I think my take-away is that a dollar consistently removed from one's budget and invested will compound and hence there exists a nonlinear relationship between budget adjustments and runway. It's definitely a relationship that people desiring financial independence can exploit.
However, there's also time value to different classes of purchases. For instance, spending money acquiring certain skills early in life allows time for those skills to compound while the same investment later in life may have no utility.
The commonly cited example is an MBA: getting an MBA in early career provides more leverage than if it was obtained in mid career or later. A late career MBA in most cases has vastly diminished signalling/credentialing value.
Frugality (in early life) that optimizes for the date of financial independence (and runway) is not a bad idea, but seems to me that employed in isolation, it may increase the chances of landing on a local optimum when other more favorable optima may exist.
People often talk about time value of money... but there's also the time value of time/age.
> A late career MBA in most cases has vastly diminished signalling/credentialing value.
That anecdote seems to insinuate the essence of an MBA offers no substantive value, nor does even the achievement of the accreditation itself. It is the timing of the latter which projects the value.
A large part of the MBA is access to a network of rich/ambitious/well-connected people. The earlier you have your MBA, the more time you have to take advantage of it.
This is reasoning that I've heard from MBAs themselves (I don't have an MBA myself, so would welcome any thoughts from actual MBA holders). The value of an MBA is in signaling, networking and knowledge, roughly in that order.
In late career, assuming you're doing well-enough that you'd want to pursue an MBA, you'd already have amassed quite a bit of business knowledge from the school of hard knocks, that likely exceeds the theory b-schools can teach (although they can definitely still fill in knowledge gaps say in finance or strategy etc.). The marginal value of the theory is even less if you majored in business in college -- the difference between a BBA and an MBA in terms of coursework is generally not substantial.
In late career, your experience and success (in different roles) is a generally stronger signal than credentials.
In late career, you'd have developed a fairly good network unless you're looking to pivot to a totally different field or industry.
At the time I got mine, it was sort of a necessary stamp to switch from the engineering I was doing in the oil business to a different role in the computer business. But a long time ago. So maybe signaling, definitely credentialing, some knowledge.
For those looking to switch from fairly pedestrian post-liberal arts jobs, the MBA was huge in many cases.
The networking effect has never been big for me. I'm fine with having gotten an MBA. Degrees like the one I got were less expensive in those days and it landed me in a good place. But TBH, my undergrad (from a good school) has probably opened more doors than my MBA ever did. (Had I gone into finance, the situation might have been different.)
I got my MBA mid-career but my undergrad was in music and I switched careers 10 yrs out of college. So, while I'd amassed a healthy amount of business knowledge, the MBA taught me things I'd not learned on the job.
That said, for many in my MBA cohort who had majored in business in undergrad, most I talked to said they weren't learning anything they didn't already know, save perhaps how to use their financial calculators in novel ways.
Lends credence to the 'signaling' of an MBA, more than anything else.
Whether it's for the essence or the achievement of a particular degree, getting a better job earlier in life has substantial effects on lifetime earnings. Whatever the credential gets you, for whatever reason, it's advantageous to have more time to take advantage of it.
The parent could have used MD (there are some people who switch careers to become doctors in their 30s) and it would be the same... just having a chance to have been a doctor for longer will put you ahead.
I'm not sure the comment is really fair but, in general, unless a company is paying for an Exec MBA program for a mid-level exec being groomed for higher level, a mid/late career MBA doesn't make a lot of sense in opportunity cost, etc.
Even if you take out the signaling/credentialing value generally, absent someone trying to make a real career shift (which becomes more difficult as you get older), it's not clear what an MBA--rather than maybe a couple of focused classes--buy you after some point. (But, for that matter, a PhD or other new degree probably buys you less too at some point.)
> Most people have a mental model of budgeting which is roughly linear. If you spend half as much money, your money will last twice as long. As you approach zero spending, your runway goes up to infinity.
Well sure, but if you have investments, then it's not zero spending you need to approach, but your annual investment returns...Which is basically what the rest of the page discusses.
The author is basically asserting that most people who budget assume a 0% rate of return on their investment. But since that's a nonsensical assertion, they instead rearrange the logic a bit to make a functionally identical statement which sounds less obviously flawed.
The content in the article is good, but it could stand to have the "most people think...but they are wrong" section replaced with something more friendly and inviting. I'm personally not a fan of articles that start assert that a bunch of people are dumb.
The author is going for a MMM vibe, but I think what makes his articles so successful is he criticizes behaviors instead of calling people dumb (usually).
Notice how his post is titled "The Shockingly Simple Math Behind Early Retirement." It's pleasant, accessible, and it doesn't make you feel dumb for not knowing about it.
In fairness, per his link, he's claiming it it's an average comp at a handful of big tech companies. But that's something of a bubble and mostly (normally) doesn't come with remote anywhere (even US anywhere) options.
It's a small percentage of developers and certainly people in tech more broadly.
Yes, if someone lands a job at one of the big SV companies, lives frugally, and are fine with living frugally the rest of your life, you can probably retire/semi-retire pretty early if that's your preference.
This totally ignores the fact that a big reason salaries are so high in these markets is because cost of living is very high as well. Living on 25K a year wouldn't even cover your shared accommodation costs.
$25k/year is enough to live on even in the Bay Area if you have roommates and work at a big tech company with good benefits. It's not too hard to find a 3 bedroom house for $4,000/month in somewhere like Santa Clara. Split that 3 ways and that's only $1,300/month. Food and transportation is free during the week, leaving $700 / month for all other expenses (old car, food on weekends, some entertainment). Definitely would not be the most exciting life ever, but it's doable. Very effective if you want to quickly save $500k-1M for a home down payment or retire somewhere to a low COL area by the time you're 30.
While I agree with your math on premise, trying to live this lifestyle is definitely part of what burns people out. This assumes you’re eating all your meals at the office, limiting the hobbies you can pursue, not going on vacations, etc.
Why not take an extra year to do all those things and also be able to engage with your twenties a bit more actively?
I became much happier when I started to abandon frugality to this degree and bought a used car, picked up a few hobbies that cost a few grand a year, planned vacations that actually pushed my boundaries.
Those of us older would just see that as an exstension of college life and look at it nostalgically. Sure, I wish I’d taken a gap year, but any millennial trying to survive/move up is going to have to work hard. We didn’t have that time without frugaility, so maybe not realistic for most millennials.
So I guess a stoic with a used Triumph motorcycle, a backpack and a copy of ZAMM would be optimal. A pretty decent set of vacations are only a gastank away in the Bay.
When I moved out to the bay and was making ~85k a year at a startup I definitely lived like the person I responded to, except I paid for my own meals. Drive to local vacations, excess money went right into student loans and, after those were paid off, stocks.
The difference in opinion is derived, I think, from how I reacted when I got a big tech job. My earnings went way up relative to that first job, but initially my lifestyle didn't change at all. Eventually I started adding things little by little, thoughtfully I think. I took my first international trips, didn't dismiss hobbies outright because of cost - it made me a lot happier because I was experiencing things for the first time. That doesn't mean I stopped backpacking, drinking beer in the park, or going to cheap concerts - it was additive. At the end of the day, though, my lifestyle increased only by a small portion of how my earnings were. All things considered, my savings rate didn't really change by all that much.
There are some people who do really, really well trying to minimize their yearly spend, but there are a lot of people who could give themselves a little bit more slack and be better off mentally and physically for it. It isn't that they're not working hard. For me, it was just growing with working class parents - I never learned to ski, we drove instead of flew to visit family, video games were birthday presents. Relaxing some of the frugality was part of being thoughtful about who I actually was and wanted to be, and I think that's ok.
That is assuming you don't want a family. Meaning you will have a big bag of regrets later, and even if not, problems too...
That changes the cost equation immensely.
We're trading best time to raise a family for a career. It's wrong and likely unsustainable. And you cannot assume you will get hired in 50s, not yet and not in this industry.
Probably most kids from the 50s on think Dad spent too much time on his career. As does Dad. Now, a working BA tech couple can be grossing $400k in their mid 20s.
That should be workable for kids. It wont be suburb comfortable, it will have lots of regrets, but the kids will get over it.
In a surprise move, the guy - who has a platform large enough to have his year-old blog post hit the front page of HN - preaching about the utility of not living paycheck-to-paycheck is speaking mostly to a wealthy minority. /s
And in any city where that wage is true (SF/NY), living on his example of US median income is basically impossible unless you are sleeping in your car and eating every meal at the office.
> a fresh grad at a big tech company can safely earn ~$500k post-tax in 5 years.
> The US median income post-tax is ~$25k
It's funny how they pick a "conservative" best-case scenario, then a "median" scenario that, relative to the first, is impossibly low. I guess the numbers barely work, but good luck making that lifestyle trade.
Didn't buy his responses to "What About Volatility?" and "What About Crashes?"
He talked about averages of historical data that include crashes. Sure.
But consider the window within the throes of a crash. Someone who always has and continues to spend a fixed amount every year will greatly diminish their capital during those lean years of the market.
An exaggerated hypothetical to make the point:
If they have $500K @ 5% and take out $32K a year, they can go over 30 years on their nest egg.
If their nest egg falls to $100K due to a market crash, they have three years of their nest egg left.
Historically, over any 30 year span, has there been an 80% drop in market value, or a huge drop that was not preceded by a bull market? What exact sequence would have to occur for this hypothetical to have lost 80% in market value and be stuck in a market that doesn't recover quickly?
By most historical averages, after 20 years the hypothetical portfolio has grown to $2 million inflation-adjusted, which means a drop to $100k or $250k would be a whopping 87.5%+ crash.
On the flip side, a prolonged bear market in the first few years are the worst case scenario, though for most early retirees, the choices are to ignore the "fixed 5%" and/or seek additional income, if the sequence of returns really are dire enough.
It doesn't matter whether the market stays up over 30 years. If it crashes at the wrong time (especially if that's after you've retired) and you have 100K left, you have only 3 years to recover, not 30.
And even if the market recovers in 3 years, by then you're left with a fraction of your capital.
Yet worse outcome is when you actually need the money (say, medical emergency or required big purchase) and you don't have it because market is lean or illiquid. And if you're old and retired, you will likely not get the needed loan. At the same moment, you don't have a job and if the emergency is big enough, you might not be able to get one. Even if you keep yourself updated to meet the needs of the market (which does cost money) others may not believe you.
Face it, it's temporal gambling also known as a martingale. One with ok odds but still gambling.
There are classes of assets that are less vulnerable to such downturns, but they have their own risks. (Mostly properties you live in and transportation you use.)
At the "wrong time" meaning you're at end of life, yah? By that time you're collecting SSI and have medicare. When you're really old you have less of a reason to spend, so even with a nice house that is paid off it becomes easy to not dip into retirement funds if needed.
Btw, 5% is not a safe withdrawal percent unless you're really old. Most do 4% and aim to not diminish but increase their savings in the long run while retired.
Bad hypothetical situations are bad. But have you looked at the data?
