Obvious idea is obvious: Save and invest a very large percentage of your income—I’m at 25%, but I’m not very ambitious. At 75% you can retire for three years for every year you work, even without assuming any gains from investment income or any other sources of income. If you are 30 and reasonably established in your career, this means you can work for ten years and then retire.
That rather assumes you can live on 25% of your income.
For me 25% of my income would be far below the poverty line and the legal minimum wage. I couldn’t live on that even if I moved back in with my parents.
Are most people here really so rich that they can follow this advice and take it in stride?
I disagree with your assumption that you need to be rich/making lots of money in order to save. It’s not necesarily about being rich, it’s also about spending less. People get very used to spending whatever it is they make. Lots of people live off $15k and manage to survive. Lots of people live of $100k and manage to wind up bankrupt. The trick is to not adjust your standard of living and expectations to be what you think you “deserve”.
After getting a divorce a couple years ago, I got very used to living off of significantly less than the poverty line. After getting a “real” job, I’ve been making a concerted effort to not raise my standard of living TOO much. Despite making less than you (50% of my income would be below the poverty line), I still manage to only live off about half of what I make. Right now, the rest is going into paying off debts and student loans, but in about a year and a half those will be taken care of, and the rest can go into savings. (I may rebudget at that time and save less, if I feel like it would be a good idea to raise my standard of living again, then. However, I wouldn’t have to.)
Here is a second resource, the successor of Jacob, creator of ERE, Mr. Money Mustache. This website has the same concept, taken to the same extremes, though he has a more colloquial style. He proclaims to live a luxurious life on 8,000 a year a person (family of three). This includes taking multiple road trips with his family, eating organic foods and other such “luxuries”.
Wow, I think that link is the most useful thing I’ve gotten from this thread; thanks. I’ve had similar ideas for a while but never knew there was this much info online about it. Their techniques look like they could be very useful for people interested in hardcore professional philanthropy.
What part of your current income do you need to live on?
[pollid:465]
Note: The idea about the last two options is that high-school and university students are not socially expected to live on their own income. So the last option is for those who are not expected to live on their own income, and the previous option is for those who are socially expected to live on their own income, but they can’t.
By “current income” let’s assume the average for a few months, not some exceptional income or a temporary loss of income that happened yesterday.
I am a PhD student, and I live on about 60% or 70% of my scholarship (though my parents do still pay for e.g. my car insurance; if I also counted all the money my parents spend on me, it’d be higher, but probably still not close to 100% unless I’m forgetting lots of stuff). I picked “about 75%”.
(EDIT: Just noticed that the poll said “need to”—well, I could in principle reduce my expenditures, but it wouldn’t be anywhere near trivially easy for me to do so by a substantial amount.)
I should note that I could save money by moving back in with my parents and not paying rent, municipal taxes, food, etc., but it’s socially expected that I won’t do this.
after tax pay of 75k a year isn’t crazy unusual for software devs living in major cities. Living on 15k in these places is very doable, though some might consider it crazy depending on their habits.
After 6 years one could then live fairly well in a relatively poor country on 15k.
I don’t mean to cut the party short, but living for years in a poor country is not as awesome as it sounds.
What seems awesome instead is to go for poor countries for 6 to 8 months per year, and live with your parents or someone who loves you a lot in the other 4 months every year. I’ve met a Slovenian programmer who did that, knew 10 languages, worked in London for 4 months per year and seemed to have pretty much nailed the “maxing out on hedons” lifestyle.
I moved out of my parent’s house as soon as I was able, finding the cost in raw hedons and effects on my disposition and behavior to be way too high to justify the money saved. And I have a fine family, not abusive or otherwise terrible—just not a place where I was ever able to be happy or productive.
I’d guess it was more likely to be emotional stuff relating to living with people who once had such control over you. I can’t stand living at my parents’ for very long either… it’s just stressful and emotionally draining.
After 6 years one could then live fairly well in a relatively poor country on 15k.
