“Honey! Wake Up!”

“MMpph?”

“I heard my phone ringing a bunch so I got up and checked my voicemail. Luke says the pipes burst in our house and it flooded.. you probably have to go back.”

These are the words with which Mrs. Money Mustache awakened me from my otherwise-beautiful Hawaiian sleep this morning. She had actually said “call him back”, but through my earplugs I heard “go back”, which I interpreted as, “you’ll have to get the next flight back to the mainland to go deal with our destroyed house”.

This accelerated my heart rate a little, and I went into a calm crisis planning mode as my mind started to race.  I knew that Colorado had just come out of one of the coldest winter blasts in history, with evening lows below -20F. I learned that the furnace in our house had happened to fail right during the intersection of our long vacation and the cold weather, and thus the interior temperature had dropped below freezing in places, damaging some plumbing.

Given this turn of events, was I still happy that I have a $10,000 deductible on the house insurance? Yes, no big deal there, although obviously a $500 deductible would be preferable in such a situation. Was I upset that an undetermined amount of my last 5 years of projects might be destroyed? No thoughts on that yet but I had a feeling I would be pretty bummed. I dialed my friend’s number and got through on the second try.

The seriousness of the situation was immediately taken down a notch when I heard my friend’s calm voice on the line. This guy never worries about anything, and thus it is hard to worry when you are talking to him.

I learned that no, the house had not actually flooded.. only one room had flooded, and only partially. Two of the faucets in the master bathroom had popped their cartridges and started spraying – one into the bathtub, which was harmless, and one into a sink, where it had been overflowing onto the bathroom floor (tile) and out into the master bedroom (carpet). He had found the main water valve and shut it off, so the flow had stopped. He had even vacuumed up the water from the bathroom floor, and his fine wife had spent an hour or more vacuuming water out of the carpet, extracting several gallons – all before even reaching us on the phone.

Fortunately, that bedroom happens to sit over top of the garage, so the water had been soaking through the carpet and the plywood floor beneath, and draining through the drywall of the garage ceiling, then squeezing under the garage door and safely outside. Not my first choice of things to happen during a vacation, but also far from the 32-foot-deep-fishtank-with-floating-couches image that I had awakened to a few minutes earlier. It occured to me that we were infinitely grateful to to have these particular friends on our side, as we have been for years.

But the crisis was still far from resolved. The reason all this had happened is that the furnace had died, and it was still dead. The house interior was at 30 degrees F right now, and only the most sensitive things in the coldest room had been damaged so far. That meant the temperature could continue to drop, and more serious things like the copper pipes inside the walls could soon start cracking. Luke and I talked through some options over the phone, and he decided to try replacing the igniter/flame sensor unit in the furnace while I put in a call to my usual furnace contractor*.

A few hours passed. I spent them cutting out a section of a brick wall and framing an exterior doorway into our vacation suite – the last of the difficult tasks on my work plan. It was a beautiful day in Hawaii and I performed my work in flip-flops and shorts as usual. I was reminded that no matter what happens, life in general will remain wonderful. My worry subsided.

My friend called back. His replacement part did not fix the problem. Shit. The furnace guy called back. He might be able to make it this afternoon, or if not, tomorrow morning. Good.

We activated a contingency plan, where a 1500 watt space heater was placed in the kitchen, so its heat could dissipate throughout the house’s relatively open 2-level floorplan. Calculations indicated that would be enough to keep the house well above freezing (1500 watts is 5118 BTU/hr, so running it constantly is roughly equal to running the 100,000 BTU furnace for about 74 minutes per day. Plenty of heat to maintain 50F or more in my place, or much more if the sun shines).

I went back to work, hanging the door and the trim around it. I added the nice Schlage programmable deadbolt (which I do in all houses – especially rentals) allowing all future guests to have keyless access to the suite. It’s the same simple technology that allowed my friend and my furnace guy to get into my own house without having to share keys – I just gave them the “guest” front door code over the phone.

The furnace guy called back. He had fixed the furnace! It wasn’t the igniter or the flame sensor. It was a little rubber hose that measures the vacuum created by the fume exhaust fan. It had become clogged, so all he had to do was clear it out. My furnace was running, the house was warming up, the remaining water was evaporating rapidly in the ultra-dry Colorado winter air, and the whole episode was on the road to being forgotten. To top it all off, he said his whole bill would only be the minimum service charge – $80.

I am incredibly thankful that this bit of bad luck didn’t turn out all that badly. I can fix or replace my dead faucets once we get home, and repair any drywall or other damage that cropped up at my leisure. But even in this little tale, it seems there were a few hidden life lessons:

Home maintenance skills trump low insurance deductibles:

The typical hands-off homeowner might have said “Ohmygod! A FLOOD!”, and called a flood and disaster recovery contractor. These companies vacuum out the water from your carpets and use blowers and dehumidifiers to dry the house. They will even subcontract out to a plumber and a drywall repair company, and a furnace fixer too. I’ve hired one of these companies for a customer in the past and boy, do they charge a premium for their services. A job like this could be $3000-$5000 or more. The homeowner would then thank goodness for the low $500 deductible on their home insurance plan (for which they pay $500 per year over a $10k plan), and the whole repair would cost them only $500, (plus a $100/year increase in insurance premiums due to the loss of “no-claim discount”).

Friends are worth their weight in gold:

Our friends have helped us out of more binds than we can count, and I hope they feel the same way about us. I have built portions of their last three houses and repaired most of the rest. We pick up each other’s kids from school, and we drive each other to and from the airport when the bus or shuttle schedule doesn’t work out. We share garden tools and meals and many ‘a’ box of wine. Without good reliable friends, life is less fun and more difficult. Do whatever it takes to earn and keep them!

Do the math when taking risks:

I left for this vacation before Mrs. and Junior ‘Stash came. So I gave her a list of house preparations to make before she left: turn down the furnace and water heater, close the insulated shutters, lock the tool shed, and other such things. I debated whether or not to ask her to shut off the main water valve, but decided it wouldn’t be worth the trouble since it’s in an awkward corner of the basement. After all, how likely is the furnace to fail right while we are away and cause a flood?

What I should have said is, “Okay. A furnace usually fails once every 10 years on average. Mine has been trouble-free for at least the six I have lived there, meaning there is a good chance of a part going out in the next 48 months. The house will be empty for one month, meaning there might be a 1-in-48 chance of furnace problems while we are away – and every night falls below freezing during this time of year, so freeze risk without furnace is nearly 100%. I have toured enough houses with winter water damage while shopping for foreclosures that I know that if your house freezes, you almost certainly get a water leak. The cost of a water leak due to frozen pipes is very high ($200 to $20,000), so you could estimate it as a $2000 expected value.

So the expected savings from turning off the water pressure is somewhere around 1/48 * $2000, or $42.00, conservatively speaking. Plus the extra dividend from peace of mind. Since it is far less than $42.00 of effort to shut off that valve, I should have asked her to do that before leaving as well. And you should do it when you take trips and leave your house empty too. An internet-enabled thermostat is also now looking like a better investment, even while I had dismissed it as an unnecessary gadget in the past. Since we spend at least two months traveling away from the house each year, it makes sense to have a way to monitor it without leaning too heavily on the aforementioned friends.

So, it looks like we squeaked through this bit of bad luck without too much damage. But lesson learned!

*Furnace Guy – hats off to Bob at Circulating Air, who I have long considered the most kickass HVAC contractor in the Longmont and Boulder area. Again he has saved me from trouble.

What’s your style of investing: Stocks, or Bonds? And if you say “Stocks”, are you fond of Small Cap or Large Cap, and would those be in the categories of Value or Growth, and in US, European, Asian, or Emerging Markets?

I’ve learned that readers of Mr. Money Mustache vary widely in their response to a question like this.

Some will immediately scoff at the simplicity of it, slicing each of the investment types above into further subcategories and then commenting on their appropriateness given our current position in the business cycle.

Others will discount stocks and bonds entirely, muttering something about “Federal Reserve toilet paper” and “Fiat money”, before talking about their portfolio of precious metals (and at the extreme end of this position, stockpiles of canned food, guns, ammo, defensible land and tinfoil hats).

And quite a few of us will say, “I have no effing idea – I just checked a few appropriate-looking boxes on my company’s 401(k) signup sheet and I’ve got the rest of my ‘Stash in cash  because I don’t feel comfortable enough to invest massively in stocks!”

