Very interesting, but definitely not surprising.

Note: This is U.S. data. Sorry for not clarifying sooner!

“Overall, federal workers earned an average salary of $67,691 in 2008 for occupations that exist both in government and the private sector, according to Bureau of Labor Statistics data. The average pay for the same mix of jobs in the private sector was $60,046 in 2008, the most recent data available.”

And let’s just add insult to injury:

“These salary figures do not include the value of health, pension and other benefits, which averaged $40,785 per federal employee in 2008 vs. $9,882 per private worker, according to the Bureau of Economic Analysis.”

Via Big Government

It’s amazing how some roles have such a big difference in pay, such as Clergy at $70,000 in the government, versus around $40,000 in private sector.

Or Graphic designer at $70,000 versus $46,000 in the private sector.

But maybe the work is different?

I can see that for IT because to me, they’re sort of ambiguous.

IT in general is fairly new as an industry, and we don’t have exact definitions as to what each role does.

A computer systems analyst to someone might be a computer support specialist to another.

But to me, they are two completely different job roles and tasks, which can be subdivided even further depending on what applications we’re talking about.

Then you factor in the actual tasks involved, and setting up a computer for an employee is a different job from doing IT help desk support to troubleshoot a system or any kind of specialized software.

People always ask:

“I’m starting to save, and it’s beginning to hurt. How do I save without feeling like I’m saving?”

At first glance, you might think: What kind of fool question is that?

But I am not guilty to admit that I thought the exact same thing when I first started!!!

When I first started budgeting and thinking about my money, I felt like saving was being in a horrible mental prison.

“I am making all of this money, 70% of it is going to debt each paycheque, WHY THE HECK DO I NEED TO SAVE THE REST? ARRRRRRRGH!”

It was torturous to see my money disappear so quickly towards debt, and then to know I had to spend another 30% of it in bills and a small, small bit of it on fun.

I didn’t see the point. I felt angry. I wanted to go on shopping binges.

I wanted to do MORE. Buy more. More of everything.

I felt like life was not fair, why didn’t I learn about money sooner, blabbedy bla bla….

*cue the waterworks and the pity-me princess routine*

After I got over myself, I realized that my focus on money, debt and saving was very negative.

So how do I do it now without throwing a mental temper tantrum at life?

My Secret: Change your focus

I needed to change what I was doing from being negative (crying about deprivation of money and stuff), to being positive.

I am doing what  I did before (actually, MUCH more), and I’m happy doing it…(which is something I never thought I’d say).

I can still buy anything I want

I tell myself all the time:

You COULD buy that if you wanted to.

But do you? Really?

Is it going to improve your life significantly?

Or do you just want it as an impulse purchase?

Think about the precious space it’ll take up in your suitcases when you move — is it worth the space & weight?

99% of the time, it’s just my inner repressed shopaholic lusting after something shiny and new, but then my saver personality takes over and is way more practical.

So yeah. I can truly buy anything I want if I set my mind to it.

I just CHOOSE not to, which is very different from not being able to.

…and saving money is the happy result!

My #1 priority is not to buy things to clutter up my life and physically tie me down anywhere (hence the aversion to home ownership), or otherwise known as “minimalism”.

I choose not to buy.

I don’t buy what I don’t need or really, really, really want.

Since I don’t buy anything I don’t want, I save the money.

And the more I save, and the more I realize how unnecessary STUFF is to make me truly happy, the happier I get thinking about and using what I already own.

It sounds so New Age-y and strange to get happier over time, but it’s true.

My top 3 happy (PG-13) buttons:

1. Great, stimulating & fun conversation (BF, Friends, Bloggers, Socializing in general)
2. Delicious food – it’s seriously orgasmic when it’s done right. Totally makes my day.
3. A really great night’s sleep

So, what are your triggers to save? Are you happy to be doing it?

ThriftyGal of the blog Chasing Prosperity made a good point on my retirement post about $20,000 being sort of conservative for someone who makes $100k/year.

(Read: “Just stick a fork in me when I’m 50-ish!“)

And she’s totally 100% right.

However, as a freelancer, income is a bit trickier to pin down as a confirmed amount than working for a company and getting paid bi-weekly.

