ERE level of spending

[kawaivf1]

Over the weekend I was thinking about our spending level, and how to reduce our FI number. Currently we spend ~$50K per year. If I back out medical and daycare expenses from my budget our spend is closer ~$38K per year. I have no mortgage, I do live in a higher tax state, and have SO+2 kids.

$38K is still a good way away from ERE level spending of say $7-10K per year. I am always optimizing and reducing expenses where I can, but they are relatively small versus what it would take to get to that ERE level of spending. It feels like the remaining items in the budget there is a psychological barrier preventing me from making changes, or requires me to convince my SO which can be hard at times.

What were the most significant changes you made to get to that ERE level of spending?

[jacob]

See the table. It sounds like you're focused on optimizing the line items of a budget and are close to maxing out how far that approach will take you. Each new stage requires changing how you think about things rather than becoming better at the things you already do. Each new stage also builds on the previous stage. Much like a building, you can't build the 7th floor first. There is a concept called scaffolding that makes it possible to build higher and faster---especially when it comes to other people. However, a scaffold is also not a robust construction although better than attempting to build mid air.

[Western Red Cedar]

$38K is still a good way away from ERE level spending of say $7-10K per year.

Keep in mind 7-10k is spending per person. There is some discussion elsewhere (WL thread?) about how appropriate it is to scale that number up with kids, but you are close to 1 JAFI if you average your spending by the people in your household.

Of course, there are a few amazing examples here of families your size with spending under 20k, and even under 10k, so that isn't an excuse to get complacent.

[AxelHeyst]

What were the most significant changes you made to get to that ERE level of spending?

Major Moves
Slashed my housing costs by moving onto the family land and building a tiny house(s).
Took food costs from >$1k/mo to <$200/mo by stopping eating out, dramatically cutting alcohol (100% reduction at the moment), and doing the spreadsheet work to get my grocery shopping to that sub$200 number.
Sold my truck.
By nothing year mentality (I never formally did it, but was influenced by it).
Changed how I think about trips/vacations/travel/'getting away from it all'. (Briefly: paying more for travel than my normal monthly CoL probably represents a design failure. Projecting a high price tag for travel triggers a challenge to my creativity now, rather than a shrug.)

Minor moves:
No/minimal cell phone plan
Pored through my financial statements to find all the random subscriptions to stuff I'd accumulated (took a year to plug all the leaks).
Tracking every cent. (I think this should be a phase, eventually you won't have to do this in the same way that chess masters don't explicitly run the numbers on the value of chess piece position values, but I think it's an important phase to go through. It was for me.)

[zbigi]

(WL table)

One question regarding the table - I don't know how, at WL6, one can "realize no need for large $$ if inflows and outflows balance" and simultaneously still have a retirement goal of 3% SWR - which presumably means large $$? Am i missing something here?

[jacob]

One question regarding the table - I don't know how, at WL6, one can "realize no need for large $$ if inflows and outflows balance" and simultaneously still have a retirement goal of 3% SWR - which presumably means large $$? Am i missing something here?

If we look at the target household stash:
WL1-2: derp
WL3: 2-5M
WL4: 50000/0.04 = 1.25M
WL5: 30000/0.04 = 0.75M
WL6: 20000/0.03 = 0.66M
there's a steady decline in the NW goal that someone would consider necessary to sleep well at night. Relative to previous targets, WL6 is half of the typical leanFIRE person.

The realization comes from finally making the connection that "net spending = inflow - outflow" whereas the thinking for earlier WLs seems to focus on reducing the $-outflows. WL5 thinks about spending the money on stuff as optimally as possible. WL6 begins to realize that there are other ways of "getting stuff" than spending via investing or working a job. This is why the need for spending drops by another 1/3.

There's also the semi-related realization (from beginning to think in terms of other yields than money) that 3% is more realistic given how this yield is global and based in nature (for example, timber grows at 3%) cf. 4% which is based on 20th century US financial history.

