Investoid

This is my post for the Canadian Tour of Personal Finance Blogs.

On Friday I talked about how the movie The Pursuit of Happyness demonstrated how it’s important to treat yourself, even if you are trying to be frugal to retire early or if you’re not that well off. I think this idea is very important - if you don’t pay yourself now (not just financially but emotionally and psychologically), your current and future happiness will be negatively affected. The key to a happy lifestyle is balance - ensuring you don’t fall into the latte crowd, while also spending wisely on things that you derive great happiness from.

For instance, my wife likes to travel a lot, and from time to time I like to get gadgets that ‘improve my work’ (read: are cool and fun). These can both be relatively expensive tastes, and if we’re not careful we will be spending an inordinate amount of our income on these leisures that will materially affect our future financial goals. However, we don’t want to go completely without until we are retired, since we derive happiness from these things in moderation.

Thus, my family has instituted a ’save half, spend half principle’. If there’s something that we want, we will do two things. The first is to save up some discretionary funds that we usually spend on a monthly basis. The second thing is to work for extra income. But we are not allowed to spend all the extra income - we must save half of it.

This principle forces us to look at how much value we truly place on an item or experience - if we’re not willing to work twice the monetary amount to acquire it, then maybe it’s not that worthwhile in the first place. This also has the extra benefit of increasing our retirement savings at the same time. So when we work harder, we pay ourselves twice - both immediately (or in the near term) and in the long term future.

The safe half, spend half principle is something that can be used for discipline as well as reward, and we use it for all extra income we receive.