I’ve been doing a ton of traveling and have been spending the majority of my time in Eastern European countries. I have been thinking quite a bit lately as to what my definition of rich would be. Most wealthy people will give a number that is twice their current net worth, which is pretty comical. You have multi millionaires saying they aren’t rich which is pretty silly if you are in the top 1%. You hear stories how $300,000 a year is middle class for a family of four in New York City, or that real estate in SF is so outrageous you can’t find a home there for less than $1,000,000. After considering what the term “rich” means to me, I realized it’s really location dependent more than an absolute dollar amount. Clearly, rich is a relative term.
Despite what you might think of someone that “retired” at 25, I’m not rich, at least I don’t think I am. I checked where I fell in the American net worth spectrum and I was in the top fifth, mostly because the majority of people don’t even have a year’s salary put away. The average 401k balance now is around $90,000 which is less than 10% of what the median worker needs to be able to retire by conventional financial planning standards. It’s kind of frightening really. Also consider that a large number of Americans don’t even have access to 401k’s. It’s amazing that you can basically be in the top 20% of richest Americans simply by saving a big chunk of your salary for a few years. Despite these stats, whether I feel like a professional athlete in Las Vegas or a peasant in medieval Russia depends on what city I’m in.
Where I Feel Rich
The past few weeks in Eastern Europe, I’ve enjoyed the most luxurious standard of living I’ve had since I lived with my parents and got home cooked meals and laundry done for me. I’ve been enjoying top quality accommodations, and I usually eat at three to five star restaurants. I’ve enjoyed craft beer, toured wineries, and received deep shampooing treatment along with the most meticulous haircut of my life.
When I was in the Ukraine, someone told me the average daily wage was $5. So the average fresh out of college business major makes about 30 times what these people make. When I was buying any goods or services whether it was beer, food, museum passes, or excursions, the labor component of cost was almost non existent.
The upside of being so much more materially wealthy is that a $2 tip is a BIG deal. That’s like getting two $20 bills in tips for a typical lunch at a Denny’s. For anyone desiring a truly exotic vacation where you live in a whole another income strata, I highly recommend most of Eastern Europe, particularly Ukraine, Moldova, and Balkan countries like Macedonia, Kosovo, Serbia, and Albania.
Where I Feel Poor
The only time I’ve ever paid $80 for a hotel room and felt really excited about it was New York City. I stayed at the Yotel after getting a good deal on Hotwire and the room was well designed but incredibly tiny. I’ve experienced similarly outrageous expenses in places like San Francisco (as seen in any drink price anywhere), Miami (South Beach Ice Cream), Philadelphia (brunch prices), and London (Fish and Chips, how the heck does that cost $20??)
What’s funny is I was still probably in the top half or even top third in net worth in these cities, but because prices were so much higher than what I was used, I felt downright indigent. Looking around and seeing all these people drop twenties on things that I thought were maybe $5 back where I grew up in Pensacola made me feel inadequate. I can really understand how people in expensive cities get caught up in a rat race of trying to outdo one another, because the extravagant spending is shoved in your face with all caps. It’s not enough for there to be some tempting billboard ads on the interstate, you have to walk by the park and see dozens of beautiful looking professionals sipping mojitos with hand cut farm fresh salad that you know costs a small fortune look down on you from their front porch seating at the trendiest spots in town.
Friends will invite you out to do things in these expensive places and it’s very uncomfortable to say no. You go out to eat and the cheapest thing on the menu is a $7 soup and if you get only that the waiter will give you a dirty look. It’s truly tough living a lifestyle where spending is everywhere. Hyperconsumerism and hypermaterialism is all over big cities in America, and based on the net worth stats I looked up, most people answer the siren call of more more more.
How to Arbitrage The Gap of Feeling Rich and Poor, Because Rich is a Relative Term
I’m discovering that the key to retiring way earlier that you thought you would be able to is to make your money in a place where you feel poor, then go spend your money in place where you feel rich. This is using my principle of “being rich is relative” to your advantage.
To illustrate my point, when I was in Ukraine I could’ve acheived a lifestyle of eating out every day with a luxury apartment in the middle of the city for about $15 a day, or about $5,500 a year. That equates to needing about $136,000 using the 4% rule to retire for the rest of my life. I recognize that most Americans wouldn’t be willing to move to Ukraine and live in an unfamiliar country far away from friends and family, but I’m using the example for illustration.
However, what if you could modify this strategy for America? Big cities have much better job opportunities and you will make more money if you work in one. You will probably also spend more money, but in most of them you can control your budget if you have self control. In NYC for example you should be spending way less on transportation than if you lived in the suburbs of Jacksonville. The only way that’s not true is if you take taxis and Ubers everytime you don’t feel like walking 5 blocks. Food in NYC should cost about the same as food in Omaha, Nebraska. The big difference in costs is going to be eating out, drinking, and rent. If you live in a quasi legal shared apartment with a walk in closet as your room and only go to the grocery store for your food you could easily turn that extra money you’re making into increased savings, which results in a faster retirement date.
Then once you’ve built your portfolio and are no longer an earner, take your talents to one of the many amazing and vibrant cities in America that have a lot going on but maybe not as many jobs that pay well. You could live in a really cool place like Nashville or New Orleans for a fraction of the cost that you would need to live out that same lifestyle in New York. If you are willing to move to a more rural town you will feel richer even still.
The key to feeling wealthy is having a lot of other people around you with less. It’s sad but it’s true. That’s the reason rich people are always saying they don’t feel rich, because their peers all have money. They compare their lifestyle to their peers, not the random guy that stands in line at Wal-Mart.
So “Rich” is a relative term. Relative to most of the world, every American with a job is rich. We have so much more than these families I’m seeing every day living in poverty that use squatting toilets and have no variation in their diets. Once you realize that you are in fact rich, you can start thinking rich by not needing to compete with other rich people over who can spend more. You can check out of the rat race and apply your excess earnings to investments and watch them grow over time. Once you’ve built up 25 times your annual spending, you can walk away and do whatever you want in life, even if that’s staying in your job because you like it not because you need it for an income. If you want to be a little crazy maybe you could quit even sooner like I did when you have 15-20 times annual spending. Regardless of what multiple you use, you can probably retire in one to two years if you are cool with the Ukraine. If you want NYC or SF as your retirement locale, get ready to work for a very long time. Most people should consider something in between and realize they have a lot more power over their place on the economic ladder than they realized. Now I’m going to go grab a 2 euro dinner where I’m writing this in Kosovo.