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Mrs. Groovy and I have a very comfortable life. In addition to having a beautiful home sitting on three and a half acres, we also have great family and friends, want for nothing, and give and travel extensively.
Yep, it’s good to be the Groovies right now. And the remarkable thing about our comfortable life is that it doesn’t take a princely sum to bankroll.
In our first four years of retirement, our average annual spending has amounted to $41,734. And of that sum, only $16,281 on average has gone to basic life necessities—defined here as food, shelter, transportation, utilities, insurance, taxes, and a little fun money for dining out and entertainment. In our typical year of retirement, then, we’ve had $25,453 to spend on hobbies, travel, giving, and whatever oopsie comes up.
Part of the reason our income goes so far is that we live in a moderately taxed state. Property taxes on Groovy Ranch are $1,834 annually. But the main reason our income goes so far is that we have no debt. Our house and car are paid off, our student loans were vanquished years ago, and we pay off our credit cards in full every month.
But what if Mrs. Groovy and I weren’t weird? What if we had a mortgage, car loans, and student loans? How much income would we need to spend $42,000 annually on things other than debt?
To find out, I came up with the following comparison couple:
- College-educated husband and wife living outside of Raleigh, North Carolina
- They have a monthly mortgage payment equal to the North Carolina average ($1,290)
- They both have car payments equal to the average car payment for a used car ($397)
- They both have monthly student loan payments equal to the North Carolina average ($282)
- And they both have W2 jobs and take home 70 percent of their gross salaries
The following chart shows what our comparison couple would need to make in order to have the same non-debt purchasing power as me and Mrs. Groovy. The chart also shows what our comparison couple would need to make if they wanted to save ten percent of their income for retirement.
| Couple | Annual Spending Less Spending on Debt | Annual Mortgage Payments | Annual Car Payments | Annual Student Loan Payments | 401K Contributions (10 Percent of Income) | Total Annual Spending | Income Needed for Total Annual Spending |
|---|---|---|---|---|---|---|---|
| The Groovies | $42,000 | $0.00 | $0.00 | $0.00 | $0.00 | $42,000 | $42,000 |
| Comparison Couple | $42,000 | $15,480 | $9,528 | $6,768 | $0.00 | $73,776 | $105,394 |
| Comparison Couple Saving for Retirement | $42,000 | $15,480 | $9,528 | $6,768 | $11,800 | $85,566 | $117,194 |
Mrs. Groovy and I have a built-in advantage because our pension and dividends aren’t subject to FICA taxes. They are subject to federal and state income taxes and we pay those taxes four times a year via estimated tax payments. So for us to spend $42,000 annually, our pension and dividends need to equal $42,000.
Our comparison couple isn’t so fortunate. Whatever they spend comes from paychecks that have been diluted by income and FICA taxes. So for them to spend $42,000 annually on things other than debt, their combined W2 salaries would need to equal $60,000.
But, sadly, our comparison couple isn’t debt-free. For them to spend what we spend annually, and pay for their mortgage, car loans, and student loans, their combined W2 salaries would need to equal $105,394. And if they wanted to put ten percent of their household income toward retirement, their combined W2 salaries would need to equal $117,194.
Living Above Your Means the Right Way
My fellow FIRE enthusiasts are very adamant that people should live below their means. But I think that’s hogwash. The goal of every FIRE enthusiast should actually be to live above his or her means—but in a fiscally responsible way, of course.
And how does one live above one’s means in a fiscally responsible way?
Vanquish debt. You vanquish debt and your dollars are able to do amazing things. As the above exercise demonstrates, our $42,000 has the same purchasing power as another couple’s $105,394.
I routinely pinch myself when I consider some of the things Mrs. Groovy and I have purchased thus far in retirement. Eleven thousand dollars for a concrete driveway? No problem. Over $10,000 for a month’s vacation in Australia? No worries, mate. Six thousand dollars for a couple of crowns and a root canal? Oh, well. And $2,000 for a frivolous welding hobby? Why not?
Mrs. Groovy and I have a lower-middle-class income at best, and, yet, we can comfortably afford an upper-middle-class lifestyle. That’s the dollar-stretching power of having no debt.
Final Thoughts
Okay, groovy freedomist, that’s all I got. What say you? Should “live above your means” be the new rallying cry of the FIRE community? Or should “live below your means” remain our bread-and-butter mantra? Let me know what you think when you get a chance. Peace.
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