should some of MMMs business expenses be counted in his yearly spending report?

[deborah]

This has been a very interesting thread. I guess that, by some of the definitions in the posters, I am not retired, as I make a very small amount of money by teaching one of my hobbies. I think that MMM actually has slightly inconsistent definitions (some posts appear to be slightly different to others) - just like we all do! He has talked about FI and staying in your job even after reaching FI - because that is what you enjoy doing! He has talked about finding being mobbed by work in retirement - because that is his experience.

Early retirement and financial independence are not new concepts. The English landed classes in the 1800's were FI (independently wealthy), and had the choice of doing nothing (eg. fops) or becoming whatever they pleased (eg. parliamentarians, scientists - Darwin).

The MMM blog fits in with my philosophy. Frugality has enabled me to retire somewhat earlier than the people around me. I was already retired when I found MMM. I was looking for what people do with retirement, and this blog has a number of pointers. It has helped me to review my frugality, and I am currently in the process of refining my budget and starting a few projects that will reduce my bills - including changing my garden to include better edible gardening, and increasing the energy efficiency of my house.

Being in Australia, and in my 50's severely limits paying opportunities (we have an incredibly ageist HR sector, and many of the other suggestions, like internet work, are not available to Australians for some reason). However, there is nothing to stop me from creating my own business if I really want more money. Anyway, as MMM points out, there are 2 sides to the equation - income and outgoings. And if outgoings < income, you are fine.

A really important part of his message is that retirement income can include business. In Australia, if you own shares, travel to a shareholders meeting is considered a business expense. This may not be so in other places. Including business expenses (when each country can have different definitions of these expenses) could confuse people from other than the US. One of the things I like about the blog is that is does have some international relevance, and is not completely mired in US terminology and requirements. The MMM message is about fundamentals rather than their exact implementation.

[totoro]

I don't find myself much fussed by any of this. 

The Hawaii costs for MMM could have been included in annual spending because they were paid for with what would otherwise have been business income and they would have gone if it had not been subsidized, but whatever. 

IMO the housing/reno costs count as an investment of existing capital or credit that you don't get to total until final disposition (sale).  At that point you realize a gain/loss overall but you won't know until that day.  Kind of like stocks.

I agree with Mrs. MMM that time away from home without family has a huge downside.  The Ecuador trip costs I'm indifferent to because they would not normally have occurred and were 100% subsidized by a third party. If a business associate takes you out to dinner to get some advice would you add the cost of the paid-for dinner to personal spending? Seems silly to me. 

I think it is interesting to consider whether a mortgage-free home should attract a lost opportunity cost on invested capital and this should be added to income to more accurately reflect the benefit you are actually paying for.  Becomes pretty complicated to determine as you can only know true cost over time at point of sale given that a house is itself an investment. 

I think optimizers optimize.  It doesn't stop after FI because it is fascinating and intrinsically motivating.  I think what MMM is just continuing on an enjoyable path that way.

What this does raise is how useful business income/expenses could be after FI to continue to optimize travel, fun opportunities and minimize expenses - and use the surplus to do good.  I would find living solely on passive investment income and a set in stone budget a bit boring.

[EscapeVelocity2020]

(warning complaints ahead!)  Probably the most informative thread I have come across, and yet again I stand by my earlier comment that I'm glad to see people are still reading and thinking about it.  To be honest, MMM hasn't posted much lately, so this is the 'final conundrum' he has presented.  Would a Mustachian (or ERE'r) be happy to squeeze by on 25k/yr (or less) in obscurity until silently passing, or would it be preferable to have the ability to travel the world, blog about it with no income (where the standard is 100/day, or roughly 40k/yr depending on tax).  I just wish MMM would give us full disclosure on these things.  As a FI person who doesn't share my income, for me it's because it does make frugality more rewarding, having a 100%+ saving rate.  It's awesome to travel to Universal Studios with my family next month with friends and still have more net worth the month after, but this is a frivolous experience that I have earned and can finally afford.  That's what Mustachianism has meant to me, and what it means going forward, living within my expanding means, but Pete seems to want it to mean austerity for everyone forever.  And that part I do not understand, since he's not doing that either, if he's working on houses, traveling, and homeschooling.  All things that are more environmentally friendly when done using publicly aggregated sources, eg an apartment, plane, and public schools.  If you disagree, just think for a minute about if everyone built their own house by cutting down trees, making lumber, buying tools, and learning how to plumb and wire it, then think about 200 people driving back and forth to Canada from Colorado instead of one round trip flight, then everyone staying home to teach their children math, science, history, literature.  Look around and tell me that you think everybody should live like MMM, just to be a devils advocate....

[arebelspy]

You seem to have completely missed the point.  It's not about everyone doing things exactly like MMM. It's about making wise choices, and not being wasteful.  Knowing what makes you happy and doing it, not being trapped by a script not of your choosing.

