Wednesday, April 24, 2013

Early retirement by saving and investing more: the Mr. Money Mustache way

At what age do you imagine that you will retire?  65? 60? 55? 

Have you even thought about retirement at all? 
The last Gallup annual Economy and Personal Finance survey found that the average non-retired American now expects to retire at age 67.
Our society has ingrained in us an idea that we need to work until we're 60+, only then can we get a few golden years to enjoy the rest of our days.  Why do people at most income levels continue to work, often times up to age 65 and beyond?
I suspect that consumerism plays a huge part in eating up savings, which could have been used to invest in retirement.  Look at the housing boom and the recent recession.  Easy access to credit allowed many people to buy whatever they wanted.  The 2009 government cash for clunkers program allowed millions of people to trade in perfectly working vehicles to get some credit for taking on new car loans.  At the peak of the housing bubble, there were families getting 30-year mortgages to buy homes with no money down. 
Consumerism is what causes most people who get a pay increase to subsequently upgrade their lifestyle.  
I’m guilty of it myself.  I used to buy every new digital camera, palm pilot (remember those?), and iPhone that came out.  I bought the new iPhone 5 when it first came out.  When I landed my first big job in 2009, I bought a shiny new $30,000 car (on financing).  While I didn’t go broke spending my money, these little lifestyle upgrades took away from the amount of money I could have been saving and investing, which will force me to work later into my life.
For some, financial success may mean living in a McMansion and driving a new high-end luxury vehicle every 3 years.  These individuals are happy upgrading their laptop, cell phone, vehicle, and wardrobe with every new reiteration of the same product..

But what happens after you get a new mortgage for your McMansion?  What happens when you sign a new auto lease or buy a new car right after you just finished paying off your previous car?  What happens when you sign up for a 2-year contract with Direct TV?  What happens after you sign up for a new 2-year contract $100 cell phone plan for your new Galaxy Sx or iPhone x? 
You end up adding years to our voluntary slavery to money.
Tyler Durden (played by Brad Pitt) put it best in the movie Fight Club when he said: "the things you own end up owning you"  
The need for money ends up forcing us to sign up for voluntary slavery.  
The need for money is what prevents us from sleeping in every morning, forces us to sit idle in traffic for hour long commutes, live paycheck to paycheck, take on second jobs, build up credit card debt, and stresses us to our core.  
The need for money forces us to stay in undesirable jobs, prevents us from donating to charities, and keeps us away from our families.  The need for money strips us of our freedom; the freedom to travel, pursue hobbies, and more.
What if you could retire earlier, much earlier?  Retire before 40?  Some say that it can be done. 
What about retiring before 30?

My new favorite blogger is 
Mr. MoneyMustache (MMM).  MMM is a man who, along with his wife, saved an incredible amount of their earnings (66% of pay) for a 10 year period to retire* at the age of 30.  
Yes, age 30.
*MMM still does a few side jobs here and there, not because he needs to, but because he enjoys his work, and can do it whenever he likes and for whom he likes.

How is early retirement possible?

MMM states that the standard concept of retirement is that “life is hard and expensive, so you should keep your nose to the grindstone, clip coupons, save hard for your kids’ college educations, and save any tiny slice of your salary that remains into a 401(k) plan. And pray that nothing goes wrong in the 40 years of career work that it will take to get yourself enough savings to enjoy a brief retirement."

Mr. Money Mustache’s advice?

"Almost all of that is nonsense: Your current middle-class life is an Exploding Volcano of Wastefulness, and by learning to see the truth in this statement, you will easily be able to cut your expenses in half – leaving you saving half of your income. Or two thirds, or more."
He goes on to say:
"What happens when you can save more of your income? As it turns out, spending much less than you earn this is the way to get rich. The ONLY way. And the effects are surprising: if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37. If you already have some assets now, you’re even closer than that. If you can save 75%, 
your working career is only 7 years. 
You can read about how Mr. Money Mustache stashed enough money to retire early in less than 10 years here.
MMM's attitudes about money involve changing one's mindset about what really is necessary or important to have.  MMM has practical concepts on how to cut costs and save persistently without compromising his quality of life.  He is extremely debt adverse and constantly advises against paying for anything on borrowed money.

