At some point during my college career I learned about the Rat Race and was propelled to discard my desire to climb the corporate ladder and decided to live a life similar to jfoucher (How I live on $7000 per year). However, after living frugally for a couple years I saved up enough money and decided to travel the world. Fast forward to today - after witnessing first hand the lives of those less fortunate while traveling in SE Asia I realized how self-centered I was to sit out of the "Rat Race" and meander along the road of my meager existence while there were other people wishing they had the knowledge, opportunity, and capacity to live and succeed in our society. There are people all over this planet that don't possess the means necessary to make impactful changes in others' lives, let alone their own, and so I asked myself: What if I took my determination and drive (clearly demonstrated in my previously frugal lifestyle habits) and applied those characteristics to actions that might benefit other people? Would those actions then be better, or more worthy, than the actions of squeaking out a living on $7,000? Personally, I decided they would be and have since then devoted myself to helping bring about change in this world.
I'm not saying everyone should view their life this way, but I understand what the author is describing and I have went through the internal struggle of trying to decide what to do with my life. Recently, I decided to go back into the world of the Rat Race and try to make the lives of those around me and myself better (building interesting software, spreading joy and wisdom, raising awareness of certain issues, etc.). I don't unconsciously spend money on things I don't need but I do if it deems fit. More over, I don't think you need to have a garden or be a homebody to live frugally.
I hope other smart, determined people don't take the route of sitting idly by the side as hoards of unaware, materialistic consumers perpetuate a system of greed and excess.
I pretty much spend my time trying to "educate" unaware, materialistic consumers. I've affected more people than I can count (those who've told me) and presumable more beyond those (who didn't tell me).
So I have a blog, a book, a forum, and now a wiki. There's not really a rat race option for what I do, but if there was, maybe I'd take it.
Incidentally, I don't really have a problem with people using the freedom they've gained from stepping off the treadmill to do nothing. If someone wants to use their freedom to become a "beach bum" I have no problem with that.
As someone who has started down the path of growing a passive income stream, your article really resonated with me. I found myself nodding along to the points you were making, since I have had similar thoughts many times before. But the parent comment made a good point: that money can be a powerful mechanism for shaping the world you want to see. I don't know the answer, but I will have time to think about it as I build out an income stream to support my living expenses.
Yes, money can be an agent of change. Time also. Some may do best working in a traditional structure. Others do better on their own. I helped found a nonprofit organization during my first year of "retirement". However, I found that I could be far more effective on my blog talking directly to people instead of spending time writing grant proposals, so I quit the nonprofit.
Out of curiosity, what does/will your passive income stream consist of? I have recently recognized how important passive income is to enabling my goal of fewer hours of labor, but I am frankly new to the idea and just getting started.
Dividend growth stocks, like PG, MCD, PEP, KO, LMT, KMB, WM, etc. They don't swing too wildly with the market (they even stayed steady during the recent down/upswings), and they generally increase their dividends at a faster rate than inflation. It's a sort of "get rich slowly" scheme, but it's fun to see a growing share of my expenses being handled by passive income.
Depends on your goals in life. $7,000 is definitely doable. But I don't want to live in an RV. Indeed, I want to live in a walkable neighborhood with groceries, low crime, and easily accessible entertainment.
The site probably isn't a convincing case for a general audience. Which is a real pity, because a lifestyle of $10,000 to $12,000 a year is very doable, even for a single person, even in the Bay Area, even with regular outings and entertainment, and even with flushable toilets.
It is really a pity. If I had just claimed that I spend twice as much as I actually do, people wouldn't be so quick to discard the idea. However, it really is a matter of efficiency. It wouldn't surprise me at all if my neighbors spent 50%, 100%, 200% or even 400% more than me despite living in essentially similar structures and enjoying similar things. As mentioned elsewhere, it's mostly an attitude towards what money is, means, and can do for you.
Thanks for telling the truth. I'm at around $18k/y and it's good to have motivation to do better.
Rent is $6k right there. Ouch. And this is a small town.
Food only gets cheaper the more we do our own, and after becoming vegan. I spent $20 on food in the last week on the fridge is stocked for another week to come. Squash is just cheap, etc. We've gardened before but have nowhere to do it right at our place, though hopefully will soon on the deck.
The title of the article is slightly misleading in that it's $7,000 per person, so it's actually $14K in this case. I know that's a little nit-picky, but things like rent would eat a good chunk of that $7k.
Living on $14k is certainly possible, and the usual suspects can be cut to save some cash:
* Drop cable TV
* Same for cell phone - keep one pre-pay for emergency and use Skype for business/personal
* Stick to one car if at all possible (easier if someone can work from home or has flexible work hours). Negotiate lower insurance rates if possible.
* Don't eat out
* If internet is essential, go for the cheapest package available.
There are usually offers for new internet customers that give low rates for the first year. However, when your year expires you can call them up and ask to be put on a new special. This worked for my wife and I when our rates went up, and we got upgraded to a faster connection to boot.
That's really the biggest money saving tip of all - ask politely. It doesn't always work, but you lose nothing and can gain some decent savings over time.
He lives in a trailer at an RV park also... that right there cuts your rent significantly. Hey, if you want to live in a trailer at an RV park for $400 a month, barbecue with charcoal because it costs less than propane, and grow a few vegetables by the side of your trailer in a makeshift garden, more power to you.
Unfortunately, I prefer living in a solid structure made of wood and bricks that doesn't wash away in a flood or blow away in a storm.
Permanent structures do wash away in floods and blow away in storms. And if you have a storm warning, you can actually move your house out of the way of the storm.
Yeah, it's not rocket science. The biggest money losers are too much house and too much car and all the interest payments that go towards it. Even by eliminating the interest by paying in cash you're already cut your expenses on those items by 50%. The rest is just details, but most importantly. Don't buy ANYTHING on credit.
Okay, to be more precise: >>Don't pay any interest or fees<<. I do run online purchases through my credit card and then pay off the balance in full every month.
That's a good point and one of the frustrating things I find about an otherwise awesome blog. Living with a significant other is cheaper than living by yourself because I really doubt you're going to want to live in really close quarter with someone your not sleeping with.
I was living on 5-7k for five years before I got married. Being single or married doesn't materially affect the math. If you're single, you can live in a smaller space, but you'll spend slightly more on rent. This is nearly a wash. However, if you're single you don't have to go along/compromise with your partners less than frugal choices.
My rent (which is the cheapest possible in town) is $6,000 (not including heating oil, which is ~$75/mo in the winter) a year for a very small room of a duplex in which each half is shared by 4 people. In a very different real estate market I've been in within the last two years (KY houses are on the order of 1/2 the cost of houses in NH), it's still about the same price for rent. You won't make it on the $1-2k that's left over from that. How long ago were you living on <$7k?
Are you positively sure you have the cheapest rent in town? We lived in the same city for two years before we found a place that was 30% cheaper. Go to craigslist and set up an RSS feed. The underpriced places don't stay on the market for more than a day before someone snatches them up.
Yeah, it doesn't get a hair more than $500/yr cheaper and would exclude bus access. (note the shitty living situation) Part of the reason is that NH has a high property tax instead of having income tax. That's passed on to the renters.
Have you checked out Seabrook (dunno what your feelings are towards salt marches and nuclear plants). I hear they almost pay people to live there. We were talking about moving to the Free State for a while but the property taxes are scary. Now it looks like we'll be buying a house in Oregon.
I've been living on $6000 a year for the past five years. Next year, I intend to spend 10 months in New Zealand on <$8000, including travel, room, and board.
It's very doable. I rent a very nice room in a pleasant suburb. I eat well, if repetitively. I have enough pocket money to go out somewhere nice with friends now and again. I don't make much more than I spend --- product, in part, of a BFA --- and sure, an extra few thousand would improve my lifestyle considerably. But I don't need much more, and I've been very happy and very comfortable.
It isn't hard to do. It's only "hard to imagine" for those who aren't doing it. It's like being a runner and having a hard time convincing couch potatoes that running isn't primarily dominated by sweating, side stitches, gasping for air, and near heart attacks.
The article is mistitled, as there is literally nothing in there about how he allegedly lives on 7K a year, other than what he eats for dinner (apparently every night.)
For those living in RVs, boats, and so on, can you comment on the amount of time you spend maintaining your living space?
As a startup founder, as much as I am concerned about cutting costs, I am also concerned about the opportunity cost of spending time doing maintenance. E.g., even if you fully own a house, a house can be a lot of maintenance work. Depending on how you value your time, that can reduce how much you "save" on rent.
It's all about perspective. As physician and entrepreneur I like what I'm doing and enjoy my life. The money is a side effect that grew over time (when I started in the ER I was paid less than $200 for 24 of work).
Money isn't the objective, but creating a meaningful lifestyle, being a good husband and leave something positive behind is what really matters.
My two cents of happiness :-)
This is an amazing blog, just ordered his book - thanks for posting this.
I love the overall theme of his blog, which is that society brainwashes us, or most people, to derive utility out of life through consumerism and materialism.
Jacob Fisker, the blogger behind ERE, I think is far richer than what his finances and personal budget indicate because he's actually living life for himself and optimizing it for maximum utility (spending the time wisely to do what he really loves doing).
Nor does he seem aware of inflation (see his "grandparents" paragraph at the end). The site below suggets $7k in 1950 would be about the same as $65k today, and I would hope people aren't amazed at the notion of being able to live on $65k per year.