MMM spends about 50k/yr, counting housing.  He could easily sell the house, stop blogging, and travel the world, as you suggest.  Why should he? He's living the life he wants to live.  He's not scraping by, but living a life of luxury, he's just optimized it so that luxury is a paid off house and achievable on 25k/yr. not counting housing.

I don't understand what you're criticizing, because it honestly seems like you're just misinformed and/or don't understand what he's been blogging about for three years.

[thepokercab]

.. If you disagree, just think for a minute about if everyone built their own house by cutting down trees, making lumber, buying tools, and learning how to plumb and wire it, then think about 200 people driving back and forth to Canada from Colorado instead of one round trip flight, then everyone staying home to teach their children math, science, history, literature.  Look around and tell me that you think everybody should live like MMM, just to be a devils advocate....

Crap, I didn't know that being a member here required me to build my own house, drive to Canada every year, and home school my kids.  Do we all actually have to live in Longmont, Colorado as well?  I don't remember reading these requirements when I signed up to the forum.  Damn you fine print!!!



 

[Redfive20]

Let us be inspired to control our life by a more rewarding way as we wish for. Even we have our own different priorities, we can always learn more from others. This is why I would like to thank MMM and people in this community for sharing their ideas openly.

[Bob W]

Not sure of the business expenses from an accounting perspective.

But I'm pretty sure that the $400,000 he spent on the home should be included.  I definitely would include that in my annual expenses.    I tried to mention this on the blog, but anytime I show a slight disagreement or point out inconsistency of actions and thoughts I'm moderated out.

I think my quote was "since when is spending $400 K on a house not considered an expense?"

We all fudge a little and the size of the fish always seems to grow with telling the story but it is entirely misleading to leave out housing expenses from the report of money spent.   

You wouldn't leave it out if it was rent or mortgage.

Second to that,  and I have been moderated out for this as well,  it is not in keeping with the premise of this blog, to promote long term thinking and efficient use of financial resources,  to purchase a house for cash or even to pay one off.   

Here is the sad truth about MMMs decision to do so.

He paid 400K for home.   

400 K invested at his optimistic average 8K per year would yield  32 K

The cost to borrow 400 K on and interest only home loan would be   16 K  and probably 14K after taxes.

The difference would be at least 16 K per year.   

Over a 50 year remaining life for MMM and invested and compounded,  that 16 K per year would end up being worth 35,000,000 give or take.   

This is not a small amount.   You can't save that much buy driving to Canada without running the AC!

It kinda makes the whole blog irrelevant when the write gets some very small things correct but fails to see the big picture and gets the largest expense/asset wrong. 

The second part of my complaineypants is that a 400K home is about 4 to 8 times what he would need to spend for a home.   There are many fine Midwestern cities and towns where 100 k would do nicely.   In that event he would have 25 -30 k in additional investment income each year.   Since MMM can vacation nicely on 1 K per week he could do nicely on this.

If your going to encourage people to move to be closer to work,  you really should encourage them to move to nicer, lower home cost areas as well.     

Oh I know,  your friends live near you.  Well dude,  get some new friends when you move and use your 30K per year to visit the beautiful city of Longmont (sarcasm here) anytime you like. 

Making a choice like that is the equivalent of choosing a college because all your friends are going there.

[arebelspy]

I think my quote was "since when is spending $400 K on a house not considered an expense?"

We all fudge a little and the size of the fish always seems to grow with telling the story but it is entirely misleading to leave out housing expenses from the report of money spent.   

You wouldn't leave it out if it was rent or mortgage.

You sure would leave it out if you're citing your expenses without housing, which is exactly what MMM does.  You'd leave out rent, mortgage, or 400k cash paid for a house.  Why would you include it in a spending report of non-housing expenses?

He paid 400K for home.   

400 K invested at his optimistic average 8K per year would yield  32 K

The cost to borrow 400 K on and interest only home loan would be   16 K  and probably 14K after taxes.

The difference would be at least 16 K per year.   

Over a 50 year remaining life for MMM and invested and compounded,  that 16 K per year would end up being worth 35,000,000 give or take.   

This is not a small amount.   You can't save that much buy driving to Canada without running the AC!

It kinda makes the whole blog irrelevant when the write gets some very small things correct but fails to see the big picture and gets the largest expense/asset wrong. 

And that opportunity cost of the money will save him in rent.  Thus how he can spend 25/yr with housing not included.

The second part of my complaineypants is that a 400K home is about 4 to 8 times what he would need to spend for a home.   There are many fine Midwestern cities and towns where 100 k would do nicely.   In that event he would have 25 -30 k in additional investment income each year.   Since MMM can vacation nicely on 1 K per week he could do nicely on this.

If your going to encourage people to move to be closer to work,  you really should encourage them to move to nicer, lower home cost areas as well.     

Oh I know,  your friends live near you.  Well dude,  get some new friends when you move and use your 30K per year to visit the beautiful city of Longmont (sarcasm here) anytime you like. 

Making a choice like that is the equivalent of choosing a college because all your friends are going there.