(BTW, the easiest way to convert household numbers to individual numbers is to use the standard OECD method and divide by the square root of the number of persons in the household. E.g. a 5 person household at $50k has roughly the same standard of living as a 1 person household of $50000/sqrt(5) = $22360 or a two-person household of $50000/sqrt(5)*sqrt(2) = $31622 because efficiency of scale in terms of spending correlates approximately with the square root.

[Lemur]

@zbigi

Higher WLs become opportunistic for capital instead of relying solely on investment income (the inflows don't have to completely rely on investment withdrawal).

Normally for $20,000 a year you'd need $666,666.67 in investments to cover at 3% but if you could inflow capital of $10,000 a year with your freelancing gig, or part-time holiday job / uber for instance, then you'd only need $333,333.34 a year from the investments. I take it if you get a few years in the game with net-worth in runaway mode, you won't even have to do this either.

Come to think of it...earning $10k a year or $833 on any given month without being bogged down by a full-time job seems kind of easy if you apply some working-person mentality. Gutters in the fall, snow shoveling in the winter, holiday jobs, uber/door dash, dog sitting, freelance coding, etc.

I sometimes wonder if this is tougher for the non-Western / Eastern European folk. Older Americans practically have money ready to give away...but this is a different topic.

[zbigi]

I sometimes wonder if this is tougher for the non-Western / Eastern European folk. Older Americans practically have money ready to give away...but this is a different topic.

Definitely, the math is very different. Most of the ERE math doesn't work in this regard outside of the wealthy Western Countries, where there's plenty of inefficiencies and laziness ripe for the picking. In my city (in Poland) for example, nobody I know pays for dog walking, cutting grass, cleaning gutters etc. Some people pay for cleaning their apartments, but, when factoring in the commute, you're going to get $5/h , and that's if you're really quick about it. Being a handyman also doesn't pay well, as many people can just do the repairs themselves (the lazy specialist type who can't even boil an egg is not that widespread here yet), and they don't have that much money to spend anyway. It really only makes sense to geoarbitrage - whether it's coding, freelance art/illustration or anything else that can be done remotely.

[zbigi]

WL1-2: derp
WL3: 2-5M
WL4: 50000/0.04 = 1.25M
WL5: 30000/0.04 = 0.75M
WL6: 20000/0.03 = 0.66M

The difference between WL5 and WL6 is relatively insignificant here, whereas (according to the table) WL6 is supposed to come with a sudden breakthrough realization that one does not need a large amount of money saved. Also, $660k is still a lot of money?

[jacob]

The difference between WL5 and WL6 is relatively insignificant here, whereas (according to the table) WL6 is supposed to come with a sudden breakthrough realization that one does not need a large amount of money saved. Also, $660k is still a lot of money?

The safety factor is much higher though.

Keep in mind that these numbers are fuzzy ESTIMATES and don't account for all possible circumstances. We don't need to have "$20,000 may work in BFE, but in NYC it barely pays lunch"-type discussions. I'm confident people can make their own adjustments.

I need to emphasize again that the important [independent] variable is the "primary focus & frequent talking points" column. The other columns are symptoms or counterindicators to that variable; not the other way around. In other words, getting the household under $20k does not indicate a WL6 mindset. That level of spending might after all have been reached by abstinence and sacrifice. Conversely, a high spending would counterindicate a high WL. Claiming WL7 while spending $50k and one better have a really good explanation along the lines of running an community that supports 50 people; like an eco village fablab or a grand extended family or whatever.

Keep in mind that this is all about frameworks. To the median US person, who is WL0-1 and destined for whatever social security pays, 660k is a lot of money, but to the average Boglehead (WL3), 660k is a ridiculously insufficient amount.

The breakthrough from WL5->6 is somewhat ironic in that around the same time that one realizes that "it's not about The Number" one also realizes that one now has far more money (relative to spending) than previously thought was necessary. If you go back to the COVID lockdown era of the forum, you'll see examples of people discovering that alternatives to buying existed which as a result meant spending rather less ... and that in turn meant that their SWR could be much lower than previously presumed possible. All the discussions about semiERE are people realizing this BEFORE overshooting due to chasing the "4% rule on an optimized budget"-goal. WL6 is essentially the first stage where people stop obsessing about numbers or thinking of dollars as a both a limited resource and the only resource.