Therefore, $20,000 to me, is a good goal as a bare minimum even though I am making more than $100,000 a year right now.

Here’s the reasons why:

I am being realistic, rather than conservative

I don’t always work full-time.

This contract is a rare opportunity that is not even guaranteed to last either!

They could boot me out at the end of March and my plans for my future earnings could go up in smoke.

I am not mad about it, I am just trying to be really conservative and not expect what hasn’t been confirmed.

See, without statistics, I cannot say: “I will make $60,000 this year, and $20,000 can FOR SURE be set aside for savings.”

There are months where I won’t work, and there are months where I will work a lot.

I need at least 5 years of stats for that, and I am currently pushing 2 years.

• From Aug-Nov 2008: $90,000 as a freelancer (note: I was with a company before)
• All of 2009: $0
• Now, am earning a confirmed: $34,500 which is really $24,000 after expenses

I am hoping to stay on and work until end of 2010, but nothing has been put on paper yet or signed, so I can’t count my chickens before my eggs have hatched.

My real “secret” plan is to save as much as possible

With uncertain and unsteady income, I have to save as much as possible. No ifs, ands or buts about it.

So for example, if I work for the whole year, I will gross $190,000, or $154,000 net.

Note: I am taking out January because I started a month into 2010, and July because I am going to Europe for a month. In a full year, it’s really $230,000 gross taking into account holidays, or $186,300 net.

I am going to save as much as I can of that $154,000, because…..

…I have my priorities set in a laddered system

This is something I’ve done, even earning much, MUCH less than that (on minimum wage), because you should always know how to prioritize where to put your cash which means paying for shelter, food and warmth.

The rest is just bonus.

Since I cannot count on that income as being confirmed yet, having my money priorities set out beforehand are so much more important!

Therefore, I cannot say: 25% of my paycheque will go to savings, 30% goes here, and so on.

I need to allocate the money on a laddered system based on when I earn/get it.

If I don’t have enough banked to move on to my next priority, then I don’t move on until I do.

And they go a little sumpin’ like this:

Here’s a handy chart and my notes will follow.

Priority #1. Expenses for the whole year = $20,000

I need about $25,000 net this year, so all of the money that I make (net) up to $25,000 will go towards living expenses for 2010.

That, is just cash in the bank to pay for expenses so I don’t have to worry about having saved/spent too much on other priorities.

This is my true #1 above all the others.

Last year, I spent $30,000 in net expenses, but this year, I have a plan to spend $20,000 as I am going to try and control that this year.

Priority #2. Expenses for two Emergency Fund years = $50,000

Like in 2009 when I didn’t work*

*As rightly pointed out by ThriftyGal:

Yes, I could have worked another job, but aside from my French not having been strong enough to work in even a minimum wage job for most of 2009, the bigger thing is that I also chose not to work a minimum wage or a 9-5 job because I had the financial savings and the option to do so.

I will need another $25,000 for one year, but I am actually shooting for $50,000 as my emergency fund because I feel good with 2 years.

I am saving an extra $5000 over what I expect to spend, because I like having some extra room.

I am putting it all into high interest savings accounts and other safe, super conservative investment vehicles.

This does a double duty, because it’s subtly a part of my retirement plan as well, but I won’t consider it as such.

Priority #3. Retirement Savings = $20,000

Max out my RRSP.Put the rest in laddered savings.

My TFSA is already maxed out with Priority #2.

This is my bare minimum for retirement for 2010.

Priority #4. Fun = $10,000

Ahhh! FUN!

I honestly cannot think of anything I’d like to buy, but I like leaving myself some breathing room after being so serious with my earnings.

Need to have a break once in a while!

I’m probably going to spend some of it in Europe, eating wonderfully foreign candy, and buying foreign products.

We’ll see.

Priority #5. More Savings = $54,000

Anything left over = bonus to be banked as savings.

I can draw on this to help pad up my retirement funds in future years, or for whatever I’d like within reason.

But it’ll all stay as savings.

So, that’s the plan.

It’s a bit unusual, but I think everyone follows the same principles/strategy in theory, just perhaps not as regimented or as conservative.

Everyone spends their money on what they value the most.