Go read the recent guest post by JD about making decisions that make you happy when money isn't in the equation.

http://www.mrmoneymustache.com/2014/06/19/j-d-roth-how-i-learned-to-stop-worrying-and-love-mustachianism/

I think you missed a large part of the point of the blog.  It's not just about spending as little as possible.  It's about creating a balanced life.

[Jennifer in Ottawa]

I think my quote was "since when is spending $400 K on a house not considered an expense?"

Mortgage interest is an expense.  The value of the home represents an asset.

Second to that,  and I have been moderated out for this as well,  it is not in keeping with the premise of this blog, to promote long term thinking and efficient use of financial resources,  to purchase a house for cash or even to pay one off.   

Here is the sad truth about MMMs decision to do so.

He paid 400K for home.   

400 K invested at his optimistic average 8K per year would yield  32 K

The cost to borrow 400 K on and interest only home loan would be   16 K  and probably 14K after taxes.

The difference would be at least 16 K per year.   

Over a 50 year remaining life for MMM and invested and compounded,  that 16 K per year would end up being worth 35,000,000 give or take.   

This is not a small amount.   You can't save that much buy driving to Canada without running the AC!

It kinda makes the whole blog irrelevant when the write gets some very small things correct but fails to see the big picture and gets the largest expense/asset wrong. 

The second part of my complaineypants is that a 400K home is about 4 to 8 times what he would need to spend for a home.   There are many fine Midwestern cities and towns where 100 k would do nicely.   In that event he would have 25 -30 k in additional investment income each year.   Since MMM can vacation nicely on 1 K per week he could do nicely on this.

He is already financially independent.  His assets provide him sufficient income on which to live.  He does not need to downgrade his home and invest the capital.  He has capital.  Bags and bags of it.

If your going to encourage people to move to be closer to work,  you really should encourage them to move to nicer, lower home cost areas as well.     

Oh I know,  your friends live near you.  Well dude,  get some new friends when you move and use your 30K per year to visit the beautiful city of Longmont (sarcasm here) anytime you like. 

Making a choice like that is the equivalent of choosing a college because all your friends are going there.

He does encourage people to do this.  Go back and reread the Blog.  All of it if you have to.

What you do after FI is much different from what you have to do to get to the point of FI.

As long as he does not touch his nest egg which provides the income he needs to live, his income will roll in FOREVER.  What he does with any other income that comes in is utterly irrelevant.  He could burn bricks of cash to heat his house.  He could vacation for 3 months of the year in Paris.  He could do whatever the heck he wants.

He lays out a very simple path to FI.  He travelled it himself.  He did it so that he could enjoy the remainder of his days in the manner of his OWN choosing, not yours.  There is absolutely nothing hypocritical about that.

[Bob W]

Thanks for the responses folks  --- I'm new to the forum, so learning the culture may take me a few attempts.    I do feel confident in voicing criticism of inconsistencies.     It is not as if I'm telling the Baptist preacher that maybe God is not exactly how you imagine him.   My main point after all my hot air is that purchasing an expensive house for cash is a hugely inconsistent approach to money/happiness.   

So as not to criticize MMM.  Let's take Dave Ramsey for example.  Dave has a 5 million dollar home that he paid cash for.   Dave is worth around 50 mill and probably has an income in the 5 - 10 mill per year.

But this does not change the fact that this is an inefficient and poor manner to handle God's assets.  Let's say that Dave invested that 5 mill in his mythical 10% mutual funds for 60 years.  (because heck yeah the past is the best predictor of the future)   That 5 mill would grow to 5 Billion and an inflation tax adjusted   500-800 million.   

A 5 million dollar home will be worth around 50 Million.   So there is a factor of 10 in place here.   

Now Dave can buy any type of home he desires and piss away money however he likes.   But he certainly isn't being efficient with his money at this point.

I guess what we are saying then is that let's be efficient with our money for some time until we have a bunch and then let's not.   

For someone working towards FI buying a home is a pretty bad idea in general.   It is high risk with little reward and essentially a hoarding behavior.   But let's say they feel compelled to buy a home because of real estate ads and agents.   So what anyone should choose as the efficient path would be to take an interest only loan and invest the difference.   It is the same as term insurance vs whole life.     

Your home is not an investment.  It is an expense.   Unless of course your a real estate flipper. 

Thanks for keeping me in your thoughts and enjoying our discussion.   Bob Werner

[matchewed]

Thanks for the responses folks  --- I'm new to the forum, so learning the culture may take me a few attempts.    I do feel confident in voicing criticism of inconsistencies.     It is not as if I'm telling the Baptist preacher that maybe God is not exactly how you imagine him.   My main point after all my hot air is that purchasing an expensive house for cash is a hugely inconsistent approach to money/happiness.

Not inconsistent at all. Have you read his posts on his house? How he purchased and fixed up a smaller house and is ditching the old one? Just because you don't find happiness or value in the house doesn't mean someone else doesn't.

Your home is not an investment.  It is an expense.   Unless of course your a real estate flipper. 