One of the goals of this blog is to get the latter category of people to get off of their asses and start learning about real investing. You do this by reading books – you might even start with those mentioned in the Book Recommendations page right here on MMM. But you must do it.

The good news is, you don’t need to know anything about investing to start saving for financial independence and early retirement. Learning frugality and how to live an efficient lifestyle is by far the most important part. Paying off all your debt is a good first step. And after that, while your savings are still small, your loss from not investing is small.

The bad news is, every $100,000 you have sitting around in a 1% bank account is missing out on about $6,000 per year compared to what you’d get by investing it well. Right now, it is actually shrinking, since it is growing more slowly than inflation. Your hesitance to read a few investment books is costing you $500 per month, for each hundred thousand idle employees.

So I’m writing this post under the guise of a book review of The Intelligent Asset Allocator by William Bernstein, but it’s really more than that. An understanding of Asset Allocation is a useful and necessary brick in your understanding of stock market investing, and it is something I’ve never covered properly on this blog before, so here we go!

Let’s start with the concept. In a long-ago article on stock investing, I described the basic idea of an index fund and suggested that you don’t have to know anything about individual stocks. You just need to find the right index funds, with the lowest management fees. By using the Vanguard investment company (www.vanguard.com), you get this without any further research.

But in that old post, I oversimplified things by only mentioning the VFINX index fund – a fund that holds only very large US-based companies. That’s still a good no-brainer investment choice for long-term growth, but the concept of Asset Allocation takes it up a notch by offering less volatility (which we all understand thanks to the past decade) while sacrificing little or none of the long-term performance. To understand how this could be, check out the following example:

Imagine you start with a $1.00 investment.
Now you start flipping a coin. If the coin comes up Heads, your investment goes up by 30% For Tails, you lose 10%.

After one coin flip, you could be one of two places:
Up 30% so you have $1.30 : there’s a 50% chance of this
Down 10% so you have 90 cents : also a 50% chance

But what if we start over and split our money in half and add a SECOND coin, and bet 50 cents of our money on the outcome of each coin?
After one flip, you could be any one of four places:

Note that each of these outcomes has an equal probability of happening: 25%. But notice how you now have a three out of four chance of making money, and only a one out of four chance of losing it on any given flip. Over time, flipping the single coin and the double coins will yield exactly the same long-term returns: an average of a 10% gain per flip. But flipping the double coins will provide much less volatility.

As it turns out, you can do almost the same trick with stocks by understanding the principles of Asset Allocation (also known as Modern Portfolio Theory) explained in this book. Although it’s not a new idea, it is still quite magical, because we are getting less gut-wrenching volatility without compromising on the long-term return.

The reason this works is because the results of the separate coin flips are uncorrelated. To re-create the smoothing effect of flipping two coins with stocks, investors need to find stocks (or “asset classes”) that are also not correlated.

At the most basic level, this is the idea of “diversification”. If you buy one randomly-selected stock on the stock market, and I buy twenty, on average we might be expected to earn the same annual return, but your stock will swing wildly while my mixture of twenty will tend to cancel each other out and move more smoothly.

But if you look more closely at a graph of the share prices of two large US company stocks, even in different industries, you will find that they are still heavily correlated. They zigzag up and down together in response to the short term diaper crappings of market speculators over irrelevant news headlines. Similarly, if you compare the movements of a stock index of ALL the large US companies and the movements of ALL the small US companies, you’ll see a similar correlation. With correlated assets, you don’t get the full benefits of the double coin flip, so you can’t shake the volatility.

But Asset Allocators have figured out a way around this. By studying detailed historical price charts of many types of assets (stocks and bonds of  multiple countries around the world), they have found an appropriate mix of healthy investments that tend to move much more independently of each other. Bonds, for example, often move in exactly the opposite direction of stocks.

The book offers interesting explanations on how this all works out mathematically, but let’s just skip directly to the end result: You get the best results by owning at least four asset classes.

If you only want four, the author suggests you might hold these ones, by simply plopping 25% of your investment portfolio into each:

US Large-capitalization stocks (as measured by the S&P 500 index)
US Small-cap stocks (the Russell 2000 index):
Foreign stocks (the Europe, Australasia, and Far East index, also known as EAFE)
US short-term bonds

If you wanted to do all your investing with Vanguard funds as I do, you might throw 25% each into VFINX, VB, VDMIX, and VBISX.

Now you’re nicely diversified and owning slices of thousands of companies across the world with only those seventeen capital letters. It is truly an amazing and convenient world we live in. But there’s one last step: rebalancing.

The book explains that due to various market manias, occasionally one of these asset classes will start to inflate into a bubble, even while others will drop in price. To take advantage of this, you sell the funds that have appreciated, and use the proceeds to buy the assets that have gone on sale. Once per year, you simply make the appropriate mix of sales and purchases to set all of your allocations back to 25%, and you have effectively done a “buy low, sell high” move without even knowing what companies you own.

To beginner investors, this sounds crazy, and to advanced ones, it sounds like “well, DUH!”. But if you read enough investment books, they will convince you that the math and statistics behind all of this show that rebalancing works out quite well over the long run. You get reduced volatility and increased returns, with very little effort.

And the convenience goes even further: there are even index funds that will do this asset allocation and rebalancing for you! Vanguard’s VBINX fund, which I have recommended in the past, automatically maintains a 60/40 split of US stocks and bonds. There are surely other funds out there which will do a full 4-way round-the-world allocation as well (if you know of one,  let me know and I will update the article).

So it’s a good book. Financial and engineering nerds will eat it up. But people who find even this article’s attempt at an introduction to the topic confusing will probably want to start with a more general-purpose investment book, like The Four Pillars of Investing, by the same author.

Imagine an alternate version of Mr. Money Mustache. What if I had suppressed some of my profanity, become just slightly less hardcore in my frugality techniques, and moved to Western Canada instead of the Western US? Who would I be?

You may already be aware of the real-world simulation that exists to model this situation, his name is Timothy Stobbs, and he is the author of the blog Canadian Dream: Free at 45, and the book Free at 45 : How to Retire Early and Happy.

I had the pleasure of reading this book during my recent vacation and was pleased to note how well it had been put together. Since it’s the Weekend Edition and I’m way behind on my book review program, I thought I’d share a quick review of the book with you right now.

About the Author: I came across Tim and the Canadian Dream blog shortly after MMM was born.  Maybe the connection was through Early Retirement Extreme, or maybe somewhere else. But it turns out that somehow, all of us small-time financial bloggers end up getting to know each other. Eventually we will all start holding regular meetings to play poker and smoke cigars in executive boardrooms while wearing 1920s hats, but we are not yet powerful enough for this.

From the wisdom of his blog and his book, and the concept of retiring at 45, I had assumed that Tim was older than me, like 43. But the book says he was born in 1978 – just a kid! This makes the mature perspective even more impressive. Watch this guy, he will surely become quite a sage with even more age.

So on to the book.

Free at 45 addresses early retirement from a different perspective than many of the most popular books. First of all, it does not set an age limit on the activity. It is a turnoff to me when books assume people will be done raising children and starting to experience physical decline when they retire. I like the idea of leaving the door open to any age of retirement, and this book does that.

Secondly, the book maintains a focus on understanding happiness rather than replacing most of your pre-retirement income. There are hints of the concepts of hedonic adaptation and stoicism in some of the happiness chapters, even without explicit reference to the terms. These things are the key to the whole deal: financial independence works much better with a free mind, rather than one that has chained itself to high consumption as a substitute for understanding actual human happiness. Chapter four, entitled “What we Need” is particularly nice in this area, describing the hierarchy of needs as described by Chilean economist Manfred Max-Neef:

Sustenance (food and water)
Protection (safety and shelter)
Affection (love and friendship)
Understanding (making sense of life)
Participation(being part of a social process)
Leisure (time to reflect on things, daydream, and relax)
Creation (making things)
Identity (knowing who you are)
Freedom (choosing for oneself)

When writing the book, Tim did something I have never thought of doing myself: He interviewed actual retirees. Then he gathered their perspectives and advice along with his own experiences when baking them into a book. That’s a good strategy, and it leads to a more flexible message than Mr. Money Mustache’s strategy of just telling you about his own early retirement experiences. I just may be cribbing from this idea myself in the articles to come.

