How Rich are You? Find your Net Worth, Spending, and Savings Rate

wheel of consumptionMr. Money Mustache can tend to get a little high-level at times, talking about all these feelings and philosophies that underlie the proper path to wealth.

But you can’t just smile your way to the top – there are real numbers at work in the background, whether you understand them or not.  These can gang up and torture you (as in the case of a person with a crushing 60-hour workweek who maintains a paltry 10% savings rate), or they can boost you right out of a mandatory work sentence in unprecedented time.

This is especially relevant in the wake of the annual spending article, which always brings up a lot of questions about how Mustachians accumulate wealth so quickly. So let’s start with the big picture, which is how to become wealthy:

Financial Independence in 3 Easy Steps:

  1. Figure out how much money you are taking home and subtract the amount you are spending.
  2. Be sure to keep all that surplus money at work, by paying down high interest debt first and then investing the rest.
  3. Once the total value of all your investments reaches 25-30 times your annual spending, paid work is now entirely at your discretion. For life.

So with this post, let’s explain these three fundamentals of rapid wealth accumulation the MMM way, so the schooling will be there for all future students.

Net Worth

We’ll begin with the end in mind. Net Worth is a bit of a degrading term, as it incorrectly implies a person is only worth the amount of money he or she has accumulated. But you can use this for motivation, since as a Mustachian your figure will tend to be unusually high.

The overall formula is easy:

The Value of everything you own (-subtract-) The total of all your loans

The details are equally easy, although sometimes debated. So I’ll tell you the way I happen to think about it:

  • You do include the value of any properties you own, including your primary house
  • All 401(k)s, IRAs, savings plans, and other hidden assets are included
  • All mortgages, loans, credit card balances and other nonsense get subtracted
  • Don’t bother with depreciating consumer stuff like your cars,  furniture, or Apple products, unless you are willing to sell them right now.

Let’s start with a deliberately twisted example:

Joe Consumer (age 33) is a Washington DC Lawyer pulling down $250,000 per year.

He has a condo he paid $517,000 for with a current market value of $580,000 and a mortgage of $460,000. He also has a BMW 535i sedan that cost him $61,300 including tax a few years ago, payment is $539 per month and remaining balance is $43,000.

401(k) balance is $50,000, IRA is $27,300 and he has $90,000 left on his Harvard student loans, which he plans to get serious about soon and pay off over the next 10 years. Credit card balance is just a bit high at $8,000 right now, what with the holiday season hangover. What is his net worth?

Whoo! Look at that collection of financial spaghetti.  Oddly enough, when people write to me with financial problems this is usually how they are described: a big list of confusing and unsorted details. They just heap them on a plate and hope it will straighten itself out some day. When you’re confused about your own money, it is likely that you are wasting a lot of it.

Joe’s Net Worth

Ownership of the Condo: $580,000 – $460,000 = $120,000
Retirement accounts (401(k) + IRA): $50,000+27,300 = $77,300
Student loans, car loan, and credit cards: $-90,000 + $-43,000 + $-8,000 = $-141,000

Total Net Worth: $120k + $77.3k – $141k = $56,300

If you ask the average Josephine, Joe is a successful rich guy, doing very well for a 33-year-old. Expensive house, flashy car, massive income and even some money in the bank. If he just keeps on the current path and saves a bit more during those “peak earning years” in a couple decades once he makes partner, he’ll have a nice fat retirement fund by age 65.

My diagnosis would be quite different: “Holy Shit, Joe! What the hell have you been blowing all your money on?! You should have had a higher net worth than that many years ago, given your career!!”

Very Rough Guideline: Take the total money you’ve earned after taxes in your lifetime (suppose that for Joe it happens to be $1,243,100). If you don’t have at least 40% of it still around to show for it today, you are spending way too much.

Bonus: Suppose his nearly-new BMW can still be sold on Craigslist for $33,000. Although he has already lost $28,300 in depreciation on this horrible money pit, he could end the bleeding immediately by selling the car and taking the $33k plus $10k of his own money to pay off the $43,000 note. This would increase his net worth by $33k and set him on a much more prosperous path for the future.


This was Joe’s problem above. The key is to understand where your money is going, and for most of us that means tracking your spending. I calculate it like this:

Everything that flows out of your wallet, bank account, credit cards,  or automatic payroll deductions for things like insurance.

Finer Points:
I include property taxes and sales tax, but do not count income tax or other payroll taxes.
I include all loan interest and fees, but do not count the principal portion of loan payments.

Why? Because I’m very interested in financial independence: that point when your passive non-work income is enough to pay for a hypothetical retired life of your choosing. Right now, Joe might be earning $250k and paying over $60,000 in income taxes. In retirement, he will probably be in a lower tax bracket. Plus income might come from dividends, long-term capital gains, or rent checks from investment properties he owns. He might even live in an area with a different tax rate.

You need to deeply understanding your spending needs and wants in order to know if you can afford to retire. Instead of taking random guesses at the factors above, I prefer to think of everything in terms of after-tax dollars. Take-home income instead of gross income.

So if we sort out what is surely a twisted ball of credit card,  EFT and ATM transactions, Joe’s monthly spending might look something like this:

Joe’s Spending

Interest portion of his $2500 mortgage payment: ($2000)
Interest on credit card and student loans: $480
Car Payment: $539
Employee contribution for health insurance: $150
Full collision+comprehensive car insurance: $200
Car Registration/licensing fees: $200
Gasoline: $200
Unnecessary checkups at BMW Dealer: $150
Condo fees: $450
Property Taxes: $500
Utilities: $200
Travel: $800 
Country Club Membership: $200
Groceries: $400
Dining out: $1000
Wine and Scotch collection: $400
Clothes, Suits, and Gentlemanly Accessories: $600
Haircuts and Massages: $200
House cleaner: $400
Dry Cleaning: $150
Cell Phone: $150
Cable TV/Internet: $150
Miscellaneous Shopping, Gifts, Etc: $500

Total spending: $8919 per month

So how can a busy person track all of these transactions and categorize them well? You have two choices:

  • Manually save all receipts and enter them into a spreadsheet or piece of budgeting software every night, or
  • Do all your spending on a credit card and let some financial software like Mint, YNAB, or Personal Capital grab all your transactions and sort them out (this is what I prefer).

In either case, you’ll probably spend at least some cash which you pull out of ATMs. You will see this in your automated spending report as well – I suggest assigning your cash spending to a category called “the decadent throwing around of unnecessary $20 bills.”

Take-home pay

This boils down to the amount of your paycheck that you eventually get to spend yourself. So let’s look over Joe’s shoulder as he opens a biweekly paycheck:

Gross Pay: $8620

401(k) plan deduction: $692
Employer 401(k) Match: $300
Automatic deduction he has set up to pay towards student loans: $1000
Professional Fees/Insurance: $200
Federal Tax: $1724
State Tax: $689

Net pay to his bank account: (8620-692-1000-200-1724-689) = $4315
Since there are 2.16 pay periods in the average month (52 / 24) you would scale this up to see that he gets an average of $9349 per month showing up in the bank.

But this is where many people get confused, because this paycheck he takes home is not really his take-home pay. You need to add back in the money that he is actually using – including to pay off loans –  or will get to use – including all retirement and savings account deposits.

The MMM Take Home Pay calculation would thus be:

Gross Pay + Employer 401(k) match – taxes and fees
= $8620 gross pay + $300 employer 401(k) match – $1724 federal tax – $689 state tax -$200 professional fees
= $6407 biweekly or $13,839 per month

If this sounds like a shitload of money, that’s because it is. Anyone making $250k gross pay should be rolling in it and saving the vast majority, therefore able to retire within just a few years. If you get your savings rate right.

 Savings Rate

Now that we’ve done all the hard work, we get to hit the gas pedal and show off a little, since we can make some bold forecasts.

The savings rate is simply the percentage of your take home pay that you’re not spending.

(Take home pay – spending) / (take home pay) , then multiply by 100 to get a percentage

For Joe, it would look like this:

($13,839 – $8919) / ($13,839)    x    100

= 35.5%

Hey, Joe is still saving a third of his income, even with the most outrageous spending list that I could invent for a single guy. It’s not completely suicidal, but he is still squandering an opportunity that only a tiny percentage of humans have ever been offered: the opportunity to become financially free while he’s still young.

To steal a few data points from the most popular article in this blog’s history: The Shockingly Simple Math Behind Early Retirement:  Joe’s 35% savings rate means he is on track to retire in about 25 years. He is already 33, so this means he is sentencing himself to be locked into that office until age 58.

This may seem “early” by current American standards, but if the reports I get about high-octane Washington DC law careers are accurate, that shit can get old in a hurry. It is far wiser to earn your freedom while you are still fired up about working.

From this point, it can get far worse or far better. Joe could get married, have multiple children, and expand the level of spending (larger house, more vehicles,  private schools, etc.) to consume even more of his income.

  • If he adds just $3000 to this monthly budget, he drops to a tragic 15% savings rate and is set for a 43 year working career
  • On the other hand, if he trims down the excess and goes to a still-insane $5000 monthly spending level, he’ll be saving about 65% of his income, which means he will be set for life less than 10 years from now.
  • If he can streamline life to just a slightly less ridiculous level than that, let’s say to my own level of spending, he will be retired well before 40.

So there you have it: The easy way to calculate spending and savings rates, and your net worth.

Although I illustrated it here with an outrageous but very common example of high income and high spending, the principles work just as well, and are even more important if you are living on an average income. In the US, it is quite possible to live well on under $7000 per person per year, and even gradually become wealthy on a below-average income.

But the first step is to understand how all these dollars fit together. How are YOU doing?


Bonus: For those who love to calculate, my friend and fellow early retiree Darrow Kirkpatrick maintains a really thorough roundup of the best retirement calculators on his blog here: http://www.caniretireyet.com/the-best-retirement-calculators/

  • Neil January 26, 2015, 9:07 am

    This is a very interesting discussion as long you realize, as MMM pointed out, that Net Worth is only one measure of value. I would say a MMM attitude of contentment is even more valuable. This reminds me of the classic book: “Millionaire Next Door”. Even the wikipedia article about that book dogs on Americans for sucking at accumulating wealth: http://en.wikipedia.org/wiki/The_Millionaire_Next_Door#America:_the_ultimate_UAW

    • GordonsGecko January 26, 2015, 12:01 pm

      And rightfully so. As a collective, we Americans suck at accumulating assets. We are incredibly awesome at throwing money out the proverbial window, however.

      • Alex January 26, 2015, 2:08 pm

        Well, here’s what I think is a super motivator to get you to CLOSE that window and stop throwing the money away. For every $1000 a year that you can reduce your expenses, you lower the size of the financial independence stash you will need by a cool $25,000. AND you’ll have an extra $1000 to invest towards building up that stash. Win-win, baby!

        • Alistair January 26, 2015, 3:56 pm

          that is a really good way of thinking about it. it is more “can i cut my spending by 3k per year” rather than “how long do have to keep working to save £75k”

          • RetiredToWin Alex March 22, 2015, 5:28 pm

            Thanks, Alistair. It was thinking that way that showed me how I could do an earlier retirement NINE years sooner than I had originally thought possible.

        • Brian January 27, 2015, 10:28 am

          When I first found this website almost two years ago, my wife and I pretty quickly identified a little over $800/month in savings — mostly from dining out less, but also by getting rid of a few other monthly expenses. We’ve found more savings since then, but what “clicked” for me was when I realized that by figuring out how to spend $800 less per month indefinitely without reduction in life quality, I’d essentially made myself $250,000 richer, with hardly breaking a sweat.

      • Free Money Minute January 26, 2015, 2:24 pm

        If you wanted to get even more “extreme”, you could take the excesses of Americans and use it to your advantage to get out even earlier. Many times I find brand new items being sold at garage sales, on craigslist, etc because they were bought during one of the binges and simply placed in another room until finally listed for a fraction of the purchase price (and tax that they paid on the item).

    • GordonsGecko January 26, 2015, 12:11 pm

      Current savings rate of between 70-75%. Drops to about 60% if we buy a house or move into a new rental once my better half’s mother sells her house.

      The savings rate however is also based on a temporary salary that may last only another year or so. Things change pretty quickly in the consulting (finance/accounting) world and the project I’m working on could disappear at the whim of the government…say… if they repealed Dodd-Frank.

      Or, if Dodd-Frank sticks… it could lead to a very productive and lucrative 3-7 year mini-career with a handful of my colleagues and I breaking out into our own consulting company, rather than working for an existing company.

      • DavidTheDoofus January 27, 2015, 11:23 am

        70-75% savings rate, that’s awesome! You’re doing consulting right. Even if the project disappears, you’re not scrambling around trying to figure out where next months living expenses come from while looking for another contract. You’re in a great position regardless of what happens in the short term.

        • John February 8, 2015, 8:40 pm

          It’s a good savings rate but if you go back and read the comment, he’s living with his mother in law. There’s mustachian and then there’s mustachian.

    • Urban_Logger January 28, 2015, 5:18 am

      Neil – read Millionaire Next Door as well and my favourite part is benchmarking your net worth. Basically take your age and divide by 10, then multiply by your gross annuall salary. In this example, the target average net worth would be (33/10)*$250,000 = $825,000. The formula works with a combination of any age or salary and a good benchmark. If you can double the net worth target, you’re a superstar. However at half the target you’re barely trying.

      • Josh January 31, 2015, 8:25 pm

        If you think about it, TMND’s method assumes a 10% savings rate to keep the same target net worth. You basically need to save 1/10 of your pre-tax money. If you’re 30 and making $50K/year, you need to have a net worth of $50K * 30/10 = $150K. When you’re 31, you need $50K * 31/10 = $155K. I think what they consider a very high accumulation of wealth is 20% (double the target). Since the book is mostly about people who accumulated $1M or more and were in their 50’s, it should be somewhat easy for any Mustachian to beat it. Of course, if your salary accelerates quickly and you’re young, it will take awhile to be at a higher net worth than they suggest; I think their formula is geared toward average people who are over 40 with steady incomes.

      • cs April 5, 2015, 12:04 am

        Hmm. I’m not sure Joe would have a fighting chance to save up $825k by now (or even half that much). Based on his salary he probably finished law school in 2010 and started working in January 2011 with a salary as follows: 2011 – 170k, 2012 – 180k, 2013 – 195k, 2014 – 220k, 2015 – 250k.

        At this point, he has only earned ~$825k gross — and I won’t bother mentioning his student loans…

      • Clay May 4, 2016, 1:30 pm

        Thats a good way to look at it. Like any rule of thumb, it doesn’t work in all situations. For instance if you are 24, just graduated college and got your first real job making 60K a year, with a net worth of zero you are doing OK. But by that rule of thumb you should have a net worth of $144K. So maybe the formula should be Take your age, subtract 24, then divide by ten and then multiply by your salary.

    • Tamara March 19, 2015, 10:05 pm

      I absolutely love that book! I refer to it whenever I feel like buying stupid things (luckily such urges are extremely rare). That book often crosses my mind whenever I encounter shopaholics.

      I’ve just recently realized that I COULD have (theoretically) met Thomas Stanley as I’ve been to his neighborhood. I will never have the chance now. :( May he rest in peace.