?

Ask all the people who've sold their houses with positive appreciation and moved to cheaper locals. I may not be a fan of calling your home a "good" investment but it can easily be an investment.

Calling for people to be exactly as efficient with their money as you would be is missing the forest from the trees. The important part is to be efficient with your money with your values and your happiness. Anything else is complainypants version of judgement.

[arebelspy]

I guess what we are saying then is that let's be efficient with our money for some time until we have a bunch and then let's not.   

No. Again, I think you missed the point of the blog.  What we're saying is spend money on things that provide the equivalent (or more) value to you.  Don't buy useless junk that doesn't provide value.  If the house provides more utility than it costs, then it is efficient to buy it.

For someone working towards FI buying a home is a pretty bad idea in general.   It is high risk with little reward and essentially a hoarding behavior.   But let's say they feel compelled to buy a home because of real estate ads and agents.   So what anyone should choose as the efficient path would be to take an interest only loan and invest the difference.   It is the same as term insurance vs whole life.     

You keep throwing out generalizations (like the quote above, and the next quote below), but they aren't always true.  I'm guessing you live and/or grew up where it would be cheaper to rent.  That's not always the case.  There are plenty of places where buying a home is a great idea and will help rocket you to FI even without any appreciation.  Imagine a place, for example, you could buy for 60k or rent for 1000.  Owning it will cost you 1k/yr in taxes and insurance and 1k/yr in maintenance.
 So you can rent for $12k/yr, or own for $2k + the opportunity cost of that 60k.  In other words, you're saving 10k/yr by renting, which is a return on that 60k of 16.7%.  That's if you pay cash.  If you get a cheap mortgage, your return will be even higher.  And that's without

I have some tenants who pay me 1350/mo.  My mortgage (PITI) on the property?  $340.  I guarantee you they'd have been better off buying the place (we'll ignore the fact that it's also doubled in price, so they'd have earned tens of thousands of appreciation - you don't count on that, but even assuming no appreciation they'd have an extra $100 or so per month in their pocket).

I'm sure it irritates you when people say "it's always better to buy a home."  Well you're doing the same generalization when you say that it never is.  It is sometimes better (mathematically) and sometimes it's not.

You have to run the specific numbers for your scenario.  A lot of times though it's better to buy then rent, financially.

Your home is not an investment.  It is an expense.   Unless of course your a real estate flipper. 

Saying that is just as simplistic as saying the opposite, that it is an investment.

It can be looked at a number of ways, but primarily it's a place to live that may cost you more, or less, than rent. Either way you need a place to live.  I always suggest for the house someone is planning on living in to compare it to the rent they'd pay otherwise.

[Bob W]

Thanks for putting so much thought into this! 

 I enjoy having perspectives other than my own.   It seems like I'm arguing here so please forgive me in advance.  I really have never participated in an open forum discussion in the past so my edges are very rough.  I believe in laughing at myself and not overthinking things but that is what I seem to have done below ----------

 Rental property is almost always considered an investment.  Sometimes they loose,  sometimes they win.   

My personal home I consider to be an investment and this is certainly how they are marketed to the average Joe.   I actually live in a very nice, large home on acreage, in a resort community, that I consider an investment because I bought it foreclosed 3 years ago and put lots of time into restoring it.

  It is now valued at 3 times my purchase price.  My loan is interest only (I could pay cash to cover the loan balance) and based on a 3% inflation tax.  That is, assuming an inflation tax of 3% and corresponding increase in real estate values,  annual appreciation covers my annual taxes, insurance and mortgage.    So theoretically I consider I am living there for free.  (I benignly ignore the alternative use of capital scenarios)

As MMM,  I will be selling my current home in the 1 to 3 year time frame and I am currently researching distressed homes in the market we plan to move to.    I personally would live happily in an extremely small home down by the river, but if momma ain't happy then daddy ain't happy,  so there will be compromises.  I will consider the home we purchase an investment as well.  It most certainly will need lots of work and be something of a foreclosure.

As a funny side note,  I looked around our home a week ago and there wasn't a single decorative item I had chosen.   It's even funnier, since I personally restored ever surface on the interior of the home.  So I'm pretty much a kept man in that respect.  lol

I was a home builder when the crap hit the fan in 08.   The 3 spec homes I was holding lost a tremendous amount of money.  (thus the "high risk" comment I made).  Big returns on my current home,  big losses on the others.  Home ownership is a leap of faith with a mortgage if you don't have the cash to cover underwater housing scenarios, unemployment and other unforeseen scenarios.   

For someone with very little cash assets just starting the path to FI  I assume they are living on faith and rolling the dice when taking out large home loans.   I still love these folks though because they are the ones keeping real estate prices propped up.  Without the Government insured mortgages through Fanny or Freddie home prices could easily drop to extremely low prices. 

The two reasons I believe that home ownership is risky are about uncertainty of the future.   

