Reader Case Study: Getting Blood from a Stone

The other week while enjoying a day of catching giant fish on Lake Tahoe, I got another interesting question from a reader. I think this one is worth answering online, because the situation probably sounds familiar to many people.

Hey MMM,

I have a situation that only your level of badassery can cut through. Let’s get to it.

1. I am married, in my late 20s,  and employed as a public school teacher.
2. My wife is a stay-at-home mom to our newborn baby
3. Our only debt is a 38k mortgage (15/yr fixed @ 6.25%) on our home, which is in pretty good shape (i.e. doesn’t need any major repairs or upgrades).
4. We have roughly 18k in cash on hand with 16k in retirement accounts (401k/Roth IRA/Pension).
5. My salary is 50k, which is pretty much the max that I can earn as a public school teacher.
6. We are cash-flow positive, but not by a huge sum:
a. Charity – $240
b. Mortgage/Insurance/Property taxes - $486
c. Home maintenance fund – $200
d. Utilities (water, electricity, prepaid cell phones, internet) – $275
e. Groceries – $340
f. Auto fuel and maintenance – $200
g. Insurance (life, termite, auto, teacher liability, id theft) – $170
h. Pet – $60
i. Medical fund – $100
j. Misc – $50
k. Child fund – $200 (This is budgeted, not all is spent)
l. Car savings – $100

Total Spending – $2421/month
 Income – $2520/month

Note: My wife occasionally makes some extra money from grant writing, and we usually use that for entertainment since  it’s clearly not present in our base budget.

Basically, we operate under the America’s Cheapest Family plan. Each of those categories represents its own budget. For example, our Insurance fund has over $500 in it right now and will continue to accumulate until various debits are applied, such as for car insurance, etc.

I have a very small side business (web design) that I am trying to grow.

I would really like to pay off our mortgage; however, I am struggling with figuring out how to go about it. Do I take a second job? I would say “cut expenses,” but I just can’t find it in the budget. The “charity” amount is really a non-negotiable for us.

signed,
Troubled Teacher

This is an interesting dilemma, because we have a family who is running a pretty tight ship in my opinion, yet they have no money to spare. The underlying problem is that they have an ambitious plan: a single income earner at $50k, trying to support two other people AND a dog, AND a house and a car.. all with a charity budget that is twice as large as the savings budget.

Let’s start with income: 
Our friend Teacher lists his income as $50k/year before tax ($4166/month), yet is showing take-home pay of only $2520/month. That implies $1646 in deductions, or 33%. That is much higher than the tax rates I’m familiar with, since using the “married filing jointly” tax status you should be paying 13.3% in federal tax. Even after adding SS/medicare and state tax and assuming a high-tax state like California, I calculate a take-home pay of about $3400 per month.

So there’s a thousand dollars a month that is probably going at least partly into pension or retirement savings. That brightens the picture quite a bit, since that’s about  30% of what would otherwise be the take-home pay. If that much is really being saved, the simple math behind early retirement puts Teacher at less than 28 years from retirement – before any improvements are made.

And you could definitely use MORE income. As a general rule, I feel that any family earning less than $100k per year would benefit from increasing their income if at all possible. Above that level, there is plenty for both spending and saving for financial independence in a reasonable time frame, so at that point I usually encourage looking to frugality before going overboard searching for even higher income. But for you, some extra cash would definitely come in handy. Your web design side business might be the ticket if you are a good promoter, as would any number of other jobs – especially during the summer if you have the time off like most teachers. Your wife may be able to expand her side hustle business from home as well – during the baby’s nap time, or on evenings and weekends and eventually during school hours.

I’m also surprised to hear about the low pay for teachers in your area. This may just be bad public policy that you’re stuck with, but you might want to poke around the system for extra pay. I have met many, many teachers from different parts of the US who earn $60-90k by the time they have been working 10 years or so. But if you love the job and there’s no way to squeeze out more pay, we can still make it work.

The cash and investments:

You have an exceptionally expensive mortgage at 6.25%. Since it’s on your primary residence, you should be able to get this below 4% if you shop around. Due to the small balance, it would be wise to pick a bank that will charge you no closing fees to do the refinancing. You should still do the math on any potential re-fi deal, but going from 6.25% to 4% on a 38k balance will save $855 per year.

Next, you have $18k in cash on hand. Why?? Even I rarely keep more than $3k in cash! If you dump this immediately into your mortgage, it will save you $1125/year in interest at 6.25%, and still $720/year even after you refinance to 4%. You have a stable job, so losing it with no notice is unlikely. If you did lose that job, you’d still have many months of unemployment insurance to back you up.

Keeping $18k in cash on hand when you have that mortgage is exactly like floating a neverending $18,000 cash advance on a 6.25% credit card and then stuffing the money under your mattress. It makes no sense. If you really want financial flexibility, open up a line of credit on your house, keep the balance at zero, and consider that to be your untapped emergency fund.

And the Spending:

You are an efficient family, but in a tight situation like yours it is still worth putting everything up for review. Do an annual shop-around for house and car insurance, and use higher deductibles if practical, since your budget of $170/month indicates you are spending much more than me (my house and car insurance is about $50/month combined).

Your car fund for fuel, maintenance, and replacement is at $3600/year, perhaps double my own spending on cars. This is directly proportional to the amount of driving you do – is the car ever used for commuting trips under 10 miles or local errands that could be handled by bike part of the time? As I’ve mentioned many times on this blog, bicycles are rolling cash machines and I estimate that taking up biking earns and saves about $93,000 every ten years over the long run. Even just using a bike with trailer for grocery shopping would be a good start.

The Pet Budget: At an annual cost of $720/year, I would not consider myself wealthy enough to be hosting dogs and/or cats at your stage, although it is of course a personal decision.

Equally personal is the charitable donations decision. I know you said it is non-negotiable, but just for fun let’s plant an idea. You could view charitable contributions as a lifelong goal rather than an immediate monthly need. There is something to be said for getting yourself financially established first, then using your increased strength to give more later. That was my own strategy – I saved like hell and ignored outside causes throughout my 20s. Then I was able to quit working entirely and now I have both my time and some money available to try to do some good – for the rest of my life!

Yours is not the easiest situation in which to find free cash. But I believe it can be done. Good luck and let us know how it goes!

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

Where to next? Check out a Random Article

Stay in Touch: Subscribe to posts by e-mail, RSS Feed, or follow MMM on Twitter and Facebook.

Join the Conversation: Learn from Like-Minded Mustachians in The Money Mustache Community

Get MMM automatically
by email:

Related Posts Plugin for WordPress, Blogger...

133 Responses to “Reader Case Study: Getting Blood from a Stone”

  1. Nick February 22, 2012 at 6:20 am #

    There’s a balance between cash in the bank and a lower mortgage balance. Nothing beats the security and liquidity of cash. When you convert cash into a lower mortgage balance, you just converted a liquid asset into a fixed one. Less mortgage interest is better, but with a family dependent on one income, adequate cash on hand brings certain peace of mind in the face of medical emergencies, job loss, etc. Great analysis overall. I had to share my two cents.

    • Mr. Money Mustache February 22, 2012 at 9:16 am #

      Sure, cash provides “peace of mind” to certain people, but to me it would keep me up at night pulling my hair out, because holding it would be destroying my chance at financial independence.

      Hoarding cash at a 6.25% (or even 5%) opportunity cost just in case of emergency is highly irrational if you do the math. You could use a credit card with a 10% APR, and be in maxed-out emergency mode a full 50% of the time, and still come out financially ahead of the cash situaion. And in reality, emergencies are very rare. I’d rather invest in stocks and just sell them in the unlikely event of the emergency.

      Luckily, there is a zero-compromise situation available here: the home equity line of credit. You write a check when you need money – nothing could be more liquid.

      • Nd February 22, 2012 at 10:31 am #

        But home equity lines of credit can be cut off by the bank (as many people learned during this recession) and credit card companies can lower your limit. There’s a saying that a banker is someone who’ll loan you an umbrella until it starts raining. All these events tend to be highly correlated. Ie a recession comes and you lose your job, your line of credit gets cut, your credit line is lowered, and the stock market tanks all at the same time.

        I, like you, don’t see a need to hold large amounts of cash, but that’s because I have enough assets that I could afford to sell at a loss in the unlikely event that something happens. I’d be hesitant to give that advice to someone with few assets, a single income, and a family to support

        Just another point of view

        • Mr. Money Mustache February 22, 2012 at 12:05 pm #

          Sure, the bankers CAN cut your credit line or your credit card limit. But it is extremely unlikely, especially in the case of a person with a small mortgage and a steady job like our Teacher friend. And there are always backups available – hold multiple credit cards, rent out your house and live with parents temporarily, etc.

          We are comparing a guaranteed huge cost (the emergency fund) with a highly unlikely and probably smaller cost (dealing with a cash shortage and a simultaneous withdrawal of credit from multiple lenders).

          One of the biggest points I try to make regarding financial independence is that you must place your bets based on statistical probability where the odds are IN YOUR FAVOR. Not against them. Suppress your irrational emotions and start using the science and the numbers to your advantage.

          The “emergency fund” is a bad mathematical bet, just as driving an SUV instead of riding a bike an attempt to improve your safety is a bad mathematical bet.

