If you’re coming here from a search engine or another link, the first part of this post went up the week before.

By far the biggest influence on today’s frugal living and financial independence has been Joe Dominguez.

Joe worked on Wall Street in the 1960s, back when American industry and finance was riding high. Nobody wanted to retire– they all wanted to work hard, get rich, and live the good life. Yet Joe saw his work-life balance questions as “life energy” that could be devoted to working for money… or for living. He worked on building an investment portfolio that would pay his expenses, and he tried to keep his expenses as small as possible. In 1969 at age 31, he retired on the income from investing in Treasuries and lived off that fixed income for nearly 30 years.

In 1992 he and Vicki Robin wrote “Your Money or Your Life“. They showed that the cost of working was far more than we realized. Once people added in the expenses of work attire, commuting, childcare, house cleaning, yard care, maintenance/repairs, and unpaid overtime, they were shocked to learn that they were working for minimum wage. They were also sacrificing at least three-quarters of their lives to have a dream retirement during their “golden years”, when their health and physical abilities might leave them far short of being able to pursue their real dreams.

Joe and Vicki also introduced the idea of “life energy”. You have a limited amount of it, you don’t know when it will run out, and you want to spend it for as much value as you can. As you earn money to build your retirement, you’re using your life energy to pay for your expenses.

Eventually you realize that your material consumption will cost you a certain number of hours of life energy. Did you really want to grind out all of those hours (at minimum wage after work-related expenses) to pay for a fancy TV?

Crossover point chart from “Your Money or Your Life”

Joe’s most powerful concept was the wall chart of investment income and expenses over time. When you post your monthly numbers on this chart, prominently displayed on your wall as a constant reminder, you begin to focus on the spending that’s important to you and the savings that you can achieve to reach your goals.

As your investment income compounds and rises, eventually it exceeds your expenses at the “crossover point”: the date where you’ve achieved financial independence.

By the 1990s, Joe’s insistence on a portfolio of 100% Treasuries was ravaged by inflation. He started at an annual withdrawal of about $7000/year in 1969 and would have needed over $30K/year by 1997 just to preserve his purchasing power.

By this time he was sharing expenses in a group home and living an extraordinarily frugal lifestyle on about $13K/year, but most people would have run out of savings (and frugal motivation) after 20 years. Later editions of the book proposed a more mainstream inflation-fighting portfolio of low-cost index funds. Today, of course, Vicki continues Joe’s work on the YMOYL website.

While Joe Dominguez was living a frugal lifestyle in the U.S., Paul & Vicki Terhorst demonstrated a different sort of low-cost life: perpetual travel. Back in 1984, they retired with $400K to live around the world.

Paul was a CPA with a large firm, but he wasn’t happy in that avocation. When he was featured at a high-school career day and a student asked him what he really did, Paul’s epiphany was that he spent all day on the phone talking to people. He realized that he’d much rather have enough money to live the life he really wanted rather than piling up money to live any lifestyle. As a CPA, he knew how to analyze their finances and make it happen.

When they retired in 1984, Paul was 39 years old and their theme was “$50/day”. That spending goal helped them search out frugal ways to live a new life as a “perpetual traveler”. Instead of seeing Paris on a two-week pre-paid holiday tour, they found a cheap apartment and lived like locals. They spent months overseas in Thailand and in South America. They learned to speak foreign languages so that they could negotiate discounts on apartments. They learned the best places to shop for food and laundry with the locals. They learned how to get around on buses or taxis.

In 1988 they wrote the book “Cashing in on the American Dream: How to Retire at 35“. (It’s long out of print but still carried in some libraries.) Back then the Terhorsts saved enough money to put all their assets in CDs. (Kids, this is back when CDs were paying over 10%/year, but American inflation was pushing 5%. The American dollar was also much more valuable overseas.) Today they live off a diversified portfolio of low-cost index funds including equities and bonds. They can’t reach their original goal of $50/day in Paris any more, but they can still manage it in Asia.

The Terhorsts didn’t lock themselves into the perpetual-traveler lifestyle. In 2005, after over 20 years of traveling the world, they bought land and built a home outside of Buenos Aires. They lived happily there but they’ve just sold the place. After the second major downsizing of their lives, they’re spending a few months in the U.S. and then they’re headed out to Thailand, China, Malaysia, and India. You can follow the Terhorst’s travels on their website and through perpetual-travel updates in “Live and Invest Overseas”.