Historically, you're much more likely to have your money grow over time, such that it's much higher before a big crash, and you have ample capital to wait out a bear market.
Again, the only scenarios that resulted in running out of capital in a 4% withdrawal rate happened in the very first few years, retiring right before a very bad series of years.
If early retirement is your goal, and especially if you're a competent software developer, if the market is that bad early on (which is very rare) then you just have to change course and go back to work.
Which, other than not electing a GOP president and Congress, can't be predicted beyond rough cycles. It's scary, it's hypothetical, and combined with basic social safety nets in place today are unlikely to sink a FIRE plan that is robust.
That isn't a political statement about the GOP, it's close to fact. When did we last not enter a recession, or the possibilities of one, after the GOP held Congress and the White House? Trump, Bush, Bush Sr/Reagan. Its like part of the plan is to drive the nation broke after concentrating wealth with donors and friends/family.
You increase your defensive assets (bonds, term deposits, annuities etc.) as you become more risk adverse (closer to retirement or other change in circumstances). So when a 90% crash occurs that takes 10 years to recover you’re either still earning, or you can draw down on your defensive assets, letting your stocks recover
Defensive assets such as fully owning a place to live and means to travel, you mean? Or perhaps tools of the trade?
Bonds are not defensive enough. The about only way to lose a place to live you actually own is to live in a warzone or get very deep in debt...
The old adage is to not gamble your life on being able to pay a debt. This is rather hard in the USA due to completely broken economics of medicine, education and real estate, but in other places, much more available.
The response to "what about volatility" is not really right. Volatility makes a much bigger difference than the article admits - the reason FIRE proponents come up with a similar number is because they started with a much higher number. They are using US-only historical returns, which average around 7% (inflation-adjusted), not 5%, and the safe withdrawal rate is typically quoted as 3.5%-4%. So in order to be safe, you have to cut the return rate in half or so.
There's probably an argument to be made that this is still too aggressive, because US historical returns feels like cherrypicking - they're much better than international returns, and there doesn't seem to be a good argument for expecting that to continue.
That said - how many 80% drops are there? If your criteria for safety is "will have enough money to last forever even if the great depression hits the second I retire", you might be a bit too conservative - it's hard to imagine another great depression at all, given the Fed's recent history of propping up the market in crashes, let alone at the worst possible time. You'll never be able to take chances on anything with requirements like that.
>it's hard to imagine another great depression at all, given the Fed's recent history of propping up the market in crashes
I think the counter-argument (not that I know enough one way or the other) is that the Fed’s recent addiction to low interest rates removes one of its most important tools for propping up the economy if the existing approach is found insufficient
The strategy this spring of just buying up bonds en masse worked pretty well, and seems fairly unlimited as long as they're willing to print money with which to buy stuff. They have a lot more levers than just interest rates.
What types of bonds are you referring to? Treasury bonds aren’t exactly going gang busters. Or maybe we’re talking about different periods?
The point I was trying to make (maybe unclearly) is that one of the main bullets to assist the broad economy may have already been fired. To your point, there will always be segments of the economy that perform well, but that’s not equivalent to the broad economy performing well
Corporate bonds. Look at $BND, for example. It crashed 8.5% March 9-12. The flattening and then quick rebound are generally credited to the rumors and then announcement of the Fed's bond buying program.
The health of the _broad economy_ isn't what's relevant to this, though, only the bond and stock markets (or whatever else you're invested in, but mainly it's those two). The Fed has the ability, and apparently the willingness, to prop those up in times of stress.
Fair enough, maybe I was reading too far between the lines that the parent commenter was referencing the market as a proxy for the economy (which I don't agree with, but it's a common assumption).
I agree the Fed has the ability (to a certain extent) and the willingness to prop them up. The point I may not be getting across is that they only have so many tools available (the biggest lever being interest rates, but as you mention they have other options like buying bonds). Once those tools are in play (e.g., interest rates hovering near zero) they have less leverage to impact the economy if a severe downturn happens. That's not to say they are out of options, just that they have less options at their disposal. That's why I referenced interest rates as one of its most important tools, with the implication they had other (perhaps less broadly impactful) ways to spur the economy
Interest rates have historically been their biggest tool, but the buyer-of-last-resort things seems both better at propping up the market (probably worse at spurring the actual economy, but again, all we're talking about here are investment returns!) and unlimited in power in a way that interest rates are not. Interest rates are bounded at 0, or at least start behaving oddly beyond that, while just buying stuff is bounded at having all of the stuff, and if the Fed has all the stuff you no longer care what prices the stuff has because you don't have any of it.
While I now understand your first comment was about returns exclusively, where I disagree is that’s protecting returns is not the Feds primary goal. Their mission is to help stabilize prices and employment to cultivate a stable macroeconomic system. So I think their actions are more appropriately viewed throw that broader economic lens than simply assessing whether stock returns are going up
What people typically do is if they retire and then a recession hits, they go back to work for 1 to 3 years, then retire. If you look at the numbers there is a surge of retirees a couple of years after the bottom of a recession.
There's a famous study called the Trinity Study, wherein the authors posit that based on all historical evidence, for a 30 year withdrawal, 4% is a safe number to be able to continuing withdrawals for the whole 30 years. Extending it to 60 years requires dropping down to 3.5%. However, if one is content "leaning down" the fun spending in lean years, those percentages can go up a little bit on average. See the literature about VPW for more info: https://www.bogleheads.org/wiki/Variable_percentage_withdraw...
The behaviour of the system flips as you go from investment_income < annual_expenses to investment_income > annual_expenses , where investment_income = capital * return_on_capital . Before the transition, capital drains to zero over time, after the transition, capital grows to infinity over time. +/- the model being an crude approximation of reality.
https://engaging-data.com/fire-calculator/ provides separate inputs for retirement spending and current spending. It also supports different projection methods (fixed returns, Monte Carlo, etc.)
My solution to improving my savings rate has been to swallow my pride and move into one of my parents' investment properties. As a bonus, I'm learning to be more handy by taking on moderate home maintenance tasks!
Considering that most young people in tech have parents significantly wealthier than them, it's amazing to me that more people don't pursue this route and insist on throwing money away on rent.
I know it's not as cool as the bohemian atmosphere of living with startup teammates in a shared house, but living rent-free in your family's spare home is the responsible and quick way to save!
I am not sure your assumption that most young people in tech have parents wealthy enough to own multiple properties is quite accurate... I agree that it’s a great idea, but I suspect many may not own even one property.
Here in Palo Alto, the parents of most of my peers have had long careers in medicine, law, finance/banking, or have international family wealth. There's always the odd person who comes from a more limited background, but for most of us, software engineering is actually a bit of a step down the traditional prestige ladder!
Then the article should talk more about getting a place to live, since you have to be rich to own one, and not having one is a major existential risk. Homelessness is way too common and vastly limiting. And the estate is a major investment. Easily matching or exceeding the FIRE target funds.
Depends where you live. In Australia it's pretty common for people in middle age and later to own investment properties (or maybe that's just my bubble...)
Isn't this just an abstraction on living in your parent's basement? I don't believe that most newish techies have parents with spare, vacant homes ready to go.
If your direct parents are to blame then sure... but when people complain about "boomers" ruining everything, they probably only think about the wealthy ones, which means your parents might not be one of them.
This is so incredibly out of touch, which admittedly I expect from Silicon Valley folk.
I work at a FAANG making an amount of money per year that I didn't even think was attainable for "normal" people, but my parents were dirt poor and I grew up on food stamps. To just say "Oh the solution is as simple as moving into your parents investment properties!" is just a huge slap in the face.
Get a grip on reality and realize your situation is incredibly privileged and not the norm.
> According to Dan Luu's conservative estimates a fresh grad at a big tech company can safely earn ~$500k post-tax in 5 years. The US median income post-tax is ~$25k, and investing in an index fund has historically earned ~5% average returns in the long run. So as a tech worker, if you can manage to live as 'frugally' as the average American, you can comfortably retire before 30.
The $500k number in the post that he links to seems way off, the $25k median salary is also incorrect (it's closer to $40k).
Yeah, a 25k median national salary was probably true thirty years ago. Has anyone ever tried living cheaply in San Francisco? It's not easy, or cheap. If you plan on working 8-10 hours a day, after commuting an hour or more each way, after five years, you'll go insane.
I managed ~$14k/year of consumption in the early 2010s in the East Bay, as a single guy. $25k/year in SF is entirely doable, especially if you have a partner. Even if not, so long as you're willing to have housemates, it's practical.
I lived in East Palo Alto for a few years during that time. I was able to save some money and pay off some student loans. It was doable, but it wasn't great. Parking, traffic, garbage, noise, theft, and fleas were a constant thing.
> The $500k number in the post that he links to seems way off
Assuming 30% tax rate that's 150k gross compensation/year over 5 years. That's pretty average compensation for big tech companies for fresh grads[1]. That also assumes no raises in those 5 years.
The aim is to have $500k saved after 5 years not just earned post tax. And he does assume pretty big raises to get to that figure - https://danluu.com/startup-tradeoffs/
His assumption is that you can start at $130k and get an additional $30k each year for the first 4 years. And do this while not in an expensive city. That's the part that doesn't seem realistic to me.
I love frugality as a concept. I learned it from my parents who saved most of their earnings. We did not do any big holidays nor did we have anything brand new. All in all, we had a good life.
However, frugality needs to be balanced with living a life worth living. Saving now for later assumes there is later, or even that well-being and health later are given. My mum said to me, shortly before she passed away: “Maybe we saved too much. Maybe we should have lived more.” That’s something I think of now when making decisions.
My parents grew up in the Soviet Union and received a fairly large nest egg when my grandparents passed. Having saved their entires lives it was enough to buy a home. Well the Soviet Union collapsed, hyper inflation set in and they ended up buying a couple nice coats with the money. Hearing stories like that I've always thought the future needs to be heavily discounted. The present is certain, the future is not.
Everyone should live their lives as if tomorrow may never come (after all, it might not!) I know a couple physically healthy, well-off people who would shoot themselves if the economy collapsed tomorrow and they lost everything.
You and scarmig are both looking at the extremes. We're all screwed eventually, as death spares no life.
But we never know when that day will come. So a more nuanced perspective would be to treat the now as your finale, and the future as your encore. That way, no matter when death knocks, you leave on a high note.
If you put everything into your eventual encore, it's going to be one helluva encore if you get one, but incredibly bitter set piece leading up to it gets cut short, that chance never comes, and you realize just how flat your set piece ended up being. But it'll likewise be bitter if you pour everything into your finale, but end on a low note when you realize it's time for your encore and you've got nothing left for it.
So avoid both extremes, and enjoy today while hedging for a potential tomorrow. As long as you keep that in mind, and consciously attempt to not invert it (i.e. maximize for a theoretical future by sacrificing your certain present), you'll generally be in a good place no matter when death knocks.
I agree with this.... I approach it as "now is as important as the future". Don't sacrifice your now for your future, but also don't sacrifice your future for your now.