          Mr. Money Mustache is not backing down on this one. BIG EMERGENCY FUNDS ARE DUMB!!

          • Nick February 22, 2012 at 2:01 pm #

            You raise good points and very sound logic. For a very slight sacrifice in liquidity, a HELOC would work well, especially in this scenario. Assuming the bank doesn’t cut the line of credit, all is well.

            Cash is still the most flexible, no strings attached liquidity available. I agree that excessive emergency cash is dumb. I merely highlighted that there’s a balance involved. If anything, emergency funds are subjective.

            Awesome replies.

            • JD May 15, 2012 at 2:07 am #

              In Australia we are lucky enough to have “Offset accounts” linked to our mortgages.
              Basically a savings account where any funds save you their own weight in interest off the mortgage. If your case study was living in Australia, he could put his $18k in the offset getting the same benefit as paying it off the principal, but also receiving the benefit of it being completely liquid if required.
              (I know he’s not, just a reminder for any Australian readers and something for americans to be jealous of – on the other hand, 6.75% interest rate is about standard here, I’d kill for 6.25%)

              • MooseOutFront November 18, 2013 at 1:48 pm #

                That’s a really cool feature. Thanks for sharing.

          • The Money Monk February 23, 2012 at 2:07 pm #

            MMM, I agree that there are better ways to handle emerngency than having cash just sit there, but I don’t think you can say ‘big emergency funds are dumb” any more than you can say “quitting work to live on 20K a year when you were making 125K is dumb”. You are giving up those high wages for happiness, and they are giving up the ‘wages’ (return) on their money for some (perceived) security.

            Obviously it’s a personal choice, the point that should be made is that you can have that same security (or damn close to it) without having to give up getting a return on that money.

            Stocks could be sold to pay for emergencies, there is no need to have it in actual cash. And even ‘cash’ is usually in a bank account, so it will still take a week or more to get it out. It really doesn’t take that long to liquidate stocks, maybe a few more days. That’s the only reason I keep a credit card. In an emergency, I would put it on the card, and then pay it off in few days once I liquidate some assets. That way you get the return on the assets in normal times, and don’t have to even pay the credit card interest because you will be able to pay it off in a week or so.

            • Brett June 6, 2012 at 11:06 am #

              “The point that should be made is that you can have that same security (or damn close to it) without having to give up getting a return on that money.”

              I believe that’s MMMs point exactly….it IS stupid to forgo returns (or even lose “real” dollars after inflation) from a huge portion of your assets for security given that you can get this same security through other methods without that massive cost.

      • Dollar D @ The Dollar Disciple February 22, 2012 at 10:32 am #

        While I agree that 18k is probably a lot to hold in cash, I think 3k is probably too little for a family with 1 job and so little room in their budget. That’s barely 1 month of their current expenses.

        If he lost his job tomorrow after putting it towards his mortgage, he’d end up borrowing that money right back from the bank.

        Personally, I think 6-8k is more appropriate but maybe I’m a bit more conservative..

      • The Money Monk February 23, 2012 at 7:39 am #

        You know, here is a novel idea bout the charity money:

        Since it is around 10% I am going to assume it is tithe going to your church, but it doesn’t matter what the charity is, there is no reason you have to give them that $240 every month. You could give it to them in a big chunk in 5 years, and in the meantime it would be a healthy emergency fund that you could ‘borrow’ against at 0% interest if anything happened in the meantime.

        Just something to consider.

        • Laura February 24, 2012 at 10:25 am #

          Well, actually, if it is his tithe to his church, he does need to be giving it regularly, not in a chunk in 5 years. The biblical concept of tithing is giving from “the first fruits” – that means it comes off the top, up front. Not at some point when it’s convenient. You don’t have to believe in tithing, and instead can give gifts to your church or charity whenever you want.

        • Heidi February 27, 2012 at 1:33 am #

          I respect tithing and giving to charity, but there maybe some wiggle room. If it is tithing, what about talking to your minister, explaining your financial situation, and seeing if there is anything you can do that is mutually beneficial? Can you and your wife offer to clean the sanctuary once a month? Take care of the grounds? In the same vein, if it is another charity, can you donate time instead of money? When I was on a tighter budget I focused on volunteering, and less on donations.
          Another option for money making, does your wife have any interest in babysitting? Always needed, and if the kids get along it could be good for your son, too.
          Heidi

          • Kimberly V January 19, 2013 at 8:48 pm #

            So true Heidi, our pastor always reminds us that contributions don’t always have to be in cash. They can be in time or things like contributing to the bake sale /craft sale, etc. AND that it doesn’t always have to be directly to the church. She always emphasizes there is more than one way to give.

            • Gerard June 13, 2013 at 3:00 pm #

              A trained teacher’s time and expertise might be even more valuable to a church than cash would be. A pedagogically sound summer Bible Camp could be a huge contribution to a church community.

  2. regambale February 22, 2012 at 6:28 am #

    Thank you so much for sharing this! I feel that this situation mirrors my own in many ways. We will have a good chunk of change coming soon (tax returns-btw, I notice that this is never mentioned) and I think instead of saving it as our emergency fund as was originally planned, we should use it help pay off a student loan ($14k at 6.8%), and then keep a line of credit at zero for the “SYO- save your ass” fund. I think many people want to have any extra cash in a savings account because it feels so safe and cushy to have it there, but it doesn’t always make a lot of sense.

  3. Jimbo February 22, 2012 at 6:33 am #

    I HAVE to say that ID theft insurance should just be called Theft! Get rid of that, po-lease!

    Most of your credit cards and bank accounts will already pay you whatever you are scammed out of…

    Plus, I mean, seriously, what are the chances here of ID theft running into serious financial harm? Lots of hassle, suuuuuure, but financial trouble?

    Not worth being insured.

    I’d also question termite insurance, but i dont know where you live… Maybe TermiteVille, USA.

    • TOM February 22, 2012 at 6:54 am #

      Totally agree, I remember reading some report on ID theft, and it said the average amount lost was $40! The bigger frustration being the time that it takes to reverse the ill effects of ID theft.
      So yeah, any reputable bank or credit card likely already offers a lot of fraud protection for you, and whatever you’re paying for can probably be done by yourself (in-sourceing!) for free.

    • acorn February 23, 2012 at 1:06 pm #

      I’ve actually been the victim of ID theft and the only thing I “lost” was time- time on the phone to close the accounts the thief had opened, time dealing with the credit reporting agencies, etc. I think I did have to pay $5 to get a copy of the police report but that was it.

  4. Jimbo February 22, 2012 at 6:36 am #

    Also, I know this sucks, but i would consider saving half of any extra income there is, either from the wife or from you.

    This is what I always do… Although these days I get more kick out of saving the entire amount of extra income than spending it.

    Any windfall should be directed to savings, save for a little fun money.

    My entire tax return is going to the mortgage!

  5. Amanda February 22, 2012 at 6:45 am #

    I know this isn’t the politically correct answer, but I would consider things the wife could be doing both to earn more money AND to reduce expenses. Obviously this might be difficult with a newborn, but if she continues to be a SAHM after the baby is more grown then there should be ways for her to contribute to the budget other than the occasional entertainment expense. Of course she’s currently providing “free” childcare, but what else could she do at home to increase the family earnings and reduce expenses? This always varies based on individual family’s circumstances, but it would be one of the first things I would consider.

    Families with two sources of income are (statistically speaking) almost always more financially stable and less likely to end up in a bad position than families with one source of income, even if the second parent doesn’t work full-time. Nowadays it’s hard to get by on only one income, and if you want to pay the mortgage off (not to mention help the kiddo with college) then something’s gotta change.

    • Amanda February 22, 2012 at 6:49 am #

      I also agree re: the charity amount. You say it’s non-negotiable and that’s a totally personal choice but it IS taking up a huge chunk or your savings ability. I’d consider reducing the money amount and finding other ways to pitch in, such as through free labor for an organization of your choice. There are ways to help out other than throwing around money you can’t really afford.

    • regambale February 22, 2012 at 6:56 am #

      Nope. I agree. I am a stay at home mom of three. And I worked full time and part time at some point. But the best thing to do is watch another kid or two so that you still spend no money on child care, stay home for your kids, and earn pretty decent money (often tax free…I didn’t say that =) )

      • Guitarist February 22, 2012 at 7:21 am #

        Great idea. My mom did day care before I went to Kindergarten. She got to watch me and was paid to watch other people’s kids. And you only have to watch as many kids as you can stand.

  6. saudisimon February 22, 2012 at 6:54 am #

    You could consider a short career tweak. Get a job as an ESL teacher in Saudi Arabia for 2 years or try an international school in the Middle East. Not everyone’s cup of tea, but with tax free earnings and free accommodation and all utilities paid, you could come back with a suntan and 50-70k saved. Mortgage gone, cash cushion sorted, a few interesting tales to tell and you can get back to your old life in good shape. Or continue for a few more years and go the MMM route by the time you’re 40. Agree about the charity comment, charity begins at home until you’ve got your wife and child on firm foundations.

    • jlcollinsnh February 22, 2012 at 6:42 pm #

      what is an ESL teacher?

