But make no mistake about it, the #1 reason for any "How I did <anything regarding money>" is really, "I am cheap."
We only get one chance at this life, and the thing that bothers me the most is, "What are you missing that you're too frugal to consider?"
Some of the greatest pleasures of my life came as a result of a discretionary purchase. Incredible people, experiences, even business opportunities came my way because I bought a product, went to an event, or took a trip that most frugal people I know wouldn't have.
Once you decide to be frugal, you'll probably be stuck that way for life because you'll rarely be in position to take advantage of those opportunities that would break the cycle.
If that works for you, fine. But not for me. I may not be extravagant, but I don't want to miss any wonderful opportunity because I was too worried about my bank balance. In the grand scheme of things, how sad that would be.
</sipsLatte>
[EDIT: Yes there is a difference between "cheap" and "frugal". Every time I mention "frugal" above, I really meant "cheap", but I was trying to be nice. I will leave it that way to make the thread below make sense. Also, I failed to mention that there's a big difference between being cheap because you have to and being cheap because you choose to.]
This is a difficult problem to escape because it's one that I behaved myself into, and that it's self-reinforcing for a variety of reasons:
- When you're already on a fixed salary, the opportunity cost of spending time on being cheap is not obvious. You're not taking time away from that $500/hr side consulting gig that you don't have. Instead, you're at a situation where the marginal rate of return on clipping coupons (say, $10/hr) is significantly better than spending the next hour working on that iPhone app that is months from release and has no interested buyers (how long is it going to take to recoup the Apple developer fee?).
- Some people get a rush out of saving money, a feeling of "Ha! I beat the system." To them, saving money is a form of entertainment [1], and there's certainly far worse hobbies to have from a well-being perspective. Unfortunately, there are people who take this too far and end up as total misers or compulsive hoarders. I'm not a pathological case, but I've done things that would make some people cringe.
- Seeing people successfully live frugally can be a motivator to follow in their path. My parents are immigrants who worked hard and saved for 20 years before they were finally able to afford a house in an expensive neighborhood (and nearly paid for it all in cash). They drive Toyotas, shop at Costco, and cook at home. They are basically the epitome of the "millionaire next door" [2].
- There's also a moral justification for this. "Why do I have to keep up with my spendthrift neighbors? So what if I don't drive a Maserati or carry a Hermès bag? No thanks, I shall be comfortable in my own skin, since envy and greed are evil." This is now an identity statement [3], and while it's a good position to take from a financial perspective, it can be crippling in the way it makes some people closed-minded. Of course, this doesn't necessarily stop them from pontificating about retirement at 30.
I do still think that my years of being cheap are starting to pay off, mostly because I'm finally getting comfortable with the sort of "discretionary" expenses you mentioned in your post. The difference is that it probably took a much larger bank balance for me to consider them "affordable." I just flew across the continent purely on a whim to visit some friends that I hadn't seen in years, I no longer cringe at expensive bar tabs if they were time well spent with buddies, I can afford to make an impulse electronics purchase just to see what it's like, and I'm preparing for that self-funded sabbatical [4] to reboot my life.
Was it worth it? Well, it was really, really hard to re-orient myself this way, and it took much more sacrifice than necessary, but the good news is that aside from lost time, most of the rest hopefully can be recovered.
[1] http://www.budgetsaresexy.com/2009/08/saving-money-trumps-se...
[2] http://www.amazon.com/Millionaire-Next-Door-Thomas-Stanley/d...
[3] http://www.paulgraham.com/identity.html
[4] http://www.joelonsoftware.com/articles/fog0000000076.html
In my case I like to sit on piles of cash, without any debts and EMI's to pay. And loan interests to worry about. I like to live a tension free life at the same time get a realization that I'm getting rich. And if you do so, you actually see that a lot of luxuries come a little late, but they come at zero stress, worries and hassles to worry about. The lateness in affording things is often very differential and in my case at least has made very little difference. Over the years you are far better off having money, peace and tranquility in your life even if you drive the Mercedes two years late. Than having a Mercedes right now and all the while paying off debts endlessly in cycles(Home, Credit card etc).