That makes no sense. By that logic we shouldn't spend any effort on education, we shouldn't have children or any long term plans whatsoever. I think I already made that point in a comment long ago where someone said you can't take things with you if you die. Taken on an extreme. Imagine if a person dies and he could actually take anything he desired with him. He'd certainly bring his family and his house and the planet he lived on with him. The end result would be 8 billion dead humans who no longer have a planet and were left behind. Is that really the type of world you want? People committing vandalism and self destructive behavior because they have nothing to lose?
Like everywhere else. There were limits on what could be a private property, but there was stilll a private property. West calls USSR "communist", but according to communist party people were still building communism, not living in it. IIRC the term used right before the collapse was "mature socialism".
Now when I think of it, I do not remember a deadline for that building to finish ever being mentioned.
Dunno about Soviet Union but in communist Poland there were national banks and they managed saving accounts for workers. It was optional but heavily encouraged, part of your earnings went directly to it every month. It was called "PKO Saving's book".
My grandparents participated in it and after decades of saving a few percent of their earnings each month the total from both of them was just enough to buy their grandkids 2 pairs of shoes :)
It also shows the value of diversity of investment - not just in the stock market sense of the word. As individuals we are often extremely exposed to: a mortgage in a single location; a single job; a single currency/economy; a single startup.
It is hard to diversify as an individual unless you have significant capital to invest.
At least this has gotten better. Not too long ago you would have most likely been 100% exposed to the small farm that provides food for you and your family and a bad harvest could literally kill you.
Considering freeze dried food can last for 30+ years, it might make sense to bulk purchase a few years worth of supply. Couple that Starlink and a homestead and you could be set financially for a long time.
There is also the concept of time you will never get back. I had 2 friends that were laid off from a job with 3 months pay. One took a job the next day (after the notice period) and paid down his mortgage with the rest. The other took ~3 months to spend time traveling with his wife & kids (10 and 8 roughly). Both seem valid options, but the option to spend a few months showing your kids National Parks isn't an option when you are retired at 60. That choice is taken from you.
If you have reason to believe that getting a new job is trivial, then sure. Take some time off if you can afford to.
If, on the other hand, you have no idea if you can get an equivalent professional job in one or two years and may involve moving (as is the case with MANY people in tech in spite of what people in the bubble may believe) then looking for a job immediately makes a lot of sense.
A lot of people assume that what (they think) is trivial for them is trivial for others who not interview as well, have flags on their resume, etc. Furthermore, what may have been trivial in 2000, 2007, or 2019 might not be so trivial 12 months later.
Taking some time off may still make sense but it's always going to be a bit of a calculated risk.
Very true. Money spent at different stages of life can have different utility, and there are many factors outside of our control that determine that utility. Money is an imperfect indicator/store of true value.
The real consideration is utility. Maybe you don't have the nicest car but, it offers the same utility as a premium vehicle. Now, that money saved can be used to acquire more utility than a vehicle provides alone. This is what I consider frugality because the cheapest option can result in a loss of utility when it doesn't fulfill it's purpose.
Saving money is great because it hopefully means you are purchasing the same utility without unnecessary overhead. Strangely enough, not enjoying a daily premium latte might be less frugal in the long run. You'd have to consider the utility of pleasure experienced over the years versus a few extra grand for your coffin.
> Strangely enough, not enjoying a daily premium latte might be less frugal in the long run. You'd have to consider the utility of pleasure experienced over the years versus a few extra grand for your coffin.
It adds up faster than you would think: ditching your daily $3 latte saves $91.25 dollars a month. Investing that into a S&P index fund that traditionally has an average 7% annual return and 1.12% variance for over 50 years compounds into... $446,368.
Assuming the index fund did not go to 2% in the meantime (or wiped alongside the bank getting you only weak guarantee), and that said latte is not keeping you sane and at work. Or from getting Parkinson's later on.
So, where can I get that crystal ball that lets you know the impact of any action? That'd make a fortune and infinite boredom all a possibility.
So does not investing. Or owning assets you do not directly use.
The one good thing in the article is that it shows the power of saving more as a burst. It actually limits many types of risk, but then you can only actually do that if you have a rich job...
(It does not address existential risks enough. There are a few important ones it should as they're related to investments and reasonable saving rates.)
The advice to save on latte presumes you can actually afford it in the first place. Otherwise you're not saving, you're just not overspending.
I liken it to the advice that you should buy stuff used to save money, when you need it. There are many caveats to that.
This is a silly simplification. You might have $446,368. You might have $0, because in the interim your kids had to go to college, or you buy a house, or you got sick and you live in developing country that can't help you pay for it.
Or maybe none of this happens, and annual 3% inflation cut the real value by roughly 75%, and you had to pay 20% taxes on top of that. You're left with around 90k of value, of which ~36k is your investment return. In the meantime, you gave up 18,250 lattes.
If we're going to be fair, we have to consider the 18,250 lattes too.
Over time you'll build up tolerance and that cup of coffee isn't worth the same for you. Now you're burning cash for energy that would have been there without caffeine. And to think you could have paid for your kids college instead.
Obviously it pays to brew my own but, I was getting at the actual utility derived from the experience.
Can you spend ~$1100 in one instance, at the end of every year, that produces the same total utility of pleasure you would have experienced from a daily latte? I'd probably drop the latte but, everyone is different. I would still argue that there are plenty of times when splurging is worth it in the long run.
I don't know, a daily cup of tea in my local cafe is an opportunity for some social contact as I work from home all the time. If I didn't do that then I would probably end up spending more to work in a shared office space.
You're right, that's a 100% worth it. But I think you missed a key point. Live frugally to have the financial independence to do things that genuinely make you happy.
Is anybody actually buying a latte for $3? Or are they buying a socially acceptable trip away from the office for 15 minutes to clear their head, now that smoking isn't really a thing?
I don't disagree that sitting down and having a latte with someone (or even by yourself) is sometimes social/a break/a chance to work with some WiFi/etc. But for a lot of people it's just part of a morning ritual.
I'd easily take the lattes, or really any small, simple pleasure that gives me a little bit of joy each day.
Forgoing a latte a day over 50 years means I essentially have to make 18250 decisions in order to save this money. But, on the other hand, let's say I decide to forgo, say, a $60k car and instead get a still very nice $45k car. If I invest that $15k in your hypothetical S&P index fund, and deposit no new additional money, after 50 years I'll have... $441,855.
So basically with just one, single decision I get the same benefit as someone that had to make 18250 decisions.
The small shit really doesn't matter very much. If you simply focus your frugality on a few simple things (namely housing, auto, and education) you will always be light years ahead of someone who is constantly worrying about their lattes or avocado toasts or whatever small daily bringers-of-joy.
I think there’s also an important distinction between being able to legitimately enjoy creature comforts vs needing them to feel whole. “Appreciating” a luxury car shouldn’t be conflated with “needing” one
> I essentially have to make 18250 decisions in order to save this money
I don't think so. When I quit smoking, I had to consciously make the decision not to buy cigarettes every time I was at the checkout in a super market. That went away after about two weeks. For a few months that followed, I'd stand there thinking "and buy some cigarettes" and then I'd realize I didn't smoke anymore.
I doubt that getting off of the latte-habit takes longer than getting off of cigarettes.
Another question is whether small sugary treats are a good thing in general. Again the cigarettes as a comparison: cigarettes are the best when you haven't smoked for a day. But that's because you're suffering withdrawal, not because they're that great.
I suppose it's partly a function of not really caring that much about caffeine in the morning although I do usually make coffee at home. But when I'm traveling and could even put a Starbucks latte on my expense account if I wanted to, a good part of the time I see the line of people out the door and just keep walking.
I think FIRE/frugal mentality would simply argue for making your own latte at 1/30th the cost of the Starbucks one, not completely foregoing all pleasures.
> But, on the other hand, let's say I decide to forgo, say, a $60k car and instead get a still very nice $45k car.
Does anyone else have difficulty understanding why anyone would pay this much for a car? $45k is an order of magnitude more than I've ever paid for a car. Granted, I don't even like cars or driving, but the cars I've owned have been perfectly functional and any mechanical problems they've had still didn't add up to more than $10k.
> Does anyone else have difficulty understanding why anyone would pay this much for a car?
Not really. I mean I've never spent that much on a car and I'm not sure I ever will, but I did spent $5000 on a computer one time. That's an order of magnitude more than most people pay for computers, and while nice, it sure isn't 10x better than a $500 computer would have been. But I spent the $5k, because a) I had the money and b) I really really realllly wanted that computer.
I've never spent that much for a computer either, but the computer is somewhat more understandable because presumably that price buys you performance that has utility. For the most part that extra money doesn't buy you utility in cars because speed limits can be easily reached, and exceeded, without it.
How fast a car can go is one, how many people it can transport is another, how few emissions it creates is another.
Someone might be willing to drop big bucks on a Tesla Model X to haul their family around rather than a used Dodge Caravan ... not because it'll get them between Point A and Point B more quickly or because it can carry more people, but because it doesn't emit CO2.
Point being that we don't all value the same things, and while I wouldn't make the same decisions as other people much the time, I can certainly understand how people come to (sometime vastly) different decisions than me.
EDIT: I have an uncle who is an emergency room doctor, and I guess after seeing all of those car crash victims, his car-buying decisions have always been based entirely on safety. So he's driven an otherwise unlikely progression of cars, some luxury, some not, based on whatever seemed to be the safest new car available.
Don’t discount that a big part of the “utility” of a vehicle purchase for many people is the emotional and/or status part of it. One interesting business example is a cohort who travels a lot on business and bought a $65k truck as a commuter vehicle for sales work. A $15k hatchback would have worked but their clientele attached a lot of status to a big ol’ fancy ranch truck.
Not saying it’s rational but like you said, there’s a lot of different dimensions to utility
The utility increase of going from a ~2000 to a ~5000 computer can be significantly more than 10x depending on the domain.
For instance, if you buy a 3090 Nvidia GPU with 24 gigs of VRAM, you are capable of training AI models that are eminently more capable of getting publications accepted than an owner of a 3080 would. (Yes, distributed training is possible, no it is not always an option). Sure, it's nowhere near 10X in gaming or flop improvement, but the relative capabilities offered by a top of the line computer can become exponentially more useful compared to a significantly cheaper computer.
While you can find some/many luxury features on non-luxury cars, it's rare to get everything you want on a car without those luxury prices (if you are buying new / lightly used, and you get outdated if you go too far out).
Let's list some of the features that modern cars have which significantly improve the utility of them to most drivers, and which are considered (by the market) to be worth 45k+
Blind spot monitors, rear/side cross traffic alert, auto-dimming mirrors, digital mirrors (for when you have tons of cargo blocking mirrors), Backup/360 Panoramic Cameras, Parking Sensors, heads up display (massive safety benefit), Satellite Radio, lane keep assist, radar cruise control, pre-collision and collision mitigation systems (active breaking), improved design / additional weight for safety in collisions, more and better airbags. Better seats, better audio system, Nicer infotainment systems with Carplay/Andriod Auto, Hybrid/PHEV/EV powertrain, better reliability (if you pay Toyota/Lexus/Honda/Acura tax), semi-autonomous driving (Tesla)
I'm forgetting a bunch of stuff, but having recently purchased a 42K car with nearly all of these features and upgrading from a life of being driven in shitty base model kias, I find the utility gained from purchasing an expensive car to be MASSIVE. Driving went from being a frustrating chore to a pleasurable experience.
