This certainly doesn't sound like very much fun. You slave away for 15 years to get your $500k stash. And then, once you've gotten there, you retire, and end up cutting back on expenses by driving a shitty car, quitting your gym, etc. Now, you just "sit back" and wait 30 years for your $1m to roll in. Then you're 65 and practically dead. (Oh and don't forget, inflation is ignored here and has probably eaten well into your real returns.)
Better to save up enough money to live on semi-comfortably for a year or two (say, $200k) and make a leap out of the ratrace. Start a business that has the potential to generate a large amount of income quickly with low startup costs and be sold as equity for a high price after some time. Fail, and repeat for the next two years. Hopefully at some point you will get cash flow positive and will not be forced back into the rat race. If you've played your cards right your incoming cash flows will largely be passive, leaving you the freedom to expand into new areas in the quest for high growth. One can imagine that after 5 years of being out of the rat race, you will end up stumbling upon a high growth business that can start bringing in serious cash.
After 5 years of effort you will hopefully have $1-5m. You almost certainly will have more than the $250k you started with. Provided you have been smart and not increased your standard of living as you earn this money plug it into safe, income generating investments like bonds, CEFs, and dividend value stocks.
Congratulations, you can now kill off any income streams you may have had that were taking up time (and were not passive) and can decide if you want to live on the interest or continue searching for more growth, to get you to that $10m point where the interest starts being "I think I will buy a new car today" levels. You're also probably in your late 30s early 40s and can actually still enjoy life.
You're missing the point of being "frugal". It's not about "giving up" the "good life" and punishing yourself to go without. It's about coming to the realization all that crap isn't making you happier anyway, so better not to go to work to earn money to buy it.
I drive a $450 car, have no TV or cell phone and have never been happier in my life.
> Now, you just "sit back" and wait 30 years for your $1m to roll in.
When you say "Sit back" what you really mean is "do whatever you want with your time". It's important to note that doesn't mean doing nothing - it means exploring your passions and dreams, which could be anything from volunteering at the homeless shelter to contributing to open source projects to building that deck on your house to actually raising your own kids instead of sending them off to expensive childcare. I sure as hell don't sit around and do nothing when I'm not at work.
> Then you're 65 and practically dead.
That's the whole reason you need to get out of work NOW! At this rate, you'll (everyone) will be sitting at a desk until they are "practically dead". At least if you get out of work now, you can enjoy the years between now and 65 doing whatever the hell you want to every day. And, of course, all the years that come after 65 too.
>"I think I will buy a new car today"
I actually have never bought a new car, and have no interest in doing so. If you actually want to buy a new car today, then you have linked happiness with money, and it will be very hard for you to live the frugal life which lets you go to work less.
The problem is in the "do whatever you want with your time" phase you actually aren't "doing whatever you want with your time." You are doing things that don't cost much money to do, like volunteer at a homeless shelter or contribute to open source projects. If that is your life's passion, good for you, and maybe this plan would work.
But also, don't forget, during this 'early retirement' you're in a very risky financial situation full of worry for a very long time. (Probably the rest of your life.) If a $50k hospital bill comes your way, you're in a bad spot. You're potentially drawing down your assets over the years if you spend a little bit more than you thought you would so the risk could go up over time. In the approach above I outlined you still go into a period of risk, but it's shorter (with higher risk) since after a point you are shielded from financial worries.
The "buy a new car today" example was just that, an example. It could also mean "travel to Italy to work on my open source project out of a coffeeshop" or "open up my own homeless shelter to help my local community."
> you actually aren't "doing whatever you want with your time."
Each person needs to sit down and think about what they would do if they didn't have to go to work every day. (the old "what if you won $100mil question) it's important. Actually think about it, and make it happen. I drove from Alaska to Argentina for 2 years. I'd call that doing whatever I want.
> If a $50k hospital bill comes your way
Because the whole "career" and "retire at 65" approaches are such rigid paths, many people seem to think an alternative lifestyle/approach to money is equally rigid and inflexible. If huge bills were to pile up, you could just go to work, full or part time as required. It's a very flexible thing to do. Also, I live in a country where medical expenses are not a concern.