      • JB April 13, 2015, 9:39 am

        I told my wife this morning it’s a good thing I don’t like golf or bass fishing. Those are expensive hobbies. She hates to clothes shop so I think we will be fine in retirement.

  • Bonnie January 26, 2015, 9:08 am

    I understanad this is not your niche, but I’d like to see the same anaylsis for the vast majoroity of people who are m;aking less than $30,000 a year, or about $14/hour. I would guess thier goal should be education or skills training to raise there earning potential. Does renting or owning a house make more sense or should they return to the nest if possible? Just how long would it take to FI on a 30K a year job?

    • Evan January 26, 2015, 10:09 am

      Bonnie, the same principles apply as seen in the article referenced above: http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

      It all comes down to personal savings rate. Someone earning $30k a year may be making less than Joe in this example, but his outrageous spending means he’d likely need a lot more money in retirement than a $30k earner that is more frugal.

      In the end, it all works out as a %, so focus on savings, not on income. I hope this helps!

    • Kevin January 26, 2015, 10:20 am

      Hi Bonnie,

      First off you can look at this case study: http://www.mrmoneymustache.com/2011/09/26/reader-case-study-minimum-wage-with-a-baby-on-the-way/

      Secondly, MMM has a post on jobs over $50k, and with an income below $30k it is definitely worth looking into getting a raise. Rent vs own is a whole debate in itself and is very dependent on the city. Typically works out in favor of owning as long as you are going to be there for 7+ years and can do some maintenance yourself.

      Finally, the math works out the same and saving percentage is really the only number that matters. If you save 50% of your income you’re looking at a 17 year working career no matter what income you have. Jacob over at ERE took more extreme measures than MMM and got his spending down to $7,000 annually and was able to retire in 5 years despite making “only” $40,000. You have to decide what level of saving you are happy with.

      • James January 26, 2015, 11:00 am

        While personal savings rate is the simplest way to understand the timetable for early retirement, the basic reality of the situation is that it is easier for a high-earner to accomplish said high personal savings rate than a low-earner. Take the MMM budget in his wealth accumulation phase for example: they averaged about $36,000 of spending per year on what most people would acknowledge is a pretty badass (frugal) lifestyle.

        The median income of U.S. households is about $50,000 per year (and that is usually with more than 2 people in the home), so the savings rate for an average two-person household in the U.S. living a frugal lifestyle like MMM’s (maybe even more frugal because of more family members) has less than a 30% savings rate, which equates to about a 30-year working career.

        30 years is still better than 40 years, but it is worlds apart from 10 years. And while there will usually be fat to trim in any budget, there is a definite floor on spending (see http://www.nccp.org/publications/pub_858.html) that makes it much much harder for lower-earning, average Americans to achieve high savings rates and hence retire really early.

        • Tigerlily's mom January 27, 2015, 10:40 am

          I don’t consider 36,000 a year as very frugal, and neither does MMM, as far as I can tell.
          We live very comfortably on 2000.00 a month and save money on it. We are both in our
          sixties and have about 720,000 in net worth and no bills whatsoever. The stash does not count a very successful business getting sold, nor a partial ownership of several acres with 2 vacation homes in Provo which was inherited and is now for sale. I recently decided to check the grocery bill against the budgets of the USAG, and found we are
          in their very restricted food budget. This is spite of eating what we want. Shopping the
          Perimeter and cooking at home really make a huge difference.

          • Tone Loc January 27, 2015, 8:04 pm

            TM, hats off to your financial accomplishments… very impressive, and so is a $24,000 budget (similar to MMM!). I’m guessing that “no bills” means no mortgage, which is an important distinction. Unless Uncle Sam is going to go around giving free houses out to everyone, a fair comparison for the average working American would include a mortgage payment equivalent in the spending figure (about $2000 a month for a $400k house, for example, which would bring total annual spending closer to $50,000 [the U.S. average], just as a hypothetical example).

            • Tigerlily's mom March 20, 2015, 10:42 am

              Thanks. No bills actually means just that, no mortgage no car or
              other loans and all credit cards paid off monthly. We update a spead sheet monthly, and as my DH (the business owner) has just given himself a raise, we now save 50 percent of earnings monthly. We bought our current house with cash, after selling the last one which was larger.

          • Neil January 29, 2015, 12:37 pm

            I always find “I can live on this dollar value” to be a bit of a frustrating argument that I keep seeing here, both from MMM and commenters like you.

            Without details, it’s difficult to really compare people. At the very least, you should add in the hidden return on your home equity when you compare your spending to someone else’s. This gives you a closer idea of how much it would cost you to enjoy your current lifestyle if you were just starting out today.

            Even then, you’re left only being able to compare locally. Many costs – particularly food and housing – vary substantially between locations. Yes, people can move to a cheaper location, but until they reach financial independence, in many (most?) cases, moving to a cheaper locale also means their labour will sell for much less. Even if the percentage drop is the same, a working saver would be worse off in a lower income/lower cost location. (Once they reach FI, moving is fair game, though still entails many non-financial costs in losing friends and possibly further from family)

            • JB April 13, 2015, 9:42 am

              Home equity is great when you are planning on selling the house. Equity does no good while just living in the house. A paid for house is the best security, but your equity will rise and fall. It only matters once you are ready to sell.

        • EricP January 28, 2015, 1:15 pm

          That $36k figure you are using is their actual spending amount, not the “spending amount” used to calculate a savings rate. The amount paid towards principal counts as savings, not spending so the $36k figure is going to be lowered significantly.

          If we use the $16k figure from MMM’s “no frills” 2014 budget then add in a 4% interest rate on a $200k house, that would give us a $24k figure putting us just over 50% savings rate. That’ll get you to retirement in around 20 years, not bad at all IMO.

          Yes, it’s harder for low income people to save no one is debating that, but with low income generally comes lower expenses. And if you don’t have lower expenses then you should make that happen. If you’re living in San Fransisco making minimum wage with no prospects of making more than consider moving to Columbus, MS (or something else cheap) and now that minimum wage is going to get you a lot further.

      • Eldred January 26, 2015, 11:41 am

        $7,000 per year for expenses is AMAZING! I’d guess the biggest barrier to that is housing. If I understand Jacob’s article correctly, he spends $475/month for housing, inclusive of utilities. But then he says that corresponds to a $100,000 house. I’m not understanding that, because just to get the MORTGAGE payment that low, the calculator shows that would only pay for a $20,000 house. And then you still have utilities… I’ll have to check his site a bit more to see what page I missed…

        • Jeff January 26, 2015, 12:26 pm

          Uh, I would check your math. Our mortgage is less than $600 on a loan of $110k or so, and my last place was only a little over $900 for a loan of $175K. Both of these recent estimates (neither the best rates nor the best loan programs) show only slightly over $50/mo per $10K financed. So, if you consider that he probably put down at least 20% on the loan, a payment of $400 or less is quite realistic. Assuming he’s physically healthy and willing to live within a moderate temperature range instead of the same 68 or 70 degrees most people stick to year-round, he could easily keep the utils for a small house under $75. Problem solved.

          • Eldred January 26, 2015, 1:39 pm

            You’re not counting insurance, are you?
            Here’s the calculator I used:
            $20K, 0%down, 30 year mortgage. Not sure why that one is so far off. I just tried another one that gave a payment on a $100,000 loan as about $477. An $80,000 loan gets the mortgage to $381, but that doesn’t count taxes or insurance. My mortgage is $103,900, and payments are $793 PITI. How could you keep utils under $75? That would be great! Hell, my heating bill *alone* is $124/mth on the budget plan.

            • Jeff January 26, 2015, 1:44 pm

              Those payments include escrows for taxes/insurance.
              If the house is worth $100k, I would assume he just paid more than 20% or got a better rate. I’m just saying, it’s in the ballpark so it’s not hard to conceive.
              When I was single, I used to keep my house in the 50-55 degree range. Maybe he’s doing that. Maybe his house is tiny and incredibly well insulated. Maybe it’s both. I don’t know. I’m just trying to point out that there are a lot of ways these numbers could work out.

              • Eldred January 26, 2015, 4:33 pm

                With your house that cold, did you wear coats inside, and sleep in your clothes? I know how cold *I* am if I get up in the middle of the night, and my thermostat is only down to 66…
                If it’s below 65 outside, I need a jacket, unless involved in strenuous activity. I wonder how bundled up I’d have to be just *sitting* in a 50 degree house. I may have to do some experimenting…brrr!

            • Ray January 27, 2015, 9:37 am

              Eldred, check out Paul Wheaton’s article about micro heaters.

              In fact I don’t like cold either, but I’m spending this winter with outdoor temperatures around 32F and indoor temperatures around 50F with only 100W of local heating.

              Temperature acclimation kicks in after 2-3 weeks and makes it a lot more bearable than you’d think. Still, for me it also means thermal underwear plus soft polyurethane foam padding under my clothes, fingerless gloves and sleeping under a space blanket (rustles a lot and gets slightly moist in the morning).

              It also depends much on your eating habits how well you will tolerate cold.

              So yeah, if you decide to go that extreme way, expect “sacrifices” to your lifestyle or “adventure” as I prefer to call it. Also expect no visitors, babies and old people, who are reported to tolerate cold even worse.

              More moderate measures would involve turning down heat in those spaces that you don’t stay in most of the time and turning up heat in spaces which you use more actively (and insulating those).

              However, note that due to thermal inertia of objects in your house it’s not effective to cycle between high and low temperatures within short periods of time (e.g. don’t cool down your room to 50F if you don’t intend it to stay at 50F for days).

              • Eldred January 27, 2015, 9:44 pm

                I’ve never heard of ‘micro heaters’ before, so I searched for that page. Interesting. Two questions – One, what do your eating habits have to do with cold tolerance. Two, how do you insulate ONE room in a house without tearing out walls and putting in more insulation? I already have an extra bedroom closed off(it’s currently just storage now anyway). And when I open the door it’s MUCH colder than the rest of the house, so I must be saving SOME money by not heating that as much…

              • Sandy January 28, 2015, 9:35 am

                “”Old people who are reported to tolerate cold even worse.” Hmm. We two “old people” (70’s) keep our place here in the frozen tundra of the Great Lakes at a high of 62 in daytime and 50 overnight which keeps our winter heating bills averaging well under $100 a month. Absolutely no discomfort by dressing properly with warm clothing.

                Comfortably living below the poverty level off this wasteful culture.

            • Hilary January 27, 2015, 12:23 pm

              I did stupid back in 2007 and purchased a $170K condo at a 6.1% interest rate for $0 down. I’m on an ARM so currently my interest rate is 2.75%. With a balance of $140K. My mortgage payment is currently only $750 and that includes PITI and home insurance. It would be much less had I put 20% down originally. But for $0 down that’s the payment.

              • JB April 13, 2015, 9:44 am

                You can always pay it off early.

        • Mike January 26, 2015, 2:00 pm

          I can’t fully comment on how Jacob got to that number, but I think it works for him and his wife, because they live in an RV.This has to help with the cost of utilities, and probably insurance, etc. It’s a dedicated lifestyle, but no different than the tiny home movement.


          • Mr. Money Mustache January 26, 2015, 3:34 pm

            Ahh, but that was an RV in the San Francisco Bay area with high lot rent. He has since moved to a low-cost area of Chicago and bought a house, and the expenses apparently didn’t rise significantly.

            • Mike January 28, 2015, 12:59 pm

              Good catch, I missed that update!

          • Alex January 27, 2015, 8:27 am

            Mike- interesting that you brought up the tiny home movement… I’m surprised an article hasn’t been written on this blog about it given the overlap with the overall Mustachian philosophy. I’d be interested to hear MMM”s thoughts/ideas…

            • Heidi Kneale (Her Grace) January 27, 2015, 9:10 pm

              I have some close friends who are building a tiny house. Due to house size restriction laws in Western Australia, the house has to be on a trailer and registerd as a “mobile home”. (Yes, WA has a minimum house size. Dunno why.)

              The reason they’re doing this is because they had to declare bankruptcy due to bad luck during the GFC, and trying to get into the rental market with a bankruptcy on your record was nigh impossible.

              So, for the cost of less than AU$30K, they will have a home to live in. Pretty good, especially in an area where NOTHING can be had for less than AU$300,000.

            • DC Jr Mustashian January 27, 2015, 11:03 pm

              MMM freely admits his penchant for needless extravagance when it comes to his luxury resort-like home. He also has mentioned his support of the tiny house concept a few times and has hinted (I think on twitter?) that he plans to share in a tiny house project in the near future.

        • Mirwen January 26, 2015, 9:06 pm

          He splits expenses with his wife. A single person could do the same with a roommate.

          • Eldred January 26, 2015, 9:21 pm

            Yeah, I realize that he splits expenses. I wasn’t talking about his half of the housing expense. Their *total* housing cost according to that blog post was $475 per month. That’s what I was questioning… I’d still have to find a place that was THAT cheap, while still being SAFE. The ‘cheap’ is easy – I live near Detroit. The ‘safe’ part? It won’t be cheap…

            • Timmmy January 27, 2015, 6:44 am

              I live near Detroit in a safe neighborhood for close to $475 per month.

              ~$400/month PITI
              ~$125/month average utilities (My electric bill is high due to hobbies) This could easily be cut if I wanted.

              That’s a house with a garage and I keep the house cool but not extremely cold.

              • Eldred January 27, 2015, 7:35 am

                Really? Sweet… What area are you in? And what do you call ‘cool but not extremely cold’? $125/mth for gas/electric/water seems WAY out of reach for me. And it’s not like I’m leaving all the lights on, or running power tools all the time… But your house may be smaller/more efficient than mine, which is about $1400 sqft.

            • Timmmy January 27, 2015, 9:26 am

              I live in Madison Heights. I bought my house as a foreclosure and did a good amount of work but there are deals to be had still.

              My house is smaller (900sq ft) and fairly well insulated at this point but the furnace is old and not very efficient. The coldest it gets in my house is 62 overnight but stays around 68 while we are there.

            • Paula January 27, 2015, 2:22 pm

              Actually, it’s a matter of looking. I know the area that Jacob lives in (I live in same general area) and we are not a cheap neighborhood- in fact we had some of the most expensive real estate in the city. However, like anything else, there are bargains in rental and purchase if you dont’ give up. I live in a one bedroom here for less than 500 that is beautifully managed and extremely safe. I had to really look for a long time and open my search to sublets, etc…

              • Eldred January 27, 2015, 8:47 pm

                Sorry – the ‘safe’ comment was in regards to buying a cheap house in Detroit..

        • theFIREstarter January 27, 2015, 1:07 am

          Also he paid for the house in cash.

          See here: http://earlyretirementextreme.com/update-5-we-bought-a-house.html

          • Eldred January 27, 2015, 7:02 am

            Ah, there’s the missing piece of the puzzle! Either that wasn’t in the article I read, or I just MISSED it…

            • Early Retirement Extreme January 27, 2015, 10:37 am

              Your mortgage calculation is still off. 100k, 30 year, 20% down, 3.7% gives you monthly payments in the $500 range which includes insurance (if you don’t pay 20% down expect to pay more insurance and a higher rate). Taxes depend a lot on whether you’re in the east or the west. Generally houses are priced accordingly so that the total cost of mortgaged housing (which is most of it) is roughly the same.

