There’s a big, hidden part to this job of being Mr. Money Mustache that you don’t get to see every day: the stream of really neat emails that seem to constantly arrive.

These letters from readers are as interesting as they are varied. Some of them I read aloud to Mrs. Money Mustache, or to my son, or to friends. Although I only get a chance to respond to about one in ten, they’re inspirational to all of us, and I like to think of them as fine, sparkly paychecks that I get for writing this blog.

The main reason I write this thing is in the hope of inspiring a bit of social change. Improvements in our way of life by shifting away from buying and wasting, and towards learning and sharing with other people. With unusual wealth just being a convenient byproduct.  So when I read that people are actually putting this stuff to use in real life, and getting great results, it makes it all seem so much more real, and worthwhile. So thanks for those letters.

With that introduction, here are just a couple of interesting ones that came in from beloved Mustachians recently:

Letter 1: Avoiding a Lifetime Habit of Commuting

Photo credit: Matt

MMM Comment:WOW!! Avoiding this one-hour commute alone will save her about $75,000 every ten years in direct costs alone, or several hundred thousand dollars after factoring in the value of the time wasted. And that’s every ten years. All from one blog post? Astounding.

Especially when I look at the stats for that article and see that at least 103,000 other people read it on this site, plus ten times as many on the bigger sites that posted it like Lifehacker. The era of the long car commute MUST DIE!!

Letter 2: The Log-Cabin Mustachian

MMM Comment: you are correct! For most people to amass $90k of home equity, they have to earn a much larger amount, then pay taxes, pay for their living expenses, battle the backwards treadmill of mortgage interest, and only at that point can they pay off principal of the mortgage. For most, it takes many years and several hundred thousand dollars of earnings to accomplish this.

You did it in just two years, while also working your regular jobs. That means you outpaced most $200k earners during those years, or leapt ahead more than a decade towards financial independence compared to most people with lower incomes. Congratulations!

I hope you’re having a great weekend.

Little MM and I marveled at the fanciness of this toy, then went back to digging in the sand with sticks.

Today we’ve got a guest post from the esteemed Mustachian known as Arebelspy, who is also a Moderator over on the Money Mustache Forum. Since we’re both passionate about this particular idea, the article became a bit of a collaboration between Arebelspy and MMM.

Mustachianism Can’t Work, Or I’d Have Heard Of It Before!

There’s a fairly common doubt about the idea of Financial Independence and Early Retirement  that MMM and others espouse. Because it’s such a prevalent idea that one must work until they’re 65, people often doubt that retiring so much earlier than that could even work. The skepticism essentially boils down to this:

“If early retirement is that easy, why haven’t I heard of it before? It must not actually be possible.”

MMM has already shown the mechanics behind the idea, in the post The Shockingly Simple Math Behind Early Retirement.

I’m here to explain why most people have never heard of it before.

Today we have a unique opportunity to hit financial independence after only 10 or 15 years of work. Retiring in one’s mid-30s sounds crazy, but it is the unprecedented times we live in that makes it possible.

You see, 300 years ago, I’d likely be a toiling peasant. There’s no way I could save enough to retire. I’d need to be frugal just to get by.

100 years ago, the situation had improved for some of us, but overall it was still difficult to save much. A frugal worker might be able to save 10, 15, or maybe even 20% of his income, but probably not much more.

The difficulty of saving in the past continues to influence our thinking today: common wisdom suggests that you should be shooting to save those small percentages, because that’s what you could save, historically. This makes the 40-90% savings rates suggested by Mr. Money Mustache and his acolytes seem crazy.

But there’s a big difference between the economic situation of the average person 100 years ago and today. Compared to our incomes, the basic “cost of living” items have gotten much, much cheaper.

“But wait!”, I can hear the complainypants saying. “I hear stories (or remember) when soda was a nickel and a house cost only $5,000!* How can you claim goods are cheaper?”

The actual fact is, due to productivity and technology improvements, wages have risen faster than the cost of goods in real (inflation-adjusted) terms. According to information from the U.S. Bureau of Labor Statistics, real compensation per hour rose from 42 to 108 over the second half of the 20th century (normalized such that the compensation in 1992 = 100).**

This rising standard of living (made possible mainly by productivity improvements through technology) is the reason a Mustachian family can live on barely over $20k per year, even while the US median household income is about double that, and many in-demand jobs pay a single worker several times this amount.

This article from MIT gives a shocking fact that is key to why you can save so much to hit FI quickly. It says that “an average worker needs to work a mere 11 hours per week to produce as much as one working 40 hours per week in 1950.”

That means that in theory, the proceeds of the other 29 hours they’re working could be saved.

So here’s a scenario. Your grandparents, in 1950, could work and save 10% of their income after working 40 hour weeks, and the other 90% of their pay was spent on basic consumer goods. You should be able to do the same, but it’ll only take you 11 hours (and you should be able to save 10% of that, like they did, so really only 10 hours) to cover your basic needs. That leaves you with 30 of your 40 hours EXTRA cash that you don’t need to be spending on basic cost of living items.

In the 1950s they had TVs, cars, dishwashers, and more. At the time, they thought they were living at the peak of modern convenience with all of the new luxuries – even with a single wage earner.

So what have we done with our over-100% increase in disposable income since then? We’ve bought even more things.  Consumerism.

As a society, we go out to restaurants far more often than our grandparents did. Our houses are more than twice the size, and in expensive cities we’ve bid up land prices to the sky using cheap credit, negating much of our income gains. We have more cars, we drive them more, and they’re packed with more luxuries (imagine going back to 1950 and insisting on a 16-speaker 550-watt audio system in your Chevy!). We also have more shoes, about ten times the amount of clothing (if closet sizes are any indication), and we do much more interstate and even international travel. We tend to buy things before we have the money, adding the significant cost of interest payments to our monthly expenditures. And don’t even get me started on the topic of big-screen television sets.

We’re flush with more disposable cash than we’ve ever had in history, but we don’t even realize it. The rise of the dual-income household should have made us even wealthier. But instead it just gave rise to the lament, “Nowadays you need two incomes just to get by!”

We should be laughing as we have cashball fights in rooms full of $100 bills. Instead, all we hear is about the ever-increasing cost of living.

The MMM way is to simply roll back the luxury train just a few years, then take all that extra disposable income and save and invest it.

“But we need all the extra luxury, to compensate for the ever-increasing demands of our work lives!”

Wrong again – even while increasing our income, we’ve also tripled our leisure time in the last 100 years***. People actually used to spend much more time working, because their work was toiling in fields and factories without the benefits of standardized workweeks, overtime pay, or even weekends in some cases.

So you can work an easy week, still have a good standard of living, still save the vast majority of your paycheck, and hit FI in a resonable number of years.

