OT: Common sense advice, but may be food for thought for some
Papi_Chulo
Miami, FL (or the nearest big-booty club)
It’s hard to frugal your way to early retirement,’ says self-made millionaire who retired at 34
Hacking your finances — ordering water instead of cocktails, moving to a less expensive area or hoarding grocery coupons just to save a few bucks — has become a bit of an obsession among Americans, especially millennials, looking to get rich and retire early.
Eating $0.69 ramen and skimping on $8 avocado toast isn’t a bad idea ... if you’re a broke college student. Once you’ve graduated and hit your 30s, however, it’s hard to frugal your way to early retirement.
Why? Because a couple hundred bucks isn’t a life-changing amount. The graph below, which uses data from the US Bureau of Economic Analysis, shows that household savings — or whatever income people have left after their spending — has little effect on boosting wealth:
An abundance mindset can make you rich faster
In 2012, I quit my job in finance and retired at 34 with $3 million. But it wasn’t penny-pinching that got me there; rather, it was in large part thanks to my abundance mindset. In the realm of abundance, everything — money, happiness, prestige — is plentiful.
More importantly, those with an abundance mindset make decisions based on the Big Picture. They know that wealth is a byproduct of what they do with their time and money, whether it’s investing in real estate or the stock market, working harder so they can get paid more, refinancing their mortgage or starting a side hustle.
Super savers, on the other hand, tend to adopt a scarcity mindset. They make fear-based decisions and avoid taking risks at all costs. They give into lifestyle constraints, move to cheaper cities, choose to rent instead of buy and so on. In other words, they believe everything is limited and that extreme frugality is the only way to get rich.
Life is harder when you only focus on saving money
All those financial gurus who preach that ditching your $5-latte-a-day habit could substantially grow your wealth — and even make you a millionaire, thanks to compound interest — are simply wrong. Let’s be realistic: You’d have to forgo a lot of lattes and need a very high annual return to turn those dollar bill savings into $1 million.
I’m not saying you should be wasteful with your money. During the initial stages of my early retirement plan, I stayed in on most nights, ate on an incredibly low budget and shared a studio apartment. But that strategy only lasted for so long.
Based on my own experience — and from what readers of Financial Samurai, my finance blog, have shared with me — here are some potential downsides of trying to frugal your way to early retirement:
* You get bored. To save on essentials like housing, food, utilities and transportation, you move from a vibrant metro area to a cheaper city. But after some time, things get dull and you start to miss the tremendous amount of culture, diversity and entertainment that were once at your fingertips.
* You get lonely. While the benefits of relocating to a place with low costs of living is nice, you find it hard to meet new people. (Trust me, the older you get, the truer this becomes.) As a result, your social life slowly dwindles, along with your network of friends and contacts that took years to build.
* Living arrangements become uncomfortable. To save on rent, you and your partner decide to live in a shoebox apartment. But everything is so cramped that you begin to feel suffocated. Also, because there isn’t enough room for personal space, you both find yourselves bickering more than usual.
* You miss out on real estate gains. Since renting a place is initially cheaper than buying, you talk yourself into doing the former. But this ultimately means missing out on homeowner advantages like fixed-rate mortgages, tax incentives, equity buildup and profits after selling. While real estate isn’t for everyone and doesn’t always guarantee wealth, the return on rent is always zero.
* You make less money. Typically, one of the biggest benefits of living in a high-cost city is having access to a wealth of job opportunities with higher pay. If you leave for a cheaper area, those options are no longer available. My advice? Tough it out; stay for as long as possible so you can earn your maximum income potential. Then start thinking about whether it makes sense to move.
* You miss the window for having kids. I’ve met a lot of couples who delayed starting a family in order to save money — only to find that, once they’ve hit their late-40s, their ability to naturally conceive has plummeted. They then have to spend tens of thousands of dollars on medical treatments. But even so, there’s no promise things will work out as planned.