              But yes, we did buy the house in cash (and it is mentioned in the article linked by FIREstarter). Because of that my annual cash expense is no longer $7000/year but $5600/year (x2 for the both of us). Nearly half of that is RE taxes and insurance. Had we mortgaged it, you’d add about $5500/year (12×500 minus insurance) or $2750/year/person. This would make the total about 17k all included instead of 11k.

              • Eldred January 27, 2015, 11:32 am

                Thanks for clarifying. That’s awesome! Lessee, if my house was paid for I’d save $9600/year, minus about $2000-2500 for taxes and insurance. I guess I can DREAM… :-)

        • phred February 7, 2015, 11:38 am

          I believe when Jacob wrote that he was living in an RV in a mobile home park in a mild climate. Most of the money spent would then be spent on lot rent and utilities

      • sara January 30, 2015, 5:59 am

        i gross about 48000 for the last two years, single earner household in a relatively high income area. But somehow I managed to pay off my car loan and put a small down payment on a house. I have my spending on the basics down to about $2000 a month without much sacrifice so most months I save/invest about $1000.. Helps I don’t have to pay for health insurance, but even if i did it would only decrease my savings rate. There are some areas that I don;t see discussed for lower income earners: an excellent credit rating really helps. I did run a car loan for about 9 months but I qualified for a 1.9% rate on a used car with very low miles which was a very big help. Also, families in this income bracket will sometimes qualify for some government help – I got a USDA mortgage at a interest rate much less than the national average. I also found out I qualify for some assistance in weatherizing my house which will save $ going forward on the heating bill. It also helped that I only currently consider purchases that are “investments” — ie: I will spend on insulating the house before I spend on decorating it. Anything possible I will also buy used as it is all out there at the yard sales for next to nothing: towels, furniture, appliacnes including the fancy-pants Mixmaster I use to mix up my homemade bread dough but picked up for $20 (rather than $350) at a yard sale. I see a lot of lower income people throwing away tons of money trying to look like they have money rather than actually taking steps so they actually have money later on: fancy cell phones, manicures, new cars, etc. Not to mention crazy expensive habits like excessive drinking and smoking. I know lots of people who spend a few hundred a month on beer or wine or spirits and don’t even think about it and are not necessarily in the throws of addiction either — Frankly, a reasonably sober life and taking care of your body through exercise and eating right go a verrry long way toward creating financial stability.

    • JT January 26, 2015, 10:25 am

      MMM has written about that exact topic a few times, but essentially; it’s less important what you make than what you save. You definitely want to increase your income, but the fact is you’re living on 30k a year now, which means you can exist pretty comfortably on that amount of money forever if you’re smart and disciplined about it.

    • Ingrid January 26, 2015, 11:43 am

      I agree with Bonnie and would take it further – the articles written by MMM really concern only a very small percentage of the population. Yes, he is right that someone making 250, 000 a year should be able to save a chunk. What about all the people who make minimal wage and don’t have the means (financially and/or intellectually) to go to college and end up in a high paying job. All those people who pick the fruit you buy at your fancy neighbourhood market – how are they supposed to build “wealth” and retire early? I think MMM should branch out a little bit – we all know by now what he has to say about the high earners and spenders, let’s become a little more realistic and address the rest of the population.

      • Mark January 26, 2015, 10:14 pm

        “articles written by MMM really concern only a very small percentage of the population”

        That’s quite an exaggeration. Living on ~$25k per year is feasible for a lot of people, and the median household income in the US is ~$50k. So roughly half of Americans can pull off well-above-average saving rates without too much effort. Once you get above median income it’s even easier to hit 50%+ saving rates, and that’s applicable to just under half of US households.

        It’s not like the US is populated solely by poor people scrapping by on minimum wage a few elite businessmen effortlessly earn $200k+. Most people fall in the middle with incomes that can be conducive to FI with a bit of effort.

        • James January 27, 2015, 2:11 pm

          *Point of clarification, MMM usually has no housing expenses in the $25k number (paid off mortgage). Guestimate about a $2,000 monthly payment (zillow) on a $400,000 house for someone who doesn’t have that kind cash laying around and expenses grow to almost $50,000 exactly, for a 0% savings rate.

          Of course, not everyone needs a $400,000 home and MMM will be the first to admit he still lives a pretty lavish lifestyle compared to others like Jacob from ERE. The point is, as an angry reader/troll put a few months ago, “work hard to be poor while your young so that you can be poor without working when you’re old” .. this becomes closer and closer to the truth as you move down the income spectrum.

      • Jeff January 27, 2015, 9:48 am

        One of the biggest fundamental concepts in MMM is cultivating the stoic mindset and realizing that even the poor in America are comparatively wealthy by historic standards, and much of what we consider needs are not ultimately vital to our happiness.
        I know people with low income who regularly waste money on processed convenience food, canned/bottled drinks, food delivery, needless driving, you name it. No, they can’t save 90%, but damn near everyone can afford to cut some fat. On top of that, the less you make, the more likely you are to get some kind of assistance – so nobody is necessarily consigned to lifelong servitude.

        • James January 27, 2015, 2:57 pm

          To be fair, processed convenience food does tend to be cheaper than wholesome healthy food in the short run on a per calorie basis (longer-run there are health costs I’m sure). There are a lot more nuanced discussions I’d love to have here on the topic of blaming poor people for their lack of wise financial decisions and inability to escape poverty and also the relative wealth and quality of life argument, but at the risk of getting banned from the comments section, I’ll just make this one point.

          Cash flow is really important for financial progress (this is why GiveWell charity GiveDirectly does wealth transfers as opposed to income transfers to help people escape the cycle in developing countries). Limited cash flow makes being poor sometimes really expensive, think about buying cars, buying houses, buying healthy food, getting a sam’s club membership, bank account minimum balance requirements, etc. etc. etc (gotta have money to make/save money). On top of that, there are time considerations as well.

          Poor people are less likely to own a car, will end up spending more time traveling via bike or public transit for routine sh*t like work or picking up kids from daycare, are more likely to have unpredictable working schedules, etc. These disadvantages make investing in yourself and your dependents relatively harder as well.

          So yes, stoicism is important, particularly for someone facing the daunting challenge of escaping poverty in the U.S., and assistance helps a little too, but these aren’t cures in and of themselves. There are bigger challenges to financial independence, much less simple middle class success for society’s least fortunate. Let’s not demean those real challenges and injustices by pretending they don’t exist or that they aren’t really that big in the first place.

      • Tuesday January 27, 2015, 10:49 am

        I think MMM principles actually can be applied to those minimum wage type people—I am one. My biggest paying year? 15,000, slightly over, gross income. But at some point, I found MMM (I think a couple years ago now.) and over the last 3 months? I’ve saved 75% of my income. For me, MMM works hella well because It encouraged me to take leaps of faith regarding things I was already inclined to do (I already was a ride my bike/walker, I just became an -always- rider/walker, instead of an occasional one. I sold the truck. I got rid of a lot of random stuff, and the big kicker for me was when I just stopped buying shit. I was already inclined to cook at home, cut and color my own hair, and I’ve always had a hard limit of 250 per month for living space–grew up in a low cost of living area and then subsequently have always found a way to keep that, through various means (lots of roomies, weird living spaces like closets or garages that I helped remodel, work-trade) I’m not sure why exactly, but reading the blog and the community posts here on MMM was enough to take me from dabbler in smart financial habits to full blown practicer—Something about seeing this stuff and then realizing OH HEY. I’m not as weird as I thought. It’s totally cool to run 8 miles to work instead of driving because there are a bunch of other bad asses out there doing the same thing, despite how weird my coworkers think I am. I save more money per month than my computer programmer of a brother–because of the way I live. My rambling point is: This stuff works for you, no matter the income level–it can give you choices, give you options. You might not be able to retire at thirty–but you probably could get really close, if that’s what you wanted. MMM is the kind of place that opens your mind to an entirely different mindset regarding money, and regardless of your income level, that’s powerful.

        *Disclaimers: I work retail/food service. I tend to work two jobs at a time. My income tends to stay below 15,000 because I usually only work for 6 months out of a year. I’m not going to be FI at 30–largely because I’ve taken to skills from MMM to allow myself to fund 6month adventures (hiking long trails, traveling, taking jobs that only pay 500 a month but let me be a glacier guide in alaska because HEY, that looks cool.) I don’t have a bachelor’s degree, but, while I came from a poverty level appalachian family–I was lucky enough to be from a ‘hippie’ poverty level appalachian family that lived simply, wore clothes until they broke and then patched them, and believed that everyone could learn how to lay a wood floor, repair most minor car troubles, grow a garden, ect. I never had a poverty mindset–which I do believe is a real thing, and more hampering than any actual financial constraints.

        • Carol January 27, 2015, 8:10 pm

          I’d love to hear more about how to live on $3,750 a year… quite impressive!

        • Ms Money Penny January 28, 2015, 3:17 am

          Tuesday, what you write about the poverty mindset is crucial. Fundamental to the Mustachian message as I see it is the concept of psychological wealth, which is different from (though related to) the stoic mindset. MMM has made it clear that optimism and the ‘position of strength’ are key. But those are not skills or tools one is simply born with. They’re learnt at home. MMM discovered The Magic of Thinking Big sitting among his parents’ bookshelves, after all.

          I’d love to see MMM write about the privilege/ wealth of psychological well-being, and how that is closely linked to the parenting you receive. You can learn better parenting skills for your kids, but undoing the damage done to your mental health by bad or accidental parenting is more tricky, as the roots are deep (and therapy is expensive . . .).

          There’s lot of evidence to support the view that mental illness and poverty go together. Linda Tirado’s piece about how the poor think (http://www.huffingtonpost.com/linda-tirado/why-poor-peoples-bad-decisions-make-perfect-sense_b_4326233.html) does as good a job of explaining that link as I know. What is cause and effect doesn’t really matter to my mind. James’s objections to poor-bashing are brave, and I’d like to support them. It’s ugly, and doesn’t fit my view of what Mustachianism is about. Blaming the poor often just hides our own fear of economic vulnerability — a few curved balls from life, and there but by the grace of God we all go.

          To me personally, the most valuable message of this blog is the optimism it relentlessly pumps out, backed-up with some pretty hard-nosed plans for realising your hopes. It’s hippy meets boot-camp — wonderfully eccentric combination.

          I do get a little fed up with people banding about their accumulated wealth on salaries of 6-figures from their twenties. We’re a household of 1 MD and 2 PhDs distributed among 2 adults, in our late forties and fifties – and we have never pulled home anything close to 6-figures (both academics). Had I discovered MMM in my twenties, I might have made different career choices. But then again, he would have been in high school then, and maybe not quite as badass (one hopes . . .)

        • Kathy Abell January 28, 2015, 9:48 am

          Tuesday – You are living the dream! You are so right about “This stuff works for you, no matter the income level–it can give you choices, give you options.” You have made the choice to work only part of the year so you can use the other part of the year to do what YOU want, rather than what your boss wants. Most people work hard over some number of years to build a stash so they can “retire” (i.e., have the freedom to do whatever they want) for a different set of years; your “retirement” years are simply being interleaved with your “working hard” years. Certainly an innovative solution to living a contented life. Most people are too attached to their things to take such a plunge. The best thing about MMM is helping people realize we don’t need so many things to live a happy life. Living less consumptive lives is better for us and better for the planet. You run 8 miles to work??? AWESOME Dude!

    • marciab January 26, 2015, 12:01 pm

      Bonnie – if you take Joe’s example from above and just take a zero off the end of all the numbers ($25,000 income, $5,000 IRA balance, $9,000 left on the Harvard loans, etc.) you get to the same conclusions about the number of years it will take him to retire.

      The math is the math, no matter how large or small the numbers are.

      I’m thinking your comments have more to do with the relative difficulty of all of this for someone who has a $25,000 income (and you’re right of course, because there’s just less room to maneuver).

      Hey, maybe Joe is single…I’ve got a daughter about his age…

    • KeithTheConfused January 27, 2015, 6:56 am

      Hey Bonnie,
      It is hard to relate to a $250K income. But that is the point, it is easy to squander even a ridiculous income.

      If FIRE is your ultimate goal then you should probably be trying to raise your earning potential. But I would say that not even FIRE will bring you contentment. There are alot of other factors to consider when trying to live a holistic life.

      If you do not enjoy your career path, you should chose another…and why not pursue one that pays well? But If you enjoy what you do, I say keep it up. Everyone can benefit from examining the way they spend their time, money, and energy. But, not everyone can easily retire in 10 years (key word easily).

  • Mr. Frugalwoods January 26, 2015, 9:14 am

    Love the emphasis on percentage of take home pay saved.

    We do a similar calculation, using an even easier formula:

    ((account balances on Dec 31) – (account balances on Jan 1) – (change in investment value)) / (take home pay)

    Basically, what money COULD we have spent that we didn’t.

    • Tom M January 27, 2015, 11:17 am

      Do you include dividends as part of that change in investment value?

      • Mr. Frugalwoods January 28, 2015, 7:12 am

        Yes. For simplicity’s sake, I only exclude reinvested dividends… but that’s close enough for my purposes.

  • Matt January 26, 2015, 9:22 am

    Family of 3:

    Net Worth: $98k
    Spending:$2,800 (counting 10% of gross pay in charity/church donations, not counting principal on house, as per instructions)
    Take-Home: $6,580
    Savings Rate: 57.4%

    I may still be years away due to being pretty early in my career, but I feel pretty darned mustachian ;)

    I’ve always been frugal, but you’ve helped me take it to another level, MMM. Thanks for that!

  • Will January 26, 2015, 9:23 am

    YES! Everyone should count their primary home as an asset! And their automobiles as well (as you’ve mentioned before).

    And yep, $7,000 is more than enough to keep me going each year! Hello FI by 30.

    • JB January 26, 2015, 9:31 am

      Houses are assets, not investments.

      • Mike M January 26, 2015, 9:48 am

        By any standard definition, yes, your primary house is an asset and is counted in net worth.

        But for the purposes of financial independence, we should be careful in counting its value. While net worth is important, I think the size of your ‘stache (I’ll define that as investments minus all debt) is a better measure. There’s been too many cases of Americans with high net worths from inflated home prices, with not enough of their money performing the magic of compounding interest through investments.

        • Petra January 26, 2015, 10:05 am

          Agreed. In the Netherlands, where I live, the housing bubble also burst. 30%-40% of the estimated value of houses just disappeared. For many people this was disastrous for their net worth. A lot of people are now also underwater on their mortgage.

          I don’t own a house, so for me my net worth estimation is easy. For people who do own a house, I would underestimate its value in the calculation.

          • Gerard January 26, 2015, 12:14 pm

            Yeah, but in Holland a lot of people are underwater anyway. :-)

        • Andi January 27, 2015, 12:56 pm

          I fear that adding the value of one’s house into one’s net worth calculation will paint a too optimistic picture of your financial situation. After all, when it comes to FIRE, the main calculation that matters is how much money your assets generate per year compared to your annual expenses.

