Mr. Money Mustache » Case Studies Early Retirement through Badassity Thu, 30 Oct 2014 01:39:55 +0000 en-US hourly 1 Reader Case Study: Hair on Fire! Tue, 03 Dec 2013 18:07:40 +0000 fireToday we bring back the ever-popular reader case study series with an interesting twist.

First of all, our subject is a new reader, with sizable financial baggage from earlier decades, but plenty of potential for improvement. Equally notable is the fact that I have enlisted some outside help for the research and analysis.

During a recent trip, I ran into another blogger named Jacob Wade who, quite amazingly, actually likes  budgets. In fact, he feels so strongly about it that he named his financial blog We got to talking, and he enthused about how much he likes analyzing and solving detailed financial problems for other people.

“Oh boy, do I have a job for you”, I said. “I get emails from people with detailed financial problems every day, and although I still read every one, it pains me not to have time to respond to many of them.

Could Jacob’s enthusiasm be used to all of our advantage? I sent him a sample case study to test out his chops. I was pleasantly stunned by the results – he did a great job, and offers advice that even I would consider hard-hitting. Let’s dig into our dear reader’s story, then you’ll see the analysis with some joint recommendations by Jacob and myself.

[contents edited for length]

Dear Mr. Money Mustache,

I’m a recent reader of your blog, courtesy of your interview with Jesse at You Need A Budget, which is the budgeting software I’ve been using. I know that you’re all about retiring early, but I’m wondering what advice you’ve got for someone who wonders if they’re ever going to be able to retire at all!  Much of what you recommend we can still put into place, I know, and we are in the process, but I am unsure if our advanced age changes any of those tactics and strategies.

I’m not going to bother to tell you all the mistakes we’ve made in 27+ years of marriage and raising five kids.  I’m sure you know the drill, since we lived the basic “American Dream.”  We are now 53 years old. My question now is “What’s the best we can do at this point?”

This is where we are:

  • We have a home with a mortgage/equity loan that’s about $20,000 less than the list value of the house.
  • Our credit scores are low, partly due to not having any credit cards for the last ten years to show a history, and partly due to having late payments due to temporary unemployment, among other things.
  • We are the “OMG your hair is on fire” commuters; 45 minute commute for me, 55 for husband, we live in the middle of nowhere, and real estate in our area is not selling.
  • 4 of 5 of our kids are still in college, two live with us and commute, the (recent) graduate lives with us and has an entry-level job since he can’t find work with his degree.  Our commuters travel by bus 30 minutes to the WEST of us to go to school, we travel EAST to go to our jobs. Our employed graduate also travels west to his job, in the same town where the other two go to college. This makes moving a little bit more complicated.
  • Retirement: We both qualify for Social Security; however, I have met only the minimum number of quarters since I took 17 years off to home school our five kids, and my estimated benefit at age 67 is $524 a month. I have now been teaching at a charter school since 2006, and contribute to Massachusetts Teachers’ Retirement. I would need to work and contribute to that fund until the spring of 2026 to be fully vested.
  • My husband’s estimated Social Security benefit at age 67 is about $2000 a month. He has $20,000 in a 401K with his current employer, and two smaller accounts with former employers, one with a balance of about $4000, and one with roughly $500. I contributed briefly at work to a TIAA-CREF fund, and the balance is about $1000.
  • I have a newly minted Master’s Degree, which I was required to get in order to keep my teaching license, leaving me with loans of about 22,000.
  • Commuter son and husband have a Nissan Sentra and a Toyota Yaris, both paid for.  I am driving our 2005 Dodge Caravan, which is on its last legs at 180K miles with beaucoup mechanical issues.
  • We live in Massachusetts, so are among those few who still use oil for heat and hot water; we have electric appliances.
  • We own term life insurance policies, and have health insurance through my husband’s employer (a health insurance company).
  • We owe back taxes to the IRS and Mass DOR, and have had our paycheck withholdings changed recently to avoid this in the future.
  • Not necessarily in the same vein, but relevant – I am a Yankee who would love to penny-pinch, and my husband is a free spender who loves to buy things on sale and as little “rewards” for himself and others, and chafes at the yoke of a budget.  He is (grudgingly) on board with me now. We rarely disagree about anything except money.  :)

I guess that’s a grim enough picture for now; as you can see, our situation is a giant Charlie Foxtrot*.
I know you get tons of email; perhaps this one will be just different enough to intrigue you – maybe you can Mr. Money Mustache even the old and desperate!

CF in MA

Mr. Money Mustache’s Observations:

This story is a great example of what happens when you live a good, honest life, but just don’t get around to doing the math. Other than the $1200 of oil and gas that goes up in flames each month, the rest of this budget looks fairly moderate for a large household. But there is no way to cheat the numbers. Children cost money to raise, and if you want to raise a large number of them on an average income, something else has to give.

And most people don’t realize that car-commuting (even a 10-minute ride) is spectacularly expensive, so your 45-minute double commute is astonishing. A 2005 vehicle that is “on its last legs?”. I bought my 2005 car four years ago with 57,000 miles and it just cracked 80k this year. It is still brand-new and has many decades of life left! Commuting in a VAN? I use my van when I need to carry home 1200 pounds of steel beams I found on Craigslist for my house rebuilding project – not when I need to transport  one lightweight human across a vast distance!

Finally, while supporting adult children and “treating” oneself are nice options to have, from a financial perspective you don’t actually have these options. This is what has caused the long-in-the-making financial emergency.  The great news is that you can dig out of this hole much more quickly than you sank in.

So let’s move on to Jacob’s analysis:


Home – $235,000
Retirement Fund Savings (401k and MTR) – $45,000
Cars – $7,000

Debts (Balances):

Mortgage – $167,000 at 3.5%
HELOC – $25,000 at 4%
Student Loans – $22,000 at 6.8%
Dell Loan – $2,500 at 16.66%
Personal Loan – $650
Staples CC – $500


To retire ever

Total Income $ 7,200.00 $ 7,200.00
Total Expenses $ 7,161.00 $ 3,504.00
Projected Ending Balance$ 39.00 $ 3,696.00 <-- Much better!
Other$ 110.00$ 110.00
Total Donations$ 110.00$ 110.00
Mortgage $ 1,330.00 $ 1,000.00 The goal is to be able to actually stop working at some point, so aggressive measures need to be taken. I suggest selling the house and moving MUCH closer to work (within 5 miles of both if possible). If possible, find something for $1,000 a month (about $130,000 15-year loan) or less.
Electric$ 200.00$ 100.00You can lower your electric bill if you implement the changes suggested in this MMM article. You stated that you have started hang drying clothes, now it's time to move on and get all CFL's bulbs and watch the A/C.
Oil Heating$ 700.00$ 200.00This bill is KILLING your budget. When you re-locate to a location closer to work, look for a natural gas furnace or another home with low heating costs. Otherwise you will literally waste $86,500 over the next 10 years on this. It's not worth delaying retirement AN ENTIRE YEAR to pay for this inefficient heating method.
Cell Phone Sprint$ 320.00$ -When moving, you are going to need to drop the cell phone family plan. I didn't see a line for reimbursement for this, and you cannot afford an extra $275 a month to pay for your family's cell phone usage. Move everyone to Republic Wireless and only pay for the adult plans.
Cell Phone Republic Wireless$ 23.00$ 46.00Looks like you got started with one line, just double it up here.
Netflix/Hulu/Other$ 40.00$ 40.00MMM: Huh? Netflix is $7.99/month. Between library books, learning new skills, and this, you will have plenty of entertainment.
Car Insurance$ 155.00$ 90.00Shop this around. We pay $78 for liability on our two used cars, there's no reason you need to pay any more than $90 a month for basic coverage. Since you have a used car, all the extra insurance is not necessary to cover scratches and dings and the like. (MMM Note: mine is $30/month for two cars and two drivers)
Internet$ 70.00$ 70.00Also worth shopping around - in your new area the competition might be better.
Land Line$ 35.00$ -Land line is not needed. (unless there's a business need for this)
Garbage$ 20.00$ 20.00
Medical$ 182.00$ 182.00
Student Loan 1$ 293.00$ 293.00We'll address this debt below.
Student Loan 2$ 130.00$ 130.00We'll address this debt below.
Life Insurance$ 91.00$ 91.00
Personal Loan$ 90.00$ 90.00We'll address this debt below.
Dell Loan$ 160.00$ 160.00We'll address this debt below.
IRS and State Taxes$ 700.00$ -You stated in email that this balance is now at $0
Paypal Loan$ 160.00$ -You stated in email that this balance is now at $0
ADT Security$ 50.00$ -Not necessary. Here's a direct quote from MMM: "These are a silly invention – the Timeshare Condos of the suburbs. Drop it, live free, and save $(50)"
Homeowner's Insurance$ 55.00$ 55.00
Total Bills $ 4,804.00 $ 2,567.00
Other Expenses
Food$ 900.00$ 400.00Check out MMM's advice here. You can reduce this bill to $400 a month easily and eat VERY well with a though-out meal plan and some smart shopping.
Gas$ 575.00$ 150.00Since we have cut your commute down to only a few miles, your gas bill should be VERY low ($50 a month or less). I padded it a bit to drive out and visit family.

MMM Note - and remember that "Gas" should never be used as an approximation of the true cost of commuting. You need to triple this number at least, just to account for the direct car costs. Adding in life costs, the bill is much higher again.
Eating Out$ 15.00$ -While you're in debt, this is a luxury that cannot be afforded. Take care of the DEBT EMERGENCY first, and then add this back in.
Spending Cash$ 25.00$ -Same as eating out.
Personal Items$ 85.00$ 85.00
Household Items$ 62.00$ 62.00
Clothing$ 60.00$ 15.00You don't need $60 of new clothing a month. $15 a month should take care of any clothing necessities with thrift shops, consignment stores and garage sales. Also leverage family and friends to organize a clothing swap (read: FREE CLOTHES) if additional garb is required.
Misc$ 40.00$ 40.00
Car Maintenance$ 50.00$ 50.00
Total Other Expenses $ 1,812.00 $ 802.00
Savings Buckets
Christmas$ 25.00$ 25.00
Emergency Fund$ 410.00$ -This will be addressed below.
Total Savings Buckets$ 435.00$ 25.00
Total Expenses $ 7,161.00 $ 3,504.00

Jacob goes on to write,

Dear CF,
Thank you for exposing your budget to all of us financial voyeurs.

There is a LOT going on here, and a lot to address below. The goal here is to make every hour of work from now until retirement count. So let’s get to it:

Housing: I won’t pull any face punches here. You need to move. Your heating bill and commute are absolutely killing your financial situation, and you will NOT retire anytime soon if you stay there. There is $980 potential savings PER MONTH or more in this transition (including commute and utilities), as well as cutting your commute time down to almost nothing, saving time and stress. This move is to help you take a sharp exit off the highway of Never Retiring Wastefulness and allow you to not work until you die.

In emails, you stated the house needs about $8,000 of updates to rent or sell. Since you have about $2,000 of other monthly savings lined up in this budget, you should be able to have this taken care of within four months, and be moved out in six or seven months. Savings on mortgage is at least $330 per month.

You also stated needing a replacement car soon. Please read this MMM post and PAY CASH for your next used-car purchase.

Food: If you are feeding a flock of adult children, they are going to have to chip in. There is no reason you two people can’t eat VERY well on $400 per month, and with proper planning, that could be $300. So many people cannot save enough to retire but are actually just eating their retirement meal by meal. For reference, the extra $500 a month spent on food would cost you over $86,000 over the next 10 years, and cause you to work an additional year for that inefficiency. Nothing tastes THAT good. Savings of at least $500 a month.

Debt: This debt is to be treated as a radioactive plutonium. You must neutralize it ASAP, and this will be your first priority. Here’s how I suggest you tackle it with your extra $3,700 a month.

Dell Loan – $2,500 at 16.66% (gone in month 1)
Personal Loan – $650 (gone in month 1)
Staples CC – $500 (gone in month 1)
Student Loans – $22,000 at 6.8% (gone in month 7)

With all the expenses saved from the above changes, you can kill this debt COMPLETELY in 7 months. The first 3 debts will be gone in the first month! Now you have another $673 a month to invest.

Investments: Once your consumer debt is gone, you will have about $4,400 a month to invest in index funds to get you to retirement. Investing this at 7% for the next 12 years with your starting balance of $45,000 puts you at about $1,100,000 at age 66.

Your annual expenses with the above budget are about $42,000 per year, and using the rule of 4%, this money would provide you with $44,000 annually. You can retire!

This quick plan comes with a major safety margin:

  • the $2,000 per month of Social Security your husband can begin drawing at age 67
  • whatever you get from the teacher’s Retirement Fund
  • the fact that your new mortgage will be paid off in 15 years, dropping the future budget

Conclusion: Yes, this is a lot of change. No, moving won’t be easy, and figuring out the details of your kids housing and all that is going to be a challenge. But the status quo is what got you here, and changing the flow of money is what will get you out.

Comments: What would YOU do in CF’s position? Can she recover and earn a solid retirement in a timely manner?


MMM Note: Thanks again to my new friend Jacob for all of the help on this one, and you may see a few more case studies around here if we’re lucky.


*I think this is a witty polite way of saying “CF”, which of course means “Clusterfuck”. I thought this was a skilled use of swearwords, and it is one of the reasons I decided to take this case study. 

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Reader Case Study: Should This Man Claim his Freedom? Mon, 04 Nov 2013 19:53:56 +0000 "Badass Mustachian Eagle of Freedom" by M. Mustache. 2013, 8.5"x11", Kid paint on scrap paper

“Badass Mustachian Eagle of Freedom” by M. Mustache. 2013, 8.5″x11″, Kid paint on scrap paper

I’ve had the chance to go to lunch with quite a few visiting Mustachians of late, and a theme has been popping up in the conversations. Like my own family, many of these readers have been leading slightly-less-ridiculous-than-average lives for years, which has led to a considerable surplus of money.

But amassing money is just one side of the coin. The other is knowing what to do with it: deciding upon your own definition of freedom, figuring out when you have saved enough to accomplish it, and gaining the confidence to make the jump when you get there.