      • Kate February 22, 2012 at 7:09 pm #

        English as a Second Language (ESL).

        sister and her husband (and their 2 kids) lived in Saudi for awhile and made a ridiculously large salary. She felt it was safer for her kids over there too (the Saudis don’t believe that child molesters have any rights at all). But if your charity giving in non-negotiable because you are tithing Christians, stay out of Saudi. They don’t think Christians are any better than child molesters.

        • Skinnyneo February 22, 2012 at 8:55 pm #

          It’s not Saudi Arabia, but Japan isn’t too bad either. I was hired straight into a private teaching gig where I make about as much as our Teacher friend in this article off the bat and get a raise every year. They also pay for my travel to and from work and everything is bike-able. So no insurance, no gas, no waste. Like the original poster said live here for two or three years, build up a huge savings and continue your life back home. Your child get’s a once in a lifetime experience and if you stay long enough maybe even the native language. Truly a gift you can’t every buy.

        • saudisimon February 23, 2012 at 12:04 am #

          Saudi is not that bad. True, you can’t go around parading your religion, but there’s no problem with whatever you do in your own home. I’ve always thought religion was meant to be a personal thing anyway. The selling point on saudi universities in particular is a short work day, free housing and utilities, 50c a gallon fuel and my summer holiday lasts 3 months on full pay. And I get 3 other holidays on top of that. There is also a large demand for female native speaker teachers so the wife can work as much as she feels like. Keep an open mind about the rest of the world, the States are ok but they are not all you are led to believe by the mainstream media.

          • Kate February 23, 2012 at 5:46 pm #

            Well, his wife would need an abaya (modesty robe) and a chauffeur to go to work (since women are not allowed to drive or go out in public without a male escort). Might cut into the earnings a bit.

            I’ve heard China pays ESL teachers very well too, and a friend of mine retired in Mexico on the money she made teaching ESL part time. Seems like a good plan to me.

        • jlcollinsnh February 23, 2012 at 6:00 am #

          I’d be interested in hearing more about how one goes about securing such a gig.

          Also I’m in the middle of reading ‘Monsoon’ by Kaplan. It is a look at the Indian Ocean and the influence of the diverse cultures on its shores. for those of you with an interest in this area it’s a good read.

          • saudisimon February 23, 2012 at 10:03 am #

            Check out http://www.eslcafe.com/joblist/index.cgi?read=25116

            Be warned, it is hard to go back to paying tax once you stop!

            • jlcollinsnh February 23, 2012 at 10:44 pm #

              I hear you, and thanks for the link.

              when we lived in OH we paid a state income tax and two city income taxes (work and home) Along with the sales tax

              Here in NH, that all went away.

              maybe if I get tired of retirement a Saudi sojourn might be interesting.

            • FrugalSG February 18, 2014 at 5:52 pm #

              Americans never stop paying taxes, wherever they are in the world! Or file at least, till they hit the foreign earned income exemption then they pay again

  7. JaneMD February 22, 2012 at 6:55 am #

    As someone currently on maternity leave, the baby does sleep a significant amount of the day. I know there are some online jobs where you get paid something for looking at websites – anyone know the names of those off the top of their head?

    Second, she could earn some extra money for the family by considering offering some daytime babysitting, dog sitting/walking. Even if she were to pull in 10-30 dollars a week, even that sounds like it would significantly help the family.

    • Erica / Northwest Edible Life September 25, 2012 at 7:55 pm #

      As someone who didn’t sleep more than 40-90 minutes at a time for the first 18 months of my non-sleep-prone son’s life, I’d say the practical side of working “while the baby sleeps” varies depending on your kid’s temperament. I knew a mom who had to wake her child up once naptime went past 3 or 3.5 hours so the 16 hours of sleep at night wasn’t disturbed. It was hard not to resent her sleep luck.

  8. Baughman February 22, 2012 at 6:59 am #

    Baby expenses seem too high. I have 3.5 children, and I don’t spend $200/month on all three of them combined. Craigslist helps. So does the ability to say “no” to giving into the media and pampering your kids with a bunch of new crap they don’t need. Diapers on Amazon are a godsend.

    Grocery expenses seem high. Shop exclusively at Costco and you’ll cut grocery expenses by 20%.

    I completely agree w/ the opportunity cost of $18k explained by MMM. That’s huge money left on the table. I’d also argue that most people don’t need life insurance, since the gov’t has your back in the form of food stamps/medicaid if you were to kick the can. Not too many people acknowledge this. I think the best form of life insurance is a well-educated spouse who could get a job if you were to die, but more importantly, one who understands how to live well on nothing.

    • Des February 22, 2012 at 9:37 am #

      $340 for groceries doesn’t seem high to me, and this is going to be very location-dependent. Shopping Costco “exclusively” is a terrible idea. The best deals at Costco are on brand-name processed foods. Their staples, while cheaper than the main grocery stores, are consistently more expensive than the local discount grocer. Costco is great for high quality specialty items (we LOVE their organic salsa), but I doubt this family would save money sopping there.

      I also disagree on cutting life insurance. Yes, the family could live on food stamps and section 8 if one parent were to die, but that is a stressful situation to be living in. No one wants to leave their family to that when they die, it is a last resort. You should cancel life insurance if you literally can’t afford to put food on the table, but this family isn’t *that* bad off. I wouldn’t cancel life insurance to save for early retirement!

      • Nerode February 23, 2012 at 12:41 pm #

        Costco savings depend – like so much else – on where you are. We save at least a third and up to a half on our total Costco shop compared to any of our local grocery stores. Our biggest regular purchases/savings at Costco are meat, flour (since MMM’s article on breadmakers :-)), peanut butter, carrots, cheese and fruit juice. I hate the ‘experience’, but can’t argue with the huge savings we make.

        The advice has to be – as so often – take the time to do a detailed comparison on all the items in your shopping list. Then decide what’s worth it for you.

    • Cass February 23, 2012 at 10:37 am #

      I agree grocery expenses are high. Between myself and my husband we spend $160/mo for groceries, and we still are able to buy fresh fruits & veggies, and organic meat and milk. Even if a small child ate as much as we did, we would still be at $240/mo, this family could easily save $1200/year just by budgeting groceries.

  9. rjack February 22, 2012 at 7:01 am #

    First, don’t dispair because I remember reading in “The Millionaire Next Door” that a disproportionate number of teachers are rich. The auther chalked this up to a combination of frugaility and time (summers) to DIY or start a side business.

    Here are some ideas for income generation assuming you have summers off:

    1) Night time and summer tutoring
    2) Start a lawn care business that you operate in the summers
    3) Buy a house, repair and improve it, and flip it.
    4) Start your own online web business that your wife can help manage.

  10. TOM February 22, 2012 at 7:03 am #

    If charity is non-negotiable, why not donate time instead of money? I’ve always felt better about working at a charity than sending away some amount in an envelope, myself.
    You could even combine this with the pet expenses. For example, my family fosters rescue dogs and raises puppies for The Seeing Eye. In both cases, no vet bills and very minimal expenses for food and supplies.
    The grocery bill sounds suspiciously high to me, and I’m in the same family situation as you (SAHM, 1 year old daughter). I suppose your area may be more expensive and your taste may be different than mine, but we get by at under $300, and that’s without much attention to cutting back in that area on our part. I think if I tried, I could cut mine down to $250 a month.

    • Mrs. Money Mustache February 22, 2012 at 10:51 am #

      Excellent idea about donating time instead of money. Bringing the kids along is a great experience for them as well (even when young). I know a woman who regularly volunteers at a soup kitchen with her daughter. We volunteer at our son’s school on a regular basis. As a result, we know the teachers, the staff, and all the kids. We have an intimate knowledge of what is going on at the school. In fact, MMM is the only male volunteer in our son’s classroom. The teachers are very appreciative to have a father come volunteer.

      In our case, having both of us to stay home with our child trumped charitable giving in the early years. We still gave, but not as much as we do now. I think as you get older, you learn more about which charities do the most good to the causes that you support as well. Giving time first, helps you learn more about that particular charity/cause and you can figure out if your money is being put to good use.

      I’ve learned that giving time seems to be appreciated a lot more and you have a much more personal connection. Then, when you learn about a need, you can give money for that particular need. If you have a special skill (like MMM has with carpentry) that time and work you volunteer could be worth thousands of dollars. I know MMM has donated tons and tons of his carpentry time which would have been worth much more in dollars (meaning a plumber would have charged a lot for the exact same work so the dollars wouldn’t go as far).

      Perhaps the “charity” in this case is helping a family member and volunteering is not an option. I’m not familiar with how “tithing” works, but I’m guessing that a church would encourage volunteering work as a possible substitute.

      • MacGyverIt February 22, 2012 at 6:18 pm #

        ” I’m not familiar with how “tithing” works, but I’m guessing that a church would encourage volunteering work as a possible substitute.”

        IMO if an organization (of any persuasion) gives a hard time for volunteerism instead of cash, I would question their sincerity….

