Q: I find it hard to believe that you/anyone can live on $5-7k/year without living in hardship. [Most common question off the blog]
A: That’s alright, I find it hard to believe how you/anyone can spend $30,000/year [without flushing money down the drain]. Fair enough? A simple break-down of the most important expenses for the year 2016 where we now live in a fully owned single-family house just outside Chicago would be $3900 for real estate taxes; $150/month for food; ~$200/month for utilities (water, gas, electricity, internet); $150/month for food (including the dog, we cook his food too); $2000/year for insurance (home, car, health, umbrella). This comes to about $10000/year or $5000/year/person for my wife and myself. All the loose stuff is noise. We don’t have any expensive hobbies. We rarely if ever pay retail prices. If you want to get more precise than that (think car depreciation, imputed rent, house maintenance events) then it gets complicated, real fast! See this entire thread for a detailed discussion of what happens when accounting gets overly complicated. The take-away is that while it’s maybe $6357 or $4521 and not $5030, the point is that my spending far away from $3000, $12,000, $21,000 or $33,000 and that I’ve intentionally accounted for plenty of slack in the cash flow calculations. (see net worth considerations below).
Keep in mind I’ve spent between $5-7k/year for more than a decade while living in several different situations: being single and married, living in three different countries, in dorms, apartments and house rentals, in an RV and as a home owner. There are many different solutions at this level. For more examples, look through the forum journals.
Q: How can you possibly pay for health insurance on a total budget of $500/month? I pay $500 per month on health insurance alone, so your budget does not make sense. [Most common question on the blog]
A: I’m presuming you’re [a United States of] American because affordable health care is a piece of cake in every other developed country in the world. However, it’s possible to get affordable health care on a $500/month budget in the US too. The difference is that you have to figure out how and preferably before you get sick! In other words you have to be uncommonly smart and proactive about it! During the time the blog was written, the smart way was to get a high-deductible plan coupled with a [maxed out] health savings account. Your premiums were then effectively and substantially reduced by tax deductions. All those posts are somewhat outdated now because the Affordable Care Act (ACA) was fully phased in around 2014 rendering those blog posts mostly null and void. ACA now requires some complicated tax and income planning. There’s nothing on the ERE blog about this because ACA came in after I stopped blogging. However, other bloggers have written about how to optimize Obamacare for financial independence in extensive detail. The thing to keep in mind (in 2016+) is that some states have deliberately chosen to thwart the ACA by putting in special rules regarding Medicaid expansion at the state level. If you live in certain states, you might be out of luck. Therefore you might have to relocate to another state lest you fall through the cracks of what’s possible at the federal level or otherwise pay an increased premium. In any case, it’s still possible, but Americans need to remain supremely vigilant until the US adopts a normal first-world health-care system. Possibly workarounds include medical tourism, the use of urgent care facilities where applicable (not emergency room), and a healthy lifestyle since 2/3 of US health care costs are due to self-inflicted and poor lifestyle choices.
Q: Hey, wait! I thought you lived in an RV?!
A: We lived in an RV between 2008 and 2011 long before the rest of the blogosphere discovered or rather appreciated the RV lifestyle 😛 This incidentally covers most of the years when the blog was still active, so you’ll see several RV related posts on the blog. However, in 2012, after having been retired from physics for about 3 years and having been financially independent for six years, I got a chance to try one of my bucket-list careers in Chicago. Within 17 days, the contents of the RV had been packed up and the RV had been sold for cash; and we drove 2200 miles across the [western] US and moved into a 1bd/1ba apartment near the brown L-line in the City of Chicago. The move was easy because we didn’t have a lot of stuff. Because the cost of living is lower in Chicago than in the East Bay, we were able to pay rent, insurance, food, etc. for around $14000/year for the two of us, thus staying within budget. Most of that was rent (heat+water was included, no cooling, our electric bill has always been ridiculously small, and food costs dropped a lot.) After a few years living in the apt. building, I was getting tired of spending nearly $10k/year on rent and really tired of the squeaking “vintage” floors. At the same time didn’t like how the markets were getting so overvalued so we pulled out enough money from the markets to buy a 3bd/1.5ba house in cash in the near suburbs in 2014. This is where we live now (in 2016). So now we live in a stick house.