First, I have seen many a person go underwater on their home loans in recent years.  What people don't understand is that they are assuming the majority of risk with a home loan.   If you ever actually read a mortgage contract you will find that you are essentially renting the home from the bank.  The reason they can foreclose is that they actually own the home and are renting it to you for 15 or 30 years.   If you fail to pay your "loan" in year 14 of a 15 year note the banks keep all your rent for the 14 years and all the equity.   The bank can also sell the home for 30% below value and even after foreclosure you are on the hook for that money too.

The second reason is that the average years someone stays in a home they purchase under a mortgage contract is around 8 -10 now.  It was 7 years for a long time but now people are holding until markets recover.   That is average, so a great many people will want or need to sell a home within 3 -4 years of purchase.   So even assuming a 3 % inflation tax increase in the home after 3 years and subtracting sales commissions one would break even.  Younger people often need to be transient due to job opportunities.  I live near an army base and it always amazes me the soldiers will buy a home when the average stay there is 2 years and the average days on market is something like 230!

I do agree that certain markets were primed for buying homes as pure investments a few years ago and a smart real estate person could have made a nice chunk of change.   

I do agree that I shouldn't feel compelled to point out inconsistencies in other people's personal choice regarding their money.   I do refrain from this as a rule with the exception of people who run blogs  giving financial advice to others.    In that case I see no reason that someone should not point out that a "clown house"  is in the same category as a "clown car."   It's not an "Emperor has no Clothes" discussion just a funny inconsistency really.     

Suzie Orman famously advised people to invest in stock mutual funds but kept nearly 100% of her funds in bonds.   One might feel compelled to note this as a funny inconsistency. 

So if a public financial person is advising using capital efficiently and or effectively for either happiness or investment I am amused with their personal choices.   Other than psychological reasons it makes a huge difference owning a home through an interest only or interest and principal loan vs.  having it 100% paid off.   

I think MMM mentioned in one of his blurbs that the psych reason was his reason for paying cash for a home.  That is fine.  I think he also mentioned he has had this discussion many times.   For him it appears that financial peace trumps financial stewardship.  In my hood we call that being a financial "pussy."   Not being mean here,  just snickering and thinking this may be a new term for MMM to apply. 

It is very interesting how psychology colors all our interactions and thoughts about money.  This is one of the prime reasons I read MMM because he inspects the psychology of it all. 

When I pay 400K for a home it goes into my expense column.   

Whenever I pay cash for something I see it as an expense.  Doesn't matter if it is food, beer or stocks.  I still had to sign a check for it and the previously unencumbered funds are now encumbered.   If I mortgage that home instead of paying cash then the monthly payment goes into the expense column.   

However on a net worth sheet paying 400 k for a home may actually increase my net worth if the home is really worth 500K.   I find that net worth trumps cash flow in and out. 

Enjoyed sharing thoughts.   I think I have said too much and overstated.   

[arebelspy]

Thanks for the perspective.  I think your way of looking at it is completely valid, but it's not the only way.  I'm fine with MMM's way as well.

Some of us around here like arguing, and as long as it is done in a non-personal manner (i.e. the forum rule about attacking an argument, not a person), it's completely welcome.  :)

[Insanity]

Thanks for the perspective.  I think your way of looking at it is completely valid, but it's not the only way.  I'm fine with MMM's way as well.

Some of us around here like arguing, and as long as it is done in a non-personal manner (i.e. the forum rule about attacking an argument, not a person), it's completely welcome.  :)

you are wrong, you damn spy..











;-)

[kendallf]

TL;DR

I enjoy seeing this come up every few months.  I'm just getting too lazy to read the long replies..

<--typed this at my desk in my $35k house

[Bob W]

Yep,  I read my reply this morning.  Feel asleep half way.   I applaud you for the 35K home!!!!! I would do the same if not for the spouse.

  Here's thought food -  In general one's home should cost no more than 1 year's income.   You make 75k, your home should not be more than 75k,  unless it is truly  a fixer upper investment.  (an interest only mortgage on 75K would be about 4% of 75k)

Other guidelines to assist in obtaining or maintaining FI.

-Total annual transportation should be no more than 5% of your annual income.
-Annual food no more than 3%.
-Utes - 1%
-Children - none till 3 years post FI and 1.5 times your FI needs invested.  (way too late for me!)
-Misc - 1.5%
phone - 10 bucks (Republic)

Following these guide rails one would be FI in 3 to 4 years at any income level.

"Live on minimum wage,  earn on maximum wage"

[AlanStache]

Yep,  I read my reply this morning.  Feel asleep half way.   I applaud you for the 35K home!!!!! I would do the same if not for the spouse.

  Here's thought food -  In general one's home should cost no more than 1 year's income.   You make 75k, your home should not be more than 75k,  unless it is truly  a fixer upper investment.  (an interest only mortgage on 75K would be about 4% of 75k)

Other guidelines to assist in obtaining or maintaining FI.

