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So the average person saving half that -- making the simplifying and best-cast for reducing total time needed assumption that 50% is being saved post tax in Roths and making the calculations easier and numbers a bit better than they would actually be by assuming all the money is in tax advantaged accounts (which it wouldn't be because you're busting contribution limits), the total time to accumulate the 800 thousand needed for your scenario (derivation prior post, after removing taxes due to assumption above) would be 19 and a third years. Still (barely) over 40 starting at 22.
I posted a mutual fund that had a greater than 5% payout over the last year....Loomis Sayles Bond (LSBDX). Living off the payout from that fund would cut the amount needed by more than half, to just under 400K.
Some might say this is a risky plan, but the fund's share price has increased over the years. Even if the fund's share price decreases, it will eventually start paying higher interest. Since interest rates are super low all over the world, they can't go much lower. So any capital losses can be offset by reinvesting some of the (increased) interest. Not a perfect or risk free plan, but not nearly as risky as some make it out to be.
Fundamentally, to make this plan work, one would need to be very careful about keeping spending low the first few years. If he has say, 10K already set aside in cash and if he can keep spending to 12K or less like he says and reinvest 4K of the proceeds and put away 2K in cash (2K for income taxes) and keep doing that for 2-3 years he can then slowly increase his lifestyle over time thereafter and he'll be pretty well prepared for emergencies.
400K is still a lot to acquire by age 30, but if he's been plotting and planning this since age 15, it may well be doable. Most people don't start thinking about financial independence until AFTER they have a few kids, car payments, a mortgage they can only sort of afford...and then they try to save a measly 6% of their incomes and they remark how impossible it all is. Well, yeah, it is impossible if you acquire all these expenses with no forethought or planning, which is what most people do, unfortunately.
As for caring about his job...I really don't care. As for the car, not everyone knows how to fix a transmission, or rebuild an engine. Again, my point is, this is not for the average person. The average person does not know their way around a car engine.
The average person:
--Gets divorced and/or has a kid(s) out of wedlock.
--Takes out car loans
--Buys more house than they need.
--Stretches to afford a mortgage
--Saves only 5% of their income.
--Is overweight.
--Spends 40% of their food money at restaurants.
--Throws away a lot of the food they buy.
--Knows little to nothing about the basics of personal finance and investing and isn't really interested in taking the time to learn. (Heard of the public library?)
--Doesn't question any of the culturally prescribed norms about the "necessities" of life.
--Blows money on one or more of the following non-necessities: recreational drugs, cigarettes, expensive coffees, tattoos, piercings, alcohol.
Bottom line: The standard for "average" is rather low. If you want to be financially successful, you will avoid being average like the plague.
--Gets divorced and/or has a kid(s) out of wedlock.
--Takes out car loans
--Buys more house than they need.
--Stretches to afford a mortgage
--Saves only 5% of their income.
--Is overweight.
--Spends 40% of their food money at restaurants.
--Throws away a lot of the food they buy.
--Knows little to nothing about the basics of personal finance and investing and isn't really interested in taking the time to learn. (Heard of the public library?)
--Doesn't question any of the culturally prescribed norms about the "necessities" of life.
--Blows money on one or more of the following non-necessities: recreational drugs, cigarettes, expensive coffees, tattoos, piercings, alcohol.
Bottom line: The standard for "average" is rather low. If you want to be financially successful, you will avoid being average like the plague.
AMEN!!!
Perhaps the person were quoting about is "average". That is fine, but if it is anything like your list I wouldn't be telling people about it.
Being average in America is in all reality not good at all.
Sorry if I thought that someone who spends 20-30k on an item (vehicle) would know something about the said item.
I posted a mutual fund that had a greater than 5% payout over the last year....Loomis Sayles Bond (LSBDX). Living off the payout from that fund would cut the amount needed by more than half, to just under 400K.
Some might say this is a risky plan, but the fund's share price has increased over the years. Even if the fund's share price decreases, it will eventually start paying higher interest. Since interest rates are super low all over the world, they can't go much lower. So any capital losses can be offset by reinvesting some of the (increased) interest. Not a perfect or risk free plan, but not nearly as risky as some make it out to be.
Fundamentally, to make this plan work, one would need to be very careful about keeping spending low the first few years. If he has say, 10K already set aside in cash and if he can keep spending to 12K or less like he says and reinvest 4K of the proceeds and put away 2K in cash (2K for income taxes) and keep doing that for 2-3 years he can then slowly increase his lifestyle over time thereafter and he'll be pretty well prepared for emergencies.