You haven’t heard of this idea because it wasn’t possible even 50 years ago. It’s still not possible in many parts of the world today. And it may never be possible if you continue to follow the same path as most of your neighbors, who think that a $30,000 car is a reasonable part of a middle-class lifestyle.

But if you live in a first world country****, you’re in a unique situation never before seen in history: you can easily hit FI very quickly by saving all that disposable income.

Hopefully this post has explained why you’re able to do so.

* No comments about current day Detroit.
**http://groups.csail.mit.edu/mac/users/rauch/worktime/output_per_hour.pdf
*** http://eh.net/encyclopedia/article/whaples.work.hours.us
**** Germany’s another example:
http://gooddaytolive.wordpress.com/2012/05/01/may-1st-the-day-of-work-is-a-good-day-to-think-about-how-to-work-less/

Foreword by Mr. Money Mustache:

A few months ago, a new reader showed up at this blog and  joined the conversation in the comments sections of the articles. It was a guy named Jim Collins. He was wise, funny, well-spoken, and skilled in the use of swearing. So I checked out his blog and learned more. It turns out he’s older than me (around 61 apparently), has had a long and interesting career in positions ranging from Tree Trimmer to Fancy Businessman and beyond.. and has been financially independent since around 1989.

Since that’s approximately the year I learned to drive a car, I figured this man would have quite a deep perspective on what life is like when you are not driven solely by the need to earn a paycheck. So I asked him if he’d be interested in sharing that perspective with us as a guest posting. “What has life been like since then? How do you fund your daily expenses, how has the  health insurance situation worked out, what do financial crashes feel like, and what is your overall advice for those reaching financial independence and/or early retirement?”

The following story is what he sent me in response:

It has Never Been About Retirement

For me it has never been about retirement.

I like working and I’ve enjoyed my career.

It’s been about having options. It’s been about being able to say “no.”

It’s been about having F-You Money.

It’s never been about this.
(Although, now that I’m 61 it’s getting closer.)

I started working when I was 13, even earlier if you count selling flyswatters door-to-door and collecting pop bottles from the side of the road for the deposits. For the most part I’ve enjoyed work and I’ve always loved being paid.

From the beginning I was a natural saver. Watching my stash grow was intoxicating. I’ve never been sure how this started. Might be hardwired into my genes. It might be my mother seducing me with the image of the red convertible I’d be able to buy when I turned 16. But that was not to be.

My father’s health failed and shortly there after so did his business. My savings went to pay for college and I learned it is a fiscally insecure world. Convertibles came later. To this day it stuns me to read about some middle-aged guy laid off from his job and almost instantly broke. How does anyone let that happen? Of course I know it is common, but still….

So, long before I heard the term, I knew I wanted F-You Money. If memory serves, it comes from James Clavell. In his novel “Tai Pan” (highly recommended BTW) a young woman is on the quest to secure 10 million dollars. She calls it her “Fuck You Money.” And 10m is far more than it takes, at least for me. But it put a face to the goal.

The other thing I quickly figured out is that financial independence is at least as much about being able to live modestly as it is about cash. Here’s my favorite parable:

Two close boyhood friends grow up and go their separate ways. One becomes a humble monk, the other a rich and powerful minister to the king. Years later they meet. As they catch up, the minister (in his fine robes) takes pity on the thin, shabby monk. Seeking to help, he says:

“You know, if you could learn to cater to the king you wouldn’t have to live on rice and beans.”

To which the monk replies:

“If you could learn to live on rice and beans you wouldn’t have to cater to the king.”

Most all of us fall somewhere between the two. As for me, it is better to be closer to the monk.

Enough F-You Money isn’t necessarily enough to live on for the rest of your life. Sometimes it’s only just enough to step to the side for awhile. I first had mine at age 25 when I’d managed to save the princely sum of $5000. This after working two years at 10k per year.

It was my first “professional” job and it had taken me two long post-college years supporting myself doing minimum-wage grunt work to find it. But I wanted to travel. I wanted to spend a few months bumming around Europe. I went to my boss and asked for four months of unpaid leave. Such a thing was unheard of in those days. He said “no.”

Back then, I had no idea that working relationships were negotiable. You asked. Your employer decided and answered. Done.

I went home and spent a week or so thinking about it. In the end, as much as I liked the job and as tough as I assumed finding another would be, I resigned. I wanted to go to Europe. Then a funny thing happened. My boss said, “Don’t do anything rash. Let me talk to the owner.”

When the dust settled we agreed on a six-week leave

(which I spent riding my bicycle around Ireland and Wales)

and a month of annual vacation going forward. That got me to Greece the following year. My eyes were opened. F-You Money not only paid for the trip, it bought me room to negotiate. I’d never be a slave again.

Since then I’ve quit jobs four more times and have been kicked to the curb once. Blame my short attention span. I’ve sat on the sidelines for as little as three months and for as long as five years. I’ve done it to change careers, to focus on buying a business, to travel and, the time it wasn’t my call, with no plan at all. I did it again just last year at age 60 and the intention is to remain retired. But who knows? I do like getting paid….

My daughter was born during one of these, ahem, unpaid leaves. These things happen when you’ve time on your hands.

Now 20, she has grown up with dad sometimes working 18 hour days and constantly away from home, to dad sleeping late and lounging around. But she always knew I was doing, for the most part, exactly what I wanted to do at the time.

When she was in first grade I went to a parent-teacher conference. My wife introduced me and the teacher said, “Oh! Mr. Collins. How nice to finally meet you. You’re the father who’s never home.” A period of lots of business travel.

But then shortly after 9/11 my company kicked me to the curb.

Six months earlier our division president had taken me to a congratulatory lunch for a record-breaking year. We were explosively growing and embarrassingly profitable. Over a bottle of fine wine we discussed my very bright future. It was the best job I’ve ever had. Great team, great leadership, great fun. Great money. I had just cashed a bonus check for more than I had ever made in a single year before.

A year later my little girl and I were sitting on the couch watching a news broadcast. The concerned news crew was filming people standing in a depression era style bread line. They were, the reporter said breathlessly, the newly poor suffering from job loss in the dismal economy. I was still unemployed and licking my wounds.

“Daddy,” said my little girl, “are we poor?”

She was gravely concerned.

“No,” I said, “we’re just fine.”

“But you don’t have a job,” she said. Thinking, I’m sure, just like those poor souls on the TV. It was, as they say, a teachable moment on the power of and need for F-You Money.

I like to think these experiences have taught our daughter the value of having money and the joy of work when you aren’t effectively a slave to it.

When she was about two her mom went back to school. It was during my business buying phase and I had lots of free time.

While mom was off evenings at school, little girl and I spent endless hours playing and watching The Lion King over and over. And over. I’ve probably seen that movie more times than all other movies combined. We still laugh remembering the tea-cup towers we built. These hours were the foundation of the relationship we’ve grown to cherish.