Now the point is simple, I don't really understand the spend thrift part of the world. Just because I don't dine at a seven star hotel eating a sever course meal, I doesn't mean I'm not eating well. I eat whatever I like, drink whatever I like and wear whatever I like. I just don't fall for the brands and buy 1 get two free kinda stuff.
I can go with the same phone for some years provided that server the job for the moment. Which most of the times it does. I don't see any reason to have credit card(Yes I don't have a credit card at all). Its just if you don't succumb to peer pressure and blindly imitating others spending patterns. You sort of can end up saving really lots of money. With savings and investments you can really end up making a lot after a while.
And then you can buy everything your want, retire early. Buy your dream home and live well.
In fact this is more pleasurable than the other approach.
So, when you see someone that saves most of their money don't assume they are hording it, some people just don't find all that many things they want to trade it for at a price they are willing to pay. Now I like playing video games, but I have several of them unopened new in box so I don't feel the need to buy yet another one that may or may not get played etc. I have cable TV, but I spend far more time playing free flash games not because they are cheap but because I simply enjoy them more. http://www.kongregate.com/games/light_bringer777/learn-to-fl...
I read it as "what happens when you invest intelligently in a booming real estate and stock market" (especially the former). I don't think this path is open today.
The real trick is to invest in something you do have access to insider information about and that you do do full time: being yourself. Invest in human capital, aside from a financial baseline to diversify for when your human capital starts to rapidly depreciate.
In some ways this is cheap. Reject certifications besides the most basic (a degree). Focus on getting an education instead. Buying a top of the line computer, high speed internet access, and books to learn from, for developers, is an almost negligible expense that will go a long way. And the most valuable way to learn--creating useful projects--can more than pay for themselves.
In other ways this is expensive, though. Choosing to invest in a 401k* takes an hour or two of your life per year, while investing in yourself is at least one or two hours a day. This is very, very expensive if you're already spending 50 hours a week sitting at a computer pounding away at brain-deadening code. (On the other hand, if you can get paid while also increasing your human capital... you've hit gold. Stay there until you've stopped rapidly learning, and then jump to the next big thing.)
Key point, though: there are multiple areas you have to invest in. Yes, a professional skill like coding is useful. But who knows what it'll be like in 5 or 10 years? Make sure to put time into your relationships, your physical health, your non-coding hobbies (drawing, banjo, typography, whatever). This diversification exposes you to more long-term investments: they help you maximize your luck surface area and will come in handy surprisingly frequently down the line.
How do all these retire-at-30 articles fit in? They aim to maximize financial investments early on by under-investing in many categories of self-capital, hopefully catching a good bull market, and rapidly switching to building self capital at 30. The obvious flaw is the assumption of outsized returns--they're not going to be as big as hoped--but that can be dealt with by tinkering with the numbers a bit.
The more fundamental issue is that it's not diversifying. It's risky. If you've saved up 500k by 30 by working long hours and frugally cutting coupons on your time off, that's nice, and if things work out right you might be fine. But suppose the defaulting of some government thousands of miles away sets off a chain reaction of bank failures that ends up massively contracting the economy you live in. There goes most of your savings. Yes, you might have invested in bonds, but you wouldn't have been pulling in those massive returns you were banking on to retire so early. And your job, having been funded by massive amounts of loose capital, suddenly disappears. Oh, you're farked, and you'll have to start nearly from scratch again after the economy recovers. Back to giving up your weekends to the whims of an MBA. (If anyone's willing to hire an expensive 35-year-old developer when there are all these recent college grads willing to work like dogs so they can retire at 30.)
Or even simpler: you hand in your resignation on your 30th birthday, walk out the door, and are hit by a semi driven by some overworked and drugged up trucker. Wow, that sucks. At least all those hard-earned dollars will go to some charity or another.
The ideal, I think, is to semi-retire as soon as you can, and work 15 to 20 hours a week at jobs you find interesting or fun. You get the best of both worlds and have diluted the amount of risk you face at any one time.
