Tag: frugalismus

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4% Rule or Dividend Strategy?

Preliminary note: This is not investment advice.

Just a reminder, the 4% rule is somewhat of a sacred law in the FIRE movement (Financial Independence, Retire Early). If you save one million euros and withdraw 4% each year, meaning 40,000 euros in the first year, it is assumed that you’ll never run out of money, even accounting for inflation. Conversely, the community also says that you should have saved 25 times what you need annually to live, if you want to live off it.

What bothers me about the rule: If the stock market goes down and I have to sell 4%, I’ll have less than what I need annually. Moreover, the 4% rule is based on a study by Bengen, which is based on a very specific portfolio and a period of 30 years. Few stock markets come close to 4%, and there is hardly any data for periods of over 50 years (see also Ben Felix’s video). If you want to retire at 40 and live until 95, only 2.2% would be a safe rule. According to Fisker’s book, early retirement only works if you live relatively frugally. But that’s another story. Some people rely on accumulating MSCI ETFs, which likely makes a lot of sense in your younger years. I tried my luck with robo-advisors for a while, but I’ve since moved on from that. Growney even issued me an incorrect tax certificate, and only after persistent follow-ups with the bank did I receive the correct one. I’ve also parted ways with my financial advisor. No matter where, a fee is always charged, even when a loss occurs. At this point, I’ve focused on the Scalable broker, where the monthly fee is easily offset by the interest from the savings account.

At first glance, the dividend strategy seemed more attractive to me instead of the 4% rule: ETFs with dividend aristocrats that have consistently paid or even increased their dividends over the last X years. But upon further consideration, this strategy also has drawbacks: Companies that pay a dividend essentially reduce their company value; companies like Google that don’t pay dividends can invest the untapped dividend into growth, which in turn boosts the stock price. Theoretically. In this case, the argument that dividends must be taxed is certainly valid, while investors in non-dividend stocks only need to pay taxes when they sell (note: with accumulating ETFs that contain dividend-paying companies, it’s a bit different, as there is a pre-emptive flat tax). Ben Felix explains this very well:

Additionally, dividends are not guaranteed, even with dividend aristocrats. The VanEck Morningstar Developed Markets Dividend Leaders currently offers a dividend yield of 4.87%. In other words, if you invest 100,000 euros, you’ll receive 4,870 euros per year, before taxes. And, of course, taxes must also be considered. After taxes, you would end up with 3,586 euros, depending on whether you belong to a church or not. So, if you wanted to receive an average of 2,000 euros in dividends per month (though they are not guaranteed), you would need to invest more than 660,000 euros to achieve this after taxes. To reach this amount, you’d have to reinvest the dividends you receive for many years, with strong discipline.

Now, let’s compare this with the 4% rule: With 1 million euros saved, you would receive 40,000 euros annually, which, after taxes, amounts to 29,450 euros a year, or 2,454 euros per month. With the fund mentioned above, you would need to save slightly less—821,355 euros would give you the same amount. Assuming you reach a 5% yield with various dividend stocks and funds, the sum would be even lower, though you would never need to touch your principal. This may initially sound better, but if you follow Ben Felix’s reasoning, you would not have benefited from the full growth of the stock market. In other words, the portfolio of an investor participating in the entire stock market would have grown faster because it would also include companies that do not pay dividends.

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How do minimalism and Apple products go together, when Apple is so expensive?

I have been using Apple products almost exclusively since the mid-90s. Now and then, I engage in debates about the pros and cons of Apple products compared to their competitors, especially regarding the price difference. And of course, the question arises whether minimalism and using Apple products even go together. It creates an ambivalence between design culture and the contradiction of consumption.

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One Year of Not Buying Anything: October Report

October was basically a good month. I bought a T-shirt for my youngest, a party barricade tape, but unfortunately, I ended up buying a new iPhone. I was actually very happy with my switch from the Max Pro to the Mini, but the poor quality of the camera bothered me a lot. In September, I was in Padua and had a rare opportunity to photograph the anatomical theater. Unfortunately, it was very dark there, and the photos turned out terribly. Was it an absolutely necessary expense? No.

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1 Year of Not Buying: September Report

September was essentially a good month. The only new purchase I made was a pair of fingerless gloves, as it sometimes gets a bit chilly in the office. However, I didn’t want to turn on the heating just yet.

Then there was the Braun Atelier investment, which I had already written about and am still very pleased with.