Even though I didn’t have a paycheck coming in, around then we also decided my wife should quit her job to become a stay-at-home mom. This was a very tough call for her. Like me, she’d been working since childhood and loved it. But the problem was mostly, without a job, she felt she wouldn’t be contributing. I was failing to convince her until I hit upon this:

“We have F-You Money,” I said. “We don’t care about fancy cars or a bigger house. If you kept working what could we possibly buy with the money that would have more value than your being home with our daughter?”

Far and away the best “purchase” we ever made, and we never looked back. So we had no working income. For those three years our net worth actually grew.

As for me, I failed in finding a business to buy. But the search morphed into consulting work and a couple of years into that a client hired me for more money than I’d been making at the job I’d left years earlier. Such is the price of failure in the USA. As Leo Burnett once said:

“If you reach for a star, you might not get one. But you won’t come up with a hand full of mud either.”

When we moved to New Hampshire my wife started volunteering in our daughter’s grammar school library. Their hours, of course, matched perfectly. After a couple of years they offered her a paid gig. It’s not the corporate job she’d been used to but it’s also stress-free and fun. She’s never looked back.

For the most part over the years we’ve been married (June 19th is our 30th anniversary) least one of us was working. That handily solved the tough problem of health insurance. During the early 1990s, when we had an over lapping employer-less few years, we bought a high deductible catastrophic health plan. It is too long ago to remember the details and they likely wouldn’t apply today anyway. But that’s what we’ll seek out if and when my wife decides to hang it up before we hit 65 and Medicare. For now she loves her school district job and the time off it gives her for our traveling.

On my own blog I’ve outlined what we own and why we own it so I won’t bore anyone here. If you check you’ll see it is the soul of simplicity. Three Index Funds and some cash.

You’ll also see I’m not a fan of the “multiple income stream” school of investing. Simple is, in my book, better. So no cattle, gold, annuities, royalties and the like.

My small pension from the one company where I worked long enough to qualify I took as a lump sum and rolled it into my IRA.

There are also a couple of leftover investments from earlier times. We’re burning those up as we need the cash. These represent the last remnants of the many investing mistakes I’ve made over the years. Most revolved around the idea that I could pick investments that would outperform the basic stock index. It took me far too long to accept just how vanishingly difficult a task that is. Three things saved us:

1. Our unwavering 50% savings rate.

2. Avoiding debt. I’ve never even had a car payment.

3. Finally embracing the indexing lessons Jack Bogle perfected 40 years ago.

Looking back what is striking to me is how many mistakes I’ve made along the way and yet those three simple things got us there. That should be encouraging to anyone out there who has made poor choices along the way and who is ready to change.

What a wonderful advantage a blog like Mr. Money Mustache provides. Set aside the specifics, just knowing that financial independence is possible short of winning the lottery is huge.

When my journey began I knew no one who was making the choices we made. I had no idea where it would or could lead. I had no one to tell me stock picking was a sucker’s game or, more importantly, that swinging for the fences isn’t needed to reach FI. That last alone would have saved me the $50,000 of my money Mariah International (a gold mining penny stock) burned thru while failing; and failing to make me rich.

So now I’m (again) retired and it feels great. I love not having to keep regular hours. I can stay up till 4 am and sleep till noon. Or I can get up at 4:30 and watch the sun rise. I can ride my motorbike any time the weather or my pals beckon. I can hang around New Hampshire or disappear for months at a time to South America. I post on my blog when the spirit moves me and I might even get the book I’ve always wanted to write finally done. Or I can just sit on the porch with a cup of coffee and read the books others have written.

One of my very few regrets is that I spent far too much time worrying about how things might work out. What a waste, but it is a bit hardwired into me. Don’t do it. Instead, live on less than you earn, invest the difference and avoid debt. Do just these three things and you almost can’t help but succeed.

But what if disaster strikes? My biggest fear these days, and this is evidently common, is a major health failure. That, of course, would derail everything. Moreover, if you live long enough it is inevitable. If accidents don’t take us, we all eventually sicken and die. Circle of life. (See, watching The Lion King over and over sunk in.)

The older I get the more real that becomes. My response has been to increasingly hold each day precious. I’ve become steadily more relentless in purging from my life things, activities and people who no longer add value while seeking out and adding those that do.

Financial disasters are less concerning. We can always adjust our living standard and we are open to moving to far less expensive corners of the planet. We might just do that anyway. It’s a big beautiful world out there. Money is a small part of it. But F-You money buys you the freedom, resources and time to explore it on your own terms. Retired or not.

Enjoy your journey.

You can read more neat stories from Mr. Collins in the areas of Business, Life, and Money (and if you search carefully, even Spaceships) at http://jlcollinsnh.wordpress.com/

It’s the weekend, and that means Mr. Money Mustache has nothing to say right now. But the MMM reader we all know as Mr. Frugal Toque does! Here’s an interesting rant he sent me a few weeks ago, which I thought would be ideal for this weekend’s guest posting:

 It’s All Bullshit!

Subtitle: Tax Software: Only 5 days left of special St. Patrick’s Day savings!

There’s a thing that happens to your brain when you watch television and you absorb Consumer Culture directly from its Unholy Altar. Your mind is invaded, pervaded, often left unsated and your thoughts are superseded by the idea that all of this over-the-top marketing is somehow natural.

I received an email today entitled “Tax Software: Only 5 days left of special St. Patrick’s Day savings!” and something struck me as odd. As North Americans, we’ve seen this sort of eye candy so many times in our lives that we’ve grown desensitized to how stupid it is. As a Mustachian who doesn’t have a TV because he somehow forgot to upgrade to an HD receiver, I’ve re-engaged the non-consumer cogs of my reasoning centres just enough for this ad to make me twitch to its stupidity.

And it is stupid. Let me tell you: it is really, really stupid.

Consider the idea of tax software. In Canada and the United States, there is only one time of year in which it makes sense for the vast majority of citizens to purchase such software. The people who market such software have a problem. How can they sweeten the pot? What ultraviolet patterns can they place upon their flowery emails to attract the instinct driven Bumblebees of Consumption?

“Why, of course,” they say, “Let us attach to our flower a four leaf clover, the brand of the nearest holiday.”

But honestly, is it realistic to believe, as a sensible, thoughtful human being, that the purveyors of this software have not carefully analyzed the market and determined the correct price point for their software? Is there any sincerity in this “special deal”?

Of course not. This is the price they mean to set to make their business case. The “sale” is nothing but a gimmick, a drop of green food dye in an otherwise honest pint of ale.

It’s bullshit. It really is.

It was after I made this realization, with many months of non-television watching behind me, that I recalled all of the other holiday based sales: Thanksgiving; New Year’s; Boxing Day; Easter; Valentine’s Day. The list could go on and on. Why should one day be any different from another? Why should anything ever actually be “on sale”? The only real deals are the things they’re getting rid of because no one else would buy them. Everything else is just a trick to get you to think they’re offering a price that’s significantly better than normal.

