Maybe I've missed it and maybe everyone here knows the answer to those 2 questions for themselves but while I see a lot of threads on how to spend less, I don't see any relating to how much do I need to be earning while I am working, to ERE.
It's easy to say, 'I want to ER with $6k, $12k, $50k of income.' It's also easy to say, 'I'm going to use a return rate of 2%, 3%, 4% to then do the math to tell me how big a nest-egg I have to have to generate that income.'
But what about how long it is going to take you to achieve that nest-egg? If someone is earning $12k a year working, it doesn't matter what % they reduce their spending by and increase their savings to per year, it's gonna take a long time to build up that nest egg. So my point is that figuring out how to earn as much as possible in order to save more each year and reduce the amount of time it takes to build up that nest-egg has to be at least equally as important as spending less.
I don't know of anyone who earned say $20k a year and came up with a 10 year plan to ER. Even if they saved 2/3 of their income that would only amount to $140k in 10 years. It's going to take them at least 20 years of very frugal living to even retire on a very low income of below $10k per year. That's not what I would call ERE.
In my own case, as I have written elsewhere here, I coasted till age 35. Then I decided to retire and went into high gear. Instead of working only as hard as I needed to work to earn a decent living, I worked harder and smarter to outperform my peers, get the promotions and higher pay cheques so that I could save signifigant amounts of money every year. I had a 10 year plan to retire with an income of $20k and met that goal in 7 years. And that was back in 1989 when $20k was an average income. Today an average income is around $50k.
So is everyone who posts here earning at least $50k per year and saving at least $30k a year? Or are a lot of people posting who earn less and haven't figured out how long it's gonna take them to reach FI?
Why am I not seeing threads on how to increase your income while working?
How much do you need AND how long will it take
Re: How much do you need AND how long will it take
There really is no answer to that question. It varies from person to person.
Savings rate is the key number.
The obvious effect of the savings rate number is that you will increase your principle (and income) at a quicker rate. The less obvious fact is that you are effectively setting your post-retirement required income level (your expense level) before you actually retire. This is the most important thing to realize about ERE in my view. The lower your expenses, the lower your principle balance needs to be to support that expense level, resulting in a quicker ERE.
Do what is comfortable and what works for you as an individual.
Savings rate is the key number.
The obvious effect of the savings rate number is that you will increase your principle (and income) at a quicker rate. The less obvious fact is that you are effectively setting your post-retirement required income level (your expense level) before you actually retire. This is the most important thing to realize about ERE in my view. The lower your expenses, the lower your principle balance needs to be to support that expense level, resulting in a quicker ERE.
Do what is comfortable and what works for you as an individual.
Re: How much do you need AND how long will it take
Umm, there is no answer to what question cmonkey? I asked why I am not seeing threads on increasing income.
I'm not asking what I should do cmonkey, I've been retired for 25 years now. Stating the obvious, that the more you save the sooner you can retire is of no relevance whatsoever.
Did you read what I wrote or just read the title and then respond?
I'm not asking what I should do cmonkey, I've been retired for 25 years now. Stating the obvious, that the more you save the sooner you can retire is of no relevance whatsoever.
Did you read what I wrote or just read the title and then respond?
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jacob
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Re: How much do you need AND how long will it take
http://en.wikipedia.org/wiki/Income_in_ ... ted_States
The median income for 25yo+ wage earners is $32,140/year. I think your 51k/year is the median for an entire household of 2.2 people^H^H^H^H^H"consumer units".
Everybody here should know the answer to those two questions. As cmonkey said, the savings rate mathematically determines the answer to both questions.
Chapter 7 in the ERE book derives the equations for those who want to make their own graphs. The much quoted graph at the end of the chapter (linked below too) relates working years to savings rate.
The best and most widely cited blog post on the subject is probably this one:
http://www.mrmoneymustache.com/2012/01/ ... etirement/
The main takeaway is that once savings rates exceed 70%, the numbers "explode". The difference in years and needs between 75% and 50% (10 years) is much larger than the difference in years between 50% and 25% (15 years). The difference between 25% and 75% is 25 years!
Why no threads?
In several vocations, income increases are simply out of individual control. Most people arrive at the book/blog/forum AFTER they've chosen their vocation. Government and academia follow set salary schedules. Only industry offers some degree or being able to negotiate or get increases that aren't set by inflation or some table with "years served" in column one. Bonuses aren't that common either outside select vocations.
In addition, savings rates here are so high (50-90%) and work horizons so short that it often doesn't pay [much] to play the career game. After all, if you're done in 5-10 years, how many times can you really negotiate a higher salary or how much time do you have to grow a business before declaring FI anyway.