          Living in your own house may save money compared to renting, but owning a house is not a source of income, unless you rent it out to a tenant. Even a completely paid off house will always cost you money: you will need to pay taxes and other fees (at least, here in Germany). Additionally, a house needs to be repaired. I think that you typically have to refurbish it completely every 40 to 50 years or so (at least that’s what I conclude from my parents’ and my friends parents’ houses). Hence, you will have to add 2% to 2,5% of the house’s value as maintenaince costs to your housing expenses (depreciation). You will not be able to observe these costs over short time horizons, but you will not be able to avoid them in the long run – and that’s what makes it important to incorporate them in your calculation. Moreover, the costs for repairing a house are affected by inflation – here in Germany, houses cost at least twice or thrice today than in the 1970s. Hence, even these 2,5% depreciation costs seem way too optimistic – you would have to compound them by the inflation rate.

          I think that the right way to represent a house for FIRE calculations is to leave it out of net worth, make certain that you consider its annual costs in your living costs, and add depreciation costs.

          What do you think?

          • Rosemary February 4, 2015, 4:24 pm

            The thing is, that if you own a house, you don’t have to allow for rent costs in your annual spending. So your required stache is 25x (non-housing spending amount + tax and maintenance) whereas if you have to pay rent, your stache requires 25x(non housing spending + rent). Generally the first sum is a lot less that the second. SO in a stache sense, the asset value of your home is equivalent to 25x(rent you would otherwise be paying – tax and maintenance). Where I live, thats hundreds of thousands of $.

    • Sabaq September 12, 2015, 3:37 am

      Don’t entirely agree with this one, although it is not totally wrong either.

      I always thought of an asset as something that generates income. So a house that is a rental is an asset as it brings in the bacon monthly and the same goes for a house that you have bought and the value has appreciated so much that it is worth is greater not only than the purchase price but also the compounded interest you have paid if it was bought on a mortgage. This is something people overlook regularly.

      For example, if you bought a property and the mortgage was 100,000 paid over 25 years at 4% then your total interest on that loan will be about 58,000. This should be quite possible considering the last ten to twenty years trend in the increase of house prices.

      With regards to the car, again, if it generates income (do not include simple commutes) then it is an asset. Otherwise it is a liability.

  • JB January 26, 2015, 9:30 am

    if you purchase Quicken, you will see your net worth everyday if you put in all your financial data. our net worth is right around $3.5M, but $400K of that is our house that we aren’t selling for another 10-15 years.

  • EarlyRetirementGuy January 26, 2015, 9:32 am

    Age: 27

    Networth: About $80k
    Savings rate: Averages about 35% including mortgage principle. 50% without.

    I really need to increase that savings rate this year. Bought my first house last year so lost a fair chunk on purchasing fees.

  • Mark Ferguson January 26, 2015, 9:33 am

    I counted my cars as an asset because they are not depreciating anymore and one of them is appreciation. The Lamborghini was bought for $126,000 in 2014 and I have had multiple people contact me about buying it. Once collector offered me $150,000, but I know I could never find another Monterey Blue Diablo, at least in the near future.

    The biggest increase in my net worth has been from buying rental properties. When you buy below market value, make repairs and the market appreciates it really supercharges your net worth.

    • Mr. Money Mustache January 26, 2015, 9:51 am

      Yup, as long as you will eventually be selling that Lamborghini, it makes sense to count it as an asset.

      Of course, all the annual costs like maintenance, insurance, and registration still apply and get added to your annual spending. So a car or other collectible item is usually a very poor performer compared to a stock or rental house investment.

      • Mark Ferguson January 26, 2015, 11:42 am

        I agree, I did not buy it as an investment, but the costs are lower than you would think.. The insurance is only $900 a year, maintenance is probably around $2,500 a year averaged out. The car has had many bonuses for the business as well though. It’s hard to put a monetary value on meeting new people, getting leads for the real estate business and the traffic it has brought into the blog.

        • DC Jr Mustashian January 27, 2015, 11:32 pm

          A good friend bought an Italian exotic, and he likes driving the car, but really hates many of the expectations and interactions that go along with it. From the expectation of the valet parking guy (a big tip), to the many interactions with greed-motivated people (who have $$ signs in their eyes). The car has given him occasion to meet some cool people such as tow truck drivers and high-end mechanics ;-)

          • mark ferguson January 28, 2015, 9:45 pm

            I have found the opposite myself. I have found many people who come talk to me just to chat about the car, what it is, what year it is and if they can take a picture. I would never let a valet drive the Diablo. lol I value my clutch way too much. I don’t really go to places that require valet anyway. My town only has 100,000 people and there aren’t too many places that even have a valet. I can honestly say I have not had one person approach me wanting money or even displaying disdain for the car. Most are just blown away by it and want to be around it. A few have asked how much it cost or what I do and that is about it as far as the money part. The scariest part is when people take pictures or videos while they are driving and start swaying into my lane!

        • Paul January 31, 2015, 10:40 pm

          Really only $2500 yearly maintenance? Well…that is the FIRST time I’ve heard any Lambo owner say that. How many miles are on the car? Did you clutch blow yet with just over 10k miles? Replace brake Rotors yet at a cost of $15k+? If you haven’t seen these repair costs yet…they are coming.

  • JB January 26, 2015, 9:33 am

    you can have a $1,000,000 house and no money in savings with no debts. There needs to be a balance between liquid assets and illiquid assets. Houses aren’t always easy to sell, but they are part of your net worth.

    • Darren January 26, 2015, 11:55 pm

      I agree. I create my own personal balance sheet each year. I always create two net worth numbers separating liquid and non-liquid assets. There is a big difference between a home value and a money market fund.

      BTW MMM I also add “Assets to Liabilities Ration”, “Total Investment Performance” and a percentage calculation showing how close to FI. I also have create a chart from year to year to visually show progress. Makes me feel good.

    • ILiveInTaxCollectorCountry January 27, 2015, 10:32 am

      Totally correct. Houses are not liquid. Multiple times over in a country like where I was born. 13+% of transaction tax makes people think _hard_ before they buy or sell a house there…

  • insourcelife January 26, 2015, 9:41 am

    That’s a concise and easy to follow summary on net worth, spending and saving rates. I keep a spreadsheet where I keep track of all the key indicators and I’m glad to see that my methodology is exactly the same as in this article. I’ve read other bloggers who refuse to include their primary home equity in calculating net worth and always thought it was silly. We happen to live in a big house that’s almost paid off so excluding equity would have a huge impact on our net worth. However, I always included the equity because we could always downsize pulling the money out and dumping it into income producing investments (similar to what MMM’s family did). The main point is that you should be ready to actually do it and if so, I don’t see why you wouldn’t include it. At this point, downsizing wouldn’t allow us to retire just yet, but if in a few years the house is the only thing that stands between working 9-5 or doing whatever we want with our time you better believe we’ll seriously consider that option.

    P.S. Nice picture at the beginning of the post! I used almost exactly the same picture in my http://insourcelife.com/car-lifestyle-inflation/ post back in July 2013… Unfortunately my picture was actually of my own BMW whereas I’m sure yours is of someone else’s expensive mistake.

  • Michael Anthony January 26, 2015, 9:45 am

    Great post. I’d also include your estimated tax return in your “take home” calculations also.

    So if your tax return is generally around $3,600 per year, as a random example, then that’s an extra $300/mo. in take home.

    We track ours in a simple Google Docs spreadsheet, with the following columns per MONTH:

    Take home income
    401k contributions
    401k match
    Tax Return
    Total Income
    Total Spending
    Net Income
    Savings Rate

    I use Mint to track spending, and it works great. Not to mention that we put ~95% of our total monthly spending on a credit card — paid off in full each month, of course — so tracking our total spending is quite easy.

    Last year we saved nearly 40%. No kids yet but we live in a VERY expensive city ($2700/mo for a 1 BR apartment). Trying to think of the best, reasonably affordable cities to move to in 5-7 years, so the wife can stop working altogether, and I can work from home.

    Have been thinking Chapel Hill, NC, and Fort Collins, CO as the (very) early front runners …

    • Mr. Money Mustache January 26, 2015, 9:48 am

      I agree – you need to take anything that comes in an annual chunk, and spread it out through the months to get an accurate picture. So a $12,000 annual bonus would show up as $1000/month extra gross pay.

      A tax refund would be the same way, although the best tax return is always zero. So I suggest you adjust your witholding rate with your employer so you end up with a much smaller return.

      • Mirwen January 26, 2015, 9:19 pm

        Most people get a large tax refund not because of withholding, but because of refundable tax credits such as alternative child tax credit and earned income credit. A somewhat typical example being a family of 4 including two kids under seventeen with an adjusted gross income of 40k would get a refund of about $3000 even if they withheld nothing the entire year.

        • Tom January 27, 2015, 7:05 am

          …But surely many people could adjust their withholdings, they just can’t be bothered to figure out the W-4 calculations. If you are confident about your tax situation, you should see if you can plan better for that. A potential barrier might be that your employer puts a cap on withholdings ( I can only withold up to 10 at my job).

          Many people voluntarily give up extra money in anticipation of a windfall refund.

          • Kathy Abell January 28, 2015, 11:35 am

            With the exception of tax credits, a tax refund is not a windfall, it is simply getting your own money back. Anyone who carries debt should seriously consider adjusting their withholding in order to obtain a higher monthly cash flow which could be used to pay down their debt at a faster rate. Anyone without debt could use the extra cash to fund their ‘stache rather than as an interest free loan to the government. The problem with windfalls is people tend to think of it as “free money” or “found money”, which often turns into “spent (on frivolous consumer goods) money.” Despite the logic of this argument, I never have won it yet: Hubby loves receiving a windfall refund!

      • Craig January 28, 2015, 4:15 pm

        My tax return is always hard to predict…I’ll owe $5K one year, then get a $4K return the next. Between bonuses at work (which are taxed at maximum rate when awarded) on the one side, and taxes due on capital gains from stock sales, it’s tough to gauge, so I finally just gave up figuring that worst case I lost gains on

        This year will be even more random, since I installed solar panels on the house last year, so will have a large tax credit on both federal and state (thanks to a GREAT state tax credit from North Carolina!!).


      • Craig January 28, 2015, 4:16 pm

        My tax return is always hard to predict…I’ll owe $5K one year, then get a $4K return the next. Between bonuses at work (which are taxed at maximum rate when awarded) on the one side, and taxes due on capital gains from stock sales, it’s tough to gauge, so I finally just gave up figuring that worst case I may have lost some gains by having to wait for the refund, which isn’t a huge amount.

        This year will be even more random, since I installed solar panels on the house last year, so will have a large tax credit on both federal and state (thanks to a GREAT state tax credit from North Carolina!!).


  • Eldred January 26, 2015, 9:46 am

    Geez – this isn’t looking good. If I scrimp, I could save about 26% of my take-home(about $900). According to your chart, that means I have to work until I’m 84(I’ll be 52 this year)! If I didn’t have *any* payment for mortgage/rent, I could bump my savings rate to 50%. That means I’d still have to work until I’m 69, even if I *could* live someplace for free. Crap – I need to figure out how to increase my income, apparently.

    • Petra January 26, 2015, 10:08 am

      I’m wondering: you don’t have any money saved up, yet? Your net worth is roughly $0?

      The chart gives you the time you’ll need provided you start with $0. If you start with more than that, of course it will take less long… Imagine you already have saved up enough money to live on for ten years, then you can subtract that amount of years from the total.

      If you’re really starting at $0, then this could be your wake up call, Eldred… And then I also want to wish you good luck in reducing expenses and increasing income!

      • Eldred January 26, 2015, 10:46 am

        Crap – had a detailed response typed up, and the page ate it.. :-( Let’s try again:
        I checked my retirement account from when I work at a local university years ago, and I have about $226,000 there. So 5.8 years worth of expenses at $39,000/year. That means I actually only need to work until I’m about 78. I’ve been unable to qualify for a higher-paying job, since I don’t have the degrees they’re looking for. So I guess that leaves me needing a part-time job somewhere that doesn’t start at 4pm or earlier(I’ve seen a BUNCH of those but I don’t get out of my current job until 4:30). I could save a few more dollars if I stopped bowling, but I enjoy that activity and don’t really do much else during the fall/winter. And I occasionally WIN money that helps with expenses. I’d hate to think I’d have to sit at home in the dark just to be able to save money. Realistically, I know that might not be the case, but it sure FEELS like it…

        • Daniel January 26, 2015, 11:27 am

          Of course we don’t have the full details of your situation, but part of the formula for how soon you can retire is how much you spend. Looks like at $39,000 a year there should be plenty of room for some spending cuts.

          • Eldred January 26, 2015, 11:56 am

            Per month:
            Mortgage – 800
            Utilities – 456
            Groceries – 100
            auto fuel – 300
            spending money – 100
            charity – 100
            bowling – 400

            Attempted saving/sinking funds:
            Emergency fund – 694
            house repairs – 100
            car fund(repair/replacement) – 250
            $3300 total, or $39600/year.
            Groceries is normally 200, but I had a surplus last month so I dropped that amount. Fuel has a current surplus as well, so that will be lower next month. But most of the other amounts are pretty consistent. I know I can lower SOME of those, but I don’t see ‘plenty of room’. Where can I cut and still have a life?

            • Daniel January 26, 2015, 12:27 pm

              I wouldn’t consider the saving/sinking funds as an expense unless they were actually used. If you are setting aside these funds in separate accounts I would consider this part of your savings rate. So your yearly expenses are $27,072 per year.
              As for cuts, depending on how aggressive you want to get there are options.

              Less aggressive:
              • Cut portion of bowling expense
              • Save on utilities by turning down thermostat, reduce water use, install CFL’s etc.
              • Combine auto trips to reduce gas usage, take public transportation if it’s available. Work from home one day a week, if an option.

              More aggressive:
              • Cut majority of bowling expense
              • Sell home and rent within walking distance to work

              • Eldred January 26, 2015, 2:01 pm

                Thanks for the reply! I already have a programmable thermostat that drops the temp to 60 during the day and 68 at night. I have CFLs in all the fixtures that will TAKE them.(haven’t found bulbs for the kitchen and basement stair fixtures yet). Maybe I’ll swap those two out, but that energy change will be minimal at best. Working from home isn’t an option, sadly. I’m not sure there IS a bus route that would get me the 13 miles to work. I’m curious, though. I’m about $30K underwater on the house at the moment, so selling isn’t an option either. Still hoping I can get that paid down to sell or at LEAST get rid of PMI. I just did a search for rentals near my job, and they’re all $650 + per month for 1 BR. I work in an expensive area…the houses cost $275K and up. I hate my job though, so I’d rather change IT. Haven’t been able to find similar pay close to home. Still hoping…
                Edit: I’m planning to try biking to work when the weather gets warmer, at least on good weather days. 13 miles is physically *do-able* for me, even though it would take more than an hour each way.

            • Nicole January 26, 2015, 1:07 pm

              You are spending $48,000 every 10 years on bowling. I would start there if I were you.

              • Eldred January 26, 2015, 4:20 pm

                Interesting way to look at it, but is that different than those who spend on restaurants, family entertainment, sports, travel, etc? An enjoyable activity that costs money? But one thing I *need* to do is make sure that any winnings go back into bowling, instead of…whatever. It might actually net out to much less, but I’m not doing a very good job of keeping that straight at the moment.

            • Jeff January 26, 2015, 1:26 pm

              Most FI scenarios assume a paid-off mortgage, so your 25x rule calculation can eliminate the mortgage payment entirely.
              Also related: the principal portion is considered savings, not spending.

