Frugality is a popular concept in the world of retirement investing.
A low cost of living has a double benefit – you spend less/save more, and a lower net worth is required to support early retirement.
But most people don’t want to live uber-frugally, ourselves included.
That’s why we just front-loaded it.
Front-loading Frugality
Front-loading is another popular concept in the world of retirement investing and tax minimization.
Time in the market is more important than timing the market, the saying goes. By contributing full amounts to 401k/IRA/HSA in the early months of the year, we maximize time in the market and delay tax withholding. I did this most years once my student loans were paid off.
Since the stock market always goes up, over the long term this can buy you a little bit of extra ROI.
This same principle applies across the decades.
Cascading tax deductions
In 2019, $19k in the 401k, $6k in the IRA, and $3.5k in the HSA seems to require an extra $28,500 or so. Possibly double that for a married couple / 2 savers.
But it is a lot less challenging than it seems.
Median income households with a 22% marginal tax rate would save $4,180 in taxes on the 401k contribution. Put that in an IRA and save an additional $920 in taxes. Put that into the IRA and save an additional $200 in taxes. And so on.
All told, $22,230 will buy you $28,500 in retirement savings, plus possible 401k contribution matching.
But I don’t have an extra $22,230 lying around!
Right you are. That’s a lot of money.
But at roughly 25% of a $100k annual income or 50% of a $50k annual income, it is in the ballpark of what is necessary to achieve extremely early retirement.
I suppose this is where frugality comes into play; not necessarily your typical coupon clipping and eating leftovers frugality, but the hard-core “I’m on a mission from God” variety.
We went above and beyond because it was fun, but 80% of the benefit came from focusing on the Big Four – housing, transportation, food, and taxes.
“But you guys lived like bums!”
aka “I don’t want to live like I’m poor forever!”
Yes, excellent observation. We front-loaded frugality, and it was awesome.
But what is even more awesome is having the benefits of frugality (having lots of money) without the necessity of being frugal now that I’m old and soft.
Consider:
Investing $22,230 at age 25 will eventually result in having lots of money (a 1-time payment will grow to ~$425k at age 65 w/ 7% cagr.)
Starting at age 35 will require saving 2x as much to get the same result. Starting at age 45 will require saving 4x as much.
Instead of spending $22,230 on bigger/nicer housing, having somebody else cook our meals, and one of those new fancy auto-mobiles, plus ~$6k on taxes, instead… we didn’t.
As a result, now we can have all of the pretty things and our freedom too. Pretending to be frugal for a few years is a rewarding game. Living like poor college students for longer than is socially acceptable means we can now live like… well, who cares what is socially acceptable?
Nuances
Viewing frugality as a game allowed us to try things that seemed crazy at the time. “Why not, it might be fun!”
We no longer make our own soap, we let other people cook for us almost every day, and we have significantly upgraded our housing.
But some things stuck. Case in point, I didn’t realize just how much I disliked driving a car in a city until it was no longer an option (cuz I sold the car.)
But we still use a car regularly. Check out our 2018 Uber stats:
188 rides
$1223.57 spent
7 countries
Longest ride: 2 hr 29 min 57 sec ($38.97, Vietnam)
Most expensive: $58.08 (to Seatac airport)
Least expensive: $2.61 (Warsaw, Poland)
Average: $6.54
Median: $5.03
That is a lot cheaper than owning a vehicle (so it’s frugal?) but is also a significant lifestyle enhancement. (No parking!)
(This doesn’t include all of our transportation expenses, of course. I commute to the swimming pool a few times per week on Taipei’s public bikes at a cost of 17 cents each way, and we occasionally take the bus ($0.50) or the subway (<$1.))
Try frugal things. You might like it.
Conclusion
Front-loading frugality is a great life hack for anybody who enjoys the benefits of frugality without the long-term (subjective) disadvantages.
It allows compound interest to work longer and harder, so we need to save less and can spend more once the money snowball gains momentum.
Intentionally spending less also expands perspective, and allows discovery of wonderful lifestyles we are as of yet unaccustomed to (e.g. biking instead of driving.) Some of those life style enhancements will remain even as back-end spending grows.
(This post was recently inspired by several bottles of wine with some potential future aggressive savers. I hope they go for it. You know who you are ;) )
“Why not, it might be fun!”