[AxelHeyst]

All the discussions about semiERE are people realizing this BEFORE overshooting due to chasing the "4% rule on an optimized budget"-goal. WL6 is essentially the first stage where people stop obsessing about numbers or thinking of dollars as a both a limited resource and the only resource.

Boyd! This observation underscores the importance of maintaining tight/quick loops through observation, orientation, decision, and action. It's less about time spent, but loops run. (I have in mind your post Jacob from a week or two ago about thinking in moves as opposed to time).

@kawaivf1, you might think that what happened here is that a bunch of nerds hijacked your thread and started arguing about theoretical arcana, instead of straightforwardly answering your simple question.

Well... to make it really clear, the 'hijack' is part of the honest answer. I think (although I'm happy to be challenged on this) that most of the people *on this forum* who've gotten to ERE levels of spending spent a fair amount of time arguing about theoretical arcana. It was, at least for us, part of the process of achieving whatever we consider to be ERE level spending. (Many people exist who get to ERE levels of spending without doing all this theoretical arguing, we might call them naturals, but for those of us not blessed with the gift of it, we've had to slog through some theory on our way.)

As Jacob said, it's possible to hit ERE levels of spending with sacrifice and asceticism, but that would be misunderstanding the point of ERE philosophy. ERE is about *not* sacrificing to have a great life on your own terms. An interesting point about this is that one person's sacrifice is another person's burden removed. My current lifestyle is too ascetic for many... but I'm in love with it.

Anyways, tying this to the point about loops or 'moves', the thing that comes to mind is 'keep moving; bias towards action and learning; aim to avoid mistakes; approach the lowest hanging fruit first, take a pass, and move one - you'll get another pass at it in the next loop, when you'll be yet another 'move' wiser and more experienced".

Do you have a breakdown of your expense categories? aka do you know exactly how much you spend on every category? That can serve as a guide for your attention.

[dustBowl]

An example from someone I know might help demonstrate 1) how someone can achieve an ERE-type spending level and 2) the thought process difference that comes w/ wheaton level 6+ (or not, in which case Jacob can correct me )

The example

I was recently talking to a friend who I would describe as high on the WL chart, though he knows nothing about ERE. He told me that he spent $600 on housing in the first three years after we attended college together, which amortizes out to $200 / year for housing (and I believe him). I would consider that pretty good even in the ERE world.

He achieved this level of spend by constructing a tiny house on someone else's land in the town where we went to college. The owners of the land let him build there on the condition that he built it to certain specifications so they could use it as a guest house when he later moved out. He accumulated the building materials for the house by helping someone else in town demolish an old building they wanted to get rid of, then salvaging a bunch of materials from the demo. I think the $600 went to buying some roofing materials after the original roofing materials he scavenged were stored improperly, so in theory the cost could have been even lower.

Anyway, the point is that money was almost completely irrelevant in my friend's ability to provide shelter for himself.

Non-monetary forms of capital that he employed instead:

• Social capital: Having a lot of connections in town, so he knew people who were willing to let him build on their land. Being a very likable, considerate guy so that the property owners were amenable to him living on their property
• Social capital: Having a lot of connections in town so he knew when someone wanted a building demolished. Bartering his skills for the resulting materials
• Skill capital: The ability to construct a house himself rather than paying builders
• Skill capital: The ability to demo a building and salvage the remains
• Skill capital: The ability to live relatively well out of a tent for half a year while building the tiny house
• Emotional capital / stoic capital (made up by me): The ability to live well and be happy in a space that other modern westerners would consider too small / underequiped / not nice enough (okay, I'm stretching the capital framework beyond its limits with this one, but I wanted to include it somehow because I think it's relevant)

Maybe a way to reword the above would be that my friend identified some unused resources (materials in a building someone wanted demolished / land that his house eventually got built on) and then used social and technical skills to unlock access to those resources. Note that all of this is almost completely independent of money.

