Getting Started #4 – If you Try Sometimes, you Just Might Find, you Get What You Need

By the Realist

Mr. Money Mustache has been a bit more reasonable lately, posting some numbers to back up his assertions. But I thought I should join in at this point to address something that has probably been in your mind: how much can I really give up, without going crazy? After all, we all COULD live under a bridge and eat out of dumpsters, but no amount of money savings would make this worthwhile.

The miraculous answer to the question of how much you have to give up is: not much at all. The reason is that you will be using your creativity to enjoy the lifestyle of your choice, at about 75% less than the standard cost. You can  think of it as gaming the system. And it can be really fun once you get into it.

Let’s start by explaining why the system is so easy to game if you live in a so-called rich country like the US, Canada, Australia, or much of Europe.

Our country is home to a great surplus of wealth. It is very unevenly distributed, but there is plenty of it. We also have mind-bogglingly advanced technology and international trade which makes it so that certain goods are unbelievably cheap to buy. You can buy enough basic food (rice, beans, oats) to power you for a day for about $1.00. You can buy enough oil to carry you and 2400 pounds of steel 40 miles for $3.50. But there are also goods that are incredibly overpriced. You can pay $900 for a decorative leather satchel that serves no purpose. A day’s worth of food could also cost $900 at the right restaurants.

The whole game of our system is for the rich company owners to pay for advertisements to convince everyone else to buy their products at as high a price as possible. Ads and peer pressure make it very tempting to have the more expensive products. Rich people and other big spenders buy these products briskly, driving up the high-priced products while simultaneously advancing industrial technology and competition which actually drives down the price of medium-range products. But if you can peek through the ads and identify the actual needs that you want to meet, you can pick much more suitable products for yourself and save a bundle. To put a number to it, your goal should be to spend only 25% of what the average person of your income spends in each product category.

By letting yourself spend 25%, instead of 0% like the guy living under the bridge, you can still be part of the good life, enjoying normal modern society without anyone even knowing what you are up to unless you choose to share it with them.

So to go through a few examples:

  • Goal is getting around the country on 4 wheels: Average person spends $25k for a Honda CRV or Ford Explorer, you can spend $7k for a few-years-old Scion Xa
  • Goal is being not naked all the time: Average person spends $600/year on clothes from the mall, you can have a slightly smaller rotation of nice clothes (considerably nicer than Mr. Money Mustache’s clothes, for example) from Target for $150/year
  • Goal is getting out for healthy bike rides: your friends may buy $2400 carbon fiber road bikes. You can still find a great bike with some old-fashioned aluminum on the frame and carbon forks for $600 on Craigslist and ride just as fast as them.

You can figure out a trick like this for just about every category of living expenses. I challenge you to tell me one (leave comments below if you like) that can’t be improved over the standard person’s expenditures. There are some that are easier than others of course, so I like to cut those even more than 75% to free up some money to spend on things more dear to me. For example, I spend 0% of the average on cable TV and 10% of the average American dining out budget, but more than 100% of the average on housing since I like to live in a nice place. As long as my other savings can more than make up for the house I can still meet the 75% off goal.

So you’re giving up some spending.. but you’re not giving up your needs.. or your happiness, if you do it right.

Welcome New Readers! Take a look around. Feeling Hardcore? Start at the first article and read your way through using the links at the bottom of each article. Casual Sampler? Browse the complete list of all posts since the beginning of time. Hope to see you around here more often. ~ Love, Mr. Money Mustache

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23 Responses to “Getting Started #4 – If you Try Sometimes, you Just Might Find, you Get What You Need”

  1. Tracy May 25, 2011 at 1:24 pm #

    Is there a source for figuring out what the average person in different income ranges spends? Or just guesstimate based on peers?

  2. fwinter June 3, 2011 at 2:28 pm #

    So with you on the bikes thing. Used to buy the expensive Italian bikes but sold up when family commitments took over.

