7 ms·

> If you’re an employee working for salary, it’s going to be hard to reach that level of independence. ... You can try to radically lower your financial burn ra

by j_lev 12y ago

> If you’re an employee working for salary, it’s going to be hard to reach that level of independence. ... You can try to radically lower your financial burn rate, but few Americans have taken that step. So many people are quick to dismiss living well within one's means as a way to financial independence. Here's the link to the facts again: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/ http://www.mrmoneymustache.com/2012/01/13/the-shockingly-sim... TL;DR: Live on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7.

seanmcdirmid 12y ago
And don't have kids.
- jamesaguilar 12y ago
  Or do, and cut from other areas/don't get on the hoighty-toighty daycare/lessons/private school treadmill. But kids are definitely an expense.
- phamilton 12y ago
  Having kids doesn't change the math. That's MMM's point in the post. It's all about savings rate. Kids mean it is harder to save 35%, but the math doesn't change.
  - j_lev 12y ago
    I'd add that even if you aren't able to live on 35% for 10 years straight you shouldn't fall into the mindset that it's not worth aiming for at all.
adamio 12y ago
What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already
- JoshTriplett 12y ago
  Depends on how much home you go for; most people buy or rent far more home than they need or can afford. Sure, if you're in the middle of Mountain View or NYC, even the tiniest apartment can be exorbitantly expensive, both in absolute terms and as a fraction of salary (which does not scale to the same degree). Those locales are fundamentally expensive to live in unless you get very creative. On the other hand, in most other locales, if you're willing to live on the high end of "student" rather than on the high end of "professional", while getting paid like a professional, living on a small fraction of your income is quite feasible. And in any case, there's no sense giving up on the idea completely even if you can't hit the most aggressive savings rate; even if you only save 50% of your income, you can retire after 17 years, which puts you on track to retire in your early 40s instead of your late 60s. Even better, as you progress through your career, your salary will likely increase, but your spending doesn't have to match. 50% of your salary right out of college may only be 25% of your salary later on.
  - mfringel 12y ago
    Indeed, "dumping raises into savings" was one of the smartest things I ever did, financially. When I moved from working from a university to working at a mid-sized corporation, I got roughly a 25% pay bump. Every single dollar of that went into savings (fully funding the 401(k) and Employee Stock Purchase Plan, etc.). This did a couple of things... it kept a lid on living expenses because there was no additional cash, but it also provided an easy way for me to raise my savings every year without having to make too many conscious choices, just by moving every pay raise into savings.
- JoachimSchipper 12y ago
  Houses are pretty cheap, compared to how much money you need to retire.
  - lucaspiller 12y ago
    Also as a rough estimate, most yearly rental prices are 5% - 15% the value of the property. If you get a long mortgage (in the UK, 30 years is pretty common) you can easily pay less per month than you would rent.
crdoconnor 12y ago
>Assumptions: >– You can earn 5% investment returns after inflation during your saving years This would maybe make sense in the 1990s or early 2000s but it's 2014! ZIRP forever is the new normal, and judging by what happened in Japan post 1991, it's going to continue for at least two or three decades.
- nmjohn 12y ago
  You should take a look at stock market returns over the last few years, this year included. If you purchased shares of a s&p500 index fund at just about any point in history, your net gain will be well over 5% annual growth. Even if you bought in at the peak of 2007 - the worst time you could have bought in recent history, before the ~35% decline in 2008, if you are still holding on to it today, it's about 6% annual growth. > by what happened in Japan post 1991 1991 Japan and 2014 United States are no where near similar enough to draw that conclusion. I agree that ZIRP forever is not a good policy - and at some point in the next decade we will feel the results of it, but forecasting three decades of economic stagnation is just silly.
  - crdoconnor 12y ago
    >You should take a look at stock market returns over the last few years, this year included. This is exactly what scares me about it. It's frothy as hell. So is it a nice safe place to stash my retirements savings where it will yield 5% consistently until I retire? I don't think so. >1991 Japan and 2014 United States are no where near similar enough to draw that conclusion Let's see: 1) Huge crash in property prices caused by a debt bubble (us: 2008 / them: 1991). 2) Central bank responds by trying to reinflate asset values in order to make banks solvent again. They drop interest rates to zero and raise them as soon as growth returns which will be very very soon now, honest. (both countries did and said this; both promised it would be temporary) 3) Growth doesn't return. Banks still effectively insolvent and are propped up only by high asset values and extend & pretend. (both countries did this) 4) Central bank perpetually afraid of raising rates in case it causes a sharp economic contraction for which they will be blamed. 5) ZIRP thus becomes the new normal (it's been 6 years so far for us, and 23 years for them). So far the path has been identical. Hell, we've even gotten plummeting birth rates too. >forecasting three decades of economic stagnation is just silly. I don't know how many decades it will be, but "the new normal" shows no signs of ending any time soon. Forecasting safe 5% returns is bullshit, anyway.