There are comments on increasing income but usually those are inside people's individual journals. Again, high income (engineers typically) and income negotiability are not widely available options --- unless steps are taken to be in those categories.
The median income for 25yo+ wage earners is $32,140/year. I think your 51k/year is the median for an entire household of 2.2 people^H^H^H^H^H"consumer units".
Everybody here should know the answer to those two questions. As cmonkey said, the savings rate mathematically determines the answer to both questions.
Chapter 7 in the ERE book derives the equations for those who want to make their own graphs. The much quoted graph at the end of the chapter (linked below too) relates working years to savings rate.
The best and most widely cited blog post on the subject is probably this one:
http://www.mrmoneymustache.com/2012/01/ ... etirement/
The main takeaway is that once savings rates exceed 70%, the numbers "explode". The difference in years and needs between 75% and 50% (10 years) is much larger than the difference in years between 50% and 25% (15 years). The difference between 25% and 75% is 25 years!
Why no threads?
In several vocations, income increases are simply out of individual control. Most people arrive at the book/blog/forum AFTER they've chosen their vocation. Government and academia follow set salary schedules. Only industry offers some degree or being able to negotiate or get increases that aren't set by inflation or some table with "years served" in column one. Bonuses aren't that common either outside select vocations.
In addition, savings rates here are so high (50-90%) and work horizons so short that it often doesn't pay [much] to play the career game. After all, if you're done in 5-10 years, how many times can you really negotiate a higher salary or how much time do you have to grow a business before declaring FI anyway.
There are comments on increasing income but usually those are inside people's individual journals. Again, high income (engineers typically) and income negotiability are not widely available options --- unless steps are taken to be in those categories.
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jennypenny
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Re: How much do you need AND how long will it take
That's pretty close to the definition of ERE, actually. It's all about percentages. If someone can live on 20% of their takehome pay, they can retire in less than 10 years and live on the same amount, regardless of income level. There's a base level needed for living expenses, but many people here have been able to shrink that nut below $10K/year.OldPro wrote: I don't know of anyone who earned say $20k a year and came up with a 10 year plan to ER. Even if they saved 2/3 of their income that would only amount to $140k in 10 years. It's going to take them at least 20 years of very frugal living to even retire on a very low income of below $10k per year. That's not what I would call ERE.
The wiki gives more info. Maybe start with http://earlyretirementextreme.com/wiki/ ... Retirement .
I think it varies. There is certainly a large percentage that earns at least that, partly because this forum tends to attract STEM types who, for now at least, do quite well. There are several at the other end of the spectrum as well. The journals give more specifics.So is everyone who posts here earning at least $50k per year and saving at least $30k a year? Or are a lot of people posting who earn less and haven't figured out how long it's gonna take them to reach FI?
There are several. People usually start with the expense side, however. It's the side of the equation that's completely under a person's control. It can also provide the most immediate results. A person could decide to start on the path toward ERE one morning, and by the end of the day have cancelled their cable, netflix, and gym membership. Within a month, they could downgrade their transportation and cell phone, and change their eating/shopping habits to reduce those bills. Within 6 months most could downgrade their housing and sell off excess stuff for $$. With some quick, decisive changes, a person could be on a short (<10 yrs) path to ERE within a year.Why am I not seeing threads on how to increase your income while working?
The income side, although equally as important, can take longer. New skills or a job change might be needed. A side hustle can take time to develop. That doesn't mean they aren't worthwhile, just that they aren't as easy to accomplish and don't provide instant (often motivating) results.
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jennypenny
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Re: How much do you need AND how long will it take
I think my post sounded more harsh than I intended. People can interpret/apply ERE principles however they wish. My favorite part of the journals is reading how everyone puts their own spin on it. I just think it's not all about income, and people always seems to overestimate how much is really necessary.
Re: How much do you need AND how long will it take
While I could focus on earning more money, I will lose almost half to taxes at this point. Suffice to say, I already make enough money to achieve my goals in a reasonable time frame. That's one reason you don't see me looking for side income at this time. Another is that there are other things I want to do besides focus on ERE-as-FI in the meantime.
As it stands at a 2% real return, I estimate I would reach a 4% WR next year, 3% within 3 years, and 2% within 6 years at my present spending and net income levels. But I don't really put much faith in those dates. I wish I thought *less* about the date, not more. Life has a way of happening, whether I get let go from my job, or I meet a partner and decide I need to save more or less, or the stock / Canadian real estate markets crash which depending on when could help or hinder me.
I'm certainly a doomer when it comes to expected real returns. And I do worry about the fate of future me a lot, in terms of "running out." Especially in the context of older me not being able to live as efficiently due to health problems, hyperinflation on food due to us needing to kick the natural gas fertilizer habit and California becoming a desert, whether or not the US will invade Canada to take our water/oil/maple syrup or otherwise seize it through NAFTA, etc. I'll figure that out later (but before FIRE obviously).