400K is still a lot to acquire by age 30, but if he's been plotting and planning this since age 15, it may well be doable. Most people don't start thinking about financial independence until AFTER they have a few kids, car payments, a mortgage they can only sort of afford...and then they try to save a measly 6% of their incomes and they remark how impossible it all is. Well, yeah, it is impossible if you acquire all these expenses with no forethought or planning, which is what most people do, unfortunately.
This is assuming 20k a year though. Perhaps he decides to put forth more effort and make 30k for a few years. Saves it all....it can easily be adapted if the OPer did have a several thousand dollar emergency out of the blue. That is what is great about money. It can always be made.
I agree - it's about being happy. Your money wouldn't make me work 70 hours and my copious amount of free time wouldn't make you live "poor" on $20k.
Here is my reasoning:
-Lets say a person works 70 hours.
-He probably wakes up 1.5 hours before work and get settled in at home 1 hour after work.
-That makes for a 82.5 hour work week or 16.5 hrs per day.
-That gives him 30 minutes to eat dinner/say hello before he has to go to bed (8 hrs sleep).
-Now he is worn out from a week at work and sleeps in on Saturday and generally recovers the rest of the day. At 7pm he says "damn time flies where did the day go?"
-Sunday he feels good, but at around 7pm he gets a bad feeling in the pit of his stomach because he realizes that the never ending process is about to start over.
This is how I see the typical week playing out.
Firstly, let's not put quotation marks around 'poor.' $20k is POOR. No quotations needed to try and imply anything else. And to note, I'm not trying to be a dick (okay, maybe a little, but I'm obnoxiously charming... or charmingly obnoxious. Take your pick!) - I've just considered any income below $100,000 for more than a few years as something I'd want nothing to do with, and this mentality has been in my mind since I was a small child, so I just cannot fathom why anyone would be happy on five figures...
And that is generally how my week is - however, part of my work is done from home in the evenings, so I don't spend 70 hours all at my office. I spend a good 15-20 remotely working from my home via my corporate laptop.
And again, I have no issues doing this. I love my career, and have no problem putting in my dedication into it.
I will note, however, my Sundays are filled with thoughts of "hey, it's almost the work week!" I'm excited to go into my office - I've wanted to be in commercial banking since I was 4, and I get to live out my childhood ambitions each and every day - and get paid a handsome sum to do it.
Yes, I may be weird (in fact, I know I am - who the hell wants to be a banker at age 4, right?! ), but I'm happy. And I wouldn't take all the free time in the world in trade for my career - or my salary.
Firstly, let's not put quotation marks around 'poor.' $20k is POOR. No quotations needed to try and imply anything else. And to note, I'm not trying to be a dick (okay, maybe a little, but I'm obnoxiously charming... or charmingly obnoxious. Take your pick!) - I've just considered any income below $100,000 for more than a few years as something I'd want nothing to do with, and this mentality has been in my mind since I was a small child, so I just cannot fathom why anyone would be happy on five figures...
And that is generally how my week is - however, part of my work is done from home in the evenings, so I don't spend 70 hours all at my office. I spend a good 15-20 remotely working from my home via my corporate laptop.
And again, I have no issues doing this. I love my career, and have no problem putting in my dedication into it.
I will note, however, my Sundays are filled with thoughts of "hey, it's almost the work week!" I'm excited to go into my office - I've wanted to be in commercial banking since I was 4, and I get to live out my childhood ambitions each and every day - and get paid a handsome sum to do it.
Yes, I may be weird (in fact, I know I am - who the hell wants to be a banker at age 4, right?! ), but I'm happy. And I wouldn't take all the free time in the world in trade for my career - or my salary.
You don't come off as charming as all. Actually you sound more like you're trying to brag about making more than 100,000 dollars.
Of course, you can live a good life on $20K a year. Many people do. Though not all call it the "good life."
I can think of several people who live on less than $2K/month and do just fine. If anything goes desperately wrong, some sort of social services bails them out. Seems to work so far. Not sure this is a good bet for the future, given the way things are headed.
Having a paid for car and a paid for home is a great way to manage your finances. Many don't even achieve this by retirement age.
If I was 18 now and planning the life you're thinking of, I'd head to the oil fields in the Dakotas.
There were a bunch of people with your plan during the Alaska pipeline days. Those that stayed away from booze, drugs, and wild times, put away hundreds of thousands of dollars. I can remember all the talk about tax strategies. Those that tried to set themselves up as tax free churches eventually had to pay up with penalties. Those who consulted tax attorneys and set up retirement accounts and so forth fared somewhat better.
A number of them bought rental houses. Though they required a bit of work to keep up with, their plan was that after they were paid off, the income would be sustain them.
Last I heard, several of them were sailing around the world. Others had moved to mountain retreats in North Carolina and so forth. I've often wondered how they fared through the Wall Street collapse.