Nowhere in that paragraph does he say or imply that grandparents where living on 7K dollars in nominal terms. He simply notes that they lived simpler lives. That is supported by the data. Our grandparents had median incomes about 40% of what we have today (in real terms) see:
http://www.stanford.edu/class/polisci120a/immigration/Median...
I am aware of inflation. I did not intentionally imply anything about CPI. I was referring to the old generations attitude of "make it do or do without" compared to the current attitude of "just charge it on the card".
Both are straw men that represent the extremity of a population.
There's a bit of rose-tinted glasses going on here, isn't there? I don't particular buy into this notion that the previous generation was oh so virtuous, while this one is just daft as a brick.
Well they existed before the concept of easy credit, so it's not really a matter of them being more self disciplined--just sort of the way things were. For most people, you saved up and paid cash for everything b/c that was the only option.
he implies that he owns his own home. maybe he inherited it?
he's also in his mid-30's. it's possible to have bought a property on a 15yr mortgage, paid it off on a modest salary, have some money saved up, and then just chill out.
if you don't have kids, this works. if you don't have any medical problems that cause your insurance carrier to illegally drop you (what are you going to do, sue them?), this also works.
my only question is why do this in the US? on $7k a year you can live like a king in other parts of the world...
We bought our home in cash. Our home is currently an RV---bear with me here. The cost of it was $16k. We pay a combined $6000/year in rent (half of which is my half). You need $200k in investments to support such a cash flow (which I have). So the total cost or asset base or our current living situation is about $216,000 (not counting repairs which I can mostly do myself). We're seriously thinking of moving to Oregon (away from California) buying a house in cash for around $125,000. If real estate taxes are $1,500, this requires 50,000 in investments. Thus the cost of living of switching over to a house would be $175,000. Again, a lot of the maintenance I can do myself. It would be cheaper to not live in an RV, but it was a fun experiment.
What rorrr said, but not in quite such an inflammatory tone.
I think it's great that you've found a lifestyle you enjoy that also allows you to get by with very little money. What I take issue with is your judgmental tone in the article - as if there's something wrong with everyone else for not wanting to live in an RV.
This country faces a dire economic crisis, and there is no doubt that the income of the middle class has been getting shredded - and continues to drop. Unemployment is at an all-time high. It seems incredibly callous and foolish to sweep these all away with a "well, maybe they should be living like me".
It wasn't written "for a general audience". I and my regular readers are regularly judged negatively for not choosing to consume and go into debt like everybody else so the blog is more of a support group for those who are willing to go against the stream and actually save money so they can avoid the typical middle class problems above.
I admit, there's a bit of "I told you so"-attitude, although one quickly learns that nobody really wants to take responsibility for the poor choices they've made or for that matter are going to make. Whereas everybody is willing to attribute their good decisions to their personal genius. The general zeitgeist of the housing boom and subsequent bust illustrates this well.
> "for not choosing to consume and go into debt like everybody else"
What everybody else? There's a certain contingent of people out there who have spent wildly beyond their means thanks to cheap credit, have poor fiscal responsibility, and suffer justly for it. You seem to grasp onto this and extrapolate it across all the "normals" you see.
I know a great number of people who are fiscally responsible, have no debt, are fiscally prudent, and yet do not take their frugality so far as $7000 in an RV. Many of these people have suffered through this recession, and yet you seem so glad to lump them into the "irresponsible debtors" group and just dismiss this nation's problems as entirely self-inflicted.
How utterly presumptuous. Your moralizing is not helpful, and from the blog post and your posts in this thread, you come off as smug and judgmental as those who would judge you negatively for being frugal and living your lifestyle the way you choose.
There's a gigantic swathe of middle ground between the indentured debt servant and the completely liberated, ultra-frugal. You seem to just completely ignore this and try to push as many people as you can, in your mind, towards the former extreme.
What I'm trying to say is that people who are ultra-frugal are sometimes told (insofar they don't keep it secret) that their life sucks and they're not having fun or various things about their stuff. (See examples above.) This is followed by comments about building credit and some moralizing(?) that we should be cool and spend like everybody else.
The millionaire next door [there or to be] types---the silent majority?---may get caught in the crossfire.
However, having seen this recession coming from two years away and having tried to warn people about it only to be told by some/many that there's no problem and everything is fine, etc. I can't really sympathize that much, sorry. While it may not be someone's fault for being laid off or not being able to find a job, it certainly is their fault for not having the savings to cover two years of unemployment given the known 20% risk of it. I don't feel smug about it. I feel exasperated having told people who proceeded to do nothing. And now they want my sympathy?
The Cassandra complex comes to mind. Given how I come across to you, it indicates that I'm just a poor salesman when it comes to getting my point across to your demographic.
especially when your lifestyle was enabled (albeit, in this specific instance), apparently, by public spending (grad school, postdoc, and subsidized higher education in his country of origin)
you're effectively a net neutral on the system, however, when you factor in all that society has invested in you, you're very much a net negative.
I think you can make that argument for my country of origin. They can add negative for the brain drain as far as I'm concerned. I guess the same holds for a lot of Indian or Chinese students who came to the US. As for grad school and postdocing, the way it works is that this has very little to do with training or investing. I feel I earned every cent they paid me for doing research.
Grad school and the postdoc system pretty much a cheap way for universities to get labor at 50-70% of the private market rates. Universities call grad students "students" so they can get around various labor laws and not paying for things like health insurance. The use postdocs because it's easier to lay off people compared to staff scientists.
So they hire persons with masters degrees to do grunt work for 25k/year and call them grad students. Then they hire the smart ones with PhDs for 40k/year and call them postdocs.
Basically you're put in front of a computer or in a lab and told to work on this task much like private industry except maybe your work is a bit more interesting(?) You write reports about your work called "papers" and after 4 years you write a giant progress report and call it a "PhD Dissertation". There's very little actual training or education involved in this process. Or at least not more than you find in the private sector.
It's pretty much labor like it is in private industry. I guarantee you that without grad students and postdocs, very few scientific papers would be published, because grads and postdocs are the ones doing the actual research.
When you see news of some professor discovering something, you can pretty much be sure that it was discovered at 11 in the evening by some grad student or postdoc of his. He was just the manager and subsequently in charge of public relations. That's fine BTW ... it's not like Steve Jobs single handedly built the iphone, but he still gets all the credit for it.
I myself published over 30 papers in my career, many of them first authored putting in 100 hours week a lot of the time, so I think I earned the money I made.
You can argue whether those papers are the equivalent of an $800 toilet seat, but that's a different discussion altogether. I put in the sweat equity "on the bench". I earned that money.
Professors mostly spend their time teaching, managing their workers, excuse me, "teaching" their grad students and postdocs, and writing grant proposals. Academia has the same typical structure as anywhere else. The only time you spend any meaningful effort being "educated" without giving back is as an undergraduate.
Not at all. I can vouch that he's certainly has had a positive impact on my life and on the lives of those I have recommended read and follow his advice.
The nice thing about retirement is you can engage in "charitable" endeavors (which really is what his blog is basically, I see no way he can make a lot of money off of it and that's not his intention).
Not he spends his life inspiring and educating people about how to control their finances, and make money serve them instead of the other way around. That would be a very valuable social contribution.
And yes his lifestyle is extreme, but people don't have to follow him that far to get benefit from what he says.
oh! neat! some friends of mine live in a van (it's a big van but not quite an RV), it's a pretty sweet deal.
I think you have a good thing going on for yourself. if you can save that kind of money it definitely changes how you interact with the world. I only had 1/10th of what you have in investments and it definitely made me bolder in the world.
I wasn't being hyperbolic about insurance carriers though, and I'm sure you already know about this but I'd really caution you (and others) on this. As a small (10 person) company, we had a health insurance policy that was dropped without cause by the carrier. They told us to our face, "sue us". They know we won't, because what would it accomplish? We'd lose (burn) money, they have money to burn, it makes no sense.
When you're small (an individual or a small company), they can get away with doing that to you. So, you're making payments on a policy, but I'd wager that when you need it, is when you'll be getting a letter in the mail saying "after we received your letter telling us to terminate your policy, we did"...
plus you have to pump your own shit and piss regularly.
In every RV park I've seen, people normally use the shared facilities toilet and shower facilities. Same thing with live-aboard slips at marinas. It's more like living in a dormitory than a studio.
Those common facilities are mainly intended for tourists and weekenders who would rather not have to clean their shower, toilet or deal with the pump-out station after they go home again.
Permanent residents (like we are) will have their own sewer hookup (a hose coming out of the RV which is tied into a receptacle in the septic or city sewer system), electricity, and water. So it's more like living in a small house that could technically be driven away. Every few days I have to empty the tanks which, since everything is permanently hooked up, means pulling two levers that flush the tanks into the sewer. It takes about five minutes to empty them and I can go and collect my mail while that happens.
my only question is why do this in the US? on $7k a year you can live like a king in other parts of the world...
That was the strategy I was expecting to see (the other low-budget living strategy I've seen promoted a couple times pretty much amounts to subsistence farming).
I was a bit surprised to see his total rent/utilities given as $270. I've lived in a pretty cheap area, and rent alone was that much. Of course, living there, $7,000/yr wasn't out of the ordinary for living expenses and some entertainment (though calling a car "optional" there is a stretch).
Agreed. The author is lucky to have a taste for the quiet life. My wife and I would bite each other's heads off if we stayed in a van eating salad and I'm sure my grandparents would have too. I'm happy to pay for a bit of light hedonism.
