1. Life is too short to live a “poverty lifestyle”. Plus, how much fun can you have on $15,000 a year! Sure if you were living on the beach in Philippines you might get by, but in America, more specifically California. Rent alone in a low income area is minimum $12,000 a year. That’s not frugal thats just cheap.

    • @Harry – Thanks for joining the discussion…

      As I said, it is not the perfect fit for everyone. Different people build different wealth plans based on their unique circumstances.

      Just to be fair, real people are working this strategy and consider that “enough”.

      The key concept is the percentage saved – not the dollars spent.

      You face two choices using this strategy. You can increase percent of income spent which increases time required, or you can increase income so that you can spend more while maintaining same percentage spent.

      The other alternative is to use a totally different strategy such as real estate or business entrepreneurship which is a totally different discussion.

      • Where do you live…in a CAVE. There is nowhere I know that you can live in this country and make 48,000 and live on $15000. Let’s use the DC area. Rent alone on a one bedroom is 1300. Get serious. If you can live on $15K, why are you selling books to survive???

        • @Martha – I know it sounds unlikely but real people are actually doing it. Follow the link provided by Jacob in the first comment above to the EarlyRetirementExtreme forum and see for yourself. Also, you are not required to make it work on that amount. For example, my kids school tuition amounts to as much as some of the frugalists are living on. You can choose to raise your income. The percentage saved is the key.

        • @Martha:

          So just for the record you can live on 15000 a year if you open your eyes. I know because my family of 5 does it every year. Not because we are saving money but because we only make that much. Further more DC is on of the most expensive places to live in the country so you can’t really use that as an example for rent I don’t even pay half that for my 3 bedroom. There are ways to have healthcare and fun on this low income too for example my family likes the outdoors so to go camping for the weekend it costs us 30 bucks, 20 in fuel and 10 in food and that’s all 5 of us and our 3 sons eat alot. Also we ride motorcycles so for a weekend of fun riding it costs us 50 bucks again 10 for snacks and food and 40 for fuel. If we want to see a movie the local theater runs family night on Tuesday where you get in for 2.50 a person. Our local pool has season passes for 20 dollars a person so we can go whenever. Having fun does not have to cost a ton of money. And for healthcare my 3 boys have Medicaid but my wife and I can’t get it so we have health insurance that covers 5 visits a year to the doctor major medical and 15 dollar Co pay on scripts. It costs us 80 per person a month and that’s not through an employer. You people complain about not being able to lower yourself to that level of income because you don’t want to give up that Starbucks run on the way to work but just remember there are people that live on that much not because they want but because they have to and honestly this Guy makes a ton of sense if I had the money to save like that you bet your ass I would hell if I had the money to buy this guys book I would

        • @nick nelson I felt the same way as you till I started research it more, yes it can be done, is it easy no.

        • I live in Tennessee, My take-home pay rounds out to about $35,000 per year, which is considered good for this area, but my overall monthly bills only come to about $600-$700. It is entirely possible to for me to save 70% of my income, I am 30 years old and I plan to have my house and primary vehicle paid off within the next 2 years. At that point I could possibly save 90% of my income.

  2. While I appreciate the article, pray tell… how do you find EIGHT percent return in the “new normal” world???? Only by taking risks… which may well lead to 2008-style returns.

    Good article, but deficient. And I already DO live very frugally and save more than $2k/month. Let me know where you can find that guaranteed 8%…. is the author willing to give me 8% a year????

    • @Jim – Congratulations on your savings. You are way ahead of most. The next key is investment strategy.

      I teach investment processes focused on risk management. There are no guarantees; however, the processes I teach successfully protected capital during the 2008 decline and reliably participated in the upside so that the net compounded return over time (both historically and in real time) is in excess of 8% compounded – all without horrific risk.

      It is too involved to explain in a single blog comment but if you spend some time on this site you will find plenty of clues that point the way. In addition, I will be teaching an investing class as part of the 7 Steps To 7 Figures curriculum later this year that will explain everything in excruciating detail. There are no secrets and it is all public domain knowledge. I’ve just assembled it in a specific way so it makes perfect sense to people once they are taught it (based on coaching client results).

      Hope that helps.

    • That’s what I want to know – where and how can we get 8% every year!

      • In today’s market you can’t “get 8% every year”; however, you can compound over the long term at rates in excess of 8%. The only way you could do it “every year” is if the credit market (interest rates) paid that amount, which they don’t as of this writing. You might also find a reliable return like that in direct ownership real estate, but not in a conventional asset allocation portfolio which incurs volatility.

  3. I enjoyed your post, agree with most of it. I believe that percentage of income saved dominates the financial success equation (even for entrepreneurs). I understand that $14,000 per year was just an example, but given that health care expenses in this country are more than $8,000 per person and that for people over 50 it is worse than that, I really doubt anyone could live on $14,000 and be adequately insured at the same time. The plan to go with no (or insufficient) health insurance might work for someone without any savings (they can use Medicaid), but for someone trying to preserve assets I do not think this is very wise. Even if this retiree could find high deductible health insurance in the individual market for say $5,000 per year at age 50, by the time they are 60 their premiums would likely be well over $10,000 per year (or $20,000 for a couple). I have saved many times more than a $14,000 a year nest egg and keep working only because of the health care issue, even a frugal person can’t get around the fact that health care is hugely expensive and not something they can really opt out of.

    • @Mike – I believe you bring up a valid point. For anyone not qualified for Medicare in this country or who does not live in a country with public health care (Canada, U.K., France, etc.) that introduces a risk. Not carrying proper health insurance while building assets places a large risk on the assets should a health issue arise. There are solutions (one spouse works part-time for company providing health insurance, move to a country with public health care, etc.), and your point is completely valid.

      Thanks for sharing.

