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Living frugally for early retirement

Fly away… Living frugally for financially freedom

This article on living frugally is the second part in a three-part series on radical early retirement written by Jacob from Early Retirement Extreme.

In this post, Jacob reveals key ways of living frugally that enabled him to retire early on his investments.

It’s actually really hard for me to list the ways I am frugal. I often come across such lists in the blogosphere and I’m thinking to myself: “Isn’t this stuff obvious?!”

Once one grasps the main principles of living frugally – which is mainly to look at optimizing efficiency and utility – one will become frugal, rather than just do frugal things.

If we take the view from 50,000-feet, there are five things I do that enables me to spend about 75% less than the average person, and yet gain an equivalent level of satisfaction in my early retirement.

1. I live centrally, and in a small place

When I move, I ALWAYS make it a point to live within walking (or cycling) distance from work, libraries, and shopping areas – so about two to six miles away. This obviously reduces transportation costs and time.

Another thing to consider is the size of your home.

Most American homes are way too big. Think of it in terms of marginal utility.

Take ice cream cones:

  • The first cone is great.
  • The second tastes good, too.
  • The third is something of a challenge.
  • After that each additional cone becomes a labor.

I think this way in terms of rooms.

Say each additional room in a house adds $50,000 to the price. How many do you really want? Do you really need enough rooms to sleep ten people, and do you really need enough bathrooms to service 20 people?

I try to find the optimal solution for each place I live in.

For California, with its lack of rain and mild winters, an RV is the optimal choice.

The RV (recreational vehicle) is probably the most fun place I have lived in yet. It’s like camping every day.

Before the RV we lived in a standard 2+1+garage ‘burb house that was really expensive, and a mistake.

Before that we had a nice ‘cottage’ house that was located about a 20-minute walk from work – this cost about the same as we’re currently paying to live in the RV in California but it was in the Midwest.

Previous to that I lived in an off-campus dorm (about a five-minute walk to work) sharing a kitchen and three bathrooms with 18 other students.

2. Don’t own a car!

If you take the money you’ll spend on your car and invest it in your retirement, you will add one million dollars extra to your early retirement account.

You can be a millionaire by simply saying no to personal car ownership. This is why living centrally is so important.

Someone recently told me that spending two hours a day commuting in a luxury car is no luxury. I can only agree.

3. Stay healthy and fit

This almost comes automatically from not owning a car and getting around by foot or bicycle, and also by not eating out too much.

It is particularly important for U.S. retirees to stay fit and healthy, since health insurance is paid by corporate employers in the U.S., compared to many other countries where it is paid for by the taxpayers.

Hence if you are retired without a corporate employer in the U.S., being healthy is important, since you will be paying directly for your lack of health.

  • Floss, eat your vegetables, and stay active.

In terms of eating, a good rule of thumb is that if your meal is mainly white, brown, or yellow, you’re doing it wrong. Healthy meals are predominantly green, red, purple, and orange.

4. Follow the 30-day rule

Here’s the kicker! Mostly own things you have used within the past 30 days.

That’s not a whole lot of things. They will probably fit in a couple of suitcases.

I see many people go to the mall to buy something every time they have a problem. Then after a while they have a lot of stuff, and since it was a one-time problem, the stuff does not get used. It ends up in the spare bedroom or in the garage.

As a consequence, the home starts feeling full, and so people get a bigger home.

Our RV is 289-sqft and we are two people and a dog. People think we must be very cramped for space. We have as much space as everyone. It’s just we have much less junk lying around.

The best way to downsize is to put things you rarely use in boxes.

  • Seal the box and mark it with a date. (It’s a good idea to write on the outside what’s in it).
  • After a year, if you have not opened the box, sell the stuff on eBay, freecycle it, or donate it.
  • No excuses.

Do not buy anything unless you are certain you are going to use it often. Try to borrow, rent, or find a workaround – or maybe rephrase the problem.

Help others solve their problems, too. Lend out your stuff, so they save money.

5. Avoid regular bills

Another thing I try to avoid are fixed costs for things I do not use all the time, like cell phones, cable, and magazine subscriptions.

This approach makes it easy to pay the bills, because there aren’t very many. More importantly, it makes early retirement possible.

You become financially independent when you can withdraw 4% of your principal annually, or 3% if you are really young or invest blindly.

  • This means you need 1/0.04=25 times your annual expenses or 12*25=300 times your monthly expenses.

If you have a $50 monthly expense you don’t use very much, like cable TV, you need to save:

  • 300*$50 = $15,000 to cover this cost from your early retirement portfolio.

Instead, you might want to switch to netflix:

  • At $20/month it only requires 300*$20 = $6,000 to maintain.

Or else just spend $1,000 buying DVDs and have your friends do the same and then borrow each other’s DVDs. That’s much cheaper, and the programming is usually better, too, because you presumably have similar tastes.

Alternatively, if you live near a good library, you don’t have to pay anything!

