Meet the Realist

Whoa, did you read that opinionated garbage yesterday?

Who is this Mr. Money Mustache? The guy thinks he’s got it all figured out. And is he trying to offer financial advice, or just financial scorn to those less fortunate than himself? Sure, maybe you can retire early if you are born to a frugal family, get a good education and never make any mistakes. But what about the rest of us? Is there any hope at all?

My name is The Realist. I’m contributing to this blog to add some perspective to the hard-edged idealism of this “Mr. Money Mustache” (who needs a fake catchy name like that anyway?).

So, life is hard in the modern world. Rapid changes in the business environment mean frequent layoffs and difficulty in holding a steady job. Health care inflation means we waste more of our small paychecks on medical costs each year. Gas prices are higher than they used to be, and so are other costs like food, child care, and education.

Yet some people manage to get by while others go bankrupt. Is it all just luck, or is there something we can do to beat the odds ourselves? As the Realist, I’ll step in to present small but powerful steps to help you get ahead. There is sometimes a fine line between financial solvency and bankruptcy.

How fine? How about $25 a month?

Here’s your lesson for the day: say you are breaking even – paying all your bills, buying $500 monthly of necessities on a credit card which gets paid off IN FULL each month with no interest, but not able to save a cent.

Then a McDonald’s opens up next to the office where you work and you start buying lunch once a week instead of brown-bagging it. All of a sudden, you can’t quite pay the credit card bill each month so a small balance starts to accrue.

  • Month #1: there’s a $525 balance and you pay $500
  • Month #2: you are charged interest on the unpaid $25 from the first month at 20% ($0.42) so you’re $25.42 short
  • Month #3: interest on $25.42 ($0.43) plus this month’s shortfall ($25) – you are now $50.85 short
  • Oops, you are just a few days late for a payment and suddenly the whole $550 balance is subject to interest ($9.16) plus a late fee ($30). Now you’re $89.16 in the hole.

Ahh, one burger a week, 89 bucks after 3 months. That’s not so bad, is it? YES IT IS.

After 10 years, you’ll have a credit card debt of about $5,000. If you couldn’t pay it off when it was $525, things are looking much tougher now.

And that is $25 per month. Imagine someone so free spending that they went to McDonald’s once per DAY?

That person would be over $50,000 in debt after ten years.

Wow, that is truly extreme. So the lessons for the day are:

  • Never EVER let a credit card go even one month without paying the balance in full – because the interest rate is ridiculous, and if you ever slip up on the due date, they trick you by charging you interest on all your purchases for the whole month.
  • There is a surprisingly fine line between staying afloat and sinking, even over a short period like ten years. Understand this and then all those stories about people going bankrupt start to make sense.
  • But there is also a fine line between staying afloat and rising up quickly to become very wealthy.

What if the person breaking even above found a way to save $10 a day instead of spending $25 more than she made each month? The quick answer is that the same person would would have a $50,000 stack of rapidly growing money in ten years.

And that’s just ten bucks a day – we can do much better than that, with some careful, surprisingly easy, fine tuning. Read on!

  • Acorn May 25, 2011, 10:13 am

    Wouldn’t you only pay the interest on the $5. and not the first $500. since you are paying that part off each month?

    • MMM May 25, 2011, 9:03 pm

      Well, that’s how it SHOULD work, if credit cards weren’t super Evil. But as it turns out, if you ever don’t pay your balance in FULL, they instantly go into super-shaft mode and apply back interest to every purchase you made that month, since the day you made it.

      At least, that is what I have read in the get-out-of-debt guides I sometimes review for entertainment. I’ve never not paid a credit card balance in full. If I’m wrong on this, someone can feel free to step in and educate me.

      • PeterPan January 20, 2015, 11:25 am

        I know this is an old article, but as I love this website I couldn’t bear to see someone read this misinformation and ignore the other good advice because of it. You only pay interest on any balance that you carry past the due date. For example, if your closing date is the 1st of the month, and your balance is $5 (that sneaky burger) you have until your payment due date (typically 21 days later) to pay it. So if you pay $5 by the 21st, you accrue no interest. If you pay $3 before the due date on the 21st, you pay interest on the remaining $2, not the full burger and CERTAINLY NOT THE $500 THAT WAS PAID BEFORE THE DUE DATE. That burger, plus a new $5 burger each month, will accrue interest. Do a basic Google search on credit cards to learn more. Credit can be very dangerous, but misinformation is equally so. Please remove this article or allow someone to actually do the math correctly.