  4. I believe the strong naysayer comments perfectly illustrate your point as to why so few succeed at this. It truly does come down to personal values. I am fully aware that this strategy is not suitable for most folks, so some dissent is expected. However, please don’t immediately jeer at the ideas presented here and cite your belief that they won’t work for doing so. These ideas may not coincide with your personal values, but that doesn’t mean the ideas aren’t valid. They will work if you WANT them to work. If your reaction to them is “Hogwash!” or something similar, they will not work for you. The cool thing is that these ideas working or not working for you is neither right nor wrong. That said, I encourage people to be receptive. After careful consideration, you don’t have to agree, but please be receptive.

    • @Tony – Thanks for sharing you thoughts.

      One of the unspoken secrets of being a coach is the daily practice of training your mind for acceptance.

      I try to maintain a respectful tone in these comments to foster a positive environment for learning and growing. However, this post attracted a lot of attention from some publishers with very large followings who linked to it and brought many new members to our community (thank you). When you add to it the fact that the post had a little “edge” to it anyway, it was only expected to attract some aggressive comments.

      The only thing I will add is that people have many varied viewpoints, but most are only able to see the truth in their own.

      One of my favorite stories illustrating this idea is the 3 Blind Men and The Elephant as told in one of my favorite articles on this site.

      Hope you enjoy it…

  5. If anyone wants to calculate how many years Y it would take to retire on a given savings rate S, here is the formula I worked out:
    Y = ceiling(ln((1-S)/(3%*S)*8%+1)/ln(1+8%))

  6. Here are the results of my formula above:
    Savings Years
    10% 42
    15% 37
    20% 32
    30% 26
    40% 21
    50% 17
    60% 14
    70% 10
    80% 7

    • @Steve – Thanks for breaking out the formula into numbers than my non-math readers can digest. Much appreciated.

      I also want to re-state a caution from the article above – longer time periods are dramatically affected by inflation and compound return assumptions.

      In other words, the short time periods are mathematically accurate. It is science. I’ll stand by that.

      The same is NOT true for long time periods because the compounded affect of small changes in assumptions becomes dramatic.

      I’m comfortable claiming “science” out to about 60% or 14 years (on the high side) but much beyond that significant uncertainty enters the picture and you need the knowledge contained in the ebook I sell “How Much Money Do You Need To Retire“. That’s not a pitch – it’s just the mathematical reality of how the numbers work.

  7. An interesting number on that list is 50%. If you just started a family, that’s how much you’d have to save if you want to retire when your kids head off to college.

  8. I like the idea. But it seems unrealistic. Unless you are fortunate enough to be in a dual income family with each member having a decent paycheck, or single with extremely low expenses, this seems darn right impossible.

    You don’t mention some very important considerations, such as inflation adjusted costs of living, and insurance (medical, dental, home, vehicle, life) costs. Also, I’ve never met anyone with a family that is able to live on 10-20% of their take home income, unless they are banking oodles more than everyone around them.

    I absolutely endorse saving as much as possible, and understand that many people desperately want to leave the workaday world, the sooner the better. But I think creating an expectation of being able to live on so little may set your readers up for disappointment, unless, as I have said, their incomes and lifestyle are conducive to this type of extreme frugality, or they have a decent amount of economic outpatient care from friends and family.

    Pat S.

    • @Pat – Please read the post again. Every issue you raised is covered.

      I provided links to communities where people are supporting each other and walking the talk. It is realistic. Not easy, but realistic.

      I also point out in the post and in the comments the issues of inflation and compound return effects for longer time horizons and why only the short time horizons (high savings rates) are scientifically valid.

      I also discuss the risk of insurance for countries that don’t provide national health care plans.

      It is all a question of values and priorities. Nothing more… nothing less.

  9. Thanks Todd for another great article. I wholeheartedly agree you can retire in 10 years (or less). The reason this does not seem possible for many is because most confuse “wants” with “needs”. In other words, what we think we “need” is most often a “want”. Basically, like you said, “lifestyle choices”.

  10. Good article Todd, I enjoyed it.

    For most people, the ‘spend what you make’ principle is 100% accurate – as incomes rise, so do their expenses, many times over the expenses – for the group with that mentality, the concepts presented in the article are unbelievable.

    I have always believed people will find the money for what they really want (I was in sales for a short time and saw it firsthand) – likewise if you are 100% committed to early retirement, you will find a way to make it work.

    I have a co-worker – never married, lives modestly (although not at the levels described above!) enjoys travel, etc. But he is ready to retire very comfortably right now at age 43!
    I have a family and am not in his circumstance, but proves it is very do-able!

    • @Bridget & @Tony – Thank you for joining the conversation and sharing your thoughts.

  11. Love the concept, but how the heck do you do this and still pay for health care in this country? Seems like most of the ERE folks are young and do one of two things: ignore it or live in a country that has socialized medicine. I’ve done the work, I’ve saved the money, but I’m unwilling to go “naked” with regards to health care. Sure there are high deductible policies, but how does one afford decent healthcare on 1200 a month?

    • @ Diane – Thanks for your input.

      In my opinion, this is the only legitimate complaint I’ve seen surface on this strategy. For those where it applies, you’ve pretty well described the choices…

      Ignore it and carry the risk.
      Live in a country with socialized medicine where the problem doesn’t exist.

      I carry full health insurance for my family as an independent and it is horrific. Our health care industry is one of the greatest risks for people who pursue freedom in our country.

      The other thing that is not stated in this article because I didn’t want to detract from the primary theme is you can use extreme early retirement at a low level just to get the basics covered while using the free time generated to follow your dreams to produce additional income. For example, maybe you want to become a writer or build a niche website. These things can be monetized which then supplements income. This doesn’t directly address your concern, but it might be a way around it.

      In short, there is no clear answer to the health care problem in the U.S.A that I’m aware of. Carry the risk, make more to cover the risk, or move to a country where the risk doesn’t exist. That’s pretty much it.

  12. Frugality, as you point out, this may not be for everyone. That said, there are at least some who can save 80 percent of pre tax income for over 20 years. I have a sibling who has done this on a middle six figure income.

  13. I have been reading this blog for quite some time now and I have noticed that the demographics of the followers seem to be in the middle to late stages of their careers looking for financial freedom. I might be incorrect on this but is my guess based upon most of the responses. I only bring this up because some of my considerations/hurdles to become financially free are quite different and are never mentioned on this site. This is due to education costs.

