November 24, 2013 | Posted in:Early Retirement


It isn’t news to anyone that people generally put a higher priority on the present than they do retirement. The concept of delayed gratification is an easy lesson to learn but it can be hard to put into effect. Thus, living in-the-now typically leads to rampant consumerism, and debt that lasts seemingly forever.

Most people don’t even realize this is happening to them. They think that the lifestyles they’re leading are normal. And they are, but that’s the main part of the problem.

For this article, I’d like us all to peer into the window of the typical Middle Class American family. First, we’ll learn a little bit about the family, then we’ll delve into their spending habits.

The family is comprised of:

  • Parents who are both college graduates
  • Parents who are both employed
  • Household after-tax income: $80,300
  • They have two children

The Typical Spending Scenario

Current Consumer

Consumer Debts


  • $14,400 (whether it’s a mortgage or rental doesn’t matter)

Consumer Spending

  • $10,440 (groceries)
  • $2,084 (movies, general shopping, presents)
  • $3,731 (gasoline)
  • $5,010 (eating out)
  • $4,000 (vacation)
  • $750 (coffee)

Retirement Savings

Health/Car Insurance


And that’s how the typical Middle Class family spends their $80,300. It’s apparent, looking at the above pie chart, where the family’s money is going.

About a quarter of it is going to debts (ie, things that were purchased in the past). And nearly a third is being spent on day-to-day items, like gas, groceries and going out to eat. Less than 10% is being saved, which is going to provide a less than optimal retirement around after a 45-year working career.

You know this family. They’re the people you work with that tell you there’s no way they can save money. They say things like “you don’t understand”. They are in complete denial about their spending habits, and tend to make excuses rather than actions.

Without ever earning any more money per year, could this family get out of debt? More importantly, could the parents eventually retire early?

The Shift-to-Debt Scenario

Debt RepaymentThe good thing about our Middle Class family is that they actually make MORE THAN ENOUGH money to not only pay their bills, but also to live a luxurious lifestyle, while paying off their debts.

What can they do to reduce their annual financial burden?

I’m not going to try to convince anyone that they have to move. Spending less than 20% of your income on housing is fine. We’ll be able to squeeze money out of a few other areas instead.

The largest affected area in the shift-to-debt scenario is Consumer Spending. We’re going to cut it down to less than half of what was being spent before.

  • Groceries: $6,000 – $500 is enough to feed a family of four, high quality, delicious meals from a grocery store every month.
  • General Spending: $400 — Avoid the mall. Shop at thrift stores whenever possible. Wait until movies come out on RedBox or Netflix. Make creative, low-cost gifts for people.
  • Gasoline: $1,560 — Carpooling, living close to work, occasionally riding bicycles, using public transit, and avoiding aimless driving will all help curb this spending.
  • Eating out: $1,200 — You’re in debt. Why are you financing eating out? $100/month maximum, and that’s pushing it.
  • Vacations: $2,000 — It’s not all work and no play. But, when choosing getaway destinations, avoid tourist traps, cruises, etc.
  • Coffee: $180 — Two bags of coffee per month run about $15. Equivalent spending at a coffee shop is fine, just as long as it isn’t in addition to at-home drinking.

Areas in this scenario that are completely unaffected include: Retirement Savings and Insurance payments.

I wouldn’t recommend that they stop contributing to their 401k ever — especially if there’s a company match. Insurance payments will not decrease until the vehicles are paid off. Once they are paid off, we’ll be able to strip all unnecessary coverage for additional savings.

Reductions WILL be made to utility spending, which shouldn’t have an impact on quality of life (besides freeing up more money).