-Total annual transportation should be no more than 5% of your annual income.
-Annual food no more than 3%.
-Utes - 1%
-Children - none till 3 years post FI and 1.5 times your FI needs invested.  (way too late for me!)
-Misc - 1.5%
phone - 10 bucks (Republic)

Following these guide rails one would be FI in 3 to 4 years at any income level.

"Live on minimum wage,  earn on maximum wage"

Have not really looked into interest only loans but quick search this am would lead me to believe that you would then be subject to changes in interest rates?

I am not sure how one could scale the food and utilities or if it is not still best to just spend as little as you can for the level of comfort you are comfortable with.  100k income -> 250$/month in food for the 3% rule, this would be a challenging rule for a family of three making 40k.

[arebelspy]

All those guidelines are "ridiculous."

How about a single guideline "Don't waste money."

That pretty much covers it.  Then you spend as little as possible on stuff that doesn't matter, you spend on stuff that does matter to you, but even on that stuff you try and optimize or find deals.

Done.

Saying "spend 3% on food" is silly.

(The kids one especially so - if I FIRE and want to have a kid, I need to wait three years post FI.... why?)

[Insanity]

-Children - none till 3 years post FI and 1.5 times your FI needs invested.  (way too late for me!)

WTH

[RootofGood]

-Children - none till 3 years post FI and 1.5 times your FI needs invested.  (way too late for me!)

Wait, what?  Why? 

[johnhenry]

This thread had it's share of ups and downs, but I think it holds a valuable lesson.

The takeaway: Make your life a business.  Now.  Invest in rental property.  Or start doing side "gigs" that involve things you love doing.  You don't need to quit your day job or hire employees, or even form a company.  Just start doing something that will let you file a Schedule C, E, (or even F).  Don't be afraid to mix "business" into your life.  If you have a passion and like to take risk, jump in.  If not wade in slowly.

At tax time (and as you keep records along the way), you'll have the challenge (opportunity?) to classify expenses as "business" related where the tax man is concerned.  I'm not advocating any creative accounting :)  But, U.S. tax law provides countless incentives to property and business owners.  There are plenty of benefits to enjoy, even without aggressive accounting.

Not that having a net worth of $1M is the holy grail, but there is a reason that a majority of millionaires are self-employed. 

http://www.youngandfrugal.com/2008/12/07/what-makes-a-millionaire/

[dragoncar]

Yep,  I read my reply this morning.  Feel asleep half way.   I applaud you for the 35K home!!!!! I would do the same if not for the spouse.

  Here's thought food -  In general one's home should cost no more than 1 year's income.   You make 75k, your home should not be more than 75k,  unless it is truly  a fixer upper investment.  (an interest only mortgage on 75K would be about 4% of 75k)

Other guidelines to assist in obtaining or maintaining FI.

-Total annual transportation should be no more than 5% of your annual income.
-Annual food no more than 3%.
-Utes - 1%
-Children - none till 3 years post FI and 1.5 times your FI needs invested.  (way too late for me!)
-Misc - 1.5%
phone - 10 bucks (Republic)

Following these guide rails one would be FI in 3 to 4 years at any income level.

"Live on minimum wage,  earn on maximum wage"

So adding up your percentages, I get 10.5% expenses, plus 4% for the opportunity cost of a house (or interest payments).  So around 15% expenses, which is an 85% savings rate.  At 85% savings rate, you should be retired in a little over 4 years.  Math checks out (ignoring the kids comment).

[Bob W]

Yep,  I read my reply this morning.  Feel asleep half way.   I applaud you for the 35K home!!!!! I would do the same if not for the spouse.

  Here's thought food -  In general one's home should cost no more than 1 year's income.   You make 75k, your home should not be more than 75k,  unless it is truly  a fixer upper investment.  (an interest only mortgage on 75K would be about 4% of 75k)

Other guidelines to assist in obtaining or maintaining FI.

-Total annual transportation should be no more than 5% of your annual income.
-Annual food no more than 3%.
-Utes - 1%
-Children - none till 3 years post FI and 1.5 times your FI needs invested.  (way too late for me!)
-Misc - 1.5%
phone - 10 bucks (Republic)

Following these guide rails one would be FI in 3 to 4 years at any income level.

"Live on minimum wage,  earn on maximum wage"

So adding up your percentages, I get 10.5% expenses, plus 4% for the opportunity cost of a house (or interest payments).  So around 15% expenses, which is an 85% savings rate.  At 85% savings rate, you should be retired in a little over 4 years.  Math checks out (ignoring the kids comment).

thanks for taking the time to read the math!   My thinking was that anyone could retire in 4 years if they had some simple rules to follow.   

Oh and the kids comment?  We have seven of them.  My thinking from an FIRE standpoint that zero children would be the appropriate number.   Looks like MMM has settled on one.  The reason I stated a number of years post FI was to give a person another few years to save for the expense of children.    So maybe you're encumbering like 3 years of your earning life for each child you have?   Depends on how frugal and government dependent you are?   

