Author Topic: Is FI really that simple?  (Read 3470 times)

bob999

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Is FI really that simple?
« on: February 22, 2018, 03:24:13 AM »
Hi Guys,

I have been investing into the realestate market for over 15 years and also started investing in index funds over the last few years since discovering MMM and other similar financial blogs. In Australia people (and books I read) used to say that property doubles every 7-10 years (what a bunch of bullshit, non of my properties have done this).

All the financial books I have ready and blogs and financial superstars like Mr Buffett all say to invest in index funds such as Vanguard. My basic understanding is that 'the market' will produce goods and services that people will buy/use and 'the market' will keep pumping out dividends/profits over the long run. This cycle will not end but still a part of me questions,

Is achieving FI really as simple as:

Spend less than you earn, invest the difference in index funds.

If it is so simple then why aren't more people at least not broke at old age? If it is so simple then why isn't everyone who works 40+ years FI or close to it?

markbike528CBX

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Re: Is FI really that simple?
« Reply #1 on: February 22, 2018, 05:04:34 AM »
Because,
most people don't:
1)Spend less than you earn

2) invest the difference in index funds


1)Spend less than you earn----- have you heard of credit cards?
There is a whole sub forum on shame and comedy.

2) invest the difference in index funds---  most people regard stocks and bonds as gambling.
So they  either, don't invest at all or
try to time the market and/or pick individual stocks "that just can't lose".

chasesfish

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Re: Is FI really that simple?
« Reply #2 on: February 22, 2018, 05:05:01 AM »
Yes, it really is that simple.  Here's the two charts on why:

http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

You need a 25% savings rate or better to retire in 32 years, a 15% savings rate to retire in 43 years.

https://tradingeconomics.com/united-states/personal-savings

Unfortunately the savings rate in the US runs between 5-15%, causing the average person to work for 40 years AND rely on social security to supplement their income.   Australia has been below 15% since the mid 1980s, probably causing a similar issue.

The oddest thing that piles on to the issue is some developed countries with high savings rates also have people who are adverse to taking risks with their savings.   Germany has twice the savings rate as the US and Australia at 10%, but only 1 in 10 people under the age of 39 participate in the stock market. 

So to answer your question:  Its difficult to do, but its not complicated.  The difficulty comes with having the discipline to spend less than you make, then stomach taking a calculated long term financial risk with the difference.

On real estate - That "double ever 7-10 years" was the same thing I heard 15 years ago in the US.  Housing should increase at the rate of inflation plus a little bit more, not every 7-10 years.  That party will stop, stay the course on your rentals. 

Lady SA

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Re: Is FI really that simple?
« Reply #3 on: February 22, 2018, 10:29:43 AM »
If it is so simple then why aren't more people at least not broke at old age? If it is so simple then why isn't everyone who works 40+ years FI or close to it?

Because:
1. people don't have enough to invest (because they are spending more than they can afford)
2. Financial businesses intentionally make investing seem complex and scary, so an individual investor is either reluctant to try at all, or they feel that their only option is to put their trust in management companies that make a profit off your money with little benefit to you. These companies then usually do some variation of #3:
3. If an investor manages to clear the first two hurdles, then the vast majority of them dance in and out of the market, adding money when the market is high and panicking and selling when it goes low. That is the exact recipe to NOT make money in the stock market.

It is quite rare for a person to have the combination of surplus money, financial industry bullshit glasses to have the confidence to go it alone, plus the knowledge/willpower/guts to stay the course during volatility. The Average Joe does not have all 3 qualities--they might have one or two, but you need all three to be successful.

Capt j-rod

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Re: Is FI really that simple?
« Reply #4 on: February 22, 2018, 10:41:25 AM »
The short answer? yes. I personally:
1. save as much as possible
2. invest it in rental property which provides shelter and income
3. invest heavily in index while maxing out my wife's fund at work
4. I pay as little interest as possible and only on real estate mortgages and a student loan.

DISCIPLINE!!!

