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!