            • EMML January 26, 2015, 7:37 pm

              Holy crap! That’s a lot on bowling. How many times a week is that? Does that number include beer? It probably includes brackets. If you bowl that much, you should be good enough to make a big chunk of it back (at least). If not, cut down on the brackets.

              • Eldred January 26, 2015, 9:05 pm

                I have friends who spend much more than that in a WEEK. I’m in two leagues as a regular bowler(dues and jackpots). I sub on a couple other leagues, but I only have to pay for any jackpots – I don’t have to pay dues in those leagues. I can’t STAND beer..

              • Vik January 27, 2015, 3:11 pm

                Yes kill the bowling. If you are freaked out you can’t retire before you are likely to die it’s time to declare an EMERGENCY! Bowling isn’t reasonable when you are in the middle of an emergency.

                There are many low to no cost hobbies that can replace bowling.

                I used to snowboard/ski now I surf. No lift tickets. Cheap gear that lasts a long time if you take care of it.

                I’d also get rid of the car and start bicycling. That will save you $4250 and bowling will save you$4800 per year. Together that’s $9K more savings than now and if you pick the right new hobby combined with biking you’ll be healthier and enjoy a longer retirement.

                To answer your question about other people not giving up hobbies they love that cost money….it’s true, but it’s possible they make more than you, spend less or are going to be screwed when they retire.

                — Vik

              • Eldred January 27, 2015, 9:14 pm

                Josh –
                Heat just went to $145 on the budget plan, electric is $110, water is about $90 every 3 mths, so $30. Not sure a space heater would keep the room warm enough, but I’ll look into it. Cable and internet is $130. I’m looking at dumping the cable if I can find another way to watch formula 1 races. Cell phone $65(I don’t have a land line), and Netflix $21. I have a $1000 deductible on my car insurance as well(and high liability amounts), and it was the cheapest that I could find at the time. I’ll check again, but I don’t see getting it much lower. Michigan has some of the highest auto insurance rates in the country.

              • EMML January 28, 2015, 6:43 pm

                Keep track of your winnings. With all that bowling, I’ve got to think that you’re making a chunk of that back. My husband was just telling me that he actually makes a profit bowling.

            • Eldred January 27, 2015, 7:47 am

              Ack – I forgot:
              Car insurance – $650 every 6 months, so a little more than $100/mth
              Water – ~$80 every 3 months, so about $26/mth.

              • skunkfunk January 27, 2015, 8:33 am

                Do a case study on the forums. You’ll get much more help there.

              • Alex January 27, 2015, 8:51 am

                You seem to love bowling… so much so that you are willing to concede working an extra 5-10 years of your life to support the habit. If I were you, I’d look into buying your local bowling alley since you spend enough already to cover a bulk of the cost. Think about it… you could work there full-time (get rid of the job you hate), eliminate unnecessary monthly expenses ($100k+ bowling expenses compounded over your working life), you could walk/bike to work each day asumming it is closer than your current job (or better yet… sell your house and sleep in the bowling alley) PLUS it sounds like you have enough friends that also have bowling addictions — I mean passion– that you should feel comfortable with the investment prospects. Eldred– you can retire immediately!

              • Eldred January 27, 2015, 11:06 am

                Ok, that was moderately humorous. But…Really, Alex – NOBODY here has any hobbies/activities that cost money, but they still enjoy doing? That can’t be the case, but that’s what you’re making it sound like…

              • 9 O Clock Shadow January 27, 2015, 2:07 pm

                Hey Eldred – I think Alex was being slightly humorous but more so serious:


                $46oK for 1 acre Land, Inventory and Equipment. If your bowling group pooled resources together and worked to make this liveable it would be a very happy ‘working’ retirement.

                If you mortgaged half the amount and used revenue to pay the other half, it could certainly work out.

                Your financial stats put you in a bit of a tough space, but not insurmountable. If I loved bowling as much I’d go for it with friends! Worst case scenario you sell your share after the land value has gone up. Best case scenario is bowling into the sunset with your friends.

              • Josh January 27, 2015, 6:47 pm

                I think some of the other people pointed out your major discrepancies:

                1) Utilities is super high – is most of that heating? Thought about a space heater and doing only 1 room at a time maybe?
                2) Do you have TV / Cable? Dump that for netflix?
                3) No one has touched on your auto insurance- I’m 30 and I think that is super high. My home insurance + auto insurance is $120 month. That includes collision with $1,000 deductible on the car, very high liability amounts, and insurance on a house at $600K in california. Granted, it’s through USAA, but you should be able to get that down a thousand or two a year.

                Just some thoughts there – maybe shop around on insurance?

              • Eldred January 27, 2015, 8:55 pm

                Shadow – I actually was looking at purchasing a bowling center about 25 years ago, but I couldn’t put the deal together… :-(

              • DC Jr Mustashian January 28, 2015, 12:22 am

                You can keep bowling and save a hundred thousand dollars ($100,000) per decade if you get rid of your car.

                $3600/year on gas, $1300 insurance, $3000 on maintenance. That is $8,000 annually right there, which would earn you another $30,000 per decade if properly invested.

                Also one more thought… why pay $20/month for netflix when you can get free books and films at your local library?

              • Eldred January 28, 2015, 7:17 am

                DC Jr Mustashian –
                Sorry, I missed the part about the Netflix. My local library SUCKS. There isn’t a good selection of movies there. But I’ll be dropping cable, which should save me about $70, and changing to Netflix streaming only, which should only be what, $8 per month? That will help a BIT. Maybe nor much, but it’s a start.

              • Petra January 28, 2015, 12:18 pm

                Hi Eldred,

                I would also suggest doing a case study in the forums; if only for making it more readable than here. But I’m glad to see that you already got some advice (plus that you already have some savings!). I’m wondering: will you also be eligible for benefits? If so, that will also be part of your income, starting at age 67, or 70, or whenever you want (I understand that the later you start, the more you’ll get per month).

                Good luck! Petra

              • Eldred January 28, 2015, 1:19 pm

                Petra –
                I did go ahead and put a case study on the forum, thanks.

                I can’t login to the SSA site at the moment(forgot the password), but it was something like
                $1336 at age 62
                $1700 at age 67
                $2100 at age 70(this one I’m not sure of)

                So that WILL help. If I could get my expenses down to $24000 or less, and SS is still around when I’m 70, then I’d be ‘ok’. Not WINNING, but not starving and homeless either.

              • Nathanael September 23, 2015, 12:33 am

                Take the advice to buy and operate a bowling alley seriously. Learn about business. Buy a bowling alley. Move into an apartment attached to it.

                Small businesses usually fail for one of two reasons: the owner doesn’t understand the specific nature of the business and customers (but you do understand bowling and bowlers); or the owner can’t budget competently (which you should be able to).

                You love bowling. It’s your dream. Make the other bowlers pay you, rather than vice versa. You may be working the rest of your life, but it’ll be work you *enjoy*, repairing and renovating the bowling alley… and you can bowl 24 hours a day if you get the urge. It can be highly profitable if you run it competently.


                In order to raise the capital, you’ll want to replace your car with a more efficient and appropriate car. You’ll also want to scout multiple alleys to see if there’s one which might be interested in selling; you might even want to move to a city with a better opportunity to buy a bowling alley, if bowling is truly your great love.

            • ILiveInTaxCollectorCountry January 27, 2015, 10:58 am

              My house may have been horribly expensive to renovate, but my yearly heating and hot water bill now is about 300€. In a place where natural gas is _much_ more expensive than the US. I’ve used about 550kWh of electricity last year, which at .21€/kWh translates to ~115€. Water was under 100€. I do wash myself thoroughly every day :-) This is without rain water catchment tank. I piggyback on my neighbours internet access in a legal way, using my parents provider login. All in all, I get to under 50€/month for all utilities combined. $456 looks like ridiculously high, but then again I’ve noticed US friends to have very large ecological footprints.

              Socially acceptable savings over here might be to get an electric bicycle for your commute. Charge it at your place of employment, and scrap 250$ in monthly cost.

              P.S. Did you know it’s actually healthier to lower temperatures at night a bit? You will sleep better in 13-14°C!

              • Eldred January 27, 2015, 9:30 pm

                Wow – you use less electricity in a year than I did last MONTH(794kwh)! Granted, a lot of that is related to my furnace. My lowest was 511kwh last July. but then, I had several fans going at all times since I don’t have AC. I need to figure out an inexpensive way to seal this house better. If I turn the furnace off, it drops 10 degrees in less than an hour. It shouldn’t be the windows, which are newer(2001) vinyl windows. It’s the attic insulation and exterior walls with little to NO insulation. 13 degrees C is about 55 deg F. I couldn’t go THAT low – if it’s 55F outside during spring or fall I have to wear a jacket… :-) Although now I’m wondering if I could use Josh’s idea of the space heater for my room at night…? I’d have to buy a new one, since mine is 20+ years old and probably not very efficient. Biking is not an option(for me) during the winter. I have a co-worker that rides about 4 miles of his commute by bike, but he *enjoys* the cold.

              • Nathanael September 23, 2015, 12:22 am

                Buy _The Super Insulated Retrofit Book_ (1981). Read it. Do it. Your electricity costs will drop to near-zero. It’s intended for do-it-yourselfers.

                I do advise buying an ERV rather than making one at home yourself though.

            • DC Jr Mustashian January 28, 2015, 12:00 am

              So burning $300/100 gallons of gas… that’s 4000 miles assuming a modest 40mpg car… 300 times your commute distance each month… a lot of driving. The estimated total cost to operate a vehicle is 50¢/mile, so over the next decade, your driving habit costs you about $240,000.

              As for charity, it might make you feel good to give it, but the way I feel about it is… I’ll earn the 7% on it now and then they can have what is left when I’m dead.

              Also regarding your “Winning” money that means you are also losing too… that losing money you could be earning 7% on.

              $400 per month on any hobby activity is a lot. Would you consider substituting with something cheaper? Maybe free outdoor lawn bowling at your local park, or in a friends’ hallway? Or a cheaper/different social activity joining/starting a bike riding or running group? An art or crafting hobby might be fun and if you have some talent you could actually make money from it. Comparing yourself to consumer suckas who blow it all on booze and eating out is really not where you want to be.

              • Eldred January 28, 2015, 7:04 am

                My car gets 22-26mpg, but using your ratios, I can’t believe I’m putting over 2000 miles on the car per month. I need to check that.. A 40mpg car is MODEST? Sounds expensive to me, but I haven’t been car shopping since 1999. Do you have a suggestion on make and model? I’m not married to my current car(I inherited it from my mom), but it IS paid for – and probably not worth much since it has 250K miles on it(2003 Malibu). How would you balance spending more money to get a different car against the savings. Even a 7-year old Ford Focus is almost $6,000. Is there a better vehicle that I should be looking at?

                Also, you mention earning 7% a couple of times. What kind of investment vehicles are you using? I can put a max of $6500/year in a Roth IRA because I’m over 50. After that where should I invest any extra?

        • Mel January 26, 2015, 3:58 pm

          A website called Networthify, which I believe MMM has referred to in the past, takes into account your current savings balance, income, and savings rate to calculate how long it will take to reach retirement. He uses the same 4% withdrawal rate that MMM recommends. It might be encouraging to plug your numbers in there.


    • Lucas January 26, 2015, 10:18 am

      Remember that the chart assumes starting at $0 networth. So if you have anything saved already that will decrease the time you need to save. Does sounds like you might need to revisit both the expense and income side of your budget though.

      • Eldred January 26, 2015, 10:48 am

        Yeah, I’m trying to figure out how to improve both numbers. Getting laid off for 13 months and having to take a $22,000 pay cut just to GET a new job has made things so much harder..

        • Dr. Bill January 26, 2015, 1:24 pm

          Hi Eldred: Do you know how much the Feds say your SocSecurity will be when you’re 62 and when you’re 66? That’s only in 10 or 14 years (or 18 years if you delay until 70, when you can get the BigBucks). You can factor those values in to decide when you can really retire in a BadAss MMM lifestyle. Some take the money at 62 to invest while they live as if it isn’t there.
          For all the Doubters out there, SocSecurity WILL be funded to as high as they can stand before most anything else in the budget, once the country defaults or prints its bond interest payments. The best plan, since I’m likely wrong about SocSecurity, is to not include it in your future Financial Assets. That way, it can be a pleasant surprise if it’s still standing.

          • Eldred January 26, 2015, 9:14 pm

            According to ssa.gov, I’ll get $1336/mth if I retire at 62, $1900/mth if I retire at 67, and $2356/mth if I wait until 70. But no, I’m not expecting it to be around…

            • Mark January 26, 2015, 10:20 pm

              I think you’re close enough to expect to get something pretty close to that (though it’s probably frustrating to know how much you could have right now if your SS taxes were invested instead of thrown into the system). I’m under 30, and my expectations are very low, but even I think it’ll still exist in some form. It’ll take a long time for that pyramid to fall apart, and I’m sure that the government will do what it can to delay it.

            • Jen January 27, 2015, 8:22 pm

              Eldred, all the answers you want are in this blog, but you have to really want it enough to make big changes. Money is not going to magically fall from the sky. I am a single mom who makes less than you and has saved more. You may have to move or change hobbies if Fi is what you really want, but if you don’t want to that’s fine too, it’s not for everyone. If you get more pleasure from bowling than retiring early that is not a crime, you just have to be honest about your priorities instead of just proclaiming it impossible.

              • Eldred January 27, 2015, 10:25 pm

                Hi Jen –
                Thanks for the reply. I’m impressed if you are able to save more. I’m curious – do you have any hobbies/activities? I’m wondering what do people who are ‘non-outdoors’ type do for enjoyment? I’m sure that fishing, hiking, skiing, sledding, etc. are fun and inexpensive for those who enjoy those things. There are probably other cheap outdoor activities that I just can’t think of at the moment. And I’m sure that those with children and families find enjoyment spending time and activities with them. I don’t have any of that – it’s just me, myself, and I. I don’t even have any PETS. It’s interesting that people jump on the ONE thing I do for enjoyment(and have actually gotten damn GOOD at) and say it’s ridiculous. I don’t drink, smoke, or do drugs. I don’t travel or go to casinos. I seldom go to restaurants or movies, and *might* go to a concert every other year or so. But bowling is too much? Funny thing is, I’ve already cut down from the 4-5 leagues I’ve been on in the past. It will be difficult to quit and do nothing for fun anymore…

              • Eldred January 28, 2015, 6:46 am

                Sorry for sounding like a complainypants(Ugh, I *hate* that word) yesterday. I’ve put in a LOT of work on my bowling skill over the past few years, and I just hate the idea of walking away quite literally, at the *top* of my game. I have obligations to my teams for this season, but I’ll drop at least one(if not both) of the leagues next season.
                So killing cable TV, changing cell phone plans, cutting down or eliminating bowling, and using the car less should free up a decent amount of money to put towards investing. Do people ever post updates to their case studies? If so, I can do that as well.

              • Jax July 20, 2016, 7:11 am


                Not sure if anyone mentioned in the thread, but do you have a spare bedroom? Roommate possibility? I rent out a room in my 2 bedroom condo. The rent I charge goes straight to my bottom line. I split the utilities in 1/2.

                It sucks having a roommate at 45, but I have my overhead down to next to nothing after taxes. Something to consider & it gets you to your FI goal much more quickly.