So when this incredible comment showed up on the post about The Rules, I knew I had to get in touch with the guy who wrote it. His general theme is not uncommon among readers of this blog, and if we study the theme, we may all be able to learn a thing or two.

(our conversation has been edited for length)

Dear MMM,

Love the blog. Actually, I read it obsessively, and have even begun preaching the precepts to all (including friends and family – I’m trying to convert the kids into Mustachians before it’s too late).

Anyway, here is my problem: I am a BIG FAT GUTLESS PHONY! That’s right. As far as I’m concerned I can afford to retire now at 54 years of age. Our net worth (the wife and I) incuding the house, is $4.25 million. However, any time I suggest to the wife that I am packing it in (I hate the meaninglessness, imposterism, drudgery, uncertainty, depression inducing self-esteem sucking, soul wrenching boredom, of my useless pseudo-middle-management-faking-it-all-day-$100K a year plus automobile-desk-job), she disagrees and expresses concerns about our lifestyle and the children.

I tell her it doesn’t have to be that way, and point out the huge wealth of information that you have so concisely articulated in hundreds of articles. But, alas, it does me no good.

I’m just a regular dude who happens to have some very basic Level 3 Mustachian instincts (assuming the levels go from Level 1 at the lowest to Level 15 at the highest) who got lucky with my timing in life. I bought a house 30 years ago before prices were insane, moved once, 25 years ago, paid off the mortgage aggressively a long time ago, and enjoyed the quadrupling of its value.

Similarly, I was as frugal as I could be, earning a basic salary through employment over the last 30 years, with a semi-spendthrift wife and 3 kids with quasi-rich friends, while investing in basic stuff .

So now that I’m TIRED, FED UP, DEPRESSED, and I JUST WANNA QUIT and read books, and fix up my house, and ride my Harley, and exercise, and go skiing, and ride a bike (a real bicycle), and do my photography, and cook, and volunteer, and indulge in a mid-day Bota Box if I get the urge, and stay in California, or Arizona, and shop at Trader Joe’s in the U.S., and beach bum in Florida for a couple of months a year.

Yeah – I know it’s my fault. I SUCK. So, other than just manning up and breaking free, do you have any advice on an alternate way to present the facts to convince her we’ll still be OK, even with keeping the house for now, and investing the $3M for income?
Please. I’m ready for a change. Time to break the rules.

Yin Yang

This comment blew my mind. So many aspects of Mustachianism, so many successes and failures and emotions and common themes, wrapped into a single comment. This is a man of 54 years of age who is ready for a plate of Freedom, but thus far has failed to walk up to the counter and claim it. So I wrote back to him and requested further details. His reply was:

It’s difficult to explain the situation to “non-Mustachians”. Most people I encounter do not hate their jobs (or at least do not ADMIT to it). When I mention “retirement” to anyone, I get looked at as if I had a third eye…. There’s a weird combination of guilt and pressure I feel – from my wife, parents, colleagues, acquaintances, etc. – that somehow has a psychological grip on me, and keeps me “playing the game”. It’s as if I would become a pariah if I stepped off the treadmill. The worst thing I fear is setting a bad example to my children, none of whom have even started to work yet. I don’t want them thinking “If dad can be a bum, why can’t I?”

Financial Figures

Combined Employment Income:
$140,000.00 Gross (pre tax) (My portion is $110K – that will disappear with retirement.)

Monthly Expenses:
Property Tax $670.00
Electricity $400.00
Phone: $30.00
Internet: $125.00
Home Alarm System: $30.00
Home Insurance: $200.00
Car Insurance: $660.00 (4 vehicles)
Motorcycle Insurance: $100.00
Lawn care/Maintenance: $100.00
Life Insurance: $200.00
Disability Insurance: $250.00
Critical Illness Insurance: $225.00
Cable TV: $70
Cell Phones: $160.00 (Wife’s plus 1 kid)
College Tuition and Living Expenses (2 kids): $2500.00
Food: $650.00
Fuel for 4 Cars: $400.00
Vehicle Maintenance: $200.00 (4 vehicles)
Vacations: $1000.00 (3 trips a year plus some long weekends)

Total expenses $8295/month

Home -mortgage free; Estimated market value: $1,000,000.00

Liquid non-tax sheltered investments: $2,350,000.00
Includes an allocation of Stocks, Bonds, Preferred Shares, REITS (real estate investment trusts), ETF’s, Mutual Funds, GIC’s (CD’s), and some Cash.
Income yield across the board on all of this is approximately 5% annually. The market value of the holdings fluctuates depending on the way the market goes, interest rates, and other variables.

Registered (Tax sheltered) Funds (RRSP) (i.e., 401K)
$750,000.00 in ETF’s, Mutual Funds, GIC’s
Mostly growth oriented equity funds, some dividend reinvestment. Mostly long term outlook.

Rental Income Property
Value: $325,000.00
Mortgage: $200,000.00
NET positive monthly cash flow (after all expenses): $450.00 ($5,400/year)
(If I bailed on it now, I could likely add $100,000.00 liquid cash to my portfolio).

I have 3 “adult” children: 26, 25, and 21 – two in university. There is a potential massive expense coming if they pursue law and medical education outside of Canada ($100k for a domestic education, $500k for the US equivalent)

The house will definitely be downsized within 3-5 years, freeing at least $400,000.00 cash for more investments.

I anticipate having these ridiculously high expenses for the next 3-5 years, but would still like to retire in 1 year (at 55).  I would like to hang out in Florida and/or California for at least 2 months a year, and in Colorado (to ski) for at least 6 weeks a year as part of my retirement wish list.

Whoo. While that is a lot of information, and I can hear the WHOOSHing sound of 800,000 boxing gloves stirring up the nation’s wind currents as we all read that astonishing list of expenses, let’s start with an end-run around the whole heap of details:

This guy’s invested savings (taxable plus retirement): $3,100,000
Annual income provided by these savings, using the 4% rule: $124,000
Current (worst-case) annual living expenses: $99,540

See, once you amass a sizeable ‘stash, your money can work harder than you can. And while YinYang’s expenses are massive right now, his great collection of investments is providing passive income and growth that will on average easily outrun his family’s spending even if he never reduces these expenses. Doing the math, the current expenses are only 3.2% of the investments, meaning he has a huge safety margin beyond even that which is built into the 4% rule.

Since the worst case is already good enough, we could close this case study right now and tell our man to retire. Which is exactly what I advised him in my first response to his comment. But since I am Mr. Money Mustache, there is obviously more to be said on those expenses:

Property Tax: This will drop by at least $200/month when you move
Electricity: $400 a month – WTF? Do you live in a one-acre Bouncy Castle that you keep inflated with 1,000 blowdryers? My electric bill is under 25 bucks. You need to get yours down right now my man. Savings: at least $300/month.
Home Alarm System: 
These are a silly invention – the Timeshare Condos of the suburbs. Drop it, live free, and save $30.
Car Insurance and Gas: You are forking over $15,120 per year (and probably over $20,000 after accounting for depreciation), in order to trash your own environment while driving four unnecessary vehicles around in circles. Why are you punishing your children by addicting them to Motorized Thrones when they could obviously ride bikes? Where is your own bike? If the distances involved are too great, you live in the wrong place and need to move. Savings: at least $1,000 per month.
Life, Disability, and Critical Illness Insurance: What are you insuring against? Your savings are already equivalent to several life insurance settlements. Even if you perish before finishing this article, your family is financially set for life. Cancel all three policies immediately and save $675.00 per month.
Cable TV:
Did you throw this in just to enrage Mr. Money Mustache!? Fuck the nonsense of nationally broadcast passive entertainment – as multimillionaires who are raising doctors and lawyers, your family is obviously intelligent enough to find more advanced forms of entertainment than watching TV, for a savings of $70 per month
Cell Phones: $160 is an awful lot of cash for occasional access to radio waves. You might check out this MMM reader’s quick guide to less costly cell plans in Canada. Savings: at least $60.
Vacations and Miscellaneous:
with a tighter budget, I would grill you on these expenses as well. However, given your unstoppable cash surplus, I’ll leave these bits of luxury untouched, so you can be free to attack the other areas.

Investments: Although we won’t get into the details, you should conduct an audit and make sure you aren’t carrying any of the nonsense high-fee mutual funds (expense ratio over 0.5% or preferably 0.25%) in the portfolio. Instead I’d carry passive index funds that track the Canadian TSX index, US total stock index (like Vanguards VTSAX), and international stocks (VGTSX). Large REITs are nice too.

Total monthly savings after application of the MMM Face Punch: $2335. This is a 28% reduction of your expenses, even without touching the core of your lifestyle – the ability to help your kids with their education. Applying the 4% rule in reverse, this spending cut is equivalent to increasing your nest egg by about $700,000. And after downsizing your house, the newly liberated cash will add to that, resulting in a total equivalent wealth boost of $1.1 million.

In a Nutshell: Congratulations. You’re set for life. There is not even the slightest logical jusification for you not to hand in your two-week notice at the end of your workday today. While the agreement of a spouse is important, there is no sense continuing an unsatisfying job when all possible calculations suggest your salary is completely unnecessary. And as the final bit of unnecessary safety margin not mentioned in the box above, your wife is still free to keep her own job.

These objections based on fear are often rooted in a lack of understanding of the true nature of investment returns. Money really does produce money when invested, but this fact is not intuitively obvious if you haven’t soaked up the idea. The solution is then some sort of education – simple investing books, or talking to other early retirees. However, the facts are behind you on this one, so I am optimistic that anyone can learn to let go and let their retirement savings sustain them, given a sufficient cushion.

While there are many good solutions to the problem of a misunderstanding like this one, “Continuing to work an unnecessary job you hate”, is not one of them.

You have many adventures in freedom and years of healthy healing ahead of you. And if you’re so inclined, please keep a journal of your experience so we can take inspiration ourselves.

As for you: If you’re more than ready to pull the plug – go for it, and share your story as well!


Further Reading: an older classic on a similar theme theme: the Quitting Lawyer and the Despondent Millionaire


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Reader Case Study: Pulling a Mustachian 180 Sat, 28 Sep 2013 14:57:08 +0000 ecuatruckThe highest form of payment you get for writing a blog like this is happy stories from readers. Although all this Sensible Living stuff becomes obvious after a while, there are still new people showing up every day with all sorts of monetary problems.  The full-on crazy life with the double-financed-SUV-ultracommuting, insurmountable debt, and deteriorating health due to stress.

Occasionally, someone will receive a few of the face punches here and then flip things around in an instant: immediately shed the whole consumer fur coat, slam on the brakes and crank the wheel and smoke the tires to begin a fishtailing joyride in the opposite direction. A friend of mine coined the term for this: Pulling a Mustachian 180.

Although it comes from the opposite end of the financial spectrum, my favorite recent M180 story from the inbox is this one:

Comments: Hey MMM!
My mom mentioned that she likes calling people “complainy pants” around June 10th or so, and when I laughed and asked where she got the phrase, she e-mailed me a link to your blog. Since then, I devoured every last word on every last page. Yes, that includes the comments, even the hilariously out of place whiny ones.

At the risk of sounding like a hyperbolist, this blog has helped me get a grip on my life before it was too late. At 22 I had piled over $15,000 of debt including a defaulted government loan, an eviction, and about $3,000 of collections and consumer debt. I never had anything to show for it, and still don’t. Nothing insurmountable in the long run, but I was building a habit of being careless and untrustworthy.

I teeter on the brink of homelessness, even today, because I was too stupid to have back up plans and savings. I blew $500 in a day on eating out and pleasure driving, and gave a big hearty Fuck You to my future self.

That’s changed. When it was time to get a car (I know, but my hubby is a disabled vet and really is not capable of biking or walking), I bought a manual hatchback and learned to drive it on the way home. I have begun to track my spending, a concept that was completely foreign to me. I have taken stock of whom I owe what, and am working to pay everything off, highest interest rate first, until it’s all gone. I’m even looking into learning skills at Treehouse so that I can earn additional money while still being at home for my partner. I am finding cheaper, healthier, tastier foods at the grocery store and working my middle finger out like crazy. We’re sleeping on the floor in our cheap apartment until we can find free furniture on Craigslist, and we are ridiculously excited at the idea of being free.

Thank you for giving into the urge to type shit into the computer. Count me and my husband as two Americans saved. We ought to be caught up with the rest of the Mustachians in just a few short years!


So I wrote back with my thanks and surprised congratulations, and asked if our friend could share more, so I could present the story to you. Here are the juicy details.


First, some additional background. As previously mentioned, my husband is a retired veteran. He was awarded a temporary disability rating upon exiting the Army, and is now on a permanent, lower disability rating. This change happened in July and resulted in a $901 drop in pay. Also, around August, my husband’s condition had reached a point that unreliable transportation was no longer acceptable, meaning our options were to risk becoming wheelchair-bound or buy a car at stupid high interest rates to avoid walking, as unmustachian a doctor’s order as possible. Luckily, I had a head start on these disasters; I was already carefully nursing my stubble.

Between January and May 2013, this is my best guess at what our spending looked like. We never kept receipts and often didn’t even look at price tags.

Total Income: $3,130
Rent: $900
Utilities, phone, and internet: $600
Transportation: $100 (bus fare, borrowing cars, paying for late night taxis)
Food: $800
Cigarettes: $200
Impulse Spending: $400
Pets: $150
Household $100 (Cleaning, toiletries, maintenance, cheap fixes)
Banking Fees $100 (ATM, Overdraft)
Total Spending: $3,350

Fast forward through June, July, and August, which were spent reading all of, writing up sample budgets, taking notes where they applied to us, and picking one thing to tackle at a time. In September 2013, this is our budget:

Total Income: $2,229
Rent: $300
Transportation: $320 (insurance, gas, taxes/registration, and maintenance)
Car Payment: $320 ($~4,900 @ 23.99%, hair is on fire emergency.)
Dental Work: $118 ($~2,500, no interest)
Student Loans: $118 ($9,000 @ 4.5%)
Phone: $46 (unlimited, we share a phone.)
Cigarettes: $108 (woohoo, a 46% reduction!)
Food: $250
Pets: $85
Household: $100 (Cleaning, toiletries, DIY toolbox building)
Fun Money: $240 ($120 each, gradually working down to reasonable levels.)
Banking Fees: $75
Total Spending: $1,760 <– Saving $469/mo to throw angrily at debt!