A lot of the above also relates to number-one secret (not really) ERE life-hack I've been thinking about recently, which is the ability and willingness to act as decomposer in the producer/consumer/decomposer cycle. Although as noted previously in this thread, that approach probably only works in modern western world where profligate waste is everywhere. In other parts of the world that's just the way everybody lives out of necessity.

...

@kawaivf1 hopefully this isn't too much of a derail of your thread... my intent is that it gives an example of significant lifestyle changes someone made to achieve low spending while also addressing some of the more theoretical stuff Jacob is talking about.

[jacob]

A lot of the above also relates to number-one secret (not really) ERE life-hack I've been thinking about recently, which is the ability and willingness to act as decomposer in the producer/consumer/decomposer cycle.

The difference between the two is that the normal modern person occupies a position where they are the producer of one thing (in their day job) which they don't consumer themselves and a consumer of many different things (as listed by each entry in their budget) with the market economy acting as an intermediate. Decomposition happens via the trash can oftentimes throwing out perfectly useful things.

Whereas the ERE person is a producer of several things, some of which they consume themselves, and some of which are consumed by others. Sometimes the market economy is used as an intermediate but other times there are other intermediates or perhaps no intermediates. In turn the ERE person consume things, but they buy fewer things from the market and get more things from other places. Compared to the optimized consumer, the ERE person's budget has several budget entries that are not optimized or good deals but simply zero. Not because they aren't consumed but because they aren't acquired by paying for them---hence the lower spending but the same quality of life. Decomposition is similarly integrated. Sometimes the ERE person acts as their own decomposer; sometimes for others; ... a typical ERE person generates much less trash than the average consumer.

In short, ERE (WL7) is a fully integrated system that takes the cycle into account. The consumer is oblivious to this system and only occupies a very limited "produce to consume" aspect in someone else's system.

This is described briefly in the beginning of chapter 7 of the ERE book and also discussed in the Stoa1 talk.

[kawaivf1]

Thanks everyone for the awesome input, and by all means don't feel bad! I didn't have a chance to get back and comment until now. This is exactly why I joined this forum versus others. I could have picked a circle of people that were in my comfort zone, but I decided to pick the minds of people that have different views of the world.

I found the Weaton Table fascinating. I do feel like I am at the point where tweaking the budget is maxed out so WL4-5. I do still obsess about the numbers, but over time I have begun to realize its irrational. I know I could never contribute another dollar to my 401K, and I would be able to support my family after a decade of compounding. I think the most difficult part of making it to the next level is trading my skills/knowledge as capital. I've never done anything besides work at my desk job. That may be something I will explore in the future.

In the past I was pretty meticulous about budgeting, and keeping track. Over time I spent less time tracking my spending. I save my money right away, and then the rest I spend as optimally as possible. Not sure this is the best way to go about it, but I do agree watching where every dollar goes is a great idea. I actually have closed a ton of accounts because keeping track of all the different credit cards, savings, and investing accounts was annoying.

Here is a breakdown of expenses. I update it based on my actual spending. Discretionary spending is squishy, and doesn't always get spent completely. It gives my SO freedom to spend on things that are important to her. We currently have a house cleaner with my SO being pregnant, and due to her medical condition causes fatigue. Over time that category should go away.

MONTHLY EXPENSES Annual
Day Care/School $10,296
Discretionary Spending $6,000
Groceries $6,840
Vehicle Fuel $2,640
House Cleaner $2,400
Electric Utility $2,400
Services (cell/internet/tv) $1,380
Vehicle Maintenance $600
Wholesale Clubs $1,200
Medical Expenses $8,400
Vacation $2,500
Property Taxes $5,905
Insurance $2,842
Heating Oil $2,648
Other (annual fees & exp.) $589
Expenses $56,639

[kawaivf1]

An example from someone I know might help demonstrate 1) how someone can achieve an ERE-type spending level and 2) the thought process difference that comes w/ wheaton level 6+ (or not, in which case Jacob can correct me )

The example

I was recently talking to a friend who I would describe as high on the WL chart, though he knows nothing about ERE. He told me that he spent $600 on housing in the first three years after we attended college together, which amortizes out to $200 / year for housing (and I believe him). I would consider that pretty good even in the ERE world.