As it stands at a 2% real return, I estimate I would reach a 4% WR next year, 3% within 3 years, and 2% within 6 years at my present spending and net income levels. But I don't really put much faith in those dates. I wish I thought *less* about the date, not more. Life has a way of happening, whether I get let go from my job, or I meet a partner and decide I need to save more or less, or the stock / Canadian real estate markets crash which depending on when could help or hinder me.
I'm certainly a doomer when it comes to expected real returns. And I do worry about the fate of future me a lot, in terms of "running out." Especially in the context of older me not being able to live as efficiently due to health problems, hyperinflation on food due to us needing to kick the natural gas fertilizer habit and California becoming a desert, whether or not the US will invade Canada to take our water/oil/maple syrup or otherwise seize it through NAFTA, etc. I'll figure that out later (but before FIRE obviously).
Re: How much do you need AND how long will it take
I see nothing too harsh in your comments at all jennypenny. I particularly picked up the sentence, "If someone can live on 20% of their takehome pay, they can retire in less than 10 years and live on the same amount, regardless of income level."
I hadn't thought of it in that way. I just saw there having to be a minimum pay to begin with for it to make sense. If someone earns $12 a year for example, they can live on that but they aren't likely to be able to live on 20% of that. $2400/year would be 20%. It would allow them to save $9600 a year and so $96k in 10 years which could then earn them $2400 per year but they aren't going to be able to live on it. So that leads me to there being an actual minimum that makes sense. If you set $6k as the minimum someone hopes to have as an income in order to ERE, then you can back calculate to the amount they have to earn while working using your 20% to live on and saving 80%. If someone is happy to ERE on $6k per year then they need to be earning $35k per year to get there in 10 years. But if they want to have $12k income they need to be earning $70k for 10 years and only living on 20%. That's figuring on around a 2% ROI. It is far easier to live on 20% of $70k than 20% of $35k but OK, I can accept that some people may be willing to spend 10 years living on $6k while working. Gonna take a lot of committment though.
I also find the 20% somewhat unrealistic without getting into the 'deprivation' field. Actually doing without in order to save. I would not advocate that at all. I'd say a more realistic expectation should be to live on 30-40% of working income and a goal of achieving that level of income when retired. If that were the case and someone was living on say $6k per year and saving 66% of their working income, they would be earning $18k per year, saving $12k per year and could not reach a goal of $6k per year after retirement, with a 2% ROI expectation, in 10 years. So I agree with Jacob's comment that, 'The main takeaway is that once savings rates exceed 70%, the numbers "explode".', but also that unless the initial income is high enough that you can actually get your expenses below 30% and be able to live on it, the whole thing won't work. That means that anyone hoping to develop a 10 year plan with the lowest income possible of say $6k MUST earn $35k on average for those 10 years and MUST live on 20% of that working income during those 10 years. There is a practical minimum income at which someone can realistically decide to try and ERE, it appears to be $35k per year.
So if the median wage for a 25 y.o. is $32k, they could go down the path and perhaps make it to $6k in 10 years.
(the number I gave of around $50k Jacob is the gross income for an individual of all ages, not a household. It's scewed by age as well as other factors of course. But if someone here is starting as I did at 35, they are likely to be above the average for a 25 year old. So rreally, any average probably isn't worth talking about) http://en.wikipedia.org/wiki/List_of_co ... erage_wage
Better to talk about a specific minimum income required since one seems to be easy enough figure out. $35k. Less than that will require more than 10 years even to ERE with $6k. Thoughts anyone?
I understand the emphasis on spending less but unless someone wants to spend a whole lot of year living on lentils etc. which I sure don't see as much fun, they have to start out with a realistic minimum income while working in order to reach the goal in a reasonable amount of time and have a reasonable income once retired. Even if 'reasonable' is assumed to be $6k.
Funnily enough, I never gave much thought to reducing expenses when I decided to ER. I think I was earning around that $35k and just figured it had to be possible to live on $20k in reasonable comfort as I was already living on around that. So I just set that goal and set out to save as much as possible each year until I got there. I did not reduce my spending at all. I was already saving about 1/3 of my income and felt that was sufficient. As I've said, I like 1/3 true costs; 1/3 disposable income; 1/3 savings. Starting with savings of maybe $50k already there and able to save $12 in the first year of my 'plan', I could see that I wasn't going to get to $20k income without saving a lot more per year than $12k. So that to me meant I had to earn more. Funny how the brain works in individuals.