Tim and I do have our strategic differences regarding how much frugality is ideal, which one could have already predicted by comparing our retirement ages.

In the book, there is a graph from a US study suggesting that the happiness vs. money curve peaks at an annual income (and spending) level of about $75,000. I’d suggest this is a bad spending number to shoot for because it represents the average result of a population of people with absolutely no Mustachian training. The amount of money required for peak happiness drops rapidly as your Badassity increases.

Another area of the book that made my Mustache bristle just slightly was the talk of “extreme” early retirement. To paraphrase “Some people choose to retire extremely early, which might require extremely low annual spending such as $24,000 per year. But you can kiss the typical North American lifestyle goodbye if you make this choice”.  If you review my lifestyle from the 2011 spending article, you can see that I have certainly not kissed very many material things goodbye – at least not when measured by factors like the quality and size of my house or the food, health, education, and travel that the MMM family enjoys. Similarly, the idea of retiring while you still have young kids was treated with a certain amount of fear – another taboo I have enjoyed breaking.

On the “Wholeheartedly Agree” side, I enjoyed the second half of the book’s simple presentation of the technical details. How to start by correctly assuming that your retirement spending should have nothing to do with your income level – earning more does not make you need more of anything to be happy. How to calculate investment returns and passive income requirements. How to account for special outlays like university assistance for children or extra travel. He even nicely described one of my own longstanding beliefs, that frugal people are partially immune to inflation because we watch the prices of things as the years pass, and are willing to adjust our lifestyle as needed to avoid getting suckered.  (Oil prices rise faster than food prices? Spend more time cooking and less time traveling! Opposite thing happens? Reverse the strategy!).

He also covers a bit about understanding risk so you don’t get suckered into spending unnecessarily out of fear. “Safety is an expensive illusion” is one sagely quotation in this area.  In many cases when you do the math, it works out much better to take a risk than to pay to protect yourself against the worst possible case of an unlikely event. (Life insurance for a two-earner family strikes me as one perfect example).

I also enjoyed the Canadian-ness of the book. It is refreshing to read a book where the author is not obsessed with health insurance. In Canada, you take care of your own health, and the society takes care of any medical bills. And it’s all done at about half the cost per capita of what we spend here in the US. It’s a wonderful thing and we should copy it to the best of our ability. It is also nice to hear about Canada-specific issues like the TFSA, RRSP, and of course litres, kilometres, and extremely cold winters.

This will surely boost the appeal for Canadian readers, since they are often stuck reading US-based publications (like MMM itself) and then mentally adapting the advice to their own country.

The book is casual and non-scientific, much like the writing you would find in a good blog. Some might even say the presentation is too casual and concise, but this is actually a positive factor in my opinion, because frugality and financial independence are more about attitude than science. In the modern world of publishing, we are all free to write and publish our own books, and the world is a richer place because of it.

So, thanks again Tim for sharing your book with me and with the world. If a Money Mustache Manual ever comes out someday, I’ll be sure to return the favour ;-)

There is a small but growing social movement spreading around the world these days. It started long ago but has been accelerating recently. Although this revolution is tiny when measured as a percentage of the population, it has the Fiery Heart of a Golden Lion and thus it gets an unusual amount of shock, admiration, respect, and jealous complainypants scorn when it comes into contact with the rest of our society.

I’m talking, of course, about the Early Retirement movement – (also known as “financial independence” for those who still subscribe to the old-fashioned definition of “retirement” as never doing any form of paid work again).

It’s difficult to define the starting date of the revolution, because there have probably always been oddballs who realized early on that they could save and invest their money and then live off of the resulting income.  But some mark 1992 as an important date in starting the modern trend, because that is the year that the book Your Money or Your Life came out. That book started spreading the idea that money isn’t just for spending – it is really a form of life energy that you can keep for yourself in order to free up time.

Another big step in the Early Retirement movement was when Jacob Fisker, a fellow thirtysomething retiree, started writing his blog called Early Retirement Extreme back in 2007. By creating his series of highly detailed and analytical articles on the subject, I think Jacob  was giving a clear voice to the financial independence scene that was not readily available on the Internet before that point.

Common financial wisdom, then as well as now, has been something like this:

“Obviously, modern life is very expensive, so you’ll have to spend aaaalmost everything that you earn, no matter how much that might be. With the tiny sliver that you do manage to save, you must invest carefully for 30 years or more, until you get to a ripe old age and you have several million dollars of investments that allow you to continue spending just as much for the rest of your life! Cruise ships, wheelchairs, Cadillacs, and  a $50,000 wedding for each of your twenty-seven grandchildren”.

Jacob’s more logical voice of the Early Retirement movement instead said this:

“Obviously, we are all spending way the fuck more than we need to in the Western World and it is a complete waste of all of our time, energy, happiness, and the entire planet. So let’s analyze our true needs as humans and figure out efficient ways to meet all of those needs. Then we’ll enjoy our new more natural life while continuing to earn a rich-world wage for a few years. Since the earnings will be far more than our spending, we will save and invest it, and the work portion will quickly become optional”

I am of course paraphrasing a little bit, since Jacob doesn’t swear as often as Mr. Money Mustache does, but I added the f-bomb to make sure you knew that the idea was very important.

The interesting thing about the Early Retirement Extreme blog, (know as “ERE” by its followers in The Movement), is that it grew into an entire book by the same name. Mr. Fisker worked on his book on the side even while he continued blogging, collecting and refining his fanciest and most detailed writing on the subject,  eventually publishing it in both paperback and electronic (kindle/pc/smartphone/whatever) forms.

And being both a follower and fellow preacher, Mr. Money Mustache realized it was essential to read this book in detail and report back with this Book Review for you.

If I had to sum up the Early Retirement Extreme book by inventing my own title for it, I would call it, “The entirety of human civilization and thought, expressed as a series of equations and graphs”. It really is that broad-reaching, and densely packed. I had to read it carefully over a period of several weeks, because I found that individual sentences sometimes packed in multiple entire concepts, each one being the type of thing that I’d normally spend a whole Mr. Money Mustache article explaining.

Let’s just take one random passage from early in the book:

The Cost of Specialization

It’s obviously more expensive, both in time and money, for Person A and Person B to gain the required amount of knowledge in both fields X and Y than it is if A were to concentrate on X while B were to concentrate on Y. In this way, both can gain the same depth of knowledge in half of the fields, in half the time. Alternatively, they can get twice as much knowledge in the same field in the same time. It follows that the more a field is further split up into subfields, the less expensive this knowledge gets. These cost savings can be used to reach even deeper levels of competence (see this figure).

That’s a complete explanation for why we all have such boring and unsatisfying jobs and lives in general, yet Fisker just brushes through the material as a quick background on his way to teaching you how to design your wardrobe (“Now create one outfit by drawing lines, for example, “black jeans #1″, “Black socks #1″, “Red sweater”, etc.), and everything else, with scientific precision.

There is also plenty of philosophy. In the Kindle edition of the book, you get to see which passages other readers have highlighted. The most popular one is this:

When you identify with an object, you’re defined by the object, then controlled by it, and ultimately owned by it. If you relate to your possessions, you’re owned by your stuff, and it will make many of your decisions for you. This trap is not only mental, but also physical.

Looking through all of the top highlighted passages, I see that the more emotional ones related to the thought that our society is crazy and we’re defined by pointless materialism are the winners.

And indeed, those things are true even while they are very rarely acknowledged in the news or in conversations held between people who are not part of The Movement.

But my own favorite part of the book was in the description of the “Renaissance Man ideal”. This is the idea that you will have the most enjoyable life, AND the best chance at very early financial independence, by developing a whole load of interesting skills. The amazing part is that these skills don’t just sit independently in your mind like a bunch of unused kitchen appliances in a pantry. They start to reach out and connect to each other in unexpected ways, and start solving all of your problems for you. They build your curiosity and start sucking in still more skills that you can’t help acquiring. And before you know it, you are able to live a superb life on only a tiny fraction of the spending that a normal person does, even while you might end up accidentally earning money even more easily than before you embraced the Renaissance Ideal.