* You can’t afford to have kids. Most people don’t realize that raising children requires a tremendous amount of time and money — until they do the math and discover that the hundreds of dollars saved doesn’t come close to what they need to support a child. Even if you don’t have the financial resources, but decide to become parents anyway, you can kiss early retirement goodbye. (My wife and I have two kids and pay $2,380 per month for a platinum healthcare, not to mention the monthly childcare and preschool expenses — which, depending on where you live, can easily cost up to $2,500 per child.)
The smarter early retirement strategy
First and foremost, adopt an abundance mindset. Know that there is plenty of wealth to go around. Stop putting all your energy into “not spending money” — and start seeking and taking advantage of bigger opportunities:
Prioritize your career. Your full-time job is your winning ticket to early retirement, so find something you enjoy doing and devote as much time to it as possible. Grow your skills, impress your boss and build a strong professional network. Become the best in your field so you can get that raise or, even better, land a higher-paying job at another company.
Aim to max out your retirement savings accounts. This is one of the easiest ways for Americans to build wealth, so focus on maxing out your 401(k), IRA, and Roth IRA. If your employer matches 401(k) contributions, at least contribute that amount. Remember, 401(k)s are pre-tax dollars, which means not only is your company handing you free money, but you’re also lowering your tax burden by a dollar-for-dollar contribution into your account.
Invest your savings. Once you’ve taken full advantage of all your tax-advantageous retirement vehicles, it’s time to build your taxable investment portfolio. In my opinion, the two most common asset classes that will really help you build wealth are real estate and the S&P 500. The goal is to make prudent investments that will end up generating money for you on its own, so that you don’t have to.
Stay on top of your finances. It’s vital that you know where your money is going each month. Try to maintain a fixed budget. Check your bank statements. Use a free wealth management tool to track your net worth, analyze your cash flow and manage your investment portfolio.
All these things will help you progress toward early retirement — at least, at a much faster rate than any budget trimming will do.
https://www.cnbc.com/2020/02/19/hard-to-…
Hacking your finances — ordering water instead of cocktails, moving to a less expensive area or hoarding grocery coupons just to save a few bucks — has become a bit of an obsession among Americans, especially millennials, looking to get rich and retire early.
Eating $0.69 ramen and skimping on $8 avocado toast isn’t a bad idea ... if you’re a broke college student. Once you’ve graduated and hit your 30s, however, it’s hard to frugal your way to early retirement.
Why? Because a couple hundred bucks isn’t a life-changing amount. The graph below, which uses data from the US Bureau of Economic Analysis, shows that household savings — or whatever income people have left after their spending — has little effect on boosting wealth:
An abundance mindset can make you rich faster
In 2012, I quit my job in finance and retired at 34 with $3 million. But it wasn’t penny-pinching that got me there; rather, it was in large part thanks to my abundance mindset. In the realm of abundance, everything — money, happiness, prestige — is plentiful.
More importantly, those with an abundance mindset make decisions based on the Big Picture. They know that wealth is a byproduct of what they do with their time and money, whether it’s investing in real estate or the stock market, working harder so they can get paid more, refinancing their mortgage or starting a side hustle.
Super savers, on the other hand, tend to adopt a scarcity mindset. They make fear-based decisions and avoid taking risks at all costs. They give into lifestyle constraints, move to cheaper cities, choose to rent instead of buy and so on. In other words, they believe everything is limited and that extreme frugality is the only way to get rich.
Life is harder when you only focus on saving money
All those financial gurus who preach that ditching your $5-latte-a-day habit could substantially grow your wealth — and even make you a millionaire, thanks to compound interest — are simply wrong. Let’s be realistic: You’d have to forgo a lot of lattes and need a very high annual return to turn those dollar bill savings into $1 million.
I’m not saying you should be wasteful with your money. During the initial stages of my early retirement plan, I stayed in on most nights, ate on an incredibly low budget and shared a studio apartment. But that strategy only lasted for so long.
Based on my own experience — and from what readers of Financial Samurai, my finance blog, have shared with me — here are some potential downsides of trying to frugal your way to early retirement:
* You get bored. To save on essentials like housing, food, utilities and transportation, you move from a vibrant metro area to a cheaper city. But after some time, things get dull and you start to miss the tremendous amount of culture, diversity and entertainment that were once at your fingertips.