However, there’s also an order I placed in September, which won’t arrive until December—the Kindle Scribe, which I might exchange for my Remarkable 2. Is the purchase necessary? Certainly not. I could print any article I want or need to read, and use a paper notebook. Can I work better and faster with paper tablets than with paper? Definitely. What I hope to achieve with the Scribe, I have already described in the article. If the Scribe doesn’t meet my expectations, it will go back. My reMarkable has very low usage costs since I use it multiple times a day. In the end, it’s about considering beforehand whether a technology actually improves something, or if it just serves blind consumption.

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1 Year of Not Buying Anything: August Report

August was a moderately successful month. My purchases:

  • A bike saddlebag with tools for 18 euros. You can’t find something like this used.
  • Four Wi-Fi controllable energy-saving power strips, which are also unavailable used, for about 50 euros.
  • A wooden A6 index card box for my Luhmann note-box, for around 50 euros. I could have gotten something like this used, but the few suitable boxes were already quite damaged.

It’s sad because I once had such an index card box, but I gave it up after university. I don’t even know what happened to it. I will think more about the note-box system.

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1 Year of Buying Nothing: July Report

The July report went okay. I was really proud of myself for resisting a temptation and not making an impulse purchase, even though it seemed like a good deal. I thought about it for more than a week, and in the end, I did go through with it, but very carefully. It’s about a new phone, where I swapped a flagship model for one that’s a few numbers smaller. I got more money for my 1-year-old phone than I paid for the new one. Why did I do this? Because the huge phone was just too much of a burden. With a smaller phone, it’s not as pleasant for typing and reading, but I’m trying to spend less time on my phone anyway. I tried to find a used model, but wasn’t successful. Apparently, small phones are quite in demand. Instead of carrying around 240 grams, I now only carry 140 grams (yes, you notice), and my pockets don’t bulge as much. My cost per use for the old phone is under 1 euro per day, which I think is fair.

We also bought an extension for our Rams shelf. Again, it was hard to find a used one. My preference was to downsize even more and need less storage, but in the end, we found a compromise. This is also a good example that the things we own not only have their own price but also ongoing costs. The Vitsoe 606 is fairly stable in value, so the cost per use is minimal.

Other than that, I’ve simplified a lot. Ended subscriptions. Looked at whether I could live with alternatives. I canceled Netflix since we barely used it anyway. I’ll also cancel my beloved Headspace, because Apple now offers meditation (though I really dislike the music they use). I’ve parted with old baggage, like consolidating all my domains to a cheaper host. A few more used vinyl records came into my life, which I’ll continue to indulge in as a luxury. But I’ve set a monthly limit for this so it doesn’t get out of hand.

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A Year of Buying Nothing: June Report

Actually, I bought nothing except a few used vinyl records (some real bargains) and a bike bag. For the latter, I tried to find a used one, but I couldn’t agree on a price with any sellers on eBay. Some of them wanted to charge almost the price of a new bag for worn-out ones, without the very practical mounts that are available today. I got burned by the offers from Valkental and 2bag. Both do great marketing, but the Valkental bag lasted 5 minutes on the bike before the mount broke, and 2bag simply couldn’t deliver.

My “slip-up” from January and the synthesizer I bought in April are listed on eBay.

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Why it’s easier to buy things than to get rid of them

“Buy now, just one click. Delivery today. 80% off if you buy within the next 4 hours. Money-back guarantee.” An entire industry ensures that nothing is as easy and convenient as buying something. Everything is done to make sure we don’t think twice before hitting the order button.

Unless we make use of the return policy, with the delivery of the order, a new item enters our home. And one day, we realize that we can’t get rid of things as quickly as they came in. And that makes decluttering even harder.

Why is it so hard to get rid of things? First of all, we have to make decisions. Making decisions is hard. It takes energy, and it’s emotionally exhausting. Take, for example, all the books we bought because we wanted to read them but never got around to it. They now sit on a shelf or lie on the coffee or nightstand, creating a guilty conscience. What about the jeans we squeezed into at the store, bought in the hope it would motivate us to lose weight? The same goes for gym equipment and workout clothes that were supposed to help us shed those pounds. Musical instruments that we thought would reignite an old passion or help us start a new one. Getting rid of them feels like a failure, an admission that we didn’t succeed. The list can go on and on.

A good way to measure whether a purchase was worthwhile is by calculating the cost per use. For example, a rowing machine bought for €250, used eight times, then sold for €100 after two years, results in €18.75 per use, plus the effort to get rid of it. It was delivered within one business day, but it took three weeks to get rid of it, with countless messages from people who were sure they wanted it but never showed up. The machine just sat in the way for two years. On the flip side, in 2014, I bought a MacBook Air for €2,500. I kept it until the end of 2019 and probably used it multiple times every day. Now, another family member uses it daily. The cost per use is probably down to €0.30-€0.40 per day. That was worth it. At the end of the day, it comes down to how much we value the usage of an item. Ideally, we appreciate what we’ve acquired and use it. That’s good. Or sometimes, we buy something with good intentions, like the rowing machine, but hardly use it as we hoped. Sometimes, we even regret our purchase the moment we make it.

