Mr. Money Mustache’s Own Story
Ahh, I see that sissy the “Realist” has been posting on my blog. I hope that doesn’t happen too often. Sukka’s too soft. You’ll never get anywhere with piddly numbers like $5/month or $5/day.
And I had to laugh at that example.. would anyone really start buying lunch at a restaurant when they were already so tight on cash that they were saving NOTHING? And would they continue buying it once they saw that their credit card balance was starting to grow? What kind of idiot would do that? Why does this guy call himself the “Realist” with such an unrealistically stupid example?
What I want you to do is start thinking of REAL savings. Not putting away $5 or $150 per month, but more like FIVE THOUSAND per month. Not everyone can do that. But a middle-class American family with two teachers making $60k each per year, who are currently saving zero and struggling to get by? THEY SHOULD BE SOCKING AWAY $5000 PER MONTH. Word.
Here’s my story, so you can see how it’s done.
As a boy, I learned frugality by growing up in a family where my parents didn’t buy much stuff. Instead of having stuff given to me, I had to get a paper route, trudging 6 days every week in the bleak Ontario, Canada weather for thirty bucks. After this experience, earning $4.15/hour in a gas station with a partially heated booth was incredibly cushy and generous. Imagine then, how amazing it was the next year to earn $6.50/hour to work in a convenience store with not only windows and doors to protect you from the weather, but heat and air conditioning that allowed you to wear indoor clothing year-round? I was making $650/month, going to high school, and by the end of a year, I had $5,000 in the bank.
My point is that in the United States and other rich countries, you’ve got it good. Even if you work in Wal-Mart, you make more money than I did, you get to walk around in a huge fancy store, and you can save almost everything you earn if you don’t get ridiculous and waste it all. When I made $6.50 an hour, I knew it wasn’t enough to afford a car or my own apartment at age 16. Well, it was enough, but only if I wanted to spend everything I earned. So I stayed at my parents’ house. When I started making more, I was ready to up the lifestyle a bit.. but not a huge amount.
From here the MMM story goes on. I went to university, but picked the local one so I could live rent-free with family. I worked in the summers and found affordable ways to party so I graduated with no debt. A decent professional job awaited at graduation, so I upped the ante to include my first used car and a house shared with many roommates (rent: $270/month). After a few raises and new jobs, I moved to the USA, doubled the salary, but kept the used car and the living-with-roommates situation. Finally, a 20% downpayment had been saved for a house, so I made the jump to buy my first fixer-upper, sharing it and working on it with my future wife.
At this point, we had it made – double incomes, low mortgage. We let the good times roll a little bit, enjoying the same luxuries as our peers, doing plenty of international travel. But the difference was, we were spending only about 25% of disposable income, while they were spending 90%, because of additional expenses like auto loans, higher mortgages, and hidden stuff like clothes and restaurants. This meant saving a good $4,000/month, which rapidly compounds and results in a net savings of $7,000/month after a few years. Pretty soon we were on a treadmill that was pushing us forwards instead of fighting one that pulled us back.
At this point, we could have bought a huge house or a small fleet of nice cars. But instead, we spent the money on the ultimate luxury – quitting our jobs. For other people, a sailboat or a starting a local charitable trust might be the luxury of choice. You get to choose your own reward. But it’s all about not getting stupid when you can’t yet afford it.
For example, when you’re making $30,000/year, you can’t be out buying $7 martinis on the weekends and financing a $20,000 new car. At this level, you are still in the cooking-at-home and riding your bike club. Maybe a $3,000 used car if you can buy it in cash and if it’s really necessary to get to work.
When can you truly afford a fancy car like a BMW? Well, once you have the cash for it in the bank, your house and all other debts are fully paid off, and you are either retired or very comfortable with delaying your eventual retirement for a year or more to pay for this depreciating piece of luxury property, THEN you can roll into the dealership.
The funny part is, if you follow the ways of the Money Mustache, you’ll hit these levels sooner than you think. So you can borrow to buy the BMW today, and pay for it forever. Or you can pick it up with the spare change in your wallet in the surprisingly-near future, and be a happier person for the wait.
