What if we had a 0% savings rate?

Have you ever wondered what you could have (and do) if you spend every cent you made? I never really thought about this before in detail until this weekend. So what if we had a 0% savings rate? What kind of house could we have lived in, what car(s) could we be driving? What sort of holidays could we be doing? How could we live?

Here is to a thought experiment of when we would be the opposite of frugal and careful with our money. A thought experiment of what our golden cage could have looked like. A golden cage that would have tied us to our work because we would not have any savings or significant emergency buffer. We would thus be living pay-cheque to pay-cheque. We’d be a bunch of donkeys ðŸ˜‰

Income level

Without revealing our actual (past) income here is a bit of framing for you. Two highly educated individuals (both a Master degree and some post graduation education), jobs in engineering and business administration/accounting, late thirties/early forties.

Based on education level, we are already in the top 10-11% of the Dutch population. Based on age and occupations, the overall household income should be in that same category. If you look at the statistics in the Netherlands, the median household disposable income in that top 10% is â‚¬87,1k per year.

Since I like round numbers I’m going to assume â‚¬90.000 per year in disposable income for this thought exercise (as a reference, gross household income should be somewhere around â‚¬130.000-145.000). That is thus a monthly spending allowance of â‚¬7.500.

So what if we had a 0% savings rate? If we would spend all that â‚¬7.500 per month, what could it look like?

Housing

Let’s assume we spend 33% (or â‚¬2.5k/month) on housing. That would give us about â‚¬2000/month for a mortgage and â‚¬500 for utilities, taxes and maintenance. Based on a 20 year fixed annuity mortgage with a 100% financing of the house, you’d be looking at around 2.6% interest today. With this you could afford a home of about â‚¬630.000.

To mimic our situation, we would buy something in the western part of the Netherlands. Something a bit rural, with a yard and close to water. Something similar to this:

It’s a detached house (“villa”) with garage. It’s located in Mijdrecht a small town south of Amsterdam in the middle of the polder. In short, crappy public transport and you would be in need of a nice car to get to work. Well, make that two cars actually!

Cars

If you are of the non-savings type, I bet you like fancy new cars. In short, you probably lease them so you have a new car every couple of years. Or you have a company car and the associated taxable benefits (i.e. “bijtelling”). For sake of this argument, let’s assume a private lease of a BMW 3 series with 24K km per year and the fancy package.

Let’s assume the lady of the house is not that picky, but still want’s something nice. Let’s assume she drives a little less (18.000km/year), but is the “sporty type” and a soccer mom. So she will have something like this:

Add in some fuel for about â‚¬300/month and we are at â‚¬1.463 in transport costs.

The house and the two new cars will set you back â‚¬3.963, so we have another â‚¬3.537 to go!

Food and groceries

We currently typically spend â‚¬375/month on groceries and perhaps another â‚¬25 on going out to dinner as a family. That’s not going to be enough of course, so let’s go with â‚¬900 per month on food an restaurants. That’s doable right? I personally would not know how, but I bet it’s possible!

So, that’s â‚¬4.863 down and â‚¬2.637 to go!

Kid

We have one little muppet, who wil have to go to afterschool care 4 days per week (let’s assume grandma/pa will want to have an afternoon too!) since we will both work. Based on income and current costs, this will be around â‚¬650 net per month.

The kid will be “spoiled” too and will have sports and drama classes (or something similar, just not a horse!) at least 3 days per week too. Let’s assume this will set us back another â‚¬150. Add in another â‚¬100 per month for cloths, toys and other bribery. Adding to a full â‚¬900 per months in expenses.

Now we are up to â‚¬5.763 in expenses and have â‚¬1.737 left.

Travel and holidays

As a fancy couple we would have to travel at least 3 times per year, right? That is one skiing trip in the winter of at least â‚¬800pp for a week. Then the spring break trip to something warm, say Greece, all-inclusive of course! That’s another â‚¬800pp for a week. Next we would do a safari or extensive summer trip of about 17 days. That would be another â‚¬2.200pp. Gosh, are we really already up to â‚¬11.400 per year?

Ok, so that’s another â‚¬950 in average monthly expenses! Yay, doing great here ðŸ™‚ Now we are up to â‚¬6.713 per month, whoop whoop!! Just â‚¬787 to go… we can do this.

Other expenses

Ok, how to burn through that remaining money? I assume something like this:

• â‚¬200 for a house cleaner
• â‚¬300 for cloths and shoes
• â‚¬100 for phone plans
• â‚¬87 in cash (cash disappears well, right?)

Done!!

Discussion

What if we had a 0% savings rate? We would be wasting money left, right and centre. No debate here. I sincerely doubt that know for sure that it would not make us any happier than we already are. Not to even mention the additional damage we would do to the environment that our kiddo needs to grow up and live in.

Granted, if you would be really “efficient” or “creative” with your money, you could live even more comfortable and luxurious with that same yearly amount. But not saving a single Euro (or dollar) is never a bright idea. I don’t even want to know how it feels to be this stuck financially! It’s a golden cage indeed.

We have never spent all the money we made in any given year. We always saved some money. I can’t imagine how you could do this and still be comfortable with the notion that you have nothing to fall back on. I really don’t want to ever live from pay-cheque to pay-cheque! It would give me great stress.