I hope you enjoyed Jacob’s introduction to living frugally as much as I did. If you’ve not yet read his introduction to the extreme method of early retirement, you’re in for a treat. Otherwise, push on to part three!

{ 19 comments… add one }
  • 1 ermine April 16, 2010, 9:32 am

    The house is a good point and it isn’t just in terms of the capital cost/servicing the mortgage. You have to decorate the extra rooms, fix the plumbing in the extra bathrooms, and worst of all, spend the time cleaning all that extra space.

    I live in an ordinary semi, whereas most colleagues of my age have detached houses. But they have mortgages, where I don’t, as they have surfed the rising housing market to improve their accommodation.

    I like the 30-day rule. It has an elliptical simplicity about it, and I’ve used a 1-year version of it to clear half the junk in my loft 🙂
    .-= ermine on: making cold frames from old windows =-.

  • 2 Financial Samurai April 16, 2010, 3:28 pm

    I like the 30 day rule! Great tip! I’m gonna go write down 10 things I haven’t used and see what I can donate.

    Cheers, Sam
    .-= Financial Samurai on: How To Dramatically Increase Your Job Security For Life! =-.

  • 3 The Investor April 16, 2010, 6:05 pm

    I love the 30-day rule, too. You can see how applicable it could be when you consider when you move house – personally I always have boxes of stuff that I never unpack until I move again!

    Perhaps 30 days is too extreme for me, though. Maybe I’ll do a 90-day rule! 🙂

    I also liked the idea of living in an RV, but it wouldn’t work here in wet, windy Britain. I might consider living on a canal boat though, for similar kicks and even less space! 🙂

  • 4 The Investor April 16, 2010, 6:07 pm

    @Ermine – Agreed. The only advantages I can see to more rooms are firstly when friends stay, and secondly as a play on rising house prices.

    It would be selfish of me as a gloriously single man about town in this crowded island to buy a big house with a load of unused bedrooms, so if I was going to take the latter route I’d buy somewhere small in a better part of town I guess. (I reserve the right to buy a place in the country one day though!)

  • 5 Early Retirement Extreme April 16, 2010, 6:40 pm

    The RV is just a specialized solution for California where normal real estate is still in a bubble ($350000 for something that would cost $75000 in other places). It is a sufficient but not necessary form of low cost housing.

    If we lived in Washington or Maine, we’d buy a house. If we moved into a house costing $100,000 (which then would be the biggest check I will ever have written), we’d actually begin to save money on housing costs.
    .-= Early Retirement Extreme on: Money versus resources =-.

  • 6 Simple in France April 16, 2010, 7:37 pm

    The final frontier for us appears to be the car. Next year, we’re going to work on using our car on occasion instead of on a daily basis. My husband hopes to start biking to work more, but I don’t expect him to do it in a snowstorm . . .I just don’t. Although I do realize it is possible 😉
    .-= Simple in France on: How do you chose a ‘new’ car? =-.

  • 7 Samurai April 16, 2010, 10:55 pm

    Bay Area real estate is heating up, and going UP again Jacob! Va va vroom! Best to buy that extra large RV before it gets away from ya! 🙂

    .-= Samurai on: How To Dramatically Increase Your Job Security For Life! =-.

  • 8 Early Retirement Extreme April 16, 2010, 11:07 pm

    @Samurai – I’m never going to buy real estate here. In 50 years, the CA climate will be like New Mexico. Will people still want to live here when ($$$) water has to be piped in from desalination plants and the only things growing in the central valley are shrubs?
    .-= Early Retirement Extreme on: Money versus resources =-.

  • 9 JT April 18, 2010, 1:15 am

    “In terms of eating, a good rule of thumb is that if your meal is mainly white, brown, or yellow, you’re doing it wrong. Healthy meals are predominantly green, red, purple, and orange.”

    Thats probably the most ridiculous nutrition advice I’ve ever heard, lol. I agree with the point though, staying healthy should be important even in countries like mine where the state pays for healthcare.

    Not so sure about the RV point though. yes, living somewhere super small will be cheaper. But it’s not something that will be suitable for most people and a burbs lifestyle away from city life is appealing to many. Funnily enough, the only RV type parks we have in the UK are largely used for camping holidays by pensioners.

    Also, its nice to have that extra room or a bit more space than needed for entertaining and having friends over. This all depends on how important an early retirement means to the individual of course. It’s interesting to note that those who retire early tend to live shorter lives.

    There’s a good quote that stuck in my mind which I may have read in one of your past articles. It goes something like ‘What you do today will be what you have done tomorrow’. ok, so I can’t remember the quote but I get the essence of it. Don’t get caught up saving for tomorrow when you’re living in today.

    How many people want to live a frugal life in a trailer so they can retire early and live a frugal life in a trailer. sod that

  • 10 LeanLifeCoach April 18, 2010, 2:20 am

    Great post Jacob, thanks for sharing with us! – We use big red tags and date items to identify if they need to be removed. However, the 30-day concept is one I teach but don’t live enough of!