Also, upcoming in October, I am scheduled to start my first month as a part-time nanny. I will be making an extra $300-$550 month, $45 of which will be kept for a Treehouse membership and a gym membership, and the rest will also be thrown angrily at debt.

We are also staying with my mother, she offered for us to stay around the time she found out *I* was going to be on *your freaking blog*. We intend to get out around March 2014.

I am proud of this huge 52% reduction in spending levels, but even more proud of the lifestyle changes that allowed it to happen. For one thing, we’ve started cooking at home with at least partially healthy ingredients with more and more regularity. We’ve also all but entirely cut soda and fast food from our lives. My husband has cut his nicotine addiction nearly in half in only three months. We are no longer fostering stray dogs and are buying better-priced cat supplies.

We have not only cut our discretionary spending, but we have also started buying things we need with it instead of random impulse items. We have started paying off my federal loans, previously left in default. Moving in with my mother is not only saving us nearly what our pay cut cost us, but it also allows me to have a job and easy access to a grocery store with reasonable prices. We are also being forced to think carefully before each purchase due to space constraints and a strong desire to become independent as soon as possible. When things break around the house, I determine which tools are needed, buy them, and add them to my collection of problem solvers.

There are several areas that we have identified for further improvement, including every single section of the budget, but for now our largest priorities are a sucka banking cycle we’ve been in for over a year now (borrow $1500, pay $100 in fees, pay back on pay day, repeat…) and that really hot car loan burning my scalp. Once these two emergencies are settled, we’re prioritizing a small emergency savings, our own dwelling, and our disfigured credit reports/scores. As we continue to learn to not suck, we hope to get our monthly living costs down to around $855 plus mortgage by 2015, and from there who could possibly predict? How’s that for a Mustachian 180?

I would say that’s an amazing Mustachian 180. One of my favorite parts is the very hearty self-mockery that she packs in to every sentence. Because when you think about it, we all really do suck, and thus there is room for easy improvement in all aspects of our lives. Sure, I ride my bike instead of driving, and we’re downsizing our house.. but I still do an awful lot of gas-powered travel and the new house will still be pretty fancy. If finances were a concern, I would be a fool to delude myself into thinking that this was the most efficient life we could happily live. And this is not a depressing thing, it’s an inspiring one.

Are you one of these tire-shredding M180 practitioners? Or more of a steady-handed airline pilot making a few course corrections as part of a long journey?

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Reader Case Study: ‘Stashless in Seattle Tue, 16 Apr 2013 18:17:45 +0000 seattle_stash_storeIt has been a while since we did a real case study, and many readers have been telling me they are itching for the voyeuristic yet enlightening fun of analyzing somebody else’s financial situation.

But I try not to repeat studies that are too similar to previous ones, and we’ve now covered a pretty wide range: minimum wage, new graduates, ambitious young ‘stashers, mega student loaners, middle-income families, high-income spenders, and even reformed spenders.

But today’s study covers a slightly different niche: a young couple of average income, saddled with heavy debts from earlier times and hoping to get ahead while living in an expensive area.

Dear MMM,

I’ll admit it upfront, this is a case study request. My husband and I are 26 and 25, respectively, and in the throes of trying to rearrange the havoc of our financial past into a more promising future. I was just reading this guy’s case study:

And I came to the conclusion that, while his income level does make things interesting, I would like to hear the version for the folks with NO assets, plenty of debt, and mediocre incomes. I.E. most twenty-somethings that I know.

We have read quite a bit of your blog at this point, and had implemented some of your frugality techniques just for survival well before we know about MMM. So we’re at a small loss at where we can improve. Actually, that’s a lie. I know of at least one screaming hole in our finances, which is itemized below.

My husband is makes 27,000 annually and I make $52,000 annually. I would really like to be able to buy a house (I’m good with a fixer-upper in a ‘burgeoning’ urban community) by my 30th birthday. We would also like to be able to have a kid around that time. Retirement would be a nice thing to think about some day.

So here’s the financial picture:

Annual Income: $79,000/yr
Monthly Pay after deductions: $4825

Combined Debt: $54,815 (not including car, which is listed separately below)
Monthly debt payments: $570
(About 90% of that is Student Loans, the rest can be called Bad Decisions)

Car Payment: $293 of remaining $11,784 for our one shared car. We carpool for four miles round trip every day. I work a mile away from my husband, so I walk from his work to mine. Our monthly gas bill is right around $80. Our renters and car insurance is a combined $135

Rent: $1500 – We live in a large apartment and have a dog, which implies a rent premium. We also live in Seattle where there is a shortage of rental units and we’re competing with Software Developers galore for housing. So rent is just darn high around here unless you want to commute.

Groceries CURRENTLY: about $500/month
Eating out CURRENTLY: about $300/month
…we have very high quality fat on our bodies?

Internet: $55/month
Utilities: $90/month
Cell phones (under contract for another 12 months): $135
Bus pass: $30/month
Netflix: $8/month
Treehouse (love it!): $25/month
NPR Membership (the bi-annual guilt trip is too much to handle): $10/month

Our ONE asset is my 401K, which I have a 5% deferral into and 3% employer matching.

Our remaining balance is historically obliterated by stupid spending, leaving us at month-to-month paychecks. But, we only saw the light two weeks ago.

Theoretically, even with the outrageous food bill we should have $723 every month left over. But we never do. I have been debating donating eggs to pay off a nice chunk of our debt so we can start moving forward with our life goals, but I’m curious to hear your thoughts on this picture first.

‘Stashless in Seattle

Dear Stashless,

While you’re not quite on the right track yet, I think you are teetering on the edge of it and will soon click in. You seem to have the desire to change, you’re doing research and starting to track the numbers, and reading Mr. Money Mustache. Even more importantly, you are applying some friendly self-mockery to acknowledge that things can be improved, and I detect no degree at all of complainypants disease. You are ready for the embrace of your fellow Mustachians.

On the bright side, you already have a pretty solid combined income. While either salary alone may sound rather average on its own, when added together you have a healthy number, which is the great financial magic of pairing up (whether it’s in a traditional relationship or taking on roommates for single people).  Also, you live close to work and probably close to many other amenities, which spares you from commuting expenses that can range into the thousands of dollars per month for the long-distance commuters you see streaming into your city on the interstates every morning. So, good job.

What needs fixing? I can see three main things:

1: The Mindset Regarding Debt. In case you hadn’t noticed, you are in an EMERGENCY!! right now. I like to describe financial life as having two stages:

  • Escaping from any cauldron(s) filled with boiling lava and poisonous snakes.
  • After the escape, choose your own pace of savings to continue building wealth until you reach financial independence.

While the second stage will vary depending on your own values (how much you value work vs. free time, your abilities and interests, etc.), the first one should be viewed as non-negotiable. If you have consumer debt (i.e. you borrowed money for anything that depreciates), you have fucked up. A car definitely falls into this category. So it is not Luxury Time, it’s Fix the Mistakes time. Student loans, while more noble in purpose, still need to be paid back before you go out and start hiring people to prepare food and coffee for you, so keep this in mind when making future decisions.

2: The Car: This seems to be a recurring theme in these case studies, but alas, I have to say it again: You can’t afford a car that is so expensive that even the remaining balance is $11,784. Even the Money Mustache family, with no debt and enough savings to last more than a lifetime, has a 2005 car worth less than $7500 – and it is only with a guilty sense of overindulgence that we keep this fancy brand-new thing in the garage, because we don’t really need it.

With your commute being 2 miles – a distance too far to short to consider driving, you can easily sell your car on Craigslist and buy, say, a 1994 Accord wagon (market value about $1700) or similar to accommodate you and the big dog for those rare trips out of town. Savings: About $350/month in payments, insurance, and gas.

 3: The Food: your food spending for two people shall hereby be reduced to a maximum of $300 per month. That’s about my own family’s spending, except scaled down by one person. This will keep you in the mostly-organic-luxury category, complete with grass-fed meats raised by fancy local hippie farmers, wine, beer, and the works, just like we eat here. But you’ll have to learn about Costco, home-cooking, and the concept of cost per calorie. And at least until the state of Emergency is lifted, you won’t be eating out. Because you’re in debt right now, anything you buy is effectively bought on credit. You won’t be borrowing for table service. Savings: $450/month

As for renter’s insurance and cell phones: you might want to at least do a bit of research on this. Does the insurance only protect your belongings in case of weird things like fire and theft? If so, you might want to drop that – your possessions are probably not so valuable that they need to be insured, and non-critical insurance is a bad bet. And ask about the cancellation penalty for your phone service. You could save about $110 per month by switching immediately to $10/month prepaid phone plans like we did, even while keeping our unnecessary fancypants iPhones. If your penalty is a few hundred dollars or less, you get an incredibly quick risk-free payback by making this switch. Potential Savings: $100+ per month.

$100+ per month cell phone bills are wise investments for CEOs who make back the cost with each phone call they make.. NOT for regular people with non-infinite money, and definitely not for people in debt!

As for the $723 per month you wisely say is “obliterated by stupid spending”, that is hard to address in detail other than having you re-read point #1. In a debt emergency, you don’t get to do any optional spending. You’re buying groceries, and any products required to allow you to do your job well. That’s it. No ringtones or iPhones, no purses or video games, and no lattes or salon treatments. There will be plenty of time for those things once you are a millionaire. The upside is that you do still have the right to get yourself a bike, which counts as a high-return investment rather than luxury spending.  Savings: $700+ per month

If you can make these changes, the total improvement to your cashflow will be $1400+ per month, or $16,800 per year. And all of it will get added to your existing $570/month to debt payoff, eliminating all debts within about three years. There’s no need to think about stock investment at this point, as the interest rates on your debt will provide plenty of guaranteed ‘return’, and the constant cashflow drain of debt payments puts a real crimp on your lifestyle options right now. To get the most out of your parenting plans (and avoid the biggest cause of arguments and divorces), you’ll want this stuff long gone with before the first child arrives.

And given Seattle’s high Price:Rent ratio there is no sense saving for a house downpayment while still in debt either – you’d be paying the high interest rate on your debt, while earning under 1% on your checking or savings account. For now, keep all green paper employees working for you, not against you.

At this point, you’ll have a cashflow surplus of $23,640 per year, which is close to 50% of your take-home pay. That puts you on track for financial independence in your late 30s or early 40s, even assuming neither of you ever gets a raise.

But of course, Ramit Sethi would not allow an analysis like this to slip past without pointing out that you can also earn more money. Much more. You live in a city that is sloshing with money and has a permanent shortage of skilled workers, which drives up salaries and demand for all services. Unless you are married to your current occupations, keep working the system and finding ways to earn more.

The benefit of living in a high-cost area is proximity to high-paying jobs. That’s what drove the costs up in the first place. So if you ‘re going to continue living in such an area, at least take advantage of its primary amenity – the money! I like to use $100,000 per person per year as the rule of thumb for when it is worthwhile to focus on earning more. Beyond this level, you reach financial independence so quickly (7 years or less) that there are not many years left to chop, and you can start making other preparations instead.

Building your skills with Treehouse as you are doing is one good technique. Working on resumes, job-switching, and entrepreneurship is another one.

Although the case study presented a few new tweaks, I can definitely hear some familiar ranting in my response. I hope this advice proves enlightening to at least the newer readers in the group, and I wish a Big Stash upon these new Seattle friends.

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Reader Case Study – This Guy Doesn’t Need My Help Sun, 17 Mar 2013 01:48:01 +0000 gone_fishinIt has been a while since we did a reader case study here on Mr. Money Mustache, although that is not for lack of submissions. The email inbox is more vibrant than ever, there are problems to be solved and 108 draft articles waiting to be finished and published. But I’ve got a really fun outdoor project on the go right now which is keeping the blog work a bit sporadic for at least another week or two.

Luckily, people are out there solving their own problems while I’m away, and I thought YOU might get some inspiration from it as well. Check out this recent story sent in by a reader we’ll call JJ:

Title: Big Fan, Free Book


I’ve always considered myself pretty financially savvy (I’m a CPA and CFO of a company), as well as relatively frugal. While all of my buddies were out buying huge homes and new Range Rovers, I was the guy who maxed out his 401K and saved ~30%-50% of his income. Not that it was all that hard – like you I was blessed with a good salary – but still, I thought I was way ahead of the game.

Then I started reading your blog

Fuck, was it motivating! In the last 9 months I have:

  • dropped my annual spending from $100K to $35K (a story in itself)
  • bought two rental houses, rehabbed them myself, paid cash for everything (working on finding #3 now)
  • bumped up my Vanguard investments
  • negotiated an arrangement to work part time from home (I hated going to work everyday). So now I make half the money for about 15 hours of work, with no 30 mile commute each way. Dropping my expenses down to $35K was key to this.
  • And I’m getting tons of offers from my connections to do other work. Like you say, even in (semi) retirement, opportunities to earn income just find you
  • bought personal medical insurance through Blue Cross for $140/mth (thanks for the article about that)
  •  bought a used hybrid bike (Trek 7.2 FX) on Craigslist, started biking regularly to the store, local parks, the lake..
  •  sold a ton of crap on Craigslist
  •  sold car #2 (actually a used Dodge pickup). Why the hell did I have two vehicles? Sheez
  •  sold a vacation property that I never visited (used proceeds to purchase rent house #2). While the vacation property actually appreciated, a huge opportunity cost here
  •  tweaked my credit cards – cancelled any with fees, got a couple with reward points

I will likely quit the job in the next 6-9 months and retire. It took reading your blog to realize, SHIT! If I just stop spending so damn much (even though I can ‘afford’ it), I don’t have to work much longer!! I feel like an idiot.