Look around you everywhere. Go to Walmart and look in other's carts, look at their leased cars, listen to their HELOC financed swimming pools and vacations, listen to the sweet deal of 6 months same as cash on their new big screen, watch them have $200 cable bills and $200 phone bills, check out their new I Phone, join them for dinner and drinks three nights a week at a stupid restaurant, go to Vegas with $1000 for a well deserved three day get away... This is why America is broke!!!!

AnnaGrowsAMustache

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Re: Is FI really that simple?
« Reply #5 on: February 22, 2018, 07:17:58 PM »
It is that simple. The maths may change slightly due to location and other factors, but it is that simple. The reason it's that simple isn't the math at all. The real reason it's that simple is that we're taught to value STUFF and not TIME. We sell our TIME for STUFF, actually. Mustachianism is really just the art of questioning that. Once you no longer value STUFF, you no longer need to sell your TIME, and presto! retirement! Which is really just another name for lots and lots of TIME.

koshtra

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Re: Is FI really that simple?
« Reply #6 on: February 22, 2018, 10:09:37 PM »
Yeah, that simple.

But you do have to save at levels that people will call "extreme" or "unrealistic." And you do have to NOT sell your index fund when its value suddenly plummets -- which it will, several times, along the way. So you have to be willing to be laughed at as a tightwad, and you have to be able to shrug it off when your nest egg shrinks by half and pundits on TV are solemnly saying that stocks are finished and will never go up again.

Of course there are catastrophic risks: nuclear war, environmental disaster, global depression, total market corruption. But if they're dire enough to dwarf the world wars and the Great Depression and the 2008 financial meltdown, then honestly, we're probably screwed anyway.

bob999

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Re: Is FI really that simple?
« Reply #7 on: February 23, 2018, 08:49:11 PM »
Yes, it really is that simple.  ...


On real estate - That "double ever 7-10 years" was the same thing I heard 15 years ago in the US.  Housing should increase at the rate of inflation plus a little bit more, not every 7-10 years.  That party will stop, stay the course on your rentals.

That is what everyone in Australia has been preaching at well, that property will double every 10 years. It is not risky. Leverage is king. People are obsessed with property here. Everyone I know owns at least 2-4Mil worth of properties and they are leverage like crazy. Makes me want to sell my investment props. Why do you think I should stay the course on the rentals?

Step37

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Re: Is FI really that simple?
« Reply #8 on: February 23, 2018, 09:07:04 PM »
It is that simple. The maths may change slightly due to location and other factors, but it is that simple. The reason it's that simple isn't the math at all. The real reason it's that simple is that we're taught to value STUFF and not TIME. We sell our TIME for STUFF, actually. Mustachianism is really just the art of questioning that. Once you no longer value STUFF, you no longer need to sell your TIME, and presto! retirement! Which is really just another name for lots and lots of TIME.

Nailed it!

bob999

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Re: Is FI really that simple?
« Reply #9 on: February 23, 2018, 09:47:27 PM »
Yeah, that simple.

But you do have to save at levels that people will call "extreme" or "unrealistic." And you do have to NOT sell your index fund when its value suddenly plummets -- which it will, several times, along the way. So you have to be willing to be laughed at as a tightwad, and you have to be able to shrug it off when your nest egg shrinks by half and pundits on TV are solemnly saying that stocks are finished and will never go up again.

Of course there are catastrophic risks: nuclear war, environmental disaster, global depression, total market corruption. But if they're dire enough to dwarf the world wars and the Great Depression and the 2008 financial meltdown, then honestly, we're probably screwed anyway.

Did you find that your happiness levels stayed the same, went down or up while saving at 'extreme' levels?

At an intellectual level I understand to not sell during extreme downturns. However, I haven't experienced a severe downturn with significant money in the market. So I don't know how I will react when shit hits the fan. The latest 10% drop didn't make me panic but who knows what a 50% drop would feel like.

Cressida

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Re: Is FI really that simple?
« Reply #10 on: February 23, 2018, 10:07:07 PM »
Did you find that your happiness levels stayed the same, went down or up while saving at 'extreme' levels?

Same. I suspect most people's happiness levels are preset at the factory. I might be wrong about this, though.

bob999

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Re: Is FI really that simple?
« Reply #11 on: February 23, 2018, 10:15:52 PM »
Did you find that your happiness levels stayed the same, went down or up while saving at 'extreme' levels?

