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No. of Recommendations: 10
TTRoberts writes,

<<<<<intercst writes:

<< In the 5 years before I retired in 1994 at age 38 I only beat the S&P500 by about 1% per year. While I've held Dell and Pfizer (my two big winners) since the early 1990's, they didn't really take-off until after I retired. The fact that I retired at a very young age while more or less matching the market shows you don't need to hit a home run.

The main reason I was able to retire so young was the fact that I saved a large percentage of my gross salary. The last 5 years I was working, I saved 40% to 50% of my salary. >>>>>>

Herein I highly commend intercst for his ability to be so steadfast.

Thanks very much for your encouraging words.

This is a good example of just how important it is to be able to put as much as possible way early in one's life for retirement where the effects of COMPOUNDING can bring one to a point of financial independence in a relatively short period of time. I would suggest that being able to save a large percentage of one's gross salary is not so much due to shaving a few basis points off here and there.

Don't discount what a few basis point savings can do for your long-term investment return. While I'm willing to pay $20 to someone to change the oil in my car, I won't pay $20,000 to a financial advisor who will likely recommend something that will under perform the S&P500. Check out the following chart "How much are you losing to your Financial Advisor?"

But it was attitude of commitment and determination to put a LARGE percentage of one's gross salary into savings. As in intercst's case, it was not so much the return that he earned. It was the AMOUNT being set aside that was the key difference. . . along with this was being done on a regular basis.

Too often when people are trying to accumulate wealth, they focus primarily on the returns of their investments and tend to ignore the issue of their contributions to their investments. IF someone can put away 40% - 50% of their gross salary for 5 to 10 years, and earn a decent return on investments (and don't have any personal financial set backs), then they should be well on their way to being financially independent.

But the question arises, just how can one afford to put 40% - 50% of one's gross “salary” away? It seems to me there are three ways. One can have such a high “salary” that they can comfortably live on 50% of their income. Or one can cut their expenditures to the point where they can do this. Or, it can be a combination of these two.

That's quite correct. I enjoyed an income well above the national average as an Engineer working in the oil & gas business in the early 1980's. (For those of you too young to remember, oil & gas in the early 1980's was not unlike in the late 1990's. We had 5 great years, then everyone got laid-off.)

While I had an income of more than twice the national average, I decided to limit my spending to close to the national average. While my co-workers were buying brand-new Porsches and $200,000 condos, I made do with a brand-new Toyota convertible and continued to rent an apartment. That Porsche vs. Toyota decision alone has added more than $1 million to my net worth today. <grin>

The approach of cutting expenditures (expenses) to the point where you can save this much seems to fit very well with what intercst has been preaching all along. So, just how does one cut their “expenses” to the point where one can save 40% to 50% of their “salary”. To accomplish such a feat would involve cutting MANY expenses. Just what kind of expenses could one cut? Here are some ideas that come to mind:

What an insightful list, I'll try to comment where I can add value

· Don't date.

It's OK to date. You just need to avoid the women looking for a "Sugar Daddy."

· Don't pay for sex.

I agree. It's never a good idea to pay for sex -- though as your financial resources grow, you can probably afford to toss $50 or $100 for the occasional lap dance. <just kidding>

· Don't get married until the wealth is accumulated.

I don't know that that's necessary. As long as you and your spouse are on the same wavelink financially, a couple can probably live cheaper than two singles living separately.

· Don't have children.

I don't think having children has to be terribly expensive, but to the extent that it costs anything at all, I agree.

· Buy only old cheap used cars for transpiration

All the vehicles I've bought in the last 20 years have been brand-new -- though I pay cash and keep them for 7 or 8 years.

· Do your own auto repairs on your old car.

I don't even change my own oil. I know how, it's just not worth getting dirty when someone else will do it for $20 or less.

· Don't buy a home

Depends on where you live. There are at least a few places in the country where I'd consider buying a home, but for the most part I believe you can do better limiting your exposure to real estate and concentrating on equities.

· Rent in the lowest rent districts

I haven't found that to be necessary. I rent a townhome for less than $600/month. The single family homes across the street go for $250,000. I get to use the same pool and tennis courts as my neighbors with the $200,000 mortgages. Why buy the cow when you can just milk it?

· Live with parents and pay no rent

That would work, but I left home at age 18.

· Only work for employers who provide full health insurance coverage.

All the Fortune 500 companies I worked for provided full health coverage. Though if someone offered me a $10,000 raise but no health insurance, I'd take it, assuming I could buy an individual policy for less than $10,000/year.

· Make sure you live in a state where there are no income taxes.

That helps. Financally, I like Texas much better than California.

· Pay cash for everything – never pay interest.


· Buy only the bare minimum of furniture needed
· Buy cheap used furniture

I have to admit I'm not much of a furniture connoisseur.

· Buy the bear essential appliances and utensils.

What utensils? I eat out.

· Buy a cheap TV and not any cable service – use what comes through the rabbit ears.

I have cable and 5 flavors of HBO.

· Buy cheap used clothing

I buy all new stuff, but I'll admit I don't shop at Nordstrom's.

· Use as little energy as possible (gas and electricity) – ware more clothing to keep warm.

Wearing more clothing to keep warm isn't the problem in South Texas.<grin>

· Eat only what you need to and buy cheap.

Eat only what you need is good advice in any event. You don't want to get fat.

· Never eat out.

I always eat out (though I don't frequent French restaurants.) I've lit the oven in my apartment twice in 5 years.

· Participate in entertainment that doesn't cost “money” – only uses your time.

I play golf a couple of times a week, though I rarely pay more than $50 for green fees.

· Give only inexpensive gifts when given – it's the thought that counts.

Hey, good idea. I'll have to start using that one.

· Buy only the minimum insurances required of you.

I think to goal should be to buy the insurance you need. I have a $5 million umbrella policy even though the State of Texas only requires $40,000 liability on an automobile. But I don't carry "uninsured motorist" coverage, medical payments, or some of that nonsense like towing and rental reimbursement. I'm willing to accept those risks.

· Avoid situations where you may need to buy life insurance.

If you need life insurance, I don't have a problem with buying it.

· Buy annual term insurance if some life insurance is required.

That's certainly what I'd do.

· If investing in mutual fund, buy only no-loads.

I'd take that one a step further. If you buy mutual funds, don't consider anything beyond a low-fee index fund. Even the average "no-load" mutual fund is a losing proposition.

· Never pay someone to do something you can do yourself.

Depends on the value of your time and interest. (see "changing your oil" above.)

· If you don't know now to do something, go to the library and learn how – then do it.

I'm not sure you even have to go to the library -- it's been years since I visited one. You can find all you need and more on the Internet.

· Take advantage of friends or relatives who are willing to help you do things for free.

At this point, a lot of my friends and relatives want me to do free stuff for them.

I'm sure someone can come up with a lot more. But if one were to reduce their expenses with great many of these things, one can indeed follow intercst's example in saving a large percentage of one's “salary” becoming financially independent and retiring early. But doing just one or two of them isn't going to work. One has to be committed to reducing ALL unnecessary expenses, which is really a frame of mind in how one spends and saves their money. Otherwise, one may just save in one area and spend that savings in another.

I look forward to what the other experts on this board can add to the list. Though I suspect much of this ground has already been covered over on the Living Below Your Means board, see link:


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