If I had written a journal jennypenny what you would have found in it is that I went from $35k income to over $100k income in 7 years. At the same time I started looking for ways to invest the capital to make higher than average returns. I lost a fair bit on Black Monday (1987) in the stock market which was a setback and have never invested a cent in the stock market since. I consider the stock market truly gambling. I found alternative investments in commercial and industrial real estate that gave me high returns with less risk and signifigant capital growth as well. I have used other alternatives since then. Throughout the 7 years it took me to achieve my goal of $20k/year income, I never changed my spending from the $20k or so I was spending but I didn't increase my spending either obviously. So for me, controlling expenses was never an issue beyond not increasing them as income increased. I increased my income, increased my capital and increased my savings.
So when you write, "After all, if you're done in 5-10 years, how many times can you really negotiate a higher salary or how much time do you have to grow a business before declaring FI anyway.", Jacob, I would say I went from $35k to $50k within 3 years, hit $100k within 5 years and in year 3 or so registered a company to hold my investments in which grew capital as well as income for me. So besides income increases, I made signifigant capital increases outside of my 'job'.
I can also see why you might say, "In several vocations, income increases are simply out of individual control.", Jacob but I would simply disagree with putting up with that. If I could not have earned more I know exactly what I would have done. Changed jobs. But then, that's me. I'm a pretty focused guy. Once I decide to do something, I find the way to do it.
Slsdly, re losing half to taxes. When I got my first real paycheque, I complained to my Father about having to pay tax. His reply to me was 'the more tax you pay the happier you should be.' If you're paying more, you're pocketing more. It's as simple as that. The bottom line never goes down when you earn more, due to how much tax you pay, it only goes up. Obviously, regardless of how much tax you pay, if you earn more you can save more and retire sooner.
Regarding being a 'doomer', there is no doubt that change will happen. I could not have predicted the changes that would affect me in the 25 years I have been retired. Some could have had signifigant negative affects on me. None did. I could have got hit by a bus along the way but I didn't. I could have lost it all on the gaming tables at Monte Carlo but I didn't. I could have early Alzhimer's but I don't. You can what if anything to the point of paralysis or you can just trust in yourself to muddle through. So far, I'm muddling pretty well. The key to me is to continue to increase capital and income. In other words, continue to live on LESS than your income.
I hadn't thought of it in that way. I just saw there having to be a minimum pay to begin with for it to make sense. If someone earns $12 a year for example, they can live on that but they aren't likely to be able to live on 20% of that. $2400/year would be 20%. It would allow them to save $9600 a year and so $96k in 10 years which could then earn them $2400 per year but they aren't going to be able to live on it. So that leads me to there being an actual minimum that makes sense. If you set $6k as the minimum someone hopes to have as an income in order to ERE, then you can back calculate to the amount they have to earn while working using your 20% to live on and saving 80%. If someone is happy to ERE on $6k per year then they need to be earning $35k per year to get there in 10 years. But if they want to have $12k income they need to be earning $70k for 10 years and only living on 20%. That's figuring on around a 2% ROI. It is far easier to live on 20% of $70k than 20% of $35k but OK, I can accept that some people may be willing to spend 10 years living on $6k while working. Gonna take a lot of committment though.
I also find the 20% somewhat unrealistic without getting into the 'deprivation' field. Actually doing without in order to save. I would not advocate that at all. I'd say a more realistic expectation should be to live on 30-40% of working income and a goal of achieving that level of income when retired. If that were the case and someone was living on say $6k per year and saving 66% of their working income, they would be earning $18k per year, saving $12k per year and could not reach a goal of $6k per year after retirement, with a 2% ROI expectation, in 10 years. So I agree with Jacob's comment that, 'The main takeaway is that once savings rates exceed 70%, the numbers "explode".', but also that unless the initial income is high enough that you can actually get your expenses below 30% and be able to live on it, the whole thing won't work. That means that anyone hoping to develop a 10 year plan with the lowest income possible of say $6k MUST earn $35k on average for those 10 years and MUST live on 20% of that working income during those 10 years. There is a practical minimum income at which someone can realistically decide to try and ERE, it appears to be $35k per year.
So if the median wage for a 25 y.o. is $32k, they could go down the path and perhaps make it to $6k in 10 years.
(the number I gave of around $50k Jacob is the gross income for an individual of all ages, not a household. It's scewed by age as well as other factors of course. But if someone here is starting as I did at 35, they are likely to be above the average for a 25 year old. So rreally, any average probably isn't worth talking about) http://en.wikipedia.org/wiki/List_of_co ... erage_wage
Better to talk about a specific minimum income required since one seems to be easy enough figure out. $35k. Less than that will require more than 10 years even to ERE with $6k. Thoughts anyone?
