The latest book review here at Richer by the Day is Passion Saving by Rob Bennett.

Note to Readers: I was given a complimentary copy of the book by the author, but believe that my review was not influenced by the fact in any way.

Passion Saving is billed as an alternative to the way many of us traditionally try to save, which author Rob Bennett refers to as the Sacrifice Saving method.  He contends that the spending urge is simply too great to overcome.  Rather than fight this urge, we are supposed to redirect it towards saving to achieve more desirable results.  The goal is to transform saving into as emotionally satisfying experience as spending.  Passion Saving is basically about motivation.  If you can’t get motivated to save following traditional methods, then following the Passion Saving method may be right for you.

Much like I described how rewarding your good behavior can help keep you going towards your goals, the author stresses that retirement is too far away to be a true incentive for most of us.  I have always struggled with the idea of investing exclusively through 401(k) and IRAs.  I believe these to be critically important to fund your old age, but I want to see benefits from some of my investments on a much shorter time frame.  I also expect to retire young; long before I reach the age when I can start to draw from my 401(k) and IRAs.  That’s why I have a healthy investment portfolio outside of my retirement accounts.  Sure, these accounts are taxable, but they are also liquid resources that can be tapped as I see fit.

It was a struggle to not put down the book and dismiss the ideas after the author described how he decided not to participate in his company’s 401(K) plan.  I resisted that temptation citing my belief that alternative opinions can reaffirm your ideas or open new possibilities.  Being exposed to many ideas, often those in contradiction to your own opinions is great for your financial health.   That’s one of the reasons I started writing Freaky Financial Friday posts, where I argue a case from an opposing view, generally in contradiction to my own philosophy or conventional financial advice.  I’ve come to appreciate multiple points of view on nearly all financial subjects and find that upon careful inspection, much of the conventional wisdom has serious flaws.  More than fundamental problems with the wisdom itself, it often turns out that your specific situations warrants an alternative course of action.  Though I wholly disagree with Rob’s actions (His basic rationale was that 20 year old Rob needed the money a lot more than 62 your old Rob would.  Time will tell, I suppose.)  I thought I’d give him the benefit of the doubt.

Reading on, I almost had to stop again when I reached the chapter about the true price of a good cup of coffee.  I hate coffee examples, namely those that show how cutting back on a small daily expense like a cup of coffee can amount to a huge savings overall.  It’s not that the analysis is faulty, it’s just that the example has been beaten to death.  For that reason, I wasn’t expecting it in a book about an alternative financial philosophy.  As I mentioned in When Budgeting, Focus on Heavy Hitters, cutting back on large expenses is a lot more efficient than cutting back on the last small ones remaining in your life.  Pinching dollars does a lot more than pinching pennies.  Cutting back on small expenses is vitally important as well, but not every last small expense.  If I have one vice, I’d much rather spend $2 a day on coffee than $500 a month on clothing.  Finally, making sacrifices in other areas that you care less about, should grant anyone the latitude to enjoy small indulgences that bring them joy and help them keep up with their budget.  This is the point I made in keeping relapses short and rewarding your good behavior, cited above.  Despite this idea seeming to fit in with the Passion Saving philosophy, the author nonetheless railed against the daily coffee adding confusion to the message he was trying to convey.  All that being said, the example did provide an insightful way to look at all purchases: how much sooner you can retire by forgoing the expense.  In that sense, the book did remind me about planning for an early retirement and got me to add a few early retirement books to my list of future reviews.  Rob seems to be well known in the early retirement community, with strong opinions for and against his methods.

In that realm, I really liked his view of the multiply by 25 rule to save a lifetime’s worth of an expense.  Since 4% withdrawals from retirement accounts are generally seen sustainable forever (in a grossly simplified analysis), having 25 times an annual expense in your account would let you take out the amount of that expense each year.  So if you spend $20 a year on video rentals, saving 25x$20=$500 would let you withdraw 4%, or $20 yearly forever.  In that way, you can slowly set short term goals for your saving.  Rather than try to save so much for my retirement this year, I might try to cover so many of my regular expenses for life.  Once you’ve covered all of your expenses in this way, you can retire.  Each time we save we get closer (if only marginally) towards financial independence.  I also agree with Rob’s philosophy that you can’t really plan more than 5 years out. Long term plans are important, but 5 years seems to be the threshold when probabilities of accurate predictions start to break down.