  • Cell phones: $600 — Switching to a reliable, contract-free, cell phone provider like Republic Wireless. They charge $25/month per phone for unlimited call/text/data.
  • Electricity: $600 — Install CFLs/LEDs instead of incandescent bulbs. Use power strips to easily cut power to not-in-use items. Install a programmable thermostat to reduce/raise the temperature when you’re sleeping or out of the house. Call the electric company and find out how to utilize every savings program possible.
  • Water/Internet: $700 — I just switched from Verizon FioS to a local broadband provider. Our current payment is now around $25/month. To reduce water usage you should install low-flow shower heads, aerators on sinks, and low-usage flushing mechanisms on toilets.
  • Cable: $192 — Well it’s not really cable, but it’s good enough. Netflix and Hulu are $16/month total. They account for hundreds of hours of entertainment in my household.

All of the extra money that we cut out of the annual spending plan is now going towards debt. With nearly 50% or $40,000 going toward debt, it will be paid off within a two year period. At which point, the family can switch gears and begin the Early Retirement Savings Scenario.

The Early Retirement Savings Scenario

Optimal GraphThis family has come a long way. They started as general consumers. They seemed hopeless. They regarded savings as impossible. Now, they’re finally living the First Class lifestyle.

When the family pays off their debt, all former debt payments are going to be shifted towards retirement savings. Not much else has changed between this chart and the previous one.

The only thing that we were able to implement was the reduction from full-comprehensive insurance down to liability only on both automobiles. Since they’re no longer financed, and we have a significant amount of money going towards savings, we are able to provide our own form of insurance.

Without any further adjustment, or pay increases — using the super easy early retirement calculation — we’re able to see that the parents will be able to retire from full time employment within 12.5 years. This is pretty incredible. They were able to go from indebted to retirement within the span of 15 years.

Since this doesn’t account for pay raises, or tax-returns, our new-and-improved not-so-typical family could very well retire well before the 10 year mark.

Now imagine this scenario was you.

What are the excuses that keep the average Middle Class family from socking away hundreds of thousands of dollars every few years? Are they legitimate or are they trying to live a lifestyle that should be deemed as excessive and consumption-driven?

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  1. Professor K
    November 25, 2013

    Leave a Reply

    I just switched from Verizon Fios to a local broadband provider. Our current payment is now around $25/month.

    I am getting clobbered by Fios……hardly watch cable but need to subscribe to CTV for wifi. Believe it or not after another multi-hour back and forth with customer “service” I found out that their 15 Channel basic cable gets me wifi cheaper than if I was to go with wifi alone!

    I went with it because their is no way (believe me I tried!!!!!) to get wifi broadband alone because of the duopoly choke-hold by Fios and Comcast (xfinity) here in Northern NJ….there is NO OTHER OPTION!

    • Johnny Moneyseed
      November 25, 2013

      Leave a Reply

      Professor K — There’s a duopoly here with Verizon and Comcast as well. They have such a stranglehold that the competition (that actually exists) is almost impossible to find. I had looked probably 10 times for something that wasn’t either of the big two ISPs with absolutely no results.

      Then, I got a flier in the mail. A company that operates within the confines of our county, was offering service for $25. They installed this past Friday, and so far the service is FANTASTIC. I canceled with Verizon for $98 (don’t care), and I’ll be shipping off the modem/router within the next couple days.

      Seriously though, do a thorough search for local ISPs. Ours only services 18,000 customers total. They are a blip in the spectrum — and they barely make enough money to advertise.

      • Mikhail
        November 27, 2013

        Leave a Reply

        You guys are lucky. In my area Comcast has an absolute monopoly. At some point several fiber-optics internet companies tried coming in (including Google Fiber), but the city rejected the licensing due to some bs reason, so we’re stuck with Comcast for now :(

      • Shark
        February 2, 2014

        Leave a Reply

        Hi Johny,

        Thank you for the very helpful information you share. I discovered your blog a few days ago! It is fantastic. I reside in Maryland and I am stuck with either Verizon Fios or comcast for internet. Do you mind sharing the name of the isp you switched to?