  • EL January 26, 2015, 9:54 am

    Nice big-picture overview. I do recommend adding in “imputed rent” on anything worth > $5k in order to differentiate annual expenses vs cost-of-living, making it accurate to compare different years or different people. Otherwise folks who have the bulk of their net worth tied up in a house and car will get a deceptively rosy picture. If I own a $200k home and “spend” $8k per year, I believe your formula would show I could retire. However, what’s missing is that my lifestyle actually costs $16k per year, $8k of which are paid to myself as an opportunity cost for not investing that $200k instead. That is, it would be financially equivalent for me to sell the house, invest the earnings, and be spending $16k a year (including rent); your formula would then correctly point out that I’m only half way to my FI. Just my 2c :)

  • Petra January 26, 2015, 9:55 am

    I track my spending using a smartphone app. I’ve used Daily Money (by Dennis Chen, which was free at the time and might still be free, I’m not sure), and now I use MoneyWiz (which cost me something like $5 to buy). These apps rely on me feeding in all transactions manually. Inputting a transaction costs roughly one minute. Both these apps then use that data to give you totals per category per chosen time period, plus several graphs; you can also export the data to a spreadsheet program.

    There must be many other apps doing roughly the same thing. I track all my spending using the app. You could also use such an app to track only your cash spending, so that you get a bit more insight into where that money is going.

  • Tim January 26, 2015, 10:09 am

    Age: 24

    Net Worth: $40,000 (no house, not including car)
    Monthly Take Home: $3,598
    Monthly Spending: $1,475
    Debts: $0

    Savings rate: 59%

    • K January 27, 2015, 3:15 pm

      Keep rocking it, man. You’ll get there. I was in almost exactly your position in 2011. I had $40K in house, no money (divorce sucks), bringing in 4400 and spending 2800. I eventually worked those numbers closer to 4800/2400*.

      2015: $300K net worth, paid for house, numbers look like 5200/1700*, >70% savings rate. Myself and my soon-to-be wife (who makes as much as I do and effectively has >90% savings rate) are looking at something like 4 years until retirement. Retirement should become a reality around age 35, depending on kids.

      *numbers do not include 401K savings

  • Ms Money Penny January 26, 2015, 10:11 am

    Great and timely post! As usual MMM simplifies what should never have been made complex in the first place (that’s where all those Reddit posts go so deviously off the mark . . . )

    My question is about pensions (not 401(k)s), and net worth. Would a pension that includes both an annual salary and a tax-free lump sum be included in the net worth? Or just the lump sum?

    I’ve seen different replies in the forums — basically the position tends to be that you subtract the income from the pension in so far as it cuts down on the income you need to save up for. But some posters do not even include pensions, unless they’re backed by the US state (as in the military, eg.)

    In the UK and Europe, final-salary pensions (defined benefits) tend to be seen as deferred salary, but they are being phased out and tinkered with everywhere. In general one cannot get at the money before a set age (55 sometimes, but more often 60 and rising). So the question is whether some of the savings you’re accumulating but can’t get at before a certain age can be counted as net worth. That’s the case with 401(k)s, clearly, though they remain within your control — which is what bothers me about pensions . . .

  • Puck January 26, 2015, 10:13 am

    Just a note, you don’t have to calculate your “net worth”. Mint does a fairly nice job of automating this if you are a heavy user. It is somewhat nice that they combine zillow, NADA car pricing, etc all into one app. /Just go to the website, it lists this on the left. It can include cars(which I understand you might not want to see), but it is pretty useful.

    It is particularly useful if you maintain lines of credit despite having the cash to pay them off(i.e. I still have student loans at 2%). Sometimes the total number of accounts can get a bit overwhelming.

  • Forummm January 26, 2015, 10:25 am

    I think you might confuse people by talking about how many “investments” you have (in the 3 financial indepence steps) and then laying out a “net worth” (and not “investments”) calculation. You don’t want to include the value of your paid-off house in your “investments” total, since it’s not going to earn you returns and it doesn’t matter how much it’s worth. Your spending benefits from not having to pay interest or rent. But your house’s value isn’t producing dividends that you can buy groceries with. It’s not part of your total “investments” that you include in your 3-4% sustainable withdrawal rate calculation.

    • Dan January 26, 2015, 3:35 pm

      I agree with this, to me our paid off house is a layer of extra security (we could sell it and move somewhere less expensive) but not part of my SWR calculation.

      It’s correct to have it in networth but unless you’re renting it out or somehow generating income from it, it’s not an investment in SWR terms.

      • ed January 28, 2015, 4:31 pm

        Foruum and Dan, those were my thoughts, as well. When multipying your ‘spend’ by 25 to come up with your investmented net asset value, the personal residence seems like it should not be a part of those net assets.

  • Frugal Bazooka January 26, 2015, 10:43 am

    With all due respect, using the 250k example as a single income household threw me for a bit of a loop. We were able to amass a retire-able amount of stash on substantially less than that, but if I had read this example way back then I may have thought it was out of reach. A big part of staying motivated in the wealth building process is keeping that burning feeling that the big goal is right around the corner. Another aspect is that even small amounts of money can be leveraged into larger amounts of money over time. Someone who starts with massive cash flow doesn’t need a financial plan, they need a shrink to figure out why they can’t control their spending.
    The good news is anyone at any income level can mimic the postulates you promote and improve their lives, as long as they’re willing to readjust the way they measure success.

  • Juli January 26, 2015, 10:56 am

    I am wanting to start tracking daily expenses, but I want to be able to manually enter each transaction. I looked at Mint, but it only allows transactions to be pulled automatically from the various accounts. Anyone here able to recommend something? Basically, Mint that can be done manually?

    • CheapMom January 26, 2015, 11:09 am

      We just started using GNUCash, it’s basically a free open source accounting program. Lots that you can manually enter/configure if you want to play around. If you want a lower tech solution, use a spreadsheet.

      Net worth is definitely something that is important to track to see how we’re doing. No, it’s not going to tell a family like us, with most of our equity in our home, how fast we can retire, but it still serves and important purpose. The trick is to learn the different measures and how to properly use each of them.

      • Victor Fox January 26, 2015, 11:34 am

        +1. I’ve been using it since 2012, and it’s great. If you’re cautious, you can keep track of every penny and generate nice charts and reports.

        Thanks to it, I discovered last year I earned about the amount I need to still live without a job, from my investments in stocks and bonds.

        This year will not be as near as nice as 2014, it seems, so I’ll have to work and save harder…

    • colin January 26, 2015, 11:20 am

      Check out You Need a Budget. MMM recommends it as well. It’s $60, but I don’t regret it. It has a 34 day trial and goes on sale often.

    • Garrett January 26, 2015, 11:35 am

      Mint allows you to manually enter any cash that you spend. It only automatically pulls transactions from your credit cards and bank statements. I’m assuming you’re not looking to re-type info that could be pulled from your account automatically.

    • Sharon January 26, 2015, 12:21 pm

      YNAB, aka You Need A Budget. You have to enter all transactions manually, but I consider that a plus because it helps me stay more aware of my spending. It’s not a free program, but you get a 32-day free trial if you want to check it out (and they won’t auto-bill you at the end of the 32 days, either). I’m not exaggerating when I say YNAB has revolutionized my finances (and I was pretty on top of things to start with).

      • GordonsGecko January 26, 2015, 12:35 pm

        YNAB is killer. Makes you at least think twice about every dollar you spend.

      • Markola January 28, 2015, 6:06 pm

        I second and third that comment about YNAB and, no, I have no affiliation with the company beyond grateful customer. I have always crushed the retirement savings with 56% savings rate this year, according to MMM’s formula here, but we moved in 2011 and I tapped a line of credit for that. I was feeling sloppy on my grasp of current spending, so I paid $60, learned how to use it through one of their simple webinars, and proceeded to immediately slaughter the $10K line of credit debt and build up a cushion of one month’s expenses, as per the program, after only about 10 months. If there is an easier way to budget, I haven’t seen it. I honestly enjoy the control from the manual entry, which is different from Mint, which I also tried. Each month I distribute my anticipated income into about 20 spending categories and then enjoy seeing how I do. I’ve probably cut out $2,500/month in expenses, so I’d say the $60 was worth it. To each his own, but I am one who prefers to budget and I am sold on YNAB.

    • Perry January 26, 2015, 12:34 pm

      If you want to manually enter all transactions, the best budgeting software is YNAB: http://www.youneedabudget.com/

    • Stacey January 26, 2015, 6:11 pm

      I’ve used Quicken for years. Our entire financial life is in it. Instantly updates investment values, downloads data from credit and checking accounts, etc. When we do atms, I code to an expense account Cash Withdrawals. As we spend the cash I reallocate to actual, ie haircuts, etc.

    • Jim McG January 27, 2015, 1:46 am

      By far the simplest method I’ve found is to use a spreadsheet. I use the one on Googledocs so I can access the most up to date version anywhere and, when I can’t, it will synch with whatever device I last used to record the spend – phone, tablet, etc.. I’ve found spreadsheets to be the most flexible system and as easy to customise as I need. And it’s free.

      • SueM January 27, 2015, 7:18 am

        Like Jim McG, my husband and I have been tracking our spending in GoogleDocs spreadsheets. We started in 2010 and have one doc per year. Each year we tweak it a bit – we add and remove categories, add sheets to calculate monthly totals and averages, etc. I know we miss entering a few expenses, but it has given us a clear idea of what our current lifestyle costs us. That makes it easy to identify categories we could cut back on ($6000 on groceries last year for the two of us?!) and what we need to amass to maintain our current standard of living (if that’s what we want).

    • Becky January 30, 2015, 10:29 am

      I recently noticed the latest version of the Mint Android app has a big plus sign at the bottom of the screen. When you click it, it looks like it will let you enter transactions manually. I haven’t tried to use it, but having it right there on your phone, in addition to letting mint track your investments, might be really nice!

  • Gmullz January 26, 2015, 11:02 am

    For me, counting my car in my Net Worth calculation was valuable. The first time I calculated my Net Worth, using Mint, I added my car when it was valued at $10,500. I looked at that number and realized in a couple of years it would not still be worth that amount.

    It got me thinking about things differently. It’s not like I didn’t know a car was a depreciating asset, but I didn’t really consider it as the “Net Worth Decreaser” that it indeed is.

    After switching to biking, I realized the persistent reduction in Net Worth was no longer worth it, so I sold the Motorized Climate-Controlled Throne before it depreciated any further. That money is now working for me, instead of disappearing. Now I’m running lean and mean, just like my brand-spankin’ new Supple Biking Buttocks™.

  • Lucas January 26, 2015, 11:12 am

    How do you factor in rental properties, if you just look at debt total and not the monthly positive cash flow off them then you need a lot of money to retire.

    I have two 3 bed rental properties across the street from B.U. in Boston, each rent for $3,700 a month, mortgage, taxes and condo fees only come to $2,700 a month on each. They also came with 3 parking spaces which rent for $200 a month each. so I’m positive $2,600 a month on those assets, but by your calculation it’s just a debt load. (we are also making one extra payment a year to bring them from a 30 year mortgage to a 20 year, interest rate on both is 4.25% one at $290k and the other at $260k, zilllow has them estimated at $560 and $580 and similar units recently sold for more),

    Hope to be adding a 3rd 4bed rental unit soon at the same cashflow breakdown (sadly no parking spaces) that we currently live in.

    • JB January 26, 2015, 1:02 pm

      Well, what are the properties worth? Are there loans against them? Start there. The cash flow is irrelevant to the net worth. The ROI is relevant to the mortgage payment vs rental income. If your payment is $1,000 and the rent is $1,100, you aren’t making a great ROI.

    • Jeff January 26, 2015, 1:32 pm

      Realtor here. Zestimates are BALLPARK ESTIMATES. Don’t put too much stock in them!
      But my main comment: where did you get the idea that rental income doesn’t count?
      If you plan on retiring while the mortgages are still being paid down, just count the average net cash flow. If you plan on paying them off, then remove the debt service from your projections. Either way, the rent counts. Any income that you’ll still be receiving in retirement counts.

  • Victor Fox January 26, 2015, 11:29 am

    Well, i’m not in these high dollar paycheck (not even live in America or earn in dollars, i live back in BADzil) and after accounting I found I’m keeping 60% of my earnings, plus almost every penny of extra earnings (odd jobs, buy/sell stuff et al).

    Have little debt remaining, as well as little assets, save an almost paid car, a parcel of urban land (still paying), some stocks and bonds.

  • Gen Y Finance Guy January 26, 2015, 11:33 am

    This post has come at such a timely moment. In an attempt to get extra accountability and motivation to reach financial independence I decided to start tracking my income and net-worth on a monthly basis. Not only that I just released a post on my blog that pulls back the curtain on my financial life for everyone to see. I am very excited to see how tracking and posting this will expedite my path to financial independence.

    I hadn’t thought about including a savings rate, but I think in my monthly reports I will start calculating that as well. I think that will be a another very telling financial metric. My guess is that it is somewhere in the 25-35% range, which can obviously be much higher given your example above.

    Thanks for sharing the insights here.


  • nicoleandmaggie January 26, 2015, 11:38 am

    Huh, according to that step 3 we’re a lot closer than we thought. Who knew? Not that we’re planning on stopping work any time soon (well, other than me taking next year off at half pay). I did have some fun playing with firecalc this weekend and was happy to note that if we quit work tomorrow we could survive 12 years at our spending rate under all of their baseline scenarios (and indefinitely in some of their scenarios).

  • Alex January 26, 2015, 11:39 am

    Your focus on the money wasted on new cars is on target. Early in my working life ,I bought new cars every two or three years. While not expensive German models, they were money pits none-the-less. I finally sat down one day around age 30 and calculated what I had already blown on cars in my young life. Stunned at my losses, I then kept the car I owned for several years and when I had to buy another, it was used and for cash. Later, my spouse and I looked at other ways we were needlessly blowing money that we could use to eliminate all debt. I am now 52 and retired. Three years before I planned to retire at age 50, we developed a plan to pay off our mortgage. Exactly 30 days after my last day of work, we made the final payment on our 30-year mortgage 25 years early. We now have a marital net worth of over $2 million spread between our 401(k)s, home equity, and taxable investments. My spouse still works, but we still drive an older car and refuse to take on any debt. We continue to invest 40 pc of our income and my spouse expects to quit working in 7-10 years. While I earned an above average salary, as does my spouse (and we have no children), we always insisted on living well below our income. Many of our friends in similar situations drive expensive cars, live in homes far larger that needed, and have net worths far, far below what they should have given their income. They all expect to work well into their 70s. Of course, their attitude has changed and many convince themselves that they wouldn’t know what to do if they quit working anyway. For me, it’s the freedom to do or not do what I choose. Was there an adjustment the first few months? Sure. Decades of routine requires a period of adjustment when the routine changes. I now work part time, no more than 15 hours a week, on whatever schedule I want to work, I take language classes, volunteer, travel and help care of my aging parents. And for me, much of my current success with saving was all made possible by that one rainy afternoon when I sat down to calculate how much money I blew on cars.

  • Jon E January 26, 2015, 11:42 am

    Hey MMM,

    Long time reader, first time commentor.