My major disagreement with Passion Saving was the idea that the pay yourself first or save 10% of your income methods generally don’t work.  A major flaw of the author’s analysis dismissing the “save 10% of your income” rule of thumb is that savings were assumed to continue at that percentage rate.  Given the example of someone earning $30K who saves 10%, or $3,000, the author concludes that after receiving a raise to $45,000 this same worker would then save $4,500.  In reality, this worker, who was living on $27,000, should be able to save $18,000 after a raise to $45,000.  This is how I save.  Such an idea is originally dismissed by the author and his overriding theme that the spending urge consumes most (or all) of our discretionary income.  In a later chapter, he advocates saving large portions of raises even though such advice conflicts with this earlier analysis.

By paying ourselves first, my wife and I are saving 35% of our income.  Considering that our taxes are about the same amount, we basically live on half our income and save the rest.  Looking at this another way, we earn two years worth of expenses (and discretionary spending) for each year we work.  We also save above and beyond what we pay ourselves first.  Both paying yourself such a high percentage first and saving above that level seem to be much different than the typical behaviors described by the author.  Perhaps I’m an anomaly.  Even after paying myself first 35%, after I spend some of what’s left, I almost always have a little extra that gets saved.  Rob’s question of whether you knew anyone who saves more than they pay themselves first made me laugh.  He doesn’t know anyone who saves more.  Maybe his trouble saving earlier in life was due to surrounding himself with the wrong kind of people.  The influence of a spouse or friends and family can have a huge impact on what seems like “normal” spending behavior .  I was reminded of the quote attributed to Pauline Kael regarding Richard Nixon’s victory, “How can that be? No one I know voted for Nixon”.  Rob is correct that paying yourself first sets a basement and (for some) a ceiling, but the reason why paying yourself first is so beneficial to so many people is that without it they save nothing.  Saving 10% blindly, even if more would be better, beats saving nothing every time.

Passion Saving has been compared, by some, to Your Money or Your Life.  The author even calls that book out by name when describing the impact it had on his financial actions.  While both Passion Saving and Your Money or Your Life advocate finding meaning in life and focusing energy on those activities, a major philosophical difference between the two books remain.  In my review of Your Money or Your Life, I mentioned how the concept of “enough” was personally liberating and something that I could really relate to.  Passion Saving seems to advise that you can never have enough. To quote the book directly, “There is no point at which I will have enough money, or you will have enough money, or anyone will have enough money.  We will all always want more.”  The point that people who don’t miss the money they pay themselves first have something fundamentally wrong with them would be true if joy in life came only through spending.  Then spending less would lead to missing out.  I know people who make a quarter of what my wife and I make and spend much more than we do.  Our lives are more fulfilling nonetheless.  Past a very low basic threshold, spending more doesn’t bring me joy.  The claim that “spending adds to life” is true, but only until you reach the peak on the fulfillment curve.  After that, additional spending takes away from life.

One good point about not paying yourself first is that you may develop better analytical skills by evaluating multiple uses for each dollar you spend/save.  Those skills could help you to recognize significant opportunities when deviating from your plan could lead to a huge payoff.  Those skills can still be developed if you follow a philosophy like mine: I pay myself first, but decide between saving and spending above and beyond that.  So I don’t actively decide what to do with every dollar, but I do make that decision for my last dollars.

As stated earlier, Passion Saving seemed to be contradictory at times and focused not on taking the right actions, but taking the right actions for the right reasons.  On this last point I got the sense that saving 20% “blindly” by paying yourself first would be seen as an inferior method to saving 15% in ways that you were passionate about.  To me, the result is much more important than the method even if it doesn’t have a catchy title or start a movement.  The self proclaimed bumper sticker summary of Passion Saving, “Save the Way You Spend” goes to the main reason I had a hard time connecting with this book.  I hardly spend any money, so should I also hardly save any?  While I seem to have many common goals as the author, we seem to have different methods and motivations to achieve those goals.

Whether or not to recommend reading Passion Saving is somewhat influenced by the availability of the book itself.  Without widespread distribution, your local library will almost certainly not carry it.  Getting a great deal on Amazon, or any deal for that matter, is also not possible.  Paying full price is not something I would generally advise for any book.  In my opinion, there are better and much more cost effective books on the subject of saving and early retirement.  In addition to Your Money or Your Life, my queue of books to read and review includes many respected ones on the subject, including The Automatic Millionaire and Engineering Your Retirement.  Stay tuned for those reviews in the future.

As with all of my reviews here at Richer by the Day, I will be giving away my copy of Passion Saving to one of my readers.  For details on how you can receive my copy, follow the instructions on my free book giveaway post by Nov 1st.