Additionally, there are ways to get people to pay for your living costs in very poor countries. If you live in the US and are looking for a fun but not too easy early retirement, spending two years in the Peace Corps is not a bad way to go—if you do want to spend a few extra thousand on living expenses it will go a lot further than it would in America, and if you just want to let your retirement funds gather a few years of additional interest you can do that. The PC does take married couples and loves people with college degrees and work experience. No kids, though.
after tax pay of 75k a year isn’t crazy unusual [...] in major cities
Less than half of that isn’t crazy unusual everywhere else. Of course, anybody can just move there, and is qualified and lucky enough to find such a job.
Still doesn’t change the OPs point, though; living on 15k/year is still a very convenient life.
75% is only an example. Adjust according to what you can actually manage to save. If you are paid $100k, as is by no means impossible for this demographic (and in fact is rather easy if you’re a two-income household)m then 75% is easily doable. At $25k, which is also by no means impossible for our demographic, then yes, the 75% savings rate becomes difficult.
For DanArmak’s statement to be true (assuming he lives in the continental U.S.), he would have to be earning less than $47,960 per year. That’s not even remotely unlikely. I earn less than that, for instance.
Relative poverty is not having enough money to maintain the standard of living that is customary in that society.
The absolute poverty line is found by finding the total cost of all the essential resources that an average human adult consumes in one year. Determined by the world bank. This is adjusted for purchasing power parity. In other words, it applies internationally. The absolute american poverty line is just the international absolute poverty. And there’s no need for a relative poverty line, it’s rather a nonsense concept.
Even at 55-60%, which is what I did, it still builds up REALLY fast. Realistically though, you’ll have to work more than ten years unless you’re getting pretty good return on your investments.
Following the rule of thumb that one can spend about 4% of investment a year for it to remain sustainable, it’s sufficient to accumulate about 25 times more than you spend in a year, which at 80% saving rate can be achieved in 6 years (more to reduce risk and/or accommodate possible future increase in spending (above inflation)).
There happens to be an article in the New York Times today about the 4% rule, based on a new paper titled The 4 Percent Rule is Not Safe in a Low-Yield World. It also seems worth noting that the 4% rule assumes a payout period of 30 years, so it’s not entirely applicable for the purposes of this thread.
I wasn’t suggesting that it was safe (“more to reduce risk”). For example in Russia, there is additionally the issue of high inflation (in USD) while the prices catch up with US/UK levels, so even a 3% rule should only apply to cost of living that’s about 2 times higher (adjusted for US inflation) than at present, which turns it into a 1.5% rule, or up to 15 years at 80% saving rate. Of course, if optimizing primarily for smaller working time, one should earn at a high-costs place, like Silicon Valley, and then move to a low-cost place, with possibly moving again if that place catches up.
Combine this with the idea that the most worthwhile investment by far is investing in yourself. Take whatever percentage of your income and use that to help you learn skills that will increase your income. (This includes not just technical skills, but self-marketing skills, self-confidence, anything. You will probably have more and more ideas the further you progress.) Most likely, you will have a much greater return than if you simply invested the same money in more traditional investments like the stock market.
There are two problems with self-investment. First, there’s coupling or frictional losses, by which I mean that X amount of money invested in yourself does not directly translate to X*(1+epsilon) money next year, even probabilistically. You have to put in work. Money invested in the stock market doesn’t go through a stage in which you use your new skill; it remains, as it were, money all through the period, so there’s no loss from transforming from one form of capital to another. Second, the proposed purpose was to free yourself from having to work, through accumulating capital. Although we call the result of self-investment “human capital”, it doesn’t have the fire-and-forget property of traditional capital; you can’t use it with other people’s labour.
I agree that this is a significantly different proposal than the original idea. It’s a combination of the original idea with another idea in a munchkin-like fashion with a different result, but one that is potentially better/more powerful/has higher XP (though it’s not guaranteed, of course). I wouldn’t call your points problems though, just differences.