*Controversial statement here: 401k's are the biggest scam alive today, you're not only freezing your capital but also betting on taxes being lower in the future than they are today.
Even if we were at the peak of markets (arguably the worst time to invest), there are so many opportunities that oppose real estate and public equities. I'm not talking about selling stocks short, but potentially commodities, natural resources, agriculture, business, and so much more.
The thing is, we're not at market peaks. Not even close. If anything, I'd cite this pessimism and cynicism as a good indicator to start buying.
Step 1: Be born at the right time to take advantage of market conditions.
I see no reason to escape work. Rather my goal has always been to enjoy what I do. No matter the money pile, you'll never be able to repurchase your youth.
Or, more realistically... what happens when you just get lucky swimming on the rising tide.
I wonder what OP did after year 10 when the real estate crash and the current financial crisis kicked in? No matter how clever your investments, the whole market came down.
Just because you're frugal doesn't mean you can't have nice things. My wife just bought me a $600 leather jacket (that I've admittedly been too frugal to pull the trigger on) -- for $450, new, via eBay. My 10 year old set of Sennheisers were showing their age, so I bought HD595s. MRSP $329, Craigslist price? $100, new in the box. My other car's radiator was shot - and if I can develop loan disbursement software and ecommerce stuff, surely I can handle changing the radiator in my car, and did, saving myself hundreds of dollars. And these are just things I buy, not even going into the stuff I do.
On that last one though, there is definitely a balance you have to find between doing stuff yourself and better spending your time. My father would always wash his own car, but I can drive two blocks and spend $20 to have 8 guys and a giant machine wash it more quickly, and I'll pay someone else to change the oil.
In short, I think that your idea that "you'll probably be stuck that way for life" is absurd, and you're mistakenly mixing up the terms frugal and cheap.
Only if your time is worthless.
I say this not to be snarky, but because I found myself having to re-think these same decisions as I moved on from graduate school (where my time really was almost worthless...on a monetary basis), to having a real job that consumes most of my week. Life is too short to spend part of a weekend day (or more) changing a radiator. Much better to pay someone skilled at radiator replacement to make the problem go away (or in my case, to outsource the problem of owning a vehicle to Zipcar).
More generally, the older I get, the more stuff I try to outsource in an effort to viciously guard my spare time. Sometimes it feels a bit bourgoise (e.g. am I really so important that I'd pay someone to clean my apartment?) but it definitely helps to be able to put a dollar value on each hour of your life, and answer the question "would I pay someone $X an hour to do this?" If the answer is no, it's probably better to outsource.
If you have a fixed salary, though, you might as well do those things for yourself if you have the skill.
Have you considered that those goods are probably hot? Perfectly good, brand new, item on CL for 70% off?!
> the #1 reason for any "How I did <...>" is really, "I am cheap."
Sure, some wealth comes with being cheap/frugal. But real wealth comes from investing your time & money well and spending intelligently. Notice I said "time & money". Discretionary items are just as much a time sink as they are a money sink.
Forget the self-help articles that harp on about minimalism and the latest lifestyle design fads. Try to live lightly and gauge the results for yourself. You won't miss anything, you'll have more time, you'll think clearer, and of course you'll have more money.
Then you'll decide to launch a startup and lose your mind :)
Regards, TDL
I prefer to focus my efforts on maximizing my income, which is theoretically unlimited, instead of minimizing my personal expenses, which are limited to $2K/month.
Now come to think of this. If you choose to go this way More expense imply more work. How long can you can you continue doing this. Unless you have a business which you can milk like a cash cow, a salaried employee can only go so far with 'Work more earn more' attitude to match his increasing expenses.
The only approach is to know to how to save and invest appropriately.
And I ask instead, "What are you missing because you have to spend so much time working?"
It sounds like you need money to get outside of your social comfort zone. If that works for you, fine. But it's not necessary.
Also, don't confuse using money to increase your luck surface area with blatant consumerism. Flying to a conference in Finland is much different than buying a new TV.
He notes on his 'start' page that a mere 1 in 9 Americans are self employed like him. Only a few 10s of millions of people then?
