If your putting it in the stock market or loans, doesn't it increase the supply of such things, thus making the return less and making people have to work harder as a result if 'everyone' did this?
As far as I can see, it only applies if the cash is inert in a bank account not being loaned out.
Loan out is fine. The issue is that aggregate consumption and thus demand goes down. People decide not to take vacation etc... not buy the iPhone or not upgrade their car.. things like that. Lower demand means higher prices too.
The $64,000 Question is what is the money being loaned out for. If it's bidding up the price of stocks, bonds, and real estate then it takes a leap of faith to assume that will lead to actual productivity improvements.
It depends on the demand for investment. If there are loads of potentially successful companies starved for resources, more spending on stocks and loans could increase total returns linearly, or perhaps even more.
If there’s a glut of money for investment, then that’s a different story.
This paradox is caused by confusing numbers with reality. I have two major criticisms that the Wikipedia article does not list:
1) Firstly, the paradox assumes that maximising total output is an unmitigated good. This is clearly not so - imagine a world where everyone saved outrageously and pared down their lifestyle so much that we needed to move from a from 2 day standard weekend to a 3 day standard weekend.
This would have "catastrophic" consequences economically because you lose 20% (1 day in 5) of your economic output, but now everyone has increased their leisure time by 50% (2 days to 3 days per weekend). This is not an objectively bad outcome. I mean, empirically most people don't choose it, but if most people did choose it is not like suffering increases.
2) Someone has defined it such that savings means spending on things that don't cause demand. I don't buy that, because to me "savings" would include, say, investing for retirement by building capital. Eg, maybe a massive great research and development lab for old-people-drugs. That is going to set me up for the future, so I call it savings, but if savings reduces output I assume to an economist it is classified as normal economic consumption.
Even if they don't retire early, good on these folks.
They will at least be able to take time off when they want, or self-fund an opportunity to be their own boss (which, at 48, I am convinced should be everyone's goal).
Another alternative is what I call the "slow burn"...work at brutal competitive jobs to build up a nest egg, then just "peace-out" and go work something mindless to keep a little income or maybe secure health insurance, while using your nest egg for life's big expenses
That doesn't answer my question. People have always weaved their own safety nets and saved, but if this is becoming common in USA to spend almost nothing and live frugal, how can this system stay afloat?
Another point that's pretty unrelated, why would you live decades of your life doing nothing, living extremely frugally? Sounds like a pretty garbage life to me.
It could also be the perspective that you can really only try to control your own lot in life. Is it not possible that by focusing on my own welfare, I am more productive and happier? And that by trying to float other boats, I am distracted and less happy?
I don't subscribe to the OPs opinion, necessarily, just pointing out a situation where it might be better to just take care of yourself.
Living extremely frugally doesn’t equate to doing “nothing.” If we’re going to start passing judgment, pinning happiness to consumerism seems like a pretty garbage life to me.
Spending money on basic necessities like housing, food, electricity, water, health care etc. is still consumption. Also note that retirement can still contain some money for extra widgets and other fun stuff - just less than the average consumer.
Other than the biggest costs—housing, food, transportation and perhaps healthcare—I doubt people that FIREd have withdrawn 100% from inconspicuous consumption. They just focus that consumption on more necessities than frivolities.
The key quote: "If an entire society gradually decides that it wants to consume less, then it needs to produce less as well.
If there is less stuff that needs to be produced, then people don’t have to work as many hours to create it. That’s perfect, because many people will be dropping out of the workforce much earlier as they finish earning the money they need to get going on their early retirement. The shortage of available work will be balanced by the reduced number of people willing to do that work."
"Capitalism" doesn't contain values like "you must spend money on something else than housing and food". It just happens that people do spend money on things other than housing and food, so the market system does provide these services in demand.
Not sure for why you’re getting downvoted, but I think your point (which I would agree with) is that if large majorities were to act in this way, that system would be sustainable for nobody. The reason why FIRE works in this way is that people are piggybacking on a consumption culture to reap the benefits of compounding interest on stocks, without personally contributing to it. You’re not going to see avg 8% gains in index funds in a world where wealth is hoarded, and FIRE isn’t going to work without that high compounding rate.
This is one of the things that bugs me about the FIRE “movement”. it’s a great hack for the people doing it, but it can’t become a mainstream system without breaking.
The key quote: "If an entire society gradually decides that it wants to consume less, then it needs to produce less as well.
If there is less stuff that needs to be produced, then people don’t have to work as many hours to create it. That’s perfect, because many people will be dropping out of the workforce much earlier as they finish earning the money they need to get going on their early retirement. The shortage of available work will be balanced by the reduced number of people willing to do that work."