The risk of death dropping by an order of magnitude is alone worth the money, let alone the massive comfort improvements.
> I'd easily take the lattes, or really any small, simple pleasure that gives me a little bit of joy each day.
That joy is mostly relative, the joy you feel drinking a latte is not greater than the joy a poor tribesman feel eating a piece of fruit. You will almost always feel it just for different things.
A good example is sweetness, if you quit eating candy you will find that much food is very sweet, and if you stop eating industry created food you will find that many vegetables and other things are actually quite sweet. So you don't lose the joy of eating sweet things, just that what you consider sweet changed.
To me there's a bigger question of: are the lattes or the 60k car actually bringing you joy? especially when had regularly? Most people if asked what brings them happiness it's quality time spent with loved ones, self improvement, or bringing other people joy- things like this. But then we forget about it and act like not having a latte regularly will negatively impact one's happiness over the long term.
I think you're kinda missing my point. First, the difference is not between the 60k car and nothing. It's between a 60k car and a 45k car. Yes, personal preferences differ, but it's pretty easy to spend an extra 15k on a car like that for things that have really marginal utility.
But more importantly, I'd much rather spend small amounts on simple daily pleasures that I enjoy. The lattes definitely bring me joy, and it's not like they are somehow taking the place of quality time with my loved ones or bringing joy to other people.
> it's not like they are somehow taking the place of quality time with my loved ones or bringing joy to other people.
Then we want the same thing. Genuine happiness. But try to see it our way: that coffee money could go to working 5 hours less a week in a decade. That could be quality time with your family. One the other hand, two years into that latte — you're hitting withdrawal by 3:00pm. So maybe your just as happy overall as when you started.
Some psychologists define two types of happiness, the “experiencing” type (enjoying a latte in the present) and a “reflecting” happiness (the joy of looking back on self improvement). They aren’t necessarily mutually exclusive
Daily 3$ latte is most absurd example of saving strategy I seen and it gets repeated all the time. I don't even know people who would buy 3$ lattes daily. Most people get coffee in the office for free.
Also, you cant invest your saved 90$ to investment fund. Those require higher initial capital.
You know none, and I know several (and used to have that habit myself - I walked past the Starbucks every day on the way to work and would drop in and grab a drink), but the truth lies in the data: Starbucks' gross revenue is more than 25 billion dollars a year. Their US revenue would be 12 cups per year spread across all of the 150 million coffee drinkers in the US, but you already know it's not distributed that way - ergo, there is a heavy tail of frequent Starbucks consumers who purchase daily or more.
A lot of experts expect significantly lower returns than 7% given modern valuations. So it's more like you have some chance at some unknown amount of compound interest. You're also assuming this person won't have to take the money out due to medical expenses or some other crises at a younger age.
But even if you are correct, that person ditching the latte isn't going to be spending that 446,368 in old age either because it isn't "frugal". If they have a decent income they just end up dying with 446,378 in the bank.
I switched to more expensive SUVs, and all these are anti frugality:
1.Car parts are often smaller (such as wheels) and less sturdy. And more prone to fail.
2. When an SUV is being built, the price premium allows the manufacture to build it using higher end components.
3. SUVs have more space to move and pack things
4. Better odds of surviving a crash vs a car.
5. Higher seated position means a better view of oncoming traffic.
And so on ...
I think frugality needs to be subservient to "form factor".
Something that you are going to be using a lot, needs to be
reliable, comfortable, and practical. A price premium is often justified in achieving these.
I could probably go on. But the cheaper option is inferior.
Top gear did a report on this years ago. They were four times as likely to roll in a crash as a saloon car. The stopping distance was quite a bit longer as well.
There is also the issue of what happens when you run into a pedestrian.
I have a cheap and small car with 110k km. It still feels like new. Maintenance is super cheap. I'm worried that I will never have an excuse to get an EV.
Frugality to me is freedom. You don't need to be a slave to the wants and desires that are imposed on you by friends, family, marketers, and creditors. Coming up with creative solutions to work around replacing something, repairing a vehicle you paid off for by yourself, waiting and then getting a deal on something you want, reading a good book you got at the library, being creative with party planning is invigorating.
I am living the life that I want, not the life someone else envisions.
For other the freedom is not thinking about creative solutions how to repair a car. They have all that time free to think about something they care about.
Growing up in frugality, I feel I appreciate it a lot, but there's a right way to do it and there's a wrong way. However I feel I identified the limitations early in my life, to do it right.
The way I see it, frugality should be "I don't need 10 pair of sneakers, I can probably do 2 quality ones, and take care of them so that they last" and not "Let's buy a couple of those cheap $10 sneakers from HnM". Spend where it matters, but don't spend because you can or because you want something impulsively.
I have to admit, when I find a good sale, I have a hard time only buying what I need instead of 10X what I need since it's such a good deal (I have at least a 20 years supply of jeans unless I get fat).
"The reason that the rich were so rich, Vimes reasoned, was because they managed to spend less money.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."
The quality difference between goods really isn't that big anymore in my personal experience. The $200 sneakers won't last that much longer than the $20 dollar ones unfortunately. Perhaps there are goods where this is still the case but clothes and shoes isn't one of them.
There are some exceptions. But the price deltas aren't typically 10x, more like 2-3x. And, yes, a lot of things are made in the same Asian factories regardless of the brand label and aren't that different. There are definitely mail order brands I used to think were a cut above for casual clothes and the like that I sometimes still order from but I don't really think they're much different from everyone else these days.
I think the problem with giving examples is that people over index on the example, instead of the point. The point is to not spend on trying to have many possessions. But at the same time if you have to spend a little extra for a possession that can be really useful or have an impact on your life, you do it. And once you buy them, treat them with care. Like if you are frugal, and work at an office that requires you to wear suits, instead of trying to go for many cheap one size fits all suits, try to go for a few tailored ones, it'll do wonders for your career. All in all, you get the gist.
I disagree. Just because you can easily spend $200 on crap shoes, doesn't mean better companies don't make good $200 shoes (and more likely better shoes for $65 or $100). I find that shopping by brand is important in clothing.
The problem is there is no good way to identify quality brands. Price used to be a quality differentiator but it's not anymore, so what do you use to identify brands that produce clothes that last?
I remember reading an article (wish I had the link) from a seamstress that talked about this.
It mostly came down to examining the stiches and seams for quality, which is what I always do now when buying clothes. Look for unraveling, loose or missed stitches, not-straight stitching, etc. Pull the seam apart lightly and see how it holds up.
Also things like zipper quality (YKK is a top brand, and would be stamped on the underside), or how well stripes are lined up. Do the button holes look well stitched?
One data point, I had immense quality of life improvements in reduced hip and knee pain by buy new $130 sneakers every 6 months, rather than keeping them for 2-3 years.
>Saving now for later assumes there is later, or even that well-being and health later are given.
My parents had close to zero savings because they didn't really have any money. A $100 purchase was something very carefully considered. While they were frugal, they didn't live a life of denial. My dad had a canoe & kayak, both purchased used. One thing they waited on, even though they could have made it work financially, was taking a trip to Europe together.
My dad passed away at 46. That trip to Europe will never happen. With almost no savings, the only thing that let my mom live with basic needs met was his life insurance policy.
I'm 45 now and that experience has shaped my approach to saving and spending. From day 1, I've contributed to my 401(k) and increased the percentage saved each year and now max it out. When my son was born, the 529 savings started immediately. Balancing that, I have no problem spending money on things that I find value in, whether other people find them frivolous or not. I do carefully evaluate whether I'm getting value from the money spent, and use that as a firmer guide than the actual amount of money involved.
Assuming you don't despise your career, I've never been a understood living like a monk to retire early (FIRE).
A good developer can totally put away a net surplus year to year while living normally. Personally I've always found it far more enjoyable to be good at what you do, cherry pick jobs and take "mini-retirements" between them than sock away cash with the goal of never working again. To each his own, I suppose.
The problem for me is that living normally in a dev job gives 15 total vacation/sick days a year.
One can surely take mini-retirements between jobs, but realistically, it's harder to get salary bumps when you NEED a job and you don't have the luxury of choosing to stay at your current spot if an offer isn't an increase. Also one normally needs to stay at jobs for two years or otherwise can look like a risky hire.
Five years of semi-monastic living with a good dev salary can be enough to buy freedom to work as little or as much as one chooses for the rest of life.
In tech you look bad if you've worked under a year at a company. It's common for employees to leave at exactly 12 months. Likewise, it looks bad if you take more than a year off between jobs.
Where did you read that you should live like a monk?
The closest I've seen would be Early Retirement Extreme. He's still not exactly about deprivation, but rather self-sufficiency. And he targets lower income levels than a competent software developer.
Most blogs I've read have focused on enjoying your life without being wasteful with your dollars. It's easy to spend money that doesn't return nearly what you might guess or hope when you click that buy button. Just a small effort can change your thought process and better optimize your use of money and improve your lifestyle.
While many don't despise their career, everyone prefers having complete say over how they spend their time to having to do what a boss demands. If you still prefer working, that's great, but if you don't have a choice about it, you're likely less happy about that.
It the parent, but I'll say that I'm someone who needs structure born from necessity. I love what I do, but I know I'd be in trouble if I didn't have to.
Sure, but do you need to spend all your money to ensure that you have no choice to work, just so you have structure?
An alternative might be to build up a nest egg, and use free time outside of work to experiment with education, hobbies, and other activities, and find out if any of those give you enough of a compass towards creating and achieving that you need the employer less and less for the structure it hands you.
In general, I agree. I've never been in a great position to take much time off between my relatively few jobs for various reasons. But I've also tended to have fairly generous vacation by US standards--which has let me had month long vacations--and I've also been able to schedule time around business travel in many cases.
I've never had a particular desire to retire especially early.
You don't need to live like a monk to retire early. And in the FIRE community rarely does retirement mean never working again.
I retired in my mid-thirties and almost everyone I told before hand had the same or similar pejorative response as yours... "Oh I could never do that" or "I would be bored" or even "Why would you want to do that?". I ended up stopping to tell people.
There is so much you can do when you've disconnected your employment from your living expenses. Not _having_ to work is very different than simply not working. You can work on what ever you would like. You can ask to work 2 days a week for 20% pay. You can work on mastering something completely different like woodworking, cooking, and instrument, or even something around software development. But to just associating FIRE with a monk-like or sedentary lifestyle is an overly broad and often inaccurate representation of the community.