Q: I couldn’t see myself living in a RV if that’s what [ERE] takes.
A: So, obviously, that’s not what ERE takes. Note the many blogs and forum journals for examples of how most people with the similar expenses don’t live in an RV. It’s just that we lived in an RV during most of the time when the blog was written, but no, you don’t have to live in an RV to retire extremely early. This was already clear to me before buying the RV having lived in three different countries in anything from house rentals, apartments, and dorm rooms before that at a similar level of expenses. Ironically, after initially disparaging RV-living as “too extreme”, many other bloggers have subsequently discovered how fun it is to live in an RV, at least for a while, but please don’t think that this is the only way or the least expensive way for that matter.
Q: How do I find a way to live cheaply in an RV in the San Francisco bay area. I looked at some campgrounds and they seem rather expensive?!
A: Forget about campgrounds. You need to focus on mobile home parks. Many of them cater to long-term RV residents, mostly construction contractors but also second-homes for professionals/commuters and people like you. Unlike tourist campgrounds, these parks aren’t well-advertised on the internet. The best way to find them is either to drive around or even better, to use google satellite to spot them from the air. Once you find one, talk to the manager. Approach it as if you would a standard rental. Bring references. Be willing to write a check for the deposit. Bring pictures of your RV—they just want to see a well-maintained one; one that’s capable of being driven away if you stop paying rent. If you’re specifically looking at the east bay, I’d suggest looking at Hayward, Pleasanton, Livermore, Tracy or up in the Delta. The closer you get to SF, the more expensive it gets!
Q: RV living sounds cool. Based on your experience, what would you suggest I get?
A: We lived in a 34′ Georgie Boy Encounter (sounds pretty cheesy, no?). It was a class-A motorhome. The lessons learned from that is that smaller is better and that a travel trailer (TT) is the most economic choice. If you don’t own a truck, figure out how to pay someone to relocate you. A motorhome (class A,B,C) only makes sense if you’re moving constantly. If we had to do it again and desired to move around, we’d aim for a 21-25 foot TT, and pay someone with a truck to relocate us. If we were moving around often year, we’d likely go for a canvas wall tent. Another thing to keep in mind is that most RVs are built for short vacations and this affects the design. With few exceptions most RVs have no insulation which means they are too cold during [freezing] winter unless you’re willing to burn a lot of propane or otherwise find workarounds (wear 6 layers of clothes at all times), insulate the pipes, etc. Since the home is on a vehicle, weight is an issue. Slide-outs which offer much more space are really heavy! This means you lose luggage capacity. A “spacious” RV that sleeps 6 might only offer a couple of hundred pounds of luggage per person. An RV w/o slide-outs might offer thousands of pounds. This is all covered in RV books. Read some.
Q: What’s your net worth?
A: Currently (mid 2016) 121 times what I spend annually. If you learned your multiplication tables, you can compute the dollar amount fairly precisely with the information you have already. If you can’t, you don’t deserve to know! I try to update the NW number at the beginning of the year on the About me page. Because I retired with realistic projections (rather than optimistic ones) and because I live a value-producing lifestyle rather than a consumption based on, this number keeps rising. Being this high it mostly fluctuates with my portfolio. This amount will theoretically last the rest of my life with an extremely safety margin. If you don’t understand why investing the equivalent of even 40+ years of expenses will last much longer than 40 years, you need to read up on some basic retirement math or ask a qualified CFP or similar. Also, 121 years (that’s the unit) means I could theoretically increase my spending by 3-4x and likely not run out of money.
Q: How do you deal with all your sacrifices?
A: How do you deal with yours? A sacrifice does not mean giving up something. A sacrifice means exchanging something for something better. I have given up shopping, credit cards, expensive cars, large houses, season tickets, and vacations in exchange for the joy of not having to work, the ability to spend all my time as I want, and the lack of stress from never having to struggle to make ends meet. If you know the answer to how you can sacrifice 60 hours of your life a week for the next 40 years, you know the answer to how I can sacrifice not eating out or buying stuff without thinking about the cost.
