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Old 01-17-2014, 10:54 AM   #1
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ER Article

Hey is this guy a member. Sure sounds like one of us.

"One secret to their success? They live on very little: About $25,000 a year for a family of three. They own a car, but mostly bike. Dining out is an occasional luxury. And shopping for stuff? That’s best avoided. But their philosophy goes beyond just scrimping, says Mr. Money Mustache. It’s about enjoying life with less."

How to retire early
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Old 01-17-2014, 01:12 PM   #2
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Can't say I disagree with anything he is doing or his advice, pretty much right on in my book.
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Old 01-17-2014, 01:28 PM   #3
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Nice article.

I just read a quote from comedian George Carlin that addressed this. Something to the effect of thinking more stuff will satisfy your desire to be happy, is like thinking taping sandwiches to your body will satisfy your hunger.

Happy is as happy does.
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Old 01-17-2014, 01:32 PM   #4
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I agree with the general philosophy, but if you look at his $25K a year budget, there are many expenses missing most people here would say to include, and he takes a lot of trips that are covered under the business expenses are not accounted for in his personal budget.

Sure it is great having a business to write off many of your regular expenses and business trips to exotic locations, but that isn't really showing most people how to off $25K a year. I think when you add back in the cost of expenses he shifts to his business and missing items from the personal budget most people here would spend money on, like dental check ups for the whole family, car replacement fund and car repairs, gas for all the driving trips, you come out with a much higher budget than $25K.

Also telling readers that 4% safe withdrawal rate is safe at any age didn't seem like prudent advice.

I haven't looked at his blog in awhile, so maybe the budget and safe withdrawal rate have been more realistic lately, but I lost interest when the numbers didn't seem to really add up.
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Old 01-17-2014, 01:45 PM   #5
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I agree with the general philosophy, but if you look at his $25K a year budget, there are many expenses missing most people here would say to include, and he takes a lot of trips that are covered under the business expenses are not accounted for in his personal budget. Sure it is great having a business to write off many of your regular expenses and business trips to exotic locations, but that isn't really showing most people how to off $25K a year. I think when you add back in the cost of expenses he shifts to his business and missing items from the personal budget most people here would spend money on, like dental check ups for the whole family, car replacement fund and car repairs, gas for all the driving trips, you come out with a much higher budget than $25K. Also telling readers that 4% safe withdrawal rate is safe at any age didn't seem like prudent advice. I haven't looked at his blog in awhile, so maybe the budget and safe withdrawal rate have been more realistic lately, but I lost interest when the numbers didn't seem to really add up.
Creative math, personally I'm a big fan of it. I made a couple recent big purchases and didn't want it to come out of my pocket and reduce my net worth, so I wadded it all on zero percent cash advance CC, so it can be treated as a monthly expense like the cable bill and my asset base still is able to grow each month.
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Old 01-17-2014, 02:17 PM   #6
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Is 4% spending unreasonable? Not as he does it as I recall. The typical 4% SWR referred to is a withdrawal dollar amount at 4% of portfolio at retirement and then adjusting for inflation each and every year over a 30 year time period. On the other hand, as MMM does it, he takes 4% of whatever the portfolio amount is with no inflation adjustments. If the portfolio is up then one gets a raise by 4% of the new higher portfolio value. If the portfolio is down 30%, as an example, then your total withdrawal amount from the portfolio shrunk by 30% though this new lower withdrawal is still 4% of the remaining portfolio. Doing it this way does make a big difference over the long run.

I think MMM brings a lot to the table to mull over and possibly implement and I am sure he has helped a lot of people. I also thought when I use to read his blog that I was reading a lot of spin. Maybe breaking out some of the expenses as business expenses and separating them, as previously mentioned, is one of those things done that maybe might lead to a false perception. Maybe he is 100% accurate but I just didn't feel he was.

As I stated, I think MMM has done a lot of good for people but I could never come to grips that there wasn't some spin and bs involved. I don't read him anymore due to the fact I don't think he is 100% credible.
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Old 01-17-2014, 02:35 PM   #7
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I know there is some controversy over MMM and I have some issues with him. I do agree that some things that most people think of as everyday expenses (travel) get rolled into business expenses. I also would guess his blog makes a bundle with the kind of hits that he gets.

