You’ve woken up in the morning, and have cooked yourself a proper breakfast. You turn on your laptop and have a glance at the financial markets. Stock have been taking a beating recently, but on average over the past 3 years, despite not holding a job, you’ve been waking up £100 richer than when you went to sleep. This is the life of leisure. The life of a Rentier.
The ‘Rentier Class’ are those who can subsist on economic rents alone. In plain speak, rentiers live off the capital or money they already have.
The phrase ‘rentier’ is used frequently in relation to ‘rentier states’, which are countries that are dependent upon external rents to supplement their income. Example of which are the oil-rich Gulf states which are practically dependent on their oil reserves and the gradual selling of these to other countries. In this regard, ‘rentier’ is hardly a complimentary term. It is more often used to draw attention to the inability of a country to produce a reasonable quality of living through the organisation of its people.
However today I would like to re-address the definition to be a positive and aspirational term, applied to individuals. In personal finance terms, a rentier is someone who has invested in shares, owns real estate or simply has forced themselves to save a large sum of money in a bank account, and the interest or income from these investments is sufficient to cover their living expenses.
You may immeadiately think of the wealthy upper classes of Britain who in the 1800′s, owned large pieces of land and became ‘Gentlemen and Ladies of Leisure’. While this is a perfect example of rentierism, I suggest you set your sights a little lower and envisage a comfortable and active retirement community in Florida with Spas, gyms and golf courses. For these people are also rentiers, with lifestyles of leisure and no pressure to go to work.
Rentier Are Quite Common
As you can see, the concept of becoming a rentier is rather similar to the idea of retiring and becoming a financially independent pensioner. Wondering how you can become a rentier at a reasonable age is actually equivilant of say, wanting to know how to retire at 50.
Not all of us succeed in becoming a true rentier by retirement age. The majority of the population, especially those who were house-wives/husbands during their productive years, rely on government pension benefits to receive a reasonable income. There are however a sizeable bunch of folk who manage to make it, and I’m not talking about self-made millionaires or CEOs. Hard-working yet prudent professionals can achieve rentier status within 20 years if they put some serious work into doing so. Read my Retire by 50 guide linked above for tips on how to save your way to financial freedom and obtain rentier status.
The Path to Becoming a Rentier
Here is the tricky part, and the reason why so many people fail to become financial independent – they want material things now, rather than financial freedom later. Which would you choose – a brand new small car (£12,000) during your late 20′s, or an extra income of £1,500 per year for the rest of your life from your 40s onwards? This is a tough choice that would split a room in half. Both camps have some pretty solid justifications for either side, but what is clear is that those who would choose the hatchback will never become successful savers, and thus will never become rentiers. Their dispensation to spend is too high, and it is likely that they will only put away the bare minimum for retirement. A person who is personally driven to spend will increase their expenditure if their salary rises, and thus will never take advantage of their increased ability to build up capital.
You could say that the inconvenient truth about becoming a rentier is that you won’t achieve financial independence by spending as much as most people. And that should not be taken lightly, as ‘most people’ don’t exactly throw their money away either. Retaining enough of your income to transform into an annual income will require sacrifice, intelligence as well as discipline.
Rentiers have beaten the game. Rentiers are have tamed capitalism and made it start working for them in a different way entirely. If you think this is possible by cutting back on your groceries, you’re far from reality I’m afraid. But just the fact you’re on a personal finance blog such as Financial Expert, reading up on financial independence tells me that you have great potential for becoming a rentier. You are already demonstrating the proactivity and intelligence required to begin retaining capital for yourself.
The Life of a Rentier
As highlighted in the opening paragraph, a rentier has the freedom to live life however they life. If they want to settle down and live in a nice property, they can. If they want to travel the world and meet many people, they can. If they want to financially support their children and show them a better life, they can do that as well. The life of a rentier sounds somewhat dreamlike because it simply gives you the real choice to do what you want. I hope this article has introduced you to the benefits of becoming a rentier, and has also given you reality check on how difficult that journey may be.
From my point of view, the sacrifice and the hard work will all be worth it. As our lives grow longer and longer – those who fail to build up capital will be forced to work themselves to an early grave. While those who were smart and saved enough capital, will be able to relax, spend on medical care, and live many many happy years after retirement and maybe even welcome their great grandchildren into the world!