    You’re also a sailor… have you ever thought about living on a boat? Avoid slip fees and it too can be a very efficient way to live.
    .-= LeanLifeCoach on: Combat The Closing Techniques – The Reverse Psychology Close =-.

  • 11 Early Retirement Extreme April 18, 2010, 5:18 am

    @JT – You’re a meat and potatoes guy? I came from a similar food culture. Starch and meat. They are mostly that color. Obviously it’s not a diet rule … more specifically, if you mainly eat starch and meat, your arteries and insulin response is going to pay for it down the road.

    In terms of living longer … not according to this study (referenced in the link)
    http://earlyretirementextreme.com/2010/02/does-retiring-early-lead-to-a-shorter-lifespan.html … this early retirement -> shorter life study which was mentioned a while ago in the blogosphere did not correct for people retiring earlier due to health problems. Well, if you stop working because you’re unhealthy, it’s kinda obvious you’ll die sooner. If you stop working earlier because you want to, it is likely you’ll live longer due to reduced stress, etc.

    What I said is something to the effect of what you did five years ago determines where you are today. I am no longer “living today”, yesterday, or the day before, etc. I only “live today” today. On the other hand, all the savings from yesterday, the day before, etc. I still have those today. Consequently I live for the future, because the future eventually becomes the present.

    When we have people over, we usually BBQ (something brown and yellow). No real need to keep a spare room just for that. It’s not like we have people over on a daily basis.
    .-= Early Retirement Extreme on: Three payment mindsets =-.

  • 12 Early Retirement Extreme April 18, 2010, 5:20 am

    @LeanLifeCoach – Indeed. The boat came up before the RV. One of the reasons we didn’t go the boat way was a total lack of experience with boats. Now that I know how to sail, I’d totally go for it. However, that would strictly be for the reason of going places. I think I’d prefer the RV to a boat if I rarely left dock.
    .-= Early Retirement Extreme on: Three payment mindsets =-.

  • 13 The Investor April 19, 2010, 10:09 am

    @ERE / LLC – What about the old phrase of the old rich – If it floats, flies or (ahem) fornicates, it’s cheaper to rent it?

  • 14 Blogging Banks April 20, 2010, 3:21 pm

    This is a very inspirational article. I have been following Jacob’s blog for over 2 years now and find his ideas on financial independence interesting. While he is a little too extreme, the basic logic behind his ideas is very sound. Cutting monthly expenses such as cable TV or landline does make sense when you have a cell phone or internet connection.

  • 15 Fru April 24, 2010, 7:29 am

    Love the 30 day rule – I am peering round at my books and thinking its time to do an amazon yard sale.

    Fru xxx


  • 16 Money Smarts May 19, 2010, 3:12 pm

    I love that 30 day rule. We’ve been trying to get rid of some stuff in the house lately, and we’ve stalled a bit on getting rid of some stuff. I think applying that 30 day rule might make things easier, we’ve got a LOT of that stuff!

    Also love the point about not taking on regular bills if you can help it. Not only does it help you to build wealth quicker, it means you can live on less in retirement!
    .-= Money Smarts on: What Type Of Retirement Account Should I Choose? Traditional IRA, Roth IRA And 401k =-.

  • 17 The Investor May 19, 2010, 8:59 pm

    @MS – I think I’m pretty frugal, but if I applied the 30-day rule my house would be bare. Perhaps in practice it’s best applied to living in an RV, or more importantly to a mindset.

    I definitely agree with where Jacob’s coming from, though. Essentially, I don’t buy stuff unless I have to. For others it appears to be like getting bread and milk.

  • 18 Mike June 9, 2010, 2:10 pm

    Great series. Although my expenses are somewhat higher, there are a lot of useful ideas throughout this series.

    It’s nice to see this process and mindset of how to retire early versus the standard save 10-15% and work for 40 years.
    .-= Mike on: U.S. Debt Poised To Exceed Annual Economic Output =-.

  • 19 assman September 8, 2012, 10:32 pm

    I violated every single one of the rules listed and yet I think I am financially in a pretty good place. But of course I have a much more powerful and simple rule:


    You will save a lot more money than any other frugal scheme and you don’t have to actually be frugal. I own a car which go for joyrides with (I enjoy driving around aimlessly for hours), my parents house has reclining couches, a plasma screen television, cable, phone…hell every single amenity. I live comfortably. They live comfortably. And I save about 5 times my yearly expenses every year. My parents are financially completely secure thanks to a dual defined benefit pension and plenty of savings.

    People have been doing this for thousands of years. Its only it the last hundred thanks to the idiotic concept of independence that people stopped doing this. Its a far more intelligent idea than most others. Taking it to the appropriate and sweet extreme … you should stay with your parents even after you get married and have children. This is far far more powerful than any of the ideas above.

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