Same. I suspect most people's happiness levels are preset at the factory. I might be wrong about this, though.

So you are saying that there is nothing we can do to increase or decrease our level of happiness?

Cressida

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Re: Is FI really that simple?
« Reply #12 on: February 23, 2018, 11:57:30 PM »
Did you find that your happiness levels stayed the same, went down or up while saving at 'extreme' levels?

Same. I suspect most people's happiness levels are preset at the factory. I might be wrong about this, though.

So you are saying that there is nothing we can do to increase or decrease our level of happiness?

So to be clear, I am not anything like an expert on this topic. My observation is only based on experience I've observed in myself and those close to me, and isn't meant as a proclamation of ultimate truth.

All I mean is, as far as I've observed, people in my life tend to be approximately the same level of happy in good times and bad. That said, it's very possible that this is not a general truth.

Where MMM theory fits in with this, is: If you spend a lot, and then you discover MMM philosophy and spend less, I think (based on my experience) that it's not likely that the decision to buy less stuff will greatly affect one's general happiness level. Which means that you can save at a higher level and be the same level of happy. That's what I was getting at when I made my comment.

koshtra

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Re: Is FI really that simple?
« Reply #13 on: February 24, 2018, 08:36:02 AM »
I personally am happier now that I'm spending less, for some values of "happy" :-)

"Happy" is a large word and we probably have to get more precise. On one level I think the factory settings are about the same -- I enjoy my morning oatmeal and boiled eggs about as much as I enjoyed my Spanish omelets with sour cream at the local cafe: neither more nor less. (A LOT, in other words.) Riding the bus to work has its interesting and frustrating parts, and it really is about equivalent to driving. So on that level it's a wash.

But there's another level -- the level of feeling in control of myself and doing what I intend to do with my life, feeling like I'm making meaningful and sensible allocations of resources for myself and for my family. That's somewhat detachable from the momentary emotional and sensual surges of pleasure or distaste, and it's in that sense that I'm MUCH happier.


Rosy

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Re: Is FI really that simple?
« Reply #14 on: February 24, 2018, 10:35:52 AM »
FI is truly that simple - easier if you have a good start and a good support network incl. a partner that shares your views, harder if you come from nothing or figure it out too late or start with a handicap like lots of debt or a difficult personal situation.
Regardless, it is that simple and it is doable given time and dedication. Whether you chose to adopt an MMM lifestyle or any other common sense route to reach your FI goals is irrelevant.

Happiness is fleeting and overrated. Contentment is better.

wordnerd

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Re: Is FI really that simple?
« Reply #15 on: February 24, 2018, 10:46:53 AM »
Did you find that your happiness levels stayed the same, went down or up while saving at 'extreme' levels?

Same. I suspect most people's happiness levels are preset at the factory. I might be wrong about this, though.

So you are saying that there is nothing we can do to increase or decrease our level of happiness?

I tend to think of people having a pre-set range of happiness. Say on a scale of 1 to 10, I can fluctuate between a 6 and a 8. If I take care of myself (e.g., do yoga, don't stress, etc), I might be an 8. Another person might have a range of 2-4. No matter how well person takes care of him/herself, he/she isn't going to get to an 8. This all very unscientific, but it's my theory. ;)

Related to your original question, I don't think my spending level relates to how happy I am within my personal range. If anything, I am happier with fewer distractions/clutter/general life noise, and that correlates well with frugality.

Cressida

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Re: Is FI really that simple?
« Reply #16 on: February 25, 2018, 12:04:03 AM »
Regarding happiness, I just remembered that no less than MMM himself weighed in on this: http://www.mrmoneymustache.com/2011/10/22/what-is-hedonic-adaptation-and-how-can-it-turn-you-into-a-sukka/

That said, I very much agree with @koshtra about the benefits of feeling more in control of one's future. I guess I wasn't thinking of that as "happiness" exactly, but as others have pointed out, "happiness" is kind of nebulous anyway.