    There are two aspects of this article that I find hard to understand on a nuts and bolts level:

    1) Since Joe is spending $8919/month or about $107K/year, won’t the 25 -30 times the income rule of thumb not really apply because of Joe’s presumably higher income tax rate? I would assume his taxes would start to go up in that spending and, therefore, investment income range.

    2)Doesn’t the allocation of Joe’s assets matter greatly for actually living a day to day financially independent existence? If you have a majority of your assets tied up in retirement accounts and your house, how do you actually withdraw the 4% to pay your bills? In fact, I’d love to read an article that shows how you actually get the cashflow to work after retirement. hint hint.

    Number two is an issue that has been bugging me for a while. I actually feel like I’m on a great path to buying my freedom but I’m worried that I won’t actually be able to access the money as needed or that the tax rate for withdrawing the money will be more than I expect.

  • Bex January 26, 2015, 11:51 am

    My Net Worth

    “Ownership” of “my” home: $73,000 – $121,000 = –$48,000 (UGH)
    Retirement accounts (IRAs): $7,000
    Student loans, car loan, and credit cards:= $0

    Total Net Worth: –$48k + $7k – $0 = –$41,000

    Buying my house totally fucked up everything. No signs of recovery anytime soon in my neighborhood/town. The area is going to shit with crime , high taxes, and poor infrastructure.

    • MrFrugalChicago January 26, 2015, 12:44 pm

      Network doesn’t matter in the short term. It matters over 10 or 20 or 30 years. If you keep paying your mortgage, I suspect in 30 years your house is not worth negative money.

      Also appreciate that your home adds stability. Your rent won’t go up (taxes can, but it is generally legally limited). You can stay there as long as you want!

      Ignore the – number from the house, and focus on starting to add more to your retirement. in 10 years you will be fine, no matter what the “value” of your house is.,

      • Bex January 26, 2015, 1:07 pm

        Thanks for the encouragement. Really difficult to not get frustrated and disappointed when I dump almost $1k/month of my measly salary into an underwater home that I really want to move out of but can’t.

        • Ellery January 27, 2015, 8:35 am

          Have you looked into refinancing? You might be able to get a lower interest rate. There are many federal programs for primary homeowners that might help you, so make sure you look into them. Otherwise, yes, just focus on investing money in other pots besides real estate.

        • ezra January 30, 2015, 11:38 am

          Ms. Bex,
          you would have to pay for rent somewhere anyway….so it is not all sinking money into a pit of despair.

          for example, I bought my house for 160k 9 years ago. It is now worth 105k. That is a 55k loss plus the lost opportunity cost of the money doing something else.

          HOWEVER, I would have had to pay rent during the past 9 years so with that factored in my house is about break even….$700 month rent x 12 months x 9 years = $75,600.

    • JB February 3, 2015, 5:38 pm

      You are now seeing why owning a house is not always the best choice. If you rent an apartment or house, you can leave with no other cost except a new deposit. Yes, you have the possibility of rent going up, but landlords can ‘t just charge whatever they want. There is a supply/demand force at work. The value of your house is sort of arbitrary, but think of it this way, if your taxes are based on your value, you are paying less in taxes than if your home was worth what you paid for it.

  • Daniel January 26, 2015, 12:04 pm

    Age: 35
    Married with 3 kids under 5 and a stay at home wife taking care of them.

    Net Worth: $149,412
    Monthly Take Home: $5,519.15
    Monthly Spending: $3,565.82
    Debts: $5,500 (Inlcuded in Net Worth)

    Savings rate: 35.39%

    This was a good exercise to see how I compare to other mustaches. I need to pull up my boot straps and get that savings rate higher. According to my calculations, it will take me 19 years to get to retirement.

  • Steve January 26, 2015, 12:26 pm

    “Joe’s 36% savings rate means he is on track to retire in about 25 years. He is already 33, so this means he is sentencing himself to be locked into that office until age 58.”
    – Probably just a technicality, but if Joe manages to keep his lifestyle from inflating (another key tenet to retiring early) and has above inflation wage growth (certainly possible for a 33 y.o.), then his savings rate could increase substantially without changing a thing and realistically cut his remaining years in half. This is similar to how the previous generation lowered retirement from 65 to 55: by age 50 the kids would have finished college, the house was paid off, and they were at their peak earning years for a few years (with some extra ‘make-up’ allowances in their 401k and IRAs for good measure). Voila, mega savings rate from 50 onward.

  • SterlingF January 26, 2015, 12:26 pm

    Thanks MMM, this is a great reminder for me to go through a refocus my savings goals. It’s been on cruise control lately but there is room for improvement. I’m happy with my net worth but would like to increase my savings rate. My wife and I are wanting to buy a house soon so that’ll change in. It’ll be lower with more mortgage interest but with a rental property hopefully it doesn’t change that much.

    Age: 33
    Net worth: $450,000 (including my wife)
    Savings rate: around 40%

    So based on 40% savings rate it will take 22 years until we can retire. But that’s if we were starting from $0 net worth right?? Since we are well on our way in terms of savings it would be a lot less time than that??

    • Vik January 27, 2015, 3:35 pm

      I’m in the same boat working out retirement estimates starting from a $400K+ net worth in 2015.

      Just work out the amount you need to live from. In my case I’d like $30K-$40K/yr. Then multiply it by 25 to get your ultimate savings target. in my case $750K – $1M. There are many future value calculators that will let you war game how long it will take you to reach that goal with a given annual savings amount.

      MMM uses 3% for inflation and 4% for ROI after inflation. You can try different values to see what that does for your FI date.

      My plan is to save the $750K then switch to part time work ~20hrs/wk average. I’ll wait out the growth of the $750K into $1M then scale back work even more.

      As long as I can make good $$/hr I don’t see giving up work entirely. To me retirement/FI is the point when I no longer have to earn any money. It’s quite possible I’ll still make $30-$40K/yr for 10-15yrs of my retirement.

      — Vik

  • Scott January 26, 2015, 12:54 pm

    So do I count my house value included in my 25 – 30x annual spending amount or not?

    Example: My total annual spending is $40,000

    Vanguard ETF accounts = $700,000
    House value = $300,000
    No debt
    Therefore Net worth equal $1MM

    Using the 4% rule, can I retire now or not?

    • Jeff January 26, 2015, 1:37 pm

      The 25x rule counts your income-producing investments, so leave the house out.

    • MrBFI January 26, 2015, 2:05 pm

      I recommend using a tool like the free flexible retirement planner to get a better idea of when you can retire. This let’s you map out your spending and early retirement scenarios where you need money in taxable accounts to hold you over until you can tap those retirement accounts.

      If you count home equity remember to deduct the 5% plus it will take to sell the house.

    • John G January 31, 2015, 6:08 pm

      There are enough of these questions that I think it’s worth responding. Also, I’m in a similar position. I think you have to decide if you would move to a smaller/cheaper house later in life. If so, then you can treat a portion of the expected home equity (i.e., the difference between what it’s worth and the house you would be willing to relocate to) as part of your total worth, because you will unlock that equity by the time you need it. The rest you can’t consider because you need a place to live. For us, our house is worth $625k (I know, I bought it before discovering Mustachianism!), but I would be willing to relocate to a smaller house in a different city once I retire and the kids are out of the house. So if I think a $150k house would be plenty, then there’s about $450k in equity sitting there when I need it. You can ignore inflation because it should affect both the house you sell and the house you buy, with flexibility built in because you have more options on where to live once you retire. To answer your question, then, if you’d consider a $150k house at some point, your useable net worth is $850k, and you just need $150k more to retire. Or count on spending to drop by $5k when you retire (apparently a benefit of retirement, per this blog), and you’re $25k away. Either way, you’re in an excellent position!

  • Tawcan January 26, 2015, 12:56 pm

    His saving rates and projected retirement time only assume that he doesn’t have any lifestyle inflation and doesn’t get married a few years down the road.

    With that much monthly income he really should have a higher savings rate….

  • Perpetuummobile January 26, 2015, 12:58 pm

    Net worth: 200k
    Savings rate: 65%
    Year until F.I.: 4-6


  • Mrs PoP January 26, 2015, 1:05 pm

    We count a little bit differently.
    1 – mortgage principal payments are still spending, not saving
    2 – personal property (ie home equity and cars) do not get counted as part of the pile of investments that needs to total 25x our spending.

    I think it’s a more conservative way to count, which fits with our style.

    • Jeff January 26, 2015, 1:34 pm

      Whatever works for you personally, but paying down debt is not regarded by any reasonable person as “spending”. If you plan on retiring while you’re still paying off the mortgage, then by all means include it in your forecast, but it’s still just debt reduction.
      Interest? You can call it spending if you like :) but again, it only counts if you’ll still be paying it when you retire. Hopefully you’ll kill the debt first and this’ll all be irrelevant.
      As far as the cars and home equity – absolutely. The 25x rule only covers things that produce income. Since personal-use items (homes included) rarely produce income, it’s almost never appropriate to include them.

      • Mike January 28, 2015, 1:20 pm

        Paying down debt isn’t spending?

        So if I buy an iPad with cash, it’s spending, but if I put it on a CC and pay down the debt it’s not? Sweet!!

        I kid…but seriously…debt is just deferred spending, so excluding debt payments from spending is fuzzy math. I could see an argument for not calling mortgage principle “spending”, but that even is tenuous in my mind.

        • Tim January 29, 2015, 10:15 am

          Excluding debt payments for things like televisions and cars is fuzzy, because we don’t include those assets on our balance sheet as responsible mustachians.

          A mortgage, however, is debt that goes with an asset that we are counting as part of our net worth. Not necessarily part of our retirement stash, but it will provide us with a retirement full of rent-free living, so it has equity we are building as we pay it.

          • JB January 29, 2015, 12:08 pm

            A) you shouldn’t have debt payments on a TV. b) you need to have an inventory of what your major items are worth for insurance purposes if you have a home disaster. Furniture, appliances, clothes, electronics. your car is still an asset even though it depreciates. you can make an adjustment once a year to compensate for depreciation. It is still worth something.

          • Jeff February 2, 2015, 10:32 am

            How much does your net worth change when you make a payment on a debt? -0-
            Example – paid $100 from checking to a credit card. Checking account (asset) reduced by $100; credit card (debt) reduced by $100; net change 0.
            You did the spending when you accrued the debt. Maybe you also got an asset in return, maybe not, but that doesn’t change the accounting for the debt payment.

        • Mike 2.0 :) January 29, 2015, 6:01 pm

          I would consider the purchase of the iPad on a CC, to be spending when you put it on the CC. Then, when you pay off the CC at the end of the month with cash, this is just a transfer, and not additional spending. Most of the PF software (Mint/Personal Capital) take care of this for you. I would say, with the exception of the house, all purchases, whether financed or paid in full, are expenses when purchased. Then re-payment of principal is just a transfer, and interest is an expense.

          • Jeff February 2, 2015, 10:43 am

            Exactly. The moment you make the purchase, you incur the debt, and you can’t spend the same money twice. If you want to get nitpicky, you can add the iPad to your assets and depreciate it over time.
            I think a more illuminating example is using a credit card for something that’s clearly not an asset – like dinner or a movie. This case makes clear that the spending takes place at the moment of purchase and the repayment is just a transfer of assets, having no effect on net worth.

  • Marcia January 26, 2015, 1:09 pm

    Hm. I looked at our spending in Jan for last year, and it wasn’t pretty. Not including the mortgage, it was $55k. So with the mortgage, it’s at least $100k

    Now, I didn’t have the chance to really dig in and see how much was what. And some stuff was miscategorized. So some of that might actually be “savings”. For example, one of our funds has a name similar to a theater company, so every time we bought that fund, it was categorized as “entertainment – movies”.

    So really I need to take some time to dig into it more and see where we should trim. We’ve already started on that, but it’s going to be a long haul.

    Just goes to show you need to stay on top of things. We had it pretty well dialed in a few years ago before baby #2, but that took a toll on our finances, and our energy levels in dealing with the stuff.

  • Tina Plumley January 26, 2015, 1:38 pm

    In step 3 – when we say “once your investments are 25-30% of your annual spending, you are set”, do you consider retirement type investments (IRA, 401k, etc) in that? Or just the investments that are free game if needed at any age? I am planning to be FI when I am 38 years old. While, that does mean my IRA and 401K will be sitting there making money for another 30ish years until it becomes my income, it also means my “discresionary investment’ is much lower should something come up where money is needed. Lets say I need $500,000 to be FI; $300,000 of that is in IRA/401K while $200,000 of that is in a Vanguard investment with no age restrictions. Would you still consider this to be FI? Or would you suggest the actual non-age restricted investments must be at that 25-30% of annual spending?

    • Mr. Money Mustache January 26, 2015, 3:48 pm

      I count ALL invested assets, whether retirement or taxable. Then when you retire, you spend the taxable stuff first, and there is always a way to get that money out if needed: http://www.mrmoneymustache.com/2011/11/11/how-much-is-too-much-in-your-401k/

      In practice, however, most early retirees report to me that they don’t end up needing their tax-deferred accounts.

      But it is 25-30 TIMES your spending, not 25-30% of your spending.

      • 2l2r January 27, 2015, 7:37 am

        Any reasoning behind the 25 times slipping to 25-30 times in more recent posts. Is this driven by anything in particular or just adding a cushion?


        • skunkfunk January 27, 2015, 8:34 am

          It depends on your risk tolerance and investment strategy. The short answer is 4% withdrawal usually works fine, 3% is very, very safe.

  • Bob January 26, 2015, 1:58 pm

    You need 25-30 times your expenses in investment assets not net worth to retire right? My understanding is you can’t include your primary residence if you expect to keep living in it.

  • earlyFI January 26, 2015, 2:02 pm

    So how do you calculate the value of a pension into Net Worth?

    • Ms Money Penny January 26, 2015, 2:58 pm

      What I’ve seen in the forums is that most people recommend subtracting the income from the pension from the total income needed to support yourself. Say you need $2400 mo and your pension will be $1600 mo. 2400-1600 = 800 x 12 x 25 = $240,000 is the size of the stash you need PLUS or on top of your pension.

      An alternative suggestion is to see what size of stash you would need to buy an annuity that would produce the same income. In the example above, I get a rough indication of a pension fund of about $400,000 to generate about $1,600 mo.

      But these are forum replies. What I’d love to hear is the oracle’s own take on it. He doesn’t seem that interested in pensions, being a young ‘un . . .

    • Jeff January 26, 2015, 3:12 pm

      You don’t, unless there is a lump-sum cashout option.
      If you’re doing a 25x rule calculation, just reduce your income requirement by the amount of your pension.

      • Ms Money Penny January 26, 2015, 5:27 pm

        What if the pension comes with a tax-free lump sum? In my example above, out of a $400,000 nominal value of the pension, you can take up to $100,000 in cash at retirement. Presumably the $100,000 is part of your NW calculation — but only once you reach retirement age, right?

        • Jeff February 2, 2015, 10:34 am

          I suppose it all depends on what you’re calculating. For the sake of running a scenario analysis, use the $100K if you’re sure about getting it.

    • Semifruggal January 27, 2015, 9:49 am

      My actuary friend tells me my pension is worth roughly 16x the annual benefit. I am a 49-year-old male.