I think your office of national statistics would disagree with you buddy, you're a handyman, your wife's a realtor. You're not retired.
What a plonker.
Raises an interesting question about whether working in a hobby business is "retirement".
If the author works solely in the hobby business for his own pleasure and could live indefinitely if he shut up shop tomorrow then he is arguably retired. Plenty of retired people still do some measure of work for the sole reason of having something enjoyable to do with their time.
Also, LOL at the advice essentially being "Participate in the hottest job and stock market in history and get out at the right time". Living cheap and making investments is sound advice, but anyone who made their fortune in the late 90s was more lucky timing than prescience.
HN needs some sort of false title penalty.
I'd also add: Landlords earn every penny that they collect.
It is the meaning that describes a person who'd saved enough so he doesn't have to work for the rest of their life. What he does for fun is irrelevant. Even if it happens to be "work".
- He made a great home investment, apparently bought cheap and later was able to rent it for a lot of money. This is good for him, but somewhat lucky (or, alternative, a spark of insight into real-estate)
- He made nice returns on stocks
Both are fine, but not a part of "corporate programmer salary"
A typical mortgage around here is about 1/3rd of your income. So being able to basically have other people pay 2 mortgages for you is _huge_.
He also mentions he bough a bunch of Cisco stock for 7$ which he later got to sell for 30$. That's more than a 300% return, so depending on how much he invested, that can easily amount to a hefty chunk of cash as well.
But the HN posting title seems to have been adjusted from the original title (which doesn't mention corporate programmer salary).
Earnings received by a partner and shared expenses makes a dramatic difference to wealth accumulation. Where I live, if I earn double what two people in a relationship each individually earn, the couple make an extra 12% after-tax vs. what I do because they are taxed at a lower rate on their lower individual incomes. Furthermore, while two people eat and poop twice as much as one person, the greatest expenses (living) can often be shared.
I thought this article counter-balances some of the many startup success stories we read about here. All great success seems to involve exceptional circumstances, hard work and good luck.
I guess the point is that startups aren't the ONLY way for programmers to get lucky.
And I expect that his income will remain good. There's something about being able to say 'no' that puts you in a position to snap up the really juicy work.
I'm going to refrain from writing something offensive. Suffice to say I find your attitude distasteful.
Now, the fact that they aren't working lowers their costs; but still, the amount of money they have now is significantly less than what a typical couple would earn between now and when they retire.
I don't see anything distasteful in questioning the arithmetic here at all.
Retirement is the point where a person stops employment completely
Personally I love software development, and don't really want to do anything else. Sometimes, when the stress gets to me, I find myself imagining doing something else, but it's usually just a phase.
If you want to change your line of work, then by all means do it, but it's not retirement.
That he quit his job and got into something else is great, I'm not trying to belittle that, but I'm just annoyed that he seems to consider retirement to be working with something he really wanted to be working with all along. It gives the impression that the goal in life is to retire. Which I don't think it should be. If you want to work on your hobbies, why not find a way to make a living out of it now, rather then when you retire?
He's saying that he made money on stocks during the dot com boom and during the bust as well? I don't think that's possible, unless he was psychic enough to short at the top.
Anyone who made money on stocks during the bust got their heads handed to them during the bust. No one believed that the bust was going to happen. One of my coworkers turned 50k in 1999 into 250k by 2000, and then 6 months after the bust started, he was down to 20k. EVERYONE during that time thought they were stock picking geniuses, so when stocks went down, they thought it was a buying opportunity. I can't imagine there were any stocks you could have bought during the bust where he could have made money, let alone increase in value by 50%!!! During those years he went for 67k to 150k to 250k!
Unless he was shorting stocks, there really wasn't any stocks that survived the bust very well, especially if he was investing in the likes of Cisco, etc.
The same goes for 2008/2009. Unless this guy is some sort of stock trading guru, he would have lost 50% of his stock portfolio yet he made $35k. It just doesn't sound right.
The message is that there are plenty of people who can invest wisely.