Have you ever considered what you could do if you’d spend all the money you earn?

1. Cameron says:

Hey buddy, I’ve been immersed in the real world and out of the FIRE loop for a little while. Thought I’d check in on your blog for some lazy Saturday morning entertainment.

I occasionally do this exercise to remind us how other people do it. My partner has never known a version of our life that isn’t FIRE-oriented, so when meeting others who appear to have attained more/higher, I often need to break down their likely financial circumstances to explain why they have a big house, flashy car, expensive handbags/shoes/jewelry/plastic surgery.

It’s remarkably easy to get to 0… I know, I used to do it too (a long time ago… geez, I’m old now).

I can’t deny that when I see a nice big house like the 600k one you showed, or some flashy new lease car, I do go all ooh-aah about it… but it doesn’t take long to do some mental math which concludes that to do the same would mean 50% of our net income just evaporating every month. I never want to go back to experiencing that.

Instead, for us, our income from investments every month alone more than pays for our house and car expenses.

I guess it’s called financial “freedom” for a reason. All our net income every month is “free” to spend or save.

Take care Cheesy!

1. Hey Mate,
great to read that you think of our little blog as entertainment, my work here is done! ðŸ™‚
You are indeed right that it is surprisingly easy to get to 0, I too have seen many around me that make it happen and complain about it.
Any how, best of luck going ahead with the FIRE mentality. Albeit a break can never hurt.

Cheers, CF

2. Haha, that is a really cool concept to do!
It can however be also hard to see the things you are missing now for future comfort…
Cool post, hope to see more like this one!

3. claudia says:

I could live that life, you know.

But I don’t want: too much house to clean, too much time in traffic, too fat because of the food and no biking etc.

4. Hi CF,

To be honest, having a 0% savings rate for me would be so strange that I never thought about it before. Looking at the examples that you gave I can imagine how It could be interesting. I would privilege more the House and Travel.

Nice post!

All the best.

Cheers!

1. It’s funny how that work, the priories you make if you would have to spend it all! I’ve got a lot of feedback on the post and people really value different things. Mind you, my mind is pretty warped (read affected by FIRE), so I found it hard to imagine how people would do this and where they would be spending the money on!
Thanks for the comment

5. I almost thought those were dead flies on that salmon. Had to do a double take! Good food for thought here, a-hem…

Funny, I have a good friend who kind of lives a lifestyle as if he’s got a zero percent savings rate. At least he has some safety net living in the welfare states of western Europe, but I still worry that toy Corvette will not help him much when he’s in his 80s trying to find a reliable nurse aid.

1. You cannot eat that Corvette either ðŸ˜‰

6. You bring me new ideas ðŸ™‚

But seriously, just like you, spending all my money would make me feel very uncomfortable.

1. I know, right?! How could you do this and still feel comfortable?

7. That’s a great way to look at it. You could live paycheck to paycheck but it won’t last forever, what happens when the paycheck stops! Freak out time haha
Cheers

1. Freak out time indeed! But wait, you could still by stuff on credit ðŸ˜‰

8. Enjoyed this thought experiment, it’s a fun way to think about things. â‚¬900 spending on eating and restaurants would be one hell of a job. I think spending all of that money would take as much time as making it. How do people do this month after month?

I think it shows perfectly that you should be mindful about where you spend your money & your time, so you spend money on things that make you happy and you’re not spending for the sake of spending. Love it!

1. Actually, kind of shows you how easy it is (well, perhaps with the exclusion of the food budget ðŸ˜‰ )
Thanks for the comment!

2. Juraj says:

Well, for one, I didnâ€™t feel the budget such an extreme example for more expensive part of WE and living in bigger family – we are family with 3 kids, of whom 2 early teenagers and 900EUR on food is less than what we spend, without going eating out (less than once a month as family on average – excluding vacation time). Not buying fancy stuff, not all bio, regular supermarket food, cooking every day fresh meals, but eating well and not restricting food (only trying to minimize imported stuff). Over 1000 eur/month is normal. Weâ€™re saving solid \$ each month (30-40%).

1. If you look at it from our point of view, â‚¬1000 is huge! That would be 150% more then we spent normally, even with 3 kids I would honestly not know how to spend that much. Guess you can still jack up your savings rate here ðŸ˜‰

9. Sander says:

I like your experiment, and the expenses sound comforting!
But alas, a cage is still a cage, even if itâ€™s a golden one.

To me itâ€™s really unbelievable that almost all people choose the Consumerist Cage over Frugal Freedom. Howâ€™s that for alliteration? Could be the title of a â€˜Suske en Wiskeâ€™.

1. Hahaha, I would buy that one! Or is that to consumeristic of me?

10. HJ says:

A real nice thougt-experiment, I like it. And for me it proves the point even stronger how crazy it is to burn al you’re money on stuff, but it shows also how simple it can be to drain you’re wallet.

1. It’s amazing how quickly you can drain your wallet. Still forgot about the gardener, the senseless meal plans and monthly subscriptions you don’t need ðŸ™‚

11. Dude, if you want to become pay cheque to pay cheque, you are forgetting one important factor, you need a pay cheque!

1. How did you know I was looking for a job again?? ðŸ˜‰

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