For the sake of frugality or early retirement or just because we get so stagnant in our routines…it’s amazing what you learn you really enjoy (or can define as a hard no) by just trying new things. The good thing about all the ideas from the FI/frugal/minimalist worlds is they typically aren’t going to cost you much money to try them!
I appreciate the Uber stats. Going car-less isn’t a smart option right now based on my daughters age and activities, but I look forward to this in the next several years! For now, the game is how much time it can spend in the garage outside of those times it’s necessary to be treading the streets.
This is good to know and I’m teaching my children this. But what about us older folks? I haven’t learned this stuff until the last year or so and I’m 40. I’ve worked a job that has put 25% of my income (50 to 60k a year salary) into what amounts to a 401k for the past 8 years.
But I’m not FI and retirement seems a long ways off. I have about 225,000 in my retirement account. Do you have any articles or any resources for someone like me that doesn’t want to wait until I’m 65 to retire. My kids will be out of the house in about 3 years, I’m willing to live frugally.
What do you think. Thanks for the great content!
–Brian
Hi Brian, I’m in a similar boat, but the concept is always transferrable. It’s just numbers – the sooner you start, the more the money will grow. Granted, we won’t be able to retire when we’re 35, so our early retirement won’t be as early as someone who started at 25, but we can still have enough to retire way before 65 if we make those changes now, and start putting more away. Sounds like you already have a good start. Put the numbers into a spreadsheet and adjust the factors to see how it looks for you.
I just did a quick calc, assuming you’re currently living off $30k/yr, putting away $14k. Using the 4% rule, you’d need $750k to retire at that level of spending. If you’re able add $5k to a 401k/yr, i.e., reduce your annual spending by $5k (actually, more like $3500 because of tax savings), with everything invested in the stock market (7% yield), you’ll be at $750k by age 49, or if you’re more conservatively in bonds (4%), you’ll be there by 53. This is very simplistic and would fluctuate depending on the market, but make a good model.
Thanks Lewis! That is some great info. I really need to focus on lowering expenses where I can and keep increasing my savings rate and keep moving forward.
“The best time to plant a tree was 20 years ago. The next best time is today.”
25% is great! When the kids leave the nest that will probably increase naturally, and you are already doing way better than 95% of people.
My brother is on a similar path, aiming for early retirement at age 50-55.
Thanks for the encouragement, I’ll keep plugging away and keep working at it.
Being car free won’t work for everybody. We initially had to design life around walking and biking vs cars, and now it is something we won’t compromise on (although if we were in the US, we would have a car.)
I retired at 52, and have been retired for 6 years and I still don’t have a car. However, I’m single and childless. So that does make a difference. You guys were my inspiration to retire early and live a tax free life.
Those frugal habits that stick are the best! We’ve actually found we enjoy most things more when we do them less, so it’s a double win really. We’re a long way behind you guys but it’s so inspiring to see that it does pay off in the end.
At the end of the day, we all have different priorities and you’ve worked hard for the ability to spend on yours – good for you! We can only hope we have as much success!
Good luck to your latest batch of aggressive savers – certainly not the first or last to be inspired by your story!
Indeed. Biking for me is the default now, and taking a vehicle is plan C or D.
Nostalgia for frugal habits is also a thing. We’ve been cooking at home more recently after we starting talking about all of our kick-ass home meals from back in the day.
Living the dream :)
“Front Loading Frugality”; love it! We practiced that to a certain extent many years ago when we first started, but my wife had to be brought into it grudgingly by myself, otherwise we would have been a lot further ahead more quickly. But it still turned out well; even though we kinda/sorta front-ended our lifestyle, it still made a significant improvement in our ability to retire earlier than many.
Because of where we live (less densely populated area of TN) Uber and other ride-sharing options are not as viable. But when we travel we need to start using them where we can. Your savings by availing yourselves of them are quite eye-opening, as are the differences in prices around the world and in this country. Appreciate your sharing that data.
Lifestyle change is hard, especially when it comes from outside (a spouse, Dr, etc…)
Once you understand how compounding works, front loading is the way to go. It’s math. We did it so we could then enjoy decades of relaxation. Sure, we probably “gave up” a few things (looking back, did we really?). In the process, you also learn how to spend intentionally and that is also a benefit that will enrich your lifestyle over the long term.
Math and statistics over emotions and feelings.
