiree in NYC, the other fact that stood out to me from the article was the fact that she was married. I haven’t seen as many extreme retiree discuss significant others and how they are incorporated into their mindset so I thought I would dedicate a post to saving, frugality, marriage and family life.
Whether we like it or not, marriage and having children are some of the most important economic decisions of our lives. When I say this, this is not just about money. As many extreme savers have shown, your mindset and your psychology affect the choices you make. This goes for choosing a partner and having children as well and will deeply affect the values that you will instill in your children as they develop.
Economies of Scale
First and foremost, marriage takes advantage of economies of scale, the expenses may get bigger (an apartment, food bills etc.) but the per capita cost may decrease on many of things you spend on when you go from single to living together. Right off the bat though, there are economic decisions that need to be made in living together that will depend on each partner’s worldview. Do both of you work? If so, who makes more money? Does that determine who should pay more for rent? Should you split the bills? If so, how? Will you have a joint account or will you keep your money separate? These are all economic decisions but they carry a heavy emotional component for some people and many people feel very passionate one way or another about how these things should be divided (or if they should be divided at all).
The key point here is to have common goals. If these goals diverge than I would argue that the relationship is due for trouble. Each of the extreme savers you may read about will tell you they really have one main goal that keeps them focused on getting rich, and that is being happy. Many of them have realized long ago that material possessions will not necessarily bring them happiness but rather time spent doing things they enjoy; be that working less, exercising, spending time with family or working on their passion and so on, are really what will bring them happiness. For someone very concerned about their financial future, shared goals in this area are extremely important. Shared goals will also help to make the decisions about joint accounts, splitting the bills and who pays what easier. Making it a team effort towards common goals can definitely take the headaches out of these decisions and potentially even strengthen your relationship as you see the results of your combined efforts.
Taxes
Besides living together and sharing expenses, once the actual legal marriage is factored into the equation there are also tax consequences. These can help or hurt one or both of the partners and depending on your situation, there is no clear cut answer on whether getting married will help or hurt you in terms of taxes. Last year the New York Times made a great chart showing tax rates vs. the income of each spouse and how your taxes would be affected by filing jointly as married. The conclusion is essentially, if one of you has a very high income and the other has a very low income, then getting married and filing jointly is beneficial to you both in terms of taxes. However if you both are high income earners (say both make $200 thousand or more) then you are going to suffer from what is known as the “marriage penalty”. Just for reference the horizontal axis is joint earnings starting from $0 to above $200 thousand while the vertical axis ranges from a 50/50 even split of total income on the bottom to a 100 to 0 split in terms of earnings at the top. You can see that the way income taxes are designed, they clearly give a bonus to those that have one high income earner and another with no little or no income.
Choosing a Partner
Us extreme savers often forget though, that not everyone wants to be frugal and not everyone sees quitting a corporate job as the end all in terms of happiness. Many times this has to do with keeping up with appearances, such as maintaining an image of success or striving for the image of a certain social class. Some people may also enjoy the prestige and sense of importance or usefulness that working for a particular company or in a particular profession gives them. There is nothing wrong with feeling this way. The problem arises when someone with a worldview like this gets into a relationship with someone who doesn’t value the prestige of a regular job or the image that material things bring them, and I believe sows the seeds of conflict within the relationship economically, which will eventually lead to conflict emotionally and to a very difficult relationship. I believe this is one of the reasons that according to some research couples who argued about money early on in their relationships, regardless of their income, debt or net worth, were at greater risk for divorce than those couples that didn’t. For these reasons, I think the values that each person has and their goals in life are strongly linked to the financial decisions they make or don’t agree to make, and are at the root of early arguing like this.
I would be willing to bet that many of the early retirees you read about in the media or through their blogs, if they are married or married with kids, picked their partners with as much caution and diligence as they did for any of their investments or as they do when they monitor their monthly budget. I would be willing to bet that JP would admit that her husband may have been just as instrumental in contributing to her success as she was individually, because I am sure they had to have a lot of communication and discussions about shared goals, worldview and how to achieve the things they would like. No one gets to these points in a marriage alone.
Children
Most of the bloggers you will read about don’t have advice that really relates to children. This is understandable because many of them don’t have children or had them after they retired. Many did their time saving and investing and were able to potentially put in hours that people with families may find it hard to do. There is a lot of good advice for single people. Spend time doing odd jobs outside of work to make money, try blogging to see if it can generate residual income for you. These are great pieces of advice but as any parent knows, when you have children, non-financial factors start to come into play.
For example, I could pick up an extra job or spend time at night contributing even more to my blog, but I have spent all day at work away from my wife and she wants to spend time with me since we haven’t seen each other all day. In addition, when I come home, my son wants to spend time with me as well. I usually put him to bed and spend as much time on the weekends as I can with him to make up for all the time I am away during the week. Sure I could have quit and lived a more frugal lifestyle in a cheaper part of NYC, but I want to ensure we have good healthcare if we plan to have another child, that he is in a good school district for when he has to go to school and that we live in a bigger place so that my wife does not feel like she is stuck in a rubber room all day with a 1 year old. These are all factors that I know the extreme savers will berate me for but they make our lives a little more livable, and no matter how persuasive I think I am, I don’t think I could ever convince my wife to move my family back into my old 490 square foot apartment (although as a side note, my 490 square ft. apartment previously had a family of 4 living there, so it can be done, but not comfortably).
Children are a big investment nowadays as can be seen here.
This is a big reason for the decline in population growth we are seeing across the developed world. Pre-industrialization, kids were a boon to production for a family. More free hands around the farm or workshop meant more free labor and a better bottom line. With the knowledge economy and the more equal gender roles of today though, that has changed. The graphic doesn’t even take into account college costs, which are the major stepping stone to a middle class lifestyle in today’s world. This is one of the major costs that needs to be accounted for when planning to have a kid today. With all these eye watering numbers, it is no wonder so many people delay kids until much later in their career or don’t have them at all.
However I do believe the next extreme saver is out there. Maybe you will see me featured one day when I am retired as the extreme saver, who did it in NYC but this time with a few kids. I can always dream.
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