Save today – pension tomorrow! Can you imagine quitting your job at the age of 40 and living off your savings? Frugalists have set themselves this goal in life. This article tells you how you can become a Frugalist yourself.
The term “frugalism” comes from the Latin word “frugalis”, which literally means “thrifty”. In English, the word “FIRE” (Financial Independence, Retire Early) is often used, which in summary means as much as financial independence.
The Frugalist movement emerged in the United States in 2007 during the financial crisis. Many people had to save and limit themselves to the bare essentials. The aim of this way of life was to survive. But many people quickly realized that a frugal life also has many advantages: A more sustainable and simpler life that enables you to retire earlier.
In 2011, this way of life was also very popular in Europe and other parts of the world and even developed into a trend. From survival to wanting to live. So the motivation of the frugalists has changed: they voluntarily decide to lead a frugal life, to reduce their consumption and spending to a minimum. The goal is not to get rich, but to be financially independent.
Another prejudice against frugalists is that they are idlers. But frugalists don’t restrict themselves for years, for example to sit in front of the television 24/7 or stare into space. Rather, they want to be able to spend their free time freely and without time pressure.
Some frugalists finally have the time to pursue their hobbies after their years of savings, others fill the time with volunteer work or build up their own business.
What would you do if you didn’t have to work anymore? Have you ever thought about this question? As a frugalist, you should also plan your future life. Having perspectives and plans for the future is important for personal development.
First of all, you should ask yourself whether you can limit yourself to the minimum monthly. That means drinking one vino too much with friends one evening, canceling it, going to a concert or spontaneously booking a wellness trip is also not possible. You should also be aware that you have to go through this lifestyle for several years.
In short: every euro that is left over must be saved or invested. Frugalists save primarily to invest their money in ETFs or stocks. The goal is to build up wealth, from the return of which you can then live without worries. So you build up a passive income.
Here you can find out how much and for how long you need to save in order to be able to live off your returns worry-free. But don’t be surprised if the calculator doesn’t show you that you can retire at 40. Because whether you retire at 40, 50 or 55 depends entirely on your savings rate.
According to information from the Federal Statistical Office, the average German saves around ten percent of his annual income. Frugalists, on the other hand, want to achieve a savings rate of 50 to 80 percent. An example: If you earn 3,000 euros a month, you have to live on the site at least 1,500 euros every month. In the best case, you can manage to get by with just 800 euros a month to save 2,300 euros.
With the current rental prices in Germany, especially in the big cities, this calculation sounds illusory, almost utopian. One of the best-known German frugalists is Oliver Noelting, who says he saves or invests around 70 percent of his income. In addition, he is the father of a small daughter and currently only works 24 hours a week.
On his blog you will find a detailed short biography of the frugalist and his list of assets. So see for yourself how you can get by with less than 1000 euros every month.
But now butter on the fish: How much can I save monthly? The answer to this question depends mainly on how much you need to live on per month.
In the frugalist community, the four percent rule is often used as a guide. This rule became popular through the Trinity study, which was developed in 1998 by three finance scientists at Trinity University in San Antonio, Texas. According to this study, you need 25 times as much seed capital as you want to spend annually.
Another example to illustrate this: Suppose you need 1,500 euros to live on every month, then that is 18,000 euros extrapolated over the year.
The calculation of the Trinity study now states the following:
25 x 18,000 Euros = 450,000 Euros.
In summary: If you no longer want to work and want to enjoy your life, you must have saved 450,000 euros.
In order to be able to live with 40 of the savings, you have to laboriously save every euro every month and invest in financial investments. This task does not seem to be an easy one, because you have to drastically change your usual lifestyle.
In an earlier article, we have already compiled important savings tips for you to bring you one step closer to your goal. Once you’ve settled into the frugalist life, you’ll need to take additional steps to reach your goal: keeping a household book, shopping for second-hand clothes, or vacationing at home.
Check out this post for more useful savings tips to help you retire at 40.
Our tip: Before you start a frugal life, we recommend that you first exchange ideas with experienced frugalists. This frugalist forum, for example, offers you the opportunity to get in touch with other frugalists and get a feel for the frugal way of life.
And if after a few years you realize that this way of life is not for you after all, then don’t worry about it and take the money to realize other dreams of yours. How about a sabbatical? You can find out how much a sabbatical costs and whether you are entitled to a year off in this Kleingeldhelden article.
Autorin: Alisha Ogidan
Kleingeldhelden originally posted the article “How much money you need to save a month to retire by the age of 40”.