    My generation is currently sitting with a lot of student debt and is probably the biggest obstacle to becoming financially free. I know people that are paying $1000/month for student loans and are struggling to make it. So trying to make it on 20% of your gross income is never going to happen because it does not even pay your student loan…let along living expenses. In my opinion this is going to be the next sub-prime mess in our country because the younger generation is going to just stop paying their student loans.

    Hypothetically, imagine having $80k in student debt making $45k a year or imagine having another mortgage on top of your existing one. That is the kind of pressure that is placed on the younger generation.

    Todd, I think this would be a suggestion for you next book in your other blog request for help.

    • @Shaun – Got it. Thanks for sharing.

      As a side note, your situation is not as unique or generational as you might believe.

      Debt is debt – whether it be home mortgage debt from the older generation, consumer debt from the mid-range, or student loan debt from the young upstarts. The form changes but the principle remains the same.

      Debt is the antithesis of freedom. It is the nemesis (unless it is productive debt for business or income producing real estate where revenue exceeds cost).

      In other words, your sentiments are heard, and your situation is shared by more than you imagined.

    • @Shaun read the blog no more Harvard debt, 100 grand of school debt go e in 8 months, yes he made a good wage but it was his focus that did it

  14. Nice article. I’ve been reading the extreme early retirement blog for a few months now. It is in alignment with my personal values. I’m 45, have two young kids and make around 55k a year. I’m approaching living off of 50% of my income living a middle-class lifestyle in Phoenix. I drive a car and own a home. I have student loans and health insurance as well as the responsibility of two young kids. It can be done if you are willing to get creative with your life. It even can become fun.

    Regarding the health insurance issue, my personal belief is that the best health insurance is to be healthy. Few Americans take the time to eat right and work out enough to be really healthy. It takes time and discipline but little in the way of money. I have catastrophic health insurance for myself and my two kids that cost around $200 a month.

    • @Chris – Thanks for your input. It is good to hear the direct experience from someone who is walking the talk.

  15. I believe you mean to write “the argument is moot.”

    I find it ironic you dwell on the math without showing some simple plots (cost basis, future monthly income, etc. for a range of inflation and savings rates) and discussing the potentially catastrophic consequences of chance events. Not having a good buffer is costly; focusing on the mean is dangerous.

  16. Excellent article – actually, the tendencies of human behavior in general across most disciplines is reflected in your article. Losing weight, quitting smoking, anything that requires consistent discipline can be difficult for many people. I’ve followed ERE and the Early Retirement Board (started a long time ago when I read Terhorst’s book). The math for short times is consistent, as you say. Most people are not willing to make the sacrifices – or are unwilling to find other ways to obtain the lifestyle for less money. The book “Your Money or Your Life” says it all – money is a way of quantifying your time in terms of ‘banking’ it for present or future needs/desires. If you are willing to trade having money with using your time, you can find ways to do things….however, you need to have the time. A simple example, I haven’t purchased a book in a year. I use my library for books, DVDs, books-on-tape, CDs, etc. Sometimes I have to wait awhile for a ‘newer’ item, but that waiting allows me to enjoy that piece of entertainment for free (yes, I know, our taxes pay for it-therefore I don’t pay for it twice when I use the library). There are many resources available that allow you to become creative with your time to gain lifestyle benefits.

    With the above, one could argue that what you ‘make’ or spend in money in a year doesn’t necessarily reflect your lifestyle – looks are deceiving.

    Thanks for taking the time to write the article and the blog – I enjoy reading it.

    • @Deserat – Thanks for sharing your thoughts. Interesting point you make about the library. I’ve been using it quite a bit lately too. I like it for both the cost savings, the eco-friendly, and the clutter reduction. I just got sick of reading a book once then storing it on a shelf. I sold cases of my investment research books on ebay to get rid of stuff and gave away as many other books as I could find good homes for. Now I try to borrow from the library as often as possible. With 2 kids and 2 adults as active readers it all adds up – both money and clutter.

  17. I’m a new reader and little confused by how you can live indefinitely on 3% spendable interest with an inflation average of 3-4%. Even if they are both set at 3%, the cost of living (initially 15,000/yr, say) will outgrow the interest income because that first year it already eats up your interest income and from then on out it becomes more than your interest income. so at year 10, the living expenses are around 20k/year after rising 3% a year. your nest egg is already down to 490k and decreases exponentially down to 0 at year 35. (ie. after the first year your nest egg grew to 515k, but then you use 15450 of it). unless you are earning more interest than cost of living, isn’t it a losing battle over the long haul?

    • @Shawn – The problem assumption in your analysis is that the income is static. Historically, a properly built dividend stock portfolio increases the income at a rate faster than inflation. No guarantees for the future, but that is the relationship in the past. In other words, dividend payouts increase over time. Hope that clarifies.

  18. I can totally agree with this concept. I am 37, married, no kids, living in SE Asia. We have been out here about 5 years and am making a good salary and saving nearly all of it. Actual expenses here are $3k a month (we bought our condo in cash) and that is living pretty large. I make $270 – $350k (depends on the variable bonus) a year so am living on 10 – 12% of our pre-tax salary. After tax salary is about $180k – $240k so living expenses are 15 – 20% of take home pay.

    The job is incredibly difficult and I’m finding it easy to burn out- manage a company of 700 people and am working 12-14 hours a day, with weekends generally off.

    We have a net worth of $2.5 million, with $250k as the value of the condo, and $250k in 401k investments. The remaining $2 million is in different cash accounts earning between 0% – 1.5% interest a year.

    Using your formula I think we can easily retire with a draw down of 3%. What I worry about is the following:

    1. Losing principle if investing in stocks.
    2. Losing principle if investing in bonds unless I hold them to maturity.
    3. Seems good to keep cash handy to deploy it into an opportunity with some upside
    4. Fear of losing my skills- a 55 year retirement is quite daunting
    5. Fear of not having skills to earn a good salary while having inflation / market disruptions eating away at our principle.

    Any advice would be appreciated.