By the way, there are ways of getting yourself to put in the necessary work (i.e., overcoming akrasia), and this community is great at coming up with a lot of them. Do you think that if you had $10,000 (to throw out a number) to spend on improving yourself and you decided that akrasia was your weakest link, you could come up with some ideas/systems which would make a significant difference? Is that likely to be worth $10,000?
Is it likely to be worth more than the other possible uses for $10k? Your phrase “to spend on improving yourself” already assumes that this is the best use of the money.
Additionally, I think you missed the point of my objection “You have to put in work”. If you successfully spend $X on reducing akrasia, then your work for the rest of your life will be more efficient; great. But you still have to work for the rest of your life. If you invest $X in income-generating capital, then you have income for the rest of your life without lifting a finger.
A separate point is that traditional capital is perhaps more likely to survive the Singularity without being drastically reduced in value than is human capital, on the grounds that atoms are still going to be in finite supply while akrasia-reducing brainware patches will be downloadable from the Internet.
Additionally, I think you missed the point of my objection “You have to put in work”. If you successfully spend $X on reducing akrasia, then your work for the rest of your life will be more efficient; great. But you still have to work for the rest of your life. If you invest $X in income-generating capital, then you have income for the rest of your life without lifting a finger.
Yes, if your goal is specifically to do as little work as possible and don’t care about either your standard of living or what your ultimate net worth is (as long as it’s enough to stop working), then you maybe should invest in as much income generating capital as possible, depending on your exact circumstances. If you are interested in increasing your income or increasing your standard of living (or have a number of other goals, such as making a greater impact on things you value, having more satisfaction from achieving more, etc.), then it is quite conceivable that self-investment would beat traditional investment in fairly short order. Let me make up some numbers that I think are reasonably plausible: Let’s say you make $20,000 per year and have decided to invest half of it somehow, and that you can double your yearly income if you spent $10,000 on the problem, and that you could get a 10% return on traditional investments. [Justification: $20,000 is a very low salary in developed countries, and $40,000 is still a fairly low salary, so it’s not unlikely that a relatively small improvement could take you from one to the other.]
If you then invested in yourself for one year before you started saving and investing traditionally, after ten years you would have saved about $185,000 vs. about $320,000 from the one year of self-investment. After 40 years it would be a bit less than $5 million vs. a bit less than $9 million. If you could keep getting returns on self investment after the first year, the difference would be more pronounced. If you got less than 10% return on traditional investment, the difference would be more likely to be greater.
There are a lot of people who make minimum wage, and some people who make thousands of times minimum wage. If it’s possible to teach yourself the skills that the people who make thousands of times minimum wage have by spending money on it, it’s likely to be worth much more than a standard 5% or 10% per year, since the income that some people make would take you many decades or centuries of saving and investing just to equal what they earn now. If you can increase your income by much more than the standard return rate of 5% or 10% per year, then compounded interest will quickly dwarf what you could make by investing in the stock market. So I think it hinges on the question of how likely it is that you can increase your earning potential faster than standard investment returns. It seems to me likely that this is possible, given some people have achieved it, and that most skills are learnable.
A separate point is that traditional capital is perhaps more likely to survive the Singularity without being drastically reduced in value than is human capital, on the grounds that atoms are still going to be in finite supply while akrasia-reducing brainware patches will be downloadable from the Internet.
This is difficult to estimate, but I tend to think that the Singularity is probably far enough off that significant self-investment in things that are helpful now is still likely to pay off.
Sure, if you’re making minimum wage, by all means prioritise getting a better job over investing what you can spare. I suspect, however, that this is rather an unusual case for LW readers who are out of their teens. If you’re making a more typical 30 or 40 thousand (and especially if you already have a college degree), the returns to self-improvement drop rather drastically.
Obvious idea is obvious: Save and invest a very large percentage of your income—I’m at 25%, but I’m not very ambitious. At 75% you can retire for three years for every year you work, even without assuming any gains from investment income or any other sources of income. If you are 30 and reasonably established in your career, this means you can work for ten years and then retire.