You keep thinking that if I don't have some money behind me, my choices about how I spend my time will be limited. What you don't realize, is because you are going to work every day, you don't even get any choices.
Would you rather not be at work on Monday morning and get the choice between a (free) walk in the park or a drive in your $500 car, or be at work thinking about the $100k Ferrari you might have one day?
I'm not proposing that you be at work every day either. I'm proposing you spend an extra 5 years after you exit the rat race (earlier than you would here) to secure a 7 figure sum and a series of passive income streams to ensure absolute financial freedom, and defer your "do whatever you want phase" by a few, but not many, years.
So, the timeline goes from this:
- Phase 1 (years 1-5) : Save $500k
- Phase 2 (years 5-30): Live frugally but without working for 25 years but without true financial freedom while interest accrues
- Phase 3 (year 30): Reach true financial security after you build wealth via the markets somehow (risky) and no longer worry about money whatsoever. You are now old and your liklihood of getting here by building wealth via the markets is probably lower than you think.
Alternate reality:
- Phase 1 (year 1-2): Save aggressively $200k by living like a bum.
- Phase 2: (years 3-8): With your independence, start a series of high growth ventures (some of which will fail) and work incredibly hard to build wealth. By year 5 you should be cash flow positive, by year 8 you should have $1-5m.
- Phase 3: (years 9-15): You are completely financially secure with a passive risk free income on interest of $150k-250k/yr on your cash sum. This is time for you to decide if your dreams require more passive income than that. If so, spend this time continuing to work independently and building wealth. If not, you're retired here and can do what you please on your 6-figure risk free salary.
- Phase 4 (optional): Get to $10m-20m in the bank. Congratulations you now have $500k-1m a year to play with and literally do whatever you want if your dreams so require it.
This is perfectly compatible with the MMM plan. Nothing says that you can't spend as much of your retirement as you like on high growth ventures. The definition if retirement here is no longer being financially dependent on the rat race. Though I will note that this will work even better if you learn to enjoy living frugally. Every dollar you don't spend is less time you HAVE to spend working.
1) Living frugally doesn't have to suck. Being "I think I'll buy a new car today" rich doesn't actually make you any happier.
2) Retired means that you don't have to work if you don't want to. It doesn't mean that you have to sit around and do nothing.
3) Inflation is not ignored.
4) Most of the people here at HN probably can save $500k in 7-8 years, not 15.
> Start a business that has the potential to generate a large amount of income quickly with low startup costs and be sold as equity for a high price after some time. Fail, and repeat for the next two years. Hopefully at some point you will get cash flow positive and will not be forced back into the rat race.
Now I'm actually trying to implement a version of what you suggest, myself. So I do believe it's possible. But how likely is it, really? Based on my experience, it is very, very hard. And I'm suspicious that it won't work. It seems far more likely that after a couple years, I'll have spent a bunch of my savings, and will just have to go back to full-time employment.
Also, FWIW, I really don't need a "high income" business at this point. Just enough to cover my yearly expenses, which amount to about $30-40K. More is always welcome of course, but I'd rather live on less and not have to go back to work as an employee. It didn't agree with me.
Better to save up enough money to live on semi-comfortably for a year or two (say, $200k) and make a leap out of the ratrace. Start a business that has the potential to generate a large amount of income quickly with low startup costs and be sold as equity for a high price after some time. Fail, and repeat for the next two years. Hopefully at some point you will get cash flow positive and will not be forced back into the rat race. If you've played your cards right your incoming cash flows will largely be passive, leaving you the freedom to expand into new areas in the quest for high growth. One can imagine that after 5 years of being out of the rat race, you will end up stumbling upon a high growth business that can start bringing in serious cash.
After 5 years of effort you will hopefully have $1-5m. You almost certainly will have more than the $250k you started with. Provided you have been smart and not increased your standard of living as you earn this money plug it into safe, income generating investments like bonds, CEFs, and dividend value stocks.
Congratulations, you can now kill off any income streams you may have had that were taking up time (and were not passive) and can decide if you want to live on the interest or continue searching for more growth, to get you to that $10m point where the interest starts being "I think I will buy a new car today" levels. You're also probably in your late 30s early 40s and can actually still enjoy life.