Category: Spending

Stealth Frugality

June 16, 2021

We all heard about stealth wealth, i.e., being wealthy without being flashy! Live below your means! There are blog posts about it (Physician on FIRE, Retirement Manifesto, and many more). A large part of The Millionaire Next Door book is about Stealth Wealth. We certainly have been practicing that principle while accumulating wealth, and especially now that we live our comfortable life in early retirement.

But we never overdid the stealth wealth either. In other words, when I announced my retirement in 2018, not a single relative, friend, or colleague blurted out “Yeah, you’re such a cheapskate, no wonder you accumulated seven figures!” Quite the opposite, people wondered how we were able to save and accumulate so much without looking cheap to the outside world. Very simple, we were frugal, but we were able to hide that frugality very well. In other words, we were practicing…

Stealth Frugality = frugality without looking and acting like a miser!

And Stealth Frugality doesn’t rule out Stealth Wealth. It’s more of an extension, a less extreme form of stealth wealth. Being a math wonk, let me make the point with the diagram below. If we plot on the x-axis the perception of wealth and on the y-axis the reality, then really everything above the 45-degree line, i.e., reality > perception, is stealth wealth of sorts. But the trick is to move out of that top-left corner (act poor, big bank account) and a little bit more to the right. Without dropping too close to the x-axis and certainly not all the way to the lower right corner (=Keeping-up-with-the-Joneses, drowning in debt). In other words, Stealth Frugality involves spending wisely without breaking the bank, i.e., try to find some spending categories to splurge on that follow a flatter path than the Minus-45-degree line!

So, why and how did we practice Stealth Frugality? Let’s take a look…

Continue reading “Stealth Frugality” →

Guest Post: Why geographic arbitrage is so important to retire early and what you can do to about it

Today we feature a Guest Post from my blogging buddy Benjamin Davis. A very exciting and important topic: Geographic arbitrage! Benjamin holds a Ph.D. and decided to become a landlord to retire early. He writes on From cents to Retirement, a blog about early retirement and real estate investing. He also wrote the book My strategy to retire early and runs a real estate and investment consulting business in Portugal. His goal is to build a real estate portfolio with 100 units before he turns 35 and turn From Cents To Retirement into a reference blog for early retirement through Real Estate investments, while he inspires others with his own story. Take it away, Ben!

I was born in Portugal and divided my childhood between Portugal and Italy. I lived in Canada and Germany after that. My family is Canadian and Italian so you can imagine how much I have been exposed to different cultures.

When I decided I was going to retire early, I needed to select the country I was going to live in. I decided to move to a country that would allow me to take advantage of geographic arbitrage, which is defined as the practice of taking advantage of different prices and tax rates in different markets.

There are multiple reasons why I selected Portugal. It would be very easy to talk about the food, the weather, the overall quality of life, etc. But this post is to talk about the financial aspects of this decision. Continue reading “Guest Post: Why geographic arbitrage is so important to retire early and what you can do to about it” →

Five Unfortunate Facts about Student Debt in America

Our first guest post on the ERN blog! Ever! Let me introduce Drew Cloud who runs the fascinating blog studentloans.net. Not too long ago, I remember U.S. student loans surpassing one trillion dollars (a one with 12 zeros!) for the first time. Now we’re at $1.4t and the amount just keeps growing. Make sure you check out Drew’s blog, too, especially the treasure trove of data on the topic. Take over, Drew!

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A quick online search of student loan debt in America reveals the astonishing truth about the widespread, increasing expense of attending a college or university. Currently, more than 44 million borrowers have amassed over $1.4 trillion of student loan debt, and each year, the total continues to climb. While taking out student loans is now firmly embedded in the college experience for the majority of students, the picture remains bleak for borrowers. Here are five unfortunate facts about student loan debt in America to prove that point.

StudentLoanChart
Student Loans Owned and Securitized, Outstanding. Source: Federal Reserve Bank of St. Louis.

Continue reading “Five Unfortunate Facts about Student Debt in America” →

The 4% Rule is not as good as we hoped – Part 3: The small-sample problem in historical simulations

The rule to withdraw 4% of assets during retirement is considered “safe” because the Trinity Study has declared it so. The term “Trinity Study” has become something of a dogma, almost scripture, for the early retirement community. The 25 times annual consumption rule and the equivalent 4% withdrawal rate rule of thumb are referenced pretty much everywhere in the community. One almost gets the impression that what the Holy Trinity is to Christianity (you know; The Father, The Son and the Holy Spirit), the Trinity Study is to the Early Retirement community.

Continue reading “The 4% Rule is not as good as we hoped – Part 3: The small-sample problem in historical simulations” →

The 4% Rule is not as good as we hoped – Part 2: Bond expected returns

Part 2 of our multi-part series deals with bond returns. During the 1871 to 2016 time span, 10 year government bonds returned over 2% in real terms. It’s hard to see how bonds can continue that trend in the foreseeable future. Continue reading “The 4% Rule is not as good as we hoped – Part 2: Bond expected returns” →

Pros and cons of different withdrawal rate rules

Update Dec 7, 2016: Check our new series on safe withdrawal rates: The Ultimate Guide to Safe Withdrawal Rates – Part 1: Introduction

Look around in the early retirement community and everybody is raving about the 4% rule. It’s a “safe” withdrawal rate, we are told, by the Trinity Study and some in the early retirement community. Some claims, we found, are downright false but more on that later. Continue reading “Pros and cons of different withdrawal rate rules” →

The 4% Rule is not as good as we hoped – Part 1: Equity expected returns

Update Dec 21, 2016: Check our new series on safe withdrawal rates: 

The sustainability of the 4% withdrawal rule depends on returns we can expect going forward. Backward looking simulations may be quite entertaining but they still require the usual disclaimer “Past returns are no guarantee of future returns.” How comfortable can we be assuming today’s retirees will enjoy the same average returns as in the last 145 years, the time span used by the cFIREsim site? Or the Trinity study, which uses data since 1926? Continue reading “The 4% Rule is not as good as we hoped – Part 1: Equity expected returns” →