    Now I’m back in the game getting fit with a bike that cost a quarter of what I paid before. Lower spec Shimano i.e. Tiagra is now not far off Ultegra and we are really talking small aesthetic differences and a few grams.

    Thanks to Taiwan cheap bikes are all you need.

  3. David Baillieul July 4, 2011 at 11:31 am #

    I purchased a new Giant OCR3 carbon fiber at end of the season ( Aug ) 4 years ago for $1000. Rode the bike regularly and maintained it well. Sold the bike this spring ( prime season ) for $1000. Pretty proud of that one :)

  4. Bener July 10, 2011 at 6:45 pm #

    Loving the blog, I will be a regular follower. Thanks for opening my eyes to the massiveness of some expenses!!

    Also, +237 bonus points for the Stones quote…

  5. Jack October 17, 2011 at 6:53 pm #

    Living in a city like Vancouver, I’m wondering how it is possible to lower the housing cost. With an average income, buying any kind of housing is difficult. Is renting the only option?

    • MMM October 17, 2011 at 7:57 pm #

      I’ll defer to any expert Mustachian Vancouverites, but as a general rule I’d say, “Yeah!”. In Vancouver and other super-pricey cities, rents are way lower than the capital cost of tying up the corresponding amount of cash in a house. So the landlords are actually making a very low return on their investment – many of them bought the places at far lower prices and are content to get even the lower rent, creating a nice irrationally low price you can take advantage of. Some areas have rent control rules that contribute to this effect.

      The best strategy, monetarily speaking, is to rent an affordable (and walkable) place while taking advantage of the high salaries in a big city for accelerated saving. Then move away when you’re done with the income. If you are in a big city with a lower income, you might consider if there’s even a reason to be in that big city – if you could get the same salary in a smaller place with affordable housing. Of course, personal preferences vary between big and small cities, but I’d say people should only live in a place like Vancouver if they love it more than anywhere else and/or they are getting paid enough to justify living there.

    • Todd Carnes February 5, 2014 at 2:24 pm #

      I have owned two houses in the past and I refuse to ever do so again.

      I would rather rent than own a house anyway. Why tie yourself down with a 30 year mortgage and a house that is basically just a big money-sink anyway?

      It’s not worth it.

      Rent a house and let someone else deal with mortgages, and repairs, and home owner’s insurance and…. etc. etc. etc.

      Besides, what if you buy a house then find out you don’t like the neighborhood as much as you thought you would? Now, you’re stuck with trying to sell a house before you can get the heck out.

      On the other hand, if you rent and find out you don’t like it there, just pack up and move.

  6. CG January 23, 2012 at 9:16 am #

    That would mean a family of three(US median household size) can live on $12.5K a year(based on 25% of $50K US median household income). That’s about $4K per person. I know our family of 5 would do just fine on $20K a year, not counting any health insurance premiums. My 1 year emergency fund is $17.5K so I’ve figured out our very lean but not totally deprived budget before. We’d still be able to keep and use our paid for car, pay our mortgage, take care of average health issues, eat well as usual and get presents on our birthdays.
    The 25% idea reminds me of when I was a kid. My dad would sometime surprise us by bringing home a variety full sized candy bars on his way home from work. That was a big treat. We’d all agonize over which one to pick. My siblings would wolf theirs down lickity-split but I would eat only 1/4 to 1/3 of mine and wrap up the rest of the bar for later. I’d make my bar last for days. I feel lucky that I have that hard-wired into my personality. It requires such a huge change of thinking to go from a whole bar mentality to a 25%-er.

  7. sadpanda March 15, 2012 at 9:58 pm #

    Ok. According to the Australian Bureau of Statistics, in 2009-2010 9the most recent year I could find at the moment) the average Australian household spent $1,236/week on goods and services. 18% of this was allocated towards housing costs, so about $222.

    25% of that is about $55.