        • Johonn April 11, 2012 at 1:10 am #

          The problem here is that it’s not “an organization” but it’s God. It’s not about your local church bending the rules or anything, it’s about being faithful to God, who has also promised to bless us if we are faithful in this:

          Bring the whole tithe into the storehouse, that there may be food in my house. Test me in this,” says the LORD Almighty, “and see if I will not throw open the floodgates of heaven and pour out so much blessing that you will not have room enough for it. Malachi 3:10

          Not trying to preach to anyone who isn’t religious, but for this family it’s possible that they’re not concerned about “satisfying” their pastor but being faithful to God. The key is to return the “firstfruits” or return tithe first before anything else, even if you are experiencing tough times, and God will reward your faith and bless you (I’ve read many stories of people even receiving financial windfalls as a result of continuing to pay tithe despite hard times).

          Again sorry for preaching, just had to say it :)

          • Gadfly December 4, 2012 at 12:57 am #

            “In case of a loss of cabin pressure, put your own mask on first.”

          • Patrick June 27, 2013 at 8:40 pm #

            @Johonn – You are assuming “firstfruits” are monetary in nature.

            But you also mention the tithe is “food”. Perhaps the individual could grow a garden – and donate his pumpkins.

  11. Diedra B February 22, 2012 at 7:16 am #

    Hi Troubled Teacher,
    I don’t know what your background is but I see that your charity looks a lot like tithe. I believe tithe is non-negotiable and if you do too, then stick to your guns on that. If it is not tithe, then I would consider decreasing my cash donation and putting in my time instead.

    Have you considered positions at private schools and/or looking into Assistant Principal/Principal positions? I understand some school districts in some states require graduate degrees for this but if yours doesn’t you might consider it. Furthermore, could you possibly do a bit of tutoring on the weekend? It might not pay as much as web design but it might turn a profit faster.

    • Mike Key February 22, 2012 at 9:32 am #

      Looking over those numbers I’m assuming the $250.00 is a 10% tithe myself. Fits perfectly with take home.

      However, continuing to tithe is totally dependent on your theological point of view and what your church is busy telling you. I’d seriously consider reading your bible if this is the case and seeking God’s guidance in that area.

      That’s about $3,000 a year back into your budget.

      • Kate February 22, 2012 at 7:57 pm #

        I also would encourage reading what the bible really says about tithing (as in Deut 14:22-29).

        I asked a Jewish man once if Jews still honored the tithe and he just shook his head in exasperation. Apparently the tithe was all about keeping the temple stocked, and when the temple in Jerusalem was destroyed the commandment to tithe was destroyed as well. He told me Jews can’t understand why Christians dredged it up again.

        • JaneMD February 23, 2012 at 9:11 am #

          Unless you discussed that with a rabbi, I would not use that as your benchmark to determine the importance of ‘tithe.’ There are multiple additional commandments related to it which have nothing to do with the temple and much to do with returning blessings to G-d.

          It is okay to recognize that his decision to give to his selected charity is non-negotiable. He has not discussed the benefits he receives from giving that amount – his religious organization may provide multiple services that help him out monetarily. Or he has great faith, which there is nothing wrong with.

          Incidentally, most synagogues operate on a dues system for membership. It becomes a monthly bill in that respect. You do get to write it off on taxes as you receive a lovely letter that states the amount you gave and that you received ‘no goods or services beyond the intangible religious benefits.’

          • Kate February 23, 2012 at 5:38 pm #

            Well, according to the rabbis at MyJewishLearning.com “the purpose of tithing, for the upkeep of the priests and Levites, has no meaning nowadays.”

            My personal “benchmark” though was watching a parasitic church take advantage of my mentally ill friend. They convinced her that “great faith” would cure her schizophrenia. Once she was off her medication they robbed her blind (in Jesus holy name of course). She was on track to retire at 40, instead she turned 40 in a mental institution without a penny to her name.

            Being the godless heathen I am, I was just grateful I was able to get her to a hospital before she died of starvation.

            I think it’s perfectly “okay” for Troubled Teacher to consider his giving non-negotiable, but I also think it’s perfectly “okay” for the rest of us to wonder if that may be the cause of his troubles.

    • abitha February 22, 2012 at 12:14 pm #

      I’m interested to see that 10% charity budget too. I no longer tithe, but I do instead give 10% of my income to charity (see http://www.givingwhatwecan.org/ – this site explains my reasons for doing so rather better than I’m able to). I’ve been wondering what others around here think about this topic for a while, so it’s good to see it addressed.

      I signed up to ‘Giving What We Can’ about a year before I discovered MMM, so for me it counts as a prior commitment, and one that I still fully agree with and intend to honour – but it has given me food for thought as I try to reconcile the two philosophies. In my case, 10% makes less of a dent in my financial independence plan because I earn a pretty good salary and my other outgoings are low (I just tried running my retirement calculator with and without the charity donations, and it only changes my financial independence date by a year or so), but in Troubled Teacher’s case I think that’s quite a tough call to make.

      Personally I’m very supportive of someone saying “Charity is a non-negotiable” (particularly if the decision has been well thought through, and the donations are being made as tax-efficiently as possible to an organisation that will use them as wisely as possible), and in Teacher’s situation I think I would start by cutting down the other expenses and/or finding ways to earn more money first. But as others have said, it’s a personal decision, and if you feel that you could make an equivalent donation by giving your time etc, that might be something to explore.

    • Shanna February 22, 2012 at 2:21 pm #

      While I would never tithe to a church (because if a church is run by typical Americans, how frugal is it with money?) I think that having a nonnegotiable donation is a good thing. If you have running water, electricity and food you can afford to give money somewhere. I found a very small clinic in another country staffed by a family that has been there for years. This is where my donation goes -directly to the extremely sick and absolutely destitute people who need it.

      My grandmother had next to nothing but she shared it generously with anyone she thought she could help. While she did not retire early but died at only 63 she is a shining example of strong and selfless person who was loved and respected by everyone.

  12. Ty Webb February 22, 2012 at 7:28 am #

    Move to Canada! Teachers make $100k and you get public healthcare.

    • Mr. Frugal Toque February 22, 2012 at 11:17 am #

      While I would never dissuade a hard-working teacher from moving to Canada and I love our health care system:

      Teachers with Master’s Degrees in subject-relevant fields and 11 years of experience, working in Ontario and living in the most expensive cost-of-living cities … can make up to $95k. (last I checked).

      Starting salary with a BA or just a teacher’s college diploma is significantly lower.

      Just sayin’.

      • Hanah February 22, 2012 at 1:47 pm #

        There is a huge oversupply of teachers in Canada right now! Moving won’t work.

      • Darlene February 22, 2012 at 3:26 pm #

        YEP – you nailed it – you NEED A MASTER’s Degree in the relevant discipline – OR – get your Ed. d and go directly to Superintendent and earn $350k!

        The real money in teaching is in administration.

        Which is a whole ‘nother problem!

  13. Poor Student February 22, 2012 at 8:00 am #

    I agree that having that much cash on hand earning virtually nothing is ill-advised when you are worried about scraping more together to be saving. By putting it towards the mortgage you are gaining what is mentioned, or investing it you gain almost whatever you want. I think getting a line of credit is the bes way to deal with emergencies. The interest on it will be less than this expensive mortgage, saving a bundle each year.

    Also, the charity budget seems high but he said is is non-negotiable, so even though there have been supposedly better alternatives mentioned here, I respect the family for dedicating so much money to others when they have little to spare.

    • Mr. Frugal Toque February 22, 2012 at 9:18 am #

      Indeed.
      That’s why I really enjoy the TFSA accounts in Canada. It’s very easy to deposit your mad money in them and invest it in a low MER index fund. If you need that money back, it’s relatively easy to withdraw it.
      The only drawback is for the undisciplined saver who is likely to be raiding it constantly for consumables.
      If I really felt the need to have $18k lying around (because I’m in a very unstable industry or I’m paranoid), I would go that route.

  14. October MacBain February 22, 2012 at 8:38 am #

    For you, charity may be non-negotiable, but for me pets are non-negotiable. The smiles, laughs, companionship, relaxation, and love I receive from them more than makes up for the money I pay every month for their food and (rare) vet visits.

    • Kate February 23, 2012 at 7:17 pm #

      According to the CDC, pet ownership can decrease your blood pressure, cholesterol levels, and triglyceride levels, which could save you $100,000 or more in health care costs over your lifetime. Seems like a good ROR to me!

      • Geek February 23, 2012 at 7:42 pm #

        So could retiring early ;)

        (But I’m sticking with pets and trying to be badass in other ways anyway!)

        • Heidi February 27, 2012 at 1:44 am #

          Yeah, pets, especially if you already have them, are non-negotiable to me. My rotten mutts give me so much joy, I’d pay 3x what I do.
          Heidi

  15. Ben February 22, 2012 at 8:54 am #

    My assumption (based on the amount and non-negotiable statement) is that the charity is tithing to their local church. It’s something that is commanded in the bible for believers. And yes, it will substantially slow down early retirement goals. But as MMM and others point out, we aren’t called to worship and chase money accumulation as the overarching goal of our life anyways. I think we’re called to give faithfully even when we don’t have much for ourselves as an expression of trust.