So thanks for the push to cut back my spending and get off my ass on the rent houses. I’ve been looking at residential investing for seven F’in years, but just never ‘found the time’. They’re now a key part of my early retirement plan. Dallas is a great area to invest. I spent $60K-$65K on the last two houses (3 bed 2 bath), put $20K-$25K in rehab in each one (plus a lot of sweat equity of course), renting them out for $1400-$1500. A no brainer. Let me know if you’d like to see some before and after pics. I’m kinda proud of it:)

Other details: in a relationship, one young child in a household of three in a high-rent area with great schools.

Anyway, I digress. The reason I’m emailing is about a book. I notice you have an MMM Recommendations section, but I don’t see this book on there. Beyond Wealth by Alexander Green, “The Road Map to a Rich Life”**

Dude. This book is awesome.

A few quotes:

“I feel strongly that everyone should strive for some measure of financial freedom… You can’t reach your potential or live life to the fullest if you spend your days swimming in concerns about money” (intro)

On trust – “trust is something to be built up, protected, valued, cherished, and carefully preserved. It is the one thing that changes everything.” (p30)

On greed – “our nation has a happiness fetish…much of economic misery we see today is due to the unbridled pursuit of bigger houses, fancier cars, and more exorbitant trips. The lure of consumer culture and an obsession with more is precisely what keeps so many from contentment” (p31)

On personal freedom – “freedom, after all, is not the absence of responsibility. It is the absence of restraints imposed by others. To be truly free, however, we must generally impose restraints on ourselves. That often means delayed gratification…or settling for less… or simply doing without” (p35)

On keeping up with the Jones “stop regarding life as an ongoing competition for social status. Opt out of the game – even if everyone else seems to be playing it” (p36)

He also covers topics such as negative visualization, de-cluttering your life, the importance of reading, going without TV or listening to the news, having a wealth of interests, music, etc. A very mustachian book in my opinion.

Needless to say, this email made me very happy.

I am highly impressed with JJ, and with the many other people who have made similar changes.

Let’s just revel in those numbers for a minute: he went from spending $100,000 per year, to $35,000, in less than a year. All while increasing his general life satisfaction. And meanwhile, he increased his passive income from rental houses by over $30,000 per year. Even after slicing his employment income in half, he is far wealthier now, since at this end of the spectrum where you already have more than enough, spending is far more important than income. No matter what the “earn MORE so you can spend more!” gurus will try to tell you.

Although I feel the message of this blog is applicable to all income categories, people like JJ are really at the core of my target audience: those who earn a solid amount, but are spending far more than they need to, thus dooming themselves to decades of unnecessary alarm clocks and traffic jams – just because they never took the time to step back and ask “is there another way”?

Thanks for writing in JJ, and may your former coworkers be jealous enough to learn from your example!


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Reader Case Study: Portland Man Thinks He’s Doing Well Fri, 31 Aug 2012 12:00:50 +0000 All right, here’s a neat case study for you.

A guy from Portland emailed me way back in May. He sent in a nice proposal for a case study, but I didn’t get around to writing it up until now.

Now, the time has finally come. And when I got back in touch with him, I found out he had been reading MMM and participating in the Forum section ever since. And during this time, he has both made some positive changes and scored a raise for himself.

So what follows is the original case study, some MMM recommendations, and then an exciting epilogue showing the current scene.

Dear Mr. Money Mustache,

I bet you get a lot of “hey will you do a reader case study” requests, but I have to be honest with you – most of the ones you select suck a little.*

I know you gear it towards upper middle class, so I’ll forgive you for most of them, but at least pick someone hard, rather than the easy pickins of folks with $800/month in car payments.

So, if you want a challenge – do me, do me.

The quick and dirty – Single Income, married with 1 kid (19m0).

Income summary:
$62,500/year salary
Stock dividends from a partnership $2400/year
Income from teaching basic motorcycle riding course on weekends: $2000

Monthly take home from salary – $3,960

Spending – the high points:

Household spending – $726/ month, includes utilities, pets and $260/month in food.
Cars – $300/ month, includes fuel, maintenance and savings for replacement.
Mortgage – $917, we’re on an ARM, so we’re only paying 3.8% right now. We want to refi this into a rental and put 20% down on a bigger place for ourselves in a couple years.
School Load – $120 – interest rate is something like 3%, it costs us less than $10/month, so at this point I’m in no hurry to pay it off.
Allowance – $150 for me, $150 for my Wife, $50 for the baby and $80 for the dog. (The dog allowance will probably go away sometime soon, it’s actually just accumulating in a savings account in case we need it for something.)
Health Care – $525 – my wife and daughter are healthy, and we have a $260/mo policy that covers them, the additional is to cover actual care costs. Typically that’s me, even though my work covers my insurance I have a heart defect and tend to run up co-pays.
Charity – $40. Lip service, it’s mostly even to NPR, but whatever

Total Spending: About $3050/month


Home equity: About $30k on a $175k house
401(k): $42k, I only drop $550/month on that, including employer half matching.
Cash: $22k in the long term savings account that will be used for a DP on a house when it hits the $40-50k mark. (Projected in about 2 years.)
Other misc money accounts: $8-12k.

Okay, here is where you can make fun of us –

Cars – 2004 BMW 325i wagon. I love that car. We paid cash for it in January 2010. For all you bag on BMWs they are really good cars, we’ve got a good independent shop that I trust for service.
1995 Land Rover Discovery – hey, it’s got a fucking 5 speed! Rare. But a shitty car really, we’ll be selling that shortly, but it’s nice to have as we drive over the Cascades to visit my parents about once a month and in the winter a 4wd with good tires is good piece of mind. (And it’ll only sell for a couple thou, I’m not that motivated)
I’ve got a 2002 VFR murdercycle that I ride back and forth to work – 7.5 miles each way, it averages about 35 mpg commuting so I use about a half a gallon of gas a day.

That’s about it.

The problem: I’m not terribly fond of my job (engineer). At this rate I can retire pretty safely in 20 years, but then I’ll be 53 (and with a bad ticker I don’t know what that will mean), the kid will be all growed up.
The real problem is that I didn’t read Early Retirement Extreme until about the same time my daughter was born (and while I was having a particularly hate hate relationship with my job)

Why should you do us? We are right around the median household income. We are slightly better off than our peers (on average), and I think we do a pretty damn fine job of living the Mustachian life, but I don’t consider 53 to be early retirement or financial independence.

So tell me, Master of All Things Mustachian – how can I (significantly) quicken my path to financial independence? Can I proudly grow a mustache, or must I hide my head in shame until I cut the needless spending on… whatever is excessive.

*Excepting the teacher one, that was real good and the minimum wage one.

Mr. Money Mustache Responds:

This is an interesting case because we’re starting with a fairly Mustachian-sounding family, who wants to go further. By his own calculations, he is 20 years from retirement, and would like to pull that in significantly.

If I were to start running this show, my first step would be to clarify the numbers. I can see from the way this reader details his finances, that things are a little bit mishmashed, with some expenses grouped together, a variety of random streams of savings, and no clear picture of what the REAL monthly expenses are. And this is after I spent about 15 minutes hacking up the above list to the items at least slightly more comprehensible.

For example, when calculating your housing expenses, I suggest separating the principal repayment (a form of savings), and interest (a monthly cost which will eventually disappear once you pay off your mortgage), from the things that will be ongoing expenses in retirement (property taxes and utilities).

Similarly, your car expenses should include registration, maintenance, and fuel. But I don’t recommend “savings for replacement” because that category is too vague. If you drive a small enough amount, you may never need to replace your car. And when you do replace it, you could be buying a vehicle priced anywhere from $500 to $20,000 depending on your style. Instead, you might replace “savings for replacement” with a “vehicle wear allowance” of about 15 cents per mile. Once you start thinking of car costs as directly proportional to how much you drive, you’ll start having appropriate motivation to drive less.

So let’s boil it down to what I see:

Assets: $108,000 (including home equity):
Annual Living expenses assuming a paid-off house: About $25,600 ($2133/month).

To escape from your job, you need to do some combination of

  • paying off your house
  • accumulating stocks that can provide some income or managed payout, and
  • acquiring other assets that might pay more in exchange for a bit of work or knowledge.

If we wanted to do it all with stock investments using the 4% rule, you’d want $640k invested plus the $175k of home equity for a total net worth of $815,000. With your current savings rate of around 40% of take-home pay, you’re right that it will take around 20 years to get there, starting from where you’re at. The actual balance of your student loan balance was not listed, but you’d want to add that to the amount as well.

On the other hand, if you could cut your annual expenses by 10k per year, or increase your net income by that much, or do a split of the two, you’d be at a 60% savings rate. Adding in your existing savings, that would slice your time to retirement down to about 11.6 years, according to the nifty Networthify calculator (which was in turn based on the Shockingly Simple Math post, which was in turn inspired by a chart in the Early Retirement Extreme book..)

And it gets better than that: if you plan to keep the motorcycle instructor income and the $2400/year income from the partnership shares, you’ll only need to replace $21,000 of income after retirement.

If you own and manage one or more profitable rental houses after retirement (you’d want to rent your own out for at least $1500/month to make it really worthwhile when you move), this can pull things in even closer.

So that’s the bright side. Now let’s look at improvements that can be made immediately:

Your vehicle fleet is a bit off the hook for a family in your position. You’ve got three machines for two drivers, and none of them are even remotely fuel-efficient for the job they accomplish. I’d suggest selling all of them, and getting a single manual-tranny hatchback – maybe one from the Top 10 Cars For Smart People List. It should get at least 35MPG, making it acceptable for occasional single-driver travel, although in general you’ll be using your bike a lot more from this point onwards. And sorry, you have to sell your motorbike. I had the same bike, and I sold mine, so you can do it too.

This move will not only cut your gas, insurance, and maintenance costs, but it will free up several thousand dollars towards your goals!

Once you’ve done that big step, there is still plenty more fat that can be trimmed. Allowances? Why not try the Spousal Frugality Check method to make them unnecessary. A dog? That’s a pretty expensive optional companion to add to a family that is trying to get ahead financially. Keep this in mind if there’s ever a temptation to add more pets!

However, I can definitely offer my stamp of approval to your housing and food costs. There is not much that can be trimmed from that, which is the main reason you have a fairly good savings rate in the first place.

Summary: Find an extra $10k per year, and you’re good to go. Build up alternate income sources and you’ll really be on fire. You could be free from office work within as little as 5 years!

Epilogue: When I got in touch with Mr. Portland this afternoon, he shared the following update with me:

I did get a raise to $70k after getting an additional license since I wrote you…

Looking at the list, some other things changed too, I guess:
Sold the Land Rover, Started Bicycle Commuting 2x per week, Refinanced the house, Paid off Small Student loan when MOHELA took it over… I didn’t realize we’d done so much recently.

Wow! Congratulations again to this reader. For the most part, he has solved his own problems with the help of other readers of this blog.

Procrastination on my part has paid off. But that only works when you’re already retired.

In your case, perhaps you can see some parallels to your own situation, and a shortcut through the maze to financial freedom?

Have a great weekend.

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Reader Case Study: I’m Rich and Life is Perfect – Now What? Thu, 03 May 2012 12:00:03 +0000 These reader case studies sure are fun. First you get to engage in a little voyeurism as you peek in on another person’s life. Then you can actually compliment them, offer advice, or throw out a few Mustachian Face Punches as you see fit. All to a real person, and all from the comfort of your own office chair.

Because of the popularity of this series, I’ve tried to mix things up and share reader stories with widely varied situations. We’ve had everything from Minimum Wage up to Big Law Firm workers. But in general there has always been some problem that needs to be addressed.  Massive student loans, cars bought on credit, people hoping to save for a house, or people trying to find a way to quit their jobs.

There’s still a category that has remained untouched. But when I think about the essence of Mustachianism, it’s not a rare situation at all. In fact, it’s a situation that is many readers of this blog are already in, and most of the rest will eventually get there.

The situation is of course having a great life with no monetary problems whatsoever! But there’s still an unusual twist in this one, so read on:

Dear MMM,

We are young couple (early thirties) with two children (early teens). Through a combination of hard work and good luck, we are very fortunate to have healthy finances. We paid off our mortgage, student and car loans off as early as we could, and our only debt is a charge card that we pay off every month (in order to earn the rewards points). We have about $1,000,000 in assets: we own our own home, we have savings for college, our retirement is partially funded and we have a substantial buffer for emergencies. We spend a very large amount, but still save between 40% and 60% of income each year.

Me: About $7300/month (after tax, health care and max 401k savings), plus about $300,000/year in bonus (fluctuates depending on business success).
Spouse: $0 paid income, but works a heck of a lot harder than me!

School Fees: $3667/month
Misc.: $3250/month
Travel: $2500/month
Food: $1500/month
Children Activities: $1500/month
Summer Camps: $850/month
Social: $700/month
Car Repairs: $475/month
Legal Fees: $417/month
Charity: $417/month
Car Running Costs: $300/month
Insurances: $300/month
Phone: $270/month
Dog: $200/month
Cable: $200/month
Water: $200/month
Dry Cleaning: $100/month
Power: $100/month
Security: $32/month
Gas: $30/month
Total: $17,000

Items in italics are the emergency budget: $3179/month.
Annually, we earn about $400,000, and spend about $200,000.

As I said, our profile is quite different from the average. Our expenditures are very high, but here are a few caveats:
– About 40% of our expenses (esp. school fees and activities) could be considered “investments” in our children, their education, skills and hobbies. (my wife gave up her job to take care of them full time, I spend 1-3 hours a day with them, they do lots of activities and are fortunate to go to an excellent school), and they are 8-10 years away from being off our payroll.
– We have structured our bills so that we could quickly cut down to about $3200/month if I lost my job – a level that could comfortably be covered by savings and my wife returning to work.
– Our expenditure is funded out of past income: no way would we be spending this much is we had debt.
– We spend primarily on experiences and not on stuff: our house is small (about 1500 sq ft) and our garage is empty except for two cars (average age, 8 years). We are not people who buy lots of expensive toys. Instead, we buy expensive holidays and activities.
– I enjoy my job and my life: I am in no hurry to retire. If I did leave my current employment, it would likely be to do a similar thing for my own company.