Pretty much all the things I did before but never thought I had enough time for :) With two young kids, a full-time job, a parter I wanted to spend time with, friends I wanted to spend time with, family I wanted to spend time with, solitude, hobbies, learning, exercise, and therapy, 40 hours set aside for work just didn't leave me enough time for things that I didn't want to cut out of my life. I was constantly feeling like I was stealing time from away something that I didn't want to steal time from. And when I was doing things, I felt I was constantly running from one thing to the next.
Now I just do most of the same things, but with a more relaxed pace and with time in between to transition. For instance, if I meet a friend for coffee on a weekday morning I used to have the pressure to rush off to work afterwards. Instead, I can stay at the coffee shop afterwards and enjoy a quiet moment or read a book for a few minutes before moving on to the next thing.
Technology related... I moved from software development to doing building small electronics, learning to soldier components, and 3D printing cases. Currently I'm building a small device out of wood that has a round matrix of LEDs embedded that lights up and tracks satellites as they pass over my house. I have no idea what I'm doing really, but its been fun.
You are thinking about the right problem though–when I was in my twenties I mostly focusing on want to not work, rather than what I was going to do once I wasn't working. It's important to understand what your true goal is so that you can make sure FIRE satisfies it or you can set yourself up for some post-retirement blues.
I don't consider myself a FIRE enthusiast, but one thing I've noticed is that people who work a lot often don't "have time" to pay attention to their health. Once you hit about 40, I see a very sharp divergence in health outcomes.
In other words, some 40 year olds are indistinguishable from 30 year olds. Others have all sorts of minor chronic issues that pile up and lead to a miserable second half of life. Health and disease are "nonlinear" -- a health problem often snowballs into others.
Sleep seems to be a big one. Most people sleep poorly and don't know why. This leads to problems all the way up the chain, like heart issues and dental problems.
Diet is obviously another foundational issue. It's hard to eat well in many parts of America if you don't cook. Ordering from a restaurant every day is a way to eat too much salt, sugar, and fat. And yes I realize that lots of people are rolling their eyes at that.
It sounds like a minor issue until you compound it over 20 years. In other words, it's something you don't really care about in your 20's and 30's. But it catches up, and I recall reading a thread about "being old" on HN where lots of people mainly regret and are scared of health issues.
Exercise takes time too. I exercised 5+ days a week when working, but now I do it even more, and it's worth it.
You can obviously pay attention to your health and work at the same time, but I find that many people don't (e.g. in San Francisco).
It's become more common through this pandemic, curiously. I had that benefit prior, but now all my coworkers have the option. I hope it continues afterwards!
Nice imagination. Maybe it's true in the USA, but nobody seems to want to hire a full paid dev (as opposed to an intern) on part time around here. It's almost always full time. Consultants are also mostly gone.
In my city I have seen people doing that. Usually they work 3-4 days a week. Typically they either teach at local university for the rest or spend time with some hobby and in one case do christianity related activities. So it is possible, but you have to ask and have to be careful and assertive while on the job. Because some managers try to abuse situation and get 5 daays for 4 days pay.
I think that the real difference is that our city has actual lack of developers, so the developers that exists can demand things.
The situations where I've seen something along these lines is where you have senior people with the background/skills/etc. to basically parachute in to help with some specific project. They can add a huge amount of value with a day or two of work here and there. It can be an "Oh yeah, you just need to turn that screw over there" sort of situation.
It probably doesn't really work for a more generic mid-level developer sort of situation where there are daily standups etc. (Or really any job that requires a lot of day-to-day communication and work.)
That's a big issue the FIRE community has been talking about as of late. There are multiple solutions, eg moving to another country is one of them.
Having expensive medical bills puts a kink in many people's FIRE plans. For LeanFIRE atm it isn't an issue because the ACA will pay all or most of their health insurance in many states.
I think all countries with universal healthcare programs. As long as you're a legal resident you're covered. In a few even illegals get coverage (Brazil, Thailand).
I agree with you on the lifestyle choice. I'd define the goal slightly differently, though - rather than "never working again", the real goal is "never HAVING TO work again." If I struck paydirt tomorrow and had f-you money I'd still show up to work on Monday. I'd just enjoy it more because I didn't HAVE to.
Healthcare costs in the US are problematic for early retirement - even if "early" is in your 50s. The ACA actually made things a lot better if you can keep your annual income under certain thresholds. But with the possible demise of the ACA being able to control health insurance costs could become problematic. The Supreme Court is going to rule on it next year - arguments start in November and it looks like they'll be getting another anti-ACA justice soon so this seems like a likely outcome. This kind of uncertainty is difficult to budget for.
Indeed. And if health insurance goes back to excluding pre-existing conditions which is likely to happen post-ACA it's going to leave most people wide open to risk. The other thing that likely would happen in a post-ACA context would be that there will be insurance policies that don't cover various conditions like, say, cancer treatment - it might look like you're getting a fairly decent premium, but you'll need to read the fine print for what's excluded. Yes, Trump says his "plan" will cover pre-existing conditions, but no one has ever seen this wonderful plan that costs less than ACA plans and also covers pre-existing conditions.
In Germany healthcare costs depend on your income. If you have no income (investment returns don't count against that), you can get monthly government payments to cover a moderate lifestyle. But if you have no labor income but sit on some non-negligable net worth, you don't qualify. That means FIRE is a lot more expensive, unless you (or your spouse) takes at least a part time job to get health care covered cheaply, which is actually not that uncommon.
On the other hand, the really good healthcare will still end up with you paying out of pocket (potentially not a lot, but enough to exceed the cheapskating; potentially a ton), or gambling that the overloaded social system is fast enough.
Being richer also opens options of taking extra time off and going medical "shopping", and being able to afford necessary travel.
I think the difference between normal healthcare and a private health insurance is overstated in Germany. Of course you get perks, and it's easier to get appointments, but I have yet to see data that supports meaningfully different outcomes between the two systems.
Lev Landau was once caught counting the bills of just collected salary (traditionally in cash sin USSR).
Confronted by one of his disciples, whom he always taught to evaluate by order of magnitude, he responded "money's worth is exponential".
Saving was useful until my career ended with everything about my profession changed. Resilient savings is a great idea until it fails. Then adaptation and improvisation perform better.
This is a failure mode I sometimes fear - a relatively quick complete industry shift that renders all my marketable skills moot. Can you talk more about what happened in your case?
Skills can be gained. The bigger more of failure is a health reason preventing you from working most everywhere or in a huge chunk of work.
Calculate the summed rates of cancer, heart attack with complications, blindness, deafness and maiming accidents.
This makes stable FIRE risky, and the solution to limit exposure to these risks is to save even more, but invest a bit less, and ensure you get the illiquid assets needed for long term survival as early as you can.
> In the tech industry we have some very loud voices arguing that if you desire autonomy or leverage, the best path forwards is to start a VC-backed startup.
Maybe it's because I automatically tune out voices which are obviously wrong, but after 9 years in SV I can't claim to have ever heard anyone say this. All of the advice I've ever seen targeted at fresh entrants boils down to the "earn vs learn" dichotomy, which squarely puts "earn" away from VC-backed startups.
The author's observation that the effect of savings depends on the earnings rate is true, but if inflation outstrips the rate of earnings unfortunately it is still true.
Unfortunately, this reasoning relies on the assumption compounding interest is reliable in the long term. Over a length of lifetime the assumption does not hold true, there are many ways to wipe out.
Moreover, it relies on another assumption that you will be able to pull the investment when you need a lot of cash. It's easy to sip, quite hard sometimes to liquidate a big one, depending on the kind of assets you invested in.
On the other hand, the risk is much lower than getting a startup running...
There is a point where marginal extra dollar does not get you more happiness. But most people are not at that point, so this is advocating trading current happiness for future when you will be too old to enjoy the money.
So, the right choice is to save enough to meet your current goals and live a frugal lifetime later - with considerations such as costs of healthcare.
Why everyone in the US is betting that the stock market will always go on average up ? This has been proven wrong by so many European indices. And yet the whole US pension system is based on this casino. I really don’t get it. Elderly People are getting robbed of their life savings during recessions and nobody is held responsible.
> Why everyone in the US is betting that the stock market will always go on average up?
Shouldn't it? I'm not an economist but if you think about it: as we become more advanced we create more resources with less work. Stock market would be just one of many way to distrubute that extra efficiency to the society.
Unless there's a crisis we should never produce less resources with more work.
Of course this is much more complicated than I make it out to be but my point is that it's relatively safe to assume that stock market should go up on average long term.
If your 401k was in the average European stock market since the 2000, today you would have the same money minus the inflation. The GDP of Europe has increased the last 20 years, yet the stock market did not.
Check the stoxx 50 index to get an average view of the european industry. It has been flat for decades. If you go to particular countries the image is much much worse. For example if you had your money in the Italian stock market since 2000, by now you would have less than half (inflation not accounted).
The common practice is that the older you get, the more you shift investments to low risk instruments like bonds. If you're being "robbed" by a recession I think you mismanaged your savings.
Apart from a war or a government collapse, in the long run the stock market will go up if the economy is expanding. Likewise, it will go down if the economy is contracting. (Eg, Japan with more people dying than new people coming into the country.)
imo the fallacy is assuming the economy will continue to grow at the same 7% in the long run, when the more mature an economy becomes the less it will grow and from that the less growth to the stock market will happen. imo 6% long run for the future is a safer number.
The mistake is the assumption that the stock market reflects the (expectation of) economical output of a country. European GDP has doubled since 2000, but the stock market is on average flat (see for example Stoxx50). Some member states' stock markets grew, but most of them either stayed stagnant or plummeted completely.
If you invested in the FTSE you would have made rates near US investments, because of the dividends given out. The 1960s and 70s was similar in the US where the market went sideways for decades, but if you had invested you would have profited just fine, because of the dividends given out at that time too.
imo Europe is being smarter about this. The US is potentially setting itself up for a large crash in the coming decades, where Europe is setting itself up for a much smaller crash, due to being dividend heavy instead of growth heavy. Ofc, I don't really know if it will work out this way. No one does, but we can speculate.
I learned in 2020 that if you want to do something, you should do it. I’ve had a lot of lost opportunities in different categories. Saving money is important to me. But so is doing fun things and a lot of times those two are opposed. Like many things it’s about the trade offs.
If you think, wow I could retire really soon if I put this to practice, the truth is, yes, yes you could. If you want to learn more search FIRE (financial independence early retirement) or message me on mastodon (link on my website)
My savings rate is currently 68% and I do not live an impoverished life style.
Look up the "surprisingly simple math behind early retirement".
This assumes you can extrapolate the interest of ETFs. There are some reasons why it might not:
- Index ETFs are becoming a huge part of the market maybe leading to unexpected results.
- We’re in a completely different situation of monetary policy. Japan is the most similar we can compare to and there it lead to a stagnating stock market.
- if the Fed decides to change its monetary policy in some years there will be significantly less money available for the stock market
- the economic position of the US is changing dramatically compared with the last 50 years.
>Effectively, including growth in the model moves the asymptote to the right - your runway goes up to infinity as your spending approaches some percentage of your total savings, rather than as it approaches zero.