> Regardless of how much I made, I think I would pick up a goddamn broom myself before I started talking about my financial struggles. The gall!
Paying someone else to do cleaning is one of the easiest positive ROI moves for your life. Not just because it frees up your time, but also because living somewhere clean and organized just does wonders for your sanity, mental health, physical health, productivity, ability to entertain others without cleanup lead time, and has follow-on effects of making you want to be better groomed, prepared, and organized because that's what happens when you live in a hyper-clean environment. Also, everyone else treats your place nicer because it's clean, and messing up a clean place is bad.
So yeah, pay someone to come clean every week. It's cheap, it's like $10 in developing countries and $50 max in developed countries. Well, well worth it. Especially if you're any sort of skilled professional at all that works from home ever on anything.
When you have kids then you really live on $7000 per year. Believe me.
So maybe when you are younger it is good enjoy a little because when middle age crisis comes (and it will come) and if you didn't enjoy when you were young all kind of crazy shit can happen. Happen to my father in-law: all his millions are worthless...
The article comes from the same reason I'm running the A Buck A Plate blog http://abuckaplate.blogspot.com - doing it because so many think living well for cheap can't be done.
Why do people here have such a fascination with toilets?
The way a regular toilet works: Water automatically enters the bowl. You do your thing. You press a lever.
The way an RV toilet works: Water enters the bowl when you press a pedal. You do your thing. You press another pedal. That's my toilet anyway. From the perspective of one's posterior it's pretty much the same thing and you can do all this while sitting on the throne.
Some RVs have flush toilets or even vacuum toilets.
Most RVs have toilets. And beds. And stoves. And refrigerators. And heaters. And other major amenities. Heck, the toilets even use _drinking_water_ to flush - such wasteful luxury. Never mind the ability to just pick up and go anywhere anytime.
Most RVs have AC, ovens, TVs, and other luxuries.
To much of the world, living in an RV is living well.
I was going to complain about how this was extreme, but that would be redundant given his URL. The point isn't that we all can/should live off of ~$7,000/year, it's that we can cut down on the crap we don't need, or things that will be gone or obsolete in a year or less.
However, the great thing about this article is that it reminds me to find some kind of balance. The impression I got was that the author spends nearly half his time budgeting and penny pinching, with little room to enjoy life. Or, if I could be a little more presumptuous, convinces himself that he enjoys this life so that he doesn't have to go out and earn far more money.
Nah, after a while it just becomes automatic. Kinda how toddlers must concentrate on how to walk but adults don't. Actually, I have a hard time writing about money saving tricks these days because it's all automatic/subconscious to me.
As someone else noticed in this thread, it's more of an attitude.
Also to clarify a bit, the method I recommend is more about crushing pounds or dollars than pinching pennies. It's much easier to attack a few large expenses like housing, transportation, and food than worrying about hundreds of little things.
That's not the case in other countries, my bureocratic-loving one for example requires you to pay taxes (social security to be more accurate) on painting your own house.
I agree with the author that there's much to be gained by shrugging off the consumerist expectation that we spend all of our income on junk. The next step in that progression though, in my opinion, is to learn to obsess over money exactly as much as is necessary, then start paying attention to what really matters in life. This guy's OCD approach to money sounds exhausting.
I agree with you to an extent. However, it's a lot easier to think about the money you do have than it is to work for the money you don't have. My attitude towards spending is more of a game to see what I can get away with, e.g. getting the same thing for much less than just ordering it on amazon with next day shipping. I find this entertaining much like some people find shopping entertaining.
Basic economics tells you that this is not a good growth strategy to adopt especially if you have a consumption-based economy, and not savings-based one (aka China, India). In short population is going to increase over time, resources are going to decrease over time, in order to keep GDP per capita in line with an increasing population, you cannot just decrease your spending (or tighten your belt). You have to grow by increasing income levels, and thereby increasing aggregate demand.
If we only increase incomes, and dont spend, then aggregate demand goes down, leading to less consumption, less investment, which leads to lower employment opportunities, which leads to even lesser consumption, and so on so forth until we get to a severely regressive cycle, where our industries shut down.
Point is, more power to you if you want to spend less, but making everyone else adopt your way of life because it works for you, does not mean it will work for them, and in entirety would not promote greater economic growth.
PS for those arguing 'well it works for China'; well the USA is not China, and they are big structural differences which make it unnecessary and useless to adopt that model.
Well, not to worry, most people won't make "the sacrifice".
Maybe if we transitioned to a production based economy but producing only quality items we needed. That way we wouldn't have to work so much. Unemployment would go down because people weren't scrambling for the the ability to consume. Concepts like planned obsolescence would go away.
A lot of what we refer to as "growth" is just an indicator that the volume of economic transactions is going up. However, just because the economy is getting bigger doesn't necessarily mean it's getting better. Breaking windows and replacing them creates economic growth, but it doesn't make the house better.
Well you have a point, and this model of an alternative economy based on self-sustenance, producing what we need is something that is being tested by a philosopher Frithjof Bergmann. Unlike most (read all) philosophers, Bergmann actually practices his ideas which are detailed in his book, "on Being Free". He talks about such an economy based on producing little and necessary items within communes and trading them amongst each other:
They are actually applying New Work to various parts of the world including South Africa, Iraq (in Kurdistan) etc. I know this because in undergrad I worked with him on this project for a year.
However, the main problem regarding an alternate system is quite philosophical; that what is the basic human condition? Hobbes came up with an answer calling life "nasty, brutish and short" and that our animal spritis needed to be kindered. In government we did it through Rousseau's suggestions that we need a system through which we do not kill each other. I don't kill and take your money/land, and you do the same for me. In economics, we came up with an answer through capitalism, and saw the biggest implosion of wealth ever in the 20th century. So it is hard to argue against that capitalistic/democratic mindset unless there is a viable alternative especially in the US, where it has worked the best for the better part of the century. As far as crises go, we have seen destruction and subsequent creation of wealth throughout this century, so that is not a reason to give up I think.
I would say that the OP understands that a growth economy is not the end-all be-all of human progress, and in the end may not be ideal.
Maybe it's not about imposing a way of life on other people, but realizing that the underlying philosophy of a growth economy is flawed- it's inherently true that limitless growth is impossible, so in some sense we are all just waiting until we either slide over the top of that curve naturally, or people realize that there are other dimensions to the problem than just the x and y plot of that graph.
It is hard to argue against the underlying principle of the growth economy because it is the ONLY principle that has served has so well over the past century and gotten so many people out of poverty, and increased overall wealth, distribution of wealth is still a problem though. We are unequivocally better off today in standard economic terms than we were a 100 50 or 25 years ago. Growth can be tempered and slowed but you cannot look at growth in entirety.
In Europe, Japan, Singapore you have a shrinking population and as such you need to create less wealth to support growth, whereas in China India you absolutely need exemplary growth to make those lives better off.
It's true that a growth economy is needed in third-world countries, but the curve is also steepening, so it's not as if we need another hundred years of similar progress in order for everyone to come closer to parity (that is, the curve of human progress in general)
It's quite easy to argue against the underlying principle of the growth economy, because it pre-supposes that the previous 100 years of industrialized capitalism are what's going to continue to fix the world's problems.
It also scares me that China's growth, for instance, is tied to me being able to go to walmart and get a cheap skateboard I'm never going to use and a huge LCD TV I'm going to throw away in two years. Our economic system of moving capital and wealth creation is now dependent on being convinced to want things we don't need, and shuffling around the systems of credit we created for that system. It used to be about creating value- mostly having to do with real things that fulfilled basic human needs, and now that the market's power isn't based on that, credit default swaps are what we come up with. It's a logical conclusion of a system that only has the principal of growth behind it.
Obviously our market-based capitalistic system is the only viable way to efficiently move capital around right now, but you can't blame someone for being unhappy with the underlying message that growth is the only way forward, forever. Some people would argue that we've already reached the peak of the curve in the first world.
I'm sorry, that's not "basic economics". That's neo-keynesian economics. (They call themselves keynesians, but they aren't following what keynes said.)
The word "capitalism" comes from the word Capital. You accumulate capitals so that you can invest it in productive assets.
You could blow your money on a consumptive lifestyle, as you advocate.
Or you could save that money, and use it to start a business. Notice, your business has value, and if you do well, you will have turned the money you saved into a lot more money. You will employ people, and you will make products that make your customer's lives better... generally by lowering the costs for doing things, for them, making them richer.
This increases productivity.
Your argument is only looking at one side of the coin and kind ignoring most of economics.... but it is the perspective put forth by politicians who want to spend spend spend. They want to spend because spending gets them power. But it damages the economy (government spending.)
Henry Hazlitt wrote a good book "Economics in one Lesson". It's really a really good primer on economics.
Every Austrian economics school recommendation should immediately be followed by the caveat:
The Austrian school of economics is like the anti-climate change minority, but in economics. If you accept their premises you are in the minority of professionally recongized economics.
If you had an economic argument to make, you would make it.
Your reliance on ad hominem backed by the fallacy of appeal to authority where the authority is non-existent shows that you are making an ideological political claim, not an economic one.
The comparison to global warming is also hilarious, because, like the political ideology you're espousing it too has been disproven by science. I can do it right here: IR absorption of CO2 is less than water vapor. If you understood the science of global warming, you'd be devastated.