This section of the book put into more advanced words the same thing I have been raving about on this blog, which is the idea that you should insource rather than outsourcing whenever possible. I stumbled only accidentally across this idea when I quit my specialized software job and started the house building company. The range of activities and people I became exposed to, when going from a lonesome cubicle software developer to a small company owner, changed everything. Since then, a chain reaction of useful new experiences continues to this day. And I have at last learned to appreciate the chance to learn new skills instead of dreading them (because these opportunities often come disguised as big hassles that you have to deal with unexpectedly at various points in your life, and you have to saw your way through the big smelly log of Dung to get to the golden nugget of opportunity hidden deep within).

So it’s a valuable book and if you read it carefully, it will definitely teach you new things. I will, however, throw in a critical side to this review. And that is just that the book is a little bit serious for my tastes. The engineer side of me appreciates having things laid out with the utmost in logic, just as I loved pretty much everything that Spock and Data ever said on the Star Trek shows. But the rest of me thinks that we need to have heart-touching personal stories, satire, mocking, and plenty of foul language if we are going to make a point. (On the other hand, it is nice that this particular market niche has been left open for Mr. Money Mustache to fill!)

Therefore, the ideal reader is probably a well-educated person (i.e., not a Dave Ramsey or Mister Money customer). Perhaps a Silicon Valley worker who is currently spending most of his enormous salary and needs to hear a well-thought-out counterargument to his current assumptions about life. Or maybe even some of my own friends and former coworkers.

Regardless of the style, this is a book like no other, and that alone may make it worthwhile checking out. And the author is a good guy, making an outsized contribution to the rich world by challenging its very foundation. So he maintains his status as a Grandfather of the Mustachians.

You can pick up electronic or paper versions of the book at Amazon.com if you want to dig deeper into the Early Retirement movement, even while you support a valuable piece of work.

Part of my duty to you as Mr. Money Mustache is to research the entire field of personal finance and investing, and report back to you with any significant findings. We need to know if there are any competing ideas, bloggers, or book authors that have something valuable to offer us. We also need to know when there are silly and Anti-Mustachian ideas in circulation that need to be mocked.

So today I must make a little confession to you. Ever since I wrote the Frugality as a Muscle article back in June, I have had a secret obsession with Ramit Sethi. I think I really like the guy, based on his writing style and the fact that he makes everything exciting with his habit of thinking big. He’s also quite hilarious, in that “witty and tenacious Indian guy who pokes fun at the tenacious nature of Indian people” way. For example, one of his primary pieces of advice for tricky situations is “Negotiate like an Indian”. Another recommendation is that during a conversation with a friend in a coffee shop, you should turn and throw your muffin across the room so it smashes into pieces against the wall, then turn back to them with wide eyes and yell, “DO YOU DOLLAR COST AVERAGE!?!?!”.

I feel right at home with this vibe, because many of my university friends and engineering coworkers had moved here from India and they had the same energy. And Mrs. Money Mustache herself is 50% derived from an Indian background, and thus even my son has scored a 25% share. Meaning we all get a refresher course in the whole Devoted Immigrant Entrepreneur culture whenever we visit her folks back in Canada.

Despite the many positive things I have to say about the guy, if Ramit Sethi and Mr. Money Mustache ever meet in person I fear a deep crack will form in the dry earth beneath our feet and a great chasm will open up, leaving Ramit tottering dangerously on one side while I stand solidly on the other. This is because of our deep philosophical divisions on the role of frugality and efficient living in a rich person’s life.

To resolve all of my waffling between admiration and scorn (and perhaps yours as well), I decided to actually take the time to read his entire book, called “I Will Teach You to Be Rich”. I wanted to see if he could convince me to change my opinion, if I spent ten hours poring over his masterpiece. So let’s see what he had to say.

What it boils down to seems to be,

• Get out of Debt
• Set up automatic payroll deductions and bank account transfers so that you end up saving some of your earnings (including investing in index funds)
• Get in the habit of actually phoning your service companies (phone, insurance, credit card, cable) to ask them for better service and interest rates
• Get better negotiating and job-hunting skills so you can score better jobs and positions in your jobs

Doing useful things like these is called “Focus on the Big Wins”, and his enticement is that if you do these things, you can afford to spend the rest of your money on the “things you love”, guilt-free.

It all sounds sensible, and I believe Mr. Sethi deliberately made it a minimalist plan because his target audience is partly fresh-out-of-college kids with credit card debt and a Spring Break/Daddy’s Credit Card/Bikinis/Jeep-Wrangler-With-an-Automatic-Transmission-Cruising-the-Strip-on-South-Padre-Island  level of financial sophistication. He points out that since most people do absolutely nothing with their finances, and end up flushed down a toilet of debt, then by just learning these basics, you’ll be better off than 90% of the population.

In many situations, I’d be happy to be in the top 10%. But when it comes to financial skills and early retirement, we need to move that decimal point over a few places to the left. Self-made financial independence at a young age is not difficult in this country… but yet I’ve noticed it is incredibly rare. That’s why you’re reading Mr. Money Mustache, right?

If I had kept my job and started a blog about how I was busily spending all of my nice office worker salary, nobody would want to read about it. But since I’m the one freaky guy who DIDN’T buy quite as many cars and televisions as everyone else, then it’s a more interesting story. “Hey.. wait a minute.. you’re saying WHAT happens if I don’t spend all my money? I get to quit working and do whatever I want? Well shit, why didn’t anyone tell me that before!?!”

But in this book, you won’t find that option presented. Check out, for example the rough guide of how much of your money should automatically go to various places:

• Fixed Costs (rent, food, “car payments”, internet, phone, etc): 50-60%
• Investments (savings): 10%
• Savings for additional special spending (vacations, wedding, downpayment on house): 5-10%
• Guilt-free spending on the things you love: 20-35%

Again I can see what he’s getting at – saving 10% is better than what most people do – but by planting the idea that you spend 90% of what you earn, and only save 10%, he’s automatically setting someone up for about a 50-year working career. Even if he moved another 10% from the other categories over to “Investing” to yield a 20% savings rate, you would have cut the career from 50 years down to 36.

Young minds are impressionable. You can plant the idea of Lifelong Firehose Spending, or a Big Money Mustache, and either one will take hold. I’ve heard from 18 and 19-year-olds that have just become excited about saving and investing instead of borrowing for that first 1.9% interest pickup truck they were previously interested in, and it warms my heart.

Just a few more quotes and facts from the book that illustrate our differences:

• “In investing, all we need to know is a few smart things to invest in, then we need to go away and let our money grow for thirty years”
• Even after becoming a personal finance blogger, he bought himself a new Honda Accord on credit with a 4.9% dealer loan
• A story is told about a friend with $3000 in credit card debt, who spends $650 per month going out to restaurants. The advice was to call the credit card company to drop the interest rate on the balance from 18% to 15% so that the balance could be paid off in 18 instead of 22 years
• He points out that weddings cost an average of $28,000. Then he provides a table of how to save for a wedding of this cost ($333 per month for 7 years starting at age 21).

I understand that the psychology behind some of the weaker ideas is, “People are just weak-minded flabby zombies and you can’t expect them to exercise self control. The best you can do is to get them to make tiny, automatic changes to their lives. Baby Steps”.

But I also understand there is some value to providing a good role model. Instead of telling people a few small tips, why not provide a complete role model that completely shocks people out of complacency, like the idea that you can become FREE 30-50 years earlier if you set yourself free right now from the idea that spending is a source of happiness?

“Spend on the things you love” sounds like a nice soul-satisfying message, unless you pause for a while and think, “Wait a minute – what if I don’t love THINGS? What if I’d rather Spend time on the things I love, rather than spending large sums of money on them? What if my spending level and happiness are actually completely unrelated?”

So the personal finance part of the book is clearly Anti-Mustachian, just as I expected. At best, it should be called “I Will Teach You to Stay Out Of Trouble”.  But let’s move on to the last third of the book – what I consider the good part.

Ramit is a super-hard-working entrepreneur. He comes up with neat ideas, plans and develops the shit out of them, then finds ways to package them up nice and clean and simple and get people excited about them. He demonstrated this skill first by applying for and winning $200,000 of obscure college scholarships to allow himself to go to Stanford University for free, then by starting his now-famous blog about six years ago, then writing a book that he pushed into massive popularity, not to mention making all sorts of entertaining YouTube videos and television appearances on big nationwide shows. Every time I look at his site, there is something else new that he’s up to.