He achieved this level of spend by constructing a tiny house on someone else's land in the town where we went to college. The owners of the land let him build there on the condition that he built it to certain specifications so they could use it as a guest house when he later moved out. He accumulated the building materials for the house by helping someone else in town demolish an old building they wanted to get rid of, then salvaging a bunch of materials from the demo. I think the $600 went to buying some roofing materials after the original roofing materials he scavenged were stored improperly, so in theory the cost could have been even lower.

Anyway, the point is that money was almost completely irrelevant in my friend's ability to provide shelter for himself.

Non-monetary forms of capital that he employed instead:

• Social capital: Having a lot of connections in town, so he knew people who were willing to let him build on their land. Being a very likable, considerate guy so that the property owners were amenable to him living on their property
• Social capital: Having a lot of connections in town so he knew when someone wanted a building demolished. Bartering his skills for the resulting materials
• Skill capital: The ability to construct a house himself rather than paying builders
• Skill capital: The ability to demo a building and salvage the remains
• Skill capital: The ability to live relatively well out of a tent for half a year while building the tiny house
• Emotional capital / stoic capital (made up by me): The ability to live well and be happy in a space that other modern westerners would consider too small / underequiped / not nice enough (okay, I'm stretching the capital framework beyond its limits with this one, but I wanted to include it somehow because I think it's relevant)

Maybe a way to reword the above would be that my friend identified some unused resources (materials in a building someone wanted demolished / land that his house eventually got built on) and then used social and technical skills to unlock access to those resources. Note that all of this is almost completely independent of money.

A lot of the above also relates to number-one secret (not really) ERE life-hack I've been thinking about recently, which is the ability and willingness to act as decomposer in the producer/consumer/decomposer cycle. Although as noted previously in this thread, that approach probably only works in modern western world where profligate waste is everywhere. In other parts of the world that's just the way everybody lives out of necessity.

...

@kawaivf1 hopefully this isn't too much of a derail of your thread... my intent is that it gives an example of significant lifestyle changes someone made to achieve low spending while also addressing some of the more theoretical stuff Jacob is talking about.

That's a great example. I actually have a similar friend who built a tiny home on his parents property. He spent more than $600, but significantly less than any one I have come across, and can sell the home for a profit when he decides he no longer wants to live there. You can just tell it comes naturally to him.

[kawaivf1]

By nothing year mentality (I never formally did it, but was influenced by it).
Changed how I think about trips/vacations/travel/'getting away from it all'. (Briefly: paying more for travel than my normal monthly CoL probably represents a design failure. Projecting a high price tag for travel triggers a challenge to my creativity now, rather than a shrug.)

I saw the buy nothing year mentioned a few times.. That's interesting. My wife actually gets on board for buy nothing month.. She might consider a whole year.

We started renting a house on the beach in the state where we live it is very family oriented, but almost become subscription like because it is a community of rentals, and if you rent it last year you get first dibs to rent it the next year. So they are hard to book if you are a newcomer. My wife and her family went there as kids so it has a sentimental effect on her. I justified it from the fact we didn't have to fly anywhere with our kids, if we split the cost with family that lowers the total expense burden on us, and we can cook all our meals in the kitchen so limited eating out. It was $2600 for a week last year. This year we are splitting it so this year it's about $1450 plus expenses so some progress on getting the cost down.. I never got into travel hacking, but it might be something to explore on vacations with just me and my wife.

[kawaivf1]

The realization comes from finally making the connection that "net spending = inflow - outflow" whereas the thinking for earlier WLs seems to focus on reducing the $-outflows. WL5 thinks about spending the money on stuff as optimally as possible. WL6 begins to realize that there are other ways of "getting stuff" than spending via investing or working a job. This is why the need for spending drops by another 1/3.

Do you mind sharing how long it took, and if there was an event or series of events where you noticed your mind set shift?