So, what do you think? We could obviously spend much less and save much more, but to what end? We have no debt, ample savings and I am not in a hurry to retire. We enjoy the things we spend our money on, especially the children and the travel.

It is a very pleasant dilemma, for sure, and we were wondering what your thoughts would be.

Well, that’s an interesting one.

I can’t really hound this guy for any sense of whining or entitlement, since he has acknowledged that he spends a lot and has a healthy attitude about it. But it’s still a shock to see a number like “Bonus: $300,000″ just slapped onto the end of an already gigantic income statement. So where could he improve?

1: Figure out if You’re Missing Anything

I suppose my first question is “are you SURE you aren’t missing out on anything by living such an expensive lifestyle?”.  I will not question that you are having plenty of fun right now. But with a budget so large that even your “Misc” category is 50% larger than my “Everything” category, it is certain that we are living very different lives.

When you live a life like that, you’re probably spending very little time doing things that are free. But as I’ve contended in the past, many of the best things in life are free. Things based on using your own body to its fullest, and Nature.

I’ve often said that my own family couldn’t imagine spending any more than we already do right now, even if we had way more money. In fact, we do have way more money, and yet we still don’t spend more. So it is possible to lead a happy life on less.

So why might you want to do it? I can think of one big, great reason:

2: Break out of your Comfort Zone at least Once a Week

To live life to its fullest, you need to be challenged. With a job like yours, there is obviously plenty of challenge and satisfaction in work. But with no need to be efficient with money, you might be missing out on golden opportunities to expand your comfort zone. Do you ever travel to non-luxurious areas? Camp? Hike to the top of mountains? Walk through poor areas in third-world countries? Ride your bike in a blizzard or carry your groceries home without a car? Difficult things make life exciting and worthwhile, and with too much money, you might miss out on precious difficulty.

3: Are your Kids Learning about Scarcity, Hard Work, and Struggle?

One of the worst punishments you can give a kid early in life is the reassurance that they will never have to be careful with their money, stay up all night to work hard on projects, or save for their own retirement. I believe that people do best if they are forced to make their own way in life. Sure, you want to offer love and practical and emotional support.. but cash handouts can often backfire.

Also, do your kids know how unusual their situation is? Will growing up rich affect their ability to get along with people who had less wealthy upbringings? Are you dooming them to lives of hanging around with only big spenders, meaning that they’ll end up very poor if they don’t happen to choose careers that also pay $400,000+ per year?

Every young adult should be able to comfortably sleep on somebody’s floor, drive an old manual-transmission car with rust holes to a concert, and eat leftover pizza for breakfast. Without complaining. Be sure you are not creating any new Paris Hiltons.

4: How Long until you’re Covered for Retirement?

To support $200,000 in annual spending at a 4% withdrawal rate, you’d need $5 million in savings. With only $1 million right now, you might need to work for about 15 more years even if you save $200,000 per year until then. As shown in the Shockingly Simple Math post, financial independence depends solely on your savings rate rather than your income, and my own savings rate was higher than yours through my late 20s even though I earned less.

This might not be a concern since you like your job so much. But as a cautious person my natural tendency is still to suggest that you place a higher emphasis on buying your freedom  first. With an asset base of only 5 years of spending, some would say you’re jumping into the high life just a bit too quickly.

If you experiment with living a less costly life, you just might find that you like it more, and you have less of an interest in spending so much on yourself. Since your urge to work and produce will be unaffected, this naturally will increase your interest in spending on others and the betterment of society, the planet, or any other causes that become important to you. Then you open up a whole new area of life satisfaction – that of service to others. I know, it sounds crazy initially, but it has been know to catch on for many ‘a’ rich person.

The advice above should be viewed as just some friendly knuckle rubs rather than any sort of serious punching. I’m glad you’re doing well in life and you’d be fine even without lifestyle advice.

But from what I’ve read, I see an opportunity for greater Badassity in your life by finding a way to bring back at least a teeny bit of good old-fashioned Hardship.




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Reader Case Study: Working a Crappy Job – for Nothing Wed, 04 Apr 2012 12:00:14 +0000 Stephen King

Stephen King can afford to drive a Murano. You cannot.

Dear Mr. M.,

My wife and I have been reading your blog, and slowly feeling some of the free-spending ways of our past slipping away from us. But it’s a slow process, and while my wife takes after her frugal immigrant parents, I am not sure if I am quite ready to step up to the plate for MMM-level badassity. I like my toys and my microbrews!

But we have an incentive to get there: two beautiful little boys, ages 1 and 4. The wife and I both work, and we are able to cover our bills with just a little bit to spare each month.

The issue is that while I love my own job (I’m an elementary school principal), she hates hers (marketing department of a midsized firm). I believe her dislike for the job is well-founded: both her boss and her coworkers all sound like they’re training for the world Douchebag Olympics.

She’d love to stay home with the kids, but when we do the math, it looks like we’d fall short of what we need to live on, if we lost her salary. Maybe you could have a look at the details and see if we’re missing anything:

Me: $80k/year (roughly $5,000/month after taxes)
Wife: $40k/year ($2800/month)
Also, we’re both contributing to employer-assisted 401k plans which leaves our net take-home pay at about $5800

Mortgage Principal+Interest+Property tax+Insurance: $2000
(Mortgage balance $250k at 5%, fairly high taxes, insurance is $70/mo)
Utilities: $150/month
Mobile Phones/Internet/Cable: $200/month
Car payments and insurance, oil changes and other maintenance (2009 Nissan Murano and 2008 Honda Accord, about half paid-off): $900
Gas: $250/month (The school where I work is only 1.5 miles from home (yay!), wife’s job is 25 miles (40 minutes mostly highway) away (boo!))
Child Care: $1500/month (which is actually a great deal in my area for two kids, full-time)
Groceries: $400/month (after reading your latest article, I noticed we eat very similarly to you)
Miscellaneous: clothes, entertainment, other: $300

Total:  $5700

What we’re seeing is that even after subtracting child care, we’d be in the red if my wife quit her job as she wants to do. But our food and entertainment spending is already pretty low. We don’t go shopping. There’s no vacation budget. Where’s the money going?

Principal S.

Dear Principal S,

I’ve got some bad news and some good news. The bad news is, your wife has been slaving away at her awful job at a ridiculously far-away office building, enduring those frequent Showers of Douchery, and missing out on raising her own children, for VIRTUALLY NO PAY! The good news is, she can bring a big cardboard cut-out of a middle finger to work with her TOMORROW, and duct-tape it to her boss’s desk, because she is done with that joint. Here’s why:

First of all, her driving is absolutely ridiculous. At 50 miles per day x 250 workdays each year, she’s spending at least $6250 of her after-tax money per year ($521/month) on the mileage costs alone, budgeting at 50 cents per mile. And that’s on top of the insane 22,500 minutes per year of high-speed life-risking driving time she takes out of her life to get there.

Secondly, your vehicle fleet is off-the-hook. What the hell do you need a 2009 Nissan Murano for!? Bought on CREDIT!!?? If you’re Stephen King, and your $15 million compound in Maine sits atop a 1500 foot cliff with a 45-degree rocky slope of a driveway that is snowbound for four months of the year, THEN maybe that’s a valid vehicle choice. But for the rest of us, the Murano is strictly for comedy relief, as it’s such an impractical vehicle.

So here’s your prescription:

  1. Sell the Murano (book value: about $16,000). Use the surplus cash to pay off the remaining balance on the Accord. If you don’t have enough cash for that, sell the Accord too (value $11,000) it and buy a less costly car like a 2003 Matrix or something else from the MMM Cars for Smart People List. NO CAR LOANS ALLOWED! Monthly Cashflow Improvement: $700
  2. That’s right, now you only have one car. But that’s OK – your days of driving to work are DONE. 1.5 miles? That’s ridiculous! You can walk it, or if you’re in a rush, bike it. No exceptions here. Hey, what do you know, neither of you will be driving to work anymore. Let’s set your gas budget to $50/month just so you have some fuel for random errand running. Additional Savings: $200
  3. No More Childcare! This is the part you already knew about. That $1500 goes straight into your pocket. Additional Savings: $1500
  4. Refinance that mortgage! Damn, brother, what are you doing still paying 5% in this day and age? Don’t you know that three is the new five? You should easily be able to get close to 3.5% with no out-of-pocket costs. Also, if you shop around for homeowners insurance, and get the highest deductible your mortgage company allows, you might save at least $250/year based on the moderate cost of your house.  Additional Savings from mortgage interest reduction and insurance: $250
  5. Drop your cable TV, and get a per-minute cell phone plan, or at least share a family plan. No MMM reader is allowed to pay for cable TV. Life’s too short to spend it absorbing passive and ad-laden entertainment every day. Shop around for internet access if your bill is over $50/month. You may use Netflix, Hulu, or the Amazon pay-per-view movie service. You can probably cut $75 off of your current bills in this area in total. Savings: $75

Total Savings so far: $2725 per month

So, mostly because of her insane cost of commuting, plus the child care, your wife was effectively working incredibly long hours, missing her little boys, and risking death every day, for approximately zero dollars per month.

By cutting that out, and making the other changes relating to your home ownership costs, she can quit immediately with virtually no effect on your family’s cashflow.

Even if some of my suggestions above don’t fly, you can surely find others that are just as valuable. For example, your lower household income might qualify you for more tax deductions after she quits, effectively increasing your own paycheck since some benefits are scaled back as household income increases.

You can comb over your groceries and consider some changes or Costco runs. Look into that $300/month mystery fund. Will it drop now that your wife does not need work clothes or lunches out with coworkers? Your car insurance might drop drastically if you get the same discount as I do from Geico for having low annual mileage and no commutes.

You’ll still be pretty close to the edge financially, but there is room for more improvement over time. During naps or school days, the lady might feel like flexing her marketing muscles in a freelance way from home, bringing in extra income. Your salary might rise as you continue your career in education, or you might be able to build up a side hustle of your own. And depending on your area, you might be able to find a less costly house that still meets your needs. An $80k salary is enough for a great family life in the US and Canada, as long as your housing cost doesn’t eat up too much of it (I’d suggest going for $1500/month or less if possible given your income and family size).

And remember that kids don’t stay young forever. Even if you sacrifice a higher savings rate right now by spending time with them, there will be plenty of time later to crank things up and get Mustachian to get the savings you need for early retirement, helping them with their educations, etc. Once they’re firmly established in grade school, you’ll get your days back, allowing more working time without the need to pay for child care.

In the long run, you’ll do fine – as long as you get out of the consumer borrowing habit and start doing the math before making decisions about where to live and work in the future. Good luck!

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Reader Case Study: Student Loans or Saving for a Home? Wed, 25 Jan 2012 13:00:08 +0000 Hey! It’s time for a Reader Case Study!

I almost forgot about this cherished category of posts, partly because my MMM contact email address stopped forwarding way back on January 10th. “Ahh, this is relaxing”, I thought, “I guess nobody has any questions for me these days!”.

Mrs. Money Mustache laughed at my naivete. I fixed the forwarding system on the web host, and FLOOD, 100 personal questions and comments came in to engulf me. (My apologies, by the way, to everyone who emailed me during the past two weeks and was ignored).

So it’s time to get back to work and answer some questions. Today’s comes from a US couple with young kids, just getting started in their careers.

Hey MMM –

Did it ever occur to you that Mr. Money Mustache and Sherlock Holmes have a lot in common? I just finished the Adventures and Memoirs series and couldn’t help but draw some parallels. Like MMM, Holmes appears to be an early retiree who does the kind of work that interests him most. He doesn’t even have one car, and he pretty much just does whatever the heck he wants to (granted, Holmes is a bachelor), and it happens to reward him financially. But besides that, he’s a detective. And I kind of think of MMM as a debt-fighting detective who goes around sleuthing to stop crimes of financial insanity.

I’m a recovering law student, still looking for a “real” job while working as a law clerk, and she’s a full-time mom who does some contract editing work in the evenings when the kids are sleeping. Until recently, we took in around $2000 a month, and we spent around $2000. Due to some cuts in our spending (like me biking to work, a borrowed bike trailer for other errands, and other applications of fiscally sound principals) we are planning to squirrel away at least $500 a month until I get a job and our income increases dramatically. Also, because we have two kids, we’ll get at least $4000 from Uncle Sam at tax time (Earned Income + Additional Child tax credits).

Unfortunately, we’re in the hole as far as net worth goes. No consumer debt, but we have student loans totaling about $52,000. Ouch. In terms of assets, we have about $6,000 in cash, $14,000 in retirement accounts, two cars* we’re going to sell (worth about $2500 apiece), and our actual family car, a recently purchased ’02 Honda Accord (we paid $4000 cash for it).

The student loans are currently in a “deferred” status, which means that there are no payments actually due. In addition, most of them are not accruing any interest during deferment. There is one exception: one of the loans, worth $4700, is currently accruing interest even as I write this e-mail at a rate of 6.8%. (The other loans, once the deferment period ends, will accrue at rates ranging from 4.75% to 6.8%.)

Our question is whether to pay down the student loans as fast as possible, or try to build up cash as fast as possible so we can be in a better position to buy a house?

Of course we are eager to pay off these debts as soon as possible. Although federal student loans in the U.S. have fairly agreeable terms as loans go (like deferment when you become unemployed, income-sensitive repayment, loan forgiveness in certain careers, etc.) it’s still not something we want to keep around in our lives for too long.

But we’ve also been interested in setting aside some money each month into a “house fund,” with the idea that we will probably be buying a house at some point in our life, and we really want to have at least 20% to put down on it.

Waiting until the student loan is paid off before incurring a mortgage has a sensible ring to it, but at the same time, I’ve been looking into renting vs. buying in some of the areas where I plan to work, and a $200K mortgage at 3% interest would actually come in quite a bit lower in terms of monthly expenses than a comparable rental. Plus there just aren’t many rentals in some of these markets.

So let’s say we have $500 to allocate somewhere every month, plus a one-time windfall from the government of about $4000. How much of that would you put towards student loans (especially the one that’s actively accruing interest at this very moment) and how much would you squirrel away into a savings account?

Thank you in advance for any thoughts.