    A quick search on the biggest nation-wide real estate site reveals that across the whole of Australia, for $55/week I can rent…a lock-up parking space. Even the single bedroom in a crackhouse deals are more expensive than that.

    Hmm. Belt needs to be tightened elsewhere, I guess.

    • Mr. Money Mustache March 15, 2012 at 11:28 pm #

      Exactly! If housing is only $222, what are your fellow Australians spending the other $1000 per week on? Probably some pretty expensive stuff.

      My own housing cost is probably at least up to the US national average. But other categories are a full 100% lower to make up for it.

  8. Tundra March 21, 2012 at 1:54 pm #

    Hi – I just came across your site this week and have been learning a lot! Thank you. No cable TV, cook at home, love the trails, bike sometimes in the summer, but still struggling to save.

    I have a 16 year old subaru with 83000 miles – need a AWD here for winter. Trying to figure out if I should keep putting money into it for repair and maintenance (REC title-ignorance on my part, new to the country, etc.) or buy a used new car like the suzuki.

    • Mr. Money Mustache March 21, 2012 at 6:53 pm #

      Wow, that’s pretty low mileage for a car of that age! The reliability shouldn’t be much of a problem, assuming your annual driving continues to be low. But Subarus are very fuel-thirsty.

      Then again, if you live up a steep mountain road and actually need AWD for the forward traction, you probably already have the most cost-effective car.

      (Note that AWD does not increase safety in level terrain winter driving, since it helps you accelerate faster, but not brake any faster. For maximum safety AND fuel efficiency, just throw burly snow tires on a front-drive car for the winters: just ask any of my fellow Canadians. There are few places with more extreme winter driving than Ottawa, ON, where I lived before moving to Colorado where there is no winter.).

      • Blaze October 15, 2013 at 1:18 pm #

        Gee MMM, you must be missing the freezing rain, slush, 3ft of snow, rinse and repeat cycle. And sometimes that’s all before lunch time!
        Just replaced my ancient vehicle with a new to me model. Part of budgetting the purchase is assuming $800-$1000 for new snowtires and a second set of rims so that the spring/fall tire swap is an easy DIY job done in the laneway. The old rims aren’t compatible with the new car so if we can’t sell them to someone, they’ll go for $crap metal.
        In Quebec it’s now law that you must have proper snow tires on from Dec 15 to Mar 15. I wish they’d do that in Ontario. I can’t believe anyone actually believes that “all season” tires actually refers to all of Ottawa’s seasons. And then they’re surprised when they end up in a ditch. My luck they’ll slide into the back of me when I’m able to stop and they can’t.

  9. KittyWrestler June 18, 2012 at 4:47 pm #

    Too bad the early posts didn’t attract much comments like the later ones are.. Sometimes it is interesting to see what ppl have to say per their personal experiences.

    Health care actually is going to go up if I ever quit my job. My company spends $15000 a year on my family paying up all kinds of premium so there is little out of pocket money for us including medical/dental/vision.

    but I did see your other post about how little the medical will cost if you are on your own and assuming you don’t have pre existing conditon. I think that “Get rich slowly” guy had a heck an aweful time getting himself a plan since he had pre-existing..

    I did a quote myself a long time ago when I was out of job. healthy, no baggage, single no kids.. still cost me $185 a month. Now it would be anywhere around $400 for my family. And everytime I take my family to go see doc just for routine dental cleaning or physiclas, it would cost a lot more..

    right now? it cost me $40 a month on medical premium, $18 on dental and $4 on vision for a family of four.

  10. Ryan June 24, 2012 at 9:00 am #

    I’m with Tracy. I’d like to do comparisons, but what’s your source for average expenditures in different categories?

    • VeroGall June 28, 2012 at 5:27 am #

      Hi Ryan. MMM will probably answer better than I will, but thought I’d speak up because I had the same question a few years back.

      There are a number of places to get the data, but the information varies dramatically depending on where you live. So don’t depend on national averages unless you live in a small country like the Nethelands.

