My Rule of Thumb for Lifestyle Upgrades

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My rule of thumb for lifestyle upgrades: don’t do it unless you can afford it in the infinite time horizon.

That amount is not governed by your salary. It’s governed by your net worth, your investments and their rate of return.

The percentage of your net worth you can spend each year, indefinitely, and break even (i.e., match inflation with enough buffer to absorb volatility), is called your “safe withdrawal rate”.

For most people this comes out to 3-4% (4% is historically safe for ~30 years; true indefinite safety is closer to 3%).

This requires serious discipline, but for me personally it’s well worth the peace of mind.

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