Yes, but money doesn't just "sit in a bank account." It's being used to lend other people money, start new businesses, help other businesses expand, etc. So, it's actually contributing to the economy and "being spent" in the capitalistic system, isn't it? It's just not "spent" by the people "holding it in their account", but by the bank or whatever institution is "holding" it.
This reply is somewhat disingenuous. Read the question instead as "can your average millennial stuff away 64% of their income?"
To achieve the "shockingly simple" 11 year FIRE goal in that blog post, someone working 40 hour weeks at $15 an hour would need to indefinitely keep their annual expenses below an inflation-adjusted $12K to build the required savings prior to their early retirement and to live off those savings afterwards.
In reality, the math is only shockingly simple if you can control all the inputs.
Those of you who are a developer take note of the article.
Many of us in the IT space underestimate the harm & impact of working in our industry. You are the exception to not burn out, you are the norm to not be able to sustain the demand and you should plan for an early retirement.
To invest in something is to provide it with capital. If you’re drawing the equivalent of a wage as investment income, corporate America finds your capital at least as valuable as your labor.
Plenty just stick with the Financial Independence without getting into Retiring Early. But the latter does imply that you withdraw yourself from work, at least from being a sole contributor to a business you don’t own.
Retirement implies a sort of finality that I think can only be present in older (or young but disabled) individuals that can no longer meaningfully work.
I don't think a 30 year old can 'retire'. From a specific field (e.g. professional football)? Sure.
In general? Money isn't the thing that makes successful people work.
It's really hard to spend 50 years on pure leisure. I can't think of any examples.
Coming out of retirement is a not-extremely-rare thing; I don't think retirement implies finality, though it might arguably imply the absence of an expected financial need to return.
I suppose what I'm really trying to get at is that these terms are simplified and only seem to mean anything in the context of someone who does some variant of a full-time job or series of full-time contracts for decades.
It assumes the front-loading of work punctuated with either long periods, or a complete (final) period, of mostly nothing.
Imagine a theoretical person that inherits 10 million dollars. If they never take a full-time job and instead just do the odd thing here and there, paid, unpaid, doesn't really matter, are they retired?
If you're a contractor and sometimes work and sometimes don't, are you continually coming into and going out of retirement?
> Imagine a theoretical person that inherits 10 million dollars. If they never take a full-time job and instead just do the odd thing here and there, paid, unpaid, doesn't really matter, are they retired?
No, they are probably just a capitalist, but part of the social support structure of capitalism is the fetishization of work and the fact that you don't talk about the non-laboring ruling class, just a spectrum of success of workers, some of whom have earned retirement through their work.
> If you're a contractor and sometimes work and sometimes don't, are you continually coming into and going out of retirement?
I would say no, if your expectation when you leave is that you will need to comenback to maintain your lifestyle.
If you occasionally take a job for self-fulfillment, maybe.
> the fact that you don't talk about the non-laboring ruling class, just a spectrum of success of workers, some of whom have earned retirement through their work.
I like to talk about them all the time. ;) Though I think we're seeing eye to eye here.
Different groups see "work" in such different ways that I think the terminology of stuff like 'retirement' doesn't transfer well.
Some people cannot see a life without work. Others do it for toys. Others do it as a status game.
Others don't really do it at all. I guess you could call that the 'leisure class'.
A theoretical human who has no need for food - are they fasting?
> One complaint from readers was that the 33-year-old author and her husband still earn sizable incomes. Nate Thames works for a nonprofit and was paid about $270,000 in 2016, according to his employer’s most recent tax forms. Ms. Thames makes an undisclosed amount from her blog and a recently published book. “Now I understand why even with cutting everything to the bone, that we haven’t been able to save like they do,” a reader posted in an online review of the book. Ms. Thames says she is “transparent about the fact that my husband still works a conventional job from home and that I enjoy working for myself through Frugalwoods.com.”
> Mr. Sabatier, 33, says his Millennial Money website made $401,000 last year. Blogger Joe Udo, 44, recently disclosed he has made almost $350,000 since starting “Retire by 40” in 2010.
> Tanja Hester, author of a blog called Our Next Life, called for FIRE bloggers to be more transparent about their financial lives in a post this year. She said she makes less than $1,000 a year on the blog, but declines to disclose her income from a book advance, saying “there’s no need to share your actual numbers if you are honest with readers about your general financial situation.”
Like much of the self-help ecosystem, seems the key to living that superior lifestyle is having other people pay for it.