The thing is, when you understand a subject, you can defend your position with arguments. You don't need to rely in the low form of characterizing your opponent or their arguments in derogatory ways. You can simply make counter arguments, presumably, if you're right, superior counter arguments.
That you have chosen not to shows that you've replaced ideology for thinking.
Ok let's all save money and try to be entrepreneurs, is that what you are advocating? Lets see, in your economy we are going to have a lot of producers, but who is going to consume these products if people are saving. Now if you say China does it, then I would answer back that China does it because it has the US and Europe as huge consumption bases for its produced goods.
You are trying to give me an economics lesson, I actually have an advanced degree in economics, and I know every economics model there is in and out. Your talking about producing things somehow making lives better by increasing productivity, and then everyone lives happily ever after. I dont what kool aid your drinking but I can share with you a hundred papers which repudiate what you are saying.
Next time you want to argue regarding economics, please argue with actual theoretical knowledge rather than some flimsy theoretical base that you have created in your own mind.
> who is going to consume these products if people are saving?
Peter Schiff tells the story of a six guys stranded on a deserted island: five Asians and an American. They divide up the work as follows: one Asian hunts, one Asian fishes, one Asian gathers vegetables, one Asian cooks, and one Asian tends the fire. The American has the job of eating.
Peter says that an economist would look at the situation and explain that the American is the key to the whole enterprise. Without the American, the Asians would not have jobs.
The truth is that supply is its own demand. Whatever you produce that is surplus, you can trade for another's surplus. The problem in economics is not how to increase demand, but how to increase supply: how can people produce more useful things so that they can trade their surplus for the surplus of others.
If you are going to be a self-sufficient farmer, you need land. Otherwise, you need something you can trade for food. If you can't produce something that anyone wants, you are labor isn't worth much. If you labor isn't worth enough to eat, you starve.
China inflates its currency to buy dollars. Then, US consumers use those dollars to buy products from China, which requires employing lots of people.
The government could just hand out money to poor people, but that could just result in lots more corruption. They can also create useless jobs but that also has problems.
I am not saying producing is not important, my point is that you cannot just demote consumption to an unnecessary side variable, because even when you trade your surpluses, you each are the market for the other.
Does that not make consumption as important? What if no one likes fish other than the one Asian? What happens in that scenario?
If no one likes fish, then fish are not "supply." They are waste from an economic standpoint. Toyota famously took this view, that over-supply is waste. Their just-in-time production was designed to eliminate this waste.
This is clearly the "build it and they will come" bullshit. I had hoped the Hacker News crowd would be the first to recognize that demand doesn't just "appear."
Supply and demand are just two sides of the same coin. To Apple, the iPhone is supply. Apple supplies iPhones to meet consumer demand. But the iPhone is also Apple's demand. Its production of IPhones determines how much other things it will be able to buy.
To consumers, the IPhone is something they want (demand). But their demand is determined by what they supply. A programmer ability to pay for (demand) an iPhone depends on his ability to supply programs that someone else wants.
"Build it and they will come" is truth as long as you're building something someone wants. A farmer who decides to plant corn or soybeans will have a demand for his crop, because people want corn and soybeans. The price/demand fluctuates based on how badly they want it.
Programming is no different. If you build something people want, they will come. The problem is that programming has so many degrees of freedom and it's so scalable that it's a lot easier than farming to supply something that no one wants.
I'm intrigued by your comment that you have an advanced degree in economics. I don't, but it seems obvious to me that you're missing something (I'm happy to be corrected here!): the problem isn't the lack of consumers so much as a lack of incentive to produce.
If everyone becomes an entrepreneur, compelled to be stingy and just do productive things for the fun of it, then they're still being productive, and the world is still getting useful stuff. But, it seems your concern is that if everyone just does the work they'd like to do then there will be a misallocation of labor: certain things that need to get done won't get done.[1]
Is this really true? Are there well-organized economies that are stagnating while people are engaged in their own independently productive pursuits? Is Japan's economy stagnating because they consume too little or because they are working too little?
[1] An immediate counter-argument here is that people are likely to be more productive when they love their work.
Actually that is NOT at all what my argument is. My argument is that people can produce as much as they want, but you still need someone to consume your product. Just being productive gives you only the supply side, but what about demand, why make would make something when people do not demand it.
Remember PG's rule: Make something that people want. Want is demand.
You cannot make things without taken into contention who would consume them and by how much. A business is based on how many people actually USE what it makes, and are ready to pay for it.
> but you still need someone to consume your product
Do we? We're not trying to make a lot of money, just enough to get by. And we're talking about an entire economy here, not about the profitability of an individual business. The whole point is that people in this model don't really care about how much money they're making (or, put another way, they place a very high value on their time).
The question is whether there would be something fundamentally wrong with a society in which people spent very little, but were nonetheless productive doing "their own thing".
. . . they shall beat their swords into plowshares, and their spears into pruninghooks: nation shall not lift up a sword against nation, neither shall they learn war any more. But they shall sit every man under his vine and under his fig tree; and none shall make them afraid . . . --Micah 4:3b-4a
> You cannot make things without taken into [consideration] who would consume them and by how much. A business is based on how many people actually USE what it makes, and are ready to pay for it.
Exactly. Perhaps a good way to view this would be to resrict the definition of supply to be only something that has a demand. So a fisherman that "supplies" rotten fish that nobody wants is not providing a supply, he is just wasting resources.
The hard part of economics is always the supply part: how can you increase supply? (Supply defined as what people want.) When productivity is below the subsistence level, increasing supply consists in just producing more food. But as productivity grows beyond the subsistence level, the challenge becomes an informational one: out of all the things you could do, what should you do to increase the total supply the most? A man who is hungry just wants more food, any food. But a man who is sated will only want certain particular kinds of food or maybe something else entirely.
This is what prices in a free market are for: they provide information about what the economy needs the most. In an economy of hungry people, any kind of food will sell. But as the population gets sated, prices will tell producers that common-place food is not needed anymore and that they should produce something else.
You're just redefining terms without adding anything new.
Parent's question is: what if people are stated, and like OP, they don't want different kinds of food, or anything else? What if, like OP, they're happy consuming only a small part of what can be produced by all those entrepreneurs?
The point of trade is to allow each party to get what they want at less cost than they would be able to get independently. If one party wants to sell, but the other party doesn't want to buy, then trade does not happen. This is not bad thing. In fact, per Micah, it's even idyllic: "every man sitting under his vine and under his fig tree." That is, every man having his own food supply so that he is not dependent on someone else.
Defining supply to require a corresponding demand makes this explicit. An entrepreneur can't just start producing stuff that nobody wants and then complain that there is no demand for his supply. He's not entitled to force a trade.
Examples make this clear. The auto industry has the capacity to produce many more cars than they do. But they will not be heard to complain that people should be forced to buy more cars so that they can produce more. Likewise movie theaters with empty seats are not allowed to force people to buy tickets.
By the way, there are industries that partner with government in order to be able to force trade. The money industry is the biggest one. See G. Edward Griffin's presentation of The Creature from Jekyll Island (http://video.google.com/videoplay?docid=6507136891691870450).
I am not trying to be dismissive, but I am trying to talk with some theoretical base. Initially Nirvana derided my claims, in my opinion, without producing an actual theoretical base for his claims. He also said I should learn economics from Hazlitt's economic philosophy, rather than from a university, which is quite demeaning.
I'm sorry you feel demeaned by my advice to read Hazlitt's book in order to learn some basic economics. I didn't think that it would be appropriate to advocate that everyone should go to a university to learn economics, especially given, as as you later made clear, that some universities don't even teach economics to those who get degrees in it.
You have no theoretical base. You are regurgitating a political ideology that is, quite frankly, nonsense. You focus on demand, when it is irrelevant to this discussion, and your argument presumes that "advising people to save is bad" because "if everyone saved there would be no demand".
Obviously, when people run their lives prudently, they don't eliminate all spending (and thus all demand is not eliminated). Obviously, consumers are not the only source of demand in an economy. And obviously you can't really defend your point and that is why you spend your time characterizing others -- and in fact your "economic" argument is really just disparaging a savings plan with a fallacious -- but oft repeated by political hacks-- story.
So, of course, I was dismissive. Your "argument" was easily dispatched.
If you really want to have this argument with me: lets do it privately, my email address is in the profile. I will even invite some economists into the midst for some discussions, and you are welcome to invite whoever you want. I always appreciate counter points, and counter arguments. So I think it will be a very interesting debate. Lets keep it civil.
> Next time you want to argue regarding economics, please argue with actual theoretical knowledge rather than some flimsy theoretical base that you have created in your own mind.
I can't imagine a better base for economics knowledge than Henry Hazlitt's "Economics in One Lesson."
> I know every economics model there is in and out.
Then you should be familiar with Austrian economics.
Though that is probably not covered in an "advanced degree in economics!"
Well of course there is that other Austrian Economist, you know the one produced the Chicago School of Thought with Milton Friedman: Friedrich Von Hayek, who is one of the biggest reason that monetary economics came to the fore. And with all due respect Henry Hazlitt, as brilliant as he was as a public intellectual, he is not an economist that is often taught in curricula. Economics is highly quantified and Hazlitt's contribution was economic philosophy.
And here is a concise history of Austrian School of thought, most of which came from London School of Economics post-1930, Nowhere does anyone mention Hazlitt:
"I actually have an advanced degree in economics,"
If this were true, you'd be able to comprehend what I said, and you'd be able to repeat my argument correctly, and then you'd be able to present a counter argument based on the science of economics. Your appeal to authority just tells me you made a really bad economic decision yourself.
