Not too long ago, I thought that saving 10% of my income for retirement was a reasonable goal to aim for. Despite what many “experts” may have said, it isn’t, unless you are ok with working until the age of 70. I’m not, so I’ve got to set the bar a bit higher. How high, you ask? High enough to be financially independent, retirement-ready, by the age of 47 (20 years from now).
To meet this goal I’ll need to save 50% or more of my annual income from here on (see this brilliant post for a breakdown of the simple math). I’ll likely lose 2 years of income to graduate school in my late twenties, so the real savings will take place between the ages of 30 and 46. Given that I can probably expect to make around $40-60,000/yr during this period, I’ll be looking to limit my expenses to around $20,000 annually (perhaps ~$7,000 more if/when I add a child to the equation). In other words, my financial independence will be contingent on my ability to earn $20/hr, while spending like a person making half that much.
If anyone tells you this can’t be done, they’re flat out wrong. The internet is flush with examples of people living well below their means and cashing in on early retirement. My personal favorite by far is Mr. Money Mustache, but Early Retirement Extreme is also great in its own way. What “retirement” looks like in practice varies naturally from person to person, but essentially it’s about being able to choose how we spend our time. Who wouldn’t want that?
For most people making $40,000-60,000 per year, there is no reason savings cannot meet or exceed 50% of total income.
The idea that people need more than $20,000 a year to survive and thrive is a fiction of the modern economy. After all, the world as we know it, the world of daily car commutes, $6 lattes, $60 t-shirts, and $100/month iPhone plans, is but a sliver of the pie that is our species’ history. Homo sapiens lived for many tens of thousands of years without coupling joy and self-worth to the accumulation of non-essential goods. That we do so now is an aberration, a sharp deviation from the norm. Unless we are to make the ridiculous claim that every single pre-industrial revolution human was completely miserable in the absence of modern material goods, we must recognize that the recipe for happiness was written in stone long before the onset of consumerism.
There is simply no room for modern luxury in any serious assessment of what we need to lead pleasant, fulfilling lives. While we want a great deal more than the Cro-Magnon cave painter would have wanted 40,000 years ago, what we truly require to be content is exactly the same- sustenance, shelter, knowledge, companionship, and hard work. Any notion that there are additional components essential to daily satisfaction is, by any rational account, misguided.
This is not to say, however, that all superfluous things should be avoided. I myself paid $5 for a cup of coffee just yesterday. It was a delightful break from my otherwise incessant penny pinching, and I enjoyed every last guilt-free drop. Unnecessary expenses such as this will remain guilt-free in my book, provided I can stick to my 50% savings goal.
A false notion people tend to have about choosing to live frugally is that doing so is somehow synonymous with a self-inflicted reduction in quality of life. As it turns out, it is more often the case that the opposite is true.
There is a kind of magic in moderation. Not only do you save heaps of money compared to your prodigal counterparts, you begin to savor and appreciate your acts of conspicuous consumption. You look forward to that one beer immensely, and it tastes just as sweet by itself as an additional four would have combined. Scarcity dictates value- the less abundant a thing is, the more valuable we will perceive it to be (assuming we want it in the first place). Willfully restricting spending on products/experiences we enjoy is a foolproof way to foster a healthy appreciation for these things.
I look forward to the day, twenty years from now, when I will finally own my time outright, but I’m in no real hurry. As of now, I’m just enjoying the process of learning how to spend less and live more. I no longer buy into the lie that my satisfaction is intrinsically linked to my spending power.
Now that I’ve had a taste of freedom from the confines of consumer culture, I’m hooked. I truly don’t think I’ll ever look back. I’ve found a path I intend to stay on indefinitely, and I sincerely hope that you’ll join me.