Author Topic: Lifestyle inflation as a physical law of nature  (Read 5104 times)

damyst

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Lifestyle inflation as a physical law of nature
« on: July 24, 2017, 12:43:15 AM »
Two facepalm-worthy moments I recently had:

1. On a different message board, someone was discussing employment taxes and benefits in Canada. He claimed that Employment Insurance (unemployment) payments "aren't worth much - they're a token amount". I asked him to explain, given that my wife and I each received EI payments of around $500 per week when we went on parental leave. It's certainly less than our regular income, but I wouldn't call it "token"?
His response: "For someone making $2500 a week working in tech, $500 doesn't even cover your mortgage".
Yikes, I hadn't realized mortgage payments were pegged to your income :-P

2. My company recently added an employer-sponsored retirement plan with contribution matching (yay!). The financial institution they'd partnered with sent in an advisor to present the details of the plan and go over retirement fundamentals in general. The audience was a mix of folks who have been around the block and know what's what, and young employees who may not have been exposed to retirement planning before.
The advisor explained that "generally, you spend what you earn". He touted the advantage of the employer-sponsored plan in that you never see the contributed funds in your checking account, and are therefore not tempted to spend them. He acknowledged that some people are disciplined enough to not have this problem, but admitted that he himself doesn't have the necessary discipline, despite being a Certified Financial Planner.

To be fair, I think that had he instead walked into the room and started laying down the full Mustachian gospel, it would have been counterproductive. His job is to introduce very basic financial concepts in a way that resonates with pretty much everyone in the audience. Still, a talk like this seems like a great opportunity to introduce people to the idea of living below their means, and to the opportunities that they open up by doing that (and conversely, to warn them of the risks of living without any savings and relying on consumer debt).

Gondolin

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Re: Lifestyle inflation as a physical law of nature
« Reply #1 on: July 24, 2017, 07:58:07 AM »
Quote
He acknowledged that some people are disciplined enough to not have this problem, but admitted that he himself doesn't have the necessary discipline, despite being a Certified Financial Planner.

Yeah, it's never clear if this is a face-palm truth or just a bit to seem relatable to the financial novices in the audience.

Sibley

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Re: Lifestyle inflation as a physical law of nature
« Reply #2 on: July 24, 2017, 08:13:40 AM »
The thing is, for most people, they do spend what they earn. I don't think everyone is capable of the self-restraint needed to to do otherwise. So, getting them to save it off the top so they never see that money really is the best option for them. Good financial literacy would help some, and it would help push the people who are capable of saving towards that. But we'll never get everyone on this site.

MustachiansWitness

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Re: Lifestyle inflation as a physical law of nature
« Reply #3 on: July 24, 2017, 08:28:22 AM »
Quote
To be fair, I think that had he instead walked into the room and started laying down the full Mustachian gospel, it would have been counterproductive.

I would use this opportunity to bear my testimony that the word of Mustache is true, and invite them to go on a bike ride with me. We must be bold about our faith if we expect to receive new converts.

Seriously though, what annoys me about #2 isn't what was said, but that 'financial advisors' like to go around telling people to save money without any practical ways of doing so. The reason for this is because they are unmustachian themselves, so they don't know how to not spend the majority of their incomes. The implicit assumption is "Quit doing abominable things such as spending $15/day on ass and piss at McDonald's/Starbucks, buying a $10k cardio machine that sits in your garage, and financing your new furniture at the suburban special 39.9% APR. Then you'll be able to save maybe 5 to 10% of your income while the rest is tied up in basic necessities such as $900 monthly Escalade payments and $300 electric bills."

However, the idea of money never touching your checking account isn't a bad idea. I'd imagine it would be good forced discipline for beginners, and even for mustachians who are working it saves the hassle of manually having to transfer your savings to Vanguard every pay period. Employer-sponsored plans aren't necessary for this though, you can set up auto withdrawals for a personal brokerage account.
« Last Edit: July 24, 2017, 08:52:18 AM by MustachiansWitness »

StockBeard

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Re: Lifestyle inflation as a physical law of nature
« Reply #4 on: July 25, 2017, 03:14:45 AM »
Seriously though, what annoys me about #2 isn't what was said, but that 'financial advisors' like to go around telling people to save money without any practical ways of doing so. The reason for this is because they are unmustachian themselves, so they don't know how to not spend the majority of their incomes. The implicit assumption is "Quit doing abominable things such as spending $15/day on ass and piss at McDonald's/Starbucks, buying a $10k cardio machine that sits in your garage, and financing your new furniture at the suburban special 39.9% APR. Then you'll be able to save maybe 5 to 10% of your income while the rest is tied up in basic necessities such as $900 monthly Escalade payments and $300 electric bills."