    Best regards,


    • @Jack – Congratulations – you’ve done well for yourself.

      At the risk of being self-serving you are a likely candidate for my personal financial coaching services. Based on your comment, there are several things we could work on right from the start that would create tremendous value for you…

      • Investment strategy – Holding 2 million in cash is a long-term prescription for poverty given inflation expectations worldwide in our funny money world. There are ways to manage risk (defensive investment strategy) while still pursuing gains (offensive investment strategy). (Side note – your comment talked about a “drawdown of 3%” but what I mentioned in the article was 3% of income on a dividend stock portfolio – zero drawdown of principal. Hope that clarifies.)
      • New Retirement – I would also work with you on transitioning into an entirely different concept in retirement – what I call “The New Retirement”. It is not about ending work and doing nothing. It is about using your freedom to create a life you are so excited and passionate about that you can’t wait to wake up in the morning and get going. Rather than retire from work, you build a life that is so fulfilling that you never want to retire from it.

      I have another client in Singapore with a very similar situation. We use Skype with him calling me early A.M. there before work which is afternoon for me.

      Anyway, if the ideas sound interesting I offer a no-cost strategy session here to see if the fit is right.

      Hope that helps.

  19. Wow, I am reading a lot of doubt through these comments here. I believe that if you really want it, it can be done. Maybe it’s 10yrs for one person, and 14yrs for another, but it can be done. I know that it’s hard to stop being a consumer. Driving that new truck definitely feels good, and so does eating out several times a week. Who doesn’t want to be waited on? But all that will prevent you from being free. I no longer want to be a slave to the lender.

    I have already cut my cable down to $15/month, I have completely cut out my Internet service and land line, eating out is very rare, my son wears hand me downs, I buy my clothes at WalMart because I refuse to pay $15 for a sweater, my grocery bill is less than $100/week and yes we do eat about 90% fresh organic food, I assign a job to every dollar I bring home, and I use cash because it hurts more to spend and it’s easier for me to track my spending, etc etc etc. Each small change you make will help.

    I won’t lie, it does take a lot of sacrifices. Our vehicles are paid off and the only debt we have is our mortgage. With these sacrifices I am hoping to be mortgage free in about 15yrs, or less. You can do it, but you have to want it really bad.

  20. Hi Todd. Nice article. I’ve been reading Jacob’s blog for years, and I find him inspirational, though I’m not pursuing extreme early retirement myself. (I don’t hate my career as much as he did.) Jacob’s blog is great for keeping me frugal: it reminds me that there’s a LOT more room on the frugal end of the spectrum, even if it sometimes doesn’t appear that way when I look at the people around me.

    (FYI, I think you mean the argument is “moot”, not “mute”.)

    • @Patrick – Ha! Thanks for the correction on “moot” vs. “mute”. Oops.

      I’ll change it in the article and leave this in the comments for posterity.

      Much appreciated…

  21. I can do better than this. How about living in a cardboard box under the bridge and eating out of the local Taco Bell’s tash bin. Heck, I could retire right now if I do that. What a useless article.

    • @Joe Bob – I approved this comment to allow the naysayers a voice. However, you should use a real name and a real email address when posting comments otherwise they will be treated as spam.

  22. Hi, Todd. Great post, great discussion to which I would like to add:

    I achieved financial independence the “old fashioned” way, but that road is closing as we speak.

    I earned a Federal government pension with annual cost of living increases and health care for life. I also invested in Real Estate. As I neared the time I would begin drawing my pension I pared down the investment real estate to one paid-off property making me $1000 a month (net).

    My monthly income is almost three times my monthly expenses and my only debt is a small mortgage (<$70,000) on my primary residence. My total cost of housing (PITI) is under $500 a month.

    But none of that happened by accident; I made a plan and worked it. I have a considerable amount in cash but it superfluous in my case because of my monthly income. Still, it feels good somehow to know it is sitting there and readily accessible.

    I also have a publishing business and do some coaching and conduct seminars which add even more income streams; again, all part of the plan.

    But what I figured out a few years ago is that what most people are after is not total financial independence. The real issue for most of those unhappy with the daily grind of the five-day, forty-hour workweek is too much work.

    The answer to that issue is not financial independence. I mean, it could be, but it is unnecessary. THE ANSWER IS LESS WORK. I have termed that answer to the less work issue the four-day weekend. But like achieving FI, the sticky wicket even when you are working three days a week remains health-care.

    Although we have health insurance, we do not have dental insurance. The best answer is preventative care to avoid the typical expenses in that regard. But sometimes, you need a dentist, regardless. My family and I live close to Mexico and we have a dentist there in addition to our dentist here.

    Our US policy does cover routine dental exams and two cleanings a year. For those, we go to our US dentist. When she told my wife she needed two wisdom teeth extracted, we first got an estimate from the US dentist she referred us to and then from our Mexican dentist.

    The US price? $600 per extraction. She had it done in Mexico instead: Total cost? $90. We do not live close to Mexico by accident; yet again, all part of the planning process. Keep up the good work!

  23. @Shaun I can relate to your comments regarding student loans, and would like to share my personal story.

    In 2000 at the age of 30, I decided to change careers and pursue my lifelong dream of becoming a professional pilot. I left my job and moved to New Mexico to attend flight school and took out some fairly hefty student loans. When I graduated in 2002 the job market had completely fell flat due to 9/11 and I was unable to get a job flying. My total debt load was $72k (including my truck loan and credit cards).

    I did get a job at a commuter airline a year later where I worked until January of 2010. My first 3 years at the airline I made less than $25,000 for the year (I know shocking isn’t it?) which caused my credit card balance to rise; it is hard to live off $1200 a month when your student loan payments are $500 a month. I somehow managed to pay off my truck, but unfortunately, it died and I needed a new car in 2007. I bought a used one, but had to take out a loan for $14k to do it.

    I also started making decent money in 2007 when I “upgraded” to Captain. I first paid off my credit cards, then my car, and just last month finally paid off my student loans. Admittedly, I really only worked hard on the student loans starting in the fall of 2009, but was able to pay them off 1 month ahead of my plan.