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Mr. Money Mustache is a family man living in the United States who retired from work, relatively wealthy, at about age 30. After several years of retirement, he noticed that his still-working peers were envious of his lifestyle. They were making more money than he ever had, yet they were somehow still broke. So he decided to write this blog to educate the world on how it is done.
Just for clarification…if a couple is making 60000 per year and saving $5000 of it per month…where are they getting money for stuff like food?
What is a reasonable percentage of a salary that should be saved?
Yeah, that would be impossible, saving 100%, since even if you ate nothing there are still taxes to be paid! In my post, I meant EACH hypothetical person was making a 60k salary. I was suggesting that a couple could get to the point of living off of less than one of their salaries, including joint income taxes, so the second salary of 5k per month ends up being saved completely. As for percentage of income to save, that can go up as income goes up. A person earning 15k will find it tough to save anything. But if that same person advances to 100k, he can theoretically save 85 minus income taxes. For the middle-class 1-2 kid family who wants to keep the best parts of the full rich-world lifestyle (as I do), I am trying to make a case for living off of about 40-50k and saving the rest.
Not possible. I earned about $120,000 last year so I fit your theoretical example. I paid 48,000 in income + SSI/medicare + other taxes (phone, electric, natural gas, property, school, etc).
You suggest they can save $60,000 a year, but that only leaves $12,000 to live on which is not enough unless you live in a two-room house, with no air conditioning, and turn off the heat in the winter. (Brrr.) Who wants to live like that?
It also makes no allowances for the cost of rent if you’re in an apartment, or monthly mortgage payment if your $120,000 couple is in a house.
Dude, what is the point of questioning my numbers!? There is not enough detail in this article to possibly nitpick as you are. Among your glaring oversights:
- Two income earners pay less tax than a single earner with the same salary.
- 401K contributions are done pre-tax, and when two earners both max out, that cuts taxes significantly
- I may have lower property and state income taxes than you
- by this point in my argument, we’ve probably increased the budget to $12,000 or more per person. That is MORE than enough to live well on (My family currently lives like royalty on under $9k/person/year, although with no mortgage)
- Side note: I live near Boulder, CO where A/C is not needed and winter heat bills on my 2600SF house are somewhere in the $400-$500 range per year.
“For the middle-class 1-2 kid family who wants to keep the best parts of the full rich-world lifestyle (as I do), I am trying to make a case for living off of about 40-50k and saving the rest.”
Any advice for saving tons of money for a middle-class 1 kid family making 40-50k per year between the two of them—and living in Boulder, CO?
The only options I can see is a) move, b) make a lot more money, c) all of the above. A isn’t gonna happen because schools are awesome here, but b) might given time (we are in early 30′s) if economy doesn’t totally collapse soon.
Hiya Duff, thanks for the comment!
I like your question, since I too have lived in Boulder and live just 10 miles away right now. If you had said Manhattan, I would say “Move out quickly unless you are making at least $300,000 a year or willing to go black-belt-frugal on accomodations. But in Boulder I’d say, “don’t use your location as an excuse not to become rich!”.
Here in Colorado we still enjoy breathtakingly low costs – low property taxes and insurance, low state income taxes and sales taxes. An excellent climate that allows year-round biking and requires very little in home heating and cooling costs as long as you take advantage of the sun in winter and cool nights in summer. There aren’t that many places to live that are much cheaper.
Since you’re currently not in the “obscenely high income” bracket that many Boulderites are (most of who still are in debt, by the way), I can only offer the same tips I use for Cheap Colorado life:
- keep only one used, debt-free car and have at least one of you bike to work
- rent, rather than buy, a house. In Boulder, rents are irrationally cheap compared to purchase prices. Or try the neighborhood of Louisville that is right at the top of S.Boulder road (i.e., the closest possible commute to Boulder). I bought a house there and could be in downtown Boulder by BIKE in less than 30 minutes, year-round. And your kids can walk to Coal Creek Elementary, reportedly one of the best in the whole state.
- do more mountain biking and less skiing – it’s free, more fun, and better exercise.
- supplement your groceries with Costco for delicious bulk items like coffee and olive oil
and
- make a trip out to Old Town Longmont to have a beer on my patio with me to discuss further :-)
-MMM
I live in Louisville… this man ^^^ speaks the truth!