That rather assumes you can live on 25% of your income.
For me 25% of my income would be far below the poverty line and the legal minimum wage. I couldn’t live on that even if I moved back in with my parents.
Are most people here really so rich that they can follow this advice and take it in stride?
I disagree with your assumption that you need to be rich/making lots of money in order to save. It’s not necesarily about being rich, it’s also about spending less. People get very used to spending whatever it is they make. Lots of people live off $15k and manage to survive. Lots of people live of $100k and manage to wind up bankrupt. The trick is to not adjust your standard of living and expectations to be what you think you “deserve”.
After getting a divorce a couple years ago, I got very used to living off of significantly less than the poverty line. After getting a “real” job, I’ve been making a concerted effort to not raise my standard of living TOO much. Despite making less than you (50% of my income would be below the poverty line), I still manage to only live off about half of what I make. Right now, the rest is going into paying off debts and student loans, but in about a year and a half those will be taken care of, and the rest can go into savings. (I may rebudget at that time and save less, if I feel like it would be a good idea to raise my standard of living again, then. However, I wouldn’t have to.)
It’s fascinating to read about people like http://earlyretirementextreme.com/ who choose frugality over work
Here is a second resource, the successor of Jacob, creator of ERE, Mr. Money Mustache. This website has the same concept, taken to the same extremes, though he has a more colloquial style. He proclaims to live a luxurious life on 8,000 a year a person (family of three). This includes taking multiple road trips with his family, eating organic foods and other such “luxuries”.
Wow, I think that link is the most useful thing I’ve gotten from this thread; thanks. I’ve had similar ideas for a while but never knew there was this much info online about it. Their techniques look like they could be very useful for people interested in hardcore professional philanthropy.
Thanks for posting this! Looks quite interesting.
What part of your current income do you need to live on?
[pollid:465]
Note: The idea about the last two options is that high-school and university students are not socially expected to live on their own income. So the last option is for those who are not expected to live on their own income, and the previous option is for those who are socially expected to live on their own income, but they can’t.
By “current income” let’s assume the average for a few months, not some exceptional income or a temporary loss of income that happened yesterday.
It’s worth noting that the results of this poll could be skewed by the fact that it’s much easier to for students to give an answer.
I am a PhD student, and I live on about 60% or 70% of my scholarship (though my parents do still pay for e.g. my car insurance; if I also counted all the money my parents spend on me, it’d be higher, but probably still not close to 100% unless I’m forgetting lots of stuff). I picked “about 75%”.
(EDIT: Just noticed that the poll said “need to”—well, I could in principle reduce my expenditures, but it wouldn’t be anywhere near trivially easy for me to do so by a substantial amount.)
I voted 50%, which is correct +/- 10%.
I should note that I could save money by moving back in with my parents and not paying rent, municipal taxes, food, etc., but it’s socially expected that I won’t do this.
Probably most of us could spend less or earn more, if we did some changes in our lives.
after tax pay of 75k a year isn’t crazy unusual for software devs living in major cities. Living on 15k in these places is very doable, though some might consider it crazy depending on their habits.
After 6 years one could then live fairly well in a relatively poor country on 15k.
I don’t mean to cut the party short, but living for years in a poor country is not as awesome as it sounds. What seems awesome instead is to go for poor countries for 6 to 8 months per year, and live with your parents or someone who loves you a lot in the other 4 months every year. I’ve met a Slovenian programmer who did that, knew 10 languages, worked in London for 4 months per year and seemed to have pretty much nailed the “maxing out on hedons” lifestyle.
I moved out of my parent’s house as soon as I was able, finding the cost in raw hedons and effects on my disposition and behavior to be way too high to justify the money saved. And I have a fine family, not abusive or otherwise terrible—just not a place where I was ever able to be happy or productive.
What went wrong when you were with your family?