* You get lonely. While the benefits of relocating to a place with low costs of living is nice, you find it hard to meet new people. (Trust me, the older you get, the truer this becomes.) As a result, your social life slowly dwindles, along with your network of friends and contacts that took years to build.
* Living arrangements become uncomfortable. To save on rent, you and your partner decide to live in a shoebox apartment. But everything is so cramped that you begin to feel suffocated. Also, because there isn’t enough room for personal space, you both find yourselves bickering more than usual.
* You miss out on real estate gains. Since renting a place is initially cheaper than buying, you talk yourself into doing the former. But this ultimately means missing out on homeowner advantages like fixed-rate mortgages, tax incentives, equity buildup and profits after selling. While real estate isn’t for everyone and doesn’t always guarantee wealth, the return on rent is always zero.
* You make less money. Typically, one of the biggest benefits of living in a high-cost city is having access to a wealth of job opportunities with higher pay. If you leave for a cheaper area, those options are no longer available. My advice? Tough it out; stay for as long as possible so you can earn your maximum income potential. Then start thinking about whether it makes sense to move.
* You miss the window for having kids. I’ve met a lot of couples who delayed starting a family in order to save money — only to find that, once they’ve hit their late-40s, their ability to naturally conceive has plummeted. They then have to spend tens of thousands of dollars on medical treatments. But even so, there’s no promise things will work out as planned.
* You can’t afford to have kids. Most people don’t realize that raising children requires a tremendous amount of time and money — until they do the math and discover that the hundreds of dollars saved doesn’t come close to what they need to support a child. Even if you don’t have the financial resources, but decide to become parents anyway, you can kiss early retirement goodbye. (My wife and I have two kids and pay $2,380 per month for a platinum healthcare, not to mention the monthly childcare and preschool expenses — which, depending on where you live, can easily cost up to $2,500 per child.)
The smarter early retirement strategy
First and foremost, adopt an abundance mindset. Know that there is plenty of wealth to go around. Stop putting all your energy into “not spending money” — and start seeking and taking advantage of bigger opportunities:
Prioritize your career. Your full-time job is your winning ticket to early retirement, so find something you enjoy doing and devote as much time to it as possible. Grow your skills, impress your boss and build a strong professional network. Become the best in your field so you can get that raise or, even better, land a higher-paying job at another company.
Aim to max out your retirement savings accounts. This is one of the easiest ways for Americans to build wealth, so focus on maxing out your 401(k), IRA, and Roth IRA. If your employer matches 401(k) contributions, at least contribute that amount. Remember, 401(k)s are pre-tax dollars, which means not only is your company handing you free money, but you’re also lowering your tax burden by a dollar-for-dollar contribution into your account.
Invest your savings. Once you’ve taken full advantage of all your tax-advantageous retirement vehicles, it’s time to build your taxable investment portfolio. In my opinion, the two most common asset classes that will really help you build wealth are real estate and the S&P 500. The goal is to make prudent investments that will end up generating money for you on its own, so that you don’t have to.
Stay on top of your finances. It’s vital that you know where your money is going each month. Try to maintain a fixed budget. Check your bank statements. Use a free wealth management tool to track your net worth, analyze your cash flow and manage your investment portfolio.
All these things will help you progress toward early retirement — at least, at a much faster rate than any budget trimming will do.
https://www.cnbc.com/2020/02/19/hard-to-…
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49 comments
I retired at 40. I bought a really nice house in a really nice neighborhood. I traveled around the world. But, I didn’t spend stupidly. No BMWs. No country clubs. Eating most meals at home. My net worth has continued to grow. Significantly ( thank you President Trump !).
I don’t lived frugally. But, I also don’t spend money like Congress. It’s the right approach for me. Moderation.
I see spending money as using money on things that will improve my quality of life and the people close to me - I see wasting money as using it to get things I don't really need just b/c I can, or b/c society says you need those things to be happy or have "status".
(I am refering to comments from Papi, Mark, Jascoi ! They stated in few words what OP author winded through a mountain of words)
And collateral benefits two in just the fun of building a team and likely starting other businesses.
SJG
One of the stupid high risk things today is the public stock market, entered into for bragging rights and for an emotional high.