usaar333 12y ago
Well, except for how difficult that is. Living on only 35% of after tax income requires you either A) live extremely cheaply or B) make tons of cash. Roughly speaking, in California, this requires living off of 20% of pre-tax income. As an example, to live off $35k/year in SF as a single person (which would be considered modest in tech circles), you'd need to earn $175k/year. With a family, this gets more unrealistic. Living off $100k/year (combined) would require earning something like $500k/year.
- jacquesm 12y ago
  Except that you don't need to live off $100K/year. It all depends on what you define as 'comfortably' and how well you are able to control your spending on things you don't strictly need. That way you can build up some capital, make that work for you and relax your spending constraints when you are making more money passively.
- alecco 12y ago
  Perhaps that means SF might not be a great place to work in spite of 6 figure salaries.
  - ForHackernews 12y ago
    Work remotely. Get paid a SF salary; live in back-of-beyond, Arkansas. Retire at 30.
    - pinaceae 12y ago
      haha. not adjusting your employee's wages based on their work location, which company is that delusional?
      - ForHackernews 12y ago
        Companies that claim to be desperate for developer talent?
      - dllthomas 12y ago
ebbv 12y ago
> TL;DR: Live on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7. You might as well say: TL:DR; Move out into the forest and live off the land and you retire today! Come on, man. 35% of AFTER TAX income? I make good money and I'd have to live like a homeeless man for 10 years in order to do that. While working as hard as I do. That's absurd.
- MrUnknown 12y ago
  "live like a homeless man" is going to the extreme. But it's either retire in 10 years, or 30. You need sacrifices to get a reward.
  - j_lev 12y ago
    Except it doesn't feel like sacrifice after a while. Netflix/Cable TV --> reading a book (from the library) or HN. Starbucks --> broaden your horizons and explore the world of "grind your own." Eating out more than once a week --> eating out once a week, and preparing healthy meals the rest. Sometimes having your friends over for dinner. Gym membership --> enjoy looking for new kettlebell and bodyweight exercises that you can do at home. Go for walks with your wife in the evenings, or incorporate walking/exercise into your weekly date. I'll admit that overseas travel is one area where I still overspend, so this would fall into the "sacrifice" category if I were to cut back. Even so, the skills in frugality that you learn while working your day job are useful on overseas trips. Haggling while jostling with old ladies at a wet market (in a language you don't understand) in order to buy ingredients for breakfast and a packed lunch is an experience that many travelers will miss out on. (full disclosure: last holiday was a "relax by the hotel pool/private beach" affair. But even then we had a trip to the supermarket to buy some beer, fruit and snacks instead of pay hotel rates). Anyway, it's not something that happens over night, rather a skillset you work on like any other. You find your own level of "sacrifice," your own groove, that you're comfortable with. Mr Money Mustache is just one guy but there are plenty of people who have entire sites dedicated to the movement who can talk about this idea of "sacrifice" better than I can.
- Ecio78 12y ago
  I don't think it's impossible to do it (I think I could be around that but I should run some numbers before confirming that.. and no, I'm not homeless :)), but it's also not that easy to do the calculation: it's easy for rent and maybe other expenses (internet access, bills) but when you go to one-shot expenses like furnitures or cars etc.. I think there's not an agreed methodology on how to split them over the years (5 years ? 10?) so those could easily spoil the maths.
g_mifo 12y ago
Don't forget health insurance. Everyone forgets hrealth insurance. Having a family is tricky too.
- Ecio78 12y ago
  I think I read that MMM was (is?) paying around 250-300$/month for a family of three. So not that much.
senthil_rajasek 12y ago
>Assumptions >– You can earn 5% investment returns after inflation during your saving years At least, in the US this assumption is not valid any longer. There is no risk-free investment that can earn you 5% after inflation annually.
YZF 12y ago
From that link, under assumptions: "You can earn 5% investment returns after inflation during your saving years" If I could earn 5% after inflation without risk I could retire today (well, I'd be retired many years ago, if that's what I want to do). The problem is that's simply not possible. If you have a family you can't take the risk of putting all your money in stocks as there can be periods of well over a decade where the real return is negative and you'll run out of money. You need a lot more buffer.
- dllthomas 12y ago
  It says "during your saving years", which I understand to mean while you are working. This would seem to leave you the flexibility to adjust if your return doesn't meet your expectations (as compared to an assumption of X% return while retired).