There is a lot of, for lack of a better word, fraud in the financial stories posted on the internet, and if you call it out on the financial forums, you get accused of just being jealous. Like people who got wealthy from getting a job through family connections, borrowing tens of thousands of dollars from family members to start a business, large inheritance, parents pay for college, stuff like that, then pretend they lifted themselves up by their bootstraps and anyone can do the same.
There was an article a bit ago like "how I paid off $150,000 in student loans in a year" where the woman said that her aunt or something gave her a high paying job, her grandma gave her a condo, and she lived rent free with her parents while renting out the condo, then used the money she wasn't spending on rent to buy a second condo. Anyone can do it!
I really don't understand why that is the way it is, but whatever.
Stating the obvious - the average person must produce about as much as they consume over their lifetime or 'the system' will by definition collapse.
I'm on board with what you say, but frugality is a pretty basic virtue and there are a lot of people who set themselves up for failure - there are people earning more than ~$80,000 who have good excuses for struggling financially, but they are rare. The fact that some people luck out in life and don't acknowledge it doesn't detract from the basic good sense of consistently investing in the future, and being realistic about whether your purchases are buying you more happiness than they lose you time through working.
The core of the FIRE philosophy is to try and do all the production in one big up-front batch, and then benefit from any opportunities that come along. It is obviously easier for the upper middle class and harder for the lower working class. There isn't anything wrong with that though, as long as everyone acknowledges that saving isn't equally easy for everyone and it depends on their ability to contribute to the economy.
The inheritance stories are bogus, sure, but aside from those, I think part of the issue is that there's a sort of selection bias in FI individuals that makes it difficult to just stay on the margin.
A self made financially independent individual is someone who went against general trends in society for a decent length of time, who now suddenly has essentially infinite free time (e.g. probably 10 times the amount of a salaried worker or more, normalizing for energy levels).
It would be odd for them to _not_ develop these side streams of income unless they just sat on the beach all day.
Making money really isn't that difficult. The difficult bit for most is satisfying basic needs so that they're in a place where they can actually _think_ and act upon those thoughts.
I think given longer lifetimes, increased costs and flat wages, "save almost everything, spend virtually nothing" is going to need to be the rule for life in general not just for early retirement.
- figure out your risk tolerance and long-term goals, develop an Investment Policy Statement (including desired asset allocation and re-balancing strategy, if any)
- stick to this plan until you're super comfortable with your plan, your back up plan, and your SHTF emergency plan
- enjoy your freedom to control your time before you turn 67
It's probably not useful to:
- take painful steps to reduce your spending
- risk your health
- do anything you don't want to continue doing after you stop working (except work!)
- assume or rely on BLOG / BOOK / WRITING income like those that stopped the "usual" sources of income, but gained celebrity by writing about (the otherwise useful) ideas
> Ms. Thames says she is “transparent about the fact that my husband still works a conventional job from home and that I enjoy working for myself through Frugalwoods.com.”
> Ms. Pattee, who married in 2015, says she and her husband, Andrew Hanna, 33, live off the rental income and save his salary in medical administration.
This doesn't sound like retirement. It sounds like being a housewife.
I think that talking about financial independence requires a sort of implicit elitism which is difficult to avoid.
Basically, it's obviously the case that _everyone_ can't do this in an instantaneous fashion.
Consider - if everyone works for 10 years in total, then in the stable state (no pop growth) at any point in time roughly 15% of people are serving the other 85%.
The claim, is more like "if you try, you can do it". As in, a randomly selected individual is likely to be able to push themselves into a higher income group and cut their budget, if they focus on it.
I think this sort of problem plays out all over. An individual can be paid well if they study computer science and get a job at a decent company.
I tried that when I was younger - but then I found out how much money it costs to attract and keep a girlfriend. Now I know how much money it costs to raise kids.
Only if you want to attract certain types of mates. If you want to attract a mate that has the same values as you, it makes saving for retirement much, much, much easier, not more difficult. When I got married I more than doubled my savings.
Saving for retirement is a wise move whoever you are. I live in Finland where we have mandatory retirement saving system, but more and more people have started to find out that it's not really that good for everyone. Just now there was a story in a major newspaper that an university researcher didn't have that much retirement savings because research grants don't add to your retirement savings (tho this has changed recently) so she will be seeing near minimum retirement which isn't that much in a very expensive country. I'm in my mid 30s and I save for retirement and most of my friends do also, it's just that it ain't easy because after taxes and mandatory retirement payments and social security payments, money left usually goes to daily living, so you have to downscale and minimize expenses now that you have enough when you have to retire. The system is not optimal, and we do have mandatory minimum retirement after all if you can't afford to save, but you don't want to be that person who finds out couple of years before retirement that you are going to live near poverty line when retiring, it's harsh.
so saving for retirement is a good move who ever you are and where ever you live.
