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Tuesday, 20 February 2018

Why do you think $40k isn't enough?

One of my Australian FIRE blogger friends Pat the Shuffler was recently featured on ABCnews.

Not only was it a good read, but the bottom half of the internet (i.e. the comments section) was highly entertaining.

But one ongoing comment that I want to address has been a bane of the FIRE community for years. "Hope he likes eating two minute noodles, because no one can live on $40k a year."

What is it with everyone outside the FIRE community trying to tell us we don't know what our own budgets are?

Negative whingers

First of all, let's tackle the obvious theory - maybe they are all just negative whingers? I've been reading FIRE blogs for years, and not only do I think that $40k a year per person is an affordable lifestyle, I think it's downright decadent. So many FIRE bloggers out there are living on $40k or less per year for a family. Pat the Shuffler and I are aiming for $40k a year in retirement funds for ourselves alone.

It's hard not to see people as negative whingers when surrounded by like-minded FIRE folks. But it's not just the FIRE folks living on very little - minimum wage in Australia is only $36k  per annum, NewStart payments are a measly $14k per year, the maximum disability pension for a simgle person is $23k. One person living on $40k has plenty of money. 

Money buys happiness

Let's tackle this theory. Most of the people complaining - if they bother to give a reason why $40k isn't enough - say that the reason $40k is insufficient is because you have to live a miserly, poverty fueled lifestyle.

Here's some things I can't do on $40k a year:
  • Learn to fly a plane - a one hour lesson can cost over $200, and you need 25 flight hours for a Recreational Pilots license. 
  • Join a golf club - at $660 joining fee, plus $405 annual clubs fees, PLUS playing rights / greens fees... no thanks.
  • Have new car every year - the 2018 model of Mr FIREs car would cost us $36k... he's been driving his old one for almost 8 years, and it was old when he bought it. 
  • Hire a Maid - for $70 a week for a two hour clean, I'd be out $3,640.. I'll scrub my own toilet, thanks.
  • Pub dinners and shows every week - Going out for dinner is anywhere from $20 - $50. Going to a gig, theatre show, or event can cost $50 - $80. If this was the only time I socialised, I'd be $5,200 out of pocket.
  • 4 bedroom mega mansion - buying a bigger house than I need could cost me $40k a year in interest payments alone. Mr. FIRE and I don't have kids, so why would we need a big house? We barely use all of our 2 bedroom place.
However, here's things I can and do enjoy on $40k a year:
  • Sports! I train 8hours a week for Roller Derby.
  • Interstate sports! I travel 2-3 times a year, for Roller Derby
  • Holidays! Admittedly, I don't travel often outside of derby - more because I'm lazy than because of my finances - but I still do it and keep my expenses down.
  • Picnics and Dinner Parties - why would I go to a pub and pay too much for average food, when I can have friends come to my place, play board games and cook them dinner? I can feed 3-4 visitors for less than I would spend on my own meal going out.
  • Hiking, Biking, Fishing and Slacklining - need to head outdoors? That's free after the initial equipment outlay
  • Rock-climbing - for a little more adrenline and a little more expense, I climb indoors at a gym. But I could buy a stack of gear and climb outdoors.
  • Crafting - I craft a LOT for costume parties, joke prizes and things I actually want. I've made necklaces, beanies and slippers, as well as a chicken coop and planter box.
  • Video games - let's be fair, I enjoy a lot of fancy nice things, but I also play video games. A lot.
  • Coffee and great food - whenever I have food cravings, I just learn to make it. I can make yoghurt from scratch, I'm decent at sushi rolls, and I have a pretty amazing salad selection.
I need this little dude in my life
Anything I'm missing? Actually, I know exactly what I'm missing - a dog. Mr. FIRE and I have started plotting moving to a house with a bigger yard so we can have a dog :D And a workshop, and a bigger veggie garden, and maybe build a skateramp in the backyard. But mostly get a dog.

Medical bills and maintenance

This is where I think people might have a good point. $40,000 a year, as a young person is a pretty cushy lifestyle. My health insurance at the moment is only $85 a month for hospital and extras - I make a point to use as much of the extras as possible, and having hospital cover will be a big deal when I hit 30 and tax rules come into play. Right now I just keep it because I play a high speed contact sport with wheels on my feet. I've already had one knee reconstruction...

But, that's me being youthful. As I get old insurance companies will start charging me more as my body breaks down due to old age. I'll be doing my best to take care of it, but time defeats us all everntually, and I have a choice of paying an insurance company for the privelege, or paying for the health care when things happen.

Of course, this doesn't actually mean I suddenly need thousands more. It just means being aware of the upcoming costs and planning for it.

Someone who plans to spend $40k a year for the rest of their life probably isn't planning to spend exactly $40k every year. For starters, we plan for inflation. But personally, I'll be planning in some wiggle room - it's easier than you'd think! 

Ready, here we go...

Plan to spend an average of $40k a year? 

Option One: Don't retire when your portfolio is generating $40k a year

If you plan to spend $40k a year to have the equivalent life that you have now, but recognise that your expenses will change in the future, just work a little longer. If you have a million dollar portfolio, working one extra year will give you a $1.07million portfolio (assuming a 7% return) plus any contributions you made.

It has only costs you a year, and now your safe withdrawal has boosted up to $42,800. If you then retire and live on $40k, you will have an extra $2,800 per year to deal with unexpected crises and rising costs. Of course, you won't need to spend that every year, so it will just build up for when you do need it.