All of that said, I do think he is frugal with a lot of things and I have gotten some ideas from him. I also think he is helps to question a lot of assumptions that people might have. For example, he has some good points on working close to work and to considering whether you can bike more places rather than drive a vehicle.

That said, I think he tends to make fun of spending that he doesn't value, while never questioning the spending that he values. Case in point. He makes fun of people eating out or engaging in past times that he doesn't find fun. But, he spends way, way, way more on travel than I would ever spend. He seems to justify this as paying for the social experience. And, that is fair enough. But, why isn't it OK for me to pay for the social experience of going to a restaurant I like that doesn't involve going to another state?
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Old 01-17-2014, 04:14 PM   #8
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That said, I think he tends to make fun of spending that he doesn't value, while never questioning the spending that he values. Case in point. He makes fun of people eating out or engaging in past times that he doesn't find fun. But, he spends way, way, way more on travel than I would ever spend. He seems to justify this as paying for the social experience. And, that is fair enough. But, why isn't it OK for me to pay for the social experience of going to a restaurant I like that doesn't involve going to another state?
For most people their biggest expense is housing, and related costs like property taxes, insurance, utilities, and repairs. I think that is how most people who wanted to cut expenses down to the nubbins could save the most money, by cutting back on major expenditures, like living in a smaller house or condo and not going on vacations abroad, instead of cutting out all simple pleasures like going out for Chinese food once or twice a week, or riding their bikes to the grocery store in winter to save $1 on gas.

Maintenance alone on a $400K house is going to cost 1% - 2% per year, or up to $8K.

https://www.mint.com/blog/goals/home-repair-02022011/

Great if you can do some of that yourself, but materials are still not free, it is still work and there is an opportunity cost of your time involved. Many people here would make more per hour doing contract or part time work and hiring a roofer or plumber to work on their house.

My part time work pays more than roofers make and I don't have to worry about falling out of my office and breaking my neck.
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Old 01-17-2014, 05:02 PM   #9
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For most people their biggest expense is housing, and related costs like property taxes, insurance, utilities, and repairs. I think that is how most people who wanted to cut expenses down to the nubbins could save the most money, by cutting back on major expenditures, like the avoiding the opportunity cost and upkeep of owning a large, expensive single family home or vacations abroad, not by cutting out going out for Chinese food once or twice a week, or riding their bikes to the grocery store in winter to save $1 on gas.
I do agree with that. I do think that MMM makes a good point that people often end up choosing where they live without considering the huge cost of the commute. He basically contends that it is overall most cost effective to live close to work so you can avoid a long commute, even ideally riding a bike to work.

I do think he has a point. What I think he doesn't give enough consideration to are a couple of common situations that DH and I both experienced.

1. What if you work in an area where homes are very expensive? He seems to assume that it is always cheaper to live closer to work to avoid the commute. In experience, that isn't always the case. I worked in a very expensive to live area.

2. What if a couple works in opposite directions a long way away from each others. DH and I - throughout our marriage - worked a minimum of 50 miles away from each other. There was no good choice of where to live that didn't avoid commuting. We both had very good long-term jobs so changing employment was not a good choice.
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Old 01-17-2014, 05:18 PM   #10
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I think that MMM does what works well for him. What works for him will not always work for others. I do think his blog is informative and entertaining and appears to have inspired others to improve their life and financial situation.
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Old 01-17-2014, 06:38 PM   #11
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I do agree with that. I do think that MMM makes a good point that people often end up choosing where they live without considering the huge cost of the commute. He basically contends that it is overall most cost effective to live close to work so you can avoid a long commute, even ideally riding a bike to work.

I do think he has a point. What I think he doesn't give enough consideration to are a couple of common situations that DH and I both experienced.

1. What if you work in an area where homes are very expensive? He seems to assume that it is always cheaper to live closer to work to avoid the commute. In experience, that isn't always the case. I worked in a very expensive to live area.

