I have started reading a blog by a guy who calls himself Mr. Money Mustache.
It's pretty serious.
He- and others like him- call themselves Financial Independialists- of FIentists. Their "thing" is saving massive portions of their income- like, 50% or more. By minimizing all spending and investing like crazy, their goal is to reach financial independence as soon as possible- and well before the average retirement age.
Mr. Money Mustache followed that strategy starting when he was 20 and "retired" at 30! "Retired" because he still has some sources of income (besides investments)- he does contracting work and "fixer-upper"-ing, but he does it because he likes it, and not because he needs the money.
It seems totally impossible, and there are some things that he does that I'm not willing to do. For example, he lives in the suburbs, outside of Denver, where living expenses are a lot lower than they are in DC. I'm not doing that- both because I love big cities, and because both Ron's and my job can only be done here (or NYC, which doesn't help in the broke-ass ninja department).
But as you start reading, there's a lot of good stuff in there. He makes you think a lot about how you're spending your money. Are the decisions you're making every day helping you get to where you want to be, or not? A lot of the things he espouses are right in line with my own beliefs (not necessarily my practices, but I'm working on that).
For example, he advocates:
Never, ever, ever taking on debt. Ever. Because all of that interest and those fees are dollars that are leaving your pocket but not serving you in any way. So much better to save up, pace yourself, and buy things only when you have the cash to do it. This policy also helps you not buy things you don't really need, because there's no such thing as an impulse buy.
Investing is the key. Saving is good, and you need to have enough cash on hand to deal with small emergencies (HVAC dying in August, por ejemplo), and bigger ones (losing a job). But investing- turning your $1 into multiples of that- is the key to financial independence.
Note: Just found this cool little calculator, which provides an estimate of the impact on your take-home pay based on your pre-tax 401(k) contribution:
https://401k.fidelity.com/public/content/401k/Tools/TakeHomePayCal
And this one helps you figure out how much interest you'll pay on your student loans:
He- and others like him- call themselves Financial Independialists- of FIentists. Their "thing" is saving massive portions of their income- like, 50% or more. By minimizing all spending and investing like crazy, their goal is to reach financial independence as soon as possible- and well before the average retirement age.
Mr. Money Mustache followed that strategy starting when he was 20 and "retired" at 30! "Retired" because he still has some sources of income (besides investments)- he does contracting work and "fixer-upper"-ing, but he does it because he likes it, and not because he needs the money.
It seems totally impossible, and there are some things that he does that I'm not willing to do. For example, he lives in the suburbs, outside of Denver, where living expenses are a lot lower than they are in DC. I'm not doing that- both because I love big cities, and because both Ron's and my job can only be done here (or NYC, which doesn't help in the broke-ass ninja department).
But as you start reading, there's a lot of good stuff in there. He makes you think a lot about how you're spending your money. Are the decisions you're making every day helping you get to where you want to be, or not? A lot of the things he espouses are right in line with my own beliefs (not necessarily my practices, but I'm working on that).
For example, he advocates:
Never, ever, ever taking on debt. Ever. Because all of that interest and those fees are dollars that are leaving your pocket but not serving you in any way. So much better to save up, pace yourself, and buy things only when you have the cash to do it. This policy also helps you not buy things you don't really need, because there's no such thing as an impulse buy.
- How I live it: Ron and I are almost done paying off our car (boo, bad debt!). We already have a plan to start putting what we're paying now in monthly payments into a savings account, and keeping our current car until it dies. Then we'll have the cash to buy a new car with no debt and we'll save all that interest. Also, we're also going to Paris for Ron's 40th and have set up a savings account, so we won't put it on our credit cards. We're using Airbnb to rent an apartment there that we'll share with a bunch of friends who are also coming- so much cheaper and more awesome than a hotel!
- How I don't: Gah. Student loans, credit cards, etc. The usual debt traps that are so common they seem normal but really, what is normal about them? I have just about paid down about $20k of credit card debt, most of it accumulated over a decade, and I will NEVER put myself in that position again.
Doing things yourself. If you aren't financially independent yet, you can't afford to have someone do the things that you can do for yourself. Plus you get to learn how to do random, cool things.
- How I live it: We cook at home a lot more than we used to (could still improve the ratio but working on it); I painted the entryway, the whole downstairs, and one bedroom myself.
- How I don't: The dog walker. Pippa doesn't really need it, and I am working from home now anyway- I am certainly able to take her for a walk. We think it's good for her to socialize so she doesn't get even more neurotic than she already is, but is it worth $20/walk for our dog to have a social life? Ron thinks so; I'm more torn...
Investing is the key. Saving is good, and you need to have enough cash on hand to deal with small emergencies (HVAC dying in August, por ejemplo), and bigger ones (losing a job). But investing- turning your $1 into multiples of that- is the key to financial independence.
- How I live it: I have been contributing to my 401(k) since I have had the option- my company doesn't contribute much, but that's free money over and above whatever my salary is. Note: Like an idiot, I just realized that "maxing out" your 401(k) doesn't mean just putting in the minimum to get your employer's match, but rather putting in a maximum of $17,500 (for 2013). The thing is, money put into your 401(k) is pre-tax, so you won't notice that big of a hit in your salary. Now that I know, I'm going to adjust ASAP.
- How I don't: Except...those damn student loans. The interest on them is crazy low (3.5% is the highest I think; the bulk of it is at 1.5%). For sure, if I invested any extra income I have (like in my 401k), I'd earn more than 3.5% return over the long term. Investing is therefore a better investment than paying down my student loans. And yet...even at only 3.5% interest, my $15k loan paid back over 30 years (the current term of my loan) means that I'll pay an extra $9,500 in interest. That sucks! Maybe once I see what happens to my take-home pay after I max out the 401(k), I can try paying back the student loans a bit earlier than planned.
Note: Just found this cool little calculator, which provides an estimate of the impact on your take-home pay based on your pre-tax 401(k) contribution:
https://401k.fidelity.com/public/content/401k/Tools/TakeHomePayCal
And this one helps you figure out how much interest you'll pay on your student loans:
And I'm sure you already know about https://www.mint.com/
Phew. I'm just getting started reading these blogs, so I'm sure I'm just skimming the surface of a complicated issue. I am not prepared to forego all of the little luxuries that make Ron's and my life fun. We eat out more than we should, and we will keep trying to cut back, for both our financial and physical health. But eating out is how we socialize, and we love trying new restaurants- we'll never completely stop eating out. It's just that we'll be more aware of the choice that we're making when we do. Is it worth what we'll be giving up to eat in that restaurant? Sometimes the answer is yes, but often it's just that we're being lazy, and that money would be a lot better spent and bring us a lot more happiness if we used it some other way.
Phew. I'm just getting started reading these blogs, so I'm sure I'm just skimming the surface of a complicated issue. I am not prepared to forego all of the little luxuries that make Ron's and my life fun. We eat out more than we should, and we will keep trying to cut back, for both our financial and physical health. But eating out is how we socialize, and we love trying new restaurants- we'll never completely stop eating out. It's just that we'll be more aware of the choice that we're making when we do. Is it worth what we'll be giving up to eat in that restaurant? Sometimes the answer is yes, but often it's just that we're being lazy, and that money would be a lot better spent and bring us a lot more happiness if we used it some other way.
Next post: What does any of this have to do with diet or physical health?
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