New to Mustachianism, I have some questions

[letsgivethisachance]

Hello Mustachians.
Some background on me:
I am a young recent college graduate from long line of people who in my view have always been on the wrong side of the money equation. I have always been quite careful with my money (spending way less than what I made) but now that I have graduated and have a steady income I wanted to move to being more intentional about my savings. Some months ago I discovered a great community of people on reddit/personalfinance and this was great. Here was a community of people who knew what they were doing with their money. I read and read and asked questions and found out exactly what I needed to do to start on my journey (contributing to 401k, IRAs, etc). Then in doing some more research I came about the idea of financial independence and subsequently this community here. I have been reading through a lot of the MMM blogs and gathering a lot of information but I am still a bit confused about a lot of 'Mustachian' ideas so I hope this topic can be a place where I can ask and people can lead me to the right place or answer my questions.

So here goes:
1. I understand the idea of reducing the amount of money you regularly spend by rethinking what 'necessary' expenses really are but something that I have not seen mentioned is how all this saving should be invested. After all the idea is to retire early so 401ks and IRAs are not going to be of much use for right now. So what is the idea here?
2. When you calculate the amount of money that you are living off of, what exactly is counted? Is a mortgage included? A car?
3. What kind of passive income careers do some of you in the community have once you have reached FIRE? 

[MDM]

1. I understand the idea of reducing the amount of money you regularly spend by rethinking what 'necessary' expenses really are but something that I have not seen mentioned is how all this saving should be invested. After all the idea is to retire early so 401ks and IRAs are not going to be of much use for right now. So what is the idea here?

First, welcome to the forum.

See https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/ for some ideas about getting at your money before age 59.5.  With any luck (and planning) you'll also have liquid taxable investments available as well.

2. When you calculate the amount of money that you are living off of, what exactly is counted? Is a mortgage included? A car?

For now, it is whatever you spend.  Understanding this (via Quicken, Mint, YNAB, spreadsheet, whatever) is an important step toward reducing unneeded expenses.
For retirement projections you take your best guess - looking at current spending and estimating what will change is a reasonable approach.

3. What kind of passive income careers do some of you in the community have once you have reached FIRE?

Varies a lot.  Rental properties and collecting capital gains and dividends (if one calls the latter a career) are two popular ones.

[The_path_less_taken]

Welcome!

And we all envy you for starting so young: kudos to be aware enough to do that. And to recognize that family choices do not have to be followed blindly...bad money advice is bad money advice.

My parents were clueless about money, and my Dad (much as I loved him) was basically a hoarder.

So choosing your own path is a healthy thing.

There's a section of this blog called Investor Alley. You'll get a lot of ideas there. Also, some careers actually have residual income...insurance sales spring to mind but you'll find more.

[letsgivethisachance]

Thank you for the responses.

Yes bad money advice is bad money advice. I think I have been able to do a good job of listening to a lot of peoples (family and friends) money advice and picking and choosing what is actual 'good' advice.

I will be taking a look at the suggested Investor Alley as well as the Accessing your retirement accounts early topic and report back from there.

I have not gotten into a lot of these available money tracking software but I am quite fond of making spreadsheets which is what I currently use to keep track of my spending.
I guess my question concerning 'what counts as an expense' was pertaining to matters like when I buy a car (which I am planning and am going to buy outright not get a loan) would I count that as an expense even though yes it is a current expense but it is also an investment as the hope is this car will last me the next 10-15 years or so (I am a light driver). And the same goes for mortgage payments, I am hopefully buying a house soon (the next 5 years) and with my and my soon to be wive's salaries the hope is that we will pay this off in 15 years (hopefully sooner but 15 years as a maximum). Should I view something like that as just a current expense but then plan on that NOT being an expense in the future so the amount of money I will need to live off of will be less?

Another question I have been thinking of is, what are 'good' numbers? I know the particulars will depend on what you are willing to cut back from but for example me and my soon to be wife have been looking at our expenses and we can live more than comfortably with 30k a year which means out of our around 90k take home we only really need about a third. Is that good?   

[The_path_less_taken]

Well....I'm probably a lot more casual with terms and concepts than a lot of people here. And Brad Pitt would have to be lying naked on a spreadsheet for me to show some interest in it. So....you might want to ask a grownup?