This ignores that you cannot ever reach zero as a normal citizen, unless someone else is paying for you. Even if you live with room mates, you're going to spend some non zero amount on living expenses. Let's say the your post tax income is $3000. Normal people spend half of it on living expenses. Marginally frugal people get away with paying $1000 with little sacrifice. Very fugal people spend $800 by sacrificing everything nonessential and living with room mates. Hyper fugal people spend $500 by sacrificing everything nonessential and lots of essentials. The step after that isn't frugality, it's homelessness (someone else is paying for you).
You're entirely correct about diminishing returns & difficulty attempting to drive expenses close to zero, but note that the author of the post was saying that it isn't necessary for expenses to go to zero. Expenses just need to be sufficiently small (but not arbitrarily small) compared to the percentage of total savings -- I'll interpret "total savings" as the accumulated capital that we are able to invest to generate a return.
As you approach a certain critical ratio of expenses / invested capital your runway of how long you can live off investment returns & capital goes to infinity. You can approach that ratio in two ways: by reducing expenses or increasing the amount of invested capital.
E.g. suppose you have expenses of X / year. Suppose you have accumulated capital worth K that generates a real investment return of K * r every year. If K * r >= X then you can operate indefinitely with investment returns covering all expenses, i.e. the "infinite runway". We haven't talked about the expenses X being zero or frugal. Your expenses X could be lavish, but they just need to be no greater in size than K * r .
A plausible value of r corresponding to capital invested in the stock market with a very small allocation of bonds might be 0.035 -- 0.04 for a 3.5% ... 4% annual real return. So if your annual expenses are X then to cross the threshold into infinite runway you need to have capital invested worth at least K >= K* = X / r , that is K >= X / 0.04 ... X / 0.035 = 25X ... 28.6X .
Even a house you own is probably going to be a good $10K/year after property taxes, insurance, utilities, and even modest maintenance. A condo might be less but condo fees can be significant too.
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[ 3.1 ms ] story [ 122 ms ] threadHowever, there's also time value to different classes of purchases. For instance, spending money acquiring certain skills early in life allows time for those skills to compound while the same investment later in life may have no utility.
The commonly cited example is an MBA: getting an MBA in early career provides more leverage than if it was obtained in mid career or later. A late career MBA in most cases has vastly diminished signalling/credentialing value.
Frugality (in early life) that optimizes for the date of financial independence (and runway) is not a bad idea, but seems to me that employed in isolation, it may increase the chances of landing on a local optimum when other more favorable optima may exist.
People often talk about time value of money... but there's also the time value of time/age.
That anecdote seems to insinuate the essence of an MBA offers no substantive value, nor does even the achievement of the accreditation itself. It is the timing of the latter which projects the value.
Is that a really low or a really high bar?
In late career, assuming you're doing well-enough that you'd want to pursue an MBA, you'd already have amassed quite a bit of business knowledge from the school of hard knocks, that likely exceeds the theory b-schools can teach (although they can definitely still fill in knowledge gaps say in finance or strategy etc.). The marginal value of the theory is even less if you majored in business in college -- the difference between a BBA and an MBA in terms of coursework is generally not substantial.
In late career, your experience and success (in different roles) is a generally stronger signal than credentials.
In late career, you'd have developed a fairly good network unless you're looking to pivot to a totally different field or industry.
For those looking to switch from fairly pedestrian post-liberal arts jobs, the MBA was huge in many cases.
The networking effect has never been big for me. I'm fine with having gotten an MBA. Degrees like the one I got were less expensive in those days and it landed me in a good place. But TBH, my undergrad (from a good school) has probably opened more doors than my MBA ever did. (Had I gone into finance, the situation might have been different.)
That said, for many in my MBA cohort who had majored in business in undergrad, most I talked to said they weren't learning anything they didn't already know, save perhaps how to use their financial calculators in novel ways.
Lends credence to the 'signaling' of an MBA, more than anything else.
The parent could have used MD (there are some people who switch careers to become doctors in their 30s) and it would be the same... just having a chance to have been a doctor for longer will put you ahead.
Even if you take out the signaling/credentialing value generally, absent someone trying to make a real career shift (which becomes more difficult as you get older), it's not clear what an MBA--rather than maybe a couple of focused classes--buy you after some point. (But, for that matter, a PhD or other new degree probably buys you less too at some point.)
Well sure, but if you have investments, then it's not zero spending you need to approach, but your annual investment returns...Which is basically what the rest of the page discusses.
The author is basically asserting that most people who budget assume a 0% rate of return on their investment. But since that's a nonsensical assertion, they instead rearrange the logic a bit to make a functionally identical statement which sounds less obviously flawed.
The content in the article is good, but it could stand to have the "most people think...but they are wrong" section replaced with something more friendly and inviting. I'm personally not a fan of articles that start assert that a bunch of people are dumb.
The author is going for a MMM vibe, but I think what makes his articles so successful is he criticizes behaviors instead of calling people dumb (usually).
https://en.wikipedia.org/wiki/MMM_%28Ponzi_scheme_company%29
https://www.mrmoneymustache.com/2012/01/13/the-shockingly-si...
Notice how his post is titled "The Shockingly Simple Math Behind Early Retirement." It's pleasant, accessible, and it doesn't make you feel dumb for not knowing about it.
I don't trust anyone who gets that wrong to tell me anything about the power of compounding or whatnot.
It's a small percentage of developers and certainly people in tech more broadly.
Yes, if someone lands a job at one of the big SV companies, lives frugally, and are fine with living frugally the rest of your life, you can probably retire/semi-retire pretty early if that's your preference.
Why not take an extra year to do all those things and also be able to engage with your twenties a bit more actively?
I became much happier when I started to abandon frugality to this degree and bought a used car, picked up a few hobbies that cost a few grand a year, planned vacations that actually pushed my boundaries.
(Bay Area, mid twenties for reference)
So I guess a stoic with a used Triumph motorcycle, a backpack and a copy of ZAMM would be optimal. A pretty decent set of vacations are only a gastank away in the Bay.
The difference in opinion is derived, I think, from how I reacted when I got a big tech job. My earnings went way up relative to that first job, but initially my lifestyle didn't change at all. Eventually I started adding things little by little, thoughtfully I think. I took my first international trips, didn't dismiss hobbies outright because of cost - it made me a lot happier because I was experiencing things for the first time. That doesn't mean I stopped backpacking, drinking beer in the park, or going to cheap concerts - it was additive. At the end of the day, though, my lifestyle increased only by a small portion of how my earnings were. All things considered, my savings rate didn't really change by all that much.
There are some people who do really, really well trying to minimize their yearly spend, but there are a lot of people who could give themselves a little bit more slack and be better off mentally and physically for it. It isn't that they're not working hard. For me, it was just growing with working class parents - I never learned to ski, we drove instead of flew to visit family, video games were birthday presents. Relaxing some of the frugality was part of being thoughtful about who I actually was and wanted to be, and I think that's ok.
That changes the cost equation immensely.
We're trading best time to raise a family for a career. It's wrong and likely unsustainable. And you cannot assume you will get hired in 50s, not yet and not in this industry.
That should be workable for kids. It wont be suburb comfortable, it will have lots of regrets, but the kids will get over it.
> a fresh grad at a big tech company can safely earn ~$500k post-tax in 5 years.
> The US median income post-tax is ~$25k
It's funny how they pick a "conservative" best-case scenario, then a "median" scenario that, relative to the first, is impossibly low. I guess the numbers barely work, but good luck making that lifestyle trade.
He talked about averages of historical data that include crashes. Sure.
But consider the window within the throes of a crash. Someone who always has and continues to spend a fixed amount every year will greatly diminish their capital during those lean years of the market.
An exaggerated hypothetical to make the point:
If they have $500K @ 5% and take out $32K a year, they can go over 30 years on their nest egg.
If their nest egg falls to $100K due to a market crash, they have three years of their nest egg left.
By most historical averages, after 20 years the hypothetical portfolio has grown to $2 million inflation-adjusted, which means a drop to $100k or $250k would be a whopping 87.5%+ crash.
On the flip side, a prolonged bear market in the first few years are the worst case scenario, though for most early retirees, the choices are to ignore the "fixed 5%" and/or seek additional income, if the sequence of returns really are dire enough.
And even if the market recovers in 3 years, by then you're left with a fraction of your capital.
Face it, it's temporal gambling also known as a martingale. One with ok odds but still gambling.
There are classes of assets that are less vulnerable to such downturns, but they have their own risks. (Mostly properties you live in and transportation you use.)
Btw, 5% is not a safe withdrawal percent unless you're really old. Most do 4% and aim to not diminish but increase their savings in the long run while retired.
Historically, you're much more likely to have your money grow over time, such that it's much higher before a big crash, and you have ample capital to wait out a bear market.
Again, the only scenarios that resulted in running out of capital in a 4% withdrawal rate happened in the very first few years, retiring right before a very bad series of years.
If early retirement is your goal, and especially if you're a competent software developer, if the market is that bad early on (which is very rare) then you just have to change course and go back to work.
That isn't a political statement about the GOP, it's close to fact. When did we last not enter a recession, or the possibilities of one, after the GOP held Congress and the White House? Trump, Bush, Bush Sr/Reagan. Its like part of the plan is to drive the nation broke after concentrating wealth with donors and friends/family.
Bonds are not defensive enough. The about only way to lose a place to live you actually own is to live in a warzone or get very deep in debt...
The old adage is to not gamble your life on being able to pay a debt. This is rather hard in the USA due to completely broken economics of medicine, education and real estate, but in other places, much more available.
There's probably an argument to be made that this is still too aggressive, because US historical returns feels like cherrypicking - they're much better than international returns, and there doesn't seem to be a good argument for expecting that to continue.
That said - how many 80% drops are there? If your criteria for safety is "will have enough money to last forever even if the great depression hits the second I retire", you might be a bit too conservative - it's hard to imagine another great depression at all, given the Fed's recent history of propping up the market in crashes, let alone at the worst possible time. You'll never be able to take chances on anything with requirements like that.
I think the counter-argument (not that I know enough one way or the other) is that the Fed’s recent addiction to low interest rates removes one of its most important tools for propping up the economy if the existing approach is found insufficient
The point I was trying to make (maybe unclearly) is that one of the main bullets to assist the broad economy may have already been fired. To your point, there will always be segments of the economy that perform well, but that’s not equivalent to the broad economy performing well
The health of the _broad economy_ isn't what's relevant to this, though, only the bond and stock markets (or whatever else you're invested in, but mainly it's those two). The Fed has the ability, and apparently the willingness, to prop those up in times of stress.
