How much money do you need to save to retire at 40?

by times news cr

2024-08-30 07:10:29

Florian Wagner earns an average of around €6,000 net per month, but spends only a quarter of it. He puts the remaining 4,500 euros aside. The 37-year-old engineer is part of the growing movement of super-savers, also called frugalists (from the Latin word frugalis – translated: thrifty), writes the German public media ARD. The goal of these people: to achieve financial independence as soon as possible. And, for example, to retire at the age of 40, writes “Deutsche Welle”.

Wagner learned about the new trend a few years ago and completely rethought his spending: he began to ride a bike to work instead of taking the subway, cook dinner at home, shop once a week and almost completely cut donuts and pizzas from his menu. He also quit his well-paying job and started his own business. “In this way, I improved my quality of life,” says the 37-year-old man. This is exactly the essence of the frugalist movement.

Investments in funds, bonds and property

But cost containment is not enough. Super savers invest a large portion of their income in stocks and other equity instruments. To minimize risk, they also resort to investments in bonds or real estate.

Frugalism is a lifestyle concept that started in the US, explains ARD. It is popularized by bloggers like Money Mustache. Years ago, the Canadian described how he was able to retire at the age of 30.

During the financial crisis of 2008, the FIRE (Financial Independence, Retire Early) movement gained more and more followers and spread to Germany. According to his philosophy, anyone who has managed to save 25 times more than their annual expenses is financially independent.

Up to 70 percent savings

Frugalists typically save between 60 and 70 percent of what they earn. By comparison, people in Germany save only about 11% of their income on average. And many of them can’t even set aside anything.

Because of this, it is believed that frugalism is not for everyone, but only within the power of people with high incomes. “If you only earn 1,800 euros, you won’t be able to save even half of it because most of the money will go to the rent,” expert Thomas Kell from the finance platform Finanzfluss told ARD.

In addition, life often presents twists and turns and unexpected situations that can prevent the goal of early retirement at 40 or 50 years old. Therefore, everyone must judge for themselves how realistic the set goal is. “Children, housing or prolonged illness can very quickly increase expenses and reduce the share of income that is set aside,” the financial influencer points out.

Refusal to rest?

Financial experts point to other risks. For example, a fall in the price of stocks can jeopardize the planned early retirement. That is why it is important for everyone to develop a plan for a possible similar development.

Florian Wagner has already accumulated assets worth a total of €480,000. However, he has slightly changed his original plan to retire at 40. Now he has decided to continue working after 40, but only as much as he wants – and without having to give up rest or going to a restaurant. “I don’t give up things I love and I don’t limit myself. I always say to myself: if I die in an accident tomorrow, I don’t want there to be anything I regret that I didn’t do,” says the 37-year-old German.

Applying the concept of superfrugality over a long period of time is a huge challenge for many so-called frugalists. After all, it is very unlikely that you will become financially independent in a short time, writes ARD.

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