      In America what you pay for stuff depends on which state, which city, even what part of town. My brother living in the-middle-of-nowhere Texas can buy a 3-bed, 1-bath starter home with a 1/4 acre for 10% of what family would pay for the same house witht less land in FIVE different locations. (We had a very interesting family discussion about this.) Data research or marketing companies, insurance companies even real estate companies gather this kind of data.

    • Gerard November 11, 2012 at 6:37 am #

      For Canada, try
      http://www.statcan.gc.ca/daily-quotidien/120425/dq120425a-eng.htm

      Statistics Canada numbers are pretty reliable, usually.

  11. Sarah June 27, 2012 at 7:03 am #

    Love the bike, and you can go even cheaper in my area. We got a $600 bike for $75 because every quarter the local university auctions off surplus, including bikes that were abandoned on campus the previous semester.

    • Todd Carnes February 5, 2014 at 2:34 pm #

      Why are people spending $600 or more for a bicycle? Are you people high? I spent $100 for mine and still thought it was too high.

  12. Annie October 17, 2013 at 6:43 pm #

    I buy nearly all my clothing from second hand shops, Salvation Army shops, for example. The exception would be my underwear which clearly has no place in my wardrobe having been on someone else’s butt.

    I have bought some AMAZING designer clothes for just a few bucks, and often just run of the mill stuff you can jazz up with some fancy buttons. Top tip from me: scan the racks for quality fabric. And shop on Tuesdays – this is when all the “new” used stuff comes in.

  13. Kirsty October 20, 2013 at 7:52 pm #

    I think my mum must have been the first mustachian. In her twenties she took a sales job which she hated but it enabled her to pay off her mortgage by her thirties.She has been pretty much retired ever since. Now in her seventies she lives extremely well on a small state pension. She sold her too big house in the suburbs and moved to a smaller house in a more affluent part of town with more amenities. There are two supermarkets in walking distance both of which have mark downs every night. My mum walks to both supermarkets every night and stocks up on anything which has been marked down (bread, vegetables, fruit, fish, meat) .This becomes her diet for the following day and any surplus is turned into soups or stews which she then freezes. Her weekly shopping bill is about £5 a week. She changed her double bed for a single bed so that all her sheets fit into a single wash, any small things are hand washed and left to drip dry over the bath. She loves meeting people and so does lots of volunteer work in the community including helping out at the local sports centre where she has a daily shower free of charge. Her spare bedroom is used to store junk which other people have thrown out and this is either recycled or sold. She goes to bed early and gets up early to cut down on electricity for lights and on the odd occasion when she is just sat around the house on a cold day she ‘ll snuggle down on the sofa with a blanket and hot water bottle before turning on the heating. All this means that she can take 5 or 6 fancy holidays a year and yes people are envious of her lifestyle and can’t understand how she does it! She is truly an inspiration!

  14. Der Couponschneider March 7, 2014 at 2:00 pm #

    I’m also wondering about my fellow countrymen: the Germans. Why? A lot of them waste their money and if they are saving money then they don’t invest it in stocks. They make ridiculous saving contracts where they have to hand over a fix amount of money to an insurer (e.g. Allianz) every month. They do it for many years. Even the 13 % who reach the regular expiration of the conract have a small yield of 2 % per year, before inflation and taxes. The people who don’t reach the regular expiration have a negative yield.

    • Oh Yonghao March 18, 2014 at 5:23 pm #

      I noticed that when I lived in Taiwan, so many people get scammed into it, and if they can no longer afford it they can lose everything. It’s a huge industry there of people trying to sell you on insurance for everything AND you get money back at the end, but the first bunch of payments is just paying off the commission the salesman made, the rate ends up being so low it’s insane. I’ve questioned some people on it and they get mad and claim that they would just end up spending it so this is better than nothing. We’ll see what they say when nothing is what they get.

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