71 comments
[ 3.0 ms ] story [ 156 ms ] threadhttps://en.wikipedia.org/wiki/Paradox_of_thrift
As far as I can see, it only applies if the cash is inert in a bank account not being loaned out.
The $64,000 Question is what is the money being loaned out for. If it's bidding up the price of stocks, bonds, and real estate then it takes a leap of faith to assume that will lead to actual productivity improvements.
If there’s a glut of money for investment, then that’s a different story.
1) Firstly, the paradox assumes that maximising total output is an unmitigated good. This is clearly not so - imagine a world where everyone saved outrageously and pared down their lifestyle so much that we needed to move from a from 2 day standard weekend to a 3 day standard weekend.
This would have "catastrophic" consequences economically because you lose 20% (1 day in 5) of your economic output, but now everyone has increased their leisure time by 50% (2 days to 3 days per weekend). This is not an objectively bad outcome. I mean, empirically most people don't choose it, but if most people did choose it is not like suffering increases.
2) Someone has defined it such that savings means spending on things that don't cause demand. I don't buy that, because to me "savings" would include, say, investing for retirement by building capital. Eg, maybe a massive great research and development lab for old-people-drugs. That is going to set me up for the future, so I call it savings, but if savings reduces output I assume to an economist it is classified as normal economic consumption.
They will at least be able to take time off when they want, or self-fund an opportunity to be their own boss (which, at 48, I am convinced should be everyone's goal).
Another alternative is what I call the "slow burn"...work at brutal competitive jobs to build up a nest egg, then just "peace-out" and go work something mindless to keep a little income or maybe secure health insurance, while using your nest egg for life's big expenses
You are responsible for your own welfare though, particularly in the US
What are these people supposed to do - stay broke to make some soundbite economist happy?
It is perfectly rational for people living in a society without safety nets to weave their own
Another point that's pretty unrelated, why would you live decades of your life doing nothing, living extremely frugally? Sounds like a pretty garbage life to me.
If the US fails, I will sail my boat elsewhere.
We created the scenario these people are reacting to
Worry not, we will not run out of people willing to impoverish themselves buying baubles
Everything that's wrong about the USA right here.
I don't subscribe to the OPs opinion, necessarily, just pointing out a situation where it might be better to just take care of yourself.
http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-b...
The key quote: "If an entire society gradually decides that it wants to consume less, then it needs to produce less as well.
If there is less stuff that needs to be produced, then people don’t have to work as many hours to create it. That’s perfect, because many people will be dropping out of the workforce much earlier as they finish earning the money they need to get going on their early retirement. The shortage of available work will be balanced by the reduced number of people willing to do that work."
This is one of the things that bugs me about the FIRE “movement”. it’s a great hack for the people doing it, but it can’t become a mainstream system without breaking.
http://www.mrmoneymustache.com/2012/04/09/what-if-everyone-b...
The key quote: "If an entire society gradually decides that it wants to consume less, then it needs to produce less as well.
If there is less stuff that needs to be produced, then people don’t have to work as many hours to create it. That’s perfect, because many people will be dropping out of the workforce much earlier as they finish earning the money they need to get going on their early retirement. The shortage of available work will be balanced by the reduced number of people willing to do that work."
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim...
To achieve the "shockingly simple" 11 year FIRE goal in that blog post, someone working 40 hour weeks at $15 an hour would need to indefinitely keep their annual expenses below an inflation-adjusted $12K to build the required savings prior to their early retirement and to live off those savings afterwards.
In reality, the math is only shockingly simple if you can control all the inputs.
Many of us in the IT space underestimate the harm & impact of working in our industry. You are the exception to not burn out, you are the norm to not be able to sustain the demand and you should plan for an early retirement.
I don't think a 30 year old can 'retire'. From a specific field (e.g. professional football)? Sure.
In general? Money isn't the thing that makes successful people work.
It's really hard to spend 50 years on pure leisure. I can't think of any examples.
Honey, you ain't getting out enough.
People retire while they can still meaningfully work all the time, really weird to say otherwise.
Some people love working, some love not working. Shrug.
Retirement doesn't really have to mean pure leisure, lots of people do meaningful unpaid work in retirement.
I don't consider myself 'retired' despite not having a 9-5. It evokes pipe and slippers imagery to me.
Coming out of retirement is a not-extremely-rare thing; I don't think retirement implies finality, though it might arguably imply the absence of an expected financial need to return.