Just look at your spending for last year (if you have the stats), and see where you spent the MOST money.

The top 3 spending amounts are what you value most in life, and hence where you put your cash.

I think mine was Retirement/Savings, Rent and then Food.

The rest were considerably smaller amounts in comparison, except for the shopping & electronics part that scared me.

So what’s your ultimate goal? Do you have a saving and spending strategy?

BF and I have been (and still are) discussing our future retirement plans.

How did this all come about? Innocently one day, as we were petting unicorns and singing Kum-ba-yah…

Okay. Seriously, he was hyperventilating slightly about making sure we have enough for when we retire, and not only that — to retire early to boot!

This freak out came about one night when he started reading an article on how less than 19% of Canadians have saved over $250,000 for their retirement, which in his world, is his MINIMUM level for retirement savings.

About 30% haven’t saved more than $25,000.

*BF starts hyperventilating with visions of cat food dancing through his head*

And the discussion began.

Factors to consider:

• Not going to retire in North America so cost of living in retirement will be lower
• May actually have family home(s) available in Europe to buy in full or rent at low cost
• If not, will probably stay renters for life — we’re not really interesting in owning homes
• Each of us will fairly contribute 50% to the retirement egg*

*Some people don’t find this fair, and want to base it on income %.

I agree if that works for you, like if one is earning $20k to someone’s $100k.

But we don’t have a high differential in our incomes, it’s all over $100k for each of us if we both manage to score contracts for a good part of the year.

Questions to ask when planning for retirement:

After you calm down your hyperventilating partner…..

1. At what age do you want to retire?
2. How much do you need to retire? (What are your plans?)
3. How long are we planning for as a lifespan?

Canadian Retirement Notes:

TFSA = Tax Free Savings Account (like a ROTH IRA? Someone correct me please.)
No tax break given now, more like a savings account, but you can save up to $5000/year under this plan and not pay any taxes on the profits.

RRSP = Registered Retirement Savings Plan (like a 401k I think)
Given a tax break on your income now, but you will pay the taxes later when you withdraw the dough.

Canadians, read here about the difference between the two.

#1 — AT WHAT AGE DO WE WANT TO RETIRE?

That’s always the #1 question in retirement planning: when do you want to call it a day?

He’d like to retire at around 50, perhaps 55.

Me, I always thought I’d work until 65, and have 40 years to save.

I am not really convinced I will (or want to) retire early, but I think to be on the safe side, I want to be uber conservative and plan for the big picture.

Put on top of that the fact that he’s also 10+ years older than me, and if he retires at 50, I’m going to have to retire at 40 to keep pace!

That is, if I want to, which I am not convinced of at the moment because I feel it’s too young.

Nevertheless, this is a good exercise for both of us to consider.

Still, I never say never.

Early retirement also poses another problem: I cannot withdraw anything from my RRSP until I am 65.

Therefore, if I retire at 50, I need to bank 15 years worth of cash and TFSAs to live, before I can release and draw upon my retirement funds.

#2 — HOW MUCH DO WE NEED TO RETIRE?

I am not taking Canada’s government pension plan into account here, because I am not expecting more than $300 a month from it, and that can just be a bonus to supplement my own personal plan.

So…. I always thought it was 75% of your salary, and in the good ol’ days, I could count on $60,000 a year.

That meant that I was aiming to be able to withdraw and spend at least $45,000 gross.

But then BF made a good point: right now, we kind of already live like pensioners (which we’re enjoying by the way, not doing as punishment or out of an OCD need to save).

We spend about $20,000 – $30,000 a year on net expenses which includes traveling, fun stuff like entertainment, renting a place, and splitting everything in half.

In total, $40,000 – $60,000 together as a couple.

So let’s just assume what we’re spending now is generally what we’d spend when we’re retired, around $20,000 each if we’re traveling a bit and sharing in the expenses 50/50.

BF: But I wanted to upgrade our lifestyle!

Me: Upgrade? By buying a fighter jet? Eating foie gras daily? What are we upgrading on?

BF: Well.. I mean what are we going to do when we’re retired? I wanted to travel more.

Me: I wasn’t planning on sitting around at home staring at each other 24/7! Of course we’re going to travel. How much more did you want to travel?