I understand the emphasis on spending less but unless someone wants to spend a whole lot of year living on lentils etc. which I sure don't see as much fun, they have to start out with a realistic minimum income while working in order to reach the goal in a reasonable amount of time and have a reasonable income once retired. Even if 'reasonable' is assumed to be $6k.
Funnily enough, I never gave much thought to reducing expenses when I decided to ER. I think I was earning around that $35k and just figured it had to be possible to live on $20k in reasonable comfort as I was already living on around that. So I just set that goal and set out to save as much as possible each year until I got there. I did not reduce my spending at all. I was already saving about 1/3 of my income and felt that was sufficient. As I've said, I like 1/3 true costs; 1/3 disposable income; 1/3 savings. Starting with savings of maybe $50k already there and able to save $12 in the first year of my 'plan', I could see that I wasn't going to get to $20k income without saving a lot more per year than $12k. So that to me meant I had to earn more. Funny how the brain works in individuals.
If I had written a journal jennypenny what you would have found in it is that I went from $35k income to over $100k income in 7 years. At the same time I started looking for ways to invest the capital to make higher than average returns. I lost a fair bit on Black Monday (1987) in the stock market which was a setback and have never invested a cent in the stock market since. I consider the stock market truly gambling. I found alternative investments in commercial and industrial real estate that gave me high returns with less risk and signifigant capital growth as well. I have used other alternatives since then. Throughout the 7 years it took me to achieve my goal of $20k/year income, I never changed my spending from the $20k or so I was spending but I didn't increase my spending either obviously. So for me, controlling expenses was never an issue beyond not increasing them as income increased. I increased my income, increased my capital and increased my savings.
So when you write, "After all, if you're done in 5-10 years, how many times can you really negotiate a higher salary or how much time do you have to grow a business before declaring FI anyway.", Jacob, I would say I went from $35k to $50k within 3 years, hit $100k within 5 years and in year 3 or so registered a company to hold my investments in which grew capital as well as income for me. So besides income increases, I made signifigant capital increases outside of my 'job'.
I can also see why you might say, "In several vocations, income increases are simply out of individual control.", Jacob but I would simply disagree with putting up with that. If I could not have earned more I know exactly what I would have done. Changed jobs. But then, that's me. I'm a pretty focused guy. Once I decide to do something, I find the way to do it.
Slsdly, re losing half to taxes. When I got my first real paycheque, I complained to my Father about having to pay tax. His reply to me was 'the more tax you pay the happier you should be.' If you're paying more, you're pocketing more. It's as simple as that. The bottom line never goes down when you earn more, due to how much tax you pay, it only goes up. Obviously, regardless of how much tax you pay, if you earn more you can save more and retire sooner.
Regarding being a 'doomer', there is no doubt that change will happen. I could not have predicted the changes that would affect me in the 25 years I have been retired. Some could have had signifigant negative affects on me. None did. I could have got hit by a bus along the way but I didn't. I could have lost it all on the gaming tables at Monte Carlo but I didn't. I could have early Alzhimer's but I don't. You can what if anything to the point of paralysis or you can just trust in yourself to muddle through. So far, I'm muddling pretty well. The key to me is to continue to increase capital and income. In other words, continue to live on LESS than your income.
Re: How much do you need AND how long will it take
So I'm still left wondering why people don't post more on how to increase their income. Or maybe not wondering why they don't. I've kind of been answered on that. Maybe I should say I'm wondering why people don't focus more on increasing their income.
Re: How much do you need AND how long will it take
Maybe because, when you already have a high saving rate, you need really earn a lot more to move the savings rate needle (significant).
And in our case, we are well paid considering the experience, education. Any job that would pay better would mean *a lot* more stress on the family. With 2 kids below 10 y/o that is not worth it to us to *maybe* reach FI 1 or 2 years earlier.
And indeed, of every Euro in additional income only 48 cents are to keep, 52 cents go to tax.
The only alternative to make really a lot more money is probably to become a successful entrepreneur. But..succes is not guaranteed and based on earlier experience I don't want to gamble on that.
So in our case it is fine to work most from home and dw part time nearby, be able to combine it well with the family and have a savings rate of over 60%. Income is already optimized to our situation.
Short answer: in many cases it is not worth it to (try) increase income drastically.
Edit: btw, thanks for your stories, they are very interesting to read!
And in our case, we are well paid considering the experience, education. Any job that would pay better would mean *a lot* more stress on the family. With 2 kids below 10 y/o that is not worth it to us to *maybe* reach FI 1 or 2 years earlier.
And indeed, of every Euro in additional income only 48 cents are to keep, 52 cents go to tax.
The only alternative to make really a lot more money is probably to become a successful entrepreneur. But..succes is not guaranteed and based on earlier experience I don't want to gamble on that.
