Being frugal is a great way to accumulate wealth, but it’s tough to reach early retirement just by cutting costs. Instead, focusing on increasing your income offers limitless possibilities because there’s only so much you can save.
A lot of people embraced the idea from my previous post that pursuing early retirement might not be worth it if you have to skimp on everything. Maybe finding a job you enjoy is a better use of your time. While some called me a “coastal elite” out of touch for considering a certain income level low, remember, I didn’t make the rules. If you’re frustrated by federal poverty levels, it might be more useful to discuss this with your local representatives.
The government determines that earning up to 400% of the Federal Poverty Level (FPL) qualifies you for healthcare subsidies, suggesting it’s better to be a giver than a receiver in our society. In non-coastal areas, earning between 300% to 400% of FPL seems perfectly reasonable.
Now, let’s talk about saving for retirement. It’s crucial to generate as much wealth as possible through income and investments, especially since just relying on a day job isn’t enough, as seen during the recent mass job losses.
Take Joe, a 23-year-old from a rural Pennsylvania town. He shares an apartment with two roommates and thinks making 200% of FPL is adequate for frugaling his way to early retirement. Here’s his budget breakdown:
– Rent: $650
– Car insurance: $48
– Gas: $65
– Phone: $30
– Food: $150
– Grooming: $20
– Miscellaneous: $100
– Health: $72
– Gaming: $65
– Booze: $50
His total monthly spending is $1,250. With a $25,000 annual income, Joe keeps about $1,875 a month, giving him $525 of disposable income. That’s pretty good for simple pleasures like dining out affordably or saving for vacations.
While Joe manages to live comfortably, there are flaws in his plan. He assumes his lifestyle won’t need to change much as he ages. But living in a less affluent area might seem less appealing as he grows older and his needs and desires evolve. Most people aim to improve their living standards over time, not downgrade.
Moreover, life’s unpredictable. Joe might find himself needing to care for elderly parents or starting a family, which could significantly increase his expenses. Although frugal living can be sustainable, it’s hard to predict future needs accurately, and Joe’s current lifestyle might not hold up under different circumstances.
Joe’s strategy of frugaling his way to retirement underscores a common disconnect in understanding early retirement. It’s tough to achieve and maintain a comfortable lifestyle on a frugal budget, especially if your income doesn’t increase substantially over time.
A better strategy for early retirement involves increasing your income while managing your expenses, allowing you to save and invest significantly more over time. This approach not only makes early retirement more achievable but also ensures you can maintain or even improve your lifestyle in the future.
