Extreme Retirement

I have found someone more frugal than me.  Granted, I don't consider myself that frugal -- I spend a lot of money on computer/tech related stuff and I have some monthly bills (Internet/server rental) I could probably get rid of or reduce drastically.  But this guy Jacob is really out there.

He comments about Bicycle riders on the freeway, which is illegal in most states due to a minimum speed rule.  However, during rush hour/traffic jams, most cars travel well below the mimimum speed.  Set the mimimum speed to 15 and watch the cyclists pass the cars getting ticketed.

He challenges you to wear something out.  Other than jeans and cars, I haven't really worn anything out.  I have good t-shirts from '97 that still look pretty fresh.  We often end up replacing things that still work.

He discusses living on $6000 a year or $500/month.  I do not see how he can find health insurance for $75/month, no matter how healthy you are.  I've priced health insurance many times over the last several years and find it to be 3x that amount.  I can only assume that his employer is shouldering the bulk of the health insurance costs.  But since this is a retirement article, you need to look at personal insurance prices. However, I have lived without health insurance for a couple years and have lived with some pretty low earnings.   In 2006, my worst business year ever, I made $20,000 and spent around $17,000 in business expenses, giving me about $3000 for personal.  Granted, that year, things my business bought also happened to help me out.  However, I wasn't buying clothes or heat and I ate dirt cheap or for free (at other people's houses).

If I decided to go extreme in 2006 (but keeping the house), my budget would be like this:

mortgage = $6000  / $500
utilities = $900 / $75
transport = $900 / $75
food = $600 / $50
total = $8400 / $700

Of course, you'll notice I left health insurace out.  Assuming I could get good personal health insurance for $250/month, I would need an additional $3000/year.  Of course, I could go back to an efficiency apartment over a garage and bring my rent/mortgage down to $200 like I did in 2001.  Recently, I refinanced to pay off some business debt I had incurred (advertising that just didn't pan out) and my mortgage is now just under $800, so (not counting the health insurance) I would have to bump the mortgage up to $9600/$800 and the total to $12,000/year or $1000/month.  Now, my transportation is up somewhat since I'm working in another state than I live, but in reality that's only another $25/month or $300/year.  So, without spending on the wedding, I should in theory be able to get by on $12,300/year.  With mimimum wage at 6.55, I should be able to make $13,100 working 2000 hours a year and (as I am below poverty) not pay any taxes.   If I made mimimum wage, I should be able to do that localy and bike to work while cutting down on my travel expenses.  Having a wife adds to our combined expenses, which are offset by our combined income, but we rise above poverty and get taxed more -- too much math, but I wager it still works out in our fiscal favor.

Taking those figures into early retirement, you can eliminate most of your travel, or you might have the house paid off.  However, going by $12,300/year...  we can find out the mimimum amount needed to retire.  On high/stable end, you would need $301,000 earning 4% to pull $13,000/year.  At 6%, you would only need $201,000 to earn the same amount.  Keep in mind, you would need the first year or two's worth of expenses on top of that as you wait for your interest/dividend payments to come in.

Imagine if the house was paid off (which I plan to do in 4 years on a much higher budget) and you reduced that $9600 to the $1800 of taxes/insurance (which are now included in the mortgage).   Suddenly, the yearly budget drops to $3,900/year.  The minimum retirement amount drops to $65,000 @ 6% and $98,000 @ 4%.

So at these figures, anything over $301,000 with a mortgage or anything over $98,000 with the morgage paid off is extra money to spend, gift, or reinvest.

All of that being said, I don't think I could voluntarily do it.  Now that I've been making solid money for over a year now, there is a sort of addiction that comes with it.  Like I said above, I dropped $3,000 on a car, something I wouldn' t have even considered before.  Most of my cars have been under $1000 and I once worked out that the average cost of my cars + repairs cost me under $500/year.  Since I got this car, I've put around $1500 into it, something I wouldn't have even considered before -- if I was facing a potential $1000 repair bill (the transmission), I would be shopping for a different car.

I'm also still carrying premium business class Internet service with static ips.  This is a holdover from my business and runs around $120/month.  I'm powering several servers and have a virtual server.  Except for the virtual server (which holds web hosting accounts), I am not making any money on these.  I could get by with a cheaper Internet connection  (say $60/month) and I mainly use the servers for experimentation.  The servers and Internet make it an expensive hobby, but it is a hobby I take pleasure in.

Also, I like eating out fairly regularly, which I have been working against.  I get irritated at a pack of lunch meat costing $3, with a block of cheese costing $2.50.  However, I also think a $5 footlong from Subway is cheap.  In reality, I could probably make 10 such subs for about $10.

Anyways, Early Retirement Extreme focuses on doing more with less (cutting costs) along with some good investing advice.  It is definitely worth reading.