    Re: MMM’s comment about charity being a lifelong goal.
    I think we’re called to give both now and in the future, but it certainly makes sense to position yourself so that you will be able to do so. For example, my wife and I do not tithe on the money we set aside into retirement accounts (e.g. IRA or 401k), instead intending to tithe off of our withdrawals from those accounts. Other people could certainly take different approaches to this.

    • Klaas February 22, 2012 at 10:21 am #

      I’m glad to see this perspective represented. It can be hard being a tither and looking at those “years to retirement by savings percentage” charts. (Though not *that* hard if you just take the tithe off the top and think of the after-tax-and-tithe amount as your take-home pay.)

      I also have issues with MMM’s “charity is for the retired” idea. Whether religiously motivated or not, I think it’s important to think seriously about one’s approach to charitable giving, and to me an idea like that deserves extra scrutiny to make sure it’s well-founded rather than a self-serving rationalization.

      Seems like deciding to delay significant giving until you’ve achieved financial independence implies you’ve made certain judgments about the importance and usefulness of giving. Perhaps “charity is important, but in my value system, I’m much more important” or perhaps “charity is good, but I can think of no charity that will achieve better results with my money now than would be achieved by my investing it and giving away the larger compounded sum.” Depending on the mission of a particular charity, the latter might be quite backwards–saving the planet or improving conditions for an impoverished society might well be a lot easier the earlier you start, so the impact of the money you give a worthy organization today might well be much greater than the impact of the compounded sum in 10 years.

      And that’s assuming that your cumulative growth-corrected giving actually ends up similar when you start much later. Which I think is unlikely.

      • Mr. Money Mustache February 22, 2012 at 11:35 am #

        Yup, that’s why I said “it’s a personal decision”.

        I’m not going to try to coerce everyone into charitable giving, and the field is incredibly complicated. Some religions suck that 10% from their followers, then use a good portion of the proceeds to build shopping-mall-sized megachurches. Others would argue that money would be better spent helping people in Africa. Scientology was designed to extract as much money as possible from its followers, but with the clever benefit of making founder and science-fiction writer L.Ron Hubbard (and its subsequent leaders) rich.

        Others could argue that spending your money to reduce your own environmental footprint and those of others would have the greatest benefit to humanity. But then another person would point out that spending it all on reducing population growth through education and contraception in developing countries is the way to go. Still others would say “fuck all of that, I am my own favorite charity”, or maybe “My kids and extended family are where all my giving will go”.

        It’s outside the scope of this blog, except to say that nobody should feel guilted or coerced into doing any form of giving they are not comfortable with. It is something you can grow into.

        • LB February 22, 2012 at 2:45 pm #

          So interesting! My carpool buddy and I were just discussing yesterday what MMM would think of tithing.* We belong to different Christian religions but both pay a 10% tithe (non-negotiable for me, and I think for him too). We couldn’t come to a consensus…the obvious Mustachian answer is “don’t let anyone trick you into thinking that love and devotion must be expressed through money.” I also think, however, that Mustachianism is about saving for the future while savoring the present, and that the self-discipline and sacrifice represented by tithing, as well as the character-building that comes from strict obedience to a personal moral commitment, can bring real true joy to people’s lives.

          I totally agree that there are infinite ways to use money to improve the world and how to do so is a 100% personal choice. A note of support for any other Mustachian tithe-payers out there: I know and approve of how my tithing money is spent, and I love the blessings paying tithing has brought to me and my family, not least of which are the ability to create and stick to a budget, set and act upon priorities, and view money as a means, not an end — all of which are reasons MMM’s blog resonates with me so well!

          *we started carpooling because of MMM’s cost of commuting article and often talk about the latest article on the way home from work. Let’s see if he finds this comment…

          • Mr. Money Mustache February 22, 2012 at 3:38 pm #

            Very nice attitude LB!

            I am also glad to hear about your carpooling, and it gives me a good laugh to imagine people holding informal MMM study groups around the world. Let the Badassity of the Mustachian Army continue to take over the planet!!

          • Steve February 22, 2012 at 9:53 pm #

            “… I know and approve of how my tithing money is spent, and I love the blessings paying tithing has brought to me and my family, not least of which are the ability to create and stick to a budget, set and act upon priorities, and view money as a means, not an end — all of which are reasons MMM’s blog resonates with me so well!”

            I couldn’t have said it better myself. Employing many Mustachian tenets allows me to tithe without making any sacrifices to other areas of my life. The longer I tithe, the more freedom from consumerism and money-chasing I gain.

            • Heidi February 27, 2012 at 1:51 am #

              Just another thought, my church requests between 2 and 5%, and if you can give more it encourages you give to another charity. The explanation we give is that early Christians were essentially socialist communities, and they literally did take care of their poor, sick, and old. Now we have medicare, social security and food stamps to provide for those needs, and while my church happily visits you in the hospital, has a food bank, etc, you still have to pay your own hospital bill, rent, grocery bill, etc. We get different things from church now than we dis 1900 years ago.

          • DP February 25, 2012 at 8:34 am #

            @LB – Very well said. I’ve gone through a similar analysis.

            @MMM – Thanks for sharing this excellent case study.

        • Hilary February 22, 2012 at 5:27 pm #

          I realised I was being a mug when I was tithing to our church and seeing so much of the money going to clergy expenses so they could run a much better car than we could afford and live in a much more comfortable house than we did – not that I would want anyone to live in a house as bad as ours, but we shouldn’t have been paying for theirs. The emotional blackmail was that we were “giving to God.” Well we weren’t. We were giving to the institution with well paid, by our standards, clergy. (They got two to three times our minuscule income.)

          I was also taken aback when our local charities were deploring the fact that regular givers were now having to come to the charity for help. It came to me that surely we should be preparing ourselves to be self sufficient so that when, and it is a when in most cases, bad stuff happens then you have the built in redundancy of resources so it doesn’t become shit hitting the fan. The difference between the loss of a job being a nuisance and a personal reorganisation of life or a SHTF is one’s financial fitness. I think we should be focussing on being financially independent. I am nowhere near that yet but it was the poverty driving mentality of our emotionally blackmailing tithing church which kept me poor and miserable for decades.

          • jlcollinsnh February 22, 2012 at 6:47 pm #

            http://jlcollinsnh.wordpress.com/2012/02/08/how-to-give-like-a-billionaire/

            Finally, while giving is a fine and pleasant thing, no one has an obligation to do so. Anyone who tells you differently is trying to sell you something, most likely the idea of giving to them and/or their pet projects.

            As individuals we only have one obligation to society: To make sure we, and our children, are not a burden to others. The rest is our personal choice. Make your own and make the world a far more interesting place.

            • Hilary February 24, 2012 at 5:17 pm #

              I decided the best thing I could do for the poor in our country was not use up limited resources by being one of them.

      • Jeff Ivany February 22, 2012 at 12:28 pm #

        I have to admit tithing is a new concept to me (I had to look it up) but it’s not that different than someone having their retirement contribution or pension taken off automatically. I have 18% taken off of my pay and dumped straight into my RRSP every 2 weeks. No one here is going to tell me to stop doing that. ;) I’m devoted to maxing out my RRSP right now as I would assume some people are devoted to tithing.

  16. Lara February 22, 2012 at 8:55 am #

    Unless it is religious charity I believe you are already fulfilling obligations just by being a teacher. You are underpaid for what you do, so hold on to the cash if you can. I send my child to public school and I am impressed in how hard teachers work for so little salary.

  17. jlcollinsnh February 22, 2012 at 9:18 am #

    thanks for this one, Mr. MM, I’ll be sending it to a teacher pal of mine.

    TT has a very interesting situation and it is probably shared by many in his profession. Very thoughtful analysis on your part.

    These case studies are some of your most interesting posts and I hope you’ll continue them even with the new forums in place.

  18. T$ February 22, 2012 at 9:32 am #

    I am wondering about the $50 a month for homeowners and car insurance. I am assuming this is just liability and a $5000 deductible on the homeowners? I have homeowners and full coverage on my vehicles and $1000 deductibles and can’t get below $2200 a year, $183 a month and I have asked for 5 quotes. Perfect driving history. Anyone have advice to drop those somehow?
    I also have an umbrella policy which only adds $10 a month, because I have a rental property that I want the umbrella for. the $2200 does not include the rental property insurance, that’s another $1000.

    I agree that money used to pay down debt is a good way to avoid paying more money down the road in interest.

    • Jared Chmielecki February 23, 2012 at 8:00 am #

      you are simply paying too much. I pay about $50 a month for 2 cars + home owners, liability only on 11 year old cars and a 5k deductible on the house.
      NC Farm Bureau . State farm was within ~20 / yr so the rate is not crazy.

  19. Mark February 22, 2012 at 9:49 am #

    I’m still working but I have no wife or kids yet so with my free time I like to volunteer for causes I feel strongly about. In my experience, most of the time even 1 hour of volunteer time is worth more to the cause than $30. Instead of funding charities, think of all the time you’ll be able to volunteer for them (and probably have money to contribute as well) when you reach financial independence that much earlier in life.

  20. FreeUrChains February 22, 2012 at 9:54 am #

    Sell some Tutoring Videos online to other lazier Online Teachers that will use them for their students. I did this in college and got $50/session. Let alone $25/hr from the College Tutoring program. Let’s just say by the end I combined the two to make $75/hr tutoring in Calculus, Physics, Laser Circuits, Java Programming, etc. It definitely helped with the student loans, and continues to be a great source of income.