They might not even be doing it on purpose. Does a flower “know” what it’s doing when it lays out those ultraviolet patterns? Does it feel pleasure at drawing the bee down into its pool of sweet nectar? Of course not. The flower survives because it’s attractive to the bee and the retailers survive because they lay out the patterns that draw in their own Bumblebees.

Don’t be a drone.

Turn off your television. Not just for a day, or a week, but for months. Don’t watch advertisements. Get yourself off all of those electronic mailing lists. All of these are turning you into a drone.

It will take a while, but as you un-program yourself, you’ll begin to see how stupidly the world is run. You’ll begin to scratch your head when you occasion to run across those ads in your everyday life. Their nectar will no long smell as sweet. Their clever patterns will no longer lure you in. You will no longer be a Bumblebee of Consumption.

You will be free, and every lungful of air you inhale will smell as sweet as anything the Consumption Fanatics ever waved under your nose.

Thanks Mr. Toque, and I hope everyone had a great tax season. I for one am greatly relieved that the calculations are done, the bills are paid, and I can look forward to another year of ‘stashing.

Hiking the Dunes

Wow, this special month of ours is really zooming past.

By the time you read this, the Money Mustache Family will be deep in the high desert of Southern Colorado, camping out at the Great Sand Dunes National Monument.

But I thought it would be handy to share some thoughts on the hardcore savings challenge some of us have embarked upon this month.
The best part of the challenge is simply seeing people excited about hacking their own lifestyle to bring themselves greater efficiency, and having fun in the process. Check out this recent comment from a reader:

There’s still a week left in March, but I’m doing so well! Turns out that by bringing in my lunch every day (why stop at 3-4 times a week?), the frugality seeped into other areas of my life as well – I’ve gone out for dinner just once per week, and I’ve done absolutely no extraneous shopping. The results? I’m going to be saving close to 60% of my take home pay this month! I guess saving “at least half” wasn’t an ambitious enough goal!

Next on my list: I’m going to see if I can get my phone moved over to the company plan (fingers crossed!), and then I’m going to break the news to my cats that we’re living a frugal lifestyle now and they’ll have to make do with slightly cheaper food.

Nice.. very nice. Now I not only have consumer products companies, husbands, and wives begrudging my frugality-spreading ways, but cats as well. I should probably stop publishing my picture all over the place soon.

The MMM family has embraced the challenge as well, with the following points of success:

• The car has only been used three times this month (two for hiking trips just outside of town, one trip to the store for building materials)
• Grocery spending is down, due to more vegetarian home cooking, some tweaks to the menu (food planning article still in the works), and reduced impulse shopping on my part for things like dark chocolate and various organic foo-foo food temptations.
• I made a plan to accept one day of paid work, but it ballooned into about four partial days for various people, yielding at least $600 in extra income for the month.
• We scaled down our road trip – the original plan was to get all the way out to Vegas and even the Grand Canyon, but once we plotted out the days of our young lad’s spring break, we realized we could stay plenty busy and have fun without traveling so far. And save a bundle in the process.
• Both Mr. and Mrs. MM. did exactly zero lunches and dinners out, and made zero purchases other than groceries (excepting of course the supplies I bought for my work days, which were billed to clients). This seems to happen pretty often, actually – we already have so much stuff that shopping is only necessary in the rare months that something wears out.

The final thing I did, just to put the Maximum in MMMarch, was signing up for another one of those ridiculously-high-cash-bonus credit cards in order to get the $500 signing bonus. A couple of months ago, I did an article on a $400 business card I signed up for. I was a bit skeptical, but the transaction did go through, I collected the bonus, and I ended up keeping the card and just abandoning my previous business card.

When setting up the credit card referrals page for this blog, I found a $500 Visa card in the mix, so I applied for that one as well. In theory, I will actually get a commission for signing up for a card from my own website, plus the bonus. Now THAT is maximizing the mustache. I promise myself that I won’t spend all my free time doing stunts like that, but just this month I thought it would be fun. This is the card I used , in case you decide to try the same thing*.

When you add up all of these efforts, I estimate that I earned or saved about $1900 more than I would have if the challenge had not been thrown down. With so much already chopped out of our spending compared to the average middle classers, I find that income boosting has a bigger effect than spending cuts for our family. But for people with fixed salaries and high expenses, the opposite will be true. Either way, I’m excited to invest my $1900 to further boost the stream of lifelong investment income. (At 5%, it translates to an extra $100 per year for as long as I live!).

Regardless of the specific actions we’re all taking for MMMarch, I am hoping that the overall experience turns out to be like the one in the quote above. Setting short-term challenges and making things a game for yourself can be a powerful way to trick yourself into acquiring new habits that actually stick.

In our household, we’ve created permanent improvements in our eating habits, just from trying a few new recipes this month and finding that they were easy to make and rather yummy.  I’ve really been sticking to my workout regime and expanding on it, and while it seemed like hard work the first week, it now seems like an easy habit to follow from our vantage point here at the end of the month.

I hope you have had a great month as well. What have YOU discovered about frugal living and even extra income this month?

Editorial note: The camping trip has us out until Monday night. Unpredictable writing schedule until then. Try the Random Article Selector above whenever you want to pretend there are new articles.

*Be warned that this blog will get a ridiculously nice commission if you do get the card through my link, so if you don’t want that to happen, you can also apply directly on the Chase website.

A couple of Januarys ago, I spent a nice sunny day in my outdoor workshop doing some carpentry. I was helping a friend build a fancy Adirondack chair for her own patio. After we finished our work, she insisted on paying me with a huge pan of some delicious homemade dinner, and a box of wine.

The food was a major score, since this girl can cook like a demon. But the box of wine turned out to be even more profitable, because she had opened my eyes to a whole new world of wine buying that has saved me hundreds of dollars since then. And now I am pleased to pass those profits on to you.

The wine she brought to me was called a “Bota Box”. As you can see from the picture, it comes in a stylish and hipster-friendly box made of unbleached recycled cardboard. The most interesting part of the box is that picture of FOUR wine bottles down in the corner. That’s right – one of these boxes, which is shorter and easier to carry than a single wine bottle, contains an equal amount of the good stuff to four 750mL bottles.

The benefits are many, and there are no drawbacks. This Bota Box wine, as well as several of its competitors like my current favorite “Banrock Station”, is some really good stuff. The quality is comparable to what you’d find in $10-$15-per-bottle wine in my own area, which translates to what Antimustachians would pay about $35-45 per bottle for in a restaurant.

I’m not a wine snob, as that is a highly unprofitable affliction to develop. But I can still appreciate the difference between the very cheapest bottles and the midrange stuff most of us buy. (As you might expect, I have also experimented in the ultra-cheap zone, but unfortunately the sheer badness at that end of the spectrum forced to move back up a little).