In the book, he shares some tips on how to apply the same attitude towards getting a job and negotiating a salary. There’s a nice example about how one of his friends did really extensive background research on a company before going in for her first interview for a marketing position. She also had prepared three fancy campaign ideas and even practiced the presentation and the speeches with him before going to the interview. Because she did so much more than the other candidates, she blew them away and got the job and a huge raise. But the actual work involved was only about 30 hours – for a $30,000 raise. His quote on this type of activity is very wise: “It’s the behind-the-scenes work that really makes you rich”. It might be grueling and not very fun, but taking the time to truly impress important people with more influence than yourself, and then get up in their face so they can give you a helping hand upwards, really is the highest-paid work a corporate worker can do on an hourly basis.

It’s just a matter of what you do AFTER that, that makes all the difference. By working hard and working smart, you can earn an ever-higher income. But a high level of income doesn’t make you rich. A high level of investments, which work for you even when you are sleeping, and compound like a snowball on a steep hill, is what makes you rich.  Investments are equal to earning minus spending. If your spending goes up with your income, you don’t get to retire any sooner.

So I’m sticking to my guns: work hard, save harder, become financially independent, THEN start doing the work you love for the rest of your life, without such a strong burden of materialism distracting you. You’ll have the freedom to pursue your passion, and income will just be an interesting side-effect rather than a constant requirement.

Is the book still worth reading? Yes – especially if you are a financial beginner, and especially since books are free to those following the Mustachian way of using the library. I’d just suggest reading it with a side dish of triple M.

And even after all of this, I still secretly want to go eat chicken wings and drink beer with Ramit in San Francisco someday.

A few weeks ago, I got a really interesting email from a guy in Norway that said something like, “Hey Mr. MM.. What you are preaching is Pure Stoicism, with a great twist and perception on today’s world … I love it!!” *

“Stoicism?” I asked, “You mean like the Stoics in Shakespearean plays that show no emotion of any sort? That doesn’t sound quite right to me.

But it turns out I had fallen into a common misconception. The Clever Norwegian pointed me to a book on the topic, which I immediately checked out of the library and read completely. It was called “A Guide to the Good Life, The Ancient Art of Stoic Joy”.

From reading the book, I learned that Stoicism was actually a shockingly advanced old philosophy that found many followers in ancient Rome. Although it has fallen widely out of favor in modern life, people in today’s society would probably identify the central ideas as “Hardcore Mustachianism”.

Stoicism, in short, is a series of mental techniques and ways of life that allow you to decrease and then virtually eliminate all negative emotions such as anger, fear, anxiety, and dissatisfaction, while simultaneously building up a tide of pure Joy inside you that eventually starts to make you jump around and boogie at unexpected moments, and occasionally shout out “AHH YEAH!!” as discreetly as possible to yourself when the Joy overflows.

Sounds pretty good, doesn’t it? But over the past few years, this is exactly the transformation that has been happening to me. As I learned from the book, every good Stoic is a work in progress, and I still have much to learn and I’m not free from all negative emotions. But compared to a normal person, things are getting pretty unusually joyful up in here.

So let’s see what it’s all about.

The core of the philosophy seems to be this: To have a good and meaningful life, you need to overcome your insatiability. Most people, at best, spend their lives in a long pursuit of happiness. So today’s successful person writes out a list of desires, then starts chasing them down and satisfying the desires. The problem is that each desire, when satisfied, tends to be replaced by a new desire. So the person continues to chase. Yet after a lifetime of pursuit, the person ends up no more satisfied than he was at the beginning. Thus, he may end up wasting his life.

The solution, the Stoics realized, is to learn to want the things you already have, rather than wanting other things. The most interesting technique that will help you achieve this is Negative Visualization.

For example, suppose that you currently have a good working set of eyes. Imagine carefully what it would be like to live your life as a blind person. You would have to work very hard to rearrange your life to remain functional — learn braille, take special precautions when walking around town and when cooking eggs at home, etc. — but in the end, you could surely survive and even become happy again if you were blind. But now open your eyes. SURPRISE!! YOU HAVE THIS BONUS OF SIGHT!!!. Wow, you were already doing just fine in your blind life, but now you have working eyes too? What an incredible life – you are truly blessed with more than you even need.

It turns out that if you practice negative visualization on a regular basis, you learn to both appreciate your current life much more, and to be mentally prepared in the event of any changes in your life as well – loss of health, fortune, a loved one, etc. You have replaced negative emotions with satisfaction and even joy.

The next great trick is the one that allows you to eliminate anxiety about the present and the future. That can be done by separating your worries into things you can control, and things you can’t. Some people worry endlessly about politics and world events – so much that it affects their ability to lead a happy life, even when in reality, world politics barely even affect their lives here in the cushioned and prosperous rich world! The Stoic solution to this is to realize that politics and the actions of other countries are completely outside of your circle of influence – so you can breathe easily and completely drop all worry about them. There is a smaller subset of these events that you CAN influence – who you vote for, and possibly where you donate your money or time. To eliminate the rest of your worry, make the votes and take the local actions, and then you can be 100% worry free.

Similarly, instead of worrying about your health as many people do, you simply work to the best of your ability to optimize the body you’ve been given, and the matter is completely closed – you can confidently move on!

As an unexpected bonus, we now know that it is the act of worrying itself that causes many of a modern person’s mental and physical problems, so by eliminating worry AND taking action, you are providing yourself with a double boost.

Moving from the mental to the physical, Stoics actually enjoy experimenting with Voluntary Discomfort. As a contemporary Stoic, you might make a point of seeing how long you can leave the air conditioning off on a summer day, or try hiking in bare feet instead of shoes occasionally to feel the land and force your feet to adapt to tougher conditions than a moisture-wicking merino wool hiking sock.  It sounds absurd by modern standards, until you realize that by doing this, you are actually broadening your comfort zone, even while you eliminate your fear of discomfort. Thanks to the practice above, you are now able to enjoy yourself in a much broader range of temperatures, and appreciate the comfort of shoes when you do have them. Meanwhile, a person with the extreme opposite philosophy might become irritated if he ever has to travel in less than a first-class airplane seat or stay in less than a five star hotel or drink sub-$500-per-bottle wine. By experimenting with voluntary discomfort, we  learn to appreciate far more of our life, and can be content with a much simpler and more wholesome one.

“The more pleasures a man captures, the more masters he will have to serve”

Nature Itself told the Stoics what conditions they should learn to appreciate as humans – since they realized we are all in fact an integral part of Nature. In Mustachian terminology, all of these thoughts relating to adapting your comfort level to embrace Nature are collectively referred to as Badassity.

But there’s much more to the philosophy than sitting around trying to be happy with what you’ve got. Stoics believe that the main purpose of our productive energy is to fulfill all of our life’s obligations to our best ability, and to help our fellow humans. So a stoic is actually a hard-working person who enjoys the feeling of hard work – even extremely hard work, as it just falls into the “Voluntary Discomfort/Badassity” category described above.

Rewarding social interactions are a specialty of the Stoic. They believe that humans are social animals at the core, and thus we must exercise this part of our personality to maintain a balanced happiness. But at the same time, it is not rational to have any interest in fame or social status, since these are fleeting indulgences rather than sources of true happiness.

When we encounter insults from other people, we must deal with them with reason rather than anger. Either the insult is true, in which case we should be grateful for the insulter for pointing out this area in which we could improve, or it is false, in which case we should pity the insulter for his lack of accurate perception. Either way, an insult is nothing to get upset about. In the case of a True Fucktard who not only insults us, but manages to commit major injustices to us, the best revenge is simply to live an even better life while refusing to be like that person. I have actually been through a major encounter with one of these TFs, and I while my initial anger took over a year to subside, I am happy to report that I am now exacting my “revenge” more thoroughly each day.

The core of all of these tricks and techniques is to let reason triumph over your reflexive emotions. By understanding human emotions and motivations as thoroughly as possible, Stoics are able to bend our evolutionary programming and use it for the purpose of attaining a ridiculous amount of happiness, rather than its original purpose, which is to survive and reproduce successfully.

For example, our insatiable desire for MORE of everything is not a moral failing on the part of humans. It’s a natural evolutionary program, just as simple as the programming that makes even YOU raise an eyebrow when you see an unusually curvaceous and sexy butt. Ancestors of ours who were insatiable, and always wanted more mates, more children, more food, more social standing, and more security against predators and enemies were quite simply the ones who got to produce the largest number of surviving children. But while insatiability did historically lead to more children, it does not lead to more happiness in a modern life. For happiness, you have to trick yourself into being happy with the things you’ve got.

