Can you get filthy rich by spending more money every year?

I want to retire early and take back my free time. I'm willing to forgo expensive luxuries to get there earlier, but I don't want to retire to a life of poverty and pauperism.

However, if I have a couple of years of ridiculously lean living at the start of my journey, it could supercharge my retirement accounts.

So I feel like I'm presented with two choices. I could live the life I want now - knowing it will take longer to get to FIRE, or I could live like a monk for a couple of years to supercharge my investment accounts, then ease into a slightly spendier, but still frugal existence that I could maintain for many years of retired bliss.
 
Let's investigate this idea with our case study participants, John and Cindy.

John, 25, fresh out of University, ready to take on the world!

 

This is John. He's just finished studying a Bachelors degree in DefinitelyGettingAJob. A couple of months later he scores a job as a RegularWorkingDude for SomeWellKnownCompany. John's starting salary is $35,000 a year and he's pretty pleased with himself.

Cindy, 25, fresh out of University, ready to take on the world!

 

This is Cindy. She's just finished studying a Bachelors degree in DefinitelyGettingAJob. A couple of months later she scores a job as a RegularWorkingLady for SomeWellKnownCompany. Cindy's starting salary is $35,000 a year and she's pretty pleased with herself.

Fresh out of university: the winner is?

Well, right now our two contenders are identical. That is the point. Let's see how they do.

No longer a poor student, John is okay with things the way they are

 

John likes his life the way it is, his couch might be falling to pieces, but it's comfortable. He hangs out with friends, goes hiking and plays video games, just like he did when he was a student. He lives in a run down apartment with a couple of flatmates he's known since the start of university. 

He's happy to keep living like this for a while, but he finds all this money is piling up in his account, so he opens a Vanguard investment account and starts putting away $20,000 a year and earning 7% returns. He's used to living on the cheap as a student, so the $15,000 a year he has left is still pretty nice.

Living the high life, Cindy is splashing out!

 

Cindy is thrilled to be earning some real money at last! She gets her hair and nails done, buys all new furniture and goes out for fancy brunch every weekend. She rents a comfortable apartment, takes vacations, visits the spa and never misses a happy hour. 

Cindy is living it up! However she wants to plan for the future so she finds $5,000 a year and opens a Vanguard investment account with 7% returns.

Year One: our winner is..?

Financially, it's John - after all he has $20,000 in his account. Although I'm a little worried for his health because he's still eating ramen noodles for dinner every other night and the old couch has a funny stain on it.

Cindy's account balance doesn't look so great, but she's thrilled with her lifestyle. She has everything she wants and lives like a queen. She'd be happy to live like this forever.

Dog years, John goes to the office every day

Five years have passed and John still works for SomeWellKnownCompany. He's gotten itchy feet a few times and has been promoted up the chain, but not very far. He's gotten an average 2% pay rise each year and he spends it all. He's left his share house behind, got some nicer digs, he eats better and he's started taking local vacations.

He's not quite as spendy as Cindy, but having lived like a poor student for so long each little bit extra feels special. Back when he started at SomeWellKnownCompany he set up automatic payments into his Vanguard account and he hasn't touched them since. He checks the numbers one day and is pretty pleased to see he has $143,000 to his name.

Dog years part two, Cindy works in the same office

Cindy also still works for SomeWellKnownCompany and has gotten the same payrises. She's not enjoying work that much though and every time she gets a payrise she increases her investments. She's gotten comfortable in her nice life and expects the fine things. She still has regular brunches with the girls and is always beautifully presented. If there is a new fashion trend coming, Cindy is there leading the way.

On one of her many trips she met a ridiculously fun guy and married him. She's looking to the future of kids and free time to travel more, so checks her investment account one day to find she has $47,500 to her name.

Five years down, our winner is..?

Cindy is still pretty pumped with her life. She's been living on $30,000 a year for the last few years and knows how to stay on top of her finances. She's got a laundry list of places she's visited and wants to visit, although after that big trip to Europe she got a little tight on some bills. Still, she likes her life, and she's investing each year so she's happy with the way things are.

