Being Too Frugal Makes it Hard to Enjoy Savings

[canyonwalker]

I saw an interesting article about saving money the other day. "A couple who retired early with $4.3 million says the FIRE lifestyle is wearing thin: ‘We don't want to just keep throwing money on the pile and keep being cheap.’" The story has been picked up by a number of news outlets. Here's a Yahoo! article link (25 Jun 2023) because it's the least likely to disappear behind a paywall. The story tells of a couple, Mindy and Carl, who are multi-millionaires but spend too much time and emotional energy agonizing over small purchases. Their habit of extreme frugality has made it hard for them to enjoy the fruits of their labor.

Let me offer a definition here for those who are wondering. "FIRE" is Financial Independence/Retire Early. The term was coined in 1992, in the book Your Money or Your Life. The FIRE movement, as it's often called, has gotten closer to the mainstream in recent years as bloggers and influencers have popularized it with younger generations of adults getting an early start on planning ahead for retirement.

The idea of FIRE is simple: you save aggressively, and invest your money wisely, building a portfolio of assets big enough to make you financially independent (FI-), enabling you to quit your job and retire early (-RE). How big is "big enough"? Big enough that the cash flow you earn from your investments basically replaces your need for salaries. And how aggressive is "save aggressively"? Ah, there's the rub.

Typical FIRE success stories tell of couples who worked well-paying professional jobs for as little as 10 years, saved every penny they could, and retired by age 40. Common in these stories is financial self-denial. People take their upper-middle class incomes from jobs as software developers, finance pros, and lawyers and budget themselves like starving grad students. They live in small, plain apartments or houses, even leeching off generous parents if they can to avoid paying for housing, stint on travel and material goods, and eat meals of cheap foodstuffs like rice and beans.

Let me emphasize, people who live in shared housing, or buy cheap groceries and rarely eat out, or own a bicycle instead of a car because they can't afford more are different from FIRE followers. FIRE people typically earn 6 figures, often well into the 6 figures, and save half or more of their pay.

One of my computer-engineer colleagues in the late 1990s was a FIRE adherent. Instead of renting an apartment in pricey Silicon Valley he kept a bedroll under his desk at the office and slept there. He showered at the company gym in an adjoining building and kept a few of his possessions locked in the trunk of his well-used economy car down in the parking garage. "I'm saving an extra $15k a year not paying rent and utilities!" he boasted. Today the figure would be at least double.

Sleeping under your desk and showering at the office to avoid renting an apartment may seem like taking frugality to an extreme, but that's the sort of tradeoff FIRE adherents seriously consider. I've always been a frugal person myself, or at least have always had frugal tendencies— see my example from a few years ago about how long I wore a pair of sandals before spending to replacing them— but to me that's beyond the pale. I decided back in school that as I embarked on a well-paying career I would strike a balance between saving money for the future and enjoying the fruits of my labor in the present.

Comments

[some_other_dave]

I grew up without much money. In my case, I was the only child of a single-parent grad student of the humanities. My mother was always somewhat neurotic about money, and that attitude was passed on to me. I wasn't an adherent of FIRE--I started working before that book came out, and I didn't have any particular goal for my saving.

Da Boss helped me to better understand this, and her goals have become my goals. We were fairly house-poor for a while, but we understood that we did have some money and that it was OK to use it to help ourselves. I remember once she enlisted you to help me understand that spending money in the short term could produce more money in the long term.

A kind of watershed moment was when my car broke down at a car event in Utah, and I was going to try to fix it myself so I could drive it back through the Nevada desert in the summer. She made me realize that this was the kind of problem that could actually be solved by throwing money at it--so I was able to get the car limping along again, and we hired a truck to transport it back to California while we flew back on frequent flyer miles. It was strange to actually be someone who could actually throw money at a problem to make it go away...

We did retire early, as you know, in our mid 50s. This came as a bit of a surprise to me; I had been laid off and was having difficulty finding another job. But we had actually accumulated enough that I didn't have to, so we both declared ourselves done. And I'm very glad to be out of the rat race.

[canyonwalker]

I've written a number of times about changing the habits related to money I grew up with. The blog I linked to about wearing sandals until they were hanging by a thread is an example of the habit related to scarcity and how long it can take to unlearn it. Though if I was a FIRE movement person I would have written that blog from a standpoint of pride in my accomplishment at squeezing every penny of value out of those shoes rather than chuckling at myself for being a cheapskate when I didn't need to be. 🙃 Another habit I had to recalibrate once living on my own was better appreciating the time-vs-money tradeoff. Your example of fixing the car strikes me as being all about learning to value both time and money properly. Of course that's easier once you actually have money to choose Plan B. When you don't it becomes a three way choice: time vs. money vs. suffer without the thing... and Plan C is the default.

[sorcyress]

This feels like it is only accessible to certain forms of white collar jobs in the first place --I could go back to living like I did when I was a substitute teacher, and only making about 13k a year, but a full-time teacher salary is *not* enough to appreciably save from and retire super early.

~Sor

[canyonwalker]

I imagine FIRE advocates insist you can get ahead with their principles almost regardless of your income. It's abundantly obvious to me, though, that the numbers work out way better when you're, say, earning $150k gross, $115k net, and living on $40k so you can save $75k per year; versus earning $50k gross, $40k net, and living on $20k so you can save $20k per year. That's why when younger people tell me they're reading about FIRE I ask them if they've also considered how to solve for "E" in the E-S-G model.