If you look at the MMM blog, you will see how much he hates following the herd (the sheeple), and conventional consumerism beliefs.  His radical notions about early retirement may be unconventional, but his attitudes have totally blown away my preconceived notions of financial success and personal wealth.

Over the past few weeks, I've been intently reading and learning as much as I can from MMM's unique blog.  In some ways, most would find his concepts extreme.  In other ways, you can see how practical and simple his ideas are.
I THOUGHT that we were doing well with current our savings and investments.  Turns out, we can do MUCH better.  
I THOUGHT we were doing pretty well by saving 30% of our take home income.  Turns out, MMM has been advocating saving at least 50% of your take home pay
Think about it.  What are some of the quickest ways people get rich?  Win the lottery, inherit the money, become a celebrity or sports star, invest in some risky stocks, etc.  Aside from those options, the most practical way of getting rich is simply to spend less than you earn.  A LOT less.

How can you possibly be saving 50% of your income??  
For starters, the following concepts are what MMM recommends:

- Focusing on happiness and not on convenience or luxury
- Borrowing books from the library instead of buying them
- Paying off debts quickly
- Living close to work
- Not buying / leasing / financing new cars
- Riding a bike more
- Cancelling TV service
- Paying less for groceries
- Not pampering your kids
- Discontinuing overpriced cell phone plans
- and more
This site is about me relentlessly improving my finances.  I detail different tips on how I am saving, earning, and investing.  I also like to throw in different ways I am generating credit card reward points to help me and my wife travel for free.  I've practiced some of MMM's concepts without realizing it.  Now I realize that we can do better. 
Saving more allows us to invest more.  Saving more streamlines our cost of living to be more efficient, with less dependence on consumerism. 
Reading this post can sound an advertisement for Mr. Money Mustache.  I assure you, I have no affiliation with MMM and have never met the guy.  However, I am completely convinced that many aspects of the MMM way of life will be absolutely necessary for me on my journey to relentlessly improve my self and my finances.  I will be regularly reading his page as a guideline and blueprint on how to improve our own situation. 
I don’t expect to adopt 100% of MMM's philosophies on frugality.

I’m constantly reminded that I am one of the few people that truly love their job.  If you love your job as much as I love mine, you may never want to quit.   I rarely feel bad about going to work.  I can’t see myself doing anything else that would satisfy me as much as my work does. 

Do I want to work full time until I am over 60 years old?  

Hell no.   

What about working full time until I am 45 years old and then working part time?  What about working part time not because I NEED to, but because I WANT to?  

That sounds fantastic to me.  There I said it.  

I’m 32 years old now, and I will aim to be working part time before age 45

I still want to have children and start a family.  I am still going to game the credit card reward system to let us travel for next to nothing.  I still want to enjoy life and will strive to focus on happiness, and not on consumerism.  According to MMM's math behind early retirement, it may be possible for us, even if my wife stops working for a few years to raise our child(ren).  
As time passes, I will continue to share my progress towards achieving financial independence.

Do you LOVE your job?  Or do you feel stuck in a dead end monotonous 8-5 job that gives you constant stress?  Are you unhappily working M-F, and possibly even Saturdays and holidays?

If you find yourself working hard to make ends meet, with nothing left over from your paycheck to save and invest, it’s time to make some drastic changes in your lifestyle.  If you're working hard just to have your income going to pay off your rent, car payments, fuel your commuting costs, credit card bills and other miscellaneous expenses, it’s time to definitely explore the MMM attitude.  You can find MMM's blog at  

For more information and discussion about early retirement, consider visiting the Early Retirement & Financial Independence Community forum.  MMM also has his own forum here.  

EDIT:  Just wanted to add, here is a nice healthy discussion about MMM on one of my favorite forums, Fatwallet Finance.  

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