But the Bota Box costs about $20 per box, which translates to $5/bottle. Banrock has been on sale in my area recently, so I picked up a couple boxes at $13 each (regular price $18, which means I am getting great wine at $3.25/bottle*.

This is a significant find for party people. I know of many young couples who consume a bottle a week between them at $10 a shot. Using my usual rule of compounding (multiply a weekly expense by 752), this burns up $7520 every ten years.  Switching to the boxes at my current sale price saves them $5076 of that amount. In other words, you could cut your wine bill by almost 70%, even without having to cut down your drinking!

Having the wine in a box also adds novelty to a party. You set it up on a shelf, and when you’re ready for a refill you push the red button and watch wine rapidly flow into your glass. There are no downer moments when you realize the bottle is empty after just one round, and there is no forced extra drinking to “Kill the Bottle”.  It’s like having great red wine permanently on tap.

The other benefits are practical as well: These boxes stack efficiently and don’t have the extra weight of glass, so they are ideal for road and camping trips. You can whip one out even in a public park where glass is prohibited. The container lasts forever when left closed, and still over a month at room temperature after opening, because the wine is stored in a vacuum-packed foil bag so it is never exposed to oxygen.

And finally you save a good percentage of the natural resources normally used to melt,  form, ship, and recycle four glass bottles. At the end of your drinking, you’re left with an ounce or two of recyclable cardboard and a very tiny quantity of collapsible plastic.

It has been over a year since my friend showed me this new trick, and I haven’t felt the need to buy a single glass bottle of wine since then. I hope it enhances your weekends as much as it has mine!

* Only people with access to Trader Joe’s can beat this level of value, and alas, TJ’s does not yet exist in Colorado. Also, we haven’t fixed our liquor laws to allow alcohol sales in standard food stores yet. Biggest drawback of the state, in my opinion. But at least there are still nice privately-owned liquor and wine stores everywhere.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

So on to the book.

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

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

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

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

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

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

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

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

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

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

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

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

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

Today was a slightly exciting milestone in the life of this blog, in that it reached the one MILLION page views mark, measured since the day it was born on April 6th, 2011.

Some additional interesting figures: It has been around for nine months (although it feels like many years), and the Google Analytics stats page says there are might be about 25,000 regular readers and 5,000 RSS subscribers. Altogether, about 205,000 unique people have visited the site at one time or another. They made 424,000 visits at an average of 4 minutes each, meaning that on average, 104 hours of reading have been done each day. We’ve written up over 4,300 comments together.  Any way you slice it, there are at least a small city worth of Mustachians out there, which I find quite exciting!

Just today, for example, I learned that some guy started a blog called “Toward Mustachianism“, where he studies up on the concepts here, and applies them to his own high-income/high-spending (but dropping rapidly) lifestyle – and will surely see great results.

On a personal level, I have found this new role as Mr. Money Mustache to be quite a golden life booster. It is so much fun to get a chance to write down all these ideas and rants that have circulated in my head for years.. and have actual people read them and write back to share more. I feel the added challenge of thousands of imaginary eyes watching me when I feel tempted to make any sort of wussypants decision in my daily life. It has brought out many good laughs, and even brought me closer to some friends and family as well as finding some new friends out there around the world who I hope to meet in real life.

I mention all of this mushy stuff because I wanted to use this milestone as an excuse to say THANKS to my wife, Mrs. Money Mustache, for forcing me to start writing this blog. I was content to just occasionally write stuff down in an old Google document whenever it came to mind, with no interest or desire to ever publish it anywhere. But she set up this fancy blog system and reserved my previously-imaginary domain name, and then just left the whole thing sitting up there online, empty, taunting me, daring me to publish some shit. Since then, she has kept improving it and tweaking it, letting me know about mentions we received from other writers, and generally keeping things going.

That part is the key, because from what I’ve learned, it is unusual for a  blog to grow this quickly or even as large as it has. There are lots of technical hurdles involved and hidden side tasks, which I was not badass enough to spend the time to figure out on my own. Without her, I’m just a guy typing some shit into the computer, an activity which doesn’t just automatically create a fun community like this. It’s much like our family’s kickass roadtrip vacations, where she loves planning them out in meticulous detail, at which point I get to just hop into the driver’s seat of the fully-packed car, glance down at the already-programmed GPS, and say, “Ok, so where are we headed first!?”.

When it comes to poking around on the Internet and figuring out how to get things done, Mrs. Money Mustache is the bomb. That is one smart lady, and when she gets an idea in her head, she works non-stop and implements it and irons out all of the creases until it’s perfect. I respect that greatly, because it’s the formula for success in most forms of work.  It has also been great to have her as an occasional writer and commenter on the blog itself, and hopefully we’ll hear from her more often in the future.

Meanwhile, I’m not that great of a blogger, because ever since becoming a parent I tend to spend most of my time away from the computer. While I reassure myself that this is essential to be a REAL Mr. Money Mustache who has an actual life to write about, it does mean that I tend to let a lot of details slip in the blogging world. Story ideas get thought up but then forgotten, emails go unanswered, and more complicated articles requiring research sit around half-written. I apologize to the many dedicated people that write in every week with ideas and questions which do not get the timely attention they might get with a full-time blogger. It makes me feel a bit uneasy, because I don’t really like doing a half-assed job at anything. But oh well, at times like this we must take our motivation from the Honey Badger and just do it.

Over time, even small efforts like this can build on themselves and collect into a bigger success, and that’s my goal, the reason I will stick around and keep having fun here with you. Hearing every day from people who have sliced out their long car commute or made lifestyle changes that completely improved their lives is an incredibly good feeling. I can’t stop, as long as there is good stuff like that going on, and the scale of everybody making changes in their lives is much more than anything I could accomplish by myself. By one calculation, this blog has indirectly wiped out over 1000 person-years of average rich-country consumption already!

And there is SO much more to be said and learned! I noticed there are now 152 articles on this blog (equivalent to the length of a 600-page book!), but looking in my Drafts folder, I see there are MORE than that many unwritten ones waiting for further details or the right time to share them. More of them get added every day, as part of conversations at the kitchen table or out on the town with friends.

So for the foreseeable future, the Mustache must continue to grow. Thanks for making it happen!

(cover art and title is a takeoff of the 1988 album from oldschool rappers Dj Jazzy Jeff and the Fresh Prince).

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

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

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

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

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

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

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

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

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

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

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

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

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

The Cost of Specialization

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

What it boils down to seems to be,

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

In writing this blog for you, Mr. Money Mustache actually has three major goals:

1. To make you rich so you can retire early.
2. To make you happy so you can properly enjoy your early retirement.
3. To save the whole Human Race from destroying its own home through environmental destruction.

All three of these goals are in perfect alignment, and they mix and mingle in different ways depending on which aspect of Mustachanism we are discussing at any given time. Today we’ll be focusing in on #2: What actually makes us happy.