2. What if a couple works in opposite directions a long way away from each others. DH and I - throughout our marriage - worked a minimum of 50 miles away from each other. There was no good choice of where to live that didn't avoid commuting. We both had very good long-term jobs so changing employment was not a good choice.
I agree. High salaries tend to drive up the local house prices. Most two income families with high salaries are not going to get two jobs, good public schools and inexpensive housing with a yard for the kids all in one convenient location.
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Old 01-17-2014, 06:57 PM   #12
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IMO personal finance bloggers are like another group Brewer mentioned last week-FAs, who are in an arms race to claim the most outstanding (and often impossible) results or knowledge. In the case of personal finance bloggers, the need is to claim a wonderful life on an unbelievably small budget.

ER wannabes are less critical than the guys I knew in the 5th grade, we called bs on one another routinely, because it was bs. 5th grade boys are good at this.

It is pure porn. Enjoy it if you run that way, but I wouldn't spend a lot of time studying it closely.

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Old 01-17-2014, 07:05 PM   #13
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I guess I just don't see what's so amazing about the spending control since that doesn't have as much to do with it as the income and it's not even that hard. Many of us here, including me, lived on very small amounts in university or when stuff hit the fan.

Why do bloggers always under-emphasize the income required to become FI quickly? It's been much easier for me to save a high percentage in years I was making $200k+/year than in the years I made $50k or less/year.

Easy steps to become FI - anyone can do it!
1. Be born with an IQ at some % over average, preferably with an aptitude for math
2. Be reasonably hard working and like getting a good deal
(mostly time and possibly quitting your job to do construction or work for the family business at home or sell houses to friends - or blog - and call it retirement because that gets more click bait than "I changed my career - but it's fun!")
4. Profit!
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Old 01-17-2014, 07:19 PM   #14
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I agree. High salaries tend to drive up the local house prices. Most two income families with high salaries are not going to get two jobs, good public schools and inexpensive housing with a yard for the kids all in one convenient location.
For sure. An economist and mutual fund manager named John Hussman wrote about this during the property run-up of the early to mid 2000s. He said basically, demand has 2 components, the mortgage interest rate and availability of mortgages, and the wages being paid in the area. Buyers tend not to be price sensitive. If the payments allow purchase, they will purchase. Only rarely will cost be compared to rental cost.

Supply within the US is heavily influenced by geography. The West Coast tends to be expensive in part because the cities are land constrained. In Seattle for example, Puget Sound is to the west, Lake Washington is to the east, both with neighborhoods that have been fully built for at least 70 years. To the north and south, are other cities and developed suburbs.

As cities get larger, and to the extent that employment is not fully distributed throughout the region, sheer distance from expandable suburbs to employment begins to have the same effect of shortage of available housing and relatively expensive homes.

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Old 01-17-2014, 07:32 PM   #15
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Why do bloggers always under-emphasize the income required to become FI quickly?
Because they make a lot of money and to them, everybody else makes about the same.
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Old 01-17-2014, 07:51 PM   #16
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Agree there's some good ideas on frugal living, but some non-credible BS too. He has not really retired, but rather built a nest-egg large enough to let him quit his regular j#b & become a self-employed writer (blogger). Good for him. But like many good writers he presents things in a way to grab reader's interest. His biggest claim of family living on $25k/yr appears to rest on some selective accounting (e.g. ignoring housing cost (no mortgage or rent) & amortizable periodic large expenses like car repair/replacement, home repair, major medical, etc.). Counting on $25k/yr total expenditures and 4% SWR (or 25x present annual living expenses) for 30-something with wife & kids seems pretty dicey to me.
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Old 01-18-2014, 12:53 AM   #17
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I was as skeptical as some of you all when I started reading his blog, but have since softened my view.

"His expenses include a paid off house." - Yes, this is true.
"He's running a business." - Yes, this is true.
"4% is nuts." - His 4% doesn't include any SS, any part time or intermittent work (common amongst his readership) or his rental house. I won't disagree that this is looser and less cautious than the 2-3% WR now in vogue, but we all have different levels of comfort with risk.
"He doesn't reveal all the details of his business spending!" Nope. Is this required?