Great little town, much cheaper than Boulder (but a bit pricier than Longmont). I’m here (vs Longmont) to cut my commute to work to a 26 min bike ride, so it was worth the extra money in money saved commuting (ie, see MMM’s “The Real Cost of Commuting”).
Less traffic, quiet, friendly, good schools, stable home prices, low crime, easy to walk/bike to stores, etc. I love Louisville. :)
…and another thing to add–we have $70k+ in debt between the two of us too (student loans, medical debt, etc. but no car or house loans thus no “good” debt). I think our situation must be fairly typical, no?
Thanks for the recommendations. We are already doing all of those things. I guess we aren’t too bad off after all (we also have flexible jobs we enjoy), but I’d just like to save even more and really be smart about it.
Hmm, just saw your follow-up comment about the debt. You are really stretching the ‘stash there, with a combination of higher rent, kids, AND debt left over from the past. I would normally advise people to travel back in time and be sure to get their debts completely paid off BEFORE starting a family, since it’s much harder to do so afterwards. But it can be done and it sounds like you are doing it wisely already.
To speed things up, it might just require the family to go into a more hardcore mode until it is paid. Once you halt that interest-on-$70,000 treadmill things will obviously be much easier. Part-time work on weekends? Staycations instead of vacations? Perhaps you have “emergency” cash in short-term savings accounts that could be transferred to pay off some of the debt? Even the traditional financial gurus advise getting the immediate debt out of the way before you move on to do retirement savings and such.
One of the biggest things I see with indebted friends is that they don’t view the debts as enough of an emergency. People have high-interest student loans yet still finance a new car. If I had an unpaid debt other than a mortgage I’d be nervously pulling my hair out and photocopying pages out of the “how to live entirely on potatoes and oats” cookbook untill I was able to get back from the precipice. I would find a way to live on even fewer than the one pair of jeans I currently own. But I admit I am Mr. Money Mustache and can get a little extreme at times :-)
Yea–so far the prospects for paying off that 70k in less than 15 years looks pretty bleak though, no matter how “hardcore” we go (unless we live in a shack with 10 others or something, which the lady is unwilling to do).
I’m still not convinced.. The numbers in my mind add up much more optimistically than your grim prognosis. If you like, send me a private message through Facebook and we could compare notes. I live on well under 40k and still have enough to pay off a hypothetical debt of 70k.. but I’d like to understand where my own situation does not apply to others because it could help with future posts on the blog. Thanks again for you comments.. And by the way your own writing on the beyond growth blog is amazing!
Great site Mr. Mustache.
I really like your down to earth attitude that is conveyed through your writing.I found your site through a recommendation related to Early Retirement Extreme. I am a Canadian university student who will be graduating debt free in December this year. Any major tips for university students entering the workplace?
I look forward to reading more interesting content.
Hi Mr. Riley, thanks for reading and for the comment!
You’re already on a great track, reading Early Retirement Extreme and Mr. Money Mustache so early.. In 1996 I was right where you are now. I made a few mistakes along the way since I only stumbled into the idea of preparing for being job-independent about 6 years after graduation. There are so many things to share, depending on your goals, but if I had to boil it down to one thing that fits in this comment reply: watch your spending on cars and transportation, especially in Canada where costs are almost 2x what they are in the US, and NEVER borrow money to buy a car!
That step alone pretty much guarantees a somewhat wealthy future, but there is obviously much more to write about as time goes on. I am excited about the idea that there might be university/college students reading here. In fact, I was just yesterday talking to a friend who is a young university professor here at Colorado University in Boulder and we were wondering if there is a way to get more newgrads interested in becoming wealthy early in their lives. From the debt and spending habits most students already have, they are on the opposite path – being stuck in debt for most of their lives.
Almost everyone can become rich fairly quickly by modifying their spending, but people in their 20s have a chance to enjoy their entire lifetime, including any child-raising years, being financially free. From my experience, this is Effing Amazing.
hope to hear progress updates from you as time goes on,
MMM
MMM,
This blog is great. I’m currently traveling for what will be 1.5 years prior to relocating to New Zealand. I wish I had a guide like this when I graduated from university. It never occurred to me that I could retire in my 30′s! Once I’m settled in New Zealand I will be putting your suggestions into practice and hope to retire prior to turning 40.