Option Two: Earning money in retirement

Gasp working in retirement? Then you aren't really retired! Well, to be fair, I said 'earn money' not 'work'. Many early retirees like to create things, you can earn money from blogging, from writing books, from selling arts and crafts. I have earned money in the past by pet-sitting - getting paid to hang out with cool dogs! Lately I've been watching video games streams, did you know some of the top ranked gamers on Twitch pull in six figures.

Option Three: Start small

If you plan on spending an average of $40k per year in retirement, you can start smaller and work your way up. In your first decade of retirement, maybe you could live on only $35k. This frees up a lot of money for later years, and lets your portfolio grow.

Option Four: Leave the country

If you're living in a High Cost of Living area (looking at you Sydney) then consider spending a year or two somewhere else! According to The Earth Awaits, I could spend $4,600 a month in Sydney for a modest lifestyle, or a mere $415 for the same lifestyle in Madurai, India. Don't want to travel so far? Staying in Australia, Hobart is only $2,550, or if you want to stay on the mainland Adelaide is a mere $3,000. Much cheaper than living in Sydney.

If things really don't work, move somewhere smaller!
While travelling can be expensive the biggest cost factor is the flights, and fancy hotels. If you are going for a long trip then the cost of the flights becomes a smaller portion of the overall cost, and you can rent long-stay accomodation, rather than paying night by night.

FIREy wrap-up 

While I like to think the best of people, and I'd love to believe the naysayers have our best interest at heart - when you think it through $40k per person is plenty of money for a good life. And that's without even going into extreme ideas like living in an RV, or going off the grid.

There are plenty of 'Plan B's that you can take up to make your retirement foolproof.

Now I just need to get there!


  1. Great to see you back and with such an awesome post. I think 40k per year is very generous for a single and I hope to even stretch that to cover a family one day too - as you say many people already do that out of necessity, not choice.

    1. Glad to be back! I've given myself a less gruelling schedule (I was posting twice a week before!) so hopefully it lasts.

      Very Jealous that you Mrs ETT and Mrs Poopsie had a get together! It might be cheaper not to live in Sydney but apparently the social life is better over there :)

      And yeah, $40k is generous. My less than $40k a year is paying two mortgages!

  2. I think $40,000 for single person is totally doable. I have a family of three (myself, husband, 1-year-old baby) and we live a comfortable but frugal life on about $47,000/year in a high-cost-of-living area (in the US). If we didn't want to be where we are to work jobs that we love, we could move somewhere and easily get the costs of our family down under $40,000. I don't know why people seem to like telling people they "can't" live on an amount that they are currently living on. (And yes, healthcare plays into it, especially when we get much older. But you gave some good solutions in this post for ways to stretch $40k or earn more, so, it's still not crazy.)

    1. I /think/ the US is cheaper, but that might just be all the FIRE blogs I read :D

      $40k is totally doable, in fact I feel pretty over budgeted - outside of housing (home and investment) I only spend around $10k - that covers food, fun and health.

  3. My first thought was "Whaaaat??" $40k per year is a generous amount to live on and then some. I think the reality is that people aren't counting how much money they're actually spending in the first place. Second, if they did, they'd probably see the light and get into financial shape. ;)

    1. Haha, I see the conversations now..

      "You can't live on $40k"
      "Well, what do you spend"
      "Ermmm... lemme check... $80k last year!?! But I only earned $75k" - insert panic

      Or, even better, they realise that they only spent $40k themselves and their mind is blown by how frugal they are :D

  4. $40K per year per person is decadent. Our annual expenses are between 30-35K for 2 of us and about 15% of that is on travel, so there's a lot of fat that could be cut.

    1. Is that with a paid off house? It's my biggest expense (especially since I own two) - if I wasn't paying a mortgage / rent I think Mr. FIRE and I could get down there. I can't imagine how we'd do it with those costs

  5. Whew, for a moment there I thought you were saying $40k per household in Australia was easy. $40k per person is definitely do-able.

    1. $40k per household is definitely doable (see the comment immediately above yours) but I don't think it would be easy.

      Whereas $40k per person is absolutely easy, and I'm baffled why there were so many people saying that Pat couldn't live on that

  6. $40k per person? That's perfectly okay! However, I think people don't track their expenses. They take their per annum income, and think about how they are living paycheque to paycheque or worse yet, in debt and draw the conclusion that it's not doable. No data is backing these whingers.

    1. So true! Even as someone who watches their money sometimes my spending gets away from me, and sometimes it's so much less than I thought. With our cashless society it's hard to really see when and where the money goes.

  7. I think people just forget that there are actually 'choices' in life, and can't get their heads around some of these other options (although certainly there are plenty of old-fashion whingers too!)

    I definitely spend far more than $40k per annum on my current lifestyle, but I'm not kidding myself that it's because 'life is expensive'! We choose to live in the home we do, in the suburb we live in, where we send our kids to school, what car we own, and where we holiday. If I wanted to save more, I know it's up to us to change what we do - you've provided some good alternatives for people to think about!

    Cheers, Frankie

    1. Having your own choices? Following your own dreams? Madness!

  8. Some great tips here! I have children and spend more, and also choose to do some spendy things like skiing (with my Dad, it is a great time to connect with him). My fiance and I both have defined benefit schemes, which means we will get a pension/income for life once we retire. We don't know how much, but we know we could live on a lot less. Go you for showing how it can be done!

    1. No shame in choosing spendy activities, especially when it means great things like time spent with your Dad.

      It comes down to informed choices. As long as you've thought it through and decided it's worthwhile then you're spending is right for you :)

  9. You don't need to listen to other people. Everyone has to find their own balance between spending, saving and when to achieve FIRE.


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