Also I now understand your side: In the US it would be a no brainer that you need to save. In the EU (that's why I used the €) where I live it's not that obvious:
- You can't get homeless if you can't work. There is good unemployment protection.
- You can't get fired as quick
- You have 30 days of vacation (so you don't feel "exploited")
- The state covers you if you can't work anymore while young
- The state pays you a pension if you retire
- in health care basically everything is covered for you and insurance is mandatory for all.
- saving is a lot harder than in the US because of all the taxes we pay for the above.
In the US case all this security is away and you need to retire some time anyway. So I understand that in the US case, there is no real discussion about savings necessary.
Also as I am 33, retiring with 40 won't be satisfactory in the long run. Why save more if you still will have some form of work? So I decided that more than 50% of my income from capital is not worth it. The real question therefore is what % of my income should come from capital yields. To answer this, like Villanelle adviced, I need to look at my end goal.
This is a great point
@mustache_asker . There is little downside to poverty in the EU. In the US where most of us are writing from (and having a hard time understanding your perspective apparently), the reality is much more brutal. It is probably more brutal in most countries of the world.
I was driving in Dallas, TX earlier this month and came to a stoplight. On the side of the road was a very old looking man in a wheelchair. His legs were missing below the knees, and most of his fingers were missing the last centimeter or so. Did he lose his fingertips to frostbite, I wondered? Was he starving? He didn't even have a cardboard sign to beg with, but just sat there barely able to hold his head up as thousands of cars came to the stoplight and moved on. I moved on too.
I imagined how hard it would be for that person to get a job and then rent an apartment for a four-figure amount each month. Then I thought about how his outcome was inevitable in the U.S. By begging on the street corner and living under a deafeningly loud freeway bridge amid the winter cold and summer mosquitos, he served as a cultural example to the people driving by in $40k vehicles. The message is this:
You shall work or you shall die a slow and humiliating death on a street corner. People might say "what about Social Security in the US?" but this does not cover the cost of living in cities, and if the man was unable to work for much of his life he did not accumulate much of this pension. Again, you work or you die. Americans understand this tradeoff intuitively and cannot imagine any other way. At least half think this is the way things
should be, because to Americans, economic growth is the most important social and political priority.
US culture is happy to sacrifice people like the old man if it improves GDP. In 2021, US GDP per capita (in USD) was $70,249 while in the EU it was $38,411. Americans work longer hours, take less vacation, consume more, and create almost twice as much GDP per capita as Europeans. The whole social configuration is designed to optimize economic activity. If the heightened risks of poverty or death from treatable medical conditions incentivize Americans to work as hard as possible, then maybe conservatives have a point that adopting EU-style social safety net would harm the economy.
The man might already be dead. A cold snap blew through shortly after my encounter. In the US, cities and highway agencies routinely clear out homeless people's possessions from under bridges and wooded areas and throw it all away. Sometimes they shred encampments with a mowing tractor. If that happened, and the old man was left without a sleeping bag and tent, he could have easily perished. If homeless people lose their ID cards, they can neither get jobs nor obtain the minimal government assistance available.
In the US, people with a net worth of only $8k are uncomfortably close to homelessness or poverty. A few months out of work would do it.
What if the economic or political winds in Europe blew a different direction, and a wave of right-wing populists went to work dismantling the welfare state as you approached retirement age? Can EU governments like Italy, Greece, or Spain continue to accumulate debts forever while simultaneously collecting some of the highest taxes on the planet? Will the social safety net still be prioritized if Putin takes Ukraine and then moves into the Baltic states? This is again trying pessimism as a motivator, but perhaps you should prepare yourself for a future that is less stable than past decades. Imagine being 60 years old and living in a society that more resembles the U.S. or India or Latin America than the old E.U. We live in tumultuous times, and it could definitely happen.
Is saying Marx in US context a form of disagreeing?
Oh and yes, citing Marx is usually pejorative in the US context, but it depends who you are talking with. Also in the US, conservatives generally call it "Marxism" any time a very small increase is proposed in our taxes or rudimentary social safety net. They consider "welfare" to be something that motivates people to freeload off of productive working taxpayers instead of being productive. They would point to your lack of motivation and your plan to live off of the benefits provided by your government (medical care, minimum income, vacation, pension, etc) as an example of the damage a social safety net can do.