by j_lev 12y ago

seanmcdirmid 12y ago

And don't have kids.

jamesaguilar 12y ago
Or do, and cut from other areas/don't get on the hoighty-toighty daycare/lessons/private school treadmill. But kids are definitely an expense.
phamilton 12y ago
Having kids doesn't change the math. That's MMM's point in the post. It's all about savings rate. Kids mean it is harder to save 35%, but the math doesn't change.
- j_lev 12y ago
  I'd add that even if you aren't able to live on 35% for 10 years straight you shouldn't fall into the mindset that it's not worth aiming for at all.

adamio 12y ago

What about rent or mortgage? In most major cities low rent could be easily 35% of after tax income already

JoshTriplett 12y ago
Depends on how much home you go for; most people buy or rent far more home than they need or can afford. Sure, if you're in the middle of Mountain View or NYC, even the tiniest apartment can be exorbitantly expensive, both in absolute terms and as a fraction of salary (which does not scale to the same degree). Those locales are fundamentally expensive to live in unless you get very creative. On the other hand, in most other locales, if you're willing to live on the high end of "student" rather than on the high end of "professional", while getting paid like a professional, living on a small fraction of your income is quite feasible. And in any case, there's no sense giving up on the idea completely even if you can't hit the most aggressive savings rate; even if you only save 50% of your income, you can retire after 17 years, which puts you on track to retire in your early 40s instead of your late 60s. Even better, as you progress through your career, your salary will likely increase, but your spending doesn't have to match. 50% of your salary right out of college may only be 25% of your salary later on.
- mfringel 12y ago
  Indeed, "dumping raises into savings" was one of the smartest things I ever did, financially. When I moved from working from a university to working at a mid-sized corporation, I got roughly a 25% pay bump. Every single dollar of that went into savings (fully funding the 401(k) and Employee Stock Purchase Plan, etc.). This did a couple of things... it kept a lid on living expenses because there was no additional cash, but it also provided an easy way for me to raise my savings every year without having to make too many conscious choices, just by moving every pay raise into savings.
JoachimSchipper 12y ago
Houses are pretty cheap, compared to how much money you need to retire.
- lucaspiller 12y ago
  Also as a rough estimate, most yearly rental prices are 5% - 15% the value of the property. If you get a long mortgage (in the UK, 30 years is pretty common) you can easily pay less per month than you would rent.

crdoconnor 12y ago

>Assumptions: >– You can earn 5% investment returns after inflation during your saving years This would maybe make sense in the 1990s or early 2000s but it's 2014! ZIRP forever is the new normal, and judging by what happened in Japan post 1991, it's going to continue for at least two or three decades.

nmjohn 12y ago
You should take a look at stock market returns over the last few years, this year included. If you purchased shares of a s&p500 index fund at just about any point in history, your net gain will be well over 5% annual growth. Even if you bought in at the peak of 2007 - the worst time you could have bought in recent history, before the ~35% decline in 2008, if you are still holding on to it today, it's about 6% annual growth. > by what happened in Japan post 1991 1991 Japan and 2014 United States are no where near similar enough to draw that conclusion. I agree that ZIRP forever is not a good policy - and at some point in the next decade we will feel the results of it, but forecasting three decades of economic stagnation is just silly.
- crdoconnor 12y ago
  >You should take a look at stock market returns over the last few years, this year included. This is exactly what scares me about it. It's frothy as hell. So is it a nice safe place to stash my retirements savings where it will yield 5% consistently until I retire? I don't think so. >1991 Japan and 2014 United States are no where near similar enough to draw that conclusion Let's see: 1) Huge crash in property prices caused by a debt bubble (us: 2008 / them: 1991). 2) Central bank responds by trying to reinflate asset values in order to make banks solvent again. They drop interest rates to zero and raise them as soon as growth returns which will be very very soon now, honest. (both countries did and said this; both promised it would be temporary) 3) Growth doesn't return. Banks still effectively insolvent and are propped up only by high asset values and extend & pretend. (both countries did this) 4) Central bank perpetually afraid of raising rates in case it causes a sharp economic contraction for which they will be blamed. 5) ZIRP thus becomes the new normal (it's been 6 years so far for us, and 23 years for them). So far the path has been identical. Hell, we've even gotten plummeting birth rates too. >forecasting three decades of economic stagnation is just silly. I don't know how many decades it will be, but "the new normal" shows no signs of ending any time soon. Forecasting safe 5% returns is bullshit, anyway.