    Unknowingly, I used the same basic principal that is at the heart of the retirement plan presented here. I lived on roughly 25% of my income and used the other 75% to pay off debt. Now, I didn’t plan this, but I did scrimp and scrap to maximize my payments every month. Its true, it can be fun and is very rewarding to do. Getting out of debt was paramount for me, and I learned how to be frugal in order to do it.

    With the success I’ve had in paying off the debt I now have a lot more confidence moving forward and am saving the money that was used for debt. Not sure if I’ll retire in 10 years, but its nice to know that I could if I continue living as I have for the last 10.

    Good luck!

  24. Anyone can do this.
    What were you living on when you were in college?

    It is 2011 and I am a junior in college in the US living on approximately 10,000 a year. No, my parents aren’t supporting me, I pay for all my living costs including a car and college tuition is paid for by scholarships. I have zero debt and this isn’t going to change. Why increase my expenditures just because I may get a higher paying job later on?
    I am living perfectly fine now and I will continue to for many years. The only necessary increase in spending that I foresee will be increased cost of living/inflation (which I can only hope my income will keep pace with)

    I can see myself retired by age 35.
    Thanks for the great read!

    • @Tim – You’re welcome, Tim. Thanks for stopping by and adding to the discussion.

  25. Geez guys, why not just pick a very conservative money mgr. or a simple conservative service & stick with them for 10yrs., why torture yourselves with these arcane ideas?

    Dan Ferris, 12% Letter!

    Mark Ford/Tom Dyson, The Palm Beach Letter

    I’m willing to bet that both of these letters will outperform most of your ideas w/o all the sacrifice you guys have to endure over the same 10 years!

    Compounding has always been the best way to grow your wealth. Plowing back all dividends will make the test even more lucrative, trust me, I’ve managed money during the ’80’s!

  26. Todd,

    Great teachings. Now, for those readers who still doubt that Todd’s teachings are doable, consider my personal example.

    At age 22, graduated from college; Age 24, got married; age 25, bought our first home; age 27, first child; age 28, bought first income property; age 30, second child; age 31, bought second home, age 32, first retirement.

    Drove my wife crazy at home … you can only mow the lawn once a week and spend 1 hour per day on investments, if that much. So went and got a part time job. Age 34, moved back to the more expensive SF Bay Area; age 40, second retirement.

    So you see, it can be done; lots of peanut butter sandwiches, my wife cutting my hair, and hard work fixing property and researching the investment markets.

    • How? Please elaborate on how much cash flow you have with your rental income properties to sustain lifestyle with 2 kids! Thank you. Real estate is the only investment tool I can relate to and understand the best. Also, were you make a load of money before retirement to be able to pay off your houses?

  27. Just shared this article on facebook. Simply fantastic. I’m trying to “walk the walk” too, and as a 22-year-old who doesn’t have a college degree, if I can do it, anyone can. And yes, I’m absolutely on my way.I’m excited I found this site. You found yourself another subscriber. 🙂 

    •  @Shaun Thanks Shaun. Glad to have you aboard. I look forward to hearing more from you in the future as you travel this journey.

  28. Living below your means is something I strongly believe in so good article.
    I live in NYC on less then 20k a year which was about 22% of last years gross income. Following your formula this means I’m on track to retire in just over 7 years. Unfortunately after I pay taxes I am only able to put 50% of that income in to savings which (following steve’s post from below) means 17 years (or more depending on markets) until retirement. A little disheartening thought that.

    • @Corlath Could you perhaps explain how you live so cheap in one of the most expensive areas of the USA, especially as rent could easily be that much?

      • @[email protected]
        Greetings Robmadrid, Sorry for the slow reply but sure – I live in a dump with 4 other roommates, I am single, most often cook my own meals, and rarely spend money on entertainment (partly because I am working all the time). This was a conscious short term arrangement to maximize savings, which unfortunately (as Todd pointed out above) does not leave much time/money for enjoyment of life.

        • @Corlath thanks, I heard statements from others who live in expensive cities and always wondered how they did it.

  29. I have read many of the articles with interest.
    As you stated Todd you had a good income that helped you knock your debt off fast, and that is the key.
    I am making close to a million a year, and had a 700K mortgage that is nearly paid off after 2 years.
    This is great if you can afford it and I have saved hundreds of thousands on interest repayments doing this, but not all can…
    I think you have to be realistic… note my income and the house value I could have brought a 2-3-4million home!! But then the bank would really own me. When I read people buying a 500K house and have a income of less than 50K a year, I must say I am shocked!!
    People need to be realistic given their income levels, and not try to “keep up with the Jones”

  30. Todd – I really appreciate this post.  I wrote something that references it and your book.  It should be on YoungCheapLiving soon.  Thanks for the great article.

  31. I am making from 200k- 300k , spend around 20k in food since we rarely cook at home. The only other expense is gas, morgage which we are adding over 1k extra, plus planning to add a bonus at the end of the year, I go to the movies mostly every week, this year I have spend around 10k in vacation. I have other expenses that I dont even keep track of like health insurance, gifts etc..
    Is this frugality, no..  Now I could do what I do with a $50k a year a lot easier to make more money with money in hand. This is why the more you have the more will will be keep making in the future.. I should increase my earnings to 500k within a year an half. My expenses may be about the same. Btw I bought the home 2 months ago for $230k I only owe 175k now.. like Ray TM I should pay it within 2-3 years.. I keep investing my money thats why I dont want to rush it. My wife and I are opening cellphone stores, we been on this business for over 3 years/ the first two we work 365 days a year, no 4th of july, no sundays off, but pays off because now we work whenever we want. I could just manage the stores and retire but, is a bad advice to retire from work completely. If everything goes according to plan we should have freedom by age 30, I am 24 right now.
    My best advice to anyone is think of something you see yourself doing save up and invest in a business, is the only way to get rich other than having a high salary which takes years to reach plus education costs.( see how much can you do if you invested 20k or 100k in something)
    I never thought of making this kind of money, you can dream about it but you feel different when you actually reach it. I know some of you know the feeling. ( is like I can think what I would do if I make 5 millions a year, but until I started making such amount I would never know.. ) or 100 million you name it..