        • Mr. Money Mustache January 21, 2015, 9:40 am

          Thanks Mr. Pan, I fixed that error and made the numbers more realistic. Could still use some polishing if anyone wants to send me a screenshot of a spreadsheet of annual balances ;-)

          • Sarah November 1, 2015, 6:32 pm

            MMM’s initial calculations were correct. The interest is applied not only on the unpaid balance but also on transactions during the month. That’s how owing the bank $1 can result in incurring $80 in interest.

            Source: I work in a bank and have seen breakdown calculations.

            • Kristofer Krause May 31, 2017, 4:34 am

              Thanks Sarah. Maybe different institutions have different rules? Either way, I avoid messing up my credit card payment at all costs. Pay a day early if necessary.

  • Bakari Kafele May 31, 2011, 8:57 pm

    Its true, but with one distinction: you have to pay the statement balance by the due date, not the current total balance. The statement balance will be stuff you bought last month. You don’t need to pay the things you purchased between the time your last payment posted and the day you are paying, until the next statement comes out.

    I learned that this makes a difference because if you always pay in full, your credit statements always read zero, and that looks bad on your credit report for some stupid reason. As long as you pay the statement balance, you should pay no interest (but don’t take my word for it, check the fine print on your card disclaimers)

    If you are financially independent, maybe you don’t care about your credit score, but it could mean a lower interest rate if you ever decide to buy a house with a loan.

  • jDeppen June 2, 2011, 9:56 pm

    I’m new here and I like what I’ve read so far (also a Facebook fan).

    This reminds me of something Dave Ramsey said, “If you play with snakes, you get bitten”.

    Why do we need credit cards at all? What’s your position?

    • MMM June 2, 2011, 10:40 pm

      Thanks jDeppen!

      Well, we definitely don’t need credit cards. If I had a choice of everybody being allowed to use them, or nobody being allowed, I’d pick nobody, to protect the people who are destroyed by them every day.

      But as long as they are going to be out there anyway, disciplined people can use them as a free one-month-interest-free-loan / budget tracking / cash-back tool. I get about $1000 back every year in free plane tickets/hotels/car rentals due to a unique situation we have with a Travelocity American Express card. So a good portion of my family’s oversized travel budget is free because of credit card use!

      But no, I’ve never been ‘bitten’ by a credit card, because it’s set to automatically pay the statement balance in full from my bank account each month.

    • Scott January 28, 2013, 7:10 pm

      “Why do we need credit cards at all?”

      Because you need self-discipline to be mustachian anyway, and a 1-2% discount on everything you buy is worth it.

      • Lesayle April 18, 2013, 10:37 am

        At 27, I just signed up for my very first credit card. Fidelity’s AMEX which gives me 2% into a brokerage account for all spending. I did so because I know I won’t abuse it and even at my low spending rate I should get back $100 a year that I wouldn’t have otherwise. Not much, but it’s something.

  • Sarah December 11, 2012, 5:59 am

    How do you go from just breaking even, where $5 a month will tilt you downhill, to being able to save $10 a day? Is the author assuming a large(r) income and a large debt mountain?

    • Kimberly V January 6, 2013, 9:51 pm

      I don’t know about saving $10/day when things are that tight, but I have learned with recent belt tightening that if we look around there are often things we think of as necessities that can really go, like the $80/mo cable bill, or the exterminator/gardener who cuts your lawn, meal planning with the grocery ads to get the most out of your food dollar. It all ads up to give you a little breathing room/ the possibility to save.

      • DebtBaby May 24, 2013, 2:45 pm

        I agree with you about the cable bill. That has come up in recent discussion in our household as whether or not to cut. It is definitely not a necessity.

  • Ivan July 4, 2013, 9:53 am

    Wow, this is an eye-opener. I always thought not paying your credit card in full each month was bad. But I didn’t know it was THIS bad. Now it makes sense how someone can spiral into credit card debt so quickly.