For the record, I also made money after the dotcom crash and after 2008, having avoided buying anything during the boom and buying blue chip in 2001. As well, I sold all my investments in Sept 2008 and picked up more blue chip in March 2009. Selling all my investments in Sept 2008 was more luck than anything else, I sold because I thought October was going to be the 80th anniversary of the Big Crash in the 1920s, but I was off by one year, it was 1929 not 1928. Better lucky than good.
My point is, anyone who made money on the way up, which it sounds like the author did, didn't believe that the markets would crash. The author didn't even show flat returns, it was always net positive before, during and after 2 crashes. It just doesn't sound right to me.
1. Buy when people are desperately selling (Get in when people are getting out).
2. Sell when people are desperately buying (Get out when everyone is rushing to get in).
That has always made money for me.
(this is more a comment on a possible strategy rather than on what the OP did, I realize)
I'm not sure there's a ton of people who made money during the bust, especially those that owned mutual funds like what the author claimed. There certainly were people that made money but they are few and far between. One of my coworkers at my current company made $500k shorting 3COM and YHOO.
The point is that the author didn't even show a year of flat stock earnings... every year they went up! During 2 crashes! And he never got burnt enough to start thinking that stock investing was dangerous or foolhardy when he had no steady job. It just seems fishy.
Frugality is also huge. If you can save 15-25% on products you knew you were going to buy anyway by clipping coupons or buying in bulk or searching for deals, that's far better than making 15-25% in the stock market because there's no risk.
The real estate thing, too, isn't as hard as you think. Multi-unit dwellings can often be purchased at the price of a normal house and rented for 2-3x what a normal house would go for. If you can find a three or four unit building for $100-$150k and live in one of the units while you pay down the equity and fix up the other two to increase they're rental value, then getting $500-$600 per unit becomes very possible. That's $1500-$2400 a month to go towards mortgages, which would easily support two $100-$150k houses.
Example: You make $3000 a month and your monthly expenses are $2000. That leaves you with $1000 a month to invest. If you haggle on rent, clip coupons, and use second-hand stores and flee markets to get your monthly expenses down to $1500 a month with no reduction in lifestyle, then you have $1500 a month to invest.
The 50% increase in your investments means a very large gain on returns. With compounding interest at 8%, you can accrue $180k+ over ten years on $1000 into savings every month. When you change the savings to $1500, then you only need 1% return to save the same amount of money OR you'll have $276k at the original 8% rate. You're either massively reducing your risk or massively increasing your return.
In any event, saving money on expenses should be the number one priority of any investment strategy.
Note: I used this financial calculator for this comment - http://www.thecalculatorsite.com/finance/calculators/compoun...
Not really, because clipping coupons won't ever make you enough to retire.
Let's say my monthly expenses (in areas that might theoretically have coupons - e.g. house rent isn't going to come with a groupon offer) are $2k, then saving 25% of that is only ever going to net me $500/month, and there's a hard cap based on how much I'm already spending.
Whereas with investments, there's no cap on it, except the amount I have to invest, which could be much, much more than $2k.
Obviously this skips over the question of success in those investments, but that isn't the question being discussed.
So pretty much, have a high-earning wife and buy a firecracker realestate deal that pays 2 mortgages. Doesn't sound so much brilliant as lucky?
I'd love to hear his wife's take on this frugality.
1. You and your girlfriend were making more money individually than the 2009 median household income [1], and you had been doing so since 1999.
2. You ended up on the good side of a stock market that robs as many people as it enriches.
3. You cut expenses whenever possible.
And your end result is a nest egg that might be enough if you stay frugal and work part-time? How is this useful financial advice?
I want to be able to retire some time early, but almost certainly won't actually retire - I love this occupation too much and would do it for free (well, I actually do that too). But being able to retire is a nice situation to be in, in terms of self-confidence, work-life balance and general psychological well-being.
Which is next? Probably share/investment goldrush. Then gold and other hard commodities when that goes belly up, then we're back to real-estate. and on and on...
Nothing wrong with wanting something different.
Far more desirable to me than finding some golden goose is to find a path that keeps me enjoying work for years and years.