usaar333 12y ago

Well, except for how difficult that is. Living on only 35% of after tax income requires you either A) live extremely cheaply or B) make tons of cash. Roughly speaking, in California, this requires living off of 20% of pre-tax income. As an example, to live off $35k/year in SF as a single person (which would be considered modest in tech circles), you'd need to earn $175k/year. With a family, this gets more unrealistic. Living off $100k/year (combined) would require earning something like $500k/year.

jacquesm 12y ago
Except that you don't need to live off $100K/year. It all depends on what you define as 'comfortably' and how well you are able to control your spending on things you don't strictly need. That way you can build up some capital, make that work for you and relax your spending constraints when you are making more money passively.
alecco 12y ago
Perhaps that means SF might not be a great place to work in spite of 6 figure salaries.
- ForHackernews 12y ago
  Work remotely. Get paid a SF salary; live in back-of-beyond, Arkansas. Retire at 30.
  - pinaceae 12y ago
    haha. not adjusting your employee's wages based on their work location, which company is that delusional?
    - ForHackernews 12y ago
      Companies that claim to be desperate for developer talent?
    - dllthomas 12y ago

ebbv 12y ago

> TL;DR: Live on 35% of your after tax income and you're retired in 10 years. Get it down to 25% and you retire in 7. You might as well say: TL:DR; Move out into the forest and live off the land and you retire today! Come on, man. 35% of AFTER TAX income? I make good money and I'd have to live like a homeeless man for 10 years in order to do that. While working as hard as I do. That's absurd.

MrUnknown 12y ago
"live like a homeless man" is going to the extreme. But it's either retire in 10 years, or 30. You need sacrifices to get a reward.
- j_lev 12y ago
  Except it doesn't feel like sacrifice after a while. Netflix/Cable TV --> reading a book (from the library) or HN. Starbucks --> broaden your horizons and explore the world of "grind your own." Eating out more than once a week --> eating out once a week, and preparing healthy meals the rest. Sometimes having your friends over for dinner. Gym membership --> enjoy looking for new kettlebell and bodyweight exercises that you can do at home. Go for walks with your wife in the evenings, or incorporate walking/exercise into your weekly date. I'll admit that overseas travel is one area where I still overspend, so this would fall into the "sacrifice" category if I were to cut back. Even so, the skills in frugality that you learn while working your day job are useful on overseas trips. Haggling while jostling with old ladies at a wet market (in a language you don't understand) in order to buy ingredients for breakfast and a packed lunch is an experience that many travelers will miss out on. (full disclosure: last holiday was a "relax by the hotel pool/private beach" affair. But even then we had a trip to the supermarket to buy some beer, fruit and snacks instead of pay hotel rates). Anyway, it's not something that happens over night, rather a skillset you work on like any other. You find your own level of "sacrifice," your own groove, that you're comfortable with. Mr Money Mustache is just one guy but there are plenty of people who have entire sites dedicated to the movement who can talk about this idea of "sacrifice" better than I can.
Ecio78 12y ago
I don't think it's impossible to do it (I think I could be around that but I should run some numbers before confirming that.. and no, I'm not homeless :)), but it's also not that easy to do the calculation: it's easy for rent and maybe other expenses (internet access, bills) but when you go to one-shot expenses like furnitures or cars etc.. I think there's not an agreed methodology on how to split them over the years (5 years ? 10?) so those could easily spoil the maths.

g_mifo 12y ago

Don't forget health insurance. Everyone forgets hrealth insurance. Having a family is tricky too.

Ecio78 12y ago
I think I read that MMM was (is?) paying around 250-300$/month for a family of three. So not that much.

senthil_rajasek 12y ago

>Assumptions >– You can earn 5% investment returns after inflation during your saving years At least, in the US this assumption is not valid any longer. There is no risk-free investment that can earn you 5% after inflation annually.

YZF 12y ago

From that link, under assumptions: "You can earn 5% investment returns after inflation during your saving years" If I could earn 5% after inflation without risk I could retire today (well, I'd be retired many years ago, if that's what I want to do). The problem is that's simply not possible. If you have a family you can't take the risk of putting all your money in stocks as there can be periods of well over a decade where the real return is negative and you'll run out of money. You need a lot more buffer.

dllthomas 12y ago
It says "during your saving years", which I understand to mean while you are working. This would seem to leave you the flexibility to adjust if your return doesn't meet your expectations (as compared to an assumption of X% return while retired).