BF: Like take a month off. It’s going to cost around $4000 just for a trip for a month.

Me: But we’re not spending $4000 every month on a trip in your upgrade scenario right? We already do that on our current budget.

BF: True. Maybe we just stick to our monthly budget and travel more by traveling on the cheap to cities around where we’re retired.

Note: What about having those rug rats?

We are not taking kids or a family into account here, because I am assuming that my future offspring will NOT need to support me and vice versa.

This is just retirement planning for the two of us, not the whole family, and we are going to make more than $30,000 a year each on average, to be able to pay all the extra expenses that will eventually come with having a family.

#3 — HOW LONG DO WE PLAN ON LIVING?

Well, taking statistics into hand, women live longer than men and I am 10+ years younger than BF.

Chances are, I am going to need a lot more money saved than he does.

On the bright side, I also have 10+ extra years to save and plan for this eventuality.

If we retire early, let’s say BF at 60 and me at 50. I should expect to live until 90 based on my current lifestyle and family history.

That means I have to have enough banked for 40 years.

BF is probably going to live unusually long for a man, until at least 80 with his family history and current lifestyle.

He needs to bank 20 years of savings, and I think he’s already got that more than covered from what I gather.

He’s just being a worrywart.

With all that in mind….

HERE ARE MY CALCULATIONS

With my handy dandy retirement calculator in my budgeting sheet, have come up with these numbers:

Notes:

• Rate of Return: 5% — very, VERY conservative
• Years to live: 40 because I am retiring at 50, living until 90 as my best case scenario)
• Years I have to save: 23

I need to save at least $1600/month at least which is $19,200 a year.

Still, if I can save more, I’m going to do it.

But.. DAMN!!

MY ORIGINAL PLAN VERSUS MY NEW PLAN

Originally, I wanted to save about $1000 a month, or $12,000/year, but I was also assuming I had 40 years to save! Not the hypothetical 23 years.

I did not foresee NOT working for all of 2009, so I had no fresh income coming in.

That being said, I still managed to sock aside these amounts from my savings:

$5000 = TFSA 2009
$3553 = RRSP
Total: $8553

For me, it was a pretty good showing, albeit pitiful in comparison to my original goal.

Since I need to start ramping up on the savings just to get to my comfort zone, I need to make a new plan:

$5000 = TFSA 2010
$5200 = Cash & Equivalents*
$9000 = RRSP**

$19,200 to be saved

* Cash: I need this to be my hefty emergency fund as well in case I run into a repeat of 2009 with $0 in income.

** RRSP: I don’t actually know the exact amount as my taxes aren’t filed yet, but ballparking it, I think that’s what I will be allowed next year. Hopefully more.

STEP #1: ALLOCATING THE $20,000 DIVIDENDS

I need to make sure I keep enough cash flow in the business to operate as well as enough cash in my emergency fund.

I can’t put everything into retirement accounts that I cannot touch until I’m 65.

I need large amounts of money saved because I’m a freelancer without a steady cheque.

$5000 = TFSA 2010 in full
$12,000 = Cash & Equivalents saved in full*
$3000 = RRSP

$20,000 to allocate

*I need to replenish a large chunk of what I drained for 2009 in living expenses.

STEP #2: FIGURE OUT WHAT TO DO WITH THE EXCESS

Any money I make above and beyond will go towards:

• Topping off my RRSP (now that I think about it, I think it’s $11,000)
• Putting the rest into cash equivalents for my emergency fund
• Bank the rest and wait for the next fiscal year to top off my plans again

Wash, rinse, repeat x 23 years.

ALTERNATIVELY: CONSIDER PASSIVE INCOME

BF’s strategy is just to save as much as possible and live off the interest.

To get $25,000 in interest, giving at least 5% a year, you need to have half a million banked.

Assuming interest rates are at rock bottom – 3% – you need at least $700,000 banked to get $21,000 in interest a year.

Maybe if I can really bank away lots of cash now into a savings account I could foresee being able to live off part of the interest.

The only thing nagging at me is all that money for no real enjoyable reason. I mean, if I saved half a million, I am selfish enough to want to spend some of it on myself during my retirement years and life, rather than just split it among my kids upon my death.