So in our case it is fine to work most from home and dw part time nearby, be able to combine it well with the family and have a savings rate of over 60%. Income is already optimized to our situation.
Short answer: in many cases it is not worth it to (try) increase income drastically.
Edit: btw, thanks for your stories, they are very interesting to read!
Re: How much do you need AND how long will it take
I have raised the issue about the lack of focus on increasing earnings before. The responses I got basically played it down, but I forget the specific arguments.
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jacob
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Re: How much do you need AND how long will it take
@OldPro - For many (definitely for me) the journey is more important that the destination. The goal is not to retire but to reach financial independence to do what you want. For example, I made 20-25k in grad school (I forget the accurate numbers because they depend on exchange rates, etc. and it was 15 years ago). However, I couldn't have negotiated beyond that and there was zero time to do side-businesses (not quite true, but it could definitely not be a priority). My first academic position allowed me to travel the world further but salary was locked at 40, 41, and 42k. Non-negotiable. Didn't even include a retirement plan. My second academic position paid something like 65 and 67k. Again, locked. I didn't get my permanent residency until after I began that so I wasn't allowed any earned income.
In summary this allowed for a very idiosyncratic/autobiographic financial history.
Alternatively, I could have gone into tech support and worked my way into management like several class mates did. Alternative, I could have become a HS teacher. Like many others. A STEM MSc would have paid some 40-60k from the get go and then advancing to some 100-120k. But then I would never have gotten to "see the world" (I started my blog after I got tired of traveling, but I've seen and done a lot of things whereas those who went strictly after the money haven't, really.
Overall though, because it's the savings rate that matters, most people can boost that number far more by working on the spending side than their income. Unless someone is making less than $14k or more than $140k(*), they're likely to be substantially more inefficient on the spending side than on the earning side. Most consumers require little work to drop their spending by 40% ... however, a 40% pay increase would require a lot of career building.
As mentioned above---incidentally this is a great nsight and probably explains your conundrum---it also depends on where you are on the scale. At 60% savings rate (which is low for ERE), it's a big deal in terms of years to FI to increase earnings by 50% ... because that bumps the savings rate to 73%.
HOWEVER!!!
If your savings rate is already 85% (because you've learned to cook inexpensively WITHOUT lentils), then spending a lot of networking, etc. and choosing more remunerative but less pleasant jobs in order to bump income by 50% ONLY increases savings rate for 85% to 90% ... in terms of time to FI the practical difference is negligible.
(*) This really depends on the field. People who make more than this are either rock stars, business owners, or close to the bonus pool. In short, they already have substantial leverage. Most people have little leverage.
In summary this allowed for a very idiosyncratic/autobiographic financial history.
Alternatively, I could have gone into tech support and worked my way into management like several class mates did. Alternative, I could have become a HS teacher. Like many others. A STEM MSc would have paid some 40-60k from the get go and then advancing to some 100-120k. But then I would never have gotten to "see the world" (I started my blog after I got tired of traveling, but I've seen and done a lot of things whereas those who went strictly after the money haven't, really.
Overall though, because it's the savings rate that matters, most people can boost that number far more by working on the spending side than their income. Unless someone is making less than $14k or more than $140k(*), they're likely to be substantially more inefficient on the spending side than on the earning side. Most consumers require little work to drop their spending by 40% ... however, a 40% pay increase would require a lot of career building.
As mentioned above---incidentally this is a great nsight and probably explains your conundrum---it also depends on where you are on the scale. At 60% savings rate (which is low for ERE), it's a big deal in terms of years to FI to increase earnings by 50% ... because that bumps the savings rate to 73%.
HOWEVER!!!
If your savings rate is already 85% (because you've learned to cook inexpensively WITHOUT lentils), then spending a lot of networking, etc. and choosing more remunerative but less pleasant jobs in order to bump income by 50% ONLY increases savings rate for 85% to 90% ... in terms of time to FI the practical difference is negligible.
(*) This really depends on the field. People who make more than this are either rock stars, business owners, or close to the bonus pool. In short, they already have substantial leverage. Most people have little leverage.
Re: How much do you need AND how long will it take
OldPro wrote:So I'm still left wondering why people don't post more on how to increase their income. Or maybe not wondering why they don't. I've kind of been answered on that. Maybe I should say I'm wondering why people don't focus more on increasing their income.
Jacob already pointed out why most of us don't talk about increasing income. We are not in the game long enough to make it worth the effort. I will be done in 5 years. The effort to get a promotion is not worth the small amount of time (probably not even a month) I would get back in an earlier ERE. Why should I try for a higher income?