    Discipline helps when it comes to staying on the “right” side of the fine line between staying float and sinking fast. A better strategy would be to automate your credit card payment. That way, the credit card gets paid on time, every time without worry. And you still get the perks.

  • Matt March 11, 2014, 10:28 am

    Holy CRAP!!! A friend just pointed me to this website a few weeks ago, and I’ve been trying to grow a moustache. I thought I was reasonably savvy about this stuff, but NEVER realized this. This just made my debt emergency feel a whole lot more intense.

  • Krystal April 19, 2016, 11:05 am

    Hi Mr. Money Mustache!

    I am new to your blog and find it to be highly informative and well written. However, I noticed a few grammatical errors in your second post. I was curious if you would be open to allowing me to edit some of your work? (I have no motivation other than I love reading lots of personal finance blogs and also am a bit of an English nut. )

    Thanks for sharing your wealth of knowledge!

    Here are the errors in order of their appearance, from top of bottom:
    There is a sometimes a fine line between financial solvency and bankruptcy. (double a’s in there)

    • Month #2: you are charged interest (needs the word “on” inserted here) the unpaid $25 from the first month at 20% ($0.42) (needs the word “so” inserted here) you’re $25.42 short

    there is a surprisingly fine line between staying afloat and sinking, even over a short period like a ten years. (delete a)

    • Mr. Money Mustache April 19, 2016, 5:06 pm

      Thanks Krystal! I appreciate the corrections and you’re welcome to keep sending them in. I have fixed these ones, and for future updates from you I’ll erase the comment after making the fixes.

  • Ben March 19, 2017, 6:51 pm

    This might be a dumb question, but where does the $0.42 come from? 20% of $25 is $5.

    • Mr. Money Mustache March 21, 2017, 6:19 am

      Hi Ben – 20% is the annual interest rate, which works out to 1.6% per month. 1.6% of $25 is 42 cents.

      • Francisco Fiuza March 29, 2017, 12:25 pm

        The annual interest rate of %20 is good! Here in Brazil, in 2016 the annual credit card interest rate was 484.6%! Can you imagine how fast people get into debt here?


  • Cubert August 1, 2017, 4:03 pm

    This is how I found over $1,000 a MONTH in cost avoidance. Try hard enough, you’ll find the non-sense in your so-called “budget”: drop-off service dry cleaning, obscene cell service and cable, security system, too much insurance, guzzling gas instead of pedaling, new clothes at stores instead of via eBay, fancy haircuts when you’re going bald, etc. etc. etc.
    So thank you, Realist! You might’ve been a legit challenger to Mr. Money Mustache, if only you’d just hung in there for a few more posts. You’re like the Pete Best of the FIRE blogosphere. Regards, Cubert.

  • Jack November 13, 2017, 1:45 pm

    Hi MMM,

    Another great article. I’m trying to comb through your entire series and apply as much of the philosophy and advice I can glean. The major point you make here – that every credit balance should be paid in full every month is so important and yet I notice my own vigilance and awareness on this point wane from time to time. Having set all my credit cards to be paid in full and on auto-pay I really don’t bother to check my statements and yet problems can still arise. Your advice here has encouraged me to start tracking all my payments. I am thinking Mint might be a good app/tool to achieve for this but if you or anyone know of a better system I would be open to suggestions. Thanks!


  • Sergii Iasko February 19, 2019, 1:17 pm

    I prefer to use credit card instead of cash as it helps me to control my expenses, though I know that sometimes it is really hard for some people to keep track on that and probably cash or debit card would a better option for them. Anyway, your idea about full replenishment of the debt it great and I think that the majority of those who seek to become a wealthy person can use this simple yet super effective advise as the first step.
    P.S. Sorry for the mistakes, English is not my native.

  • George Choy June 23, 2020, 8:08 am

    Early in my working life I had credit card debt. It was only around £450 but it barely went down.

    Once I’d paid it off I set all my cards to automatically debit 100% of the balance each month, which stopped me from doing it again.

    It was only in later years when I worked for a credit card company that I realised it could take someone 15 years to pay off the debt if they only paid the minimum each month.


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