One thing I noticed was that after socking the money away, many figured out low cost ways to live. Several became caretakers on large estates and retreats. Essentially, trading their presence for a roof over their heads. Some had a few hours a week of maintenance type work to do. Nothing too strenuous. They'd all worked hard during their pipeline years and were ready for a break.
If you worked for five years in the oil fields at a decent paying job, invested wisely, maybe bought a few decent rental properties, you could parlay that into a lifetime of sleeping in and goofing around on C-D discussions.
Boxus: “I could have stated "I blow $5k a year just on airline tickets."
No. You didn't blow it on travel. That’s what you want to do and how you want to live. So that's not my definition of 'blowing' the money. 'Cause I’m right there with you. I enjoyed my $4,500 trip to Israel, my $2,500 trip to AZ and CA in the SAME year. (and want to go back) And you can't do that on 20K a year.
I don’t mind working until I’m 65 – if I can live at the level I want now, and afterward (lord willing). I'm blessed to be a blessing to other people. I treat my friends, I give to charity. BTW, OP do you give to charity? Do you help others?
Is it POSSIBLE to live on 20K a year? Sure. And more power to people who want to do that. I’m not one of them.
I’m willing to WORK to have more money and more options for how I want to spend that money.
I think it’s clear the OP doesn't want my lifestyle – and I sure as heck don’t want his. (having his free time yes, living on 20K, uh, NO.) If the OP and others like him don’t WANT more – then they don’t miss having those experiences, conveniences or things.
You don’t miss/lack or feel deprived of something you don’t’ even want in the first place.
Would I quit work tomorrow if I could? -- sure. IF -- IF I could live my same lifestyle. I'd rather work for 100K, than not work and live on 20K.
As for being a landlord it ain't all it's cracked up to be.
My mom had rental property (one house), and so did I at one time (one house). Neither were in high end areas. In my mom's case the tenants never paid the rent on time (500 a month) and she was a softy would let them get 3 months behind, then catch up when the 4th month was almost due, and crap like that. Over the 20 years she owned it sure she made a profit, but not much each year, and some years repairs ate up all her profit. But she did like that 500 a month when it came. She practically rubbed her hands together like it was gold or something.
I let a relative live in my rental. And she never paid the rent either. I sold it and don't regret it. I have no desire to be a landlord. I'd rather work for a high salary for someone else. And yes, that means getting up to an alarm clock, and having a boss dictate my schedule.
The one thing talking care of my elderly mom's finances has taught me is -- it IS possible to live on less than people think -- especially if there's no mortgage or car payment, and a person doesn't travel or eat out. So I do agree with the OP and others on that.
I'd LOVE to be able to know 40 years from now when the OP is in his 70's how things worked out for him.
Also the OP objected to the 'negative connotation' of being called "unambitious." Well I object to it being implied that things like travel, and anything else beside basics needed for subsistence living are 'frivolous' I don't think OP said that but others have certainly implied it. ((Frivolous: dictionary definition: not having any serious purpose or value.)) Travel, entertainment and eating out, having more clothes than one needs -- or anything else that the person criticizing these things deems not to spend THEIR money on -- may not be necessities, but that doesn't make them frivolous.
Explaining improved lifetyle to those who don't live it because they never had the money or never wanted to do it is wasted words.
You are trying to describe the color orange to a blind person.
Could i survive on the income we had when i was living in the projects?
Sure i could if i had to.
But i would never ever want to give up what i have now and go back to that lifestyle.
I don't regret the 40 years of working ,saving and investing that took me here.
It is all about your personal choice. The problem is by the time you realize you want more out of life or need more income it is usually past the point of no return.
Retirees blow it all the time and they are starting out decades later and do not have to support themselves without pay checks and little income for so many years.
So many end up cleaning up spills in aisle 7 when they should be enjoying life.
To me having the gift of time on your side and the ability to have a substaintial income and throwing it away by choice when you are young is something you just may regret for the rest of your life.
The more time that passes the harder it will be to find a decent job with good pay if you need to. The more time that passes the more that 20k income could have compounded giving you at least enough to retire very early.
I think you are going to find as time goes on the stress of every unexpected expeniture will take its toll on you.
Eventually you reach a point where real inflation over powers those cola adjustments and fear and stress sets in daily.
Last edited by mathjak107; 12-28-2013 at 06:07 AM..
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And to note, I'm not trying to be a dick (okay, maybe a little, but I'm obnoxiously charming... or charmingly obnoxious. Take your pick!) - I've just considered any income below $100,000 for more than a few years as something I'd want nothing to do with, and this mentality has been in my mind since I was a small child, so I just cannot fathom why anyone would be happy on five figures...