Re: How much do you need AND how long will it take
Recent threads concerning income around here tend to be regarding:
1) continuing a stressful higher-income job with shorter time to FI
2) pursuing more education to gain a higher-paying position and thus foregoing income for awhile
3) downshifting to a lower stress or more enjoyable position thus extending one's time to FI
As Jenny mentioned forumites tend towards the STEM fields and have healthy above-average incomes. There's a diversity however so some earn much less.
The Shockingly Simple Math post of MMM applies to all. You (a general you) choose your desired spending level and based on your income the time to FI is a relative given. In short time frames the ROI is relatively unimportant. Expense optimization has an automatic multiplying effect. If you require $40K/year you need $1M (assuming 4%). If you can optimize your expenditure and only need $35K your savings only need to be $875K. How many years would it take to save the $125K difference?
Personally I'm following very much in your footsteps it seems. I'm currently 43 and may stop working at the end of this month (hooray). My savings rate has increased from the low 40's to the high 80's. It's been a combination of promotions (higher income) and cost optimization (lower spending).
Savings as a % of After Tax Income
2004 47%
2005 42%
2006 43%
2007 64%
2008 62%
2009 65%
2010 70%
2011 73%
2012 78%
2013 85%
2014 89%
Sometimes I believe people jokingly refer to a spending rate of $7K/yr as a "Jacob". Most aren't living at a 1J level, most are 2J or more. I'm at the higher end (or MMM+ levels) but all are welcome here.
Better to work at something you love and take 10 years to FIRE than grind-it-out at something you hate in only 5.
1) continuing a stressful higher-income job with shorter time to FI
2) pursuing more education to gain a higher-paying position and thus foregoing income for awhile
3) downshifting to a lower stress or more enjoyable position thus extending one's time to FI
As Jenny mentioned forumites tend towards the STEM fields and have healthy above-average incomes. There's a diversity however so some earn much less.
The Shockingly Simple Math post of MMM applies to all. You (a general you) choose your desired spending level and based on your income the time to FI is a relative given. In short time frames the ROI is relatively unimportant. Expense optimization has an automatic multiplying effect. If you require $40K/year you need $1M (assuming 4%). If you can optimize your expenditure and only need $35K your savings only need to be $875K. How many years would it take to save the $125K difference?
Personally I'm following very much in your footsteps it seems. I'm currently 43 and may stop working at the end of this month (hooray). My savings rate has increased from the low 40's to the high 80's. It's been a combination of promotions (higher income) and cost optimization (lower spending).
Savings as a % of After Tax Income
2004 47%
2005 42%
2006 43%
2007 64%
2008 62%
2009 65%
2010 70%
2011 73%
2012 78%
2013 85%
2014 89%
Sometimes I believe people jokingly refer to a spending rate of $7K/yr as a "Jacob". Most aren't living at a 1J level, most are 2J or more. I'm at the higher end (or MMM+ levels) but all are welcome here.
Better to work at something you love and take 10 years to FIRE than grind-it-out at something you hate in only 5.
Re: How much do you need AND how long will it take
@OldPro
Forgot to say: welcome and I've enjoyed reading your posts and hearing your story!
Forgot to say: welcome and I've enjoyed reading your posts and hearing your story!
Re: How much do you need AND how long will it take
No doubt a higher income can help one to reach FI sooner. It’s quite extraordinary that you were able to triple income over 5 years. Was that all from your job or outside investments? You must realize how unusual that is. Perhaps you could share your tips on doing so. Start a new thread under that topic.
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IlliniDave
- Posts: 4183
- Joined: Wed Apr 02, 2014 7:46 pm
Re: How much do you need AND how long will it take
There is occasionally discussion along those lines and parallel things, but it is not the emphasis. I think what you were able to achieve in that regard was exceptional. I think the niche of ERE comes in working on the other side of the equation, the expense side. There's a lot of material out there in the world about how to get rich ("rich" being defined erroneously as having a high income) or make a killing with investing. But the end goal of that is usually, either explicitly or implicitly, simply to live life spending more money.OldPro wrote:So I'm still left wondering why people don't post more on how to increase their income. Or maybe not wondering why they don't. I've kind of been answered on that. Maybe I should say I'm wondering why people don't focus more on increasing their income.
To increase your income you have to rely on the collective "someone else" wanting to give more of their money to you in exchange for you making them happy in some regard, which is a less reliable and predictable process than is being efficient with what resources you have. There really isn't a formula for it that I'm aware of. Not everyone is adept at that and/or equipped to pull it off. To some extent I think there's an implicit assumption that people will do what they can to maximize their income within whatever constraints exist in their life situations. But ERE does not seem to be about making oneself miserable to gain something for the future. So for many of us, at some point it is better to have a content working life for a longer time before achieving FI.