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I’d guess it was more likely to be emotional stuff relating to living with people who once had such control over you. I can’t stand living at my parents’ for very long either… it’s just stressful and emotionally draining.
Additionally, there are ways to get people to pay for your living costs in very poor countries. If you live in the US and are looking for a fun but not too easy early retirement, spending two years in the Peace Corps is not a bad way to go—if you do want to spend a few extra thousand on living expenses it will go a lot further than it would in America, and if you just want to let your retirement funds gather a few years of additional interest you can do that. The PC does take married couples and loves people with college degrees and work experience. No kids, though.
Less than half of that isn’t crazy unusual everywhere else. Of course, anybody can just move there, and is qualified and lucky enough to find such a job.
Still doesn’t change the OPs point, though; living on 15k/year is still a very convenient life.
75% is only an example. Adjust according to what you can actually manage to save. If you are paid $100k, as is by no means impossible for this demographic (and in fact is rather easy if you’re a two-income household)m then 75% is easily doable. At $25k, which is also by no means impossible for our demographic, then yes, the 75% savings rate becomes difficult.
I am not, but apparently there is at least one person who could.
The absolute poverty line is US$2/day, purchasing power parity adjusted. You don’t earn less than $8/day.
$2 a day is “extreme poverty”.
The poverty line in 2013 for a single person (one-person household) living in the continental 48 states is $11,490 per year. (Source: http://www.familiesusa.org/resources/tools-for-advocates/guides/federal-poverty-guidelines.html)
For DanArmak’s statement to be true (assuming he lives in the continental U.S.), he would have to be earning less than $47,960 per year. That’s not even remotely unlikely. I earn less than that, for instance.
That’s about the world GDP (PPP) per capita!
Relative poverty is not having enough money to maintain the standard of living that is customary in that society.
The absolute poverty line is found by finding the total cost of all the essential resources that an average human adult consumes in one year. Determined by the world bank. This is adjusted for purchasing power parity. In other words, it applies internationally. The absolute american poverty line is just the international absolute poverty. And there’s no need for a relative poverty line, it’s rather a nonsense concept.
According to his profile, he lives in Kfar Saba, Israel.
Not necessarily. There is inflation.
Please read “without assuming any real gains from...”
invest in inflation-indexed bonds.
Even at 55-60%, which is what I did, it still builds up REALLY fast. Realistically though, you’ll have to work more than ten years unless you’re getting pretty good return on your investments.
Following the rule of thumb that one can spend about 4% of investment a year for it to remain sustainable, it’s sufficient to accumulate about 25 times more than you spend in a year, which at 80% saving rate can be achieved in 6 years (more to reduce risk and/or accommodate possible future increase in spending (above inflation)).
There happens to be an article in the New York Times today about the 4% rule, based on a new paper titled The 4 Percent Rule is Not Safe in a Low-Yield World. It also seems worth noting that the 4% rule assumes a payout period of 30 years, so it’s not entirely applicable for the purposes of this thread.
I wasn’t suggesting that it was safe (“more to reduce risk”). For example in Russia, there is additionally the issue of high inflation (in USD) while the prices catch up with US/UK levels, so even a 3% rule should only apply to cost of living that’s about 2 times higher (adjusted for US inflation) than at present, which turns it into a 1.5% rule, or up to 15 years at 80% saving rate. Of course, if optimizing primarily for smaller working time, one should earn at a high-costs place, like Silicon Valley, and then move to a low-cost place, with possibly moving again if that place catches up.
Combine this with the idea that the most worthwhile investment by far is investing in yourself. Take whatever percentage of your income and use that to help you learn skills that will increase your income. (This includes not just technical skills, but self-marketing skills, self-confidence, anything. You will probably have more and more ideas the further you progress.) Most likely, you will have a much greater return than if you simply invested the same money in more traditional investments like the stock market.