When I read about a programmer who stopped programming at 30 to go into construction, I think that shows programming wasn't really the right career choice for him. If it's not the right career choice for you, then by all means follow the recent spate of HN "retirement" posts and change careers.
But if you love programming, you can actually find jobs you like in programming! You don't need to retire! Talking to 30-somethings planning their retirement is...depressing.
Of course, as with anything, there's exceptions, but I'm convinced that if you keep investing in your own knowledge, keep exploring and learning, and keep figuring out what it is that you'd like to do most, you can avoid age discrimination pretty well. The few 60+ year old co-workers I have confirm this. The large amount of aged Software Superheros out there confirms this.
You sound like someone that's never taken a serious amount of time off work. Two years ago I quit my perfectly good programming job to spend 2 years driving from Alaska to Argentina. Someone asked me what I did the whole time - my answer "Exactly what I wanted to do. Every single day." I encourage you to take a seriously long amount of time off work to discover what you actually want to do with your life if you don't have to go to work.
I'm not saying he didn't have anything to do with this for being frugal (I'm doing the same thing), but stock and housing gains seem to account for a large portion of his wealth.
"I was lucky"
I'm not calling this guy out, but you would be living a minimalist lifestyle in order to make 800k last you 40 years..
If you had it all in a 6% long-term savings account, you're barely making 50k pa before tax, for two people to live on. Sure, you have no mortgage, but you still have all the other costs of life involved. They'd be able to do it, but they certainly wouldn't be living the high life.
Personally, I have measured it will take me approximately three years of post-college work experience to get out of debt (with my current income, budget, amount of debt, etc.). I haven't heard of any startup founders that go into a startup with debt already in their wallet so I feel that the amount of student loan debt universally shrinks the space of potential new entrepreneurs.
Perhaps I am not as risk-taking as you are, but having to worry about paying student loan debt versus startup concerns seems like a mental battle I am not prepared to fight. I'd rather do the debt repayment independent of the startup so I can focus on each individually with undivided financial attention. On the other hand, the argument can be made that having debt repayment while you're running a startup makes you hungrier. Although, I predict that would make me rather short-sighted to live hand to mouth.
That's fine, but you can retire on a $120K lifestyle given $4 million -- my rule of thumb is that you can live on 3% of your principal and leave the rest to appreciate fast enough to keep up with inflation. Dividend-yielding stocks are an easy way to do this (not sure if it's the most tax-effective way).
So, $4 million gives you an inflation-adjusted $120K lifestyle for the rest of your life without ever eating into the principal. That still counts as retiring rich. Half that will give you $60K for the rest of your life, which is a comfortable not not extravagant retirement lifestyle.
Halve that again and you've got $30K a year to live on, which is roughly what the guy in this article is doing. That doesn't sound like much fun to me -- if I'm going to be retired, I want to spend a fair slab of my time travelling and doing other fun and expensive things. But hey, if he has inexpensive tastes then good luck to him.
I generally think of $3-4 million as being the amount I'll need to retire. I don't plan on retiring early though -- I'd be doing this as a hobby even if they weren't paying me.
Frankly, I also think the guy is a little delusional about the future. You've got everyone on board now, something tells me that might change once you have a kid. Or multiple kids. Perhaps you already "agreed" to only have one kid, but then you are truly being naive in assuming that will stay the case. It may, but I wouldn't bet on it like this.
This is why the guy who owns the laundromat down the street is a millionaire -- great stable income, but he and Mr. Money Mustache are far from having a lavish lifestyle.
And why is the idea of stopping being a productive member of society at 30+ is a good thing ?
I'm just about to turn 30, and my parents bring this up all the time. I honestly believe this is old school thinking that simply doesn't apply in the year 2011. I go to work to earn money so I can have and do the things I want in life. Once I have enough money, I will stop going to work and contribute to society in other ways (volunteering, community projects, raising kids, etc.) It blows my mind that people still think you have to go to work.
Why is this idea of being a member of society a good thing? I'm here to live my life.
That said, if they maintain their job skills, they should be fine because of part time work income when the will need it.
Or boulder have one single building with all companies, or this guy can sell houses for homeless people