I'm not going to debate your political ideology, because, why should I? The current economic state of the USA proves that endless government and consumer spending does not produce a healthy economy.
Your ideology is disproven by reality. The "stimulus" resulted in higher unemployment and a worse off economy. Bush's handing out "stimulus" checks to the people did the same thing.
Reality has already disproven your ideology.
Now, I know, having seen your ideology before, all the standard excuses. "The patient died because we didn't apply ENOUGH leeches!"
But they are not economic arguments. They are ideological ones. They are based on trying to rationalize a particular set of political positions. There's really no point in attempting to debate your desire to rationalized. I can't stop it.
Then his food comes from his garden, which means he has to work on that, and he conveniently didn't calculate the opportunity costs, tools, irrigation, chemicals, seeds, etc.
What about transportation costs, electric/gas, phone, internet, household supplies, upgrade of your old computer, clothing, shoes.
Then if you want to have a car (and it sucks to live pretty much everywhere in the US without a car), what about car insurance, maintenance, new car every X years?
Yeah, it's fucking easy to live on $7K per year when you own a house with a garden, don't pay property taxes, use 1995 computer, and have no safety net in case of a serious sickness.
Right. His point is that you don't need income, not that you don't need to work.
and he conveniently didn't calculate the opportunity costs
Zero if you like gardening.
tools
For gardening? Amortized over the life of the tool? Visit some estate sales and you can get set up for gardening like a pro for probably $50.
irrigation
You mean like a rainwater barrel + some old rubber hosing? You can make one of those for probably $10 in parts.
chemicals
Not necessary.
seeds
These come from the plants themselves. As in, free.
What about transportation costs
If you don't commute and ride an old bicycle (know how many of these people give away? and can be fixed for <$20?) these can be surprisingly close to zero.
Anyway this is in the FAQ he linked to. $600/yr
electric/gas, phone
This is the first thing in the FAQ he linked to in that article:
$3240 per year
internet
$240/yr he said
household supplies
Well, you found one thing he missed.
upgrade of your old computer, clothing, shoes
Did you miss where he said he has a 7-yr-old computer and keeps clothes for a long time (= very low amortized cost; probably $50/yr total for these things)
Then if you want to have a car
He covered this. $600/yr
don't pay property taxes,
Read the FAQ. He estimates a you could afford a $100k home on that budget. I've lived in one in an expensive state (RI), it was spacious.
no safety net in case of a serious sickness.
That's what savings are for. $3000 in savings and bam, you've covered your deductible.
I suppose my biggest objection is I hate his lifestyle. I like going out, I enjoy activities which are more often than not paid, I don't have a girlfriend who sits at home and cooks for me all the time. Just because one person is happy with a certain way of living doesn't mean everyone will be. I could do it like he does and simply be miserable.
You could just do something else then. I'm not saying "everybody copy me". There are paid versions of my activities, but I eventually found the versions there were free or almost free. This holds for almost everything unless you insist on a particular paid version. For instance, when it comes to going out. Lots of people like that, but why are they really going out? Probably not to sit in a particular restaurant and pay money. Maybe more about not having to cook and meeting friends? If so, this could be accomplished by taking turns inviting each other for dinner at home. If the cooking isn't great, that's something that can be learned. Just an example.
In my experience, a lot of people do in fact enjoy going out to eat for the food, not merely the experience. You get a professional preparing excellent food, usually to a standard higher than you would easily manage at home (assuming you're going to good restaurants), and in a wider variety of cuisines than you can affordably stock up for, too.
Expansion on the previous point: I bounce around national cuisines quite a bit, because I'm a cook as a hobby, and whilst, say, a gumbo won't cost you mutch if you're regularly cooking Louisiana staples, cooking it ab initio from a cupboard that's normally cooking Italian-influenced meals will cost you a small fortune. A quick look at my Louisiana recipe book tells me I'd need to aquire cayenee, paprika, garlic salt, onion salt, white pepper, spiced sausage, Tabasco (specifically Tabasco) and a bunch of other stuff. Then you need to get in all the meat and veg, some of which may be difficult to aquire from local shops or require specialist outlets, which adds in travelling time and cost, and which you'll probably be paying for higher quality for - at least if you're serious about cooking and food - than you might for a common-or-garden meal. That makes your one gumbo cost almost as much as it would at a restaurant.
On the topic of food...it's interesting that Tabasco is specifically mentioned. I'm originally from Louisiana, and my family and I prefer Crystal hot sauce; we think it has more flavor.
There are examples which cannot be done free as far as I know. For example, I love to go paintballing. To make it cost less, you can buy your own paint and own your own equipment. But it still costs money because I don't own a giant plot of land or have 100 friends with their own gear. Then I have to buy the paint itself on top of that. Can you find me a non-paid version that matches that experience?
I suspect most people go out to have fun. What is fun? Meeting people and creating experiences/memories. Sure, you could sit with your friends at someone's home every night but that gets boring honestly and turns into the same people and patterns.
Have you considered airsoft or reballing? I used to play airsoft, never played paintball. The land/playing area would usually be provided by someone one of the players knew, private forests, empty barns, junk lots, etc. We all had our own guns. We usually managed to scrape together 5-10 people for our games. Not sure about 100. That sounds rather ambitious for a game(?)
The general trick to owning expensive equipment is to find something with very little depreciation (usually top quality items) and buy used. This makes the carrying cost rather low. For example, my hand planes for woodworking are $300+ each, but I could sell them again for 90%+ of what I paid for them, so my effective cost is only thirty bucks. A brief search on the net reveals one can get 2000 paintballs for $30. Now I don't know if they're any good or not, but that sounds pretty cheap to me. How many shots for a game? 100? That's less than two bucks.
So I think you could do it pretty cheaply if you "invest" the money and do the organizing footwork.
Just to clarify the details of the paintballing example...
Land is a serious problem except once it's no problem at all. If you don't know anyone who has land that they'll let you use, how do you find someone? Everyone I've met that plays paintball cheaply just plays illegally on land that they do not own, which may or may not seem unethical to other people. In my opinion, access to legal land actually is a significant hurdle for many people.
Now, in practice, paint is the main cost. Perfectly good paint costs less than $0.05/ball (maybe $0.03 is a bit low-end), which is usually marked up 100% or more if you're playing on a paid field (this is their main revenue). The problem is, many players are accustomed to a play-style where they burn thousands of rounds ($50+) a day. If everyone agrees to use pump-action guns (cheaper!), you can have nearly the same experience at 1/20 the paint cost. If everyone around you is using semi-auto and burning paint, it's a lot harder to go pump (some people like the asymmetric challenge, but most do not).
Especially living in a city. You also need to travel there (it's almost certainly not accessible by public transport). Paint is the main cost, I do own my on equipment, and most places require field paint. Also, I love walk on paintball with 50-100 people in a giant game. You're going semi-auto and burning a lot of paint, that's part of the game play.
I agree. I like going out to eat at good restaurants, attending a concert, maybe watch a game at a stadium. These cost money. Ultimately, to a certain extent money allows you to do things that give you enjoyment. If you can afford it, then go for it. After all, we have only one life to live.
I believe he does account for rent/mortgage, by doing an RV. And his idea is that he has handled retirement--he's living in retirement now.
The catch is that he had six figures saved up beforehand (he lives off the investment income), which doubles as a rainy day fund in case of serious illness.
Then you have to calculate the amortization costs for the next RV (when this one dies), RV insurance, gas (which RVs needs a lot of), maintenance, sewage pumping costs, water costs.
I wouldn't call living in an RV a retirement most people envision.
It disappoints me, but I have to agree with you (at least in part, I wouldn't call his story garbage).
I say it's disappointing because his blog really inspired me to make some changes and I agree with the overall thrust of what he's saying.
But the problem I have is figuring out how he accumulated his wealth. Of course, being a former physicist you'd think spelling that out in a simple spreadsheet would be a trivial problem for him. I haven't seen that though.
From what I have put together I think he got very lucky in the stock market, which quite honestly takes a bit of the wind out of his sails. Based on what he was earning, saving and investing, it seems that only outsized rates of return could explain his nest egg.
He is a former physicist? Good god, the waste... He attended a public school for free. I wonder if he has factored in the price his government paid for only 10 years of physiking out of him...
Companies allegedly don't recoup the cost of hiring you for at least a year. Public schools are offered because it is seen as a worthwhile investment in the future, and graduates help pay for the next generation's schooling. In other words, there was a lot of good-faith investment in him. He essentially took the money and ran.
I mean, I'm not saying he is scum or that he is contractually obligated to his country, but this is much less impressive when you realize part of what he did was offload much of the burden. It seems unlikely he'd have been able to amass the seed funding for the investments he lives on by age 33 without the tens of thousands invested in him by others.
Fun fact: One third of scientists (on a global basis) do not live in the country they were born in.
(See http://www.fasebj.org/content/18/9/936.full)
This comes from a lack of opportunities. For example, there are no groups working on what I was trained for in myCountry other than the one I was in. I would essentially have to replace my supervisor by competing with the other students he graduated with only one winner. This is what happens when each professor trains 10 people to replace him and proceed to determine the winner by whoever can work the hardest. This is not good faith investment. That's a callous winner-takes-all system with a built in oversupply to lower prices---like those competitions where you get webdesigners to work for free to make a logo. I don't feel any moral obligation to participate in that Ponzi scheme. Ever noticed how people hawking university degrees aren't exactly upfront about placement ratios and things like that and how students usually have to learn about what's really going after they're already committed?