  21. Mike February 22, 2012 at 10:38 am #

    For what it’s worth, if Teacher happens to live and teach in the Central Valley of California, it’s become a common practice here for the school districts to hand out “pink slips” to 2/3 of the teachers every year in May until the state budget passes. Depending on the funding levels in the budget, most are hired back, but several hundred lose their jobs every summer.

    Under that scenario, I can completely understand keeping $18K in the bank. CA used to be the land of opportunity. Those days are LONG gone I’m afraid.

  22. Dragline February 22, 2012 at 10:38 am #

    Eat the pet. You’ll save on food and $60/month in expenses.

    And yes, I am kidding.

    But if you and your spouse really like them, consider dog-walking or pet-sitting as a possible side business, especially during summer break when you are home and your neighbors may be gone for weeks at a time.

    • Dancedancekj February 22, 2012 at 6:59 pm #

      At one time, I had considered replacing all my tropical fish with tilapia to eat when the time came. I’m still considering growing tilapia, but I decided to keep my pet fish as pets :)

      • Huck February 23, 2012 at 11:14 pm #

        Aquaponics!! From wikipedia: Aquaponics is a sustainable food production system that combines a traditional aquaculture (raising aquatic animals such as fish, crayfish or prawns in tanks) with hydroponics (cultivating plants in water) in a symbiotic environment. Home sized systems in two halves of a 55 gallon drum can provide an astonishing amount of fish (tilapia is popular) and veggies for a family! I haven’t tried it but would like to someday.

  23. Dana February 22, 2012 at 10:39 am #

    Because I’m not a church-goer, I have to ask this question: If your charity is religious in nature, and if it is tithing, is the requirement that it be solely monetary? It seems to me that one could give their time to a church (outside of regular attendance) rather than having to fork over cash? I would think that the donation of time instead of money might be appreciated more than just money, because you’re focusing your efforts with your service. But again…this is coming from a non-church-going gal.

    Agreed on other comments: Take at least some of that cash-on-hand, pay a chunk on the mortgage, and refi to today’s awesome rates! Save yourself some money, and perhaps use the savings to rebuild your cash-on-hand quickly, if you feel more comfortable with more money in the bank. Although I do dig MMM’s home equity line of credit idea.

    I also think you have a lot of “FUNDS” that are a good idea for planning, don’t seem necessary with $18K cash on hand….you have plenty of money if someone needs a doctor visit, the hot water heater breaks, or your child has a growth spurt. I’d cut the child fund in half and you should still have plenty to cover monthly diapers, formula (if you don’t breastfeed), and new clothing, should you not have friends who can just pass on their used baby clothes to you.

    If you MUST maintain your $18K cash-on-hand to sleep at night, then reallocating current “funds” towards paying down the mortgage might be the best bet, after you refi, that is. :)

  24. Dana February 22, 2012 at 10:59 am #

    Oooh! One other thought:

    What if your wife got the summer job? Being that you’re a teacher and have summers off, perhaps you could switch it up and be a stay-at-home parent with your son/daughter and get that valuable time with them in these early years, meanwhile giving your wife the chance to get out and do something non-baby-related. Win-win for everyone!

    My husband is a school teacher and I work, so our kids are in daycare. But when he’s off in the summers, he keeps the kids and home and the daycare bill goes out the window for 3 months! All that extra $$ saved goes towards paying things down.

    • Jeff Ivany February 22, 2012 at 12:19 pm #

      Do you get stuck finding a new day care every September? Most places around here won’t hold a spot for a child unless you are paying for it.

      • Dana February 22, 2012 at 12:39 pm #

        I go to a home daycare provider who is very flexible, and I’ve been taking my kids to her since my oldest, who’s now almost 6, was 3 months old. She typically has elementary school kids who suddenly need somewhere to go for the summer, and thankfully those kids fill the void for mine while they are home in the summer with my husband. The arrangement is quite nice.

        What’s also nice is that my oldest will be starting 1st grade in September and going to school with her father. After June, she won’t have to go to daycare again.

  25. Jackson February 22, 2012 at 12:10 pm #

    For the younger people reading this, here are some ideas: Don’t get married. Don’t have kids. Don’t have a pet. Don’t have a mortgage. Problems solved.

    • Mr. Money Mustache February 22, 2012 at 3:49 pm #

      Wise advice for the most part!

      Statistically, people who get married and stay that way tend to come out ahead of non-married people. But you can of course achieve the same result by being part of a happy couple who doesn’t happen to do the actual legal “marriage” ceremony. The benefits of sharing housing and other possessions, and pooling income and tax deductions are quite big.

      And when it comes to having kids, there is also the in-between option of having FEWER kids. I have only one myself, and he’s plenty for us. Not the right choice for everyone, but it’s certainly worth considering.

  26. Holmes February 22, 2012 at 12:12 pm #

    Mr. MM

    So with the cash, if you don’t invest it in the mortgage, are you saying that you should put it into a high interest savings account, C.D., or open a Roth IRA and put it there?

    • Mr. Money Mustache February 22, 2012 at 3:45 pm #

      Not the savings account or CD, since I think of those as simply other forms of “cash”. I’d use some sort of equity investment like stocks or a stock/bond mix (vanguard VBINX) for less volatility. A Roth IRA could be good, or a taxable account if it allows quicker access.

  27. Lindsey February 22, 2012 at 1:06 pm #

    I don’t tithe because right now I want to build up my retirement. However, I am an awesome gardener—I kept meticulous records for three years running and each year my garden (after deducting expenses) saved us over $1500 in food costs. It would have been more, but we donated the equivalent of $1000 in fresh vegetables to the food bank during each summer. That is how we give to charity without using cash in hand.

    • Mr. Money Mustache February 22, 2012 at 3:42 pm #

      AWESOME STORY!!!

      You are also giving the Earth quite a gift by converting otherwise wasted backyard land into food production, displacing the need for some dedicated agricultural land and the associated shipping/processing/retail stuff.

  28. Karl February 22, 2012 at 1:12 pm #

    I’m just going to throw this out there on the off chance that your non-negotiable 10% “charity” spending a month is a tithe to the LDS church. Temple recommend interviews only happen every other year, so you can do a bigger lump-sum payment on the interview year and still be considered a full tithe payer. There’s also tax benefits for doing it this way; you can google that to find out more. I only heard about gaming tithing lump-sum style after I disassociated myself from the church so I didn’t make a priority of remembering the nitty-gritty of it, but maybe it can help you. Apparently it works with both US and Canadian tax law too. Take luck getting ahead bro.

  29. Mart February 22, 2012 at 3:22 pm #

    Sigh. I’ve been following this website for a couple of weeks with rising enthusiasm. I totally loved this idea of early retirement – spend little, save a lot, invest. But seeing these expenses that are pretty much equal to mine and then the salaries that are roughly triple than what the average folk in Eastern Europe earns kind of makes one lose faith.
    I guess this works mostly for western countries where if you decide to skip the overspending and buying of ridiculous stuff, you can easily save incredible amounts of you salary.

    • Mr. Money Mustache February 22, 2012 at 3:32 pm #

      You are correct – for early retirement on a lower income, you need to become much more hardcore about things like housing expenses and even food.

      On the other hand, there is always the option of getting an education in a high-paying field and/or switching countries in order to earn more. That’s what I did and that’s what got me to early retirement. I wasn’t born in the USA and I wasn’t born with an engineering degree!

      In your region, London is an excellent place to make a ridiculous amount of money, then you can take it back to Eastern Europe and retire in a less costly area. Or as Saudisimon pointed out, certain Persian Gulf countries are great places for quick ‘Stashing as well.

      • Mart February 22, 2012 at 3:52 pm #

        Thanks for the encouragement, I am trying to invest in learning new skills. I even took a less paid job just to learn something I believe could bring higher income later (combined with my field of study and current skills). Moving is also an option, at least within the EU it should be easier than trying to get a long term work permit e.g. in the US.

        • ice February 23, 2012 at 12:34 pm #

          Right on Mart! Don’t sweat your situation; look at the positive aspects. As MMM said, being an EU citizen is very powerful as you can (relatively) easily leverage the earning power and cost of living of all the various countries.

          Besides, even if you aren’t on the direct road to early retirement doesn’t mean you won’t achieve that goal. For example, I was earning $60k a year out of school but chose to become a volunteer earning $3k a year. A temporary stroll through the woods. I’ll eventually find my way back to the road of money and the rest of the journey will be that much sweeter for my rambling.

          I read this website because it’s like miracle-gro for my dreams. And you learn so much more than just money here. So I hope you are enjoying that part of it too while you work to unlock your potential!

    • Kadi February 26, 2012 at 7:39 am #

      Im from easten europe(Estonia) and i can say that we get less paid and it is harder for us, but on the other hand we do are more experienced on furgality, dont we. So we are smarter, dont we? And anything is possible! There are still lots of things that we buy but dont need and what we could do ourselves but we prefer to pay others.

      Also…as Estonia is a very small country and everyone knows someone who knows the person you need to know to get something cheaper or free, you can cut your expenses if you are just not afraid to ask.