  32. Todd, is your 3% withdrawal rate a “spending” rate – that is, money actually spent on goods and services – or is it a “wage replacement” rate, meaning taxes have to be paid out of the 3%?

    • @sfmcfar A “withdrawal rate” is typically represented as pre-tax, meaning taxes must be paid out of it.

  33. I wished I was reading this kind of stuff when I was younger and realized life wouldn’t always be sunshine and roses.I lost over 100k about 10 years ago and havn’t been able to save since.
    Now I am very worried about my wife’s and my retirement years.
    We are 52 years old and just became able to get serious about saving again. Given our current income and barring any unforseen heavy expenses we should be able to save about 280k over the next seven years. I’m thinking we would need about 40k minimum per year to retire maybe less.
    It doesn’t look good.

  34. What about Taxes Sir? Is your 15k a year completely tax free? What about inflation? If you live to 80, what would that 15k be worth. Assuming you are 40 when you retire that 15k in returns from safe investment will probably be worth 5k in inflation adjusted dollars by the time you are 80.
    Your quality of life will keep on decreasing every year as inflation eats into your earning…
    What about health insurance, if you aint working you gotta pay insurance out of pocket..what is that 2k a year, what does that increase by 7% a year, by the time you retire all you would effort is health insurance on your 15k
    Also big assumption here is you have paid of your own house, how many on an income of 48k can save 28k and pay off a house in 10 freaking years???
    The calculations do not add up at all, if you are renting you have to count rent inflation, if you are married are having kids you have think about thier college eduction. Tuitions go up by 7% a year
    Yea if you want to live on the streets, with 15k a month for basic needs, do not worry about what your kids may need or sending them to college, your plan works out perfectly

    • quant115 You should read the article more closely and carefully examine your assumptions before crticizing. For example, if you only made 15K per year then, yes, it would be below the tax threshold. If you invested in dividend paying growth stocks then historically the income growth has outpaced inflation. Similar with real estate rental income. With that said, yes, health insurance is an issue for U.S. readers (as already discussed) but not for many readers in other countries. Suffice it to say that the article (and comments) requires a more careful reading before you blindly assert that my “calculations do not add up at all”. First off, they do add up, and second of all, there are many people living this reality right now right in the U.S. (and other countries as well). As I said in the article, it is about choices and tradeoffs. There is no right-wrong.

    • Dear Mentor
      I agree with most of what you have said,I have also spend a lot of time thinking through retirement and frugality..I am not a qualified financial advisor, you might have quessed from my handle..So this is just an opinion from the very dark side…
      No one is questioning frugality or saving. But to say anyone, and the title does say anyone, specially using the example of someone making $48,000 a year can retire in 10 years seems objectionable to me. $48,000 incidentally is right around the median salary in the US (maybe a bit higher). Choice of that as a starting example is what I find a bit misleading and almost designed to hit a target audience…
      Without projecting health care cost, variability and volatility in inflation, influence of federal tax policies, education cost to me is a very coarse analysis

      • I think an analysis of variability and volotility of cost associated with reteriment need to be considered in any analysis. One big thing to consider is, if you think you have in your example around $500k and it actually is not enough due to increasing cost or CVS not issuing all those coupons and the Feds banning extreme couponing..It would be virtually impossible to enter the workforce again with a gap in your resume…Ask any of the 99ers
        It truly is the choices you make. Some in the US have already retired using powerful financial tools such as food stamps, shelters, soup kitchens and cardboard boxes..Its all about your lifestyle…
        I would recommend a deeper think on what lifestyle you would require in retirement, take a conservative look at variability and the complete picture of cost before quitting the work force with $400k-$500k. Entering the workforce again with any gap may not be as easy as commenting on this blog without even reading it completely…Like I just did!!!

      • quant115 Again, read the article carefully. It is not “coarse”. Simple and clean, yes, but
        “coarse”, never. All the issues you raise are covered elsewhere in the article or comments.

  35. You need at least $4 million in savings to retire Today..depending on location, $4 million invested at 3% will give you $120k a year, after taxes and insurance probably 70k a year…which is enough to save 20k a year of yourself put 5-10k for kids and pay mortgage on a house…no matter what happens with inflation since you pile on 20k a year back in your savings you will be fine till you die a happy 80-100 year old and probably leave your nestegg or part of it for your kids

    • quant115 Those numbers may be true for you, but that does not make them “truth”. It is all dependent on the assumptions built into the calculation and the lifestyle choices you are willing to make to change those assumptions. One size does not fit all.

  36. Todd, I really wished I knew about you and others like you earlier in my years.  I am 31 years old and know nothing about investing.  I have roughly $110,000 in my checking account just sitting there doing nothing.  I recently started listening to this radio show with Bob Brinker.  If I was to throw my 100k into an account I lose out on “dollar cost averaging”   Many folks just can’t think about living below their means, but I have and I want to thank you on your services.

    • I will add that I do max out my 401K every year, so I do not count that money in my 110K, but I only started maxing my 401 about 2 years ago.  The rest of my life I spent paying off student debts.

      • Barry1982 You have plenty of time and you are off to a great start. 110K plus your 401K at age 31 is a solid start and you have plenty of years ahead. You may be interested in an investing course I will be offering (hopefully) late 2013 that will take you from beginner investor to advanced in less than a year. Make sure you subscribe to the newsletter because it will be announced there. Should be fun. I’ve been teaching it to my one-on-one coaching clients for years and they love it so I’m looking forward to converting it into course format. Hope that helps.

        • Financialmentor Barry1982   Thanks Todd I will be on the look out for that course.  It really is ironic, how most people spend a life time on making money, but we spend so little on learning what to actually do with it.

  37. @tmgbooks I know some people don’t like their work, but for most I suspect what they don’t like is the lack of respect, or their specific duties our outside their gifts (and callings).   I have said, if you love your job and the people you work for, you should do it forever or till you can’t.  But most of us like some or most of our job and their is something that just goes against our grain and in the long run we get emotionally upset and need to leave and heal.

