Frugal Retirement: Living Large on Pennies

zero day finance living large on pennies

Retirement is something I believe everyone deserves. After you’ve put in hard work, you deserve to reap the benefits of your labor. Thankfully, there are a ton of resources detailing exactly how to achieve Financial Independence Retire Early (FIRE). Unfortunately, most go something like this: “Earn $100,000+ per year, and save half your income.”

There isn’t anything wrong with this advice. However, it doesn’t really apply to the majority of people. If you are a Millennial and just starting out your career, you probably don’t make $100,000. Even after working hard for 20 years, odds are your salary will never be above six figures. So how are you supposed to follow this advice? Is there a legitimate strategy you can follow that will let you retire comfortably?

Fortunately, the answer is yes. You absolutely can retire, even if you don’t have a hopping six figure salary. You can even retire early. But what does it take? You’ll need to change your mindset and start living a more frugal lifestyle. Hell, Mark Kovach’s book puts it really well: you’ll need to find out how to “live large on pennies.” But how?

Adopt a Frugal Mindset

Before we talk about strategies to help build a nest egg that you can retire on, we need to talk about adopting a frugal mindset. What does frugal mean? “Sparing or economical with respect to money or food. It means that you reduce waste and learn to appreciate financially cheaper (but arguably more experience rich) forms of entertainment and living.

What this translates to is maybe a 2,500 square foot house within walking distance of that up and coming downtown area isn’t really necessary. Maybe buying a new car every 5 years isn’t necessary. Maybe spending $100 for fancy dinners isn’t necessary.

Frugality means understanding what you truly enjoy, and then figuring out how to do this as cheaply as possible. It isn’t something you can do in a day or even a week. It will take time and sacrifice. What I’ve found is that frugal people tend to have much richer and happier lives. Beause they value personal interaction and growth, instead of flashy pictures of nice cars.

zero day finance average millennial wants to retire

We’re all normal people, you won’t find us wearing Canada Goose

I want to put this out there: being frugal doesn’t mean you are cheap. It means you understand what you truly value, and plan accordingly. For example, you can be frugal and still enjoy USDA Prime steaks. You’ll just wait until the delicious bone-in rib steaks are $9.99 per pound instead of the usual $19.99. You may still own a MacBook, but you bought a refurbished 3-year old model for half the cost.

The reason that we need to talk about Frugality in the first place is because we are talking about “regular” people, not high-salary engineers who can invest $60,000+ per year. We are going through strategies to comfortably retire on a lower income. The strategies totally work, we just need to do things a little differently.

Now, I don’t pretend to be the most frugal person, so here are some excellent resources that regularly talk about frugality:

Separate Wants from Needs

Differentiating your wants and needs is important, and is the first step towards retiring while living large on pennies.

There are only three needs in life: food, water, shelter. Everything else is a want. As long as you have enough food, water, and shelter, you can survive. Everything else tends to make life more enjoyable, but they aren’t necessary.

So as you begin your journey towards frugality, it is important to keep this in the back of your mind.

If you can comfortably cover your needs, then any extra money can go towards your wants. You won’t necessarily have a glamorous lifestyle like people on TV, but that’s the point. Frugal living means finding out what you really enjoy, and doing it cheaply.

zero day finance living large on pennies log cabin frugal millennial

Who says a frugal cabin in the woods is a bad thing?

Prioritize Value

The final bit on frugality means prioritizing value. It means you need to understand when you see a good deal, and don’t throw it away. We’ve all heard the story about the $50 vs. $10 boots. If there is something that you really need or makes you very happy, spending more money is worth it.

But if there is something you value less, then simply spend less money on it, or forego it completely.

As an example, let’s say you enjoy simple foods. You can probably live off $50-100 a month in food, as opposed to a fancier $400 per month in food. Finding these “critical points” where you can maintain value while minimizing your expenses will be the key to living frugally, and living large on pennies.

Aggressively Cut Expenses

Once you are committed to living a frugal lifestyle, you need to do your best to cut your expenses as aggressively as possible, and save every single penny. I’ve read an entire blog dedicated to this, it is called Early Retirement Extreme. Before you go and read every single article on the blog, let’s talk about it first.

If you want to retire, your passive income must to be greater than your expenses. If you find ways to increase your passive income, you can retire faster. If you can find ways to decrease your expenses, you can also retire faster. But if you can increase your passive income and decrease your expenses, you can retire really quickly.

Remember, passive income is money that you produce without doing anything. Most people just invest in the stock market and withdraw dividends, interest, or even sell shares. You also might own a rental property and collect money from tenants. Regardless, passive income is income you earn passively, simple about that.

Expenses are the money that you spend on a daily basis. Since you’ve embraced frugality, your expenses will be fairly low. Ideally, your expenses are as low as possible, so you need the smallest nest egg possible to provide you with adequate passive income.

That is what Early Retirement Extreme is all about.

Now, we can go over an example to highlight how we can aggressively cut expenses. Let’s consider the following: do you have a car? Yes. Why?

Seriously, why do you have a car? It lets you go places more quickly. How much is that car weighing you down? What if you consciously made the decision to live in an area where you could walk 1-2 miles to the grocery store, or ride your bike 5-10 miles there instead? You could take the $20,000 you would spend on that car, and invest it. In addition, you wouldn’t need to pay for the car, so you’ve lowered your expenses.

zero day finance eat healthy food retire early

It’s time to start eating cheap, healthy foods

Another hot topic is food. I can comfortably survive on $300/month for food, which is actually pretty high. What about $200, or even $100 per month? If you really learn to cook well, you can do a lot on a a smaller food budget. you’d be surprised what you can do with rice and beans supplying a significant amount of your caloric intake. If you want a great resource detailing this, check out Meal Prep Sunday.

The same goes for your everyday living. Does your house need $20,000 of furniture? Can you do it on $10,000, or even cheaper? If your microwave dies, will you spend $100 to replace it, or learn how to fix it for pennies on the dollar?

These examples are the first half of living large on pennies. Rather, the pennies aspect. As you adopt your frugal lifestyle, you need to learn how to enjoy living on less. In all honestly, this isn’t hard. Every American, whether you are a teenager, Millennial, Gen X or Y, or whatever, we have been persuaded from birth that spending money means happiness. And this is BS.

We can learn to live on less, and still enjoy our lives. It takes time, and determination. You won’t learn to live on pennies overnight, but if you work hard, it can be done over the course of several months to a year. Living on pennies also makes you appreciate what you have, and you’ll really appreciate small luxuries so much more.

Save Everything Else

Now that we’ve started cutting expenses, what do we do with the savings? Remember, we may go from spending $2,500 per month to $1,500, that means we have $1,000 in extra savings per month. So what? Well, invest them. All of them. Every single dollar If your income is $2,500 per month and you only spend $1,000 per month, you need to invest that $1,500. Consistently, every singe month, until you decide to retire.

The more money you can invest quickly, the faster your passive income increases. Typically, you can spend 4% of your invested assets per year in retirement (this is based on the Trinity Study). So, if you have $100,000 invested, you can safely produce $4,000 per year of passive income. The more you can quickly invest, the bigger this number grows.

Why is this important?

Remember, I said that that retirement is a function of passive income and expenses? We just talked about how to cut your expenses. Now, the more you can save/invest, the faster you grow your passive income. So let’s think about this.

Let’s say that we can live super frugally on $15,000 per year. It may not be a glamorous lifestyle, but if you are comfortable, then its worth it. Next, we need to produce enough passive income to cover those $15,000 yearly expenses. Well, you only need $375,000 invested to accomplish this. And if you can cut your expenses even lower, you need less money invested to produce that level of passive income.

The more you invest early, the more money you’ll have later on, and the earlier you can retire

The Trick to Retiring by Living Large on Pennies

I hate calling this a trick, it is more of a strategy. We’ve already discussed the basics, let’s make it simple.

1. Adopt Frugality and Live Humbly
2. Cut your Expenses as Aggressively as Possible
3. Invest all of your Savings

That’s pretty much it. “Living large” means enjoying your lifestyle, regardless of how it compares to other people. If you enjoy your lifestyle, then its the right way to live. Next, do you best to cut your expenses. From ditching cars and your expensive mortgage to learning how to both cook and repair your electronics. Do you best to cut spending. Every dollar you cut from your spending equals about $20 fewer dollars you need to save. Finally, save as much as possible, and invest this money appropriately.

I’m hoping that you don’t have a bleak picture of your future life, just sitting there eating rice and beans. You’ve got this all wrong. You get to decide how frugal your life is, you get to decide what you enjoy. Once you’ve figured this out, you have the steps to build your life, now execute them.

Here are some additional resources to help paint a better picture of what it means to retire quickly by lowering your expenses:

  1. How Anyone Can Retire: Living Large on Pennies – Book
  2. Early Retirement Extreme – Blog
  3. LeanFIRE – Subreddit

Definitely peruse these sources, you’ll learn a lot. And even if you aren’t interested in retiring to a simple life, you will discover new ideas and tactics to live a more fulfilling life while cutting your expenses, a win-win! Finally, I would recommend learning about investment. It’s actually a very simple process. I would recommend going to the library, and checkout “The Four Pillars of Investing” by William Bernstein. It was my first investment book, and I chose very well.

So, are you ready to take the plunge and try to live a more minimal lifestyle? Minimalism and frugality are a big trend in the Millennial community, and I think that’s a good thing. We don’t need fancy cars to be happy. We need to each discover what makes us truly happy, and go for it.

Good Hunting,

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6 Responses

  1. “Unfortunately, most go something like this: “Earn $100,000+ per year, and save half your income.”


    Now, I’m actually a bit lukewarm on frugality-and-only-frugality because it’s not going to work all that well for people who are on the lower end of the income spectrum who want to approach FI. For them, increasing income has to be the focus. But no reason we can’t aim to do both.

    • David says:

      Absolutely. Frugality can only get you so far.

      Here’s a question: do you think being Frugal or increasing income is easier for the average person? I’ve always taken the two pronged approach, which is probably optimal, but far from easy.

  2. Great tips on how to retire happily while living frugally! And thanks for the shout-out, David!

  3. Frogdancer says:

    Funny. I just put on some beans to soak because making butter chicken with beans instead of chicken is cheaper and healthier… then I read your post! I like the idea of $1 saved is $20 less you have to invest. 🙂

    • David says:

      It’s a really interesting concept, that you’ll actually find all over the Internet. At least on r/PF and r/FI. But nobody quantifies it. If you do a 4% SWR, cutting spending by $1 means you need $20 less in your investment account at retirement.

      So if you can cut $100 a month, that’s $1,200 per year, or $24,000 less you need. That is an extra year (or more) for some people.

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