Since the salary for an academic scientist is rather low, I could have made the money MUCH faster as a long haul trucker. At $17.5/hr a framing carpenter apprentice is paid substantially better than a grad student. At $37/hour a journeyman level carpenter (after 4 years as an apprentice) would make nearly twice as much as a postdoc. A watchmaker (2 year education) makes 40k. Yes, skilled tradesmen make that much. I never knew.
Had I known back then what I know now, I would never ever have gotten the degrees I did. It was and is one of the most inefficient means of making money I can imagine. Other than being a sign spinner or a dancing pizza (which still pays more than being a research assistant with a MSc, no kidding). I would have way more resentment towards the system if it wasn't for the fact that I enjoyed my work at the time. This enjoyment probably saved me from wasting my money on stuff to compensate for my lack of happiness working.
> He is a former physicist? Good god, the waste...
Not sure what you're getting at. I got my BS in Physics. Then even went to grad school for a while. There is no such thing as "getting a job in physics". There are no "physics jobs" that I could find. It's basically either go into high school teaching, or else get your PhD and try for an associate professor job while learning how to apply for grants.
My education in Physics was basically a bust. Entertainment. Fun to learn that stuff. Then I owed a lot of money. That's it. Had to actually learn something else in order to pay off the loans and make a living.
I wouldn't call it a waste. Now we have someone with a scientific brain thinking and writing about more efficient ways of living, with less pollution and better use of resources.
I bet many physicists are doing things that are much less important for our future.
> He is a former physicist? Good god, the waste... He attended a public school for free. I wonder if he has factored in the price his government paid for only 10 years of physiking out of him...
So let me get this straight. The government builds "free" schools. The government then forces people - under threat of violence - to attend these schools. Therefore people owe the government a lifetime of work.
I am impressed at just how much you have managed to warp what I said. Please point to the part where governments threaten you with violence if you don't attend college.
Let's say you make $100,000 per year. Saving 80% would mean saving $80,000 per year, and living on $20,000 per year. After 5 years you would have saved $400,000. 3% of $400,000 is $12,000, which is only about half of what you need to equal what you'd lived on for the past 5 years. You'd need a 5% return in order to make $20,000 per year from $400,000.
And this doesn't even take taxes in to account. Good luck saving 80% of your net when taxes alone eat away more than 20% of your net. You're also going to wind up paying taxes on the 5% return, effectively requiring maybe a 6% return (or probably significantly more, considering how much you lost in income taxes in the first place).
The amount people pay in taxes do vary, which is why this "approximately 80%" savings for "approximately 5 years" system is probably only going to work for people who don't pay much if anything in taxes (ie. people with a pretty low income).
Depending on your income, your tax rate, any unforeseen expenses, and your desired standard of living, you might need to work considerably longer.
Okay, that's nitpicking. Make that 26k invested then. Also, you can reduce the taxes by diverting into an IRA. Also, after the first year, you can begin to add investment income on top of your regular income. This investment income will increase by about $1000 each year.
But 2-3% of my assets. I wouldn't get too hung up on the details. I didn't earn 40k every year. Some years were less. And some were more (see FAQ). I didn't live in New York.
Everybody can run their own spreasheets for their personal income and tax situation presuming an expense level of 6k/year. Figure an investment return of 3%+inflation (so 6% or so total). See what you get.
For some reason I initially assumed $300,000 plus was your retirement target. I am now assuming $175,000 in savings is what you define as "financially independent" That makes sense given your $7,000 per year expenses. ($7,000 divided by 0.04).
1) Starting from zero (because where else would we start for this analysis?)
2) We save $26,000 per year (2,166.7 per month).
3) Assume 6% return.
4) It takes about 5 to 6 years to get to $175,000.
Makes sense, a retirement fund that covers 7,000 per year in living expenses (i.e. about $175,000), takes only about 5 years of saving $26,000 per year (and conservative investing).
Plus he has the shittiest $82 health insurance plan he could find, and he doesn't calculate the costs of what will happen if he gets sick.
A bigger issue with the cheap health plans is they tend to have a very high deductible, usually in the $2000 - $3000 range (his is $3500! http://earlyretirementextreme.com/my-hdhp-hsa-and-some-comme...). If you end up in the E.R. once for anything, like a fever, you have to pay that entire deductible. For some, a single blood test will trigger it too.
Granted you typically only have to pay it once per year max (meaning you won't pay it for subsequent E.R. visits in the current coverage period), but it's a heavy penalty none-the-less.
Some people get married and start families. There's no way this plan costs $80 for anyone other than an under-40 single healthy nonsmoker. Add kids and a pregnant wife and see where it goes.
Because you will go bankrupt if something serious happens while on this plan. Go see the details of his coverage, I bet it only covers basic things, and 50% of hospitalization drugs, and some crazy deductible. So if he gets cancer or heart disease (most common serious illnesses), he is fucked, and will be fucked every year, if he can still afford that insurance after the first year.
"So if he gets cancer or heart disease (most common serious illnesses), he is fucked, and will be fucked every year, if he can still afford that insurance after the first year."
I already looked. $3000 deductible, no lifetime limits, and it covers major surgery, doctor visits are $40. If you want prescription coverage, there are plans less than $200 (in the $190 range) that cover 80% of prescriptions.
Cable costs this much. I'm not saying this guy should pay for this, but many people that claim they will go bankrupt can easily get a plan like this and not.
Well, the "no lifetime limits" is thanks to the legislative healthcare reforms that were driven by a need to reduce the number of medical bankruptcies, so obviously that's a good step towards making healthcare more affordable to people who previously would have been driven into bankruptcy.
But a $3000 yearly deductible is still likely to be utterly unaffordable to a significant portion of the uninsured, and it would be surprising if they weren't subject to copays as well.
Read his post about HSA and how it plays into his retirement. Most high deductible plans have full coverage ( 100% ) when the deductible is reached.
Worst case scenario it costs him $4000 ($3000 of which is pre tax) a year. Thats ~300/month. Best case he doesn't visit the doctor once and it cost him $1000 and he puts $3000 into his rainy day / retirement account.
You need to have $3000 available day one of each year to do this, but it makes a lot more economic sense.
And I have enough savings to pull this off for decades should it come to that.
Granted if one gets so sick so as to max out the deductible every year consistently, one's life expectancy is probably not that long
If one stays healthy, unused money in the HSA becomes the equivalent of an IRA and can be used for nonhealth-related expenses after a certain age (I forget whether it's 59.5 or slightly higher).
I actually opted out of my employee plan when I was working in order to get in on this for the tax deduction. (My employer wasn't offering HSA eligible plans.)
I'm not talking about him, I'm talking about why these $85/month plans aren't the blanket answer to the question of solving medical bankruptcies among the uninsured.
Not surprised. This is insurance. You don't get car insurance after you've gotten in a wreck, and you should expect to pay more for it if you're more likely to get in a wreck (e.g. lots of speeding tickets, etc).
That's not quite accurate. Depending on how one measures somewhere between 40% and 70% of health care costs are used to treat lifestyle diseases (too much stress, too much food, not enough exercise) like high blood pressure, heart disease, diabetes, tobacco, alcohol, avoidable accidents, etc. Those problems are not genetic. They're behavioral.
Of course one can suffer these things without having the risk factors. I presume the experts who calculated those numbers corrected for that.
So in about half the cases (half the cost to be precise), sickness really is your fault.
One of the reasons high deductible plans have such low premiums despite not screwing people over with small print is that they attract a more healthy segment of the population, because a high deductible creates some incentive to avoid those [preventable] diseases.
As it is, people are only hit on their regular expensive plans if they smoke. Imagine if they were also hit with higher premiums if they were overweight (BMI>25, 2/3s of Americans are overweight), drank too much, smoked too much, didn't engage in regular physical activity, etc. Then the premiums for those who have a lifestyle which wasn't likely to cause chronic diseases would only pay half of what they're currently paying. Those who engage in risky lifestyles would see their premiums increase by 50%.
What you describe sounds reasonable to me. Is there coinsurance on this plan? High deductibles don't bother me. But coinsurance, where you have to pay 20% or 30% of costs, scares me. If you get seriously ill or are hit by a bus or something, the cost to you could be huge, way more than the typical deductible.
0% coinsurance on mine. Go to www.ehealthinsurance.com and see what pops up (that's what I've used ... they may not include your state very well, but for CA, it finds 20 HSA eligible plans for me, 12 of which don't have coinsurance.)
I've never seen a $3000 blood test. A family member got an exceptionally rare blood test this summer though; I'll try and look through his paperwork, but I'd be shocked to hear even that test cost so much.
It is actually really difficult to find out how much stuff costs at a hospital. That is one of my main complaints about the healthcare system. It is wasteful because the hospital environment makes you forget that things cost money, and that some tests have a very low probability of doing anything other than costing you money (not saying that was the case with your family member, just in general).
Hospitals really mess with people's cost-benefit analysis, which isn't normally too good to begin with. I was with someone in the hospital a few months ago, and we got the strangest looks when we tried to find out how much a test would cost. Ultimately we decided not to do the test, which was a long shot to find anything for a problem that wasn't very serious, and save a bunch of money. I wish there were some way to inject some more rationality into healthcare to get around the mindset of always doing everything possible, no matter the costs and possible benefits of treatments or tests.