I don't know... as Gondolin pointed out, it might be a way to get people to relate, and get their attention. "I'm exactly like you, so here's what you can do".
Baby steps are  important. I know I've scared away a significant amount of friends by going full steam into the "get rid of your car, downsize your apartment, cancel your cable subscription, change your phone provider, and cut on everything you think brings you happiness because I swear you'll realize it doesn't if you follow me"

MustachiansWitness

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Re: Lifestyle inflation as a physical law of nature
« Reply #5 on: July 25, 2017, 07:44:09 AM »
I don't know... as Gondolin pointed out, it might be a way to get people to relate, and get their attention. "I'm exactly like you, so here's what you can do".
Baby steps are  important. I know I've scared away a significant amount of friends by going full steam into the "get rid of your car, downsize your apartment, cancel your cable subscription, change your phone provider, and cut on everything you think brings you happiness because I swear you'll realize it doesn't if you follow me"

Perhaps, that's why I'd be a horrible financial planner. I would think if it was presented in a less preachy or commanding way that stuff wouldn't be so bad (other than "get rid of your car"). Maybe "consider replacing the gym membership with riding your bike to work, take a look at subscriptions and get rid of any that you don't utilize". Then if any of them talk to you about it and they live 30 miles from work, suggest they look  into moving to some of the great housing options nearby. Going back to the theme of my joke in the last comment, it'd be sort of like being a missionary. You don't start out by telling them they have to tithe 10% of their incomes and never have sex before marriage. I just find it annoying when anyone suggests people "save money" without actually providing any advice on the details of how they should go about doing so.

Also, while I'd agree the money never touching the check account is a nice side bonus of an employer sponsored plan, I'd say he's a pretty bad financial planner if he only cited that and not the obvious benefit that contributions are tax deductible up to $18k/year.

damyst

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Re: Lifestyle inflation as a physical law of nature
« Reply #6 on: July 25, 2017, 08:30:02 AM »
Also, while I'd agree the money never touching the check account is a nice side bonus of an employer sponsored plan, I'd say he's a pretty bad financial planner if he only cited that and not the obvious benefit that contributions are tax deductible up to $18k/year.

Oh he covered those bases alright. In Canada you can defer tax this way up to 18%, which he explained, and commented that "realistically, it's hard to save 18%".

MustachiansWitness

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Re: Lifestyle inflation as a physical law of nature
« Reply #7 on: July 25, 2017, 09:15:39 AM »
Oh he covered those bases alright. In Canada you can defer tax this way up to 18%, which he explained, and commented that "realistically, it's hard to save 18%".

Ah ok, well I guess he's just doing his job then. Who knows, maybe he'll chime in on these forums telling us how he laughed all the way to the bank. My work did a similar presentation, except they actually only did it for people who they deem to not be contributing enough to retire by a certain age. Kind of just exposed who all the antimustachians were, although so did asking me to go out to eat every Friday, eating $10 boxes of ass from the cafeteria every other day and being 30+ lbs overweight.

Interesting about the 18%. I guess Canada's plan is better for people who make over 100k/year, but the five figure Mustachians do better in the states.

plainjane

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Re: Lifestyle inflation as a physical law of nature
« Reply #8 on: July 25, 2017, 11:32:56 AM »
Oh he covered those bases alright. In Canada you can defer tax this way up to 18%, which he explained, and commented that "realistically, it's hard to save 18%".
Interesting about the 18%. I guess Canada's plan is better for people who make over 100k/year, but the five figure Mustachians do better in the states.

It's only 18% up to a certain point.  The maximum amount is around $26,010 this year.  It goes up every year, probably pegged to some form of inflation. One nice thing is that we can carry room forward, so people who do discover MMM later generally have a bit of room to use before they need to start using taxable space.

MustachiansWitness

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Re: Lifestyle inflation as a physical law of nature
« Reply #9 on: July 25, 2017, 11:59:33 AM »
It's only 18% up to a certain point.  The maximum amount is around $26,010 this year.  It goes up every year, probably pegged to some form of inflation. One nice thing is that we can carry room forward, so people who do discover MMM later generally have a bit of room to use before they need to start using taxable space.

That's nice. What about early withdrawal penalties? Do they exist and if so, is there a way around them like there is in the US?

PDXTabs

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Re: Lifestyle inflation as a physical law of nature
« Reply #10 on: July 25, 2017, 12:27:49 PM »
2. My company recently added an employer-sponsored retirement plan with contribution matching (yay!). The financial institution they'd partnered with sent in an advisor to present the details of the plan and go over retirement fundamentals in general. The audience was a mix of folks who have been around the block and know what's what, and young employees who may not have been exposed to retirement planning before.
The advisor explained that "generally, you spend what you earn". He touted the advantage of the employer-sponsored plan in that you never see the contributed funds in your checking account, and are therefore not tempted to spend them. He acknowledged that some people are disciplined enough to not have this problem, but admitted that he himself doesn't have the necessary discipline, despite being a Certified Financial Planner.