  2. The Warrior
    November 25, 2013

    Leave a Reply

    As noted and also well done over in’s reviews of people’s finances, often people have no idea where their money is going. Stopping to analyze this by writing it all down, most people can at minimum find 5% if not a lot more that they can reallocate to saving/investing from spending.

    The Warrior family is working towards the goal of being debt free besides mortgage (will be by end of 2013) and will be heavily increasing our saving percentage in 2014. All of this on a $50k gross income with an 8 month old. Along with that, Mrs Warrior may be picking up a part time gig which ill entirely be put towards savings. How can we do this with such a small income amount? We track each dollar coming in and out. That’s where most people fail.

    Good luck to everyone out there.

    The Warrior

    • Johnny Moneyseed
      November 25, 2013

      Leave a Reply

      Warrior — It’s funny that you should bring up YNAB. We started using it this month and have been tracking every single purchase. I’d say we’re pretty good with our spending habits — but after using this software for almost a month I feel like I’ve been lying to myself for the past few years.

      We’re still doing as fantastic as I thought we were with our spending, I just completely underestimated our spending in certain categories, because I had relied too heavily on Mint in the past. With a no-hands-on approach it’s so easy to lose track of little purchases here and there. You become completely unaccountable. This doesn’t happen with YNAB.

  3. SavvyFinancialLatina
    November 25, 2013

    Leave a Reply

    We save almost half of our income and still live a luxurious life! It’s extremely do able.

    • Retired To Win
      December 1, 2013

      Leave a Reply

      You can say that again, SavvyFinancialLatina. After “optimizing” my core budget down to $18,000 a year, I was able to push my savings rate up to 65% of my after-tax income. It did not take that long before the magic combination of needing less and saving more got me to the point that I could pull the trigger and retire. And so I did!

  4. Steph
    November 25, 2013

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    Great post!

  5. Laurie @thefrugalfarmer
    November 25, 2013

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    Right on the mark as usual here, JM. Even us, in our massive debt situation, are increasing regularly the amount we save. It can be done!

  6. Laura @
    November 25, 2013

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    Interesting post – I like how you broke everything down so it’s really easy to see where spending happens in a “typical” scenario, and how you can change it to save more. I think it’s possible to save so much of your income but I don’t think it’s easy, it does take hard work and dedication.

    • theFIREstarter
      December 9, 2013

      Leave a Reply

      Agreed, you’ve really managed to make something that on the face of it looks like climbing up Mount Everest, look actually ridiculously simple!

      This is the sort of post that motivates me the most… I am a numbers guy as they never lie (unlike some so called self-help motivational speaker type gurus who usually spout a load of rubbish!)

      • Johnny Moneyseed
        December 11, 2013

        Leave a Reply

        It’s amazingly simple when you see it all laid out. People will still say that they couldn’t ever do what we do. But most people overspend on the small common items in their life, which add up dramatically over time. If you buy a Coke in a restaurant here it’s about $2-$3. If you go out to eat 50 times a year that’s $100-$150 just for syrupy carbonated water. Obviously that doesn’t sound like a lot of money to most people, but that’s ONE thing. When you take into account ALL of the things that people are overpaying for, or buying unnecessarily it starts adding up like crazy.

        • theFIREstarter
          December 12, 2013

          Leave a Reply

          I’ve seen a few articles recently saying don’t fret over the small stuff. What stupid advice! I don’t think I am living much differently at all in the material sense compared to this time last year. My bank account is much fatter though so this to me proves that all the small optimisations add up.

  7. Erin @ Red Debted Stepchild
    November 25, 2013

    Leave a Reply

    Wow, the average family spending is crazy! I thought I was spendy…

    For this year, I only outspent the average family on travel and debt payoff. And I’m totally fine with that. I was WAY under on everything else. I know we don’t have kids, but I know they don’t hike up spending THAT much thanks to your bullshit alert article.