I was cycle touring the last year and realized that I still had too much to see to go back to work. After going back to my job for 4 months I just quit my job and started traveling again. Had I been smarter with where I saved my money I could have easily expanded my traveling to 4 or 5 years.
Going back home people started asking me for advice on how to save and I didn’t have answers that most people wanted to hear. Your blog states a lot of the same information but in an easier to digest way! I’ve already forwarded it on to multiple people who have recently graduated university!
When I did the math, I couldn’t figure out how you could protect your assets for inflation for the future and yet maintain the withdrawal rate – please enlighten me?
I agree with Amy.
I am also hoping for an Extreme Early Retirement. Assuming I did my calculations right, $40k today is about $60k 20-years from now (assuming an extremely conservative 2.0% inflation). If you look at 30-years it jumps to $72k. What that says to me is that the earlier you retire the bigger your bank roll needs to be.
Is there another way I should be looking at this? How does one account for the wealth destroying affects of inflation especially over the long time horizon that is associated with Extreme Early Retirement?
Thanks in advance.
Hmm.. it seems that confusion and worry about inflation is widespread. I think it would be fun to do an article specifically on inflation and how to ensure it doesn’t catch up with you – thanks for the inspiration!
It is quite easy – you make sure you leave enough of your annual returns still in savings, to keep up with inflation. So if you have a stock portfolio growing at 7% before inflation, and inflation is 3%, then you can safely withdraw 4% forever. The remaining principal will grow at 3% forever, and thus your annual payments will grow each year to keep up with inflation.
Similarly, if you have stocks that pay dividends, these dividends tend to increase with inflation, as does the stock price itself.
Similarly, if you use rental houses as your retirement income, you can raise your rents each year to keep up with inflation (or faster if your city experiences above-average growth over time). And the house price will on average keep up with inflation as well.
Thanks MMM. I guess in this environment, 7% is nice….I need to catch up on your blog, but isn’t a safer rate of return more like 6% if you are withdrawing…anyway, if you have a post with more concrete number examples I think that would be extremely helpful!
I’m 22 (just graduated), newly married, and loving your blog so far MMM. Keept it up!
I’m a single person living in Manhattan on 27,000 per year. I get paid 9 months out of the year. Right now I’m putting $500 in savings every month I get paid, and I’ve destroyed $2,000 of credit card debt in the last three months. Looking to kick the ass of the remainder and move on with life. My work schedule is weird, so I still eat out more than I should, but I’m getting better at planning. I’m at least paying cash for everything now, earlier stupidity be damned.
Thanks for the inspiration!
Another front-ranger here (Boulder). I have been living on cash for the past 5 or 6 years and am faced with a need for a “new” car. I have always bought cars that are 5-10 years old for cash, all for between 4 and $10K. The last two ended up costing around $2500 per year for repairs and I sell them for about 75% of my purchase price. Let’s call it $8K original purchase for easy math.
$8K purchase. $7500 in repairs for three years. $6K exit revenue. That’s $9500 cost (not incl gas and ins…I figure those will be a wash), but I’m spending close to $300 per month over time. I’ve been considering a lease for about that amount.
Other notes:
1. I need a truck (new ones are expensive!)
2. I’ve been considering setting up a company which would buy the truck. Then I could write off depreciation and repairs.
Your counsel?
-Mark
Love the blog, love the advice, but your description of a “middle class” family earning 120K per year is way off.
http://en.wikipedia.org/wiki/Household_income_in_the_United_States
These numbers are from 2006, but 2 workers earning 60K each would put them easily in the top quintile (which starts at around $92K).
Yes, and I would add regarding the “two teachers making $60k each per year” part, that my hubby and I are both teachers–he’s been in the field full-time for about 15 years and makes $54,000, I make less than that. And that does not include a health benefit package (it would cost us $1,000 per month out of pocket to cover our family of four through the school district.) Teacher compensation is not what it used to be, at least not in California.
In any case…thank you for the blog, Mr. Money. I’m just starting to read it and appreciate all the information!