Seems like a nice guy, I enjoy the blog.

In my head, I put the different FIRE sites on a continuum of conservativeness.

ERE (Jacob) - Retire NOW by needing extremely little. (least conservative/most radical)
MMM (Pete) - Retire SOON through optimization, eschewing consumerism, and LBYM. Don't plan for every contingency, assume that if you are at FI, you can figure out how to handle bumps along the way. (less conservative/somewhat radical)
E-R.org - Retire somewhat early through LBYM, investing, and making sure you've planned for most of the bad things that could happen. (moderately conservative/common sense)
Bogleheads - Retire only when you have 3 million for retirement, a paid off home, fully paid college for all descendants, an overflowing HSA, and you've wrapped your entire body in bubble wrap. (conservative, sometimes too much)

OK, I'm teasing on the last one.

I find value in all the sites, while ideologically I'm probably somewhere between MMM and E-R.org. How bout you?
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Old 01-18-2014, 01:06 AM   #18
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Someone on reddit tried to follow the MMM finances from the blog and couldn't get the numbers to really add up -

Deconstructing 'MrMoneyMoustache' - Rejoinders Welcome : personalfinance

There is a response at the end from someone that appears to be MMM that doesn't seem too prudent -

"When we declared ourselves "Retired!" in 2005, it was based on a different formula: $100,000 in equity on a tiny $200k home we had just downsized to, and $700k in invested assets paying at various rates, averaging 6%."

Retired at $700K total net worth at 35 with a family and then then the stock market and housing markets both crashed a couple years later? Then somewhere after that there seem to be two houses worth 400K each? One a rental and one a personal residence? Can you retire the rest of your life at 35 on one rental property? Or did I not follow along with the net worth time line correctly?
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Old 01-18-2014, 08:38 AM   #19
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couldn't get the numbers to really add up...

"When we declared ourselves "Retired!" in 2005..."

Or did I not follow along with the net worth time line correctly?
I think it's best not to try following the timeline with the assumption that they were retired and living off the nest egg. If you take into account that his wife worked until late 2012 as a finance manager and real estate agent and he worked doing carpentry work, it makes more sense that their net worth could increase in a time when you wouldn't expect it to based on normal retiree circumstances. There's probably a reason why the timeline stops when it does or it would show that infusion and counter the retired claim.

These blogs and books are good to provide inspiration and sell the dream but there always seems to be some tarnish somewhere. I found the same thing with Derek Foster (author of Stop Working/Canada's youngest retiree), even Joe Dominguez (YMOYL)... It's like weight loss ads with the "results not typical" fine print and airbrushed photos. They appeal to our basic human nature of wanting quick results.
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Old 01-18-2014, 09:24 AM   #20
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...
In my head, I put the different FIRE sites on a continuum of conservativeness.

ERE (Jacob) - Retire NOW by needing extremely little. (least conservative/most radical)
MMM (Pete) - Retire SOON through optimization, eschewing consumerism, and LBYM. Don't plan for every contingency, assume that if you are at FI, you can figure out how to handle bumps along the way. (less conservative/somewhat radical)
E-R.org - Retire somewhat early through LBYM, investing, and making sure you've planned for most of the bad things that could happen. (moderately conservative/common sense)
Bogleheads - Retire only when you have 3 million for retirement, a paid off home, fully paid college for all descendants, an overflowing HSA, and you've wrapped your entire body in bubble wrap. (conservative, sometimes too much)

OK, I'm teasing on the last one.

I find value in all the sites, while ideologically I'm probably somewhere between MMM and E-R.org. How bout you?
I know a bit more about ERE than MMM and Bogleheads, and of course spend most of my time BS'ing here on this forum. Assuming your categorization is correct, then I am definitely in the E-R camp. However, I am prepared to downgrade to ERE if I have to, in case of a global economic catastrophe. Heck, I would have a lot of company, and you know what misery loves. OK, I hope it will never be to that extreme; I would try to get a job. A bit of work never hurts anybody, right?
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