[artemonster]

how is it possible to save 2.5 mil from salary? I am from upper 5% in germany in terms of salary, and I can only manage to save ~10kEur/year, while maintaining decent lifestyle. An order of magnitude lower than you'd need to retire with such a sum after 20 years or so. How do you do that? Genuine question

[InitialLastName]

I've struggled with the same issue. The keys, as I've learned them, is to a) get to a place where you can invest up front in reducing your cost of living in the medium-long term, b) run like hell from the hedonic treadmill of trying to keep up with your peers' poor financial decisions, c) look carefully at what parts of your "decent lifestyle" make you truly happier, which parts are performative, and for which parts you can replace spending with effort without a loss of quality (for example, you can learn to cook very nice food, at a much higher quality than you will get at a restaurant for much less money; there's also no better feeling than feeding your friends).

Keep in mind that the lifestyle changes you make now pay off more than double, by helping you save faster, by having those savings accumulate interest/earn you money, and by reducing the amount of money you need to sustain retirement indefinitely.

Finally, make compounding growth your friend, not your enemy. Kill debt ASAP, and start socking away as much of your money as you can in a growth-bearing account. If you can reliably save 50% of your income in an account that beats inflation by 4%, you can support your lifestyle indefinitely on growth after 17 years.

[diydsp]

+1 for cooking for yourself. It is time well-spent, especially if your partner is into it. And it can save money and be much healthier than eating out! Especially if you make a little extra and supplement other meals.

Also, eating out takes a lot of time... driving to a place, sitting there waiting for waiters to return a credit card, etc. The alcohol is super marked-up. You don't know the ingredients of the food well, it's usually loaded with sugar and fats. I don't mean never do it, but living that way is miserable.

And especially in the pandemic, eating out means tons of containers to deal with. Even if you push just push everything in the trash, it's still like a half a bag's worth. And if are a good doobie and wash the containers, recycle, save the leftovers, etc., it's nearly as much time as if you made it yourself. Again, not that you never should, but save it for special occasions if you wanna have a long, above-average healthspan.

[pyrrhotech]

salaries in the Bay Area are very high, and if you avoid the common pitfalls, you can save a lot. Personally I made about $200-220k average during my 10-year career and lived on 30-40k while saving the rest and investing mostly in equities (of course taxes take a big chunk). Now I spend $50k-ish but I pay for everything for me and my fiance. I plan on spending $75kish once we have a family of four eventually which is the maximum level I'd feel comfortable spending with my current wealth. It wouldn't cover all our wants but definitely most of them and all our needs, hence there is still some additional utility from growing wealth but not enough to justify the stress and anxiety of a career IMO

[uniclaude]

To anyone confused by the explanation (as $220x10 < 2.5M!), I would assume the key is likely in the investments.

Given the market of the last decade, investing everything above the 30-40k expenses and income tax in the S&P500 and re-investing the dividends would have brought GP there. Not really sure about how one can make it with 30-40k including rent in the Bay Area, but this sounds like the most reasonable takeaway for most readers.

[ckdarby]

Apartment $5k/m ($2.5k your half).

Prior to covid, find apartment within 30 biking to work, get two bedroom, split with roommate.

Going out $150/month

Limit yourself to going out with coworkers once a week, social gatherings once a week and a rule of only buying one drink while out.

Groceries & clothes $400/m

Make all your meals at home unless your work offered fully subsided meals and or on specific days subsided meals.

For clothing, only buy once the piece no longer serves it's function. Do not buy simply because it looks good or it has some "new feature".

Subscriptions $70/m

Netflix, Spotify, GitHub, Youtube Red, and Audible.

Books $50/m

Libraries are a good saving spot here but sometimes you're unable to get some of the new technical books.

Bike maintenance $500/yr

You're going to put wear and tear onto the trusty bike.

Remaining $0-10k/Yr

Yolo. Flights back to see family. Replacement bike if it gets stolen. Random transit trips to see friends.

[ckdarby]

Prior to covid an additional hack for those in SF was to attend a bunch of interesting tech related meetups.

Free beer, pizza and get to meet interesting people.

[analognoise]

Live like a hobbit while never marrying and being in the top .5% of all tech salaries for a decade.

You might as well get the advice "marry rich" - it's probably more likely.

[pc86]

I mean the snarkiness just doesn't have any reflection of reality.

Debt is a killer. I used to have a lot of credit card and personal debt, and was paying over $1,500/mo in interest on less than $100k USD/year. If you get stuck in that trap it's damn near impossible to get out of if you overextend yourself.