I agree the Fed has the ability (to a certain extent) and the willingness to prop them up. The point I may not be getting across is that they only have so many tools available (the biggest lever being interest rates, but as you mention they have other options like buying bonds). Once those tools are in play (e.g., interest rates hovering near zero) they have less leverage to impact the economy if a severe downturn happens. That's not to say they are out of options, just that they have less options at their disposal. That's why I referenced interest rates as one of its most important tools, with the implication they had other (perhaps less broadly impactful) ways to spur the economy
The behaviour of the system flips as you go from investment_income < annual_expenses to investment_income > annual_expenses , where investment_income = capital * return_on_capital . Before the transition, capital drains to zero over time, after the transition, capital grows to infinity over time. +/- the model being an crude approximation of reality.
Considering that most young people in tech have parents significantly wealthier than them, it's amazing to me that more people don't pursue this route and insist on throwing money away on rent.
I know it's not as cool as the bohemian atmosphere of living with startup teammates in a shared house, but living rent-free in your family's spare home is the responsible and quick way to save!
I work at a FAANG making an amount of money per year that I didn't even think was attainable for "normal" people, but my parents were dirt poor and I grew up on food stamps. To just say "Oh the solution is as simple as moving into your parents investment properties!" is just a huge slap in the face.
Get a grip on reality and realize your situation is incredibly privileged and not the norm.
The $500k number in the post that he links to seems way off, the $25k median salary is also incorrect (it's closer to $40k).
Not according to the government:
> The U.S. Census Bureau lists the annual median personal income at $33,706 in 2018
33.7k pretax is closer to 25k than to 40k post tax.
https://en.wikipedia.org/wiki/Personal_income_in_the_United_...
Assuming 30% tax rate that's 150k gross compensation/year over 5 years. That's pretty average compensation for big tech companies for fresh grads[1]. That also assumes no raises in those 5 years.
[1] https://www.levels.fyi/
His assumption is that you can start at $130k and get an additional $30k each year for the first 4 years. And do this while not in an expensive city. That's the part that doesn't seem realistic to me.
However, frugality needs to be balanced with living a life worth living. Saving now for later assumes there is later, or even that well-being and health later are given. My mum said to me, shortly before she passed away: “Maybe we saved too much. Maybe we should have lived more.” That’s something I think of now when making decisions.
But we never know when that day will come. So a more nuanced perspective would be to treat the now as your finale, and the future as your encore. That way, no matter when death knocks, you leave on a high note.
If you put everything into your eventual encore, it's going to be one helluva encore if you get one, but incredibly bitter set piece leading up to it gets cut short, that chance never comes, and you realize just how flat your set piece ended up being. But it'll likewise be bitter if you pour everything into your finale, but end on a low note when you realize it's time for your encore and you've got nothing left for it.
So avoid both extremes, and enjoy today while hedging for a potential tomorrow. As long as you keep that in mind, and consciously attempt to not invert it (i.e. maximize for a theoretical future by sacrificing your certain present), you'll generally be in a good place no matter when death knocks.
Wait, there was inheritance in the Soviet Union? How did that work? Genuinely curious.
My grandparents participated in it and after decades of saving a few percent of their earnings each month the total from both of them was just enough to buy their grandkids 2 pairs of shoes :)
It is hard to diversify as an individual unless you have significant capital to invest.
If you have reason to believe that getting a new job is trivial, then sure. Take some time off if you can afford to.
If, on the other hand, you have no idea if you can get an equivalent professional job in one or two years and may involve moving (as is the case with MANY people in tech in spite of what people in the bubble may believe) then looking for a job immediately makes a lot of sense.
Taking some time off may still make sense but it's always going to be a bit of a calculated risk.
Saving money is great because it hopefully means you are purchasing the same utility without unnecessary overhead. Strangely enough, not enjoying a daily premium latte might be less frugal in the long run. You'd have to consider the utility of pleasure experienced over the years versus a few extra grand for your coffin.
It adds up faster than you would think: ditching your daily $3 latte saves $91.25 dollars a month. Investing that into a S&P index fund that traditionally has an average 7% annual return and 1.12% variance for over 50 years compounds into... $446,368.
So, where can I get that crystal ball that lets you know the impact of any action? That'd make a fortune and infinite boredom all a possibility.
The one good thing in the article is that it shows the power of saving more as a burst. It actually limits many types of risk, but then you can only actually do that if you have a rich job... (It does not address existential risks enough. There are a few important ones it should as they're related to investments and reasonable saving rates.)
The advice to save on latte presumes you can actually afford it in the first place. Otherwise you're not saving, you're just not overspending.
I liken it to the advice that you should buy stuff used to save money, when you need it. There are many caveats to that.
Or maybe none of this happens, and annual 3% inflation cut the real value by roughly 75%, and you had to pay 20% taxes on top of that. You're left with around 90k of value, of which ~36k is your investment return. In the meantime, you gave up 18,250 lattes.
Over time you'll build up tolerance and that cup of coffee isn't worth the same for you. Now you're burning cash for energy that would have been there without caffeine. And to think you could have paid for your kids college instead.
Can you spend ~$1100 in one instance, at the end of every year, that produces the same total utility of pleasure you would have experienced from a daily latte? I'd probably drop the latte but, everyone is different. I would still argue that there are plenty of times when splurging is worth it in the long run.
I never got into the habit of buying Starbucks coffee so lucky for me I guess?
I don't disagree that sitting down and having a latte with someone (or even by yourself) is sometimes social/a break/a chance to work with some WiFi/etc. But for a lot of people it's just part of a morning ritual.
Forgoing a latte a day over 50 years means I essentially have to make 18250 decisions in order to save this money. But, on the other hand, let's say I decide to forgo, say, a $60k car and instead get a still very nice $45k car. If I invest that $15k in your hypothetical S&P index fund, and deposit no new additional money, after 50 years I'll have... $441,855.
So basically with just one, single decision I get the same benefit as someone that had to make 18250 decisions.
The small shit really doesn't matter very much. If you simply focus your frugality on a few simple things (namely housing, auto, and education) you will always be light years ahead of someone who is constantly worrying about their lattes or avocado toasts or whatever small daily bringers-of-joy.
I don't think so. When I quit smoking, I had to consciously make the decision not to buy cigarettes every time I was at the checkout in a super market. That went away after about two weeks. For a few months that followed, I'd stand there thinking "and buy some cigarettes" and then I'd realize I didn't smoke anymore.
I doubt that getting off of the latte-habit takes longer than getting off of cigarettes.
Another question is whether small sugary treats are a good thing in general. Again the cigarettes as a comparison: cigarettes are the best when you haven't smoked for a day. But that's because you're suffering withdrawal, not because they're that great.
Does anyone else have difficulty understanding why anyone would pay this much for a car? $45k is an order of magnitude more than I've ever paid for a car. Granted, I don't even like cars or driving, but the cars I've owned have been perfectly functional and any mechanical problems they've had still didn't add up to more than $10k.
Not really. I mean I've never spent that much on a car and I'm not sure I ever will, but I did spent $5000 on a computer one time. That's an order of magnitude more than most people pay for computers, and while nice, it sure isn't 10x better than a $500 computer would have been. But I spent the $5k, because a) I had the money and b) I really really realllly wanted that computer.
EDIT: In case anyone is curious about the $5000 computer, it was this one back in 1999, and no, it was absolutely not worth it in the end: https://everymac.com/systems/apple/powerbook_g3/specs/powerb...
How fast a car can go is one, how many people it can transport is another, how few emissions it creates is another.
Someone might be willing to drop big bucks on a Tesla Model X to haul their family around rather than a used Dodge Caravan ... not because it'll get them between Point A and Point B more quickly or because it can carry more people, but because it doesn't emit CO2.
Point being that we don't all value the same things, and while I wouldn't make the same decisions as other people much the time, I can certainly understand how people come to (sometime vastly) different decisions than me.
EDIT: I have an uncle who is an emergency room doctor, and I guess after seeing all of those car crash victims, his car-buying decisions have always been based entirely on safety. So he's driven an otherwise unlikely progression of cars, some luxury, some not, based on whatever seemed to be the safest new car available.
Not saying it’s rational but like you said, there’s a lot of different dimensions to utility
https://everymac.com/systems/apple/powermac_g4/specs/powerma...
- because they were gorgeous!
For instance, if you buy a 3090 Nvidia GPU with 24 gigs of VRAM, you are capable of training AI models that are eminently more capable of getting publications accepted than an owner of a 3080 would. (Yes, distributed training is possible, no it is not always an option). Sure, it's nowhere near 10X in gaming or flop improvement, but the relative capabilities offered by a top of the line computer can become exponentially more useful compared to a significantly cheaper computer.
Let's list some of the features that modern cars have which significantly improve the utility of them to most drivers, and which are considered (by the market) to be worth 45k+
Blind spot monitors, rear/side cross traffic alert, auto-dimming mirrors, digital mirrors (for when you have tons of cargo blocking mirrors), Backup/360 Panoramic Cameras, Parking Sensors, heads up display (massive safety benefit), Satellite Radio, lane keep assist, radar cruise control, pre-collision and collision mitigation systems (active breaking), improved design / additional weight for safety in collisions, more and better airbags. Better seats, better audio system, Nicer infotainment systems with Carplay/Andriod Auto, Hybrid/PHEV/EV powertrain, better reliability (if you pay Toyota/Lexus/Honda/Acura tax), semi-autonomous driving (Tesla)
I'm forgetting a bunch of stuff, but having recently purchased a 42K car with nearly all of these features and upgrading from a life of being driven in shitty base model kias, I find the utility gained from purchasing an expensive car to be MASSIVE. Driving went from being a frustrating chore to a pleasurable experience.
The risk of death dropping by an order of magnitude is alone worth the money, let alone the massive comfort improvements.
Don’t you feel like you answered your own question there?
It’s like asking why anyone would spend money on tasty food when some cheap foods are all you need to survive.
That joy is mostly relative, the joy you feel drinking a latte is not greater than the joy a poor tribesman feel eating a piece of fruit. You will almost always feel it just for different things.
A good example is sweetness, if you quit eating candy you will find that much food is very sweet, and if you stop eating industry created food you will find that many vegetables and other things are actually quite sweet. So you don't lose the joy of eating sweet things, just that what you consider sweet changed.
But more importantly, I'd much rather spend small amounts on simple daily pleasures that I enjoy. The lattes definitely bring me joy, and it's not like they are somehow taking the place of quality time with my loved ones or bringing joy to other people.
Then we want the same thing. Genuine happiness. But try to see it our way: that coffee money could go to working 5 hours less a week in a decade. That could be quality time with your family. One the other hand, two years into that latte — you're hitting withdrawal by 3:00pm. So maybe your just as happy overall as when you started.
Also, you cant invest your saved 90$ to investment fund. Those require higher initial capital.
But even if you are correct, that person ditching the latte isn't going to be spending that 446,368 in old age either because it isn't "frugal". If they have a decent income they just end up dying with 446,378 in the bank.
I switched to more expensive SUVs, and all these are anti frugality:
1.Car parts are often smaller (such as wheels) and less sturdy. And more prone to fail.
2. When an SUV is being built, the price premium allows the manufacture to build it using higher end components.
3. SUVs have more space to move and pack things
4. Better odds of surviving a crash vs a car.
5. Higher seated position means a better view of oncoming traffic.
And so on ...
