Living Frugally to Retire By 40? Mental Illness or Smart ?

M

marketsurfer

I recently read a blog by a guy in his 20's, a dividend investor, who decided to live like a pauper eating peanut butter sandwiches and investing almost all of his income into dividend stocks so he can be "financially free" by 40 years old.
These habits of living poorly will be hard to break no matter how much money the guy accumulates. Visions of the rich old miser come to mind.

The guy is giving up his prime for money, while others give up money for their prime.

any thoughts?
 
marketsurfer said:
I recently read a blog by a guy in his 20's, a dividend investor, who decided to live like a pauper eating peanut butter sandwiches and investing almost all of his income into dividend stocks so he can be "financially free" by 40 years old.
These habits of living poorly will be hard to break no matter how much money the guy accumulates. Visions of the rich old miser come to mind.

The guy is giving up his prime for money, while others give up money for their prime.

any thoughts?
More...


Not living life to the fullest in the moment, in my opinion is a big mistake. No one is guaranteed tomorrow so why would you eat peanut butter sandwiches for 15 or 20 years so you have some money when you are 40? Seems off. At 40 maybe he will have money but not health. This is not to say spend every penny you have and people should be financially prudent, but life is way more than money. Some of the happiest people in the world have nothing financially.
 
"... giving up his prime for money, while others give up money for their prime...

You're right, of course.

In my former business life and among other functions, I was a fee-based financial planner. In financial planning school, they teach the old saw... "save 10% of your income..." One of my instructors used to lecture with a couple of Kruggerands in his hand, clinking the coins occasionally. He said, "most responsible people try to live on 90% of their income (saving the balance)". "I save 25% of my income. I figure I can 'not make ends meet' as well on 75% of my income as on 90%".

Early in my practice, I'd thought making $100K/yr was nirvana. But as I looked over clients' financial picture I found nearly everyone who made ~$100K couldn't put $10K cash together. They had a bit nicer house, had a bit nicer car, took nicer vacations, had their kids in private school... and paid higher taxes.

Abandoning my notion of "$100K", I concluded "it must be $250K"... wasn't that either. Those with the $250K incomes again lived a bit richer life style... but paid again higher taxes... And still couldn't put any cash together. One doctor's wife (with 4 kids) remarked, "just because my husband is a doctor and makes $250K/yr, people think we have money. We don't".

Bottom line... You must "live below your means" to accumulate money for the future, but it's difficult to live "far enough below" to allow you to accumulate enough capital to be free of money concerns by an early age. Most likely, "accumulating enough" is going to be a life long project.

As far as "saving enough to retire at 40"... it's going to be almost impossible for everyone... except for those who make GOBS of money in a short period of time... and by "gobs", I mean $Millions.
 
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marketsurfer said:
I recently read a blog by a guy in his 20's, a dividend investor, who decided to live like a pauper eating peanut butter sandwiches and investing almost all of his income into dividend stocks so he can be "financially free" by 40 years old.
These habits of living poorly will be hard to break no matter how much money the guy accumulates. Visions of the rich old miser come to mind.

The guy is giving up his prime for money, while others give up money for their prime.

any thoughts?
More...

There's a middle ground isn't there, between the people who spend every penny they have and can "never" retire, and this guy.

The width of the decision making space depends on how much you earn. Someone making minimum wage has almost no options.

Someone in a position earning $200K a year after tax who is happy to live off 9.5K a year can save 90% of their income, and assuming they can earn 5% real returns (aggressive, but just to make the maths work), could retire after a year. Or they could spend all of it. Or they could be happy to live off $100K a year, save 50% of their salary, and retire after 20 years (ignoring real returns they might get from investments whilst working). Or something in between.

Personally, I've been lucky enough to have had the choice. I could have carried on working and saving, and if I'd done another 20 years I'd have been seriously wealthy. Probably unhealthy and unhappy, but very rich. Or I could have spent everything, lived extremely well, and never been able to retire (at least not without drastically cutting my expenditure at the point of retiring).

But I had no interest in doing this, I had enough to support the lifestyle that suits me, with no interest in needing more. In some people's eyes that might put me in the same bracket as peanut butter guy. But in my opinion the other choices are just as unhealthy, in different ways.
 
You have to spend less than you make, and try to save some money, but it's a lot easier said than done. And it's MUCH EASIER if you don't have CHILDREN.

It seems like a lot of these early retirement guys that go super hard core, typically have a dual income situation with their spouse, and no kids.

When you're in my shoes, with 3 kids and a stay at home wife, it becomes exponentially harder to fore go the things that you have to give up to save 40-50%+ of your income like the hard core group does.

If you live in a nice suburb with good schools, it takes a large portion of a high income to just meet the basic expectations that most suburban housewives require :(
 
globalarbtrader said:
"... I had enough to support the lifestyle that suits me, with no interest in needing more. In some people's eyes that might put me in the same bracket as peanut butter guy...
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Not really. The key, I think, is to find things that make you feel happy and comfortable without "spending everything". If you're one who needs to run high expenses to feel "fulfilled by life", then it's going to be a difficult task.

But what if you like to hunt and fish... or are a heavy participant in a sport like tennis? You can feel like "life is good", but doesn't cost an arm and a leg.

Years ago when I was a USTA 5.0 tennis player, I could afford to have belonged to an exclusive private club. Instead, I played almost daily at one of the 2 best municipal courts in town. Didn't cost a penny (except for balls, strings, rackets, shoes... and the occasional case of beer I brought for the other park rats to share). Every day... hanging out at the park with other tennis bums, shootin' the breeze, drinking some beers and picking up a good game. No amount of money could have made that experience any better.
 
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clacy said:
You have to spend less than you make, and try to save some money, but it's a lot easier said than done. And it's MUCH EASIER if you don't have CHILDREN.

It seems like a lot of these early retirement guys that go super hard core, typically have a dual income situation with their spouse, and no kids.

When you're in my shoes, with 3 kids and a stay at home wife, it becomes exponentially harder to fore go the things that you have to give up to save 40-50%+ of your income like the hard core group does.

If you live in a nice suburb with good schools, it takes a large portion of a high income to just meet the basic expectations that most suburban housewives require :(
More...

It's probably too late for this, but the trick is to marry the right wife, i.e. someone who shares your priorities. It's also a good idea to hang out with friends with the same priorities, and who ideally are slightly poorer than you....
 
Watch out for the mindset of living frugally turning into beeing cheap.
One needs to spend money to be able to earn more, both because of higher profits come with necessary investments, and because getting a feel of what a more confortable life is will provide more incentive to increase one's earnings.
Part of my family is stuck with this penny pincher attitude, and it brought them nowhere financially, quite the contrary imo.
There's more to it I can think of, but a bit lazy right now.
 
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