MMM Responds:

Dear Sir,

Congratulations! You are on a good path with low expenses, and I’m glad to see so much thought being put into the next step. In your situation, most people would just immediately go out and finance two minivans while simultaneously buying a house with 0% down and furnishing it with credit cards.

The first step is definitely paying off the currently-active student loan. 6.7% is a high interest rate by today’s standards, and you’ll never beat the guaranteed return you get by paying if off right now. Take some of your cash and wipe it out. Hooray!

Your car situation sounds excellent as soon as you sell off the two spares – one car, paid off, reasonably efficient and reliable. No need for improvement there.

Your next step depends on how those student loans shape up. For now, if they are not accruing interest, there is no need to pay them. But as soon as they do, you’ll want them gone, because the interest rates are higher than those you’d incur with a mortgage.

If I were in your situation, once I got a job offer I’d put top priority on finding an apartment or home rental within non-driving distance to work. It can be a low-cost place for now – remember, you currently have a negative net worth which means it’s emergency time rather than luxury time. Pay off the high-interest loans completely and ignore home downpayment savings for now.

If you try to simultaneously save for the house, you’re effectively paying 6.7% interest for the privilege of building up a downpayment in a 0.9% savings account. That’s not good math.  Even if you succeed and end up getting a house this way, you’ll then have a mortgage, property taxes, maintenance and upgrade costs, student loan payments, AND a collection of empty rooms that are screaming for furniture, appliances, curtains, bedsheets, and other treats. All with a negative net worth.

On the other hand, if you eliminate the debt FIRST, your wealth will start to climb much more quickly. You’ll save a compounding amount of interest fees each month. Then once the loans are paid off, you’ll drop your monthly costs significantly. During this whole time, you will be living in a small apartment or rental house which will remind you every day of your mission: saving for the house. Because of this, you’ll lead an efficient lifestyle and the 20% downpayment will fly into your bank account very quickly.

With a good downpayment and no other debts, you’ll qualify for a better mortgage with lower rates and a higher ceiling. This will give you both mental and financial leverage when you eventually do your house shopping, which will help you get a great place. You’ll begin your new homeowning life just as your law career starts to take off, allowing you to rapidly amass a life-sustaining ‘stash. This freedom from debt will also help you avoid the Lawyer Trap, where junior staff feel pressured to work ungodly hours to pad a senior partner’s paycheck. With a strong financial position, you’ll have the confidence to call your own shots and spend the right amount of time with your family.

Case closed, and congratulations again!

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Reader Case Study: Minimum Wage with a Baby on the Way Mon, 26 Sep 2011 12:04:17 +0000 I originally started this blog to both Ridicule and Educate the rich and privileged group of people known as the American Middle Class. Being a newly minted member of this group myself, I feel that we are all living large, and the vast majority of our financial problems are of our own making. Thus the solution is simply to get everyone to stop complaining and start saving.

But as time has gone by, I have learned that there actually many people out there who are not currently being showered in easy Salaried Office Worker Cash. They have been writing to me for advice, and due to the 20 year period since my own Minimum Wage Days, I have not known what to say.

But let’s have a crack at it together, by studying the situation of this young guy who just wrote to me recently:

 Hello Mr. ‘Stache,

You strike a chord with people who realize that their goals of financial security are insane considering the fact that most are living outside their means. I know you’ve caught my attention. Unfortunately I have stumbled upon your blog too late to save myself from a lot of debt.

I have a cheap mortgage, sure, but I’ve added two auto loans and a few maxed out credit cards. My wife and I (aged 21 and 22) combine to bring home around $2000 a month working fast food. She commutes 20 miles to work by car daily and I’m fortunate enough to have a job 2 miles away. We live in a very small town on the highway so cheap groceries are a half-hour commute away.

We are also fortunate to have extra room in our house for now to rent out, so we receive $1000 a month in rental payments to help us.

I desperately want to provide a comfortable and enriching life for my son, who will be born in January. I’ve decided that the TV bill has to go and that we need to pay down the credit cards and auto loans ASAP. We will also be cutting out our fast food expenses entirely (easier said than done). Reading your methods gives me hope that I can achieve some financial security and have home time to raise my child the way I dream of. Thank you for the inspiration.

Key Financial Details:
Cash on Hand: $290

Credit Card Debt: $3645 spread across 3 credit cards, with $120 in minimum monthly payments
Mortgage: $75,164 balance with $502 monthly payments. 28.5 years left. Appraised on purchase at $89,000.
2007 Nissan Versa: $12,700 balance with $240 monthly payments, 5 years left
2004 Chrysler Sebring: $3500 estimated balance with $220 monthly payments and 3.5 years left

Monthly expenses:
$130 auto insurance monthly
$220 last electric bill (Normal months, the bill is around $140)
$20 water bill
$24 a month for trash pickup service
$100 a month for satellite tv (an obvious area for improvement, but it isn’t easy to convince the rest of the family about the waste here)
$45 a month for internet
$250 a month average for 5 cell phone lines (on behalf of a few family members including my wife and I)
$50 estimated in gasoline a week for travel to work & other appointments
$300 a month or so on groceries.
$60/month in fast food (recently cut down from $400)

Total Expenses including Loans: 120+502+240+220+130+140+20+24+100+45+250+50+300+60 = $2171

$880/month (at $7.35/hr x 35hrs) for me.  My job is about 2 miles from the house. I do own a bicycle and plan on using it more as the weather cools down.
$1100/month for my wife ($8.50/hr for 40 hours a week). Her job is 20 miles down the interstate. She is also pregnant and due in January with our first baby, a boy. We have not yet spent any of our own income on the child. We have been gifted a lot of clothing and supplies. We already have a crib from when I was a baby.
$1000/month from renting out two extra bedrooms in the house.
Neither of us are expecting major income boosts within the next few years. Her best case scenario in the current line of work is ending up with a $25-30,000 salary within a couple of years, worst case is she stays around her current pay with slight raises during that time.

Total Income: $2980/month

First of all, I’ll start with the obligatory “AAAAAUUUUGGGHHH!!!!!!  HOLY SHIT, WHAT ARE YOU DOING, MAN!?!”

But then we can get into some real analysis.

First of all, on the surface it looks like your income is quite a bit higher than your expenses, even at current levels. Most significantly, you are making a killing on your house, by living there AND getting $1000 in monthly income from it, even while the whole thing only costs you $500 per month. Fantastic work!!

You should be able to pay down about $800 per month of debt even before you undergo the radical changes I am about to throw down upon you. We can cut a load from your expenses, and I also think you deserve to be making a hell of a lot more than Minimum Wage, so we can work on that too.

Let’s start with the expenses:
First of all, your vehicle fleet is off the hook. I am Mr. Money Mustache Himself, and yet my vehicle fleet is only worth about HALF of what you have sitting in your driveway. A 2007 Automobile?? Damn brother, I thought I was being ridiculously frivolous by keeping around my 2005 Scion, which still has the new car smell.

If you need a loan for a car, YOU DEFINITELY CANNOT AFFORD THAT CAR, so what can we do? We need to unload one or both cars, of course!

Looking at the Edmunds Used Car appraisal, the Versa is worth about $8100, and the Sebring is worth $4500. That means you are $4,000 underwater on the Versa, but possibly above water on the older car. It is difficult to sell a car when you have a larger loan than the car, since the lender won’t sign over the title until you pay off the loan. So for now, we’re going to sell that Chrysler. You don’t need a second car, because you live 2 miles from work. That is a close enough distance that it can be done by bike in about 7 minutes in nice weather, and on foot if you live somewhere with deep snow or other non-bike conditions in the off-season. Hell, you could even swim that distance.   There’s your first $220 per month in savings!

The $12,000+ Nissan Versa was a HUGE mistake for someone with your income level, but at least it is an excellent and reliable car with good fuel efficiency. Over time, you can pay down the loan balance, sell the car, and buy a $4,000 car like a late 1990s Honda/Toyota/Nissan IN CASH instead. Make sure it’s a hatchback or a wagon, so you have room for baby stuff once your baby comes!

Depending on your eventual career path, you might need a second motorized vehicle someday. If you’re not carrying around tools, you can get around quickly and cheaply with a Scooter.

Your car insurance sounds very high for a rural area. Just in case I’m right, spend an hour poking around on the online insurance sites, including Geico. Select the highest deductible and minimum coverage your auto loans will allow (which is probably still very thorough coverage, since those lenders are sticklers about protecting their collateral.)

Also shop around for house insurance. You might save a couple hundred per year on this as well. Geico has several affiliated homeowners insurance companies. Call by phone and ask them to give you a quote from whichever company comes in lowest for your property.

Next, of course, the cable TV has to go. I mean, right now, before you finish reading this sentence. Again, that is such an insanely high monthly bill for such a useless service, I could barely breathe knowing it was connected to my house sucking out my life energy. Cumulative Savings so far: $320 Per Month

Next let’s have a look at your electricity bill. I have a family of 3 and a 2600 square foot house, a busy professional woodshop, and a blogging and computer habit, and my electric bill is about $30 per month. Yours should be only a bit higher with 4 people. Unplug your electric dryer, since you’ll be hanging clothes to dry, make sure ALL lights in your house (except very rarely used ones like closets) are compact fluorescent bulbs, and if you have an electric water heater, turn down the temperature and make sure your shower has a low-flow (2 GPM) head. Cumulative Savings: $420 Per Month

Cell phone plans at $250 a month!?!? What are you, Steve Jobs? You  new plans will be PRE-PAID mobile phones with a $0 monthly fee. You make short calls when you need to, using maybe 5 minutes a day. For your longer conversations, you use Google Voice on your computer, for free, from home.  Your new phone budget is $60 per month. Cumulative Savings: $610 Per Month

Fast Food: Mr. Money Mustache doesn’t buy it, so you don’t need to either! That will cut your monthly costs somewhat (although you will have to buy a  bit more fresh food at the grocery store to replace the empty calories). It will also improve your health and save you drastically on health care bills over the long-run. Cumulative Savings: $650 Per Month

Driving: You’ve got a bad situation for now, with a 40-mile round-trip commute for your wife. Using the IRS-standard estimate of total cost of driving of 55.5 cents per mile, she is losing $22.20 every time she drives to work. That’s more than THREE HOURS of her work, not to mention the HOUR OF HER LIFE that gets wasted EVERY DAY by living so far from work! Of course, the IRS figure is the TOTAL cost of driving rather than just the marginal cost. But even marginal cost, with gas, oil, tires, maintenance, and wear, is more than you can afford. In the long run, to be financially independent you should both live within biking distance of work. Once you have built the foundation of your ‘Stash, you might be able to rent out your entire house (or sell it) and find one (rent or buy), in the middle of a town with better employment possibilities.

Similarly, that 60-mile roundtrip to the grocery store is costing you a crazy amount. This trip should not be done more than once per month, and it should be a big $250+ bonanza to make it worthwhile. Then you get your milk and bananas at the local store, even if it costs more, during the non-bonanza weeks. I live 20 miles from Costco, and I go only every 3-6 months..usually combined with another errand in the area. That is how carefully I avoid driving just for the purpose of shopping!

OK, now you’ll have expenses that are $650 + 800 lower than your total income. That’s $1200 in debt reduction you can do each month.

The first three months will go towards paying off the credit cards. Then, you will cancel two of them, and keep one for emergencies. Of course, you will NEVER let the balance go unpaid in full again. If there is a risk of this ever happening again, cancel the third card as well and just use a bank account debit card, since credit cards are NOT for borrowing money..  they are just for conveniently tracking your expenses and getting a few cash-back bucks each month.

The next $12,000 of savings will go towards paying off your car, so you can eliminate that car payment.

There is a time limitation here, however, since you’re having a baby in January! At that point, you will lose at least one income, plus you’ll probably incur some out-of-pocket medical expenses for the birth. With your wages, it will be far cheaper to have one parent (probably Dad) stay home with the baby, rather than to pay $1000+ per month for full-time daycare. Unless you are eligible for some sort of social assistance or have family who will do the care for you for free. On the positive side, you are on the right track with the minimal baby spending – see Mrs. Money Mustache’s article on What Newborn Babies Really Need.

That’s the harsh reality on your costs – you are spending more than my entire family, but don’t yet have the income to back it up. But there is some good news – YOU have a great chance to drastically increase your own income!

Both you and your wife are currently underpaid. I don’t care what you do for a living – under ten bucks an hour is a shitty wage even for a 15-year-old-high-school student to be earning at his first job. When I hire laborers to help me occasionally in carpentry or even dig trenches for an irrigation system, I would be embarrassed to pay them less than $12 per hour. HOUSE CLEANERS CHARGE $25 to $40 PER HOUR FOR VACUUMING CARPETS!! Millions of people in our country unfortunately do receive minimum wage, but it should be regarded as an insult to your usefulness as a human, and you should fight like hell to earn more!

Do you have any skills? I notice you are a very good writer. What about using that, plus your free time, to get the word out and pick up some freelance work? Computer assistance, carpentry/handyman work, apprenticeship with a local plumber or electrician, house cleaning, errand running, carpet steam cleaning, duct cleaning, auto mechanic work, waiter/bartender, teaching music or art lessons, selling stuff on Ebay/Craigslist or administrative assistant work at a good company. I don’t know what the economy is like in your area, but hopefully there are at least other people and businesses around. And with the Internet, you can make money everywhere. Look at Craigslist and other job postings, and apply every day. With your new time saved from canceling the TV service, read library books and old articles on to get yourself pumped up about earning extra money for yourself.

My mission, for both you and your wife, is to fight your way up to at LEAST $35,000 per year each, as this is an absolute baseline for a fair level of pay for a hardworking person. Even a plumber, which is an enjoyable job you can learn in about two years, is able to charge $60-$80 per hour, which is $120-160k on an annualized basis if he is able to work full-time. Even a self-employed tile installer, who meticulously cuts and sticks tiles onto bathroom floors and showers, can charge $40 per hour. You can learn this job with about 6 months of on-the-job practice working for another contractor, then you buy yourself about $1500 of equipment, throw it into an old Ford Ranger for $1500, and you are now an $80k contractor, set for life.