  38. I find the information and comments very interesting and would like implement a savings plan to hopefully retire in 10 years or at least be in great financial shape. Not sure I can save the amount required as we are about $98,000 in debt with mortgage.

    Wife and I have combined income of about $80K.  I can provide more details but looking at input if 10 year plan is doable. Is the basis of the plan being debt free to start?


    • I should add I am starting a new job and will make about $15,000 a year more than I am making now so will be able to save a lot more. Already on plan to pay off all debts in 7 years.


    • mtran2000 Paying off debt is obviously a part of the plan, but it is not a requirement to get started moving forward.

  39. As the author states, it’s all about life style. I’m currently saving 85% of my net income and my wife does the same. We’re 27, hopefully in 5 years we will retire.   It helps that we don’t have debt, in top of that we don’t have kids either.

    Some people need to be reminded that the amount required to retire varies from state to state, and the variation is greater when you evaluate the possibilities of leaving in other countries.  For instance, you can do pretty well in some Latin American countries with far less than a million dollars in savings.

  40. I’m 20 years away, but still realize that I need to save more.

    Here is what I’m doing:

    1. I now put away the maximum amount in my 401K (5% for me) that my employer will pay into the plan as a match.  It is free money and dumb not to do it.  It was basically a raise I gave myself.

    2. After calculating my expenses, I found that driving was my biggest expense.  I fixed that by buying a fuel efficient car thats durable (Honda Civic), finding an affordable insurance policy for it ($25/month from 4AutoInsuranceQuote, yay!), and using apps like Gasbudy/Waze to save money at the tank.  I cut my transportation costs in half!

    3.I cut way back on eating out.  I am having a year of putting away money hard, and food was a huge portion of my budget.  I save about an extra $100 a week now, and eat healthier and better.  Ditto for others if you spend a lot of money in bars.

    4. I need life insurance to protect my 2 daughters, but I ditched a $275 a month whole life policy for a term policy and now I only spend $25 a month.  I save the difference to my Roth IRA.  If you are unfamiliar with this and want to learn more watch shows or read articles from Suzey Orman or Dave Ramsey sometime.  They are huge proponents. 

    There really were no two ways about it. If I plan on having a full savings account (getting there) and a comfortable retirement (I will) I have to make good decisions with my money.


  41. IS IT TRUE?       I AM 54 YR OLD MALE,


    • diamdo Everything is explained in the article. Please read it carefully. You need a certain amount of assets in relation to your spending. The answer to your question is a function of how much you need to spend to support your lifestyle.

  42. quant115 Capital Gains are taxed at 0% in the 15% or less income brackets (73,800 AGI) currently. Married joint filing deduction/exemption of $20,300, HSA contribution of $6,550…Now have $100,650 tax free…etc

  43. From what I have read I agree with most everything. Having just downsized our home to a mortgage free one, scaling back expenditures and reduced our debt to one car only, no credit cards . There is mention time and again of 7 to 8 percent returns in your articles, where? If we could achieve that we could retire tomorrow . Where are safe 7 to 8 percent investments?

    • Cgdream I explain the two paths to answering your question in this article  The do-it-yourself educational course should launch in early 2015, and the managed option offers both a newsletter and a managed account alternative depending on your preference. For purposes of full disclosure, I personally have a financial interest in the “done for you” option and have my own money managed under the exact same programs you would pick from – most specifically, The Perfect Portfolio. Hope that helps.

  44. Hi Todd!  I stumbled on your website, emails, and podcasts about a year ago and ALWAYS LEARN SOMETHING NEW.  I am 32 years old and in the stage of building financial knowledge and simultaneously trying to get out of debt.  I find your advice really insightful and practical.  You are a great teacher because you unravel so much of the financial industry’s tricks AND share your experience mentoring others with ALL OF US.
    Thanks a ton, keep those emails coming!!

    • Chris Intl I’m so glad the information is proving helpful. It’s messages like yours that drive me to continue with this work. Thanks so much for sharing your supportive thoughts!

  45. I’m jealous of the taxes situation you have. My income is a little over 48K a year (gross), but I don’t even bring home 2,800 per month (net), which is what you suggest I should be saving each month !  Earning 4K net a month would be a totally different game. I understand the whole point and I already live off 50% of my net income (obviously by keeping my expenses low as my income rises, the % of savings will increase), but it was a bit misleading for me at first.

  46. We like the idea that how much you make does not matter only the plan!

  47. Ehh”am not suffering, through extreme frugality, integrate w value” … this obsession for early retirement, especially from internet gurus, in their productive ages, esssntially what makes this country lost the spirits.. work to a minimum via internet marketing, sowhat value exactly? , please life is worth so much more than bragging about being frugal and wealth obsession, dont remember anything close to warren buffett’s recipes to build wealth

  48. this method doesn’t work because the cost of living  it will be greater ten years from now….. Your money will be worth less and you sacrifice so much for nothing…… I really suggest anyone one to try to invest your money step of only saving it so it dont lose it value

    • max2d1 Inflation is more complex than most people understand. It’s not the simplistic analysis of a generic government statistic. There’s much more to understanding your personal inflation rate and how to apply it in your wealth plan.

  49. You may not be able to argue with the math, but you also can’t also argue that the federally defined poverty level income is about $12k for one person.  Even if we are talking about someone who doesn’t plan to support a family, we are assuming that they are ok with basically a poverty level life style… for their entire life.  I don’t know many people who would find that acceptable.

    • MikeCreeth Depends on the income level you developed. Nobody says you have to limit yourself to the examples in this article. It’s merely illustrative to drive home the point. You can adapt the principles to your needs. Hope that helps!

  50. Good stuff. We are looking to retire before 40 (in about 4 years) and have thusly upped our savings to 20%-30% of income and are aiming to be at 50% by 2016. We are totally debt free, so for us it comes down to increasing income. We’ve done a good job so far, but still have a ways to go so we can save 75%-80% of income. We actually will need not more than about $30,000/year  in retirement due to being debt free, so I think that makes the goal even more feasible.