Q: How much did you pay for that? [Most common question IRL]
A: Probably nothing, unless it looks expensive in which case, probably more than you think. I buy luxury items from the “upper class” used (and so do they) and swap and recycle items with the “middle class” for free. You’ll rarely see me in the mall.
Q: [Related] how can you live comfortably on so little money?
A: First, I spend my money more than twice as efficiently as the average person. Actually, the true factor is closer to four times as efficiently. This means I get more utility out of each dollar. Second, don’t confuse spending money with living comfortably or having fun. Comfort is mainly about living without constant stress and fun is mainly about what you do rather than what you spend. If you can’t do anything without spending, naturally you wouldn’t have fun and you would probably also be stressed due to this inability. However, it is possible to overcome this inability. Third, when I buy things, I consider the long run. How much I pay for something now does not matter as much as how much it costs in the long run. I consider most of my purchases the way a business would. (Also see Captain Vimes’s “Boots theory”).
Q: How can you retire on less than a million dollars?
A: The great majority of people never manage to accumulate a million dollars and so not that many actually retire on a million dollars. A million dollars is simply what is required to replace the expenses of an average consumer family, that is, about $50,000/year. Now obviously many families live in less than that. Consequently, they need less retirement funds. Conversely, some people can not live on less than $100,000. I can’t even imagine how someone is able to spend that much money—if you gave me 100k and told me to spend it within a year, I’d probably still have 90k left by December despite trying very hard to waste it—but these families would need at least 2 million to retire.
Q: How much did you pay for your degree?
A: I didn’t pay anything. I grew up in Denmark where advanced education was/is free insofar you have the required grade point average—think of it like getting a full-ride scholarship + only those who receives on gets to attend. If I had grown up in the US I would probably have done the stupid thing and get into student debt because I was still ignorant about money when I was 18. In hindsight, that is, knowing what I know now… and what I’m telling you… I would have either gone to a state university and paid rent to my parents to get a degree in a skilled profession (engineering, accounting, …) or gone to a community college and gotten a degree in a skilled trade. I think the latter is very underrated. This is probably because universities have more money available for advertising than do community colleges even though if you are equally ambitious you will be making as much money with a trade as you will in a profession.
Q: How much did you make while working?
A: While I was in grad school, I earned Swiss Francs (CHF) and the exchange rate is kinda lost in the fog of memory. Figure something like $20-25,000/year after tax. In my 5 years as a postdoc in the US, I earned $40,000, $41,000 (I became FI at this point), $42,000, $67,000, and $69,000/year before tax. I retired at this point. You don’t need to master software engineering to reach this level of income. You can do it a toll booth operator, a delivery truck driver, or a with a useful college degree, like not art-history. From a financial standpoint I was dumb enough to make it using a PhD and working in academia/government which is probably the most inefficient way to make money for a smart person; but the work was interesting to me at the time. A few years of not working, I got an offer to work in finance in Chicago for $80,000/year before tax. I spent just under 4 years working in finance before I decided to “pursue other interests”.
Q: But with your degree you could earn so much more money…
A: Indeed, and if you increased the frequency of your breathing, you could gulp up so much more oxygen. But you don’t because you have all the oxygen you need. Similarly, I have all the money I need and my goal in life is not to spend more money. I think it was MMM who compared the situation of having more money than you could ever want to tap water. If you’re reading this, you likely have access to as much water on tap as you could ever want to drink. If this is the case, why would you want to drink more water? If you understand why you wouldn’t want to drink so much more water, you understand why I don’t want to earn so much more money.
Q: How much did/do you make on the blog?
A: I spent a lot of time writing the blog and the book between 2007 and 2010. During that time, I made very little money on it. After the book has been published, I’ve consistently made $25-35k/year on book sales. That’s before tax and self-employment tax is pretty high compared to job income tax! This was and has been entirely unexpected. Initially I expected to sell about 50 books total. However, I’ve been selling about 4000/year every year making about $7/book in royalties before taxes since publication. In comparison, my blogging income has been entirely pathetic, describing a very volatile pattern ranging somewhere between a few hundred bucks per year to a few thousand. Currently, it’s about three thousand USD per year. I don’t spend any time on the blog/book currently. The book sells itself. The blog is automatically recycled. I do partake in the forum for fun but I don’t think that my participation has that much effect on the book sales.