A lot of folks grossly underestimate what they spend eating out and drinking. Probably less of a problem now than a few years ago, but coinciding with my credit card debt phase I would have told you I spent "$100, maybe $150" a month when it was closer to $400-500.

If you're not set up for retirement (see below) there's little to no reason to be leasing a brand new BMW. I was absolutely guilty of this and it's tens of thousands of dollars I essentially set on fire for three years. You don't even have to sacrifice the nice car, my 2016 5 series was less than $25k out the door and I got it right after someone turned it in off-lease. My payment is less than theirs was and it'll be paid off before the warranty runs out. I'll then have an "asset" (not really) worth $5-10k, and can get another $25k off-lease car which will cost me less and get paid off quicker, if not in cash.

If you max out your 401(k) you are saving about $20k/yr while only reducing your taxable income by ~$15k/yr depending on your marginal tax rate. A Roth adds another $6k to that if you're under the cap (something like $140k for 2020) and you can withdraw the contributions from that account at any time without penalty. Not helpful for someone making $40k/yr but if you're making $100k it's hard to make a good argument not to max out your retirement unless you live in one of the outlier cities as far as rent and expenses.

There are absolutely the /r/personalfinance types who act like if you go to a restaurant more than once every six months you're going to end up destitute and starving while homeless. And the FIRE community is a borderline cult. But nobody working in our industry, even in super high-COL areas, really has to worry about retirement, even if they've made dumb mistakes like I did that ended up costing hundreds of thousands in the long run.

[ryandrake]

> If you max out your 401(k) you are saving about $20k/yr while only reducing your taxable income by ~$15k/yr depending on your marginal tax rate. A Roth adds another $6k to that if you're under the cap (something like $140k for 2020)

Even if you are above the Roth cap, you can contribute post-tax $6k to a tradtional IRA, then immediately roll into a Roth IRA. This is known as a "backdoor Roth".

Additionally, some employer 401(k) plans allow you to contribute post-tax money to your 401(k). The IRS specifies an upper limit of the total of [employee pre-tax + employer match + employee post-tax], which was $57k in 2020. The post-tax portion of the above can also be rolled into a Roth IRA. This is commonly referred to as the "mega-backdoor Roth"

Also, don't forget catch-up contributions to each if you are over 50.

Point is if you have the income to support it, you can save much more in a tax advantaged way than just that $19.5k pre-tax 401(k). Please look up the tax consequences of any of these options before doing them. They are straightforward but contain a few pitfalls, such as the pro-rata rule affecting rolling over traditional IRAs into Roth IRAs.

[burntoutfire]

Hobbits actually focused greatly on quality of life.

[bumby]

Out of curiosity, what timeframe were your working years? My concern is that "investing mostly in equities" (assuming a decent percent of growth stocks) can be the deciding factor if you happen to hit a good bull run but potentially disastrous if your market timing is off.

[pc86]

Time in the market >>> timing the market.

Even the absolute worst luck gives you perfectly acceptable returns on 30-35 year timelines. Multiple orders of magnitude better than a savings account, for sure.

Time and time again the best approach for highly compensated people who don't want to actively manage their finances is to put a chunk of every paycheck into a broadly diversified range of index funds and forget that it exists. In the US this means a) getting your company 401(k) match no matter what; b) putting the rest into a Roth IRA as cash flow/debt service allows; c) putting the rest into the remainder of your 401(k) as cash flow/debt service allows; d) putting the rest into a non-tax-advantaged brokerage account that basically mimics your 401(k) but probably has better fund options.

[bumby]

Except we mere mortal humans have the added constraint of limited time.

Meaning if you were planning on retiring during one of the long sideways or downturns your required "time in the market" may have just been extended by a decade. The impact of that depends on the unique time constraints of the individual and how well they addressed risk exposure.

Add to that, most economists don't think the long-term market returns will approach the past returns. Most now think 6% is reasonable, when the past was 10%-12%. This extends the horizon further unless you are willing to increase risk exposure by selecting higher growth stocks.

[pc86]

Future returns could certainly be less. But all we have to go on is what's happened so far. In the past even the worst entry+exit points are acceptable for retirement if not astounding, if you've saved something like 15% of your income for age 30-65 (I forget the exact numbers but that's more-or-less close to it). Yes, some people have to choose between cutting their standard of living and retiring on time, and retiring later for the expected standard of living. I'm not sure what we can do to change that? Like you said, we have limited time and everyone's situation is different. Go onto any of those retirement income calculators and compare the person who starts saving in their mid-30's but maxes everything out to the person who starts saving with their first job out of school and gradually increases from $100 or $200/mo.