You can buy things with a click when the sudden urge hits, but then you’re tied to those things, not just in a positive way. Because even if we decide to get rid of books, the jeans, the guitar, or the rowing machine, the work doesn’t end there. Things don’t disappear with the same ease as the click that bought them. Sure, you can just give everything away. Put a box with a “free” sign outside, and someone will likely pick it up. But if you want some money back for what you’ve spent, you’ll quickly realize that the buyers won’t pay anywhere near what you spent on the item (unless you’re lucky and bought something that has increased in value or is rare to find). Some people seem to know exactly what something is worth to them and won’t go above that self-imposed price limit. The most outrageous example, which I found downright cheeky, was a family that only wanted to pay €150 for a used digital piano, arguing that they couldn’t know if their daughter would stick with it. The thing was listed for €250 on eBay.

But it’s not just the price that’s different; as with the rowing machine, it can take days, weeks, or even months to sell something, especially if it’s valuable. It takes effort. You have to take pictures, write a good description for eBay or another platform, and send emails to potential buyers. You can sell it under value to get rid of it faster (I admit I’ve done that), or you can resist the market price and try to wait for someone to buy it at your desired price. I’ve tried that too, and it rarely works.

How do we get out of this bind?

There are two problems we need to solve:

  • We need to prevent ourselves from getting into the situation of buying something we don’t need in the first place. In an ideal world, we simply wouldn’t buy new things. That’s a radical idea.
  • For all the things we already own and no longer need, we need to find an efficient way to get rid of them.

“Efficient” doesn’t mean paying to store things in a self-storage unit. Every time we get the bill, we’re reminded of how much extra we have. And if we don’t address the first issue, our apartment will quickly get filled up again, and then we’ll need a larger storage unit, and so on and so forth. Doesn’t it sound kind of ironic that we have to pay to store things we already paid for, but don’t use? (If you can store things somewhere for free, the cost might be avoided, but unfortunately, so is the reminder that you still have things lying around somewhere.)

When we start working on the second point, the first one will thankfully become easier. Because we’ll experience the pain we feel when trying to get rid of things, and we’ll remember that pain when we see something attractive to buy. It will take time, but the longer we work on decluttering, the less we’ll want to buy new things. If you remove one item from your home each day, it requires minimal energy and emotional effort. And from my experience, you’ll want to get rid of even more because it feels so good.

Positive side effect: You’ll save a lot of money, produce less waste, and help save the planet.

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Not buying anything for 1 year – January report

The first month of 2022 is almost over. How did it go in terms of avoiding new purchases? This month went quite well, with two exceptions:

  • To protect our nearly 170-year-old wooden floor, I bought a mat (see photo below). I couldn’t find one secondhand.
  • The second item wasn’t supposed to be new, as I bought it used on eBay Kleinanzeigen. But it turned out to be brand new: an Oculus Quest 2. I had researched the VR headset on Amazon but didn’t buy it because of my anti-consumption vow, and when I found a used one nearby, I bought it. The seller had bought two and now needed money. But why on earth would I really need a VR headset?

I’m working on a new book project that will include a chapter on the metaverse and VR. I also wanted to try Horizon Workrooms for virtual meetings, maybe even in a classroom setting. However, I’ve realized that very few people I know own such a device, so virtual meetings will be challenging. Of my current 60 students, only one owns a headset—actually, it’s her partner’s. That’s already an interesting insight for the book, as it seems the network effect is not so easy to achieve here. Thanks to the headset, I also discovered that I still enjoy boxing after all these years, and I lose 100 calories every 10 minutes. But overall, it doesn’t feel good to have bought it.

However, I didn’t buy the Quest without selling something else. After barely using it for a few years, I sold my Ableton Push 2 on eBay (a piece of it is also visible in the photo). I sold it for the same price I paid for the Quest. I’ll probably sell the Quest after the book project is done. I sold my previous Quest for the same price I paid for it, so I hope this device won’t cost me any money in the end. The Ableton Push 2 cost me a lot of money since I only used it three times. So I paid about €200 per use. If I factor in the money I got back, it’s about €66 per use.

Other than that, I didn’t buy anything else this month, either new or used. To be honest, I had considered buying a Network Attached Storage (NAS), and although I could easily justify that I needed it for my work, I decided against it and stuck with my low-cost Open Media Vault solution using a Raspberry Pi. It’s not a particularly beautiful solution since all the parts are exposed, but it’s a low-maintenance option. Digital gadgets pose a challenge to my goal. Maybe I’ll write an article about that too.