I wish you and your family all the best, and hopefully my bossy voice will be in your ears for years to come as you build up a more secure life for yourself!



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Reader Case Study – How can I Climb out of the Gutter? Mon, 29 Aug 2011 16:41:03 +0000 A couple of weeks ago, Mr. Money Mustache received a request for help that threw him off balance a little:

Dear MMM,

I just found your site from lifehacker. Your articles are very good. But I did notice that they are all written from the perspective of someone with assets.
I would like some advice. I’m only 22, I’m upside down on my car, I have recently lost my job and can’t seem to find another one. I’m recently married, and my savings just dried up. I have a few hundred left of wiggle room on my credit card.
I’m not particularly skilled with much, but I’m good with computers. How am I to build myself up financially in this crazy world and down economy when even fast food jobs seem hard to come by? This next part sounds bad but I want to do it rather quickly. Zero to hero asap kind of thing. My wife’s studies are rather expensive.

Wow.. this guy is right. I have been writing mainly from the perspective of people with jobs, and fairly reasonable starting points, financially. But what do you do when you have fairly low expenses and debt, but an even lower income? So I wrote back to this guy and asked him for a few more details. Here’s what I learned:

Other Details:
Monthly Cost broken down into categories:
Debt: $223, Insurance: $120, Rent: $800 Phone: ~$90 Internet: $52
Gas: $60, Gym: $60 (Use it 5 days a week) School: ~$200
We currently get food assistance from the state @ $220/mo.
“Useless spending” (i.e. shopping) is kept to about $109/mo.
The only income we have right now is $590 every two weeks.
Skills: photography and part of a computer science degree.
Area:Portland OR. Wife’s parents live nearby.
For our area, we have decent rent. $800 is a bit expensive, and when looking at this from a purely financial standpoint we should find a cheaper place. Unfortunately if we move our transportation costs go up exponentially. My wife walks to work and uses free public transportation to go to school. She also doesn’t have a license and there’s no parking by her work unless we pay.

OK. Let’s add it up: Monthy income: $1400 including food assistance. Monthly expenses: $1934 assuming the $220 food assistance is equal to the food expenditure. Debt: not specified.

Let’s focus on the spending first, since I see a dangerously carefree mentality that could lead to problems down the road. If your expenses are greater than your income, it is AN EMERGENCY!!! That means everything goes out the window until you are back on track. For example, a $60 per month gym membership would be a decadent luxury even at my level of wealth. That’s why I work out at home. For a struggling person, even if you use your gym 7 days a week and steal free rolls of toilet paper, it’s more than you can afford. Pick up some cement blocks and an old rope from an alley and tie them around your shoulders, then start running the many steps of Portland during the rainy nights. Do concentration curls off of the concrete railing of the waterfall bridge as you look to the sky and bellow out your determination to get rich. Rocky Balboa Style.

You aren’t rich enough to afford a car yet. Unfortunately, you bought one when you also couldn’t afford it (hence the loan). Since the lien on the title might prevent you from selling it until you pay it off, I’d at least take it off the road to save the insurance money, and pay off the unfortunate loan as soon as you can.

If your family will let you move back into a basement, do it – and pay them a few hundred of rent if they need the cash.

Drop the cell phone plans and use prepaid phones and voice-over-internet like Google Voice when at home.

I also notice the debt payments sound very high, at $223 per month. At 5% interest, this monthly payment would service the interest payments on $53,520 of debt. If your debt is just a few grand on high-interest credit cards, see if you can get a family member to pay them off for you, then you responsibly pay the family member back ASAP with 5-6% interest.

It should go without saying that you will never carry even a $1 riding balance on the credit card for the rest of your life, and if you don’t think you can achieve this, just cancel the credit cards and never hold them again until you’re ready. Credit card interest rates, unless they are below 6%, are predatory and thus should never be paid.

Now that the mandatory tough talk on spending and debt is out of the way, we can move on to income. This reader sounds like a smart and capable guy, being a lifehacker and MMM reader, as well as having a high school diploma and some University education. So he needs to put the brain to work.

I’d advise him to avoid minimum wage jobs if at all possible, just because they suck up much of your time for very little reward. Instead, he could check out the Jobs section of the Portland Craigslist. Focus on things demanding as much, or slightly more, skill than you currently have. In computer or office work, or even in skilled trade construction. Then make up for any skill shortage with incredible professionalism and responsiveness with the prospective employer. Despite what they state in the job postings, every hiring manager or company owner is not hiring a collection of skills, but rather a person to solve their business problems.

I have hired people from Craigslist in the past myself, and I find that 90% or more of the responses are messy or disorganized or represent an incorrect understanding of my request. Your job is to beat out the first 90% of your competition with a fantastic, instantaneous response to the employer with good grammar and meticulous attention to the detail of their posting. If you do this for 50 job postings a day, I bet you’ll have a job at least doubling minimum wage within a month. Hopefully much more. You can also check other online job postings like Monsterboard and network with everyone you know who currently has a good job, to try to ride in on their coattails.

As a retired man, I admit I am a little rusty at getting jobs, but during my working years it was always one of my favorite parts of our wonderful capitalist economy. It’s like an exciting hunt, or an elaborate courtship dance, getting your prospective employer excited about how well you can solve their problems and take a load off their mind. I remember the thrill of each interview, and the feeling of that magic moment about halfway through the chat when you could sense the employer decides they want to hire you. At this moment, the conversation shifts from “are you good enough to work for my company?”, to “here’s how great my company will be to you, if you would be so generous as to come and work for us”. I am far from being the world’s most desirable employee, but yet this attitude towards interviews has helped me get every single job I have ever interviewed for! (For the record, I’ve had 15 job interviews and 15 offers in my life, and I have accepted and worked 10 of those jobs. I still miss the thrill of this hunt and may return to the job world someday if a meaningful opportunity arises and I ever run out of stuff to do in retirement. Unfortunately, I’m busier than ever at six years into it, so jobs will have to wait).

I’d like to wish my Portland friend the best of luck in getting out of the little financial gutter he’s in right now, and if any of YOU have advice for saving more money or winning in the current job market, share it with him in the comments!

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Reader Case Study: Is this 26-year-old Ready to Retire? Tue, 09 Aug 2011 12:52:51 +0000 Mr. Money Mustache recently received a request from an up-and-coming Future Early Retiree. His name is Mike (and he has his own blog at Here’s what he had to say:

Basically, I hate my job. The company is great. The job isn’t.  I want to work for myself.
After reading your blog, it has made me wonder if there is a possibility of “retiring” in the near future.  And by retiring, I mean working part-time.  If you’d be up for it, I would be willing to send you all of my specific numbers to see what I need to do to be like you.”

First of all, I must say this sounds like a very ambitious young man with wisdom far beyond his years. Being like Mr. Money Mustache? There’s a goal I approve of.

Mike is pretty new to the world of high-income professional employment, and the associated high savings rate that comes with it if you don’t become a typical martini-swilling car-financing Ultraconsumer. But he’s already got some big dreams – paying off his mortgage before age 30 (March 2015), quitting his real job, and moving to a creative and unbounded life of freelancing and other random ways to earn and save.

Here are some vital stats to get us started:
Annual Income: $70k
Annual employer 401K match: $4900
Total Income: $74,900
Income taxes, SS, Medicare deductions: $10,000
Total Annual Spending: = $18310 (further details at the bottom of this article for voyeurs)
Total annual savings is therefore $74900 – 10,000 taxes – $18,310 living expenses = $46,590.

This annual chunk of savings gets distributed roughly like this:
401K including employer match: $9100
IRA contributions: $2400
Mortgage principal payments: $35,090 (the man is really jonesing to be mortgage-free).

That covers the income/expenses side, now let’s review the ‘Stash to see how it is looking:
Home Value: $120,000
Remaining Mortgage Balance: $74,000
401K balance: $9,000
Roth IRA balance: $11,000
Other assets: owns a 2010 Honda Civic with no loan

So what’s the plan for Mike?

The key to financial success for any person is having expenses lower than income. He’s got it, with living expenses of $18k per year. These expenses currently include $2775 of mortgage interest, which will drop to zero as he gets his mortgage paid off. But once he quits the cushy job, he will want to replace his current employer-paid health insurance with a self-paid policy. At a good outlet like, this will cost him a similar amount to what he now spends on the mortgage interest.

The first option is quitting the job immediately and dropping down to a $40k freelance income. Can he afford it? YES.. but it will definitely slow down his mortgage payoff plans. For simplicity, let’s suppose his after-tax income will now be $34,000. If living expenses stay the same at $18k, he will have 16,400 to save each year. If he distributes half of this to long-term savings like an IRA, and the other half to the mortgage, he’ll take about eight years to pay off the mortgage. Even if he goes crazy and devotes all 16,400 to the mortgage, he will take four years or so. Mike might not become mortgage free by 30 with this program, and thus he would lose his prestigious blogger identity! But he’d probably have a lot of fun in the process.

The second option is keeping the Dilbert-quality job just until the mortgage is paid off. At the current payoff rate of $35k per year, that will be done in just two years. He’ll be 28 years old, and he will also have another $23,000 or so packed into retirement accounts from his 401k/IRA contributions and the employer match. Plus he will save a few thousand in health insurance premiums.

In the end, either option will work. It all depends how adventurous you feel versus how much you want some financial security. I’ve always been a bit on the conservative side myself – which is why I saved up a lifestyle-sustaining ‘stash before quitting my job, even though I don’t really need it since my lifestyle is cheap enough to sustain on just part-time work. I could have jumped into this lifestyle as early as age 21, but then I wouldn’t be Mr. Money Mustache, just Mr. Simple Living Sideburns or something.

The other issue is his longer-term savings plans. If he keeps the big corporate job and the frugal lifestyle, his wealth will exponentially rise into the realm of the Rather Rich. The mortgage will be gone in 2 years, and the 46k+ being saved per year, plus a growing amount of compounding gains and possibly even salary raises would place him solidly into the Millionaires Club sometime in his 30s.

At some point you have to decide how much is Enough. If you have plans to eventually own a bigger house, or raise some kids, you might find it convenient to stick to the high salary for a couple of extra years. Even if the job sucks on paper, you can teach yourself to enjoy it more if you know you are just around the corner from lifetime freedom. If you already had $300k or more in retirement savings, I would be suggesting you bail quickly. But since your Money Mustache is still just stubble at this point, it is wise to consider the fact that a short day at the office may pay as well as two long days of freelancing.

An Extreme Mortgage Payoff discussion would not be complete without considering the tradeoffs. Mike’s investment in extra mortgage payments amounts to a fixed income stream with a guaranteed 3.75% annual return, since that is his mortgage rate. It’s not too shabby – better than a checking or money market account.. but he could also easily get a smooth 6-7% dividend cashflow just by picking out some nice REIT funds – the topic of another article coming up later this week. The REITs have a bit more risk associated with them, but the higher return is usually worth it to people with decades of investing in front of them.

However, with the entire house tying up only $120k in this case, it’s not a big factor in his long-term wealth. In fact, I must again make fun of myself for owning a much more expensive house. It is costing me a lot of money (in the form of foregone investment returns), so the house must continue to deliver a very pleasurable lifestyle to the MMM family to earn its keep. In the long run when the young lad grows up, we’ll probably sell it and downsize.

To round out the case study, here are a few more details on the expenses as he sent them to me, in case you want to compare them to your own situation. As you’d expect, I have added a few MMM comments of my own to his numbers.



Mortgage $625
Condo fees $375 (Temporarily higher, but for the next couple years.  Normal is $250-ish)
Electricity $40 – $60
Groceries $150 – $200
Gas $100
Laundry $20
Internet $40
Dog $30 – $40
IRA $200
Restaurants $100
Gym $30 <-MMM: perhaps I can help you here.
Hair $20  <-MMM: And Here
Gifts $25
“Other” $100 – $150
** I have no cable TV bill or cell phone bill.  I have a cell phone, but I am part of a family talk plan and the policy is not in my name.
Auto Insurance  $440 every 6 months <-MMM: Driving around in a 2010 car is luxurious, but I’d definitely advise trading down if you can handle it, especially once you are done the job and thus not driving around as much. My own car insurance is less than $160 per 6 months because I do low annual miles and don’t need collision/comprehensive insurance. County taxes are much lower on older cars as well. And it’s still pretty new by my standards – a 2005.
Dog shots/meds $75 every 6 months

Property taxes $800 – $1,000
Homeowners Insurance $185
Car tax = $250
Some other details for you:My mortgage balance is $73,999, due to my prepayments.   I have some equity in the home.  Value is $120,000.
I have a paid off a 2010 Civic.  If I went freelance, I might ditch it.  I live in a city, but due to my overnight hours, I felt the need to get a car.  I won’t work overnights if I freelance.
Roth IRA balance is 11K.  This serves as my emergency fund as well.
401K balance is 9K
Total investments 21K
Checking accounts keep low balances intentionally, but I usually have 1K or so for emergencies.


What do you think? Early Retirement or Stick it out and Slave for a few more years?

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Case Study: Growing a Money Mustache at Sea Mon, 13 Jun 2011 14:06:52 +0000 I just got an interesting request for a Mustachian Makeover*. Here is our reader’s story:

Dear MMM,

I was wondering if you might want to do an analysis of some reformed spenders working hard on their stash but dealing with the repercussions of previous and lasting life choices (like a mortgage) in their newly reformed lives.

My husband and I have a large mortgage at 6.5%. It is also (cringe) interest only. We were paying a little extra on it every month, but I have since stopped and opted to invest that extra instead. My thinking was I could keep up with or beat 6.5%, and if anything terrible were to happen I didn’t want all our extra money tied up in a house that was still underwater. We save as much as we possibly can every month, including contributing to a 401K, $500 to each Roth every month, and additional savings. We live on a very strict budget in order to max out that additional savings.

We recently made a huge life change. We have a boat which we intended to live on after selling our house and while building a new one. Selling our house didn’t happen though, so instead we have rented out our house and moved onto the boat. We continue to save what we did before, but now additionally save the rent payment and the money that was being spent on utilities, cable and internet. It’s amazing how much extra money you save when moving to a smaller space!