Now, everybody knows that I like to promote a relatively frugal lifestyle. Critics of my approach have said things like this,

“You can’t take your money with you when you die, buddy. How’d you like to die tomorrow after scrimping and saving for your whole life, never having spent your money?”

“I happen to like driving around in a nice car. There’s no way I’m going to bike to work all week and work hard every day just so I can drive around in a $5,000 shitbox on the weekends” *

“I like to buy myself something nice a few times a year. What’s the harm as long as I’m staying within my budget?”

In fact, even the relatively frugal financial blogger I call Mortgage Free Mike once wrote this comment on an earlier MMM article:

“You have a really great.. and unique… attitude about money. I’m not sure if I can regularly deny myself purchases, but at the same time tell myself that it’s a win, but it’s worth a shot!”

All of these statements would have sounded perfectly rational to me when I was just a little younger. In fact, the one breakthrough that flipped my thinking on the matter was learning about the scientific studies that have been done on hedonic adaptation.

In less fancy terms, what this term means is that “no matter what happens to you in your life, you’ll very quickly get used to it”. Hedonic Adaptation is a feature built right into your Human DNA that allows you to function efficiently in a wide variety of environments, even very harsh ones.

A most striking example of this was a 1978 psychological study that evaluated the happiness levels of recent lottery winners, and recently injured paraplegics relative to the general population. As you’d expect, the lottery winners were pretty upbeat immediately after their win, and the paraplegics were pretty pissed off. But within just two months, both groups had returned back to the average level of happiness.

“That’s Impossible!” , I thought. “How could this be!?”

Well, it turns out that when a person jumps to a new level of material convenience, he loses the ability to enjoy the things he previously thought were pretty neat. A cold Bud Light was once a true delight after a work day for the lottery winner, but after the win he quits the job and takes up high-end scotch, poured by a personal butler. Both serve the same purpose, and the pleasure is about the same. Similarly, when moving down the hedonic scale, either voluntarily or involuntarily, we can learn to appreciate simpler things with just as much gusto as we would have appreciated more expensive things. I truly love the sound of the wheels of my bike slicing through the quiet wind on an open road, just as much as I enjoyed the whirring sound of the gear-driven camshafts and the rich tuned exhaust note of my old VFR800 motorcycle.

This happiness averaging also explains why we the people of the most materially abundant country in the world, the United States, where the gas is the cheapest and the cars are the fanciest and the houses are the biggest, are actually quite far below other less wealthy countries in the world when we evaluate our own happiness. Depending on the survey, you’ll see countries like Denmark, Switzerland, Austria, Canada, Bhutan, Mexico, Cuba, and others kicking our ass, and the US rarely ranks above #17 on the list.

It is intuitively hard to believe these things at first, when you have been raised as a consumer. My cravings for the crisply carved seats and slickety smooth gearshift of a Mini Cooper S felt very real. Just as Mrs. Money Mustache’s cravings for the artistic perfection and self confidence boost offered by the latest names in athletic fashion felt real. In fact, the cravings ARE real, and the adrenaline rush of buying these new things is real as well. They really do make you feel happy – for a very short time.

The key for me is not denying the existence of the craving or the short term rush. It’s zooming out and reminding myself, “Dude, the scientists have already figured this out for you. You can buy the Cooper, and get a short term rush, or you can put that same energy and money into doing something that creates far more lasting happiness.”

And that’s the golden nugget for you. You only have a limited lifespan, and you’ve got a real chance to go get yourself some lasting happiness. Are you going to spend that time chasing the scientifically-proven-to-be-ineffective short adrenaline rushes that you get from buying yourself some more shit? Or would you prefer to actually experience Several Golden Decades of Deluxe Life that are so good you look back and laugh at them even when you are a Skeleton?

Luckily, the wise scientists and psychologists who came before us have already done the work, and we know, in a general sense, what is most likely to make a person happy. And when it comes down to a battle between my own emotion-biased intuition, and real scientific research, I’m going to side with the scientists every time, because I always bet on the side where the odds are in my favor.

In no particular order, the biggest factors influencing human happiness include meaningful work (with lots of autonomy, low stress, and low fear of losing your job), private life, community, health, freedom, and a philosophy of life.

Pretty simple isn’t it? And you will note that the Way of the Money Mustache addresses all of these areas.

Because work is such an important part of human happiness, as a Mustachian you will work as quickly as possible to take the money component out of it, so that you can have the option of deciding like a real Adult what kind of work you want to do each day. To achieve this, you will lower your expenses and put the incredibly high level of savings that result, directly to work for you. And in the process, you won’t suffer at all, because all you’re giving up is a little bit of the Hedonic Adaptation Crack Cocaine.

By gaining financial independence, you will naturally turn more to helping others, bonding with your own family and friends and community, and you’ll have the extra time and the reduced stress levels allowing you to take better care of your health. Freedom goes without saying – here in the rich world, the only widespread form of slavery is the economic type. Debt and an addiction to high consumption are a very real form of slavery, and gaining freedom from it is a genuine contributor to Real Happiness.

People who are already financially independent might now step in and say “Aha, but if I’ve already got the freedom and the health, then am I allowed to go out and buy myself a whole bunch of fancy shit?”.

This question becomes more complicated. I’ve pretty much been cured from the desire for a lifestyle any more luxurious than the one I already live. And I’m actually hoping to step it down gradually over time. The obvious reason to reject things like a fancier car or house is that they use up more of the planet’s natural resources that could be used to help someone else instead. On the other hand, buying more services and experiences in your own community might end up supporting younger and less wealthy people (students, actors, musicians, artists) which might do a bit of good to society and share your wealth. I like the idea of starting businesses that employ a wide variety of people and treat them unusually well. Or creating funding incentives for schools and students in such a way that they up their game significantly. It’s a tricky problem, deciding what is the most efficient use for extra money, but I’ll leave it to you to think it over when you get there.

So when you hear people who are still in the Sukka Consumer mindset, telling you that they don’t want to deprive themselves of the happiness afforded by buying things for themselves, even while they struggle with debt or unpleasant work, tell them to look into the science behind what they are saying. They’re actually like a dangerously unfit person saying they don’t want to deprive themselves of the pleasure of sitting on the couch all day and go out for a walk instead.

Science has proven they are both wrong. The sooner you can accept this convenient fact, the sooner you can become rich. And happy!

 * Actual closely paraphrased quote made somewhere online about an MMM article

Mr. Money Mustache loves his music.

I need a constant soundtrack of it at all times – different types of music for breakfast-eating, house-building, furniture-making, driving, blog-writing, exercising, dancing,  house cleaning, patio beer-drinking-and-campfire-having, and more. And it has to be different music all the time – no repeating the same song within a week (preferably a month), different genres throughout each day, and of course absolutely no talking or commercials interrupting the mix, ever.

