What is the purpose of acquiring wealth perpetually until death? The implication by the author is that non-essential purchases are a complete waste of money.
Going out for a nice meal with friends is an experience. Experiences are valuable. Saving a giant pile of money for your 70s and beyond accomplishes very little.
Sure, we don't want to ever run out of money. But we also don't want to avoid experiences in our lives to build up a pile of money in old age.
Enjoying experiences while you are young and healthy is important for a fulfilling life. You're going to have more fun with $100 at 25 years old than $100 at 65 years old, inflation adjusted.
Enjoy your youth and find a balance between spending and saving. Lifestyle creep absolutely can be a problem, but so can living so frugally that you avoid valuable and unique experiences.
I understand your point but when most Americans can't put together $1000 for an emergency[1] it's clear that the majority don't have their finances in order.
It's also important to remember that for most activities there are alternatives that cost little to nothing but offer the same fulfilment. I enjoy having my family around for a meal as much as going out to a restaurant with them.
I'm reminded of David Graeber's writing in "Debt". Apologies for the long quote; I find the whole text goes together, and I can't see what part can be edited out.
Graeber writes:
All these moral dramas start from the assumption that personal debt is ultimately a matter of self-indulgence, a sin against one's loved ones — and therefore, that redemption must necessarily be a matter of purging and restoration of ascetic self-denial. What's being shunted out of sight here is first of all the fact that everyone is now in debt (U.S. household debt is now estimated at on average 130 percent of income), and that very little of this debt was accrued by those determined to find money to bet on the horses or toss away on fripperies. Insofar as it was borrowed for what economists like to call discretionary spending, it was mainly to be given to children, to share with friends, or otherwise to be able to build and maintain relations with other human beings that are based on something other than sheer material calculation. One must go into debt to achieve a life that goes in any way beyond sheer survival.
...
To this, most ordinary Americans have responded with a stubborn insistence on continuing to love one another. They continue to acquire houses for their families, liquor and sound systems for parties, gifts for friends; they even insist on continuing to hold weddings and funerals, regardless of whether this is likely to send them skirting default or bankruptcy — apparently figuring that, as long as everyone now has to remake themselves as miniature capitalists, why shouldn't they be allowed to create money out of nothing too?
Granted, the role of discretionary spending itself should not be exaggerated. The chief cause of bankruptcy in America is catastrophic illness; most borrowing is simply a matter of survival (if one does not have a car, one cannot work); and increasingly, simply being able to go to college now almost necessarily means debt peonage for at least half one's subsequent working life. Still, it is useful to point out that for real human beings survival is rarely enough. Nor should it be.
>One must go into debt to achieve a life that goes in any way beyond sheer survival.
I strongly disagree with this. Personal debts aren't like government debt, they need to be repaid. The interest rates on personal loans and credit cards are high.
Being indebted closes off opportunities that are available to people with savings. It enslaves you to your job.
Note this has very little to do with being rich or poor. Anybody can spend more than they earn. In fact the poorest need to be most careful because they are the ones most exposed to usurious interest rates.
> Personal debts aren't like government debt, they need to be repaid.
Why?
Serious question. Do you mean this morally (like, "you gave your word"), practically ("if consumers defaulted in high numbers, it would cause economic ruin"), or something else?
As Graeber points out, many ancient societies had a notion of jubilee years, where all outstanding debts were forgiven and debt-servitude eliminated. There doesn't seem to be a fundamental reason why personal debt should be somehow fixed.
Or did you mean that all just practically: in the US (??), one ought to avoid debt, because it's hard to escape in the current legal regime? (Which I'm not entirely sure I agree with; personal bankruptcy is quite common, but, sure, it wouldn't be my first choice.)
Practically. The banks can come after all your money if you default. It's unlikely you can organize a debt strike personally. The government has way more leverage when it owes money.
Practically. If you fail to make payments then they will attempt to recover their money, often with violence.
As a lender, if I expected a debt jubilee then I would stop lending. But I suspect that was the purpose. It's interesting that most religions have an aversion to debt.
Yes, practically, Graeber is not suggesting consumers go out and take on debt willy nilly. He's suggesting rather that we stop moralizing the issue of debt.