A third old-school frugal icon, Amy Dacyczyn, has a unique distinction: she’s one of the original frugal military spouses. Although the meme “milspouse” didn’t even exist back then, she developed her money-saving techniques on her spouse’s enlisted salary & benefits. When they retired in the early 1990s, they raised a family of six kids on his military pension and their bridge-career income.

Her writing career started with a newsletter of frugal tips that grew to over 100,000 snail-mail subscribers. After six years she began to “archive” them in three separate volumes, and today The Tightwad Gazette is available as one book.

The books made Amy a celebrity, with interviews on national TV shows and many talks on book-marketing tours. However, she values her privacy, and after six years of the newsletter she retired again. These days she offers occasional “where is she now” interviews, and this 2009 video lets viewers into her home for an update of her latest frugal tips and accomplishments. Even nearly 20 years after she started her newsletter, she’s still enthusiastic about the challenge of monitoring your spending, patiently hunting for bargains, and figuring out new ways to save money.

I read the original three-volume set and still have notes from some of those pages, but it’s a lot to absorb at one sitting. The best part of the newsletter was that it delivered regular small doses of advice throughout the year. Readers got constant reminders of ways that they could improve their budgeting and maximize their savings. Although they could put most of the advice into action during the first year, after a couple of years their learning curve began to flatten out. Each newsletter edition came out with new tips (Amy didn’t want to repeat her advice) and kept showing her readers new areas to work on.

I don’t think I’ll ever see a newsletter in my mailbox again, but these days I get my small doses of ideas & advice through e-mail and RSS feeds from other personal-finance blogs.

So where are today’s frugal leaders?

Everywhere. There are literally thousands of them, and you can find them all over the Internet or your local library. Personal-finance blogging is extremely popular, as are blogs on “green”, “minimalism”, and “simple living”.

Jeff Yeager is one of the latest frugal zealots to receive national attention with his first book. “The Ultimate Cheapskate” is a blatant tribute to not spending money. Jeff proudly writes that he’s not just frugal, but he tries to avoid even needing the item or the service in the first place.

He points out that there’s a return for not investing in a new way of doing something when the old way is “good enough”. He also thoroughly trashes the idea of saving your way to riches by avoiding the daily latte. In Jeff’s view, the best way to save for financial independence is to make thoughtful decisions about the big expenses that come along just a few occasions during a lifetime: buying a car, buying a home, getting a college degree, or paying for a wedding.

Sure, you can save $5 by skipping tomorrow’s caffeinated beverage, but you’re not likely to run to an ATM to deposit the money in your savings account. Yet by keeping your vehicle running for as long as possible, or by buying the smallest house you need, you can avoid the big spending decisions and see a significant difference in your net worth.

Jeff’s continues his quest in “The Cheapskate Next Door”, taking a road trip (by bicycle, of course) to interview cheapskates across the nation. Of course you’re going to look for this one at your local library.

Jacob Lund Fisker has shown thousands how to overhaul their lives with Early Retirement Extreme, a manual that combines frugality with high savings rates and financial independence in your 30s. The book is frankly a much more challenging read than the usual “get out of debt and retire early” genre, and the best place to absorb Jacob’s advice is on his Early Retirement Extreme blog. He continues the lifestyle but he’s currently working for a paycheck, so the blog is set on “recycle” with old posts being automatically sent out on a daily RSS feed.

Jacob’s designated successor is MrMoneyMustache, who also achieved financial independence through frugal living. He continues his lifestyle by rehabbing houses with re-used materials and turning them into income properties, as well as zealously promoting bicycle transportation. (He’s not totally car-free, but he can make a tank of gas last for literally months.)

His blog challenges you to find your own inner frugalista, even if it’s just by drinking cheaper wine or taking the stairs instead of the elevator. A word of caution: MMM has adopted a writing style that the popular media and employers would label as “not family friendly” and “not safe for work”. Don’t be offended by the occasional four-letter word– it’s part of pumping yourself up to tackle a better lifestyle.

Perpetual traveling has grown its own niche from the Terhorst’s early days, and now there’s another entire category of bloggers freelancing from overseas and traveling the globe. I think the most well-known PTs are Billy & Akaisha Kaderli, whose Retire Early Lifestyle website includes several e-book guides, a newsletter, and a blog. They began their perpetual traveler lifestyle in 1989 and continue to document their travels with impressive photographs and detailed advice.

Do you have a favorite frugal resource, either old-school or new? Please post it in the comments so that I can add it to our references and the blogroll!

Related articles:
Old-school frugal
Frugal living is not deprivation
Military retirement with low savings
A complete waste of money
Do you have affluenza?

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