That’s exactly what I did as well. The beauty is that being frugal in your 20s and early 30s is pretty easy. Youth hostels and camping, instead of hotels, etc. In general, I find front-loading most things that are difficult proves super effective. Ever heard of “Eat That Frog?” You ate the frog of saving money and investing early on. And now it’s all gravy……
Yup, eat the frog (with a little white wine and garlic.)
P.S. I’ve got you beat on cheapest Uber. I was just in Kyiv, Ukraine, for the last 5 weeks. Some of the Uber rides were less than $2.00.
I think our cheapest Uber ever was in Penang, Malaysia for $1. Taxis all wanted $15-$20 so we just stopped using them.
Ok. Ok. You win. ;)
Great post. I think the flip side of delaying frugality is using credit badly. At best you’re delaying frugality if things have really gone badly it may even prolong required frugality!
Like the idea of cutting down the FATT (food, accommodation, transport and taxes) to reach FI. When I’ve thought about this previously I had the other three in sight but forgot the taxes – low in the Middle East so they skipped my mind.
On a tangent, side point, will Uber and other ride sharing alternatives remain a cheap option when the venture capital money dries up – personally, I think so but we’ll see.
Enjoy the fruits of your frugality.
HH
I suspect Uber equivalents will be around forever.
Trim the fatt!
1979 Sydney some independent immigrants offering irregular unofficial roadside hail taxi services. Shut down by officialdom. Probably for good reason – public safety – and to protect taxi license fees and values.
This is a great post. Simple and powerful. A nice way to shift your thinking and value sets.
I liked the phrasing when it fell out of my mouth. It’s a great way to think about building that financial freedom.
Yes!!! Due largely to the influence of you guys, MMM, and several others, we have absolutely been front-loading frugality and having a blast doing it. And it’s so funny you use the metaphor of a game because that’s exactly how my fiancee Elise and I see it: who can avoid driving the longest by instead biking to work, store, gym, etc? Who can make the cheapest delicious dinner? Who can find the funnest free activity? We’re both competitive people, and this is a wonderful competition because it’s not only fun but is also making us wealthy! We’re all about adventure and fitness, and financial fitness is most definitely our favorite game!
–Adam
Perfect
We’re more on the glide path. We live a modest lifestyle and will continue to do so. I don’t think we’re particularly frugal. As long as we keep lifestyle inflation low, we should come out okay. I think the inflation is the big deal here.
This is probably more the norm. I figure each $1k I saved in my 20s was $4k I didn’t have to save later.
I think front loading frugality is great if you have the right asset allocation. If you front load the same amount every year until retirement then 100% stock allocation is great because you would be dollar cost averaging. If front loading in your youth is the plan then having at least 25% of your portfolio in a total bond market index and rebalancing every 6-12 months would be a better allocation to take advantage of the dips on the way up.
Data?
Benjamin Graham in his book the Intelligent Investor.
Thanks. Can you give me the tldr version?
Why is one case DCA and the other is not? Why 100% stock vs 75/25? (just trying to understand your comment better)
They are both DCA, but the 75/25 would allow you use a portion of the 25% bonds during a crash or a bear market to decrease the cost per share of your stocks by buying the stocks when they are on sale. So you are essentially dollar cost averaging without adding any additional outside money to the account. Your asset allocation would be helping to DCA for you.
I get what you are saying now. You were distinguishing between somebody who saves for 10 years to get to early retirement vs somebody who is saving over a lifetime. (I missed that on the first read, sorry.)
I love the idea of making frugality fun! I’ve been following this principle too. When I was a little kid, my babysitter put a marble into a large glass jar whenever I did a good deed. When the jar got full, she took me to get ice cream or something fun like that. I think frugality should be thought of in the same way. Every time you get to deposit some money into the investment account, it just gets you closer to an ice cream party! (or whatever the adult version of that would be for you). In the real world, the marbles duplicate themselves so might as well put them to work ASAP.
Best babysitter ever.
I wonder what the cost of 188 rides in the USA would cost! Did you have to stop for gas on the 2.5 hour Uber ride? I try to force myself to save by automatically investing as much as possible. I give myself the “poor feeling” and never turning off those auto investments. Somewhat of a force frugality.
I don’t recall, but I don’t think we stopped for gas. Our bus had broken down at the side of the road, and we were lucky enough to flag down a guy driving back to Ho Chi Minh at that exact moment.