  30. MudHut February 22, 2012 at 5:00 pm #

    We do a “babysitting” exchange with another family with similar values. My wife watches their son 2 days a week they have ours two days a week. This allows my wife to have a break and to work part time at a job in a meaningful job that brings in about $15k/yr. It makes a big difference to our bottom line, and our son gets some socialization with people that we trust.

    A newborn might be too soon, we started this when he was about 6 months old.

    • Marcia @Frugal Healthy Simple February 23, 2012 at 7:57 am #

      I agree a newborn might be too soon, but after that, you’re good. I have a friend with 3 kids and a home daycare. With her 3rd, she only took 1-2 weeks off before opening the daycare again.

    • Cass February 23, 2012 at 11:14 am #

      I don’t have kids yet, but this is BRILLIANT! Win-win for everyone!
      This is an idea I’ll have to sock away for the future. Thanks for sharing :)

  31. Debbie M February 23, 2012 at 8:49 am #

    I get the idea that some (all?) of this cash is build up in the savings categories such as for insurance, medical fund, and car savings. So it only looks like something they could throw at the mortgage, but if they did, they wouldn’t be able to cover some of their other expenses.

    I think this budget is great even if they continue paying only the minimum on the mortgage until it is paid off. And I think it makes perfect sense for a family with a place to live and plenty of food on the table to share some of their bounty with others.

    However, I do see room for improvement in the groceries. My best advice is to do more of your own food processing: cook from scratch, grate your own cheese, stuff like that. Start off with the more fun-sounding stuff. Then try things that seem daunting, but might also turn out to be fun.

    Choose lower-priced meals more often than higher-priced ones. Try using less of the expensive ingredients and see if you still like the food. (For example, do you like spaghetti with only half a pound of meat instead of a whole pound? How about 3/4 of a pound? How about less sugar in your coffee and desserts?) Seek out new affordable recipes. Can you grow anything cheaply in your area?

    Of course breast feed if possible–it’s not only the cheapest way to feed the baby, it’s also healthiest (for example, Mom’s immunities get passed to the child). Later, make your own baby food with a blender or food processor. Just read the ingredients on a baby food jar if you would like some extra incentive.

    Finally, check out _The Tightwad Gazette_. That author had similar priorities (paying less than average for entertainment (and food) so that she could stay home with the kids and have more kids and a big house). And remember, when your kids are old enough, they can help with the cooking, with making things, with garage sale shopping, etc. So it doesn’t matter that this stuff is time-consuming because you can be talking and doing stuff at the same time plus teaching the kids skills.

  32. Margie February 23, 2012 at 8:55 am #

    I think the budget looks pretty good. I’d definitely recommend swapping childcare with a friend for date nights, so you don’t have to pay for a babysitter. Then find fun, free things to do with that time. Refinance that mortgage at 3.5% (15 yr) and perhaps roll some of that $18,000 into it. Then, don’t worry about prepaying the mortgage until your wife goes back to work, whether that’s next year or when your little one starts school. I’ve been a stay-at-home mom for 8 years and I’m the frugal one in the family, so I’ve taken charge of our budget, taxes, investment planning, meal-planning, grocery shopping, etc. When you consider the price of daycare, convenience food, transportation, career clothing, it’s well worth staying home IF that’s what makes you happy. I’d definitely save $7,000 of your savings as a buffer, especially if you’re still adjusting to life on one income.

  33. Emmers February 23, 2012 at 9:38 am #

    This is a good breakdown! Here are my thoughts:

    (1) I like the idea of cash savings for very specific things. For example, our house has a very old furnace, but it still works, and it’s adequately efficient, so we aren’t replacing it. But if it dies and there’s an expensive repair bill, we will probably just get a new (very efficient) one rather than potentially pouring money into the old one. But your point about a HELOC is one good non-cash solution to that issue.

    I also want to pay cash for my next car, so I’m keeping that money on hand in CD’s that I can break if we need the next car suddenly (unlikely but possible).

    (2) If this family looks at the medium-term: The SAHM wife should definitely get a part-time job when the kid goes to kindergarten, or earlier if possible. They’re essentially paying the cost of her salary for daycare. I don’t know if she’s educated or not, but if she is, that’s a great deal of “money” to spend on that one expense. I love the idea above of having Teacher Dad keep the kid in the summers while mom works some sort of seasonal job — that will keep her hand in/keep her resume updated while allowing him his own bonding time with the baby. Win-win!

    (3) I definitely support the idea of tithing with time, rather than money, since they’re on such thin margins. Any church that looks askance at that is…frankly not to be trusted. You could even see if it’s possible for Wife to bring Newborn to the volunteering. $240 a month is $2880 a year — not a full income by any stretch, but nothing to sneeze at either.

    (4) DO NOT DROP YOUR LIFE INSURANCE. I couldn’t believe I read that in another comment. Section 8 and Medicaid are not pleasant ways to live, in my admittedly limited experience; part of the deal that every SAHP should strike is that the working partner needs to have a *very* cushy life insurance policy. If your breadwinner gets hit by a bus, and you’ve been out of the job market for years, you are SOL. There’s no two ways about it. You will *need* that three years (or even one year) of substitute income to get back on your feet. This is more easily accomplished if you’re living below your means (in approved Mustachian fashion), but even with frugality, things are going to be hard.

    Now, if both adults in the household had paying jobs, and the mortgage was payable without default by just one salary (the lower salary), *then* you can discuss dropping or limiting life insurance. But not with a SAHP. That’s just a terrible idea all around.

    Thanks again for a great post! Lots of food for thought.

    • Emmers February 23, 2012 at 9:43 am #

      I should note re: summer jobs in (2) that temping is a good source of work then — people go on vacations, and their offices need to replace them for that period. (Particularly with indispensable people like receptionists.) I don’t know if the temp market is still sour due to the recession, but back in 2003-2006 it was pretty great.

    • Debbie M February 23, 2012 at 11:52 am #

      Actually both parents need life insurance. If the stay-at-home parent dies, the other parent needs to be able to afford daycare and probably quite a few other expenses that were kept low or taken care of by the stay-at-home parent. Not to mention new expenses like a funeral and possibly grief counseling for the survivors.

      • Emmers February 23, 2012 at 11:58 am #

        That’s a very good point.

      • Shanna February 23, 2012 at 12:34 pm #

        Yes! It’s not -spouse dies, funeral, next day other parent gets new job, continue on as if nothing happened.

        If something happened to my husband we would be absolutely wrecked for a year at least. I have only just started getting over my sister having cancer last year and she is fine now.

        If I was gone it would be more costly because I would have to be replaced by at least 2 people, preferably relatives, that might have to be relocated nearby to help my husband (if he chose to continue working). I can’t imagine a stay home parent would want to pass away and then have his/her children also suddenly dumped in a day care within the week.

        • Julie June 5, 2012 at 7:48 am #

          Check your state, but in Ohio if my teacher husband were to die there are pension survivor benefits. His school district also provides a small life insurance policy. So we carry less life insurance than most families might need, since a portion of his pay would still be coming in.

  34. Dan February 23, 2012 at 9:44 am #

    “The “emergency fund” is a bad mathematical bet, just as driving an SUV instead of riding a bike an attempt to improve your safety is a bad mathematical bet.

    Mr. Money Mustache is not backing down on this one. BIG EMERGENCY FUNDS ARE DUMB!!”

    I big time disagree with you here. He has a six month emergency fund for his fixed expenses. Dave Ramsey also advocates that, and with a net worth of 55 million bucks, I’m inclinded to take his advice about the emergency fund.
    Using any sort of credit is fine for the immediate convenience, but that should be paid off immediately from the emergency fund in the high interest savings acct or money market fund. Why would i pay 3-4% interest on a HELOC when i can use my 1.5% fund, and not pay interest? Thats just simple stupid tax.

    • Mr. Money Mustache February 23, 2012 at 10:12 am #

      What the fuck!?! I can’t believe people still don’t get this basic concept!!! The reason you should gladly pay 3-4% on your HELOC during emergencies is this: By maintaining an emergency fund, you are paying 5-6% ALL THE TIME (in the form of foregone investment returns) when there are no emergencies.

      Emergencies are rare. Most of the time you are running in non-emergency mode. Living a Mustachian lifestyle further lowers the probability of emergencies.

      Dave Ramsey’s advice is very effective for simpler people – those who tend to get themselves into debt over and over again. This is the advanced personal finance blog – where the adults who understand statistics and math hang out.

      Dave Ramsey is rich because he’s a good entrepreneur and sells a lot of products to people. Mr. Money Mustache is rich (at a much younger age) because he does his math correctly.

      • Emmers February 23, 2012 at 12:02 pm #

        I think this is an important distinction to draw. People like Dave Ramsey and Michelle Singletary talk a lot about “debt bondage” and how you should never go into debt, ever — even if the debt’s APR is lower than the effective APR/cost of *not* investing the money early on.

        But I think that’s because of the different audience. For people who consistently get themselves into credit card debt (whether through avarice or misfortune, it doesn’t matter), Step 1 is getting *out* of the debt hole. MMM is Step 2, once you’ve been living that way for a while and have proven to yourself that you can be trusted with complicated money matters.