Our house is under water. If we were able to pay the mortgage down by $100,000 we would be able to refinance at today’s lower rates and the rent would cover our new payment and then some. Instead, we’re stuck in an interest only mortgage with a balance that doesn’t move and rent payments that cover only about 70%.

Eventually we would like to move back onto land, probably in a different area. Our only other debt is our car payments – modest in comparison to old payments, but (I know) still not very mustachian. The rates are only 3.9% though.

What would you suggest is our best course of action? Should we put everything towards the mortgage instead of investing it? Or should we try to make our savings grow at a faster rate than the mortgage, and then later use it to pay the mortgage down and refinance? If we can eventually bring the mortgage payment inline with the rent, should we look into buying a smaller more practical home while continuing to rent the existing one, or should we move back into the one we already own?

Dear Lost at Sea,

First of all, congratulations on your new-found Badassity! Moving from what sounds like an expensive luxury house to a boat is a sign that you have what it takes to get yourself out of trouble very quickly, and then amass some serious riches for yourself in your new future.

From the sounds of it, your mortgage situation will never go away unless the house appreciates quickly, or you get it paid down to a level where refinancing is possible. The bad news is, housing appreciation is unpredictable and a $400,000 house would take 11 years at a 2% inflation rate to appreciate by $100,000. The good news is, a hundred grand is pretty easy to come by when you have two people working.

You didn’t tell me the price of your house, or the mortgage balance, but let’s assume it is a $400,000 house with a $400,000 mortgage. To refinance, you need to pay off at least $100,000 so that you have 20% equity to qualify for a good mortgage.

Current interest cost: 400,000@6.5%: $26,000 per year
Interest cost after paying down $100k and refinancing: $300,000 @ 4.5%: $13,500 per year
Savings: $12,500 per year.

So by investing $100,000 into your mortgage, you’ll end up saving $12,500 per year in interest. That’s equal to a guaranteed rate of 12.5%** on your payments – the best you will get anywhere in the world.

So I would suggest that you temporarily suspend ALL savings for this emergency – 401k, Roth, investments, piggybank, whatever, and put it straight into the mortgage. Transfer any liquid savings over as well, except for a small ‘Stash in case of emergency expenses. Every cent you put in is earning you 12.5%, so it is very exciting! Skip dinners out, skip driving on weekends, and just go crazy on that hundred grand. Plan all your rewards and future purchases for sometime after you reach that goal of getting this refinancing done. Also, we cannot predict when interest rates will rise, so the sooner you get it done, the better.

Next, if you have car loans, you probably have cars that are way too expensive for your current net worth. You could save an additional boatload of money by selling them both, and buying some nice 2004 models for $5000-$8000 each.  Toyota Corolla, Matrix, Scion xA, Nissan Versa, Honda Civic, even a Volkswagen Jetta or Golf  TDI – all great choices because of fuel savings and tying up only a small amount of cash.

Mr. Money Mustache feels that nobody with less than a million dollar net worth should even consider buying a new car (and even then, you must pay cash of course), and even then it must not be a car over $20,000,  and even then they must punch themselves in the face after making the purchase to acknowledge the unnecessary expenditure.

To answer your other question about the long-run housing choice – to answer that seriously I’d have to know about the size of the house, the cost, the location, etc. But to put it in my usual generalized and opinionated terms, I would say a couple with no kids should have a house no bigger than 2500 square feet (ideal size is 1500 sf), that costs no more than three years of their combined salaries put together (ideal ratio varies widely depending on your city). Instead of size, focus on quality, like big windows with nice views, open floorplan, big fancy kitchen with a nice island for entertaining people and cooking at home, in a walkable and bikeable neighborhood that will free you from car dependence. And of course, with a minimal or zero commute to work.  So you may indeed want to downsize and pick a new location.

As for renting it out vs. selling it at a loss – it is a good rental if the annual rent income exceeds about 6% of the current market value if you sold it. Or AT LEAST if the rent payments cover all the costs and you don’t mind being a landlord.

Once you get to this stage (or even sooner if you like), write in and tell us how you’re doing and we can tell you how to get the additional million dollars saved for a luxurious semiretirement for both of you.

I’ll admit this is a wide-ranging and highly detailed prescription. But hey, you asked for a Mustachian Makeover! If you follow it to its fullest, I guarantee you will both be retired, muscular millionaires with great happiness and health within 10-15 years, and Mother Earth will open her big blue watery eyes and wink at you as you sail your boat over top of them on a sunny summer Sunday shortly afterwards.

* The reader actually invented the term Mustachian Makeover herself, and said I could add it to the growing MMM dialect. Thanks, Lost at Sea!

** Note that even though we don’t know her mortgage amount, the actual return on the 100k invested is likely to be equal to, or even greater than the 12.5% listed, since the savings amount scales up with the ratio of current mortgage size compared to $100k.

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MMM Reader Case Study: The Man who didn’t Realize he was already Rich Mon, 16 May 2011 14:48:46 +0000 This week, Mr. Money Mustache was honored to answer more calls for help from his readers. There was one in particular who had an interesting situation, and was generous enough to let me share it with you (anonymously of course) after we were finished the email discussion. We’ll call the reader SAM – short for Surprisingly Advanced Mustache.

Check this out and see if any of it sounds similar your own situation:

Age: 41.
Family: 2 parents and one young kid.
Desire: To enjoy some form of Mustachian early retirement.
Fear: He did not feel he would be able to accomplish this until at least age 65 based on his current situation.

Current Spending Situation:
Salary: $70,000 annual (one worker, one stay-at-home parent)
Living Expenses: $2351 including mortgage at $1250
Remaining Mortgage Amount: 140,000

Current Saving Situation:
Retirement Account Balance (401k/IRA): $300,000
Emergency Fund or Rainy Day savings: $80,000
Annual Savings Rate: About $28,000 including 401k, IRA,  and additions to the Rainy Day Fund

What do you think? Is Sam almost ready to for Early Retirement, or still 25 years away as he fears? Let’s find out right now!

What I am quickly realizing is that MMM readers are all in rather different situations.
For people with high incomes and low savings, the solution is getting people motivated to find interesting ways to streamline their lifestyle.

But many of the self-selected crowd  who read an Early Retirement blog like this are already quite frugal. The situation above, for example, describes someone spending even less than we do in the MMM household, for a family of the same size. For these people, the solution might be a bit of financial wizardry. It is at this point that Mr. Money Mustache fires up the Turntable on the right – the one with Ulysses S. Grant from the $50 bill instead of just the $1 Washington platter.

1: Let’s look at Sam’s retirement balance*.  It’s $300,000 right now, which is actually a fairly sizable ‘Stash. But lest the younger folks get discouraged, this is the amount you end up with if you just let your 401K run with auto-deductions of $1000/month from age 25 to 40 and it compounds at 7%**.

If Sam stops contributing right now, this balance will automatically grow to about a Million Bucks by the time he is 60, even after adjusting for inflation. So it is already on-track to be much more than he needs to live on from age 60, for an unlimited time, living only off of the passive income it gains. And not even counting some eventual Social Security income! ***

2: We’ve established that Sam is DONE saving for old-age retirement. Now he just has to get enough money to get from his current age until age 60 when the Million Dollar Retirement kicks in. How much does he need to do this?

His family is living on $2351 per month right now – $28,000 per year. To generate that much income with no work, he would need another $403,000 working at 7%. With $80k in the bank right now and a $28k annual savings rate, he is already less than eight years away from a full retirement if he continually invests the early retirement money as he goes along.

It’s actually even better than this – because the assumption above assumes that he uses none of the $403,000 principal to live on, only the investment gains it and dividends it generates. And it assumes he never makes another cent after he retires – I believe most people who retire well under 60 will find they WANT to do some paid work occasionally to keep their minds sharp and to have challenging interactions with other adults.

So here was the final MMM prescription for Sam:

1 – Immediately put your $80,000 rainy day fund into a mixed 60% stock/40% bond fund (adding the bond component makes the return far less volatile – this is important since you will be starting to use this money in less than 10 years and need lower risk). If you simply buy the Vanguard balanced fund (VBINX), this whole step is done with just a few clicks.

You can set up a line of credit on your house, which you won’t actually use, for small rainy days, and of course you can always sell shares of VBINX whenever you want if there is more rain.

2 – Pay off your Mortgage over the next 5 years or so using your $28,000 per year savings rate. Then you are done with mortgages forever. This technically earns less return than just investing the extra money, but if you are conservative like me, you like to be out of debt earlier. If not, just invest extra and pay the mortgage slower.
At this point, you can subtract about $900/month from your monthly budget (the P+I part of your mortgage payment.. you still have to pay property taxes of course).
Your new annual living cost will be about $22,000. 

Your VBINX fund will have compounded to about 100k by this point. You can safely withdraw $10,000 per year from that and it will only run out right as your million-dollar 401k fund kicks in. So now you only need about 12k of annual income.
Option 1 – You could drop down to about quarter-time employment, just enough for free health insurance and a thousand or two dollars of easy income per month. Then you’ll still be saving a bit each month and you can increase your lifestyle/vacation/college savings budget. (This is sort of my own path, since I still actually like to work occasionally).
Option 2 - You could work 3 more years, ‘Stashing all that now-unneeded mortgage payoff money to really build up the VBINX early retirement fund and quit entirely.
Congratulations Sam! – you are not 25 years from retirement after all – you’ll be sitting on the front porch thoughtfully grooming your Money Mustache on a weekday morning before your young child starts the second grade!
There are two lessons in this story:
Lesson One: You can retire a lot earlier than most people if you have moderate living expenses. Even without a million dollars in investments.
Lesson Two: It is really fun to stay just a teensy bit engaged in some sort of business even after you retire. It doesn’t have to be in your original work field. But it does have to be fun. This also gives you reassurance that if you ever DO want extra money besides what you have saved, you can always turn it on with a switch.
The Footnotes:
* (for Canadians: 401K and IRA are just synonyms to RRSP). But one key difference is that in the US, these accounts tend to discourage early retirement: you pay a 10% penalty PLUS any applicable income taxes if you withdraw from them before age 59.5. In Canada, the RRSP is open for withdrawals any time – you just have to pay the deferred taxes.

**  Since the past 15 years happened to span both a crazy boom and a crazy bust which we’re just coming out of, how are the 40-year-olds of today doing? Well, as of May 2011, a $1000/month investor would have STILL averaged just about 7% compounded including the dividends, which have have averaged 1.84% per year. That is the magic of Dollar Cost Averaging to help smooth out price fluctuations in the long term.  But  but this is an unusual result so hang in there. The stock market has already recovered most of the losses it made during the Great Recession.

*** Social Security: contrary to popular belief among grumpy people with limited training in macroeconomics, the Social Security fund is absolutely NOT going bankrupt, it will simply adjust to a modestly lower level of payouts than currently scheduled. More on that in a future article.

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Instant Wealth Boost by Tidying up your Bank Accounts Wed, 04 May 2011 16:02:51 +0000 Being Mr. Money Mustache comes with certain privileges and responsibilities. One of those is helping individuals with their problems, as with this funny situation that happened at MMM headquarters last week.

A reader who happens to live in Colorado set up an appointment to meet with me to review her own finances in detail and see if I could help. This person is highly intelligent and also earns a solid income, so I figured she would probably already have everything set up pretty optimally.

But in a bit of good luck for both of us, I was quite wrong. And the experience opened my eyes to a situation that might be quite common out there in the increasingly complicated world of personal finance. I got her permission to write about the situation, (with a few details changed to protect privacy). Check out this amazing story to see if any of it echoes in your own life.

The friend had recently run into a bunch of expenses – home repair, tax bill, car dying and being replaced with a newer used car.

When you add it all up, there were new debts of about $47,000, distributed across three different loans like this:
– $8000 on a credit card at 13%
– $20,000 on a personal line of credit at 10%
-$13,000 on a car loan at 7%.
Total monthly payments: about $327 of interest, plus a few hundred in principal, making a total load of $650. When you add in a home mortgage, it all sounds pretty bleak, right?

But then we reviewed the rest of the financial accounts. There were a lot of them. They included:

– 4 different savings and checking accounts, some of them left over from before she got married, with an average of about $1000 kicking around in each.
– A home equity line of credit with $10000 in available credit at about 6%
– Several old investment accounts left over from previous employers’ stock purchase plans, etc. (regular taxable accounts, not 401(k)s) with a balance of $20,000 that hadn’t been touched in 10 years!
– Yet another family account with $10,000 available earning no interest.

To make a long story short, the assets that were sitting around were more than enough to cover all of the high-interest debt! We decided she would close ALL the old accounts and consolidate everything (salary direct deposit, automatic bill-pays, etc.) into just one clean and tidy checking account. This would free up those few thousand from the mostly-unused checking accounts and make life simpler to manage as well.

Then she would rake together the money from everywhere else to pay off ALL of these debts – even the car loan.

Now the friend will have NO credit card payments, NO personal line of credit, NO car payments, and will be back to just paying a conservative mortgage payment. With the extra monthly cashflow, she can start making extra payments on the mortgage and bringing the line of credit down as well to increase her cash cushion.

These results are not typical, but a similar situation IS typical. Many people (including me) sometimes hang on to multiple checking or investment accounts just for sentimental purposes, without thinking of the cost – even when there are outstanding debts that could save you big bucks if you just transfer your own money from one place to another.

Mrs. M and I were motivated enough by this experience to do some cleaning up of our own. We sold off some of our own non-retirement index fund savings (in Vanguard) to finally wipe out the rest of the home mortgage I’ve been procrastinating on for the past few years. There is always the possibility that the US stock market will go up even more and I’ll miss out on those gains, but it is already near record levels, and it is just good strategy to be fully out of debt. Especially with the Mr. Money Mustache philosophy of maximizing the Good Life by minimizing stress even while you Amass a Stash of Cash.

If you have debt with an interest rate higher than what you are getting in savings, you might enjoy a bit of moneymaking simplification like this as well. If you have specific questions or situations to share, send ‘em in! If you like, we can even make an inspirational story out of YOU.


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