MrThatsDifferent

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Re: Is FI really that simple?
« Reply #17 on: February 25, 2018, 01:37:44 AM »
Simple? Yes. Sure, but not not easy for most. Why? Keeping up with joneses and no one wants to be poor, since the poor are demonized. So spending and debt are easier than saving and planning.

Capt j-rod

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Re: Is FI really that simple?
« Reply #18 on: February 25, 2018, 08:32:05 AM »
Also it is hard to remember that paying extra on debt is the same as saving the money. Whatever the interest rate is on the debt is the interest earned on the savings. The secret to FI is not to spend and borrow. Simplify, throw away, and live free from debt. Bigger isn't better, newer isn't necessary, and more will never get you out of debt. There are very few 'right now" purchases that I have to make in my day to day life... Gas, food, etc... those are on a time line. Make purchases on your terms, take care of the items you own to make them last.
We aren't supposed to judge others in life, but there are people that buy a car in one day, buy major appliances, buy two because they are on sale, blah blah blah. Buy what you need when you need it. Items like toilet paper, or other consumables can be stored. Right now I know my truck will need tires and brakes this summer. I am shopping passively for these items. Keep a list and buy it smart, not right here right now.

ooeei

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Re: Is FI really that simple?
« Reply #19 on: February 26, 2018, 06:49:17 AM »
Interesting study done on lottery winners in the 70's seems to support the idea that people have a baseline level of happiness they return to, or at least that money is not a permanent boost.  Obviously the conclusions are up for interpretation, it's possible there are things other than money or being paralyzed that would affect happiness long term, like perhaps a change in perspective:

Quote
The study found that the overall happiness levels of lottery winners spiked when they won, but returned to pre-winning levels after just a few months. In terms of overall happiness, the lottery winners were not significantly happier than the non-winners. The accident victims were slightly less happy, but not by much. The study showed that most people have a set level of happiness and that even after life-changing events, people tend to return to that set point.

https://www.forbes.com/sites/susanadams/2012/11/28/why-winning-powerball-wont-make-you-happy/#477d9cb8593a

Rimu05

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Re: Is FI really that simple?
« Reply #20 on: February 26, 2018, 12:32:43 PM »
Hi Guys,

I have been investing into the realestate market for over 15 years and also started investing in index funds over the last few years since discovering MMM and other similar financial blogs. In Australia people (and books I read) used to say that property doubles every 7-10 years (what a bunch of bullshit, non of my properties have done this).

All the financial books I have ready and blogs and financial superstars like Mr Buffett all say to invest in index funds such as Vanguard. My basic understanding is that 'the market' will produce goods and services that people will buy/use and 'the market' will keep pumping out dividends/profits over the long run. This cycle will not end but still a part of me questions,

Is achieving FI really as simple as:

Spend less than you earn, invest the difference in index funds.

If it is so simple then why aren't more people at least not broke at old age? If it is so simple then why isn't everyone who works 40+ years FI or close to it?

Here in America, I have been astounded at how many working people
1.) Don't know what a 401K is or just simply don't even invest in it. I even met someone in one of my meetup groups who said, don't invest in a 401K. I was like, I 100% disagree with a capital D and I hope no one here takes this advice. Your employer is giving you free money for contributing, you get the tax advantage and it grows without you even thinking about it. I know a lot of my family members barely check theirs.
2.)This is not just a 401K. My sister has ignored her debts until I knocked some sense into her. I told her, wake up and realize you are 27 and time is one of your biggest assets. Made her get a credit check, log in to mint and start buckling down. Not everyone has a family member to nag them to get their shit together.
3.) Everyone here has family. Let's face it, are all your family members living within their means? I for one know someone who earns in the six figure range but like the average American is living paycheck to paycheck.
4.) Lastly, from my work place, people drive luxury cars and even advertise how they don't save because "live for today." Cars, shoes and everything else seems to matter. I am not opposed to luxury like a lot of mustachians, but for me it's the income to buy it. IF you were making $1,000,000 a year, of course a Tesla is nothing to you, but if you are making $70,000. Well...

Also being a millennial, other than this site, I have yet to meet other millennials who are frugal. There is a guy I work with who is not frugal, hmm not even really money conscious but he knows about this site. It's funny he recommended it and I was like "I've been on that site for two years!"