Yeah, I guess. I try to avoid that as much as I can, such that my rent is currently around 10% of net pay, but I constantly feel an urge to upgrade things (and do, eventually). But it certainly is retire early money if you can fight that urge even moderately. I make less than that and am on pace to retire at 35 with a comfortable middle class lifestyle.
I've heard a lot lately about people who avoid many expenses, including rent, in order to save a lot from decent jobs and retire early. If the author of this blog post had talked to them, maybe conclusions could have been drawn.
A bit of personal perspective: I'm a 30 year old, I earn well into six figures/yr, but I still live relatively far below my means. Concretely, this has required making some very tangible lifestyle choices that haven't always been pleasant, including living with roommates in a somewhat bad neighborhood, not buying high-end clothes, etc.
The reason I do this, and it's something which somewhat annoys my long-term girlfriend, is that I absolutely refuse to live paycheck-to-paycheck. I've done that for a while after a failed startup, and it's terrible. It takes a huge psychological toll and the idea that you have to stay at a crappy job, and be afraid every day of being fired, is something I'm working very, very hard to avoid.
FIRE is exactly that. It is living like a poor person on a well off person income and banking the difference to retire early.
For example, my very nice apartment in NYC costs me about $4500/mo. I get a 35-40 minutes commute to my office door to door. I have a co-worker who lives in PA. His one way commute is 2h-3h ( depending on a day ) one way but he pays only $1300 for his apartment and $1000/mo on the commute, making his cost $2300/mo. He says it is a great deal because he saving all that money and he is going to retire before me.
We also have a custodian. The custodian is paid much, much less than either of us. The custodian happens to live next to my co-worker. In fact, it was the custodian who told my co-worker about that place.
Because of how much an average American works, including my co-worker, life of my coworker pretty much matches the life of our custodian.
It's surprisingly easy for this to be the case. I'm not particularly great with my salary, entirely because I don't have any pressures. I'm in my early 20s, near the 6-figure threshold and it's easy to fuckup. You think, well I should be living in a nice place, I make enough money right? So you lease a penthouse. So you've got this nice condo, you need new furniture, right? Then your car you've had since college starts acting funky, so why not just buy a new one? Been there, done that. I mostly broke even on my expenditures and maintained my savings, less a downpayment on a new Civic, but you could see how things could go wrong when you get into that mentality. Now consider the similar case but with folks with little earning power. Worst case, I could break my lease and live somewhere cheaper. Worst case, they're on the streets.
Greater income only last until you stop working, which may not be very long if you're seriously planning on retiring early. But you can maintain a lower cost-of-living until you stop living, which will hopefully be a much longer time. :)
No, I think you've proven my point. $35k in 2005 is roughly $43k in 2016, which I'll use as a point of comparison because it was when I was myself making roughly $32k before taxes.
I'll just stop now to point out that this would be enough alone to allow you to drop 10% - and then some - into retirement savings, without living any more or less comfortably than I did. As I said before, the best way to encourage saving is to increase pay.
I assume you were paying less than my $900/month in rent (a studio price in a similar market to the one you describe), between your having the privilege of being able to split rent, and dealing with rents that were ~5% lower on average. This, again, would allow for a hefty savings rate compared to my baseline of losing roughly $100/month on necessities, even without the higher pay rate.
Considering all of this, I have to conclude that you were actually a poorer financial steward of your income than I was - again, even though I was losing money every month. Living under circumstances similar to yours (higher pay, lower rent), I could easily have put away 20%+ of "my" earnings - you only managed 10%. However, the truth is that we lived under different circumstances, yours much more forgiving of carelessness or mistakes.
I grew up upper middle class and earn a mid-low six figure salary. I used to be quite frugal. Now I'm just apathetic to it. I don't care at all about money. I have no particular financial goals. I save a lot without trying. But savings scale linearly in non risky comp scenarios. And that's kind of boring because there's nothing that I could imagine wanting that doesn't require orders of magnitude more money than I have now. Aside from the vague "retire early" thing.