From my own perspective, that's sort of where I'm at. I got a late start on my pursuit of FI. Similar to you I'm basing my estimated needs largely on my current lifestyle rather than a huge scaling down of it. My income is already relatively high. I'm almost 51, and have a large incentive to stick with my present employer until age 55. For that reason I'll probably work about 18 months past FI to hit that mark, and changing jobs would be a huge long-term financial hit and is therefore out of the question. I have the unusual advantage of having a salaried position with a company that occasionally pays overtime to salaried employees, so I do work as much of that as I can. I happen to also enjoy my work for the most part (my motive for achieving FI and retiring early is driven by personal/family considerations, not dislike of work). I know enough about myself and my employer to know that the direction I'd have to go to get "promoted" would lead to doing work I do not like, and from where I am compensation wise, the reward would not be worth the cost. I doubt that I would be held up as an archetype of ERE, or even of a segment of the ERE membership, but my specifics illustrate both that people do consider options for increased income, and that there are as many paths to ERE (or simply ER in my case) as their are people pursuing it.
Re: How much do you need AND how long will it take
I eat daal rice twice a day culturally and am reminded of this whenever someone pulls an ad hominem on Jacob:
The philosopher Diogenes was eating bread and lentils for supper. He was seen by the philosopher Aristippus, who lived comfortably by flattering the king. Said Aristippus, 'If you would learn to be subservient to the king you would not have to live on lentils.'
Said Diogenes, 'Learn to live on lentils and you will not have to be subservient to the king".”
The answer to your question would be that most of the preferences of the forum users are filtered out by the blog. That is, only those people who agree or find the blog posts insightful come back to the site often and click around till they find the forum. From these, a percentage acctually creates an account and in accordance with the Pareto Principle, it would be safe to say that 20% of the ~3000 members produce 80% of the discussions here.
So the people that do start and contribute to discussions are the ones whose values align the most with the blog posts.
The posts have always had a anti-careerist slant and hence the lack of discussions of increasing income.
Exibit A
Exibit B
However, let it be known that I am not complaining but couldn't have phrased the views expressed in above posts more eloquently.
The philosopher Diogenes was eating bread and lentils for supper. He was seen by the philosopher Aristippus, who lived comfortably by flattering the king. Said Aristippus, 'If you would learn to be subservient to the king you would not have to live on lentils.'
Said Diogenes, 'Learn to live on lentils and you will not have to be subservient to the king".”
The answer to your question would be that most of the preferences of the forum users are filtered out by the blog. That is, only those people who agree or find the blog posts insightful come back to the site often and click around till they find the forum. From these, a percentage acctually creates an account and in accordance with the Pareto Principle, it would be safe to say that 20% of the ~3000 members produce 80% of the discussions here.
So the people that do start and contribute to discussions are the ones whose values align the most with the blog posts.
The posts have always had a anti-careerist slant and hence the lack of discussions of increasing income.
Exibit A
Exibit B
However, let it be known that I am not complaining but couldn't have phrased the views expressed in above posts more eloquently.
Re: How much do you need AND how long will it take
PS:
1. Sorry for the broken math above. Since the relation is second order (people who create account*people who start or participate in discussions), under ideal conditions 4% (=0.2*0.2; 120 members) create 64% of the content here. (=0.80*0.80*89531= 57300 posts)
Even if there were any posts about career advancement or the topics you mentioned, they should get ignored and buried quite quickly.
2. @jacob Another cure for careerism (second link) could be decoupling work and identity?
When one can do one's work for its own sake, will one be still bothered by other people's career advancement or reward/work ratio?
You have an abundance of intrinsic motivation. I'm working on developing it further as noted in my journal.
[Sorry for hijacking thread OP; comments to blog are closed.]
1. Sorry for the broken math above. Since the relation is second order (people who create account*people who start or participate in discussions), under ideal conditions 4% (=0.2*0.2; 120 members) create 64% of the content here. (=0.80*0.80*89531= 57300 posts)
Even if there were any posts about career advancement or the topics you mentioned, they should get ignored and buried quite quickly.
2. @jacob Another cure for careerism (second link) could be decoupling work and identity?
When one can do one's work for its own sake, will one be still bothered by other people's career advancement or reward/work ratio?
You have an abundance of intrinsic motivation. I'm working on developing it further as noted in my journal.
[Sorry for hijacking thread OP; comments to blog are closed.]
Re: How much do you need AND how long will it take
Found a few threads. OP, do these fulfil your criteria?
viewtopic.php?p=90310#p90310
viewtopic.php?f=7&t=6159
viewtopic.php?p=90310#p90310
viewtopic.php?f=7&t=6159
OP wrote:So I'm still left wondering why people don't post more on how to increase their income. Or maybe not wondering why they don't. I've kind of been answered on that. Maybe I should say I'm wondering why people don't focus more on increasing their income.