So, that’s the new FB Retirement Plan that I’ve hashed out so far: to save around $20,000 a year.

It seems as though everyone would rather make more money than cut back on expenses.

Just the other day, I heard the following lines coming out of The Idiot:

“We don’t have any money coming in now, but we CAN’T give up cable TV!

What would we do all day in the home, since I’m not working now?”

Uh.. cook instead of buying pre-made, processed, frozen meals?

Go to the library and read?

Play with your kids and teach them how to sing, learn, read and be children?

Go to the park and take a walk?

Rent DVDs for free from the library?

Do all the little chores you’ve been ignoring because you were soooo busy?

It totally sucks to be at home, doing nothing, trying not to spend money, but when money is tight, or you are going into debt with each passing day, you have to make drastic cuts and changes.

But to be fair, he isn’t the only person to say that, nor will he be the last.

I’ve heard it from my brother, my sister, my friends, and just in general online around the blogosphere.

“Nuh uh.

No way.

My nails and my hair are THE most important things about me.

I am NOT giving up my manicures, pedicures or blowouts.”

I have heard that coming out of a girl at a party I was at.

She was willing to go into credit card debt for her nails and hair each week, because they were the definition of who she was.

While I can understand that taking care of yourself, and dressing nicely is important.. I don’t see how it can become so important that it defines who you are.

Or that it requires you to go into debt for it.

“We NEED a maid and gardener twice a week, we just don’t have time to clean, because we’re working so much.

And we eat out all the time because we have to.”

(My brother)

Uh.. if you didn’t have to pay your maid and gardener, and cut back on your lifestyle inflation, you wouldn’t have to work so much.

And no one has to eat out all the time if you’re organized.

You can spend 4 hours cooking one major pot of soup for the whole week, making stock from scratch to do it and it would not be a waste of time.

Why?

Because you can supplement it with freshly cooked chicken or sausage during the week to add to it, and having pasta inside for a heartier meal.

There, slightly altered meals for the whole week, that are different enough to be interesting.

But then again, I am the type of girl that LOVES to eat the same meal over and over again, if I really love it.

“It was $3000 a month for a mortgage and about $2000 more than we wanted to realistically spend, but the baby needed a house and we couldn’t live in that tiny shack.”

“We didn’t want a starter home. We wanted to just skip all that.”

The Idiot and a former co-worker said those choice lines to me.

Well, at $3000 a month, I am not sure you will have anything left for the baby.

Or for emergency savings, or college fund savings.

No one needs a house.

Much less, a baby. A baby doesn’t care if you live in a mansion or a small, but cosy home.

A baby wants food, shelter, love and attention.

Period.

So let’s be clear. We all want a house.

We all want a place to call our own and to do whatever we want, but no one NEEDS one, when there are other options out there, like renting.

And if you have to start with a small house, then do it. You’ll find that you seem to make do, and if you feel like you need to upgrade later, then you can do it.

Later.

Not now, before you’ve even made the money.

“We NEED a break. We work so hard, and we need to treat ourselves. Our debt can wait.”

The Idiot again.

Everyone needs a break.

Everyone works hard.

But it’s up to YOU to set the priority of whether or not you can have a short-term, blow-it-all vacation in Las Vegas for a week, or put that money towards your debt instead.

If you decide to go to Vegas anyway, then own it.

Live with your decision and love it.

Don’t feel guilty about it after, and think: “Gee I should have put that towards debt.”

No one is forcing you to do anything.

But sometimes, I feel like people need to step back, and say “Do I really need, what I think I need?”

You may be surprised at what you can live without, do without and actually need.

You may find that NOT having a membership subscription at Barnes & Noble for discounts, may make you feel less pressured to spend money on books to make up for the cost of the membership (true story, happened to me).

You may also find, that giving up that membership, will force you to get out of the home, go to the library and spend a wonderful day, being able to check out ANY book you desire, to read and peruse.

And if you love it, you can buy it after. Not before.

You may find that no one cares if you wear the same sweater or outfit twice, and you do NOT need to buy a new outfit each month.

You may do a little organizing while you stay at home, trying to save a couple of bucks, and find that cherished necklace behind the dresser you thought was lost forever.