[Nords]

Oh and the kids comment?  We have seven of them.  My thinking from an FIRE standpoint that zero children would be the appropriate number.   Looks like MMM has settled on one.  The reason I stated a number of years post FI was to give a person another few years to save for the expense of children.    So maybe you're encumbering like 3 years of your earning life for each child you have?   Depends on how frugal and government dependent you are?

Amy Dacyczyn ("The Frugal Zealot") got her family (including six kids) to early retirement on her spouse's Navy pension. 

She admitted that she faced mutiny when oatmeal was for breakfast more than 3-4 times per week.

[ProfWinkie]

Why do you care - of all the things in life that are improtant this seems to be a made up issue.

[Captain and Mrs Slow]

Ok haven't read every post and perhaps this is all ready covered but I kind of wondering the same thing. He address this issue in the latest post, simply put blog expenses are things that he spends money on that normally he wouldn't, i.e. electric bike

As an aside his expenses are unrealisticly low, by that I mean no reasonable normal person could possibly live on as little as he does i.e. hydro 20 bucks a month mine is a 100 for the same usage

[sol]

As an aside his expenses are unrealisticly low, by that I mean no reasonable normal person could possibly live on as little as he does i.e. hydro 20 bucks a month mine is a 100 for the same usage

Are you calling the man a liar?  Because he JUST showed you how to live on that amount of money, and here you are on his blog complaining that what he just wrote about isn't possible.  One of us is confused.

If his water bill is lower than yours, then he's either using less or paying less per unit than you are.  His property taxes are lower than mine, too, but that doesn't mean it's impossible to pay $2000/yr in property taxes.   It means I have chosen to live in a place with higher taxes, and so that additional expense is something I have built into my life and he hasn't. 

[BPA]

Ok haven't read every post and perhaps this is all ready covered but I kind of wondering the same thing. He address this issue in the latest post, simply put blog expenses are things that he spends money on that normally he wouldn't, i.e. electric bike

As an aside his expenses are unrealisticly low, by that I mean no reasonable normal person could possibly live on as little as he does i.e. hydro 20 bucks a month mine is a 100 for the same usage

Check out the Share Your Badassity board.  A thread has started there of people who have a similar cost of living.  ETA:  http://forum.mrmoneymustache.com/share-your-badassity/spending-like-the-money-mustaches/

I don't think they are lying.  I live on not much more and I'm paying a mortgage.  I don't have exact numbers because I've only started recently tracking to the penny, but it is possible.

[Cassie]

property taxes, utilities, etc really vary depending on where you live.  Our property taxes are so low it is incredible but here your taxes are based on year of the house not what it is worth.  So for our home since it was built in 1950 we only pay $700.00/year.  However, our utilities are much higher then most.  I was on a thread recently that asked how much $ you spent this year & I included all of our expensive home remodeling because I consider that relevant.  Even though we could now sell our house for much more then it cost plus remodeling. For some reason he does not consider this in his expenses.  If he would not take trips without the blog then I think it is fine to not include that in his personal expenses.  I think he is semi-retired like we are & they like us choose to work but don't have to.  His blog is great for showing people how to be frugal & have the life they want.   Personally we like to spend more $ now at age 60 so we can enjoy things because you never know.  Yes we can live on less but don't choose to now.  Most people spend above their means. I would suggest taking what works for you from the blog/forum & leaving the rest.  Their are many good ideas for people to cut costs on things that do not bring them value & trust me that is different for everyone. WE have cable because we love it & gladly pay for it.  We didn't do this when we were young but now we do. The point of the blog is to get to the point in your life that you can choose what is important for YOU & have the life you want.

[Captain and Mrs Slow]

I only mentioned that because on the blog post several people had commented that they live in the same general area (state) and they pay more. Also I reread my comment and I could of (have for grammarians) worded it a bit better. What I trying to do is make people aware that a lot depends on where you live.

But having said that I do have friends who live in a high cost of living area Madrid Spain and have the most insanely low bills I've ever seen. No heat in the winter and no A/C in the summer. No land line, and only a pay as you go phone, which they hardly ever use. They get their internet dirt cheap via the neighbors and use FB and skype to connect with family and friends. They are natural born hippies.

On the other hand I have a friend who moved back to Canada and he is struggling to make ends meet on 4,000 a month take home, we didn't have time to get to the nitty gritty of it all but he just said Ontario is just bloody expensive.

[BPA]

I only mentioned that because on the blog post several people had commented that they live in the same general area (state) and they pay more. Also I reread my comment and I could of (have for grammarians) worded it a bit better. What I trying to do is make people aware that a lot depends on where you live.

But having said that I do have friends who live in a high cost of living area Madrid Spain and have the most insanely low bills I've ever seen. No heat in the winter and no A/C in the summer. No land line, and only a pay as you go phone, which they hardly ever use. They get their internet dirt cheap via the neighbors and use FB and skype to connect with family and friends. They are natural born hippies.

On the other hand I have a friend who moved back to Canada and he is struggling to make ends meet on 4,000 a month take home, we didn't have time to get to the nitty gritty of it all but he just said Ontario is just bloody expensive.