Your comment was that equity investing can be disastrous if you hit the timeline wrong, and my only point was that unless you're speculating or are only in the market for 5-10 years, that has never happened. We have no way of knowing if that will happen in the future or not, but there's no reason to believe that we're going to see decades of middling or negative growth. There's really no other option if you want to have a real retirement unless you plan to just rely on whatever government assistance you can get.

[bumby]

Your point is well taken on future returns and how starting the compound interest cycle is a major contributor to success.

>that has never happened

This is the part that I disagree with. Talk with anyone who planned on retiring around 2008-ish. As a hypothetical, if the market is the proxy measure they lost around 5-8 years of retirement because they had to have "more time in the market" to re-coup losses. If they actually retired and were drawing down their money, it's even worse. Granted, the hypothetical is biased because someone of retirement age shouldn't have that much market exposure, but the point still stands that, while true at the population level, waiting for the market to recover doesn't always work out well at the individual level. I tend to think the people who tout long-term averages of market returns tend to ignore the long periods of sideways or downward movement that may align with an individual's specific circumstances.

[joshribakoff]

Statistically the best way to max returns is going all in as early as possible, not trickling money in with a DRIP/DCA

[mstipetic]

Germany is not set up to have people get rich from a salary. Everyone has a comfortable life, but it's very hard to get "rich." That's one of the reasons I left Germany

[taneq]

Honestly that sounds like a pretty good trade-off. The percentage of people who are ridiculously wealthy goes from tiny to tinier, and in exchange everybody else gets a good shot at a comfortable life.

[burntoutfire]

But it's also pretty hard to retire early... I'm grateful that I was born in Poland where retiring early is a real possibility (high tech wages compared to costs of living and low taxes make it possible) instead of a country like Germany, Belgium or Italy where you basically don't have such option.

[benhurmarcel]

Funnily enough, one of the reasons I'm looking to move to Germany is to get richer. Salaries in Germany are significantly better than most of western Europe (UK, France, Spain, Italy…) for a similar cost of life.

[0xy]

Not in tech it's not. London engineers earn more than engineers in any part of Europe with the sole exclusion of Switzerland.

[dm319]

I suspect people who grow up in (basically) a socialist country like Germany, France, Scandinavia etc will have far less impetus to 'get rich'.

If you feel secure in being able to maintain an income where you can enjoy both the basic and leisurely aspects of life. That you won't be made bankrupt by illness, or by unfair illegal/legal proceedings. In these circumstances the drive to sit on top of 2.5M to feel relaxed about your financial situation will likely fade away.

[alentist]

None of those countries are socialist. Why are you spreading this misinformation?

[rv-de]

When you're settling down you can still come back to Germany enjoying a mostly functioning society and reasonable expenses. You'll just need to figure out a way to evade taxes.

[mstipetic]

I have no reason to be there. Came there for the "startup scene" but realised after a while how weak, unoriginal and underpaid most of it is

[majewsky]

Living off capital gains is the easiest tax dodge in Germany. You pay ~50% on income, but only ~25% on dividends etc. (and that's before your financial adviser gets creative).

[ChuckNorris89]

Out of curiosity what do you do and where did you move?

[mstipetic]

I run magicsandbox.com. Right now moving to all remote, still weighing options but might settle back in my home country (Croatia)

[ChuckNorris89]

Nice, congrats!

[BoorishBears]

Everyone talks about how US tech salaries are inflated values because they don't include the cost of healthcare, a lack of guaranteed PTO, etc.

I like feel they're actually under-inflated (at least for comparing high paid workers in both places) because of equity.

The company I work at has rallied many times over 100% since I joined a bit over a year ago. I could sell my equity and "semi-retire" 30+ years early, working when/if I feel like it and not eat really into my savings

It wasn't some grand plan to join a company that would do well during a pandemic, but I did intentionally choose a public company since saying in the tech sector has exploded would be an understatement, and I wanted equity in that.

I'm guessing a lot of people who joined FAANG companies in the last few years are all probably sitting on enough to start thinking about that.

There are those who feel this is a bubble and not sustainable... maybe? But the way I see it is, even if this is the bubble before the next dot com era-style bust, it's better to have a position in it provided by my work and cashing out along the way, than not and end up losing my job anyways.

[ghaff]

>Everyone talks about how US tech salaries are inflated values because they don't include the cost of healthcare, a lack of guaranteed PTO, etc.

In all fairness, if you're working for a public tech (and many other) companies, you probably have good health insurance that's at least subsidized and 3-4 weeks of PTO which may not be great by European standards but isn't nothing. (Though admittedly increasingly shared with sick time so if you're out a lot, it's less good.)

[BoorishBears]

Yeah I didn't touch on that because some people argue it's still not enough, but if you're in the top 5% of earners in the US (which the poster above is in Germany) I think the difference in perks isn't as great as people play up

[HEmanZ]

In the USA top 5% income is about $300k USD[1]. With the relatively low tax rates, I would expect you can take home at least $200k (depends on the state). Like the original poster said, it's not that hard to live off of $50k in most of the US (even in the bay or NY, but you live like a college student). That leaves savings of 150k USD/yr from one source of income. Many families have two working professional adults and can almost double these numbers. Add in investment returns and $2.5 mil becomes a very achievable goal. I know a lot of people in their 30s like the poster and am closing in myself, it is not that uncommon in the US tech community.

[1]https://www.investopedia.com/personal-finance/how-much-incom...

[bumby]

>Many families have two working professional adults and can almost double these numbers

It happens, but only if you have a loose definition of "many". If a family makes $531k, they are in the top 1%

https://dqydj.com/average-median-top-household-income-percen...

[astura]

I think the GP way trying to say that if you are a high income earner you tend to attract/marry other high income earners.

[bumby]

You're right, thank you for the correction. In fact, although it's been awhile since I've read up on it, two high income earners marrying is a major contributor to the growing wealth inequality. Decades ago it was more common for a high income earner to marry a non-high income earner but (IIRC) that trend has been decreasing

[lnsru]

There is no secret, that Germany isn’t a country with decent wages. I can see a ceiling somewhere at €100k before taxes. If you are single, you give half away for taxes, if you are not, then you have family expenses. Living like a student I could save €36k yearly. Now it’s only €15-18k. Considering moving to Switzerland, but it’s simply too expensive with family. And good sounding CHF 135k aren’t that impressive with local prices.

[ghaff]

I can't speak to Germany, but in the US saving from a good but not extremely high-paying job over the past few decades, investing prudently but not too conservatively, maybe having a few moderately good stock wins from RSUs/options or otherwise, having bought and paid off a house in a not outrageously expensive area, gets you into that range. Depends of course on how you spend your money, educational expenses for kids, etc.

In any case, it doesn't require winning the startup lottery or having a $400K salary at Google.

ADDED: ~$2m + paid-off house is the sort of range people (typically engineers, non-software) I've had discussions about "targets" with have in mind.

[pc86]

I agree with everything you said but just wanted to add RSUs/options are only even offered to a slim minority of software developers nationally. I am well paid for my job generally, and particularly for my area, but even something like an employee stock ownership program is extremely rare around here and outright RSU/option grants are unheard of. You'd get laughed out of any interview for even suggesting an ESOP to most places that don't have it.

[ghaff]

That's certainly fair and many ESOP plans are not really an especially good deal. Over the past few decades, in spite of a couple significant downturns, even index funds would have done pretty well for you with regular contributions. But having some good stock wins in addition to that certainly can help.

[cortic]

Not the OP, but this is an interesting question; So you'd have to save at least 72k per year for 35 years. That would put you on the 45% tax in my country so you'd have to make 131k to be left with 72k after tax. Maybe +30k to live on, assuming you commute out of the city. So OP should be on something above 161k.

In the US the OP would be in the top 3% of earners, top 4% in the UK. Even if you are in the top few percent you still have to spend most of your life working to be 'free' for a bit at the end of it.

Of course if you are inside the top 1% you could probably get away with a 10-15 year sentence. Where the average wage is generally life with a few years of poverty like freedom at the end.

[quickthrowman]

> So you'd have to save at least 72k per year for 35 years

Yes, if you put it in a 0% interest savings account. Buying assets that give an ROI is what most people do..

[lukas099]

I live in a sorta expensive area (East Coast U.S.) and have managed to save >60% of my income every year since starting to work, even when I "only" made $65,000 a year. I did it by following a lot of the advice at mrmoneymustache.com.

If I do not retire early and continue on this path, I would probably reach $3.5mil by age 50.

[jandrewrogers]

The top 5% household income in the US starts at ~$270k, which leaves at least $100k for investing after taxes and ordinary expenses. Combine this with US investment market performance e.g. the S&P500 over the last decade, and it is straightforward how someone with a good income might arrive at $2.5M in a relatively small number of years starting from zero.

Americans have notoriously poor investment/saving habits, which obscures the fact that it is remarkably easy to accumulate liquid wealth in the US if you are a diligent saver. The median US household has enough investable income, after all ordinary life expenses, to accumulate a couple million dollars over a typical career. High earners can easily save 10x that amount.

[goldenchrome]

Since this is HN I'm guessing they work in tech, where 300k salaries (pre-tax) are common. Tax and SV living expenses use most of that, but you can still save a lot. You can save way more if you've got a high earning spouse.

The other key thing is investing in the stock market, specifically index funds which have a historical real return rate of 7%. Folks who invested since 2008 got way higher returns from a phenomenal bull run, but let's assume a more "conservative" 7% return.

Save 100k a year with 7% returns for 15 years and you have 2.5mil.

The flaw in that modeling is that your earnings typically peak later in your career, so OP may have made a lot of their money in the last few years from being a high level employee making 500k+ a year.

[_untom_]

This sounds off to me. I was able to save ~20k EUR / year while on a 40k/year PhD salary in Austria. I was living a decent livestyle (intercontinental yearly vacations, taking on cost-of-living expenses for my girlfriend, ...), yet I was far from the upper 5 % of the population, and living in an expensive-ish town (the gentrified/expensive area of Berlin i now live in has roughtlye the same overall CoL). So I am assuming your problems come down to varying definitions of "decent lifestyle".

[quantumofalpha]

>I am from ... germany

Well there's your problem. Extremely few well paying (say $150k+) jobs and crazy taxes don't exactly encourage wealth accumulation.

Try Bay Area - with tech salaries there and stocks growth being what they were this past decade, the real question is how is it not possible (if only you wanted) to have made $2M+ working for a FAANG for a decade there.

Or at least go for Switzerland, although market is much smaller there, beware. But I know multiple multimillionares in person who made it all on Google Zurich payroll.

[iwangulenko]

Indeed in Switzerland the taxes and living costs are lower than in SF/Nyc; hence, you are more likely to become a millionaire with a tech job here than almost anywhere else.

If Switzerland is an option, ping me. I am a well-connected tech recruiter with a solid network in Zurich, and I worked as a programmer before, so I know the tech scene here inside out.

[castlecrasher2]

I'm just revising my investment strategy so I'm no expert, but the book The Richest Man in Babylon (https://www.amazon.com/Richest-Man-Babylon-Magic-Story/dp/19...) helped me put finances into perspective. While it's stuff most of us already know (save money, make more money), the way it's presented helped me realize what I need to do now to be financially secure later.

[astura]

High salary and/or low expenses, invest the difference.

Most of that 2.5 million probably came from either interest or capital gains (which compounds). I've only been saving for a bit less than a decade and my increase in net worth for the last few years was greater than my total salary (before tax) the same year. [My salary is extremely low compared to Bay Area.] I save 40% of my after tax income.

[trianglem]

I make around 200K a year and live in a relatively rural part of the country and own my home so I don’t have a mortgage. I save between 60-100K per year. I don’t have kids yet though so that might change once that happens.

[boltzmann_]

> germany

That's why, just check how tech is pay in USA http://levels.fyi

[quaffapint]

Don't assume that's most of the US. Most of it is nothing like those numbers and for those with a mortgage and family , saving much of anything can be challenging.

[artemonster]

these numbers are crazy

[akhosravian]

Those numbers are real and it’s why tech hubs are both very expensive and worth moving to.

[pietrovismara]

You just can't. And that's how it's supposed to work. Only a very small minority of the population can reach that kind of worth. It's the foundation of this system, no matter if the baselines grows, there will always be rich and poor.

[artemonster]

I really don't undestand this "that's how it's supposed to work". Baseline doesn't grow, it only gets worse. Why the hell my landlord, just by the virtue of being born 30-40 years before, was able to afford buying a nice apartment, while working without education, for which I am giving away today a third of my net salary and with 0 chances of buying one, ever?

[pietrovismara]

Hey, you should just work harder. Work away your entire life and maybe you'll be able to afford a house too! Who knows, you might even get to buy 2 and start exploiting people poorer than you by asking them to pay to use a house you didn't build. The circle completes.

[tonyedgecombe]

Don't forget to cut out the avocado toast.

[sershe]

Nobody forces you to rent from him; and why are you comparing yourself-now vs him 30-40 years later, relatively speaking?

There are plenty of places in the US where you can buy a house now - housing in the US overall is actually cheaper than it used to be per sqft as far as I recall. Then, in 30-40 years you may too be renting out a paid-off house.

[teraku]

Hey I feel you. Same category.

The gist: If you didn't inherit, you are fkd in Germany.

MOST of wealthy people inherit it (and 2/3 of super wealthy inheritance in Germany is former Nazi money). It's unfair.

What helps me get by: I know my life is good, even though exiting the treadmill is most likely not possible. Enjoy what you have, invest a bit and focus on things that make you happy :)

[BoorishBears]

The person you're replying to says they're in the top 5% of earners in Germany, I feel that's closer to the small minority than most