It feels like it could take a while. I feel like each decision has a different emotional component, and that drives a WL5 or WL6 focus. When it comes to kids that is a big issue. Right now we are facing having to get a new car, and it has a similar feeling. Getting a lot of pressure from Dad, and SO.

[jacob]

Do you mind sharing how long it took, and if there was an event or series of events where you noticed your mind set shift?

This is tricky to answer since most of these frameworks didn't exist during my journey. I had to "create" or identify them in retrospect oftentimes by noticing the same behavioral patterns in others. There's actually an older table that only goes to 7 with 8 as a sort of catch-all (infinity). After a few years I finally figured out the next couple of stages, so this one goes to 9 with 10 as infinity. It is possible that new stages may yet be identified. IOW, I'm mostly exploring the white areas of the map. It's different (faster) when there's an actual map to follow.

If I look back, though, a rough estimate would be
WL1: Never
WL2-3: I grew up on these values but it was just the water this fish swam in.
WL4: 1995 (moving out from home)
WL5: 2001 (learning about ecological footprints, etc.)
WL6: 2008 (after I started blogging, I began to think deeper about things)
WL7: 2009 (working on the ERE book, quitting career)
WL8: 2015 (building the resilient urban homestead)
I've been exploring WL9 since 2021 or so.

It was to a large degree more a matter of putting words on things I was already doing, albeit lacking theory not too well yet, and developing the theory. Also, expect each stage to take longer and longer. The reason is that the "world" grows exponentially bigger and richer for each stage. The world of WL1 fits on a Post It-note. It is very simple and is able to perceive only a few relations and consequences. The WL3-5 world fits within a few blog posts. The world of WL7 needs a bookshelf (alternatively, a stupendous amount of Post It-notes). And so on...

Also note that I have never in my life spent more than $6-7k/year, I was in some sense "working backwards". Until 2000 the spending was limited by my student stipend (I spent all of it but never went into debt). After that I vowed to not live beyond the global ecological footprint which turns out to be about the same amount and saved the rest as my income grew. In some sense I just kept living like a student while developing my own skills instead of buying stuff until I reached a point where we live like our neighbors in a median-class neighborhood but spending 1/4 of what the neighbors are. As such the household column doesn't apply in my case. Interestingly, I met DW in 2004 and she has consistently lagged me by about two stages. This has made me a bit more mellow (if I was living on my own, I'd probably spend less) and in turn provided scaffolding for her going from WL1 to WL6ish.

[7Wannabe5]

@dustbowl:

You probably ought to add Physiological Capital to the list, because it obviously takes a decent amount of muscle and vigor to do demolition work and build your own house. This was one of my limiting factors when I became ill while working on my last project. Another note on limitations to reducing housing expense would be that sometimes skill in Self-Defense becomes a limiting factor. For instance, this is why some of the women (including me) who participate in this forum are less likely to want to Sleep Alone in Car in Urban Area or Camp Solo in Wilderness.

I mean, it's not like I can't find other humans who are sometimes willing to sleep in a car or the wilderness with me, but mostly they are like "Um, I own a comfortable house, so why are we doing this?" after about Night 3.

[Western Red Cedar]

What were the most significant changes you made to get to that ERE level of spending?

For most people it comes down to the big three: housing, transportation, food. Usually in that order. For the budget you posted, it looks like those aren't particularly large for a family of four. I'm guessing you could make progress on that grocery bill and probably eat healthier doing so, but I wouldn't suggest doing so if you are compromising on the quality of food you are eating.

I'd encourage you to make this a shared project with your wife. Find her underlying inspiration for more freedom - time with kids/family, reduced stress, adventure? Make frugality a shared journey. There are quite a few threads here where one partner gets amped about cutting spending but creates conflict in their marriage. Hitting an arbitrary budget number isn't worth it if it causes too much friction in your family IMO.

Restaurants and eating out were the lowest hanging fruit for our budget. DW and I can usually prepare better food at home than we can find in many restaurants. We still make exceptions for things like sushi, ramen, brisket, and things like that which we don't make at home or can't make very easily. We also go out a lot when we are on vacation - but this is all just a drop in the bucket in terms of our net worth.