Q: Given my calculations (alexa rankings, SEO rating, etc.) you could/should make much more!
A: Easy to say, but hard to do. Several people have told me that if I only pay them a $1000 consulting fee or whatever then they can figure out how to monetize the blog for five or six figures. My counter offer has always been that I’ll pay them $0 upfront but offer a 50/50 split of whatever profits made beyond, say, $5000/year. Nobody has ever taken me up on that offer. Not a single person! So I don’t give such statements a lot of credibility.
Q: I have found a list of typos in the book.
A: First make sure you are reading a recent version of the book. The kindle version is now in its third revision while the paperback is in its second revision. In practical terms, did you find a “the the” error on one of the first pages in the book. If so, don’t bother. I very likely have them added to my list already. If not, it’s unlikely but still possible, that I’m already aware of them. The reason that I’m not continuously publishing corrections is that: 1) Publishings houses don’t do it either. I’ve seen a book in its 15th edition that still had typos. 2) Republishing is a 100 hour effort to correct a problem that only 1 in 1000 persons actually notice. 3) It’s not that rare that people are sending in re-corrections to change things back to how they were indicating that things aren’t really wrong; rather self-declared editors simple disagree.
Q: What about children? Do you plan to have them?
I have heard everything from how children leads to a fulfilling life to the opinion that life without children is meaningless. Now, I am the older sibling and when I was a kid my mother was running daycare for another kid eight years younger than me. In addition, my xGF had two teenagers. I have thus seen all aspects of parenthood from the first step and the first word to helping with homework. Based on this experience, I’ve come to the conclusion that my preferred ideal of having kids would be if they were 20 years old and moved out already 🙂 Yes, it may be that there is a difference if they shared my own genetic material, but I don’t think so.
Q: How can someone with children retire early?
A: The same way as people without children. By themselves, children actually spend very little money. The problem is parents spending money on their children without limits. If you adopt the same basic guidelines for your children as you do for yourself, the cost will be low. The fiscal or frugal problem happens when parents are willing to spend less on themselves but still want to create a consumer lifestyle for their children, usually with the goal to conform. I believe this is doing the children a disfavor. Unlike stuff which you can just put in your garage, children need attention which you can either provide yourself or pay someone else to provide for you. Early retirement is a great way to provide time and attention and if you’re smart you will wait the 5 years it takes to save enough money to be financially independent before having children.
Q: I think 30 is way too young to be retired!
A: Could it be that you’re stuck in the conventional “school-career-retire-die” way of thinking about life? If so, you need to read a bit more of this site because that’s NOT the kind of retirement ERE is about. Here retirement is used in the “becoming financially independent and using that freedom to pursue other interests”-sense. Incidentally, this is not a new idea. Rather it is an old and somewhat forgotten idea. If you read biographies of people like Ben Franklin or Joseph Conrad, you will often see that they “retired” from one profession to take up another interest. Being financially independent and also well-rounded and possessing more than one skill made that possible.
Q: How can you be retired if you still make money? (Definitions of retirement, financial independence, and semi-retirement)
A: People used to work in one vocation until they grew old, worn down and nonproductive. Then they would be retired, “put out to pasture” so to speak, and get a pension. ERE shares some of these qualities but not all of them. Different generations have different definitions of what retirement means to them. The confusing part is that we use the same words to describe different things because ERE is still so uncommon that no common words exist. First, the concept of working only one career is outdated. Second, not many will be lucky enough to receive a pension. The point of ERE is to reach financial independence (FI). FI means having enough investments to pay all your expenses for the rest of your life WITHOUT needing to work. If you think of this as saving enough money to start your own trust fund, stipend, or a big annuity for yourself, you got it. (Many people who pursue ERE manage their own funds). Being freed from having to work to pay the bills, many EREs [plan to] retire from professional life in the sense of no longer working in that career. (For example, I was a physicist, but I no longer do any physics, I don’t even think about it). This usually means taking up some other activity that is more meaningful to them but which would be hard to make a living from such as raising children, saving the world, rock climbing, making art, open source programming, writing, etc. It doesn’t mean doing nothing. In that regard, some people say that I still work because I have this website. If you want to call that work, fine. Whatever rocks your boat. I call it a hobby and so does the IRS (I pay income taxes on my writing, but I don’t take any deductions). I have no idea how much “work” I put into it. Sometimes 0 minutes per day, sometimes 50 minutes (if there’s a particularly interesting forum discussion), some days none at all. But then every few months I spend a week hammering out a longer article for some magazine on a pro bono basis. Work work work ;-P
PS: To add to the confusion, “semi-retirement” is sometimes used to describe a person who derives some income from investments but not enough and thus needs a job, typically part-time, to make ends meet.