They would also say the American left / European center is irrational because it is focused on the emotion of economic jealousy and on the zero sum game of seizing what other people have, rather than on incentivizing production.
Also a lot of this discussion is just that I hate to be manipulated and taken advantage of. No one every told me: Ok, this is how it works: Half of your life you will work to pay capital rent for someone else, because you rent 250k€ in capital from someone else. If you rent cash, at least they are honest with you and tell you how much you pay on top of the actual sum. I'm a really suspicious person. So I wanted to figure this out.
You'll have to forgive yourself for attempting to be an economically rational actor. If you choose to buy anything, it is presumably because the thing is worth more to you than the price*. If you judge the use of your apartment to be more valuable than the price of rent, then from your perspective it is you who are ripping off your landlord by trading something less valuable (rent) for something more valuable (use of the apartment). Of course your landlord has a different perspective. S/He is trading something less valuable to them (use of the apartment) for something more valuable to them (rent).
It comes back to the old coconuts / fish
trade metaphor from your introduction to economics class. You have an excess of cash and a shortage of places to live. Your landlord has the opposite problem. Through trade you make an exchange that is mutually advantageous because it relieves both of your shortages, at the expense of something you have in relative excess. Who exploited who in such a voluntary, mutually beneficial exchange?
Of course, this is a purified and simplified capitalism. In reality, people are born with or luck into advantages, and they often use government to create more advantages for themselves, so that, for example, regulation can create a shortage of houses to drive up rents. The corruption and exploitation are happening at this level, not at the level of your voluntary exchanges with others.
*
@mustache_asker I think there are some hidden accounts you are not factoring in.
When you buy a thing from a capitalist (or anybody really), two accounting entries need to be made:
1. Debit your cash, which is the same thing as debit your labor because you have to work to replace the cash.
2. Credit your quality of life.
This is an unsupported assumption, and one that I don't think is valid. People buy stuff all the time that doesn't improve their quality of life. If they stopped doing so, there wouldn't be any point in most advertising. It's so common that it often requires a lot of conscious thought and control to avoid.
Yes, I thought the exact same thing as I was writing it
@GuitarStv, but to point this out seemed a distraction from my main point about missing accounts. Also our economics-trained OP appears to be living a life relatively immune from the temptation to over-consume (forgot to mention, congratulations on that!).
I agree it's a good rule of thumb to say "if it requires advertising to sell, that's because it doesn't actually improve your quality of life." and I agree many of the consumption decisions Americans make are failures in terms of QOL.
If advertising does anything, it is creating the expectation that QOL will improve if you buy this particular gadget/service. People in consumer economies
keep taking this bait, and they keep failing to learn from previous instances when they took the bait and returned to their original miserable mentalities a short while later. The concept of not believing such promises by default does not occur to most people, even after thousands of failed attempts to buy happiness.
Yet economics breaks if we cannot explain people's trade decisions. So I'll amend the name of account #2 to "Credit to Quality of Life, Probably Short-Term, Expected But Never Assured." Perhaps it is the expected but never assured part that is dissuading the OP from devoting more of their life to work, as most respondents here have suggested.
If the OP feels safe with a net worth of only 8k euros, and if they feel absolutely confident the social safety net in their country will continue as it is for the next four decades or so, then maybe they are correct to not spend more of their best years laboring for money. OP, what would you miss out on if you worked 40 hours per week instead of 20h, and earned 3x as much? Are you optimizing your life in that time or watching internet videos?
This whole situation sounds perilous from an American perspective though, and perhaps we're right that the OP needs to create some financial buffer against the unexpected, generate some capital, and earn at least part of their living from non-labor sources. We cannot assume our lives are sustainable as they are today. We're getting older and our future earnings potential is in constant decline. Prices are rising. Politics are changing (see pension reform in France, caused by the system running out of money, and wrecking people's lifelong plans). A misfortune could strike at any time, at which we'd need every bit of resources we could accumulate.