    • Johnny Moneyseed
      November 25, 2013

      Leave a Reply

      Erin — A typical healthy child isn’t expensive at all. They barely put a dent in the monthly expense category. Hopefully you don’t get duped into buying all the ‘necessary’ baby items before your first one is born. They’ll collect dust and you’ll eventually have to sell them at a yard sale.

      Just remember that this isn’t the ‘average’ family. This is the average dual-head 4-year degree holding family. They make a lot more than their non-degree holding counterpart, and in turn spend a lot more as well. But, since they’re both considered to be Middle Class there would be a war on Johnny Moneyseed if I stated that this was the average Middle Class family.

      • Mr. 1500
        November 26, 2013

        Leave a Reply

        Always cracks me up when people buy their babies new, designer clothes. You baby, sitting in the corner producing a load in his pants doesn’t care about Baby Gap. If there was ever a good use for a thrift store, clothing and items for young children are it.

      • Olivia
        November 27, 2013

        Leave a Reply

        So glad you clarified that bit about “average” family income in your comment. The average household gross income is around $50,000 a year. That makes a very different scenario budgetwise.

        • Johnny Moneyseed
          November 28, 2013

          Leave a Reply

          Yeah, the object of this post isn’t to lie to people. My target audience is the Middle Class family that earns anywhere between $75k-$150k post-tax per year who want to change their lives and start living a First Class life.

  8. Gram moffatt
    November 25, 2013

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    Very intelligent and informative article. Everyone should be saving something even if they have to start small and slowly increase the amount. As time goes on..
    They will be surprised how it becomes so easy and their reward will be great when the years go by and will wonder why they waited so long. Great Job JM. Keep these suggestions and information coming.

  9. Mike Key
    November 25, 2013

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    My wife and I practice this very thing. We’ve been living on a 50/35/15 plan for the last 4 years.

    50% of our combined income is savings.

    35% is what we live on, this includes all bills, utilities, monthly budgeted spending.

    15% is padding and play money.

    We bring in around 140K together after tax. We have friends who live richer lifestyles than us. Yet they are not nearly as free as we are. They are burdened by debt. We have none. They have no ability to up and leave their jobs. At the drop of a hat their lives could be turned upside down.

    I’ll take the peace of mind our decision has made us, the fat stash of cash and live below my means and laugh my way to the bank.

    • Johnny Moneyseed
      November 25, 2013

      Leave a Reply

      Mike — I feel pretty much exactly the way you are your wife do. And we have similar expense structures as well. We just tend to save a few percent more, because we try to continually find ways to reduce our recurring expenses.

      With a 50% savings rate, you could easily retire within 17 years of when you started. You could kick it up a notch and save closer to $100k per year! $40,000 is enough to live a complete life of luxury without sacrificing anything. $1,750 per month is a ton of fun money! You should send me your budget. I’m sure we can find a gaping hole that can turn into more cash. :)

  10. Antonio
    November 25, 2013

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    Great post!

    I’m a bit confused on one topic. The 401K money. How come that’s included in the net income? Shouldn’t that be included in a different bucket since they don’t even see (and that’s why they have it!) that money?

    The pre-tax money always confuses me on how I should calculate how much of my income I’m stashing for FI. I almost stash $22K in pre-tax money (9% myself + 4% employer to 401K + $6550 to HSA [read Mad Fientist on this topic]), how should I consider this in regards to my $117K gross income?

  11. Johnny Moneyseed
    November 25, 2013

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    You have the right to be confused! I kind of had to sneak in the pre-tax investment in a post-tax chart. Just imagine that it doesn’t really exist in the graph above, even though it actually does.

    The way that you could represent this information is by figuring out how much of your post-tax income is missing by doing pre-tax investments.

    For example: Filing single with $117k gross you’d pay an effective tax of 22.27% or $26,053. So you’re going to have an after tax pay of about $91k. (This is without tax-deferred investments)

    Since you’re basically reducing your taxable income by 9% + $6,550 you’ll end up paying taxes on about $100k. With an effective rate of 21.29% you’ll end up paying $21,274 in taxes making your post tax pay about $78k.