The religious connotations of debt are more subtle and surprising than that, at least in Graeber's telling. But I'll leave that to him. The book, by the way, is free: https://archive.org/details/Debt-The_First_5000_Years. ;)
I really don’t know more on the subject than Graeber writes. He describes it as a fairly regular occurrence in some societies, associated with upheaval (like citizens getting angry about overburdening debt or a new regime wanting to ingratiate itself).
I think the point is that $100 at 25 is potentially not as nice as ~$400 at 65 (includes doubling every twenty years due to compound interest at historical market rates). Even with the inevitable inflation adjusted cost to a nice meal over forty years, historically speaking someone who invests $100 at 25 instead of eating it will be able to afford more nice meals forty years from now - of course only provided you live that long.
> What is the purpose of acquiring wealth perpetually until death?
Reducing uncertainty and increasing opportunity, to put it simply. Money dictates the decisions and choices you can make, the more you have, the less restricted you are.
I agree. The graph basically just shows that compounded interest makes a big difference long term, but it doesn't address the larger issues from everyone saving
First of all, the money for a salary needs to come from somewhere, and if people don't spend, then that money can't be used for paying other people's salary
Going out for dinner is also a good way to spend money in an environmentally responsible way. You have to eat any way, but in this fashion you contribute to someone else's salary, if the restaurant is well run there's less food waste, and if you don't enjoy cooking, you can spend the energy you would have used on cooking for other things
To me it would be interesting to see a graph, that showed happiness during a lifetime based not only on earnings, but how those earnings are spend
I think it would show that the best strategy for optimising happiness is to spend on social activities and "experiences" over wealth accumulation and material possessions
I think the argument is that "experiences" can be just another form of consumerism. You've replaced buying stuff with buying "experiences". But that's the great thing about experiences - they don't have to cost any money at all. A backyard campfire with friends, beer, and good conversation is just as memorable as a meal at a restaurant. And way cheaper to boot.
Some of my most cherished experiences have cost a lot. Others have cost very little. It's clear that the value of an experience is entirely unrelated to how much we spend on it. The key to avoiding lifestyle inflation is selecting more of the cheaper memorable experiences.
The purpose of accumulating wealth (not necessarily into old age) is to have security and freedom. Someone who is financially independent at 45 has way more opportunity to experience life than someone chained to a desk until 65 because they have to pay for their "experiences".
This infographic is weird. I mean not everyone on this planet is doing well economically, they obviously follow this advice because they are forced to. By definition it's the wealthy who have lots of spare resources and therefore can afford to "waste" them. So if we force the wealthy to think and act like the poor then who on earth would want to become wealthy then?
You can argue that life is unfair but it can't be unfair for everyone. If it was then poor people might start thinking that their own sacrifices are meaningless. After all, why slave away for some "rich asshole" who doesn't even enjoy being a rich asshole? Just give the excess wealth back if you don't want it.
Spending it on yourself can be selfish and you will quickly run into diminishing returns but you can also spend it together with other people or use it to help others. There is absolutely nothing wrong with spending instead of investing your money if you have enough. It's not like we are being flooded with domestic investment opportunities anyway.
Immediately, this article looks like borderline austerity propaganda. "Don't worry that your purchasing power is being sucked away, learn to live well beneath your means and be happy with that."
From a site that headlines:
clean visuals and valuable insights related to financial literacy, personal finance, and financial independence
Yeah, I find it their focus on sales tax a little bizarre. All governments still need money to function, and either they end up cutting services or raising money through other means (property tax, income tax, toll roads, etc.)
I mean we can worry about the erosion of purchasing power by voting and lobbying our reps while also living well beneath our means and being happy. It's not an either-or situation.
"If you want to be happy, live two notches below your means" was a piece of advice I received at age 22 and have been doing my best to follow ever since. Applied mainly to vehicles (which can cost as much as 1/2 the value of a person's home where I live), electronic devices and things that are considered luxuries. I do not, however, apply this to basics: food, clothing and housing. This strategy requires you to turn a blind eye to what your peers spend on, though. That's not easy for most people.
Coffee is a non-essential luxury? It's amusing to see an infographic about surviving minimum wage trending on a venture capital forum. We're all ramen profitable and scrappy at heart. But what most americans waste in a year on non-essentials folks in the san francisco would call rent.