Your Ontario friend is obviously not mustachian.  I only make $3k a month and yet manage a 50-65% savings rate. 

[Retire-Canada]

I don't care about MMM's accounting of business vs. personal and I also don't care to analyse if he's retired or self-employed. It's a complete waste of time. Let's say you finally lock these questions down with 100% certainty and you decide MMM is "wrong" what are you going to do? What do you really expect him to do as a result?

The answer is nothing.

If you still want to spend time on the process of trying to "answer" these questions go nuts.

What I do know about MMM:

- he's FI
- he's frugal
- he's doing stuff he loves
- he's helping other people

The rest is semantics.

-- Vik

[intellectsucks]

I agree with the people who want to see this discussion happen. To the non mustachian eye, It definitely seems like MMM is undermining his own message of frugality when taking trips to. Exotic locales. MMMs point is that living frugally can be done while living the good life, not instead of living the good life. Trips to places like Hawaii certainly add some sizzle to the frugal steak it would be disingenuous to hide the expense of such a trip by playing with the balance sheets.
However in the examples that the OP cited there is no such trickery. The $1000 experiment was included in the spending already and i was pretty sure that the cost of the trips was too(though Mrs MMM said they were seperate.) Both of those cases were done in true mustachian fashion(by doing things outside the box of what is normally done): the hawaii trip had room and board paid for in exchange for construction work.  The equador trip also had room and board paid for. If airfare was not added into the year end budget in either case, it moves the spending number from 25k to the still mustachian 28k. His trips to canada were also included.
Hence the mustachian lesson: travel does not require first class hotels or spa packages. Friends, family and strangers all live in exotic locales; the mustachian way to visit those places is to work out nontraditional arrangements.
This also illustrates another benefit of FI: strange and wonderful opportunities can and probably will arise. The Hawaii trip is a perfect example. Almost a whole season in paradise for the cost of a couple of plane tickets.  Chump change for the mustachian budget.
So the concern about where certain expenses show up on the balance sheet is valid. However it seems like MMMs business expenses only reinforce the message, not undermine it.

[Cromacster]

I agree with the people who want to see this discussion happen.

What is this?  Me, Myself, and Irene?  The horse (cow) is dead!

[Miamoo]

I agree with the people who want to see this discussion happen.

What is this?  Me, Myself, and Irene?  The horse (cow) is dead!

+ like 20 million

[zoltani]

This morning I had a delicious bacon breakfast burrito!

[Retire-Canada]

What is this?  Me, Myself, and Irene?  The horse (cow) is dead!

Serious question. Does the cop account for the time spent punching the cow as:

1. personal time because it's fun

2. arrest and detention of a perp

3. Road safety

4. Physical fitness training

-- Vik

[enigmaT120]

That's a pretty scene, except for the cow, the cop, and the motorcycle.

[arebelspy]

That's a pretty scene, except for the cow, the cop, and the motorcycle.

And the road.

[zoltani]

Hi Mustache friends, the photo I cannot see, is it a sacred cow?

[arebelspy]

Don't have a cow, man.

[Retire-Canada]

^^^ So much wisdom right here :)

[BBub]

Wow, this digressed quickly.

After reading through the thread I find it noteworthy that much of this hullabaloo has been over approx $2k in added annual expenses, according to Mrs. MM's reply on page 2.

So MMM spends ~27k/yr nowadays instead of ~$25.  And the extra $2k, from the sound of it, is spent with a little kicking & screaming - but to serve the greater good of getting the FI message out. 

I can't think of too many millionaires who get by on $27k/yr. (cue the reply's "I do, me too, +1" etc.).  That's pretty badass in my book.

[zoltani]

No, it digressed over a year and is old news now.


The discussion is over.


What did you have for lunch?

[BBub]

Haha, touche. 

I missed the 4 at the end of January, 201X on the first thread.  I should probably either A.) pay better attention to detail, or B.) stop getting worked up about posts made by strangers on the internet.  Regretfully I'm leaning towards A.

A big salad with spinach, broccoli, field peas, hardboiled egg & strips of chicken breast.  It was delicious.

[zoltani]

Sounds delicious, but what exactly are "field peas"?

[BBub]

Well, they are peas that grow well in the winter down in the southeastern US (and i'm sure many other places too).  Like most peas they grow in a hull & you have to shell or "shuck" them.  The hulls are brown & the peas inside are green.  They are very flavorful, nutritious, and somewhat versatile.  You can serve them hot or cold, in stew, soup, as a side, on a salad, etc. 

Firedrill challenge: Incorporate field peas in at least one meal this weekend.

[RootofGood]

My grandma's Appalachian accent was so thick, she pronounced it "Philliped peas".  I just now realized it has nothing to do with any Phillips at all, but rather where we picked them, which was out in their field. 

Oh the summers spent shucking beans and canning beans and eating beans. 

[zoltani]

Ah yes, and making of the music with beans as your instrument!