    You’re investing $17,080 of your own money. If you subtract $91k from $78k you’ll see a difference of about $13,000. That means that by investing with pre-tax money you’re able to invest over $4,000 more without it reducing your post-tax money at all.

    If you had invested $17,080 with post-tax money you’d only have $73,920 left to play with.

    Hope this answers your question in some form or fashion :)

    • Antonio
      November 26, 2013

      Leave a Reply

      Kinda! I had to read it many times to wrap my head around it :P

      So for the purpose of FI how much am I putting aside percentage-wise? Should I consider this formula?

      $21760 (9%+4% match + $6550) / $117K =~ 18.6%

      $5500 (ROTH IRA) + $12500 (taxable accounts) / $82K (projected net income for a family of three, myself, my wife that’s a house maker and a child 4yrs old) =~ 22%

      Am I setting aside 40% of my income as everybody else calculates it on this blog?

      I’m sorry for my silly questions but I can’t seem to grasp this concept.

      • Johnny Moneyseed
        November 26, 2013

        Leave a Reply

        I would base your total savings percentage on your gross income, as if it were taxed normally.

        Taxes on $117,000 would bring you down to $90,947 post-tax.

        You are saving $39,760 which would be 43% of your original post-tax income. Once you mix the pre-tax and post-tax investments it becomes hard (if not impossible) to tell what percentage you’re saving, because it depends what angle you’re looking at it from.

  12. Steven @FinandFit
    November 26, 2013

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    I’m with you on reducing spending if you are in debt, who wouldn’t be. I have many items that I deem as fixed costs, including student loan payment, mortgage, etc. Anything that is not fixed is what I/We do our best to save. So we both contribute our monthly grocery money and eating out money to the cause. So for 2 of us we use $400/month for Groceries and $100 total for eating out and we seperate that in cash. It has been a struggle to stay in balance with the eating out as my wife and I like to keep our earnings and spendings seperate with exception to mortgage, food, utilities, and phone.

    Just recently we have decided to set up a budget and montior the expenses and cash flows of her individual account as well since I”m the nerd of the group. Our biggest struggle is since my wife travels for work and she puts her expenses on her credit card, it’s tough for her and myself to say don’t use the credit card to pay for dinners. So we are keeping track of everything by using the personal checking/debit card only, that and I will be monitoring and keeping track of the spending to see if we are winning or losing the battle.

    Side question. I have student loan debt a good amount. I have a 401K with work that matches and I have an extra amount taken out of my check that buys personal stock. Would you stop either one of these and contribute more to the student loan debt?

    • Johnny Moneyseed
      November 26, 2013

      Leave a Reply

      Steven — You should meet your company 401k match, but don’t exceed it until you’ve paid off all of your debt.

      What type of personal stock are you buying? And why?

      • Steven @FinandFit
        November 27, 2013

        Leave a Reply

        I buy Nike stock directly through Computershare. I buy this stock for a slew(great word) of reasons. This money is currently is my unwritten Emergency Fund.

        1. I found that when I save money in a savings account, it disappears. It goes to buying things, paying off debt, but it rarely if ever stays there.

        2. I cancelled my Gym membership a few months ago and realized that I would be saving $54 month, why not just automatically direct it so I don’t spend it.

        3. I plan to retire in 7 years. We will have 2 rental incomes as our source of income. I will be right about 38 when this happens, if I were to move these funds to a Roth IRA or 401K, it would need to sit there until 59.5. So this money is liquid in my eyes. It’s a click of a button and a sale if needed.

        4. I love Nike, you know how some people only use Apple or won’t buy anything but a Ford, I am the same with Nike.

        On the emergency fund I have 2 items that may go against the grain. I don’t believe it should sit in a Money Market account somewhere, it’s counter intuitive to how I think. If we were to ever have a real emergency with anything I really believe we would do whatever it takes to handle this with our own regular income(stop the savings, slow the debt snowball, etc). We have a rental income emergency fund, so that gives me the peace of mind portion for our houses.