With a habit like this, you can imagine that I have to spend a lot of time collecting and organizing the music, and making mixes that meet my stringent requirements. And in the past, I have spent a lot of money on the hobby as well. Let’s talk about those olden days to explain how things were, and how they have changed.

Ever since that golden day when my dad brought home a little battery-powered radio from an advertising industry trade show, I have been hooked.  I used to slip the flat radio under my pillow before going to sleep each night as a 9-year-old, and one of my parents would quietly reach under my sleeping head and turn it off on their own way to bed later that night. At the time, I listened to an AM rock station called CKOC that played the cutting edge early ’80s rock and pop music that thrilled youngsters of my generation. Toto’s Africa and much of Michael Jackson’s Thriller album blew little Pre-teen MMM’s mind.

As the years went on, my interest grew. I bought my first double-cassette deck portable stereo (“ghetto blaster”, as we called them back then, despite the fact that we lived in a crime-free town, population 4,000, and thus there were no ghettos available to blast). I started buying tapes, meticulously recording songs from the weekly American Top 40 broadcast with Casey Kasem, and swapping recordings of records and tapes with friends. I discovered the concept of High Quality Sound, and commandeered the stereo system from the family living room for my own bedroom. After scoring my first minimum-wage job, I went crazy and bought an $1100 stereo system of my own, and some of my budding little audiophile friends followed suit. CDs were invented and we bought some of the first CD players and started accumulating CDs at a brisk pace, despite their punishing $20-per-disc price ($36.38 in today’s dollars if you adjust for inflation). I joined, and quit, the Columbia House music club repeatedly as a way of getting more CDs for less.

That was a funny time in our lives, since our spending on music as a percentage of income was ridiculous. By the age of 17, I had amassed about 300 CDs, representing well over $4000 of casual spending collected onto one heavy bookshelf. This is comparable to me buying and maintaining a multi-bedroom luxury motor yacht today, something which I obviously would not even consider. But kids will be kids, and Mr. Money Mustache wasn’t around to admonish me at the time for the careless spending.

But thankfully, both the Internet and the globalization of manufacturing have come along, and completely wiped out the old model. It’s much more difficult for Leather-clad Hair Metal bands like Kiss, Winger, Slaughter, and Quiet Riot to pack stadiums while simultaneously making millions for themselves and their managers and merchandisers and owners. But it’s much easier for independent musicians like my brother Wax Mannequin to spread the word and gain a moderate but dedicated fan base that spans a few countries and lets them travel and rock out upon many ‘a’ fine stage. And music consumers like myself have enjoyed the effects of Napster, Usenet newsgroups, eMule, Bit Torrent, and many other technologies that have fleshed out music collections worldwide at minimal expense, even while we enjoy buying the music of local musicians directly after a barroom concert, with cash, over a compliment and a handshake.

The thing about music for music enthusiasts is that we need a LOT of it. If I listen to music for an average of 4 hours a day, 30 days a month, with no repeats,  I’d need a rotation of 1440 songs, or $1440 dollars worth of music at iTunes prices just to get me through the first month.

In the bad old days, a listener was trapped in a triangle between the options of Incredible Expense, Time-Consuming and Possibly-Illegal Piracy, or Awful Commercial-laden FM radio.

Then Internet Radio came along.

Suddenly there were thousands of streaming radio stations playing nice DJ-arranged mixes of music, supported only by small visual ads but no intrusive audio ads. It was a huge step forward, especially for office workers who want to groove along with headphones all day while they work on their computers. But each DJ’s taste still seemed to differ from my own, such that an annoying tuneless grating noise song or a schlocky Celine Dion-style ballad would pop incongruously into the mix and snap me out of my concentration.   Because of this risk, I often had to resort back to my own digital music collection and the attendant time expenditures.

But one year ago, I discovered a nice hybrid of the two systems: Pandora Internet Radio. You type in the name of a musician, like my favorite Jazz piano player Ahmad Jamal. Pandora automatically creates a “Station” that plays only Ahmad Jamal and similar musicians.. 24 hours a day, advertising free, as long as you pony up the $36 per year fee for the premium Pandora One service.

If a station ever plays a song you don’t like, you run over to your computer and click the “thumbs down” button. This feeds back into Pandora’s algorithm to further figure out your tastes and make the station even better.

I have been a paying Pandora subscriber for one year, and it has been a constant companion for me, streaming out of my laptop into the main stereo at home, and out of my iPhone into the Construction Radio when I am out in the yard or at a party or job site.

I’ve created and customized about 30 stations, each of which draw upon thousands of songs, and I get to sit back and mix and match them for the event at hand. Ahmad Jamal, Alana Davis, Action Figure Party, AC/DC, The Biscuit Burners, Celia Cruz, The Dining Rooms, DJ Shadow, Don Ross, Fila Brazillia, India Arie, Jurassic 5 (best hip-hop group ever), Manu Chao, Me’Shell NdegeOcello, Medeski Martin and Wood, Mountain Brothers, Red Hot Chili Peppers, Strunz & Farah, Turntablism & Beat Science, and the classic early hip-hoppers Young MC/Digital Underground are just some of my stations that form the broad foundation of this crazy new world of infinite music listening.

Pandora satisfies my desire for high quality audio as well. With the premium service, I get streaming at a bitrate of 192kb/sec using a compression method that is more advanced than MP3 (aacPlus). I run this sound stream out of the digital output on the back of my laptop, into my beefy Yamaha receiver, where the digital-to-analog conversion is done in a nice low-noise environment. It is amplified with a fantastic amount of clean power, and pumped out to the gorgeous row of woofers and tweeters depicted in the headline photo of this article. The end result is rich, detailed concerts in my living room, where the fine hairs of brushes hitting the drums strike out into the kitchen, and where the Bass tickles your buttocks at strategic moments. (I will admit that in the area of music reproduction, my frugality has broken down in earlier years. Someday when I lead a more minimalist life, this equipment will have to go.. but for now, the MMM Household rocks on.)

All at a monthly cost of only 3 songs from iTunes, or 3 Justin Bieber ringtones that a teen might purchase for her phone while walking around in the shopping mall. If I can get all this legally for $3 per month, it is hard to imagine spending more in any situation. So I am actually enjoying the most decadent and expensive music collection that can possibly be justified.

It makes me wonder who these people are that are pumping hundreds of their hard-earned employees into Apple’s iTunes store each year, when I already have the largest music collection imaginable at $3 per month!

Sometimes it is great to be a big spender.

I have an irrational love for the subject of Economics.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

A few weeks ago, I got a call from an old friend. He was a coworker at a company where I used to work as a software engineer.

“Hey man, I’ve secretly become a Mr. Money Mustache reader over the last few months. And now it looks like I need some advice from MMM myself, because the company is shutting down our whole department and laying off every single employee there. What should I do?”

What I said was, “Congratulations! You should celebrate!”