Q: You can not be retired if your spouse is still working.
A: Why not? Is there a rule that states that either both must be working or both must be retired? I suspect part of the confusion comes about because married couples used to run all their finances jointly. This made sense when there was only one income earner. In our case there were two and we entered marriage with very different levels of wealth. In addition we had different goals. Therefore we kept our finances separate. This avoids a lot of arguments about whether or not to spend on something. We only need to agree on things we buy “for the house” and are free to buy things for ourselves without consulting the spouse.
Q: You’re not retired. You’re just a stay at home spouse.
A: The difference between a stay at home spouse and me is that I am independently wealthy and don’t need my spouse’s income/handouts. In other words, I am not a “dependent”. I pay half of the household expenses with investment income from money I saved and my wife pays the other half with money she earns from working.
Q: Isn’t your low budget predicated on you being married and sharing expenses?
A: No. I do not spend less money now compared to when I was single. Our budget is a compromise. We share expenses 50/50 for household expenses but not personal entertainment or personal savings. If we got divorced, I would no longer be paying half of some of these expenses, like the car, and food and heating would also be lower. Conversely, I might be paying more in housing unless I could find a room mate, buy a log-cabin, invest in a condo or a house, or one of many other solutions. Read more about marriage and economies of scale.
Q: This may work for you, but it would never work for me.
A: You might say the same about calculus, reading, walking, or whatever, but is this your problem or mine? 😉 Regardless, don’t get too involved in copying what I do. I primarily write with the intention of providing guidelines rather than plans. I show you that this could work and give you one specific example of how I made it work. I know there are a few other bloggers who work along similar lines and they do things slightly different from me. What we all have in common are really high savings rates and rather low levels of expenses which in monetary terms would be considered poverty levels or at least be much lower than the money we would be expected to spend to keep up [ in the spending competition] with out incomes. We differ in terms of how we invest e.g. stocks, real estate, or private businesses or how we manage not to pay for things e.g. repairing things, being minimalists, work camping, or homesteading.
Q: Wouldn’t society collapse if everybody retired?
A: For an answer to this and similar questions such as whether everybody is obligated to have a job for the good of humanity, this wiki should prove illuminating.
Q: Why do you hate index funds?
A: Dude! I don’t hate index funds and the idea that I do has been greatly exaggerated by the louder members of a certain forum on the internet who feel compelled to call down a witch hunt whenever anyone questions their dogma (You know who you are!) In fact, I’ve used index funds myself to invest on occasion when the situation called for it. It’s just that I don’t hold any rigid views when it comes to my personal investment strategies. I reserve the right to change my strategy if the situation changes and so far that has worked out well for me.
Q: Do you believe in the efficient market hypothesis?
A: No, while I do believe that all investors roughly have access to the same information, I find it hard to believe that they all instantly reach the same conclusion. For more on the veracity of the EMH, see this discussion on active vs passive investors.
Q: If you’re financially independent, why does your book cost money?