  • MDM January 26, 2015, 2:11 pm

    “You need to deeply understanding your spending needs and wants in order to know if you can afford to retire. Instead of taking random guesses at the factors above, I prefer to think of everything in terms of after-tax dollars. Take-home income instead of gross income.”
    A couple of things on the quote above:
    – When you calculate spending needs in retirement for the purpose of “Once the total value of all your investments reaches 25-30 times your annual spending, paid work is now entirely at your discretion,” that spending must include the taxes you will be paying. Yes, your tax rate is likely to be lower than when working, for all the reasons MMM mentions, but unless you know the rate will be zero you should not ignore it.
    – Using take-home income does simplify some things. Just make sure you appreciate the difference among “take home”, “adjusted gross”, and “taxable” (not to mention “modified adjusted gross”, etc.) because different IRS regulations (e.g., choice of traditional vs. Roth) depend on things other than take home pay.

  • Eric January 26, 2015, 2:40 pm

    Thanks so much for another well-thought out post. I believe that most folks would be wise to map their net worth alongside standard GAAP methodology. That would be pretty much exactly as you had done, although this would include automobiles for most people. If you have property that is used to generate income and that lasts for over a year, then it would be logical to include its depreciated value in your net worth calculation.

    By this definition, I do include my autos in our net worth calculation.

    Thanks for the post.


  • bh January 26, 2015, 2:54 pm

    Hm. I’m surprised at this – the net worth isn’t news, but the savings rate really is. I’ve long been stumped by how to calculate when you’ve got taxes, social security withholding, etc. in the mix. But does that mean that if my savings rate is 40%, my actual spending is 60% of my take-home? That makes sense to me.

    net worth: 385k
    savings rate: 40% if I count principal payment as spending; 46% if I consider principal payment as savings
    years til FI: between 9 and 13 which seems … a lot sooner than I’d been estimating (I’d been thinking 17 years at the soonest)

    Very interesting!

  • pope January 26, 2015, 3:32 pm

    I’m at a paltry 9% with my day job. My side business puts me at 35%, which coincidentally is what I would be at if we didn’t have daycare. The negative affect of daycare on your retirement plans is real people.

  • Jeff January 26, 2015, 3:36 pm

    Gah. My net rental income is too inconsistent to put my finger on this, with a lot of discretionary upgrades lately (new roof, NEST, etc).
    I know this though: 10 months after finding this blog, we’ve gone from 140k net to 220k+… if you back out the 30k we inherited, and decent IRA/TSP returns, we still stashed 30-40k of our own money. We were doing an okay job before, but we’re closing in on greatness. Feels good man.

  • The Watchman January 26, 2015, 3:56 pm

    On housing as an asset …

    When reading comments about not including housing as an asset, I am reminded of Rich Dad Poor Dad where the author claimed that housing is not an asset, as it (allegedly) does not put money in one’s pocket and instead costs money in property taxes and maintenance.

    This is a BS statement designed to sell books instead of enlighten readers. In truth, a house for most people (ie. those with a mortgage) is an asset, a partial offsetting liability, an income stream and an expense stream.

    It is an asset because it saves you from having to pay rent, and so is a stream of future economic benefits. This imputed rent is income. This income is consumed, and this consumed imputed rent is an expense.

    The trap many people get into is that this imputed rent and associated expense is not transparently accounted for, and so people don’t often think about whether their imputed rent consumption is good value. They could rent out (or sell) a high rent house and live somewhere cheaper, but the numbers aren’t staring them in the face.

    A house also involves a liability, being the future stream of property taxes. This is what Rich Dad Poor Dad uses to trick the reader, but in truth this ‘liability’ would already be capitalised into the house value, and the expense incorporated into the imputed rent value.

    So houses are assets that should be included in one’s net worth (and those that disagree are invited to give me their non-assets to see the lack of impact on my net worth), but the imputed rent and consumed rent expense should also be taken into account.

    • rpr January 26, 2015, 4:25 pm


      Thank you for making this very important comment. As you mention, very few people take the imputed rent into account when calculating their housing costs.

    • Mr. FC January 26, 2015, 5:26 pm

      Totally agree – was a Kiyosaki fan until I really thought a lot about what he was saying, which is 1) impractical for most people and 2) a little to simplistic for my tastes. Housing is more complicated than just “it takes money out of your pocket,” or one of Dave Ramsey’s old chestnuts: “Would you borrow money against your house to invest it in the market? Of course not!”

      Owning a home IS an expensive luxury. But it’s also one of the best ways to short currency – you borrow at a low rate to purchase a house with the expectation that inflation will allow you to pay that money back in devalued dollars, and you get to live in it in the meantime.

      Sounds like some smarty-pants answer but after thinking about it, this was one reason I felt a little more comfortable investing before aggressively paying off the mortgage. My $0.02.

      • JB January 26, 2015, 5:35 pm

        But if you are not diligent to have money saved, once you retire, you still have a house note and many things can happen to cause cash flow to dry up. Better to have a paid for house before retirement so you don’t have to worry about being foreclosed on. The dollars towards the last 5-10 years aren’t going to be hugely under inflated. Your home value will probably fluctuate the same percentage. Would you re-mortgage your house at 55 before you retire in order to have a lump sum of money even if the borrowing rate is 3%?

        • rpr January 26, 2015, 6:24 pm

          JB — I agree with your analysis for people who are not diligent enough to save. In their case, prepaying their mortgage is a form of savings strategy.

          In our case, we have a choice between aggressive mortgage prepayment or invest in a tax deferred accounts such as 401K/IRAs. Unfortunately, we don’t make enough to be able to both prepay mortgage and invest in tax deferred accounts. So we picked investing in the tax deferred route. Since both work and have access to 401Ks and IRAs, we can invest a total of $47K each year. Our marginal tax brackets are roughly 33% (Fed+State). If we were to pre-pay the mortgage with this money, then we would only have $31.5K. An extra $15.5K in tax savings. Yes, I know that this money will be taxed in retirement when withdrawing. I expect our effective tax rate to be near 10%. Thus the net savings are greater than $10K/year which is important to us.



          I wouldn’t do it in retirement as the advantage of tax arbitrage would not exist in that case.

        • Mr. FC January 26, 2015, 6:42 pm

          I agree that if you don’t have the diligence to stick it in the investment account and leave it alone, it’s probably better to just pay down the mortgage. After all a 3% return is better than a 0% return. And there IS the comfort of having no mortgage in retirement (I believe MMM did the same thing, actually).

          For today, our situation is such that it would make more sense to have the money liquid and invested until we’re ready to hit the mortgage with a lump sum payment, OR have the option of letting that cash just keep growing and then use a 4% draw to pay the mortgage. Either way you’re still in the same spot mostly, with the difference being that the latter strategy is higher risk / reward. We’ve maxed out all our tax-deferred investment strategies, and basically what we were left with was 1) pay down the mortgage, or 2) invest it. We went for 2). For now. :)

          Maybe that’ll change if we want to move or something, though.

          • jb January 26, 2015, 6:54 pm

            I agree that paying off the house should be the last thing you do if you are tired of max savings. My wife max’s her 401K, I max mine now as an over 50, I have a pension that takes 7%. We make too much to contribute to IRAs so I put all the rest into Vanguard ETFs. We paid off our house in 2007. My wife had clients in the mortgage business so we saw the crap coming before others so we paid off the house in case Countrywide decided to just get screwy and start losing payments. She got a large bonus that year so it was extra money. We did do the diligent thing and just started to invest the house payment. We went from putting $1,000 a month into the taxable brokerage account to now putting in $12K a month. We are saving about 45% of our income. We spent about $85K last year with $20K of that going to charity. So we spent $65K last year.

            • Mr. FC January 26, 2015, 11:31 pm

              Nice work JB. You must be FIREd or getting close to it by now!!

              Our savings rate is 46%, but more like 65% if you include income tax in the gross which I don’t completely understand…I’d like to be over 50% in my more conservative calc above, which could happen fairly quickly….

              • JB January 27, 2015, 7:40 am

                The wife will probably go to part time after she turns 50 so she is vested in all her pension stuff. I “could” retire sooner, but if I make it to 60 I get free healthcare for life so that is a big carrot. Now, if our portfolio is $8M-$10M I might not care about the free healthcare if I can quit 4 years earlier, but currently we are at $2.6M so even if it doubles in 6 years, I think we could be fine living off $200K a year, but wife wants to travel extensively, not just sit around the house gardening. We will probably sell the house and move into my mom’s condo whenever she passes away. That could be 10-15 years from now, so extensive travel of more than two months might not happen while we have a house. Once the wife quits, we will be living off my salary and not able to pile up big savings. Yes, if we were going to have a quiet retirement of basic travel, we could quit now, but I am not ready to quit working. we want to figure out how to house sit for people in Europe that travel as well so we can minimize housing costs, but I am going to budget $3K a month for rentals of apartments. Re-positioning crusies are cheap ways to get to Europe and back. So if we spend $60,000 a year traveling and have $160K coming in from retirement, we should be just fine. I plan on taking SS when I am 62 and the wife will probably take it at 70. It depends on the cash flow. Hard to predict 10 years out.

              • JB January 27, 2015, 7:46 am

                I take net pay to figure out our savings rate. Taxes are gone, out the door. Everything else is discretionary. Whatever you save in net pay is what I use.

  • Alex January 26, 2015, 4:09 pm

    MMM, thank you for providing and maintaining a community that is always pushing us to be frugal, efficient, and sustainable. I doubt that without this blog we would have been inspired to bike to work below freezing a dozen times already this winter, although there are still a lot of areas we’re working to improve (say, restaurants…)
    At 27 and 28 we are at a net worth around 580k (including 15k in cars) with a savings rate at 70% (we use just about the same formula you propose). Engineering DINKs have it pretty easy though, and that 30% spending rate includes some pretty embarrassingly wasteful spending :P

    • Kathy Abell January 30, 2015, 1:18 am

      I’m surprised more people don’t go into Engineering related jobs. It is interesting, challenging work that pays very well, and engineering companies are likely to have nice benefits such as a company matched 401k. If you are efficiently frugal, you could accumulate your FIRE ‘stache in a much shorter time frame than can be had in other jobs. The only problems would be in not succumbing to lifestyle inflation or the corporate peer pressure to work way more than 40 hours per week.

      • JB January 31, 2015, 5:37 pm

        Not everyone can handle the math involved in most engineering jobs.

        • Amanda M. January 31, 2015, 5:58 pm

          As an extreme example of this, my chemical engineering undergraduate class went from 30 sophomore year to 6 at the beginning of senior year, who all graduated with job offers coming months before. None of us who stuck it out knew the salary stats when we started considering the career (highest paid 4 year degree at the time; they didn’t include the less common degrees like nuclear engineering in the statistics, whose salaries are even higher), just that math and chemistry were fun.

  • Crimeny January 26, 2015, 4:16 pm

    Please don’t flame me for misunderstanding.
    I have a net worth around 1 million as a single 54yo. 80K is my house. I have around 920K in investments after subtracting what I owe on my house, about half of the 920K is tax protected. No other debts. :)
    My after tax salary is about 80K. I am planned investing (401K+HSA+Roth), this year about 34K. OK and whatever else I can scavenge after getting all fired up reading MMM.
    Here’s my question: My investment returns (75% stock index 25% bonds are far greater than my addition to capital investment/year, probably around 7% over time, right?) I save 100% of my investment income. The amount of capital accumulation is around 100K 30K I am adding, plus investment income of 70K.
    How do I count my savings? rate I guess investment return is figured into calculations, but not income? But I am at a funny place since investment return is more than I am making from my work salary. It seems like if you count rental income as income, I should count investment proceeds as income as well.
    Could you help me to think clearly about this.

    • Hummer February 1, 2015, 2:57 pm

      Dude, you are retired. If your passive income generated from your $920k of investments is larger than your yearly expenses, it’s time to quit your job and enjoy life…

  • Mr. FC January 26, 2015, 4:53 pm

    Question for MMM or anyone else – I see that income taxes are not pulled out of the gross side of the savings rate calculation and understand the logic given, however isn’t this understating the spending rate?

    An example – if gross income including income tax is $150 and spending is $50, the spending rate is 33% / available to save is 66%. However, if income taxes are $10 in the above example, the spending rate becomes 36% / available to save is 64%. The latter seems more precise, at least to my mind.

    At least for me it would be more motivating to try and cut spending down even further knowing that a chunk of my income is going out to the Feds / State and not working for me in an investment like VTSAX or FSTVX or (insert investment vehicle here)!

    It’s all just maths but interested in the details. Thoughts??

    • Jeremy January 27, 2015, 7:28 am

      All numbers are after tax

      Once retired, most people will find their tax rate is low. Ours has been 0% since early retirement, for example

      If you expect a certain tax bill in retirement, use that as an expense as opposed to any taxes you might pay now while working/saving

      • Mr. FC January 27, 2015, 11:05 am

        Cool, thanks Jeremy! Makes a lot of sense, I would expect our tax rate to be lower / 0% by early retirement as well. Will have to work on some tax strategies to make that happen though.

        Do you have to deal much with taxes from abroad?

        Love your blog btw. Taiwan looks awesome!

        • JB April 23, 2015, 12:38 pm

          If you only have SS and aren’t taking money out of a 401K or IRA I find it hard to have a 0% tax rate. I expect at our retirement we will have savings to live off of so that we can defer taking money out of our IRAs as long as possible, but I plan to take money from our taxable IRA first since we will be in a low bracket to start.

        • JB April 8, 2016, 11:25 am

          Dividends count as income. If you have $40K in div. you will pay taxes on them.

          • Scott April 8, 2016, 10:22 pm

            JB. If $40k in dividends is your only source of taxable income your federal tax rate will likely be zero. Qualified dividends have a preferential tax rate of 0% if you are in the two lowest tax brackets.

  • Jesse January 26, 2015, 4:58 pm

    Net worth: -$18000 (DW just started work after finishing Master’s, we own a house and have a car payment >.< plus student loans)
    Monthly take-home: $4,144 (teacher and social worker)
    Savings rate: 49%
    It CAN be done on an average income- once we're debt-free, I calculate that our savings rate will jump to around 75%!

  • Tom January 26, 2015, 5:19 pm

    As a REALTOR® – I usually recommend that our clients adjust their Net Worth calculation to account for the true cost of selling their property. I know they could always sell it themselves, but many folks simply don’t have the time, patience, or expertise to do that. Even those who are willing to put in the time and effort, and are able to sell it themselves often end up having to agree to pay something to the Selling Broker.

    If you live in a state that taxes real estate sales, you cannot avoid paying some taxes at settlement – which can add up. Most sellers also end up paying attorney fees, settlement agent fees, and get hit with various repair costs. So the market price isn’t their actual sales price. I’d recommend “Joe” make sure the $580,000 used in the example was what he’d have left after the sale, but before the lien was paid off. My guess is he’d have less than we see in this example.

    By the way, since this is a blog on saving money – I recommend your readers ALWAYS ask their REALTOR® if they can cut their commission. There are plenty of ways an agent can lower their costs, especially if the client is willing to share some of the workload when marketing their property. Most of the smaller firms do cut the commission, and craft a deal to fit your needs. The big “name” agents and national brokerages won’t (noticed I didn’t say can’t) because they have lots of overhead costs and are philosophically averse to lowering the commission.


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