    • Aja McClanahan Good for you. It gets addictive as you develop momentum and see the progress.

  51. I don’t know about people with $48k household income – you end up with extreme choices… But it does work very nicely for professionals – ideally a couple with $100k income each. I’m sad when I look at all the couples I know with no kids who are in finance, law, accounting, and other professions who are blowing through $200k+ joint salaries on fancy cars, houses, nights out etc. These people could be retiring on $4-5k+ per month forever (inflation adjusted) in <10 years.

    And thanks to Mr Bush, income from capital gains is taxed at 0% if it’s below $74k for a couple, so that $4-5k pm is TAX FREE if you retire in the right state, and no one can tell me that’s below the poverty line.  

    One more thought: you can make it much faster if: (1) you earn in a tax-free or low-tax country (Middle East, Singapore, HK, Cayman, BVI etc.); and/or (2) you “retire” in a low-cost country (Mexico, Guatemala, Thailand, Costa Rica etc.).

  52. your math depends on 8% returns, who consistently gets that over the long run. It’s more like 3% and then inflation eats that away especially with our crappy economy and debt riddled bubble we’re sitting on, please comment.

    • rdfal2013 To answer your question, “who consistently gets 8% over the long run?” I do. Actually, I’ve done better than that, but I chose that number because it’s the unarguable long run historical return from a diversified passive portfolio. That’s something anyone can achieve. Also, It’s not that hard to achieve with a little elbow grease and real estate. In short, it’s do-able, and it’s completely supportable by historic research. Hope that helps clarify.

  53. Your math ignores two of the most important things to retirement planning inflation and tax. I’m big on frugality but this article is only appealing to the ignorant. Absolutely no one can live on 30 percent income while saving 70 percent. At the very least 7.65 percent will go towards payroll taxes. Also, assuming 3 percent inflation, living expenses will increase 34 percent or to 19296 for your example.

    These are just two examples of why the plan is horrible. The message about frugality is worth noting though.

  54. I think the gist of both sides of this argument are some people can live frugally and save money. The point being from the other side is why? The reason most people want to get rich is to SPEND the money and do and have all the things money can buy. Why save a million dollars then? Why not go collect sea shells and put them on the wall if your never going to use them. Same as saving a million dollars in the bank and never spending it. Pointless to probably 90% of the people on this website.

    I don’t want to get rich to have a 100 million dollars. I want to get rich to buy whatever the heck I want when I want it. Not by cheaping out on life and collecting paper bills.
    DAVE: I have a $100 mil in the bank. Just got back from vacation with the wife & kids. We took my 1973 corolla & camped in a landfill. The kids went dumpster diving and we dined on mustard & day old doughnuts from the local baker’s trash bin out back. It was great!!!
    JOE: Oh man! I wish I was a millionaire like you Dave! 😉

  55. Funny thing about all this talking is, I live on less than US$3.000,00/year in Brazil. Haha. I was brought up that way and, even If i tried hard, I couldn’t live on 10k year (or 30, or 50). Frugal values were so deepenly engraved in my heart. I’m not completely poor also. I have my own apartment, 100 acres of land which is worth about US$250.000.

  56. Todd,

    I think your site is amazing. Seriously. Rock solid advice. The one thing I wonder about though is whether people have truly thought through what early retirement means and if it will bring them happiness. Work, being productive, interacting with new people, feeling a part of the broader economy, these all play a role in people’s sense of meaning, purpose, and happiness.

    This is why I encourage people to focus on financial independence, but not early retirement. In fact, though I hit FI at 41 and left me then-job, I simply pivoted and became an entrepreneur. I never even considered “retiring.”

    I think most people are better served focusing on financial independence and freedom, but not retirement. Otherwise, they may find a massive existential vacuum in their life when they bail on their career.

    • Agreed. I’ve written extensively about this issue on this site. My experience is completely consistent with what you are saying, and it’s been similar for my coaching clients. I believe it’s rooted in universal human needs.

      • I actually found those other articles after posting this initial comment. Your writing on the topic was helpful to me. Thanks. I made the jump from work to full-time investor at 42. The reality was pretty intense as you know, but we do come out the other end much stronger internally. You have built an amazing website here.

  57. Todd- Wow. You are a really patient person, responding to many negative nelly types in your comments section. You are an example of professionalism! My husband and I are on the path to FIRE, and we live in Los Angeles (one of the most expensive cities in the US) and are able to save 70% of our income. Not sure why there are so many closed minded people commenting, but it IS possible and actually easy. All we do is watch our spending, eat at home, and invest most of our money instead of blind consumerism. I have some friends that “can’t make ends meet.” yet when I got their home, they have clothing, misc items, ALL OVER THE PLACE and have blind shopping addiction. With factory farming and globalization, clothing , food etc are cheaper than ever before. Really shocking once you get on the FI path to see how outrageous most people spend and don’t save. I actually used to live below the poverty line, making less than $10K a year and I was able to save 50% of my income. Especially in big cities, there are $1 stores and ethnic groceries, and you can freeze stuff. We had a ten year plan and looks like we will be financially independent in 8 years. Also, we do not make over 6 figures combined and we work very hum drum jobs. My husband is entry level IT and I am a secretary. Thanks for all your great info and positive outlook. Wish more people would take financial responsibility instead of complaining it’s “impossible.” It’s not only possible, it can happen pretty quick too!

    • Thanks for sharing. Yeah, it all depends on what you’re committed to. Some people are more committed to current lifestyle than they realize.

  58. Hey! Awesome stuff. A few questions for you, and anyone really.
    Do you find that men take to this idea better than women? My husband and I talk to people and while most of them think we’re nuts, mostly it’s women who do. It’s obnoxious!
    In addition, how do you explain to people that you can do so much of this without the huge sacrifices? When I a conversation about it, I never start with the fact that we ride our bikes everywhere. People think that they’ll have to do that. Or that we don’t go out to restaurants. They can’t seem to see past these initial shocks to understand anything after that. How do you approach it when you share it with someone new?


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