I consider a car purchase an expense (the outright purchase), but then an ongoing debit category that would have things in it like: registration/insurance/maint/gas/oil/speeding tickets...oh wait, you sound sensible so no speeding tickets for you.  ;-0

I consider a home mortgage as an ongoing expense, but mentally in the back of my mind I also consider the equity in it as a floating % of my net worth: "in today's market if I sold this place I would make xx for it". There are a ton of expenses with home ownership. So they would probably appear as a debit somewhere in a grownup spreadsheet. And as you age and head closer to FI your predictions will be : "we need xx to live but the house will be paid of in 20xx so that means we deduct the mortgage..." we will therefore only need xx to live and a total of xx to retire."

As for 'good'...it sounds great to me!!! You sound like an amazing young couple. If you are aiming to save >50% of your income/soon to be dual income you're both heroes to me!

But again: my world view isn't mainstream America (nor is anyone's on this board).



Also, off topic: please, please do online research about any car. As in: Kelly Blue Book and Cars.com and TrueCar. Go to the dealer's website, look at the online price and email them (without your phone number or they'll pester you for LIFE) "What is your best cash price? I'll be buying a car this week...I've looked at xx dealership but thought I'd see if you could beat their price."  Also you could try: "I have a trade in but not sure I'll use it, and I'm checking with the credit union but my credit score is xxx and I want to know if I qualify for your 0% financing."

There are supposed discounts for car buying...Costco/AAA/etc. but bottom line: if you go in strong, with a printed folder of your facts "here's a screenshot of KBB price on this vehicle WITH this equipment package" you will be golden. You can NEGOTIATE as low as $200 below "dealer invoice" (which has nothing to do with their true cost....it's what they show you to 'prove' they're not making you pay MSRP). Be prepared to be firm, spend a little time in the tiny negotiation room and then say "I can see you're not going to give me the price I need: I'll have to try xx dealership now. Goodbye." and walk.

They'll call you within 24 hours...usually with some sort of discount. Free money, baby!

You can PM me if you want but it might take me a day or so to get back to you.

[meandmyfamily]

This book is a great place to start and there are other recommend on the Mr. Moneymustache site:

http://www.amazon.com/Bogleheads-Guide-Investing-Taylor-Larimore/dp/1118921283/ref=sr_1_1?ie=UTF8&qid=1433356810&sr=8-1&keywords=bogleheads+guide+to+investing

[letsgivethisachance]

Thanks for all the great advice. I have now been able to go through a couple of the links you have been recommending.

See https://seattlecyclone.com/accessing-your-retirement-accounts-early-yes-you-can/ for some ideas about getting at your money before age 59.5.  With any luck (and planning) you'll also have liquid taxable investments available as well.

- I now see how you can withdraw money from retirement accounts via transferring to Roth IRA and waiting 5 years method though the SEPP method did not quite make sense. From what I understood through the SEPP method I would have to continuously withdraw an amount of money equal to the total divided by some number provided in an IRS table. I hope that is right.

- I also took a look at Investor Alley and it seems like a lot of what Mustachians do is Vanguard investing which is fine. (Having read through r/personalfinance and bogleheads websites I think I have a good handle on passive investing through Vanguard)

Thank you for the continued help and advice.

[StockBeard]

3. What kind of passive income careers do some of you in the community have once you have reached FIRE?

I am not FIRE yet, but I recommend giving a try to any side gig. Think of your hobbies, and ask yourself if you can make money out of one of them (think about it: if you're paying for your hobby, you could be on the other side of the equation one way or another).
Mine is blogging, I blog about my hobby, and I make money through adsense. It is not truly passive (some people claim you can have full passive income as a blogger, not the case for me), but I enjoy the time I spend on it because it's my hobby.

[Axecleaver]

From what I understood through the SEPP method I would have to continuously withdraw an amount of money equal to the total divided by some number provided in an IRS table.

There are three inputs to the SEPP calculation: your age, your beneficiary's age (your wife), and your stash. The concept is to divide the stash by the longest life expectancy and take out a percentage of it every year. Practically speaking, the numbers come out on the conservative side, so you either need a bigger stash to retire early using SEPP, or other income like passive real estate investments or a part time job. Here's a calculator:

http://www.dinkytown.net/java/Retire72T.html

Another question I have been thinking of is, what are 'good' numbers?... We can live more than comfortably with 30k a year which means out of our around 90k take home we only really need about a third. Is that good?   

Regarding savings rate, the convention around here is to figure that as a percentage of your take-home. So, let's say you gross 120k, your take-home after taxes and benefits is 90k, you spend 30k and save 60k, then your savings rate is 66%. Assuming you save $5k a month and earn 7%, you can retire in just 9 years.  That's pretty good! Play with the numbers a bit here, you're looking for a stash of $750k to support a 4% SWR of 30k a year.

http://www.bankrate.com/calculators/savings/simple-savings-calculator.aspx