If I buy ice cream I will eat it. If I have money in my checking account I will spend it. I absolutely "pay myself first" into accounts that are hard to access so that I don't spend it. I wish I could say otherwise, but this is the truth.

damyst

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Re: Lifestyle inflation as a physical law of nature
« Reply #11 on: July 25, 2017, 01:22:31 PM »
It's only 18% up to a certain point.  The maximum amount is around $26,010 this year.  It goes up every year, probably pegged to some form of inflation. One nice thing is that we can carry room forward, so people who do discover MMM later generally have a bit of room to use before they need to start using taxable space.

That's nice. What about early withdrawal penalties? Do they exist and if so, is there a way around them like there is in the US?

No penalties. Funds withdrawn from a RRSP are taxable as income, and there is usually a flat fee for "deregistration", but that's it.

MustachiansWitness

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Re: Lifestyle inflation as a physical law of nature
« Reply #12 on: July 25, 2017, 01:24:56 PM »
If I buy ice cream I will eat it. If I have money in my checking account I will spend it. I absolutely "pay myself first" into accounts that are hard to access so that I don't spend it. I wish I could say otherwise, but this is the truth.

Interesting. I would think everyone is that way to a certain extent. I'm sure if I turned up my automatic withdrawals to the point that I just had enough cash to get by every month, I would spend less money. Everyone has vices/things they like to splurge on, but as your Mustachianism grows stronger, you come to see most of the things that people spend tons of money on, (i.e. car clown behavior, A/C wussypants disease), are complete waste, and you don't let your vices become uncontrollable addictions, although you may splurge if you can afford to.

For people with low incomes under 30k, such discipline might be necessary as an "autopilot" finance mode might not result in as much savings as they'd like. For upper middle class workers with incomes in the six figures, however, I couldn't imagine a Mustachian blowing that much money even if they tried, excluding abnormal circumstances like having 10 kids.
« Last Edit: July 25, 2017, 01:28:43 PM by MustachiansWitness »

MustachiansWitness

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Re: Lifestyle inflation as a physical law of nature
« Reply #13 on: July 25, 2017, 01:27:13 PM »
No penalties. Funds withdrawn from a RRSP are taxable as income, and there is usually a flat fee for "deregistration", but that's it.

Well how about that! Typical of the American government to make people jump through hoops and find loopholes to avoid nonsensical tax penalties.

plainjane

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Re: Lifestyle inflation as a physical law of nature
« Reply #14 on: July 25, 2017, 04:04:38 PM »
No penalties. Funds withdrawn from a RRSP are taxable as income, and there is usually a flat fee for "deregistration", but that's it.
Well how about that! Typical of the American government to make people jump through hoops and find loopholes to avoid nonsensical tax penalties.

The financial institution will hold money back on your behalf, because it is taxable as income, but if they hold too much you get it back as a refund, same as if you started a second job midway through the year and so you had too much tax withheld.

MrMoogle

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Re: Lifestyle inflation as a physical law of nature
« Reply #15 on: July 26, 2017, 10:17:46 AM »
If I buy ice cream I will eat it. If I have money in my checking account I will spend it. I absolutely "pay myself first" into accounts that are hard to access so that I don't spend it. I wish I could say otherwise, but this is the truth.
If I buy any food, the assumption is that I will eat it in the coming week.  But I've pretty much been hungry (not necessarily needing food) my whole life. 

With money though, I learned early on that I'd rather have money when I really want it than spend it on random stuff.  I don't typically spend more money if I have more in my savings/checking account.  I'm not even tempted, though with food, if it's in my home, I'm always tempted.

PoutineLover

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Re: Lifestyle inflation as a physical law of nature
« Reply #16 on: July 26, 2017, 10:47:42 AM »
I bumped up my retirement contributions 10% when I got a 3% raise, just to challenge myself. I'd rather have savings inflation than lifestyle inflation. I budget based on available money after automatic investment contributions and bills, and I'm pretty good at spending everything that's left. But I won't let an automatic transfer bounce, so that keeps me on track. I think too many people figure that they don't make enough now to save yet, but they will one day. I'm more of the mindset that I don't know what will happen later, so I may as well save as much as I can now, plus it feels good to watch my net worth grow. I definitely appreciate the like-minded community here, among my friends I feel like the outlier.

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Re: Lifestyle inflation as a physical law of nature
« Reply #17 on: July 26, 2017, 12:44:40 PM »
Mmm, poutine... I love poutine.