A: If I may paraphrase Andre Kostolany (a famous and wealthy stock market speculator): “When people buy my book, the fact that I receive the proceeds of the sale is secondary to the fact that people are willing to pay money to read my ideas. Now, it used to be vanity thing [for me], but having played around with the price point as well, I’ve realized that the lower the price, the more likely I am to attract random mainstream readers who aren’t yet ready for a heavy dose of advanced lifestyle design. Past experience shows that lowering the bar results in clownish negative reviews about three weeks later. This subsequently depresses the number of not-so-mainstream readers who might pick it up. Thus, the current strategy it to increase the price slowly from two Big Mac Meals to three Big Mac Meals and maybe even higher as ERE gets more popular. If you think that’s too expensive, you either aren’t ready to read it yet or you fail to appreciate how this is not like most other personal finance books that just contains a few good ideas. In any case, you can always go through the hassle of getting it for free from the library instead of the hassle of paying $10. In any case, as long as critical thinking skills remain depressed, I’m going to keep putting down a moat between the book and the casual reader.
Q: Why don’t you donate the proceeds/your money to charity?
A: For the same reasons that Warren Buffett held on to his money. In my case, I think I can do more good (judging by the number of nice emails and comments I receive) in the long run by using the money to support my own work on ERE than donating it to nonprofit groups where I fear it would just be eaten up by administrative salaries and other inefficiencies. Ultimately I do intend to get rid of all of it before I die but it will require years to find a good cause that’s run equally efficient.
Q: Why can’t I comment on posts?
A: In 2015 my hosting provider (BlueHost.com) decided to shut down my site completely without any warning due to violations of their terms of service. Someone had been spamming too much and according to their terms there were too many spam comments in their SQL databases. After wasting half a day dealing with tech support, we eventually worked out a resolution but to avoid this problem in the future and also because genuine comments were getting increasingly confused not realizing that the blog is no longer getting actively updated so people we’re commenting on posts several years old w/o realizing it, I decided that it would be best to switch off blog comments entirely.
Q: Why don’t you travel more?
A: I have traveled quite a bit in my younger days (Norway, Denmark, Sweden, Poland, Switzerland, Germany, Austria, France, Belgium, Canada, Japan, Czech Republic, Scotland) and I no longer find it that interesting. I’m much more interested in learning new skills and sharing them with people than I am in visiting other countries.
Q: Do you have a bucket list?
A: Not officially! My goal in life is simply to avoid boredom. However, here are some things that interest me and a few things I have done:
Get a PhD. Publish a scientific paper. Become financially independent. Live in a second country. Live in a third country. Live in a fourth country? Visit more than 10 other countries. Become a millionaire. Live in an RV. Live on a boat. Work on Wall Street. Work on/in the space program. Work in a strategic role (security or politics, not business). Learn to sail. Get a HAM radio license. Build a radio. Get my own wiki page. Publish a bestseller. Be published in three separate fields. Build a house. Buy a house. Sell a house. Fix a car. Build a vehicle. Take a trip walking 1000+ miles. Take a trip cycling 2000+ miles. Take a trip sailing 4000+ miles. Climb a mountain (Mt. Fuji). Fly an airplane. Get a black belt in a martial arts. Develop enough skills to live well on less than $7500/year. Less than $5000/year. Less than $2500/year. Become completely self-reliant: $0/year. Live off freelance income. Live off investment income. Live off business income. Live off wage income. Patent an invention. Learn woodworking. Learn metalworking. Ride a motorcycle. Shoot a gun. Build a steam engine. Build an entire machine toolshop (Gingery style). Go to Alaska and build a cabin to live in Proenneke-style. Build a robot. Build a boat. Build a motorcycle. Live forever…
Q: Would you like to be on my radio program/TV show/national newspaper?
A: I used to respond positively to these request but after seeing the typical popular reaction, my answer is now no. Mass media in its current form is unfortunately an unsuitable format for presenting ideas that are controversial and complex in nature—in fact, those programs tend to turn into freak shows. For further clarification, see Jerry Mander’s Four Arguments For the Elimination of Television.
Q: I’ve read your book and I think it deserves a wider audience, so I’d like to translate it into …
A: I appreciate the offer. However, the main audience of the ERE book is mostly educated types who read English anyway. In fact, only about 5-8% of the book is sold outside the US, which means that that it would be a lot of effort just to sell a few dozen translated books per year. That is not to mention the logistics wrt publishing it and making sure everybody gets paid and all the paperwork gets filed.
Did I forget anything?