Not a complaint.
> There’s something that people with money say that doesn’t make sense: that regardless of how much money you have, you run out of it just as soon.
This is just a weird thing to me. I didn't feel this was true on a five digit salary much less what I have now.
Most people just ramp up their lifestyle when they make more money.
I've been petty conservative about doing that and living below my means since the start of my career. In the beginning I was saving 80% of my income. That dropped over time as I got married and had to accept ramping up my expenses, but I've saved enough over the years to be about halfway to financial independence by my mid thirties. I strongly recommend intensely saving as the only fiscally responsible way to live. I don't think it's affected my happiness negatively at all. I couldn't buy everything I wanted, but having that safety net was well worth it in exchange.
The problem with that argument is that not everyone is OK with living a bare minimum cost of living life style. Also rewarding yourself for earning more can give you motivation to progress further.
I recommend fixing your spending at a %-age of your post tax income at a maximum. For me it is 50%, but that is on the conservative side for most people. I don't always spend 50%, but that is the max. I feel it is a good compromise between preparing for the future and rewarding yourself in the present
I've kept very strict rules since the start of my work life. I save half of my income and try not to spend more than 20% of income on rent (which required living with my partner in a tiny 150 square feet apartment when most of my friends had much better apartments).
But that has helped a lot preventing lifestyle creep. I undoubtedly spend more now than I used to since I went from roughly 20k a year to 350k a year but I still keep saving half of my income. It does mean that I live a less luxurious lifestyle than my peers.
In most cases, people on high incomes spend far more and save very little. In spite of initial good intentions, they end up not retiring until much later than initially planned. Concurrently they accrue various aliments which further impacts upon their quality of life.
In practice people are slaves to their egos and aspirations. The option to live in a low-cost area, doing lesser paid, but fulfilling work is to many a less appealing choice.
I know exactly what you mean. I've been slowly moving towards a "Mr. Money Mustache" style of frugal living, but I still wonder whether I'm doing the "right" thing. Maybe I'm missing out on all sorts of opportunities to enjoy life and grow as a person.
I do, however, look at friends who make significantly more than me and see that their lifestyle has grown proportionately with their income. Many of them could probably retire early if they embarked on 5-10 years of MMM-style extreme frugality, which to me seems like a missed opportunity.
That's not true. With a six figure income, you can live like people making half what you do, save the other half of your income and retire early to live off your assets indefinitely. That's harder to do the lower your income gets.
Yeah, I'm not getting where that number comes from. (And I love the suggestion that it's merely "upper middle class".) Personally, I can live a pretty nice lifestyle on "only" a couple thousand in disposable income a month. I really can't imagine what I would do with $20-25,000 / month to spend.
With that in mind, I tried a few numbers in the spreadsheet. Just to be more "realistic" I dropped the payday back down to $4.5mil. I'm also assuming that the first thing I would do is to pay off my mortgage, so what remains is basically entirely discretionary spending.
On a restrained budget of $50K/yr ($4K/mo), my assets grow faster than I'm spending, and I die with $20M in the bank. On a more extravagant $100K/yr (over $8K/mo), things are a bit closer, but still earning more than I spend and leveling out at about $7M in the bank. The crossover point is about $125K, leaving you broke at 70.
So, I'm going to say that, yes, I really could retire and not work again with a $5-10M payout.
Yea, there is often an unspoken assumption of moving to some ultra cheap location which is central to those ultra short time periods. If you can live on 10% of your income in retirement then you can save that up very quickly.
As someone who lives in a much less expensive part of the United States, I've run into this too (though likely not to the same degree as you). My advice: if you're skilled enough to command a higher salary, IMO, you should always push for it. Use some of the extra money to pay an accountant to do the paperwork for you. With the rest, invest it or if nothing else, put the extra money into a retirement account. You'll just be able to retire that much more quickly.
In case you can manage to keep the same savings-rate, living in an expensive place, you can move to an inexpensive place for retirement and retire earlier. The absolute values count. It is not only about cost of living/salary.
reply