I can see how a layoff seems scary, because it is messing up your stable life and taking you out of your comfort zone. And for folks who have not yet embraced a Mustachian lifestyle, it could even cause some financial problems, because you might have large monthly bills and only a small ‘stash to survive on.

But scary monthly bills were not the pressing issue for my friend. He had held this job for almost twenty years, raking in a solid engineering salary and living only a moderately lavish lifestyle. And when this particular company does layoffs, it always gives you an extra six months’ pay for good measure, just as a way of showing it is a company with integrity. So although he hadn’t planned specifically for an immediate retirement, he at least knew no collection agencies would be knocking on his door in the near future.

The problem was just that he didn’t know what you were supposed to do when your job disappears. He had been shaken out of a comfortable snooze and all of a sudden was forced to start doing some independent thinking and making some plans.

“Oh, whoa, what is going on here. Do I start applying for another job? Do I want another job? Do I have enough savings to live off without working? If I don’t work, what will I do with all my new free time?”

All around him, his coworkers were awakened as well. They were all the same people I used to work with in the early 2000s. Some of them dusted off their resumes and fired them out – and got hired immediately at other high-tech companies in the area. These people got fresh exciting jobs where the learning starts anew and the energy level is high, with the bonus of higher salaries, and the “double salary” for six months from the layoff package. Some others may still be looking for work, but with a large safety cushion of cash backing them up.

Others decided that they had spent enough days in the office and were ready to try their hand at the rare sport of Early Retirement. I’m proud of these people, because they are about to do some real learning again. Exploring new fields of study, meeting loads of people they would have not otherwise met, taking care of things that had been put aside for “someday when I have time”.

I believe that life has much more to offer us than doing the same thing every day for the majority of our waking hours. But I’ve read that our brains change if we keep ourselves locked into routines as we age. Over time, people become addicted to the routine of work, and eventually that’s all they know – it becomes impossible to let go or really experience anything else.

This might sound scary to some, and comforting to others. All I can say is, I sure as hell don’t miss my own comfortable job, and Variety is the Spice of Life. I’m not suggesting that everyone go out and quit their jobs today, but I am suggesting that once you can afford it, you should give it some fuckin’ serious consideration.

For cautious people who have had the same job “a little too long” (which I’d define as ten years or more),  but just never end up quitting because it is too cushy, a layoff just may be the best thing that could happen.

As for my friend, I think I convinced him to have a go at being an Independent Man. We discussed the finances a little, and it looks like his ‘stash will be plenty to provide a comfortable lifestyle that more than keeps up with inflation, forever. And he is slowly peeling off the layers of cobwebs that had caked on over those 20 years in a cubicle, and coming out blinking into the bright Colorado sunshine. Congratulations, brand new Mustachian!*

(*he really does have a mustache, lending even more weight to this story).

Sometime earlier in July, I was perusing the WordPress site stats that prove so addictive to bloggers. I noticed that during my distracted days of lake swimming and cottage building, this blog had hit a nice round number milestone of having had individual articles read a total of 100,000 times. That seemed like quite a lot to me, seeing how triple M was just born in April.

But now, just a couple of weeks later, I see that number is already creeping up towards 200,000 views. Even more significantly, there are now almost two THOUSAND subscribers – people who get the articles directly and thus do not show up in the page view statistics above. Exponential growth, thanks to the magic of the Internet. Just when things start to get slow, another random event seems to happen – this month it was getting a few mentions on the very popular site Lifehacker.com. (Thanks very much to David over there for the mention, by the way).

In June, I experimented with adding some Google Adsense ads to the sidebar. They have been a moderate success. It turns out the bloggers get paid surprisingly little for just having them (i.e., “per thousand impressions”), but surprisingly well when people actually click on them. Unfortunately, a surprisingly small number of people actually click – probably because we are all wise anti-consumers who pride ourselves on NOT noticing or clicking on advertisements. Good for us! I’d have to start a blog on fashion or ‘Celebs’ if I wanted a consumery crowd.  According to the terms of service, you’re not allowed to discuss actual dollars per click, but in total, the blog is now earning over TWO DOLLARS per day. That’s far below minimum wage, but it’s still more than enough to pay for our monthly batch of beer brewing.. so thank you, readers!

As for the mental aspect of being a blogger: it is increasingly addictive. I find myself turning more and more into Mr. Money Mustache in real life each day. I buy less stuff than before, not wanting to contradict my own advice.. and I think up dozens more things that need to be said every day. I jot them down in the iPhone’s little notepad and only wish I had more time to write. Life is too busy and fun this summer, although with the young lad starting Kindergarten next month, I expect a fantastic amount of new time for hobbies to open up. The comments and readers, i.e., YOU, are the real things that make this fun, since we are an actual virtual community now.

Finally, as search engine traffic has continued to grow, so has the hilarity of the searches that bring people here. Here is a summary of some of the top and/or most interesting ones.

For fun, I’ve added a few links to the articles that I think generated these search engine hits:

mr money mustache (and various misspellings thereof, such as “mister money moustache”): 4000

bad superman    9
my money mustache    9
earth day    9
stock market    7
mr. mustache retirement    6
mortgage    6
car    5
“my gray hairs“    4
universal men’s grooming device    4
rei bookpacker plus    4
early retirement family man    3
investing    3
real estate    3
hasselhoff    3
lunch    3
stock market p e ratio 2011    3
401k    3
mustache cash stash    3
student loan    3
japanese man    3
raising children on no money    2
home renovation    2
true cost of raising children    2
how much does it cost to run my electric oven for 1 hour    2
food    2
vbinx versus vfinx    2
insurance    2
getting rich with rental property    2
“dave ramsey” good guy    2
old woman weightlifter    2
mustache bar shortage    2
“ramit sethi“    2
beer    2
what’s a good work food stash?    2
evil gut with long mustache    1
colourful    1
man grooming head in mirror    1
old muscle big moustache    1
ways native americans kept hair clean    1
mr money mustache that guy who knows loads about money and early retirement and investment for a return of 7%    1
wealth, fuck you money    1
mrs money mustache    1
why retire if you like your work?    1
herbert salisbury simple retirement calculator    1
“the magic of thinking big” and warren buffet    1
superman 3 junk yard bad fight    1
there is a higher cause    1
sarah gets a bank loan of 200000 for the purchase of a house the mortgage is to be amortized through monthly payments for a term of 15 years with an interest rate    1
double mcpancy    1
do a lot of canadians have mustaches    1
mr money mustache baby angels    1
why are wealthy people still buying gas guzzling cars?    1
amsterdam bicycles    1
getting rich off rentals    1
the most badass person you’ve met    1
retired from corporate life at 28    1
vin diesel wealth    1
millionaire car buying strategy    1
mustache saver blog retire early    1
mr money muscle    1
mr money mustache investments    1
“summer mustache”    1
rich bar owner    1