Frugality Is Non-Linear (2019)
scattered-thoughts.net
scattered-thoughts.net
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.
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.
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.)
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.
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.
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
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.
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.
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.
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.
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 .
- 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.
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.
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.
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.
My savings rate is currently 68% and I do not live an impoverished life style.
Look up the "surprisingly simple math behind early retirement".