Last in my own miniature summary of Stoicism, I’d like to point out the difference between Pleasure and Happiness. An alternative philosophy called Hedonism suggests that to have the best life, you simply maximize pleasure. But Stoics reject that, since pleasure is just one dimension of true happiness. Eating cupcakes is pleasurable, as is sex, sleeping in, drinking wine, and watching TV. Higher level pleasures might be had by driving a fancy car for the first few times, receiving compliments from important people or having millions of people ask for your autograph. But each pleasure very rapidly wears out if overused, and the Hedonist is left scrambling desperately higher up the pyramid of earthly pleasures until he runs out of money or health. Meanwhile, by focusing on Happiness – the underlying signal delivered by Pleasure, the Stoic can make it a much more consistent and tranquil companion in his life. In our society as well as those thousands of years ago, the Stoics is truly the one who has Got It Goin’ On.

And these days, he ends up becoming much richer as an almost-trivial side benefit.

* — Thanks Rolf!

I have an irrational love for the subject of Economics.

This strange love lay dormant in me for my whole childhood and high school career, because I incorrectly assumed I was born to be an Engineer – meaning I assumed that taking optional economics classes in high school would be a distraction.

But in university, one of the compulsory classes was Economics 1A06 with an enthusiastically smiley grey-bearded man named Dr. Martin Dooley. He was a fantastic professor, but even better was this magical subject he was teaching me. The study of money! I had no idea you could get actual course credits just for learning about such an interesting topic. It was completely the opposite of calculus, a subject irrelevant to any form of modern work,  which I had to force-feed into my brain even to obtain a reasonable grade.

So for the entire year of Economics 1A6, I attended every lecture and sat in the front row soaking up the beautiful words. Interest Rates. GDP. Investing. Debt. Supply and Demand. What the Good Doctor said each day made such perfect sense to me that I didn’t even need to open the textbook for the entire year. The weekly assignment questions all seemed just entertaining discussions and I answered them all and wished there had been more. The exams felt like board games and eventually, sadly, the course ended and I looked at my 98% score in the course and wished I could do it all over.

I wish I had realized I had this bizarre attraction and aptitude earlier in life, because I could have reached Early Retirement a few years earlier if I had gotten some sort of business/commerce/finance degree and become a Wall Street Weasel instead of plodding along for almost ten years as a tech-company nerd. But oh well, at least Economics is here for me now, providing poorly-written books on incredibly interesting material for my bedtime reading. Without being forced to, I’ve read books on both exotic and boring forms of stock market investing, economic history and futuristic predictions, successful and unsuccessful companies, marketing, investors and inventors, and people and company management.  They have all had great things to say, but almost all of them could benefit from being put on a 75%-off diet to strip out all the fat of flowery, overly-serious language and repetition.  If you’re writing something other than a nice exciting novel, you should really be able to make your point in 200 pages or less, don’t you think*?

But today, I just finished reading a very well-written book on economics. So I thought I’d share it with you. I’ve been hoping to find a compact all-in-one book on the subject for a while, both to polish up on the basics myself, and to have a good one to recommend to other people who want to go from Zero to Hero on the subject with just one book. In only 228 pages!

When you understand the basics of economics, the modern world is entirely less scary to you. In fact, it becomes somewhat predictable and amusing!

Is the current level of unemployment in the US an amazing and unprecedented hardship as the politicians suggest, or is it just a normal part of the always-exciting business cycle? Is the current level of the national deficit and debt a crushing precursor to the end of capitalism and a return to homesteading with a wary eye and a loaded shotgun? Or just a few trillion pounds of extra fat that need to be worked off? Why have interest rates been at record lows for years now, with at least two more years of them promised, when they were up around 20 percent as recently as the 1980s? Why do the richest people keep getting richer so quickly? Is the Federal Reserve a collection of smart people with an advanced understanding of economic theory and practice, or a bunch of bank-owned bandits that should be fired for corruption?

When you read or watch the news, the politicians on both sides universally vastly misstate even the most basic and non-controversial principles of economics, yet the journalists don’t bother to correct them or point out their errors. I think it’s because the politicians and the reporters don’t understand the subject themselves. With one very notable exception of  the UK magazine called The Economist.

And oh, the Electorate! The poor non-Mustachian folks of our country have some incredible arguments based on little chunks of information they pick up from television shows and political blogs. They argue on talk shows, and they argue in comment threads after each online newspaper article. And they are often arguing two equally wrong sides of a perhaps-irrelevant economic issue!

But YOU, as a future rich person who will be living off of your investments, might find it very reassuring to brush up your own economic understanding if you haven’t already done so.  And the reason I can recommend this particular book is that it reads like a chatty, general-purpose version of The Economist magazine.

Starting with an explanation of the basic (surprisingly) non-capitalist economies that existed in Europe in ancient times, the book explains how the Industrial Revolution really got the ball rolling towards the money system we see today. Then it explains the conflicts between the ways of two of the most famous early economists – Adam Smith (the “Invisible Hand” of the free market) and John Maynard Keynes (who came along later and suggested government actions should be used to balance some of the most extreme effects of capitalism as seen during and after the Great Depression). Then it rushes through progressively more advanced topics until you are side-by-side with the Fed, issuing treasury securities and expanding/contracting the money supply. And beyond to globalization and international trade and currencies (“hey, why IS the US dollar not falling more if we supposedly have such a crushing debt?”, is a question you might try to answer for yourself while reading the book).

The only flaw is that the latest edition of the book available is from 1998. Before the real dot-com boom and bust, or the ensuing recession, or the housing bubble and recent great financial crash. But in a way, that makes the book even more interesting, because the basic principles explained by the book seem even more valid in that they still hold just as true when applied to what happened in these more recent years! In my own mind, economics makes a great deal of sense and is actually quite predictable. It is only the increasingly volatile behavior of the people involved that throw temporary monkey wrenches into the system – as the system grows more complex due to this surprisingly new thing we have called globalization.

Economics is often a politically-charged subject. But this book manages to steer mostly clear of personal opinions and describe both sides of every argument, often presenting controversial aspects as questions rather than statements. The authors admit to having a liberal personal bias, but yet the book reads just like The Economist, which admits to having the opposite bias. I think this is a sign that they are both doing a good job at presenting economics objectively.

The book Economics Explained is by authors Robert Heilbroner and Lester Thurow.

* The Little Book that Beats the Market by Joel Greenblatt is a nice exception to this rule.

Mrs. Money Mustache forwarded to me an interesting video clip on YouTube with this wise old guy dishing out some very humble and sensible lessons for living a meaningful life. As I watched, I came to realize the guy talking was John Bogle, the founder of the Vanguard Group, a place that has been leading the world in high-quality mutual funds since 1976 (and taking care of my own investments for about a third of that time!)

In the video, John was discussing his new book, which is called “Enough.” The founding premise of this book was an actual conversation that occurred many years ago. Two famous authors, Kurt Vonnegut and Joseph Heller are talking at a party hosted by a billionaire hedge fund manager. Kurt says to Joseph, “You know, this billionaire makes more money in one day than you made in your whole lifetime from your novel Catch-22“. Joe responds, “Yes, but I have something he will never have… enough.”

That sounded like an interesting idea for a book, coming from a lifetime CEO of a company that manages well over a trillion dollars of the world’s dough invested in the stock market. So I checked it out of the library.

As I read the book, I learned the whole history of John C. Bogle, and I came to appreciate why he has a worldwide following of dedicated fans. He’s one of those rare low-key rich people that deliberately collects and spends only a tiny fraction of the earnings of most in his position, and puts most of his efforts into encouraging better results, through investment, for Vanguard’s customers, its employees, and for society as a whole.

Despite the fact that this guy knows the financial system better than almost anyone, he openly admits that “rampant greed threatens to overwhelm our financial system – greed which runs deeper than money. Not knowing what enough is subverts our professional values. It makes salespeople of those who should be fiduciaries and turns a system built on trust into one built on counting”.