John has started eating home cooked meals with more than one food group and has bought a new-to-him couch. Most of his furniture is a little rough around the edges, but each year he finds himself with more money in his pocket. He's learned the value of making things last though so he doesn't buy anything without thinking it through first. He has a high quality mattress (because he loves a good snooze) but never bothered to upgrade the dining room table - it's big enough for his friends and no one minds the scuff marks.

Ten years on - John feels richer than ever 

John still works for SomeWellKnownCompany and the 2% a year payrises are still rolling in. Sure they aren't much but John feels like a king, constantly getting more money and having the freedom to spend it. He's settled down with a lovely Lady who shares his values and they are over the moon in love. John and Lady start talking about puppies and easing up on work. John peeks at his investments and is surprised to find he has over $275,000 invested.

Ten years on - Cindy is getting tired

Cindy is still spending her $30,000 a year on her lifestyle, but what once felt lavish and luxurious now feels tedious. She goes to brunch each weekend at the same cafe, orders the same meal and shares the same gossip. She wants to travel but feels like she's seen it all, and without spending a whole lot more she doesn't know what to do. She still works for SomeWellKnownCompany and is still pushing the 2% annual pay rises into her investments, but somehow she only has $130,000 to her name.

Ten year check in

John is leaping ahead in so many ways. His finances are more than double Cindy's despite having the same income and spending more each year. He's constantly thrilled with his life as each year he moves from spending like a poor student to a comfortable adult. He no longer worries about the bills, and eats well on delicious home cooked food with his Lady wife.

Cindy feels stuck, like no matter what she does she isn't moving forward. She wants to change up her life but isn't sure how. All her favourite restaurants serve the same meals every day, and she's tried all the hobbies she can think of. She isn't willing to increase her spending, but doesn't want to cut back either. She's restless with her life and looking to make a change.

Twenty years on - John is on his way up and out!

John and Lady are ready to hit the road! John looked at his bank account and realised he had enough money to never work again! When his boss asked him to work the weekend he politely told him where he could put that overtime and rode off into the sunset!

After 20 years of slowly increasing his expenses John now spends $30,000 a year, and lives like a king. Those early years of scrimping and saving have taught him valuable skills, and he can't imagine what he would do if he had more money.

The $20,000 a year he's been putting aside has turned into $820,000. John knows he can comfortably pull $32,800 a year from his investments, so he retires to a simple life of playing with his pups, taking long walks on the beach, chasing a good stick and sniffing the bushes

Twenty years on - Cindy is stuck and looking for the light at the end of the tunnel

It's been a long road for Cindy. She's spent the last ten years reinventing herself, and now she's pretty happy with her life. She's tossed aside brunches and hair appointments for play dates with the pups and couch parties with her friends. She's learned to cook at home so she can spend more on the things that matter to her like travelling. Cindy feels richer then before - even though she still spends $30,000 a year because she spends less on the little things and saves for the things that matter to her. 

After twenty years at SomeWellKnownCompany Cindy wants to move on. She checks her investments to find she has $438,000. She's disappointed because she really wanted to move away from the corporate world, but she knows the money won't last forever. She works out that she needs to spend another 5 years working and investing before she can step away from her desk forever.

And the winner is? Lifestyle inflation! And puppies!

John is a very good boy. After twenty years of continuously improving his life and relaxing the financials reins he finds himself flush with cash and ready to retire. Cindy on the other hand set herself some very solid spending rules and refused to deviate from them, even when she wasn't happy with her life, yet she has only half of the retirement nest egg that John has.

The oft quoted rule of early retirement is to not let your expenses grow as your income does. We argue endlessly that you can be happy without spending much, and that's true. To an extent.

As young health teenagers John and I ate nothing but junk food, slept on the floor without a mattress and worked 16 hour days without any ill effects. As we got older (I say, at the queenly age of 26) we can't do those things anymore. We like things a little nicer, like a well cooked steak, we get hangry if we skip meals, and we hate spending more than 9 hours at the office.

John and I don't need a yacht to be happy, but we want some slightly nicer things as we age.

By following in John's paw prints, you can let your lifestyle grow with your income and still save a giant nest egg. By starting small you can retire early, retire rich, and retire really really happy.

The earlier you start, the easier it is.