Pay yourself first is a great strategy.
I front loaded frugality in the very early part of my FI journey to pay off all my debt. Maybe I should have stayed with it longer but I let lifestyle creep up as I increased my earnings. Frugal lifestyle made me feel crazy then I rebounded the other way.
I’m still able to save 50% and now I’m hoping I keep down lifestyle inflation as I get my next promotion, fast tracking me to FI.
If it takes an extra year or two, that’s fine too.
Having no money made frugality a necessity in college, and student loans motivated me to keep that going as I started working.
My lifestyle inflated once the student loans were almost gone, but then I took a hard right and went back to poor college student mode until FI was in sight.
In the grand scheme of things, a year or two is small. Nicely done!
We bought all of our furniture gently used, almost a decade ago, from a grad student who needed to sell everything overnight. We furnished our entire place for a decade for $800. A few days ago I looked into what it would cost to replace some of that furniture ($$!!). That made me realize how much money we’ve made over the years by investing our money – at age 25 – instead of spending it on all new furniture. At the same time, most of our peers were going into debt furnishing their brand new houses. Just one example of how small choices, early on, can make a big difference later on.
Not that we’ve made ALL smart decisions. There was that year that we paid off all of our student debt instead of investing and then the market went up like 30%…
Much older commentor here at 62 yrs old. We were never as fast at accumulating assets as this younger crowd is today however we were conservative in our early years and I retired at 59. We have gone to Europe for the past 6 summers and other vacations in between. My brother-in-law spent too much all those years and is still cranking out 65 hours a week with hopes to retire at 66 with enough to survive on. I have read that when you retire you better have 75% of your pre-retirement income. However because we had relatively lower expenses we are now spending at least 100% of what we were spending before retirement. Our kids are really proud of us. Man do I wish I had a GoCurry 40 yrs ago, thanks for all you do!
We have been naturally frugal. By the time we went into deep knowledge about frugality, it had already started wonders for us and paved the way for our early retirement.
Of course, a higher income helps one achieve financial freedom earlier, but frugality stays with you throughout the life.
I can never believe someone who says we were frugal earlier but are not anymore.
Have also highlighted in my post , as to how front loading frugality can help someone to be ready for 47 years into retirement by simple planning. https://bewealthyrich.com/frugality-and-its-relation-to-financial-independence/
Thanks for the write up.
We were frugal earlier but are not anymore
Oh yeah, you’d better believe it.
We lived averaged spending around 20k/year while we were saving. We could have FIRE’d much earlier if that’s all we wanted to cover, but I knew our spending would go up quite a bit in FIRE.
We spent more than triple that last year, and have no regrets. Just using the benefits of compounding early, when you don’t need/want the luxuries anyways.
We were perfectly happy living as broke college students for years, and we’re perfectly happy spending above the household median income now, while not having to work a job to do it.
Front-loading frugality is the best way to a fast FIRE. :)
Samesies.
The early retirement goal is done and gone, so no need to save anymore. Now we get to work on other goals… travel, family time, etc… etc…
I think you can also front-load your career. Do all the hard work and long hours early on and master the business, concepts, and technical skills. This can make you so valuable to a company that you can potentially pull back or coast your last few years while making the same income. I am not talking about being lazy or not providing value to your employer, just not putting in 500% to the end. Being average can almost seem like early retirement. Happy Sunday.
Sadly, investing is often one of the last and, arguably, most important lessons that humans learn. By the time anyone comes around to the idea that they should have been saving money, it’s often very late and they’ve become accustomed to a certain level of lifestyle that’s difficult to self-moderate. Our journey is starting mid-way in life just as described and we’re trying to stay positive and make the best of things.
I ended up also leveling up life in retirement. When you are distracted by working all-day you don’t need to be spendy anyways.
Lifestyle creep is a tough one though!
Is your creep because you have the money post-front loading or because you are getting soft in your far away luxurious life?
I find I’m starting to get soft :O
I don’t think soft is the right word… maybe ruthless.
I think of it purely in economic terms. My personal time and emotional energy are extremely valuable… Spending money is a good problem solver.
I would definitely put in 2 to 3 hours of time and energy to save/earn $100,000. For $10,000 I might not. For $1,000, not a chance.
Those numbers were probably lower by an order of magnitude 10 years ago.