The concept of Enough rings true to even little old Mr. Money Mustache. I can see that at a certain point of wealth, it becomes increasingly foolish to earn and spend any more on yourself. If you pay close attention, you will find you have Enough much earlier than you thought was possible. After this, you’re much better off turning your efforts to something more creative and generous. When people ignore this advice in massive numbers, they do it at the peril of themselves and their society.

The introduction is probably the most useful part of the book, followed by the chapters of the titles:
1: Too Much Cost, Not Enough Value.
2: Too Much Speculation, Not Enough Investment.
3: Too Much Complexity, Not Enough Simplicity.
4: Too Much Counting, Not Enough Trust.
5: Too Much Business Conduct, Not Enough Professional Conduct.
6: Too Much Salesmanship, Not Enough Stewardship.
7: Too Much Management, Not Enough Leadership.
8: Too Much Focus on Things, Not Enough Focus On Commitment.
9: Too Many Twenty-First-Century Values, Not Enough Eighteenth Century Values.
10: Too Much “Success”, Not Enough Character.

The most interesting insight to me in the remainder of the book was in Chapter 9 about the 18th century values. Bogle points out the incredible spirit of community-mindedness that was present in the leaders at the time – many of them being the founding fathers of the United States itself. Benjamin Franklin was the ultimate example, spending his life inventing cool things and starting useful groups, and then sharing them with society just for fun.

Franklin believed that “Knowledge is not the personal property of its discoverer, but the common property of all. As we enjoy great advantages from the inventions of others, we should be glad of an opportunity to serve others by any invention of ours, and this we should do freely and generously.”

To this I say, “Fuck Yeah!”. To those who would question the spirit behind Franklin’s words as being too liberal-minded and not capitalist enough, I would say, “Uh-huh, and which of the world’s economic powerhouse countries did YOU help to found recently?”. I think that whether you think you are liberal or conservative, you will still become richer by practicing less greed and thinking of a much larger and longer-term picture. This works on both the individual level and the country-wide level.

Unfortunately for John C. Bogle, despite being a hero to many and a great contributor to society, he is not a particularly concise or exciting writer. So I found myself yawning through about 200 of the 276 pages, even as I sleepily agreed with everything he said.

So if you just want the executive summary, I would say it is this: “Being a rich person doesn’t mean you have to be a big evil douche. But among the rich today, we do have a lot of this unfortunate breed. So we need to reward and encourage the good ones, even while carefully regulating a few walls around the worst offenders – otherwise get yourself ready for a neverending series of 2008-style Great Financial Crashes where great profits are made in the booms, and the governments (i.e. you and I) are forced to foot the bill during the frequent crashes.”

Thanks John C. Bogle for leading a good life and telling it like it is.

It’s the weekend, so that means we get to step back for a little bit of Philosophy instead of hard number-crunching. Today, I’ve prepared a little Story for you.

One dark February night in 1992, the skinny teenaged version of Mr. Money Mustache was sitting alone on the La-Z boy chair in his parents’ living room, staring out the window in a severely depressed funk. I had  just been dumped by my first girlfriend. Lacking in any past experience, I felt it was the end of the world. There was nothing to do besides shed tears of teenage angst to the soundtrack of tragic Pearl Jam songs.

I needed something to take my mind off of the incredible loss. So I started combing my parents’ bookshelf for something to read. Deep in a remote recess of the shelf, behind the dry Art History books and bizarre Jungian psychology tomes, a much smaller and more approachable book materialized.

The title was, “The Magic of Thinking BIG, by David J. Schwartz, Ph.D”.

Looking back almost 20 years later, I feel certain that the book must have been ‘Stashed there by a future me,  just as Biff traveled back in time to give a Sports Almanac to the teenaged version of himself in Back to the Future II, to ensure a drastically more successful life for himself. This tiny and simplistic and charmingly outdated book from the 1950s completely changed my life. And now, Junior Mustaches, I get to share it with you.

You see, with the unexpected growth of this blog’s readership, I’ve started getting quite a few naysayers and anti-mustachian accusations, especially in private messages and other discussion forums. “You’re not really retired!”. “Oh, you must be lying about this or that, because things like that aren’t possible in the USA”. “Oh, good luck having your kids go to college because it’s almost IMPOSSIBLE to get a degree without incurring a lifetime of debt.. and then the degree will already be obsolete and then it will have been a waste anyway!”

Things don’t work like that here in Mr. Money Mustache territory. Here, it’s time for the Pessimists to shut up and learn from the Optimists. And for me, my 20 year history of shockingly self-fulfilling optimism goes back to that initial late night spent reading Dr. Schwartz’s little book.

The book starts off with an intriguing premise: “…The more I observed, the more people I talked with, the deeper I dug, the clearer was the answer. Case history after case history proved that the size of bank accounts, the size of happiness accounts, the size of one’s general satisfaction account is the product of the size of one’s thinking. There is magic in thinking big…. but much of the thinking around us is little, not big. All around you is an environment that is trying to tug you, trying to pull you down Second Class Street… Meanwhile, First Class Avenue, USA is a short and uncrowded street. There are countless vacancies there waiting for people like you who dare to think big.”

As you read through, these wickedly memorable phrases continue in abundance. You’ll find yourself repeating Dr. Schwartz’s classic 1950s one-liners to your unsuccessful friends, only half in jest, as you try to explain your own phenomenal success after the pairing of David J. Schwartz, and his contemporary counterpart Mr. Money Mustache.

In the early chapters, your mind is described as a Thought Factory which employs two Foremen: Mr. Triumph and Mr. Defeat.

If you put Mr. Defeat in charge, he will very patiently have your factory workers present reasons you cannot achieve what you would like to achieve. You’re too old, or busy, or too overweight, or not qualified for the job.

If Mr. Triumph takes the floor, he switches the thought production completely. Now, every goal you set starts with the immediate assumption that it IS possible. Mr. Triumph already knows he will win, his job is simply to lay out the steps required to get to that goal, and to keep you excited about cranking through these steps.

Next is the chapter about Excusitis, the Failure Disease.  The good Doctor describes a series of real-world people he has interviewed, some who suffer from this disease, who immediately start listing excuses in the face of any challenge. “I’m fat because I have a slow metabolism”. “I can’t ride a bike because I’m too busy”. Then he contrasts these folks to a series of Big Thinkers, who never make excuses and accept challenges with curious enthusiasm. As it turns out, the Big Thinkers are always the successful ones with plenty of money and happy, balanced lives, and the Excusitis Sufferers are always the ones with big and compounding problems. Amazing, isn’t it, that these examples were all of people in the 1950s, and yet the same characteristics also define successful and unsuccessful people today?!

You will find the contrast in your own friends amazing, as you are encouraged to use your real life as a Laboratory, doing little thought-related experiments on yourself and studying the behavior of actual successful and unsuccessful people you know. The observations of the book are all spot-on when applied to real people, even from our current vantage point sixty years in the future.

As the book goes on, it gets into deeply practical strategies to be an actual big thinker yourself. Things like monopolizing the Listening, rather than the Speaking, in every conversation. And when meeting with a more senior Executive in your own company, realizing that you are not a subordinate and a boss, but two equally important people sitting down together to solve an important problem. Curing Fear with Action. Absolutely golden stuff, every page of it.

When I re-read the book just this weekend, I realized that Mr. Money Mustache has in fact become exactly like David J. Schwartz. We both start each of our golden lessons with an amusing and/or illuminating anecdote. We both write in short and punchy sentences. And we both believe that the modern world is an Absolutely Excellent place, a dense and flowery jungle completely packed with Mangoes of Opportunity that spray their Juices in our Faces every time we take another muscular step through the foliage.

But we’re not just living in denial. This confident optimism actually opens up gigantic doors for us and creates unimaginable opportunities.  The reason, of course, is not actual magic, but the effect your optimism has on the people around you. People want to hire you, or to help you, or to work for you, because big thinkers are very rare and it’s exciting to be around one. The guaranteed key to a happy (and Rich) life is to have an easy time working with other people. With this confidence, you don’t have to worry about a recession, or a depression, or using gold coins as currency in a post-apocalyptic shanty town, because you’ll always be able to work with other people, build a productive community, and have some good fun with your life. As a side effect, you will accumulate much more money.

Here on this particular blog, we’re applying Big Thinking to become Rich enough to retire drastically sooner than regular people. You will also use your new skills to do better in all other areas of your life, but it’s important to occasionally state the real reason we’re all here right now.