In this case the exceptionally rare blood test was actually the crux of solving a major, chronic condition. That wasn't obvious until after the fact though.
While I do understand your arguments about rationality, I'd also point out that the prices cited by hospitals have very little relationship to reality and costs. Quite a few tests become far more rational when looking at cost rather than price.
(Not intended as an argument for any particular structure of healthcare, just an observation.)
His plan must be subsidized by the state - I have a very similar plan (with an even higher deductible) for myself and my family and it costs $950 a month.
I haven't seen any indications anywhere that California provides funds to my insurance company. However, plans do cost different amounts in different states.
You are healthy and don't have any dependents. I don't think you could take care of the general population on $1100 per person per year, even if you cover the low cost stuff. My rough calculations show we spend about $7500 person/year right now. Obviously we have lots of cost issues and such, but even with efficiency savings, someone has to be making the difference up.
Hi rorrr,
You are clearly on the treadmill. Yeah if you want to buy a new car every X years, and get a mortgage for an overpriced house you are not going to be able to live this lifestyle. You will probably have the lifestyle most enjoy. Maxed out credit cards, no savings, that big oh-shit moment in your mid-fifty's when you realize you've nothing saved for retirement...
Not to burst your bubble, but his health plan is pretty good. I have a very similar one. It's shocked me too that you can get a good plan if you are willing to take a very high deductible..
And ironically if I took my deductible each year I didn't need it and burned it (or gave it to charity) I'd almost break even on my low-deductible 'old plan'. When I left employment the Cobra for my plan (2 people) was 980/month. I now have a HSA-style plan that's $170/mo. It has a ~5K-per-person deductible (x2 for two people). 100% coverage after the deductible is met. I'd about break even each year if we both simultaneously came down with cancer. But since we're healthy I get to pocket the 10K or so I save each year.
Most cities you can get by without a car. I prefer it, actually, it is a lot less stress than driving and a lot healthier. But, yeah, if you are like the folks who got a 'great deal' on a house in Stockton in 2007 and are now commuting from there to Santa Clara, I guess bikes are out of the question. It's all about live-near-where-you-work (or vice versa).
The author states he's got a $100K in savings - That's a lot more safety net than your average American. Do you have that kind of safety net?
> "Yeah if you want to buy a new car every X years, and get a mortgage for an overpriced house you are not going to be able to live this lifestyle. You will probably have the lifestyle most enjoy. Maxed out credit cards, no savings, that big oh-shit moment in your mid-fifty's when you realize you've nothing saved for retirement..."
It's amazing how much introspection you have on the life of a total stranger without him even revealing the least bit about his lifestyle or finances!
Seriously, I'm all for being frugal and responsible, but you're just projecting at this point, and it really does come off as an ad hominem.
I actually make quite a lot of money compared to the average US income, more than $100K/year. I do save an invest (max out IRA for me and my wife), and I do spend a lot, though I'm frugal compared to most of my friends. $100K in savings is not something amazing from my point of view.
I did however a realistic calculation of what will happen if I need, let's say, a week in an ICU and a month of hospitalization (you go skiing, you fall and hit a tree, you break your spine). I will be bankrupt. Even with my expensive insurance plan hospitalization can easily cost $10K/day, and most of the drugs you will be on, are only covered 80%. That's if you don't need some exotic drugs at $5K/shot.
I realize it's a gamble, but the stats do say that 50% of bankruptcies are due to medical expenses, and 68% of them had health insurance.
$270/month for my half of the rent+utilities
$50/month for my half of the car
$50/month for my half of the dog
My wife spends a similar amount per year.
HE doesn't live on $7000, THEY live on >$14000. Those are two completely different scenarios. I'm also willing to bet his wife is taking up a lot more slack than he admits or realizes.
And I lived on less than $7000 per year when I was single. Yes, one scenario has two persons and the other has one but economically it's the same. This is covered elsewhere in this thread.
BTW, I'll take that bet. We have a joint account, so it's pretty clear where the money is going.
I've been living on $13,754 per year for the past 4 years. (Average as of last month.) There are two of us, so, double that and you have the average cost over that period. While we've been doing it, we've been traveling full time, spent the last year in europe living in AirBNB pads, and doing our startup. We buy a MacBook Pro each year and an iPad or iPhone each year as needed, with the old one going to the other person to replace the even older one they were using. We don't live poorly, either. How good our food is depends on where we are-- it wasn't so great in england, but it was fantastic in italy.
Prior to those 4 years, I lived on about $18,000 a year, and in the 1990s, I was living on about $22,000 a year. I made much more, of course.
Starting in the early 1990s I knew I'd want to start a company at some point, and I knew that the less you spent the more profit you had to sock away for retirement. At one point I bought and lived on a boat. Living on the west coast[1] where my friends were paying $1,200-$4,000 a month in rent-mortgage, while I was paying $300 a month in marina fees--- AND I had the best view-- was pretty nice.
Like anything, it is something you can do if you practice it, and you just have to have the right attitude. I had an immediate turnaround in my spending when I started tracking my expenses. Just looking at where things went each month had a huge impact... I started buying less pointless stuff ,and cut out whole swaths of things that I didn't need, and conversely, started eating out more, because I realized it was relatively cheap. I didn't even miss the things I got rid of, because I didn't cut any of the things that were important to me.
I remember, in 1994 buying a TV thinking that I'd be using it until 1997 when I expected that HDTVs would be out, and planning on buying an HDTV. In 1997, HDTVs ware REALLY expensive, but by then I'd made the change. I kept that TV- which I'd only meant to keep for 3 years-- until 2007 when we went nomadic. 11 years longer than "budgeted". We don't do cable, but we do, luxuriously, do BOTH hulu AND netflix. And the occasional iTunes rental.
I got rid of my land line phone over a decade ago, when I moved onto the boat, and then never got it back afterwards. Cellphones were always cheap plans, and then, given up completely years ago. (Reaching me urgently means calling my google voice number or sending an email, which I get in a couple days.)
I kept my vehicle for a very, very, long time, but don't even have that now. That right there got rid of over $600 a year just in insurance. Public transportation is a hassle (except in berlin!) but its cheaper.
One thing that's really helped-- we set a budget. We have the food/transportation budget, and then we have the personal-spending money. Each month we get a bit of money that we don't have to spend responsibly, and the rest of the money goes into specific budget items. We have all of our major purchases planned out, and on schedule. Actually had to accelerate the computer purchases because we were using them past the end of AppleCare. (Traveling all the time, we want AppleCare.)
One important thing to know, to help with all this, is to understand money. I think a lot of people don't really understand money... not on a fundamental level.
Money is just a medium of exchange, right, but have you ever wondered what it is you're exchanging? It's life. Not just in the sense that you need food and shelter to live, but in that you rented your body to some labor in exchange for the money. I think people who don't think of money as valuable as that-- as literally being part of their lives-- tend to respect money very much, and so they don't keep an eye on it. Old timers called it "knowing the value of a dollar".
As for the nomad thing- yeah, plane flights are expensive (but we take relatively few big ones)...but compared to the cost of living in america, most of the world is cheaper. Europe was more expensive, but we wanted to make sure the idea worked before going places where english was even less common.
I expect our cost of living to be significantly lower this year than last.
[1] originally types "west cost", which is about how I think of it.
PS-- I've done a poor job of explaining "How", but it really is an attitude more than a method. There are probably lots of things we don't have, and don't miss, because we simply changed our priorities. Since I don't miss them, it's really hard for me to name them.
There's a line in fight club that is apropos here: ".. learn to let slide what truly, doesn't matter."
It's been my experience too that the majority don't give a second thought to what money represents. To most people money is something that comes out of a slit in the wall when they insert their plastic card. Some realize that this only keeps working as long as they maintain their job and don't get fired, but some don't consider that possibility either. Money really is life. Most people are born without things to sell, so they can really only procure money by renting out their mind or labor for others to use. One can always make more money but nobody can make more life. Hence, it's somewhat of an optimization problem: How much life to give up to procure enough money in order to make money with money instead of selling one's labor or thoughts.
PS: I'm jealous of your liveaboard experience. That's what I originally wanted to do but wifey wasn't prepared for the possibility of having our home sinking for whatever reason and to be honest neither was I (I hadn't taken up sailing at that time so I was clueless). Thus we settled on the RV.
I think where I disagree with you (and the blog author) is your attitude toward work: Money is just a medium of exchange, right, but have you ever wondered what it is you're exchanging? It's life.
Work isn't a waste of life. My goal in life is not to get to the end having worked as little as possible. Travel is fun, and educational, and good for you, but it's not the only thing. By all means live cheaply enough to allow yourself to do what you want to do in life. But if all you want to do in life is retire, then I don't really understand your goals.
(Living cheaply to do your startup is great. But a startup is not an inherently cash-poor activity, it's just risky. If you knew in advance that your startup would never be successful, and your product would have minuscule adoption, would you do it?)
This is a good point. Here's something I've found when arguing about similar things:
Some people define "work" as "unpleasant tasks I do to get money," and by this definition I support the OP. Minimise that crap, get it off your plate entirely if possible. These people would never consider a book that they wrote or an app that they made as being real income, even if it eclipsed their other income, because it was fundamentally done out of a sense of fun rather than work.
If you don't think of work in those terms, your argument is true. For instance, I would much rather do an extra hour's work than to save twenty bucks by shopping at an out-of-town supermarket. An hour's work is fun, wading around a big soulless store for an hour is not fun (this is a personal comparison, you may disagree).