Technically it is, though for most people the values involved are not an important issue even if they spend $10/day on fancy ones or the equivalent per year on owning and maintaining a fancy machine (and few people will do either).
But yes, as with all optimisation, the main focus should be on the single biggest cost, which in SF is housing: when I briefly considered a career move to SF, the rent was so out of proportion to the rest of the world that “learn to fly and commute by Cessna from Davis” looked relatively sane.
The infographic lists "fitness" as non-essential. Maybe a $300/month fitness club membership is non-essential, but honestly, if one regularly uses the membership, it is still a good deal. Sure, one could go to planet fitness for $10/month, but then you have to deal with a crowded gym that has no free weights and has a "lunk alarm".
So many preventable and expensive health problems arise from lack of fitness, including heart disease, diabetes, stroke, and general poor quality of life.
Yeah my eyebrow was already up reading this article but when I saw "Fitness" as a non-essential I lost all faith. I don't agree with the premise, though I can sorta see where the author is coming from, but if you think that fitness is non-essential given the state of the American healthcare system you're out of your mind.
Being fit is essential. Fitness spending is non-essential, in the most literal sense of the word. All you need to get fit is free time. I agree with you that spending money on fitness is worthwhile. But if you're strapped for money cutting it out is a no-brainer.
It's true, you won't die if you stop spending money on fitness like you would for food/shelter. I would still put "reasonable" fitness spending higher on the spending hierarchy, then, say, alcohol or Netflix.
Every article posted from this site glorifies the concept of FI/RE. This only works for pre-privileged (mostly) white men in the white collar industries. The target audience for this kind of article sounds like a 26-year old male who just finished his first 4-year vesting at some SF tech.
This whole article is out of touch with about 70% of the general population.
I don't understand this thinking at all. As a white male I have always been in the minority in every software job I have ever worked. It has always been majority Indian with number 2 being white or Chinese depending on the company. But regardless even if it were true why does that even matter? We are on a forum of people that are mostly in a white collar industry where this does apply. Does this not apply to my Indian coworkers, my Asian coworkers, my black coworkers, my hispanic coworkers, my black and hispanic coworker, my black spouse? Are they too stupid to be able to follow follow FI/RE? I doubt it because they are all smarter than me. Apologies for my angry tone but I just hate this needlessly divisive talk.
A lot of these expenses fulfill a necessary function for wealth-building: they are social signifiers. A lot of financial opportunities---particularly job offers---come through one's social network, and things like dining out are important elements of maintaining social connections.
Others, like fitness, clearly have the capacity to pay off financially in the form of reduced health expenses and increased capacity to work.
That doesn't mean it should be your sole reason for doing these things---enjoying a fine meal with friends, or having a good workout are gratifying in their own right, and if you're engaging in them just for the possible financial benefit, you're missing out on life. But they are not the financial drag they may appear to be at first glance, either.
Personal fitness is mostly a function of how much time you can spend on it. Money helps with better nutrition and coaching, but really it helps by freeing up time to get a workout in. The workout itself need not cost any money at all.
>> You're going to have more fun with $100 at 25 years old than $100 at 65 years old
You're going to have more fun spending nothing at 25 years old than spending nothing at 65 years old too.
Most people don't quit working because they have enough to retire, they quit working because they are forced to because of medical issues or because they get fired and can't find another job. The point of acquiring wealth is to retire on your own terms.
I like my job, I like to code. I'll probably go back to work on Monday. If something else comes up, I might not. If they walk me out the door, I might look for another job. I will spend the same amount of money next year either way.
>> Going out for a nice meal with friends is an experience
Could be a $5 per person meal, or a $50 per person meal, or a $500 per person meal. Unless you're a foodie it is going to be the friends that make the experience, not the food.
For most things that aren't your particular "thing", premium mediocre is plenty good enough.
Is increasing expenses as a YoY percent a realistic way to look at this though? My investments grow in that way, but my expenses do not. I don't think lifestyle inflation compounds in this way.
For example, if I start buying slightly nicer coffee this year.. I don't continuously keep buying nicer and nicer coffee. I buy $7/lb coffee now and that will definitely not compound into $22/lb in 30 years from a 4% yearly increase.
A much better way to look at it is net new purchases. For example, my 2002 corolla is paid off so its nearly free to drive. If I get a raise I might justify buying a new car. Now this is a significant expense that the author should look at.
44 comments
[ 3.9 ms ] story [ 96.5 ms ] threadGoing out for a nice meal with friends is an experience. Experiences are valuable. Saving a giant pile of money for your 70s and beyond accomplishes very little.
Sure, we don't want to ever run out of money. But we also don't want to avoid experiences in our lives to build up a pile of money in old age.
Enjoying experiences while you are young and healthy is important for a fulfilling life. You're going to have more fun with $100 at 25 years old than $100 at 65 years old, inflation adjusted.
Enjoy your youth and find a balance between spending and saving. Lifestyle creep absolutely can be a problem, but so can living so frugally that you avoid valuable and unique experiences.
It's also important to remember that for most activities there are alternatives that cost little to nothing but offer the same fulfilment. I enjoy having my family around for a meal as much as going out to a restaurant with them.
[1] https://www.cnbc.com/2019/01/23/most-americans-dont-have-the...
Graeber writes:
All these moral dramas start from the assumption that personal debt is ultimately a matter of self-indulgence, a sin against one's loved ones — and therefore, that redemption must necessarily be a matter of purging and restoration of ascetic self-denial. What's being shunted out of sight here is first of all the fact that everyone is now in debt (U.S. household debt is now estimated at on average 130 percent of income), and that very little of this debt was accrued by those determined to find money to bet on the horses or toss away on fripperies. Insofar as it was borrowed for what economists like to call discretionary spending, it was mainly to be given to children, to share with friends, or otherwise to be able to build and maintain relations with other human beings that are based on something other than sheer material calculation. One must go into debt to achieve a life that goes in any way beyond sheer survival.
...
To this, most ordinary Americans have responded with a stubborn insistence on continuing to love one another. They continue to acquire houses for their families, liquor and sound systems for parties, gifts for friends; they even insist on continuing to hold weddings and funerals, regardless of whether this is likely to send them skirting default or bankruptcy — apparently figuring that, as long as everyone now has to remake themselves as miniature capitalists, why shouldn't they be allowed to create money out of nothing too?
Granted, the role of discretionary spending itself should not be exaggerated. The chief cause of bankruptcy in America is catastrophic illness; most borrowing is simply a matter of survival (if one does not have a car, one cannot work); and increasingly, simply being able to go to college now almost necessarily means debt peonage for at least half one's subsequent working life. Still, it is useful to point out that for real human beings survival is rarely enough. Nor should it be.
I strongly disagree with this. Personal debts aren't like government debt, they need to be repaid. The interest rates on personal loans and credit cards are high.
Being indebted closes off opportunities that are available to people with savings. It enslaves you to your job.
Note this has very little to do with being rich or poor. Anybody can spend more than they earn. In fact the poorest need to be most careful because they are the ones most exposed to usurious interest rates.
Why?
Serious question. Do you mean this morally (like, "you gave your word"), practically ("if consumers defaulted in high numbers, it would cause economic ruin"), or something else?
As Graeber points out, many ancient societies had a notion of jubilee years, where all outstanding debts were forgiven and debt-servitude eliminated. There doesn't seem to be a fundamental reason why personal debt should be somehow fixed.
Or did you mean that all just practically: in the US (??), one ought to avoid debt, because it's hard to escape in the current legal regime? (Which I'm not entirely sure I agree with; personal bankruptcy is quite common, but, sure, it wouldn't be my first choice.)
As a lender, if I expected a debt jubilee then I would stop lending. But I suspect that was the purpose. It's interesting that most religions have an aversion to debt.
Yes, practically, Graeber is not suggesting consumers go out and take on debt willy nilly. He's suggesting rather that we stop moralizing the issue of debt.
The religious connotations of debt are more subtle and surprising than that, at least in Graeber's telling. But I'll leave that to him. The book, by the way, is free: https://archive.org/details/Debt-The_First_5000_Years. ;)
Even if ancient accounts are accurate then is there evidence such debt forgiveness was carried out ? And if so how consistently?
Sort of like the current debate on college debt.
:( Basically true except for community colleges, which are the best deal in higher education.
Reducing uncertainty and increasing opportunity, to put it simply. Money dictates the decisions and choices you can make, the more you have, the less restricted you are.
First of all, the money for a salary needs to come from somewhere, and if people don't spend, then that money can't be used for paying other people's salary
Going out for dinner is also a good way to spend money in an environmentally responsible way. You have to eat any way, but in this fashion you contribute to someone else's salary, if the restaurant is well run there's less food waste, and if you don't enjoy cooking, you can spend the energy you would have used on cooking for other things
To me it would be interesting to see a graph, that showed happiness during a lifetime based not only on earnings, but how those earnings are spend
I think it would show that the best strategy for optimising happiness is to spend on social activities and "experiences" over wealth accumulation and material possessions
Some of my most cherished experiences have cost a lot. Others have cost very little. It's clear that the value of an experience is entirely unrelated to how much we spend on it. The key to avoiding lifestyle inflation is selecting more of the cheaper memorable experiences.
The purpose of accumulating wealth (not necessarily into old age) is to have security and freedom. Someone who is financially independent at 45 has way more opportunity to experience life than someone chained to a desk until 65 because they have to pay for their "experiences".
You can argue that life is unfair but it can't be unfair for everyone. If it was then poor people might start thinking that their own sacrifices are meaningless. After all, why slave away for some "rich asshole" who doesn't even enjoy being a rich asshole? Just give the excess wealth back if you don't want it.
Spending it on yourself can be selfish and you will quickly run into diminishing returns but you can also spend it together with other people or use it to help others. There is absolutely nothing wrong with spending instead of investing your money if you have enough. It's not like we are being flooded with domestic investment opportunities anyway.
From a site that headlines:
clean visuals and valuable insights related to financial literacy, personal finance, and financial independence
We get amazing posts which look to have a pointed goal in mind. eg https://www.thriftythoughts.io/sales-tax/
"Go live in Nasau, NH."
Technically it is, though for most people the values involved are not an important issue even if they spend $10/day on fancy ones or the equivalent per year on owning and maintaining a fancy machine (and few people will do either).
But yes, as with all optimisation, the main focus should be on the single biggest cost, which in SF is housing: when I briefly considered a career move to SF, the rent was so out of proportion to the rest of the world that “learn to fly and commute by Cessna from Davis” looked relatively sane.
Assuming the machine's lifespan is 5 years (and that's a very short time for an espresso machine) you are looking at 18K over 5 years at 10$/day.
That's high traffic commercial espresso machine (La Marzocco) territory.
The graphic doesn't state coffee as non-essential luxury, but spending $1,000/year on (buying) coffee.
I find it pretty incredible how much money people spend nowadays on buying coffee, instead of brewing coffee themselves, like past generations did.
So many preventable and expensive health problems arise from lack of fitness, including heart disease, diabetes, stroke, and general poor quality of life.
This whole article is out of touch with about 70% of the general population.
Others, like fitness, clearly have the capacity to pay off financially in the form of reduced health expenses and increased capacity to work.
That doesn't mean it should be your sole reason for doing these things---enjoying a fine meal with friends, or having a good workout are gratifying in their own right, and if you're engaging in them just for the possible financial benefit, you're missing out on life. But they are not the financial drag they may appear to be at first glance, either.
https://en.wikipedia.org/wiki/Milton_Friedman#A_Theory_of_th...
You're going to have more fun spending nothing at 25 years old than spending nothing at 65 years old too.
Most people don't quit working because they have enough to retire, they quit working because they are forced to because of medical issues or because they get fired and can't find another job. The point of acquiring wealth is to retire on your own terms.
I like my job, I like to code. I'll probably go back to work on Monday. If something else comes up, I might not. If they walk me out the door, I might look for another job. I will spend the same amount of money next year either way.
>> Going out for a nice meal with friends is an experience
Could be a $5 per person meal, or a $50 per person meal, or a $500 per person meal. Unless you're a foodie it is going to be the friends that make the experience, not the food.
For most things that aren't your particular "thing", premium mediocre is plenty good enough.
For example, if I start buying slightly nicer coffee this year.. I don't continuously keep buying nicer and nicer coffee. I buy $7/lb coffee now and that will definitely not compound into $22/lb in 30 years from a 4% yearly increase.
A much better way to look at it is net new purchases. For example, my 2002 corolla is paid off so its nearly free to drive. If I get a raise I might justify buying a new car. Now this is a significant expense that the author should look at.