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In the world of personal finance, a growing movement known as Frugalism is gaining traction. This movement, also known as Financial Independence, Retire Early (FIRE), aims for financial independence and early retirement. A prime example of a Frugalist is Linda Urban, a 39-year-old freelancer with a family.
Linda, who lives in a 3-room apartment of 56 m² with just the three of them, spends approximately 1,200 € per month. She finds it beautiful that her content on YouTube and Instagram has become her job, helping many others organise their finances and understand them better.
At the heart of Frugalism is the desire for financial freedom, not wealth accumulation. Frugalists follow a lifestyle of conscious consumption renunciation, with the aim of living off their savings later. Many people reduced their expenses out of necessity during the financial crisis that began in 2007 in the USA, and from 2011, Frugalism spread to Europe and other parts of the world.
To invest, Frugalists often set up an ETF savings plan, which automatically invests a fixed amount monthly. The ETF MSCI World is a broadly diversified investment with manageable risk and good return, often recommended by experts. Frugalists prefer investing predominantly in broad-based index ETFs and dividend-paying individual stocks because these investments offer long-term growth and passive income.
Some Frugalists invest in individual stocks in addition to funds or ETFs, with the potential for higher returns but greater risk. Emerging markets ETF is another recommended investment, offering potential for higher returns but with greater fluctuations. Frugalists also park a small portion of their savings on a daily or fixed-term deposit account for security.
Those who do not want to manage their own portfolio can use a robo-advisor. The goal of Frugalists is for the money saved and invested to last a lifetime. In the payout phase, Frugalists may withdraw a fixed amount annually or live off the interest and dividends generated, but a balanced strategy is crucial to avoid depleting the wealth.
Frugalists orient themselves towards the so-called 4% rule, which states that one needs 25 times as much starting capital and needs to invest it profitably to be able to spend as much as one wants per year. The term Frugalism comes from the Latin word "frugalis" which means "frugal" or "thrifty".
Linda Urban, like many Frugalists, has a high savings rate. With no car, no consumer credit, and low fixed costs, she is able to achieve savings rates of 50 to 80%, compared to the average German saving around 10% of their annual income. The number 40 is often considered magical in frugalism: Many Frugalists want to have saved so much money by their 40th birthday that they no longer depend on employment.
For Linda, the journey to financial independence is not just about the numbers. It's about having control over her time and deciding for herself how to fill it. She is currently building up her channels on YouTube and Instagram, and finds it rewarding to help others take control of their finances. In her words, "It's beautiful to be able to make a difference in people's lives and help them understand their finances better."
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