SJG
Starting your own business gives one life options that other people do not have.
SJG
Should be helping people start businesses. That stock market bubble soaks up money which could be better used.
SJG
https://www.mbusa.com/en/vehicles/model/…
Or the new 4 dr Coupes:
https://www.mbusa.com/en/vehicles/model/…
They have changed their lineup some. 12 cylinders? I think now not actually 6.5 Liters.
SJG
https://www.mbusa.com/en/vehicles/class/…
SJG
I guess these new 4dr coupes take their place.
SJG
In principle I agree with just buying what you need, and mostly that is what I do.
But especially when people tell the Financial Literacy teachers to fuck off, and instead use their own money to start their own businesses, instead of putting it into the public stock market, they have a pretty good chance of ending up extremely rich.
And I do stand for a return to pre-Reagan progressive taxation, to make our society work better.
SJG
But many who have the $ like flashy and showy cars, and the new ones do meet some very high specs, Emissions, Fuel Economy, and Power.
People who tell the financial advisors and the ponzi stock market to fuck-off and instead start their own business, they often have a real chance of becoming very rich.
SJG
I dont apply this to literal investments of course
There comes a point when hoarding it is pointless, at least to me.
If you have more than you’re going to need do something you want
We've bought a home in the mid 80's and had to dig our way out of a substantial loss. We bought another home in the mid 90's and cashed in 6 years ago to purchase our current household with no mortgage. Getting rid of a mid $250,000 mortgage debt and living a mortgage free existence in our state of residency has been our best move. We bought a second home (in the south) at the "bottom of the market" and today stand debt free (without a mortgage) there as well.
I'm not as in to my cars as many people appear to be. I don't see real estate investment as being the be all/end all, but we all want a roof over our heads. I like electronics in the AV/Music end of things, but that exploration can be wallet friendly these days (compared to in my youth). Then there is this hobby - perhaps the best thing I can say to this hobby is that it started later in life for me than some of you.
Cars, Boats, Homes, Hobby's, and Educational Costs can kick anybody's ass today! My smartest friends got their ass kicked on "name brand colleges", instead of allowing "the cream to rise" at a practical college of choice. Practical is up to an individual means analysis, but children's educational costs have ruined many retirement plans on the pragmatic execution date. In my mind more mad money has gone in to educational costs than cars in the "keeping up with the jones'" dynamic. Perhaps I spent that skim here on the other hobby - Keeping up with the TUSCLers!
“Why are you doing it? How much better can you eat? What could you buy that you can't already afford?”
Yes, it’s important to provide for those you love. But, it reaches a point where they don’t need more material goods. A house only needs to be so big. A family day at a local beach can mean more to a child than an expensive trip to an exotic locale. They’d rather have a father who is comfortable and secure than one who is always competing to afford ever more expensive stuff.
Consumption for the approval of others is a sign of a small penis.
Umm, no. That’s not what I’m saying. But, if it helps you justify your obsession with proving your success to others, go ahead and tell yourself that.
What makes me truly happy is not to allow my accumulation of assets to dictate that I will never have the time to sit back and smell the roses (per se)! Everyone's means allow everyone different choices to make in life and the only time someone else's choices effect me is when I see someone I care about place themselves in an intolerable life position when trapped by the possession or bragging right's game.
The article in the OP actually argues the opposite - it argues against penny-pinching and argues against trying to be a super-saver - it argues that being frugal is not the way to wealth.
As w/ most things, it's the extremes that are often problematic - i.e. the guy that drives a $150K car and only wears $2000+ suits but it's $100k+ in debt, is one bad extreme - as well as the guy that never treats himself to anything nice and it's all about having the biggest bank-account possible then one day life has past him by.
How different folks choose/prefer to spend their $$$ and on what is varied and there's not one right way for everyone as long as IMO one is being financially responsible and not living beyond their means (although some may argue that it's best to live life all out even if it's beyond one's means but I think most on this board probably lean conservative in many ways).
But now, I am more interested in building my organization. Personal extravagance would be a hindrance not a help.
But on the road, away from the org, that is different.
SJG