The total result: €25.41 spent in January.

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Minimalism and Frugality – How to Retire After Just 5 Years of Work

The provocative title correlates with the extremes discussed in Jacob Lund Fisker’s 2010 book Extreme Early Retirement. And by “extreme,” I don’t mean the author’s suggestions themselves, but rather some of the thought-provoking ideas he presents. Fisker’s book represents, according to him, a philosophy that he formulated long before the current waves of frugality, FIRE (Financial Independence, Retire Early), and minimalism took off (by the way, I had written about living outside of consumerism back in 2007). Instead of just preaching, Fisker actually practiced what he preached. On an average income, he saved 75% of his net salary, learned how to live with little, and then stopped working—or worked only intermittently. One could also distill this down to the well-known wisdom that you don’t get rich by earning a lot, but by saving as much as possible.

This will not be a short blog post, sorry, because such a philosophy cannot be summed up in 150 words.

Reference to Plato’s Allegory of the Cave

Fisker starts with Plato’s Allegory of the Cave. To remind you (a better summary is certainly provided on Wikipedia): In a cave, people are imprisoned and have spent their entire lives shackled. They can only look at a wall; they cannot see their fellow prisoners or themselves, and they cannot see the exit behind them. On the wall, they see shadows cast by a fire burning between them and the exit. The shadows that the prisoners see become their reality, and they try to make sense of them.

If someone manages to escape the cave, they would first have to adjust to the daylight, which would be painful, but after a period of adjustment, they would no longer want to return to their old life. According to Socrates, the cave represents the sensory world that people typically perceive as normal. The ascent out of the cave represents the transition from the world of fleeting sensory objects to the idea of the Good, enabling rational action. For Fisker, those who are wage slaves and trapped in their culture are the prisoners of the cave, and by “wage slaves,” he means those who are dependent on a salary. They may switch jobs, but they cannot escape the labor market itself, and like the prisoners, they lack the imagination to leave, as they are focused on the wall.

The wall does not show who they are, but what they own. You see someone driving a Mercedes convertible, but not the debts they incurred or the stress that comes with it. Everyone looks busy, because that’s important, just as it’s important to take on debt, since the most successful people are those with the best credit scores. They are better at getting into debt than others. You work and pay off debts, a cycle known as “earning a living,” yet in reality, you have no time for actual life. The chains represent obligations and debt, but mostly the lack of imagination that other possibilities exist. The best prisons are those without visible bars. Either you win the lottery or earn enough to become financially independent, according to the perception of the prisoners. And if things aren’t going well mentally, you buy yourself something nice and go shopping.

How Do You Escape the Cave?

The core question in Fisker’s book is how to escape the money-earning-and-buying cycle and lead a more interesting life. For example, by learning a skill that saves you from hiring a service, building things yourself, earning money in alternative ways, and interacting with people.

Modern wage slaves, according to Fisker, live lives of material excess. They are consumers with multiple TVs, several streaming services, kitchen appliances, gadgets, phone contracts, vacations, and sometimes even time to play with their toys. It’s become incredibly easy to spend money. Instead of opening a can with a cheap can opener in 30 seconds, we work for 30 minutes to afford a designer can opener that does the job in 30 seconds. Many things that we used to do ourselves have become so distorted that we buy gadgets or services to do them for us. This is convenient, because, as Fisker points out, we’re too busy with the work that we need to do in order to pay for all of this. This is the first thing that must change. Once you can do things yourself, you no longer have to depend on someone else to do them for you. But this only works if you earn enough money. Once you lose your job, you’re lost.

The second step is questioning your consumption. “What do you do for a living, and what brands do you buy to express yourself?” is a question from Fisker’s book. From my own experience, it’s almost impossible to buy a black cardigan that doesn’t have a huge BOSS, Joop, or some other brand logo on it. These brands cost extra, but we get loans so we can spend even more money, because consumption is equated with success. If a new iPhone has only 3 percent more features, it gets bought, and the old one ends up in the trash (fortunately, Fisker’s logic here is not entirely accurate, because most iPhones and other phones are then resold to someone who has no problem with a used phone). But he is right that many perfectly functional things end up in the trash just because they are no longer fashionable (which reminds me again of the Rams shelf, which still looks modern after 60 years).

What’s worse, according to Fisker, is when you finance your consumption with credit. Then you are not only a wage slave, but also a debtor. You pay off a house or an apartment for 30 years (I find this exaggerated in Fisker’s book because not everyone does that), save for retirement, and then try to make up for the lost years and ruined health in the final years of life. You see how questionable consumer loans are in the following advertisement I saw yesterday in Hamburg: