Retirement at 40 – the life concept of the “frugalists”

Many people dream of financial independence. So-called frugalists want to build wealth as quickly as possible. To achieve this, they save and invest every cent. Is this only for high earners?

Florian Wagner also dreams of being financially independent. He is part of a growing movement of super savers, so-called frugalists. The 37-year-old talks openly about money and does the math: he currently puts aside 4,500 euros a month, with a net income of 6,000 euros. The trained engineer is now self-employed and can afford such a high savings rate.

Wagner heard about the frugalist trend a few years ago and questioned his monthly expenses: “I started cycling to work instead of taking the subway, I cooked for myself in the evenings, did my weekly shopping and stopped eating kebabs and pizza every other day.” Eventually Wagner quit his well-paid job and started his own business. “I improved my quality of life so much,” says the 37-year-old. That's what frugalism is all about.

Money flows into funds, bonds, real estate

But renunciation alone is not enough. Frugalists invest a large part of their income in equity funds such as ETFs. They often also try to spread their risk, so they also invest in bonds or real estate.

Frugalism is a lifestyle concept that originally comes from the USA. It was made popular by bloggers like Mr. Money Mustache. The Canadian described years ago how he managed to retire at the age of 30.

During the financial crisis of 2008, the “FIRE movement” (“Financial Independence, Retire Early”) gained more and more followers and also spread to Germany. Anyone who has saved 25 times their annual expenses is considered financially independent.

Up to 70 percent savings rate

As a rule, the savings rate of frugalists is between 60 and 70 percent. By comparison, in Germany people save an average of just around eleven percent of their income. Many are unable to put any more aside.

The criticism is that frugalism is only for high earners. “If you only earn 1,800 euros, you won't be able to save half of it because the majority of it will go towards rent,” says Thomas Kehl from the Finanzfluss platform.

Kehl says that life circumstances often change before retirement at 40 or 50. Everyone has to work out for themselves how realistic the goal is. “For most people, costs inevitably increase,” says the financial influencer. Children, a home of their own or a long illness: the savings rate can change quickly.

Do you also have to forego your vacation?

Financial professionals also point out the dangers of withdrawing assets. If share prices fall just before the planned exit, early retirement could be in jeopardy. It is therefore important to have a good exit plan.

Florian Wagner says he has now amassed a fortune of 480,000 euros. However, he has moved away from his goal of retiring at 40. He wants to continue working, but only as much as he wants – and without having to forego a vacation or a visit to a restaurant. “I never make decisions to forego or restrict anything. I always think to myself, what would happen if I died in an accident tomorrow? Then I don't want to have any regrets,” says Wagner.

Maintaining the concept of frugalism in the long term is the biggest challenge for many in the scene. Very few people become financially independent overnight.