It assumes the front-loading of work punctuated with either long periods, or a complete (final) period, of mostly nothing.
Imagine a theoretical person that inherits 10 million dollars. If they never take a full-time job and instead just do the odd thing here and there, paid, unpaid, doesn't really matter, are they retired?
If you're a contractor and sometimes work and sometimes don't, are you continually coming into and going out of retirement?
No, they are probably just a capitalist, but part of the social support structure of capitalism is the fetishization of work and the fact that you don't talk about the non-laboring ruling class, just a spectrum of success of workers, some of whom have earned retirement through their work.
> If you're a contractor and sometimes work and sometimes don't, are you continually coming into and going out of retirement?
I would say no, if your expectation when you leave is that you will need to comenback to maintain your lifestyle.
If you occasionally take a job for self-fulfillment, maybe.
I like to talk about them all the time. ;) Though I think we're seeing eye to eye here.
Different groups see "work" in such different ways that I think the terminology of stuff like 'retirement' doesn't transfer well.
Some people cannot see a life without work. Others do it for toys. Others do it as a status game.
Others don't really do it at all. I guess you could call that the 'leisure class'.
A theoretical human who has no need for food - are they fasting?
Mods, are you there ?
> Mr. Sabatier, 33, says his Millennial Money website made $401,000 last year. Blogger Joe Udo, 44, recently disclosed he has made almost $350,000 since starting “Retire by 40” in 2010.
> Tanja Hester, author of a blog called Our Next Life, called for FIRE bloggers to be more transparent about their financial lives in a post this year. She said she makes less than $1,000 a year on the blog, but declines to disclose her income from a book advance, saying “there’s no need to share your actual numbers if you are honest with readers about your general financial situation.”
Like much of the self-help ecosystem, seems the key to living that superior lifestyle is having other people pay for it.
There was an article a bit ago like "how I paid off $150,000 in student loans in a year" where the woman said that her aunt or something gave her a high paying job, her grandma gave her a condo, and she lived rent free with her parents while renting out the condo, then used the money she wasn't spending on rent to buy a second condo. Anyone can do it!
I really don't understand why that is the way it is, but whatever.
I'm on board with what you say, but frugality is a pretty basic virtue and there are a lot of people who set themselves up for failure - there are people earning more than ~$80,000 who have good excuses for struggling financially, but they are rare. The fact that some people luck out in life and don't acknowledge it doesn't detract from the basic good sense of consistently investing in the future, and being realistic about whether your purchases are buying you more happiness than they lose you time through working.
The core of the FIRE philosophy is to try and do all the production in one big up-front batch, and then benefit from any opportunities that come along. It is obviously easier for the upper middle class and harder for the lower working class. There isn't anything wrong with that though, as long as everyone acknowledges that saving isn't equally easy for everyone and it depends on their ability to contribute to the economy.
A self made financially independent individual is someone who went against general trends in society for a decent length of time, who now suddenly has essentially infinite free time (e.g. probably 10 times the amount of a salaried worker or more, normalizing for energy levels).
It would be odd for them to _not_ develop these side streams of income unless they just sat on the beach all day.
Making money really isn't that difficult. The difficult bit for most is satisfying basic needs so that they're in a place where they can actually _think_ and act upon those thoughts.
- spend (much) less than you earn (by working)
- figure out your risk tolerance and long-term goals, develop an Investment Policy Statement (including desired asset allocation and re-balancing strategy, if any)
- stick to this plan until you're super comfortable with your plan, your back up plan, and your SHTF emergency plan
- enjoy your freedom to control your time before you turn 67
It's probably not useful to:
- take painful steps to reduce your spending
- risk your health
- do anything you don't want to continue doing after you stop working (except work!)
- assume or rely on BLOG / BOOK / WRITING income like those that stopped the "usual" sources of income, but gained celebrity by writing about (the otherwise useful) ideas
> Ms. Pattee, who married in 2015, says she and her husband, Andrew Hanna, 33, live off the rental income and save his salary in medical administration.
This doesn't sound like retirement. It sounds like being a housewife.
Basically, it's obviously the case that _everyone_ can't do this in an instantaneous fashion.
Consider - if everyone works for 10 years in total, then in the stable state (no pop growth) at any point in time roughly 15% of people are serving the other 85%.
The claim, is more like "if you try, you can do it". As in, a randomly selected individual is likely to be able to push themselves into a higher income group and cut their budget, if they focus on it.
I think this sort of problem plays out all over. An individual can be paid well if they study computer science and get a job at a decent company.
The nation can't. It's a logical impossibility.
so saving for retirement is a good move who ever you are and where ever you live.