        Long winded answer but I go on tangents if you haven’t noticed. What you think on my original ? now?

      • Steven @FinandFit
        December 3, 2013

        Leave a Reply

        Any follow up to my response, I’m really curious on your thoughts. Thanks.

  13. H
    November 26, 2013

    Leave a Reply

    This is what I have been telling my husband! He is not convinced we can save 50% of his salary. I don’t have fancy graphs to show him (maybe I should make one) but I know we can do it. We just need to watch our budget real close and tighten our belts a bit. It’s a bit of sacrifice but if I can make him retire 10 years sooner, it will be worth it!

  14. Mr. 1500
    November 26, 2013

    Leave a Reply

    I hear safety mentioned all the time and it drives me nuts. All of the following are examples that I’ve heard:
    -> I need this $60,000 SUV or else I’ll die in a car accident.
    -> I don’t feel comfortable taking the bus or train. I may get robbed.
    -> Homes cost 400K in the only neighborhood I feel safe in. It’s a 60 mile round trip commute (see the first and second items), but the closer neighborhoods have a lot of crime.
    -> I need tons of extra auto and home insurance beyond the minimum required.

    It seems like in the USA, we’re terrified of life. The media scares this sh*t out of us to try to get us to buy things.

    • Justin @ RootofGood
      December 2, 2013

      Leave a Reply

      Good one! Try mentioning the fact that driving a 60 mile round trip commute to your “safe” neighborhood means you are statistically 10x more likely to die in a fiery burning car crash than driving a 6 mile round trip commute. I’ll take my occasional petty crime, neighbors that don’t look exactly like me, and 50% off housing prices in exchange for my 90% reduction in odds of dying in a car crash on the commute.

      I’m living on the edge. But not really. :)

  15. Chris
    November 26, 2013

    Leave a Reply

    Good work as always my friend, nice work on the charts this go round. Must be some extra spare time in the Pimpseed household. I’m excited to get our crosscountry move inspired by yourself, MMM and a few other blogs completed. Then I can get my maximized saving and FI path back on track.

  16. Dee @ Color Me Frugal
    November 30, 2013

    Leave a Reply

    Great post! We are currently saving a little over half of our take-home pay, and although we make do without the luxuries that friends with similar incomes have, we still feel like we are living a great life because we are making great strides toward our dream of early retirement.

  17. May
    December 1, 2013

    Leave a Reply

    Hey, where did you get our financial snapshot from? We are THAT family (or we were anyway) but working hard to enter the The Early Retirement Savings Scenario. We are a work in progress but have come a long way. We are at the point where we need to make some major decisions to get to the 50-60% savings rate.

  18. Thomas
    February 7, 2014

    Leave a Reply

    Before I retired everything I didn’t spend went into retirement fund.
    Geesh! What’s the problem?
    Only two types of peeps, peeps like me and peeps that spend more than they earn

  19. Nicole
    February 21, 2014

    Leave a Reply

    As another Maryland resident looking to find an alternative to Verizon, I would LOVE to know the name of your ISP!

  20. lana
    April 17, 2014

    Leave a Reply

    We are working at close to 50% savings not including tithing. We have a lot of “we don’t”s as in we don’t go overboard with entertainment, have a housekeeper, pool guy, bug guy. We change our own oil and do general car repairs. We don’t have landscapers, pedicures, highlights, manicures, expensive haircuts, bad habits, etc.

    We live pretty close to how we did when we got married 25 years ago, modestly. We replace things only when they are shot. We have four cars paid for one is 16 years old, one is ten, one is nine and one is five.

    With two kids in college, we are tightening our belts but continuing to save. When they graduate, we will be able to save more. We have twenty years til retirement.

    The key is, to enjoy the here and now. My thought is, do what you can for the future, there are no guarantees you will make it to retirement.

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