I think frugality needs to be subservient to "form factor". Something that you are going to be using a lot, needs to be reliable, comfortable, and practical. A price premium is often justified in achieving these.
I could probably go on. But the cheaper option is inferior.
Top gear did a report on this years ago. They were four times as likely to roll in a crash as a saloon car. The stopping distance was quite a bit longer as well.
There is also the issue of what happens when you run into a pedestrian.
I guess that's not relevant to parent's analysis from the perspective of maximizing his/her utility.
I am living the life that I want, not the life someone else envisions.
The way I see it, frugality should be "I don't need 10 pair of sneakers, I can probably do 2 quality ones, and take care of them so that they last" and not "Let's buy a couple of those cheap $10 sneakers from HnM". Spend where it matters, but don't spend because you can or because you want something impulsively.
Take boots, for example. He earned thirty-eight dollars a month plus allowances. A really good pair of leather boots cost fifty dollars. But an affordable pair of boots, which were sort of OK for a season or two and then leaked like hell when the cardboard gave out, cost about ten dollars. Those were the kind of boots Vimes always bought, and wore until the soles were so thin that he could tell where he was in Ankh-Morpork on a foggy night by the feel of the cobbles.
But the thing was that good boots lasted for years and years. A man who could afford fifty dollars had a pair of boots that'd still be keeping his feet dry in ten years' time, while the poor man who could only afford cheap boots would have spent a hundred dollars on boots in the same time and would still have wet feet.
This was the Captain Samuel Vimes 'Boots' theory of socioeconomic unfairness."
You know the $20 shoes won't be great, and sure, it's possible the $200 shoes will be better than the $20 ones...or they could be exactly the same.
It mostly came down to examining the stiches and seams for quality, which is what I always do now when buying clothes. Look for unraveling, loose or missed stitches, not-straight stitching, etc. Pull the seam apart lightly and see how it holds up.
Also things like zipper quality (YKK is a top brand, and would be stamped on the underside), or how well stripes are lined up. Do the button holes look well stitched?
My parents had close to zero savings because they didn't really have any money. A $100 purchase was something very carefully considered. While they were frugal, they didn't live a life of denial. My dad had a canoe & kayak, both purchased used. One thing they waited on, even though they could have made it work financially, was taking a trip to Europe together.
My dad passed away at 46. That trip to Europe will never happen. With almost no savings, the only thing that let my mom live with basic needs met was his life insurance policy.
I'm 45 now and that experience has shaped my approach to saving and spending. From day 1, I've contributed to my 401(k) and increased the percentage saved each year and now max it out. When my son was born, the 529 savings started immediately. Balancing that, I have no problem spending money on things that I find value in, whether other people find them frivolous or not. I do carefully evaluate whether I'm getting value from the money spent, and use that as a firmer guide than the actual amount of money involved.
A good developer can totally put away a net surplus year to year while living normally. Personally I've always found it far more enjoyable to be good at what you do, cherry pick jobs and take "mini-retirements" between them than sock away cash with the goal of never working again. To each his own, I suppose.
One can surely take mini-retirements between jobs, but realistically, it's harder to get salary bumps when you NEED a job and you don't have the luxury of choosing to stay at your current spot if an offer isn't an increase. Also one normally needs to stay at jobs for two years or otherwise can look like a risky hire.
Five years of semi-monastic living with a good dev salary can be enough to buy freedom to work as little or as much as one chooses for the rest of life.
The closest I've seen would be Early Retirement Extreme. He's still not exactly about deprivation, but rather self-sufficiency. And he targets lower income levels than a competent software developer.
Most blogs I've read have focused on enjoying your life without being wasteful with your dollars. It's easy to spend money that doesn't return nearly what you might guess or hope when you click that buy button. Just a small effort can change your thought process and better optimize your use of money and improve your lifestyle.
While many don't despise their career, everyone prefers having complete say over how they spend their time to having to do what a boss demands. If you still prefer working, that's great, but if you don't have a choice about it, you're likely less happy about that.
An alternative might be to build up a nest egg, and use free time outside of work to experiment with education, hobbies, and other activities, and find out if any of those give you enough of a compass towards creating and achieving that you need the employer less and less for the structure it hands you.
I've never had a particular desire to retire especially early.
I retired in my mid-thirties and almost everyone I told before hand had the same or similar pejorative response as yours... "Oh I could never do that" or "I would be bored" or even "Why would you want to do that?". I ended up stopping to tell people.
There is so much you can do when you've disconnected your employment from your living expenses. Not _having_ to work is very different than simply not working. You can work on what ever you would like. You can ask to work 2 days a week for 20% pay. You can work on mastering something completely different like woodworking, cooking, and instrument, or even something around software development. But to just associating FIRE with a monk-like or sedentary lifestyle is an overly broad and often inaccurate representation of the community.
What have you been doing in retirement?
Now I just do most of the same things, but with a more relaxed pace and with time in between to transition. For instance, if I meet a friend for coffee on a weekday morning I used to have the pressure to rush off to work afterwards. Instead, I can stay at the coffee shop afterwards and enjoy a quiet moment or read a book for a few minutes before moving on to the next thing.
Technology related... I moved from software development to doing building small electronics, learning to soldier components, and 3D printing cases. Currently I'm building a small device out of wood that has a round matrix of LEDs embedded that lights up and tracks satellites as they pass over my house. I have no idea what I'm doing really, but its been fun.
You are thinking about the right problem though–when I was in my twenties I mostly focusing on want to not work, rather than what I was going to do once I wasn't working. It's important to understand what your true goal is so that you can make sure FIRE satisfies it or you can set yourself up for some post-retirement blues.
In other words, some 40 year olds are indistinguishable from 30 year olds. Others have all sorts of minor chronic issues that pile up and lead to a miserable second half of life. Health and disease are "nonlinear" -- a health problem often snowballs into others.
Sleep seems to be a big one. Most people sleep poorly and don't know why. This leads to problems all the way up the chain, like heart issues and dental problems.
Diet is obviously another foundational issue. It's hard to eat well in many parts of America if you don't cook. Ordering from a restaurant every day is a way to eat too much salt, sugar, and fat. And yes I realize that lots of people are rolling their eyes at that.
It sounds like a minor issue until you compound it over 20 years. In other words, it's something you don't really care about in your 20's and 30's. But it catches up, and I recall reading a thread about "being old" on HN where lots of people mainly regret and are scared of health issues.
Exercise takes time too. I exercised 5+ days a week when working, but now I do it even more, and it's worth it.
You can obviously pay attention to your health and work at the same time, but I find that many people don't (e.g. in San Francisco).
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edit, found the thread: https://news.ycombinator.com/item?id=24527978
Practically speaking, it would be very difficult to find this kind of work situation in tech.
I could imagine a small startup getting quite a bit of value from getting a great FAANG-type engineer with 15+ years of experience for 50k /year.
I think that the real difference is that our city has actual lack of developers, so the developers that exists can demand things.
It probably doesn't really work for a more generic mid-level developer sort of situation where there are daily standups etc. (Or really any job that requires a lot of day-to-day communication and work.)
Having expensive medical bills puts a kink in many people's FIRE plans. For LeanFIRE atm it isn't an issue because the ACA will pay all or most of their health insurance in many states.
Calculate the summed rates of cancer, heart attack with complications, blindness, deafness and maiming accidents.
This makes stable FIRE risky, and the solution to limit exposure to these risks is to save even more, but invest a bit less, and ensure you get the illiquid assets needed for long term survival as early as you can.
Maybe it's because I automatically tune out voices which are obviously wrong, but after 9 years in SV I can't claim to have ever heard anyone say this. All of the advice I've ever seen targeted at fresh entrants boils down to the "earn vs learn" dichotomy, which squarely puts "earn" away from VC-backed startups.
Moreover, it relies on another assumption that you will be able to pull the investment when you need a lot of cash. It's easy to sip, quite hard sometimes to liquidate a big one, depending on the kind of assets you invested in.
On the other hand, the risk is much lower than getting a startup running...
There is a point where marginal extra dollar does not get you more happiness. But most people are not at that point, so this is advocating trading current happiness for future when you will be too old to enjoy the money. So, the right choice is to save enough to meet your current goals and live a frugal lifetime later - with considerations such as costs of healthcare.
Shouldn't it? I'm not an economist but if you think about it: as we become more advanced we create more resources with less work. Stock market would be just one of many way to distrubute that extra efficiency to the society.
Unless there's a crisis we should never produce less resources with more work.
Of course this is much more complicated than I make it out to be but my point is that it's relatively safe to assume that stock market should go up on average long term.
Stock indices ideally approximate taking a share of "the whole economy". What's your explanation for why this (seems to) not work in Europe?
imo the fallacy is assuming the economy will continue to grow at the same 7% in the long run, when the more mature an economy becomes the less it will grow and from that the less growth to the stock market will happen. imo 6% long run for the future is a safer number.
imo Europe is being smarter about this. The US is potentially setting itself up for a large crash in the coming decades, where Europe is setting itself up for a much smaller crash, due to being dividend heavy instead of growth heavy. Ofc, I don't really know if it will work out this way. No one does, but we can speculate.
My savings rate is currently 68% and I do not live an impoverished life style.
Look up the "surprisingly simple math behind early retirement".
- Index ETFs are becoming a huge part of the market maybe leading to unexpected results.
- We’re in a completely different situation of monetary policy. Japan is the most similar we can compare to and there it lead to a stagnating stock market.
- if the Fed decides to change its monetary policy in some years there will be significantly less money available for the stock market
- the economic position of the US is changing dramatically compared with the last 50 years.
This ignores that you cannot ever reach zero as a normal citizen, unless someone else is paying for you. Even if you live with room mates, you're going to spend some non zero amount on living expenses. Let's say the your post tax income is $3000. Normal people spend half of it on living expenses. Marginally frugal people get away with paying $1000 with little sacrifice. Very fugal people spend $800 by sacrificing everything nonessential and living with room mates. Hyper fugal people spend $500 by sacrificing everything nonessential and lots of essentials. The step after that isn't frugality, it's homelessness (someone else is paying for you).
As you approach a certain critical ratio of expenses / invested capital your runway of how long you can live off investment returns & capital goes to infinity. You can approach that ratio in two ways: by reducing expenses or increasing the amount of invested capital.
E.g. suppose you have expenses of X / year. Suppose you have accumulated capital worth K that generates a real investment return of K * r every year. If K * r >= X then you can operate indefinitely with investment returns covering all expenses, i.e. the "infinite runway". We haven't talked about the expenses X being zero or frugal. Your expenses X could be lavish, but they just need to be no greater in size than K * r .
A plausible value of r corresponding to capital invested in the stock market with a very small allocation of bonds might be 0.035 -- 0.04 for a 3.5% ... 4% annual real return. So if your annual expenses are X then to cross the threshold into infinite runway you need to have capital invested worth at least K >= K* = X / r , that is K >= X / 0.04 ... X / 0.035 = 25X ... 28.6X .