3048: Your Budget is Like a Leaking Ship by Jacob Lund Fisker of Early Retirement Extreme

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[00:00:30] This is Optimal Finance Daily. Your Budget is Like a Leaking Ship by Jacob Lund Fisker of EarlyRetirementExtreme.com As far as I understand, wooden ships are never completely watertight. Especially older ships develop leaks and water gets in between the cracks when the boat is straining and working as it moves through the water.

[00:00:54] This water ends up at the bottom of the ship, under the floorboards of the lower deck or the only deck, in a place called the bilge. To compensate for this and keep the ship from sinking or at least the deck from overflowing, bilge pumps must be run on a regular basis to pump this water out. As long as the bilge pump is not overwhelmed, that is, having to run all the time, the ship will not sink.

[00:01:19] The average U.S. family, also known charmingly as a consumer unit, spends $49,638 each year. DW and I, since we don't have .5 children, we are slightly smaller than a unit, spend about a quarter of this amount. So I have never been able to fully appreciate what made up the difference.

[00:01:41] If we subsided on a diet of ramen noodles and junk food, our clothes were falling apart and our teeth were falling out, the difference would be obvious. However, if it weren't for the RV, which costs more to live in here than it would cost to live in a house in many other places of the country, the difference would be subtle indeed, and you would not be able to tell the difference. To understand the average $49,638 budget, a ship makes an excellent example.

[00:02:10] There are almost no holes in our ship. Consequently, I don't have to spend a lot of time working the pumps. Conversely, the average consumer unit ship seems to be full of cracks, and thus they need to be very productive at the pumps to keep themselves afloat. This is also known as struggling when things go bad and having a career when things go well. It's interesting to look at the cracks.

[00:02:38] For instance, if we look at a graph included in this article, $1,797 is spent on household furnishing each year. Wow! So it actually must be true that consumer units do replace their old furniture each year so that the family won't have to sit on last year's furniture when visiting for Thanksgiving. I heard this on a radio spot. Seriously, I'm not making this up. For apparel and services, $1,881 is spent.

[00:03:07] That will buy you a lifetime of jackets, about six at $300 each, the price point or quality level where you can expect 10 years of good use out of them. Do that for shoes the next year and pants the third, etc. And you should be set for a lifetime. Otherwise, $1,881 times 80 years of life comes to over $150,000 just on clothes. Isn't this just slightly insane?

[00:03:35] If I may fill you in on my pants situation. For the last two years, I've been wearing two pairs of 501s in the winter on rotation. Total cost about $70. In the summer, I wear a pair of Docker shorts. Cost $20. When sailing, I wear a pair of high-tech pants. Cost $150 almost 10 years ago. I get underwear on sale. Usually $5 for a $15 pair.

[00:04:03] At least, I can finally see that eating out is really a national pastime. It has its very own budget category. $2,688 a year or a lifetime cost of more than $200,000 simply to have other people prepare your food. If the average income is, let's say, $40,000 after tax, would you really want to work five years of your life just so that you can eat a meal you didn't make yourself a couple of times a week for the rest of your life?

[00:04:32] I don't know about you, but I can cook and eat a meal much faster than I can get to a restaurant, wait for the waiter, wait for the cook, eat, wait to pay, and then get home again. Transportation is also up there, almost the equivalent of having run the ship aground. At $8,758 per year or a lifetime cost of nearly half a million, the cost of not living in the right place next to where one actually wants to be is very high.

[00:05:00] The biggest problem is probably the sheer size of the ship. In general, the bigger they are, the more work they require. Size puts a natural limit on maintenance, insurance, cost, as well as the amount of junk one can stuff in there. The average consumer unit spends $16,920 on housing each year.

[00:05:21] And so, now I am really and perhaps finally beginning to understand why retirement goals of a million dollars or $2 million are so common to replace $40,000 or $80,000 in income respectively. It is simply needed to compensate for the money that is leaking everywhere. Housekeeping supplies at $639? I bet that includes the famous $800 toilet seat.

[00:05:47] The reason the difference has escaped me is that when I visited other people's homes, I never really have been able to spot why they were seemingly spending four times as much as we are. But it must be the leaks in the wallet, so to speak. The closets must be full and purged regularly. I must not have noticed how large pieces of furniture were replaced every year. How they spend several hours each week just driving around in multiple cars.

[00:06:14] That the reason that it's so warm, 80 degrees in the winter, or so cold, 65 degrees in the summer, was that the HVAC was running at full blast, making it necessary to bring a sweater in the summer and shorts in the winter. Every activity must be bleeding money. Perhaps this explains the common misconception that spending less means not really living, or living deprived, or having a lower standard.

[00:06:39] Most of the waste is, however, on leaks and quantity, not quality. From a quality perspective, not caring about leaks and simply running the pumps is not living well. How can anyone enjoy the journey when having to deal with the problem of running the bilge pump all the time? Why not take care of the leaks? You just listened to the post titled,

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[00:09:22] I can understand Jacob's confusion on the typical household's yearly spending because from his apparent abundance mindset, he lives quite luxuriously even when spending a lot less than everyone else. What I hear him questioning in this article is the typical relationship with consumerism. The way I see it, consumerism goes far beyond getting our actual needs met by grossly overstating those needs.

[00:09:51] No one needs a new couch or a new jacket until the one they have now breaks and cannot be repaired. But our consumerist culture encourages us to quickly tire of our possessions and convinces us that our boredom is a clear justification for replacing or upgrading our things. Investopedia defines consumerism as the idea that increasing the consumption of goods and services

[00:10:17] is always a desirable goal and that a person's well-being and happiness depend fundamentally on obtaining consumer goods and material possessions. We've been trained since birth to be consumers, so I think it takes an intentional mindset shift to push back against consumer tendencies. Jacob appears to do this effortlessly, and I see that as a bit of a superpower when it comes to creating financial freedom.

[00:10:45] He mentions at the end of this article the common misconception that spending less for many people means not really living or living deprived or having a lower standard, and that this doesn't jive with his experience. But I suspect he has a different experience because he's learned to foster a deep appreciation for the things he has now, which squashes any typical consumerist desire to replace or upgrade his possessions regularly.

[00:11:13] Reducing expenses is going to feel like deprivation if you don't scratch the itch that consumerism used to satisfy for you. I've been able to do this through gratitude and recognizing the abundance I already have, and I've also done it through using creativity and resourcefulness in getting my actual needs met. And that will do it for today. Have a great day and start to your weekend. Thank you for listening, and I'll be back here reading to you tomorrow where your optimal life awaits.