So if YOU are not already a big thinker, it’s time to start training with a visit to your library to find this book. Then maybe I won’t get so many doubters in the comments section*!

*Actually I’m joking about this last part – we still NEED to hear from people of all perspectives to really understand the current state of our society if we want to have any hope of helping people change. It is ironic that I told pessimists to shut up, right in the same article that I suggest that Big Thinkers focus on listening rather than speaking. But you know what I meant, right?

Being a newcomer to the financial guru circle, Mr. Money Mustache decided to check out what his competitors have been saying  throughout historical times to see if they have their stories straight. So he spent a recent weekend listening, in full, to the audio book version of Dave Ramsey’s ultimate career work: the Total Money Makeover*.

As a disclaimer before I launch into the comparisons, Dave Ramsey seems like a good guy whose work has improved the lives of many people.  He’s already rich, but he continues to tour the world and sell motivational products to people and make even more money. Mr. Money Mustache will NEVER appear on infomercials or try to sell you books and CDs.  He’s already retired, and that would be way too much non-fun work. So I wish to arouse no wrath from any of his lawyers.

But fuck, what an annoying audio book that is. I’d never heard of this Dave Ramsey guy before becoming a public figure myself recently. But it turns out he is this Southern Preacher-type guy who has had a talk radio show for many years. He yells a lot when delivering his material, and sprinkles in plenty of biblical quotations and references to the interventions that god(s) make into the financial affairs of deserving subjects.  He likes to repeat a small group of mundane quotes over and over, while chuckling to himself as if they are funny. “Because if you live like no one else today, you’ll get to live like no one else later!”. And he inexplicably repeats the incorrect statement that the stock market averages returns of 12% per year in all of his examples.

So how does the Mr. Money Mustache target audience differ from that of Mr. Ramsey? I’m crediting Junior Mustaches as being a bit more adult than the folks needing the “baby steps” in his plan. You don’t need be slapped around to get your first $1000 available for tiny emergencies like a water heater replacement.

You are already making enough money and paying your bills.. you’ve got some self discipline. You’re just wondering how you can get some actual RICHES going on and have the option of having some more freedom in the not-too-distant future. And perhaps you like the funky rhymes that Mr. Money Mustache writes more than what spills from the keyboards of the other MCs.

What else do we do differently here? Well, I think the way of the ‘stash is different because I’ve never used any kind of budget. Never in my life. It seems inefficient to me, and a possible stumbling point because really, who can remember to do a chore like that every month? I believe budgets have worked for many people. But I have had greater success breaking it down to a much smaller level: the individual transaction. As a Mustachian you will learn to THINK before you make EVERY money transaction and optimize that transaction right at that moment. In short, you just don’t buy ANYTHING until you’ve really thought about it. This eliminates most purchases outright. Then you optimize the remaining purchases so they cost about 75% less than normal whenever possible.

For those wanting to wade in to test the waters and still see immediate benefits, I’ll present ideas for optimizing EACH AREA of life’s spending. And a few for income. You can adopt each one, and win, or ignore it, and not win in that area. Assuming you are currently getting by with very little savings, your savings will increase based on the number of changes you make. If you make them all, you’ll be rich in just a few years, woohoo!

This sounds simplistic, but it works because this country is so rich, and so cheap, that  even on a minimum wage income, you still have enough to buy food and shelter. And as someone smart enough to be reading Mr. Money Mustache right now, you’re probably earning much more than the minimum wage. That allows you to add luxuries like an efficient used car and carefully spaced extras like entertainment and toys, while still keeping MOST of your money for kickass saving and investment.

The other thing that Mr. Money Mustache will not do, is say things like “God brought a Jaguar back into my life” and “God tends to pour blessings on people going the direction he wants them to go”. (These are actual quotes from the Dave Ramsey book, by the way). I think we get enough religion by just listening to the political debates, and when it’s time to get rich, we do it using Solid Mathematics and Occasional Manly Swearing.

That’s why here, we maintain a separation of Church and ‘Stash.

Because we’re using Math, for example, I’m not going to tell you to pay off your smallest debts first as with the Ramsey “debt snowball”. I’m going to tell you to pay off your highest interest debts first. And I’m not going to tell you to cut up your credit cards and that you can’t have a home equity line of credit. I think these things are GREAT – but you will use them with the same discipline as if you were spending crisp cash freshly pulled from the Lips of a Cute Baby Angel. You must love your money and feel great pain every time you lose it by spending instead of keeping it by investing. And because you love it, you must always put it to work in the most efficient way possible.  That is my specialty. Thanks for choosing Mr. Money Mustache.

*Don’t worry, I didn’t actually buy something like that at 30 bucks, are you crazy? Just borrowed it from a friend.

A few years ago, I made my weekly trip into the local library and did a little bit of browsing in the Getting Rich section of the bookshelves (I’m a big fan of the good ol’ 332.024 part of the Dewey Decimal system).

I found an intriguing book called The Millionaire Next Door, The Surprising Secrets of America’s Wealthy, by two Ph.D researchers named Thomas Stanley and William Danko.

Now, regulars on the financial blog circuit will already know all about this book, but for me it was quite a surprise, and it provided a nice mixture of Advanced Mustachian Training as well as affirmation of principles I had suspected were right all along.

Now that a few years have passed and I have become Mr. Money Mustache, I re-read the book to see what benefits I could pass on to you, the readers.

You can soak up the overall message within the first paragraph:
“Twenty years ago we began studying how people became wealthy. Initially, we did it just as you might imagine, by surveying people in so-called upscale neighborhoods across the country. In time, we discovered something odd. Many people who live in expensive homes and drive luxury cars do not actually have much wealth. Then we discovered something even odder: Many people who have a great deal of wealth do not even live in upscale neighborhoods”.

The book goes on through 270 pages of interesting findings by these researchers who actually conducted thousands of surveys of real millionaires around the US. It took them years to do it. The overwhelming results of these surveys show that these people are not Velvet-Bathrobe wearing gentlemen smoking pipes in their West Palm Beach seaside compounds. They are not even Suburban Ultraconsumers with a 4500 square foot McMansion and two Lexus SUVs in the driveway.

95% of the millionaires of this country are, in fact, what you and I would call Senior Mustachians. They all got there by spending way less than they earn, working hard when they had the chance, and looking to all the outside world like they were actually somewhat low-income.

There’s actually one of these guys three doors down from me on my own street. One of those well-trimmed-grey-mustache-and-full-beard types with a bald head, silver glasses, and a big smile. He lives in a much smaller house than me, and we talk over the leaf-raking occasionally. This man does all his own home and car maintenance, and is often happily covered in mud and grease. It was only when we got to talking about the fact that we are both out often in our front yards on weekdays, that he revealed he “mostly lives off of the passive income from his 300-unit apartment building these days”. Mr Money Mustache shut his own mouth at this point, feeling like quite a silly beginner.

There are loads of amusing individual stories in the book, including one about two contrasting Doctor families each making $700k per year. One of them spends $30,000 on clothing alone and is completely broke, the other one merely spends a moderately luxurious amount on everything and is an ultramillionaire. And inspiring stories about firefighters and secretaries who became millionaires while sharing a $50,000 income.

My personal favorite statistic was the one that over 66% of people driving $70,000 luxury cars in this country are actually non-millionaires. Millionaires typically spend $29,000 or less on their cars, representing less than 2% of their net worth. If you’re not a millionaire yet, your spending should be the appropriate ratio lower, probably translating into a $5,000 car or less!

So when I bike down the street on my 3-year-old $299 commuter bike, wearing ripped jeans and a plaid construction shirt, and someone passes me in a brand new BMW 7-series, I actually get to feel pity for that person and their very-likely poor financial situation. That is true joy.

So if you want some backup tracks to go with Mr. Money Mustache’s own rhymes, you might consider checking this book out of the library. The main thing it will do is give you reassurance that I am not actually making this shit up. I’m following a very time-honored formula for making you rich here. The only difference is I’m trying to make things a little more concrete, telling you EXACTLY how you can cut your spending to a level that allows riches, using real numbers instead of sissy guidelines, and weeding out any hidden losses of your precious employees. That way it will happen automatically, and you can increase your odds dramatically above the default 3.5% chance a person has of becoming a millionaire.

Ready to go further next week? OK, see you then.