        So cash emergency funds make sense for people whose reaction to an emergency would be to put everything on a 20% credit card. Those people are not the MMM audience.

        Did I read you right, MMM?

      • Kim February 23, 2012 at 12:58 pm #

        New reader, first time comment. Along that line of thinking, why would you ever pay off a mortgage at 4% if you can make more in the stock market?

        • Mr. Money Mustache February 23, 2012 at 1:46 pm #

          Good question! Tune in to tomorrow’s article to find out in great detail :-)

      • Meatpie August 30, 2013 at 9:56 am #

        This comment gave me a hearty laugh. I feel like many of the lurkers on this blog would benefit from a lesson in opportunity cost. A little Eco 101 might do us all a little good.

    • Jimbo February 23, 2012 at 10:13 am #

      what about the stupid tax of you NOT making 3-4-5-7% on this money and instead only yielding 1.5% in the unlikely waiting of an emergency?

      With that sort of reasoning, no wonder people are giving money to somebody like Dave Ramsay…

  35. Luke February 23, 2012 at 3:09 pm #

    Dan, you just don’t get it. Why earn 1.0% interest on a huge wad of cash and be paying 6.25% interest on your mortgage (as in this case study). Apparently, you don’t seem to get what everybody else is trying to say — that’s a 5.25% interest swing, NOT in your favor. Or why earn 1.0% interest in a money market account when you could be earning 3-6% from a quality dividend paying stock.
    What are the chances you will need $18,000???? Three thousand dollars, maybe, but not $18k. I’ve never needed more than $1,500 for car repairs (on a 13 year old car)

  36. lurker February 23, 2012 at 4:21 pm #

    mr. moustache,
    I would never argue with your math but perhaps there are other reasons for big emergency funds. my daughter is sick and my insurance sucks so the emergency fund is really a peace of mind fund for me.
    had another great bike ride today. thanks MMM

  37. Loftymeat February 23, 2012 at 4:45 pm #

    First time poster, Long time reader.

    I am somewhat shocked from the comments stating that he is getting low pay as a teacher. My wife is a school counselor which requires a Masters degree and she makes $36,000. Hell, I have my Masters in Accounting and make $49,000, and I’m a CPA. And it doesn’t seem to be due to a cost of living adjustment, their expenses are very similar to ours, except we have no kids/dogs/charity and live in a 1 bedroom apartment and pay $650 in rent (no cable/internet.)

    I live in the center of North Carolina. I’m not saying we haven’t saved a ton of money each month with our current set up, but should we be thinking about moving to another state/country?

    • Mr. Money Mustache February 24, 2012 at 6:58 am #

      Hey Lofty. I think it’s great that you are content with your current lifestyle. I will still have to break the news to you that you don’t earn much money for people with your qualifications, but that doesn’t mean you’re making the wrong choice.

      Writing this blog has taught me that there are many opportunities around the world to get paid very high rates for not-all-that-difficult work. I thought I was unusual for making a little over $100k while I worked, but nope.. there are people younger than me who easily earn 2-4x that amount in regular salary doing the same work. Some of them work in Silicon valley, but others are right here in my own area!

      Being competent, sociable with people, aware of the market pay range for your skills, and politely aggressive in your pursuit of bringing your own pay up to the high end of that range, will get you some serious raises.

      But only if that’s important to you.

    • Marcia @Frugal Healthy Simple February 25, 2012 at 9:39 am #

      Definitely do your research first. I live in So Cal, and yeah – everyone gets paid more money here, teachers, etc. Spouse and I are both making great salaries as engineers. But our mortgage is over $500,000, on a teeny 2-BR, 1BA house (some of that is due to our bad timing in buying in 2004, hey hindsight is 20/20). But still the houses next door to mine sold or are listed for $500k-520k for the same size as mine, and everything else costs more too.

      Of course, as MMM has pointed out to me, you can bike to work year round. If you aren’t pregnant anyway. ;-)

      • Loftymeat March 5, 2012 at 7:40 pm #

        Just wanted to post an update on my job. I got another one, and will be making about 27% more. I have to thank MMM and this blog, in part, by giving me the confidence I needed to move on to bigger and better things. However, I don’t think I was quite prepared for the emotional response I would have, and my co-workers would have, to me leaving. I was by all measures going to be promoted in a few months, and my resignation announcement took a lot of people by surprise. Don’t get me wrong, the decision wasn’t all about the money but that obviously plays an important roll. At least until my student loans are paid off.

        • jlcollinsnh March 5, 2012 at 7:54 pm #

          great news Lofty and, wow, you acted fast!

          I’ve always felt, since I was going to have to work anyway, it made sense to work where they paid me the most.

          Unfortunately, people who stay with one company tend to get taken advantage of. Changing jobs every now and again helps keep your income at the top of the food chain.

          Sounds like you were highly regarded where you were and you are parting on excellent terms. that will serve you very well. Who knows? maybe you’ll even wind up back there someday, at higher pay of course.

          Well played!

  38. Nephi February 23, 2012 at 5:02 pm #

    I have been working on savings up for 6 months worth of living expenses before beginning to save for early retirement. After reading this artcle and the comments I was wondering if the reason this person in the case study should not have the 18,000 in cash is simply because of their current debt. Would recommend against a $6,000 savings even for a person like me who has no debt?

    • Mr. Money Mustache February 24, 2012 at 6:49 am #

      Good point – With no high-interest debt, an emergency fund is a much less bad idea. And for those without the flexibility of a home equity line of credit and other assets they could potentially sell and lifestyle changes they could potentially make, having some form of semi-liquid cash becomes increasingly practical. Don’t neglect the power of unemployment insurance, though. Many people today lost their jobs with no e-fund, and have been living off of UI for over a year. That’s why the program exists.

      I’ll still never have a cash emergency fund myself, however. Just because stocks are also liquid – you can sell them in one day. “What if they happen to be down when I need to sell?” is the wrong question to ask. Instead, ask, “what direction do stocks go on average? And thus where are they more likely to be if I ever have to sell them in some unpredictable future year?”.

      You can’t predict the future, so you bet where the odds are in your favor instead. It doesn’t matter if you lose sometimes.. it matters that over a lifetime you will tend to win more often.

      • jlcollinsnh February 24, 2012 at 7:32 am #

        Mr. MM’s last paragraph is especially important. No one bats 1000. sometimes the markets move against you, as we all know, from 2008-9, but if you stay tough and on course your investment are back just fine now. And 2008-9 was a down draft of historic proportions.

        Remembering back to the post on Assets Allocation, once your stash gets large enough and you are living off it, here’s an option to consider:

        hold the bulk of your investments in 100% stocks, a very aggressive high-risk high-growth position. live off the 5% of this, also aggressive.

        hold a year’s worth of living expenses in cash/short-term bonds. If another 2008-9 occurs stop your 5% withdrawals and tap the cash until the storm blows over leaving your portfolio intact and with time to recover.

  39. Brian February 23, 2012 at 5:14 pm #

    I’m not sure how much you drive, but there may be ways to reduce that cost. There are some older cars that are very reliable, cheap and easy to maintain (if you don’t mind learning just a little so you can diy), and are dirt cheap for insurance. One of the best of these cars is the Volvo 240. Regularly known to go 250k+, it will set you back $2000 for a good one, and will be $20 a month in insurance. If you drive a lot of miles, then something with better gas mileage would be more ideal. But, this may be a way to free up some more cash to put at the mortgage right now.

  40. Marie February 24, 2012 at 2:10 pm #

    Over $2K for various insurance seems high. I agree the ID theft insurance is a non-value item. Teacher liability? I think this might be a long or short term disability policy. You’re young so the premiums might not be too high, on the other hand many of the disability policies only kick in after a certain amount of time and only if you are not capable of doing any job (not just your teaching job). Maybe you could review the policy and figure out the liklihood of it ever kicking in and to what extent you are paying for a potential small payout. In that regard, perhaps a review of the life insurance policy — paying off the mortgage and increasing your stash is a life insurance policy that pays off now. If you were to die your spouse has some financial security. But lets say you don’t want to get rid of it. Is it term insurance (the cheapest) or whole life? Shop around, term life insurance is very competitive and you’re young and healthy. Also, you have you been stashing the $200 of house maintenance away every month for a rainy day/leaking roof? If so, maybe that fund has a balance that covers most of that risk now and you can lower the monthly stash to $50 a month. You mentioned the house is in good shape. Good luck – thanks for sharing your story.

  41. TDiddy March 8, 2012 at 10:00 am #

    I didn’t see if this was mentioned, but if the charity thing is such a big part of their life, why not get a $100,000 permanent life insurance policy for $50 per month and make the charity a beneficiary? This way you’re saving $190/month, and the charity will eventually get a huge tax free payout later than just $3000 a year. You save and the charity gets way more, as the policy grows over time from dividend reinvestment. Your monthly gift now would never catch up to the insurance amount.

Leave a Reply

To keep things non-promotional, please use a real name or nickname (not Blogger @ My Blog Name)

The most useful comments are those written with the goal of learning from or helping out other readers - after reading the whole article and all the earlier comments. Complaints and insults generally won't make the cut here, but by all means write them on your own blog!