There are two problems with self-investment. First, there’s coupling or frictional losses, by which I mean that X amount of money invested in yourself does not directly translate to X*(1+epsilon) money next year, even probabilistically. You have to put in work. Money invested in the stock market doesn’t go through a stage in which you use your new skill; it remains, as it were, money all through the period, so there’s no loss from transforming from one form of capital to another. Second, the proposed purpose was to free yourself from having to work, through accumulating capital. Although we call the result of self-investment “human capital”, it doesn’t have the fire-and-forget property of traditional capital; you can’t use it with other people’s labour.
I agree that this is a significantly different proposal than the original idea. It’s a combination of the original idea with another idea in a munchkin-like fashion with a different result, but one that is potentially better/more powerful/has higher XP (though it’s not guaranteed, of course). I wouldn’t call your points problems though, just differences.
By the way, there are ways of getting yourself to put in the necessary work (i.e., overcoming akrasia), and this community is great at coming up with a lot of them. Do you think that if you had $10,000 (to throw out a number) to spend on improving yourself and you decided that akrasia was your weakest link, you could come up with some ideas/systems which would make a significant difference? Is that likely to be worth $10,000?
Is it likely to be worth more than the other possible uses for $10k? Your phrase “to spend on improving yourself” already assumes that this is the best use of the money.
Additionally, I think you missed the point of my objection “You have to put in work”. If you successfully spend $X on reducing akrasia, then your work for the rest of your life will be more efficient; great. But you still have to work for the rest of your life. If you invest $X in income-generating capital, then you have income for the rest of your life without lifting a finger.
A separate point is that traditional capital is perhaps more likely to survive the Singularity without being drastically reduced in value than is human capital, on the grounds that atoms are still going to be in finite supply while akrasia-reducing brainware patches will be downloadable from the Internet.
Yes, if your goal is specifically to do as little work as possible and don’t care about either your standard of living or what your ultimate net worth is (as long as it’s enough to stop working), then you maybe should invest in as much income generating capital as possible, depending on your exact circumstances. If you are interested in increasing your income or increasing your standard of living (or have a number of other goals, such as making a greater impact on things you value, having more satisfaction from achieving more, etc.), then it is quite conceivable that self-investment would beat traditional investment in fairly short order. Let me make up some numbers that I think are reasonably plausible: Let’s say you make $20,000 per year and have decided to invest half of it somehow, and that you can double your yearly income if you spent $10,000 on the problem, and that you could get a 10% return on traditional investments. [Justification: $20,000 is a very low salary in developed countries, and $40,000 is still a fairly low salary, so it’s not unlikely that a relatively small improvement could take you from one to the other.]
If you then invested in yourself for one year before you started saving and investing traditionally, after ten years you would have saved about $185,000 vs. about $320,000 from the one year of self-investment. After 40 years it would be a bit less than $5 million vs. a bit less than $9 million. If you could keep getting returns on self investment after the first year, the difference would be more pronounced. If you got less than 10% return on traditional investment, the difference would be more likely to be greater.
There are a lot of people who make minimum wage, and some people who make thousands of times minimum wage. If it’s possible to teach yourself the skills that the people who make thousands of times minimum wage have by spending money on it, it’s likely to be worth much more than a standard 5% or 10% per year, since the income that some people make would take you many decades or centuries of saving and investing just to equal what they earn now. If you can increase your income by much more than the standard return rate of 5% or 10% per year, then compounded interest will quickly dwarf what you could make by investing in the stock market. So I think it hinges on the question of how likely it is that you can increase your earning potential faster than standard investment returns. It seems to me likely that this is possible, given some people have achieved it, and that most skills are learnable.
This is difficult to estimate, but I tend to think that the Singularity is probably far enough off that significant self-investment in things that are helpful now is still likely to pay off.
Sure, if you’re making minimum wage, by all means prioritise getting a better job over investing what you can spare. I suspect, however, that this is rather an unusual case for LW readers who are out of their teens. If you’re making a more typical 30 or 40 thousand (and especially if you already have a college degree), the returns to self-improvement drop rather drastically.