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The frugalist revolution

Published in Insights, The New Zealand Initiative’s newsletter, 28 September 2018

It is a sure sign I am getting old. At age 43, I am still working and I do not think it is a problem.

If I shared the attitude held by a growing number of much younger people, I would have retired three years ago. Yes, you read that right: Retired. At 40.

Like so many other movements, the frugalist movement started in America. Also known as FIRE (Financial Independence Retire Early), it has since gained followers worldwide. Please google them, these people exist.

Their approach is simple. By living the most minimalist life in their 20s and 30s, frugalists save up to 70 percent of their post-tax income and invest it wisely. This way, they build up sufficient savings by the age of 40 to allow them a super-early retirement.

In theory, and perhaps even in practice, this is possible. The frugalists’ 4-percent rule deems it safe to spend 4 percent of one’s savings without ever running out of money. If you believe that 7 percent returns and 3 percent inflation are realistic in the long run, at 4 percent withdrawings per year any savings pool is a bottomless well.

From there, it is only a matter of preference. Some people might get by on $20,000 per year (and half a million in savings), others may need $40,000 (and a million in the bank).

Provided, of course, you own your home. Which makes FIRE difficult in most of New Zealand. But luckily house prices in Dannevirke or West Southland are much lower.

So if you are happy to live without a car, repair broken household items, buy second-hand, never eat out, forgo any holidays, and skip anything that makes life that little bit more enjoyable, retirement at 40 is doable.

Just do not have kids, these money-suckers. Or any hobbies. Or the odd bottle of Pinot. And get used to the thought of never seeing the Eiffel Tower, Machu Picchu or the Great Pyramids.

In this way, FIRE will not make you live any longer. But it will make the whole experience on this planet (well, in New Zealand) seem much longer.

There are just two things I do not understand. Why bother to learn and study hard if you will only use your qualifications for a few years?

And second, when I was young, we wanted to change the world. Or at least have a fulfilling life. Retiring at 40 would not count towards either.

As I said, I must be getting old.

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