This is where I think frugality is overplayed as a tool for personal liberation; instead of finding yourself liberated from money by abandoning the rat race, you tie yourself to it in the piles of bookkeeping and pleasures denied that are the province of the penny pincher. But this wasn't the point that the article was making anyway, rather it seems to be advising to think clearly about what you want, and choose things that will last more than six months.
So yeah, what was the point I was making? Oh yes, moderation is good. I'm not qualified to make any of these statements, I'm hardly an example of good financial management myself. But I've been typing for too long not to hit the reply button now.
nirvana describes a life of traveling the world, buying a new computer every other year, and eating out a lot. Does not sound at all like "penny pinching" to me, just understanding what you actually value.
I don't think you've disagreed, there; you just haven't distinguished two kinds of work: the kind you do because you need money to get by, and the kind you do because you want to, for reasons such as "make the world better" or "build/accomplish something awesome". If you get lucky, those two kinds of work will overlap heavily for you. But still, minimize the amount of the former kind as much as you can to achieve what you want.
>We buy a MacBook Pro each year and an iPad or iPhone each year as needed
I don't understand this. You could be saving you self at least ~$1,300 a year, all for what? A slightly improved OS or hardware you don't really need. I'm earning ~$20,000 a year, saving ~$900 a month and I still consider those purchases excessive. I almost purchased an iPad last month but once I really though about it, I realise it would have just been an impulse buy (most of my higher earning colleagues own Macbooks and iPads). Plus, the Amazon Fire was announced around that time, so I will wait for that to be released in the UK before looking at tablets again.
Unlikely, it was about 1100 euros, so actually changing it once every 3 years is about the same cost as switching PCs once every three years, except that in the meanwhile I'm using much better hardware, and without Windows.
Same here. Apple users baffle me time and time again. From his writings it appears as the only luxury items in his life are Apple products. I can understand the Apple "idea" working with people who have to buy "hipness" or just have enough to money to spend. But he seems to be definitely not "that" kind of person. Deeply fascinating fascinating a brand can reach such a level of devotion.
I've used Linux, Windows, and Mac laptops over the years. The thing that sells me on getting only Mac Laptops from now on isn't the design, it's the value retention. The retention of value is driven by the design and the demand from Apple fanatics of course, but it means that I can get most of the cost of a new Mac by selling my old one. A new one may be 1300.00, but I can get 700-900.00 for my old one. I am getting a new laptop every three years for 400-600.00.
Thanks. This pretty much aligns with my philosophy. If your budget is readily available, could you post it?
I've been seeing a lot of "we live on $XX,XXX" online. That's nice, but what really inspired me was when people just posted their budgets, which since you already have one, would probably take less time than articulating the philosophy.
I personally don't set a budget (I've tried it but I spend just as much with as without a budget), but for those who do, please post as it makes your claims more believable.
We pretty much do the same thing: live country-to-country, for 3-6 months at a time, buy a new MacBook each year, run a startup, etc.
Budgets differ between country. Not just in the value of line items, but the line items themselves. For example, in Thailand you may have a budget for massages, because they're so plentiful. When you go to buy pork from a street vendor, you can have your feet massaged while eating. Then in India, you need a line item for trains, because the whole country is interconnected. Then in Berlin, you need a line for beer, of course.
So your budget changes place to place, which is why it's not easy to just "post my budget".
That said, I write a blog post in each city comparing our costs. It's not a perfect science, but hey, it's a start. I'm not sure if Nirvana's budget is for just one person. If so, we spend about the same.
Anyway, apologies in advance for the plug, but here are our costs of living in different countries. We've lived in Australia, Canada, Peru, Bolivia, Argentina, India, Thailand, and now Germany. Next stop, who knows?
As an aside, there are two types of people who live cheaply:
1) those who are forced to, and
2) those that choose to.
There's nothing worse than living in poverty. I've lived out of cars, or house-to-house, basically as an itinerant for a little while, and it was really depressing. I've also worked in high-finance and made 6 figures, and clearly, that's not so bad.
But when you choose to live cheaply, it's not much different to living extravagantly. People who've never owned a fast sports car, made lots of money, or lived in a nice house, tend not to see this, but it's true.
Before I even left work to launch my startup, I scaled right back. I sold everything: cars, clothes, furniture, stuff. And you know what, I was even happier. Not jumping for joy, but just pretty content with the way things were going. I felt lightweight. I was free of bullshit. It's a nice feeling. Right now, everything I own (except websites and real estate), fits into a 32 litre bag. That's two-thirds the carry-on limit. I still don't use everything in my bag. I even have cufflinks.
Where I think this really makes a difference is with a startup. When there's just less of everything, there's more mental space for your startup.
+1 on the difference between choosing to and having to... while I haven't made lots of money or purchased big ticket items, I did make relatively much as a high school student (more than my peers) and blew it all on graphics cards, SLR cameras, airsoft guns, 23" CRTs (yes, I'm that old), and what have you. After I while I noticed that I got no permanent satisfaction out of those purchases. Perhaps it's good I realized this early.
On the other hand having money that was put into savings instead of stuff creates the feeling of power and potential. When I started saving I counted my net worth in cars (because consumerism was still my frame of reference). Imagine walking past a car lot and knowing one has enough money to buy 1-2-3, .... later 8-9-10 ... today dozens of cars (now I count in houses instead ;-) ) on the lot in _cash_ is a very interesting and positive feeling. It's the feeling of being in control and essentially being able to do what you want. Things no longer happen to you. One has financial agency. This is completely different from a reactive mindset.
Is it really possible to do a startup while travelling? Don't people expect you to be sort of more stationary/accessible ? How has your experience been on this?
I'd say there even some advantages as you get to meet more people, get more ideas and generally your brain works better while on the road.
(My theory for that is when we are in a foreign environment we need to be more careful)
I run an online business and live two kinds of life:
1) Travelling or staying a couple of months in each place.
2) Home, Italy, where I spend most of the time at my desk.
I was actually able start it (no funding) and run it while constantly on the road.
Define "people". I could see your bank wanting you to have a defined location so they can send you snail mail. Your customers don't really care. Take steam or amazon for instance. As long as I can login and play games or buy books, I don't care where they are or if where they are changes every week. Customer service is certainly easier if you are in the right timezone, but not impossible from others.
Being in a stable location is always useful - easier to contact, and makes it possible to have face-to-face meetings. However, a startup is about the best (tech) job for travelling (on your own terms). I imagine people fly out for meetings, doesn't matter where they're flying from.
Hasn't been a problem. We have a mail service and US phone numbers, and so most of the people we have to formally do business with assume we're in the USA.
There is the impact of pulling up roots and moving to another country... and when you're working really hard there's a lot less sightseeing than there would be otherwise.
I bought the boat with grander ambitions than to use it as a place to live, and so I spent more on it than I would have if I was just looking for housing. Worse, in the last years I had it, the marina really jacked up the rates.
If you're looking to save as much as possible, you can get boats for $1,000-$7,000 that a single person can live aboard fine (or two people towards the higher end of that scale)... and by going out of the urban area to more remote locations you can get cheaper marina slips.
Also, if you borrow to buy the boat and you use it as your primary residence, the interest payments are tax-deductible.
(That means if you have a decent interest rate and reasonable risk tolerance, you can invest the cash elsewhere and make more money than you would save by buying the boat outright.)
This is the same kind of lifestyle I lead, and am continuously striving to lead. I love it. I am working on a project to help people become nomadic hackers like yourself.
Can I interview you for my website? Shoot me a line: rich@gun.io
In San Francisco, you can go to a place like Greenburger's and get yourself a really fine burger with fries, and it will run you about $11. In North Carolina, you can go down to the Steak and Shake, get an okay burger with fries and a shake for around $3.
Eating out on the cheap is really often overlooked. I eat out every single day and spend a maximum of $10 - most of the time even organic food. You just have to figure out when restaurants have happy hours, take out discounts, etc. With the right strategy eating out is much cheaper than doing it yourself. Even in a worst case scenario I would prefer much more writing a stupid online marketing article for one of the freelance sites and earn $5 for half an hour of work "work" than doing some cooking instead.
Can you explain this "happy hour" thing? I thought "happy hour" was when restaurants or bars set their drink prices lower so that people will get drunk ("happy"), and as such I always avoided them. Is there another kind of "happy hour" that enables you to eat cheaply?
Happy hour means if you buy a drink, you get cheap food. I don't go to places like that much, but if I do it means I can buy a Coke or whatever and get a $4 plate that would be $8 usually. It is intended for alcoholic drinks, but applies to other drinks as well where I've gone.
not in the Donald Trump way but the concept is similar...now for the bonus question what is he leveraging and what benefits does he get in return for that leveraging? He did somewhat obtusely answer it..and no the previously earned and saved Six figures is not what he is leveraging..
I'm not saying everyone should view their life this way, but I understand what the author is describing and I have went through the internal struggle of trying to decide what to do with my life. Recently, I decided to go back into the world of the Rat Race and try to make the lives of those around me and myself better (building interesting software, spreading joy and wisdom, raising awareness of certain issues, etc.). I don't unconsciously spend money on things I don't need but I do if it deems fit. More over, I don't think you need to have a garden or be a homebody to live frugally.
I hope other smart, determined people don't take the route of sitting idly by the side as hoards of unaware, materialistic consumers perpetuate a system of greed and excess.