Author Topic: Can I grow a Money Mustache or is it just a dream?  (Read 7677 times)

Bidonet

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Can I grow a Money Mustache or is it just a dream?
« on: September 09, 2013, 01:39:42 PM »
I found this blog two weeks ago by searching for "cheap shower" on Google and one of the top results was http://www.mrmoneymustache.com/2012/12/21/how-to-make-a-relatively-sweet-shower-cheap/. My shower is still not completed but I am still reading posts after posts of this wonderful MMM.

I have been struggling with money for a while now and I am am ready for a change. All this reading have been motivating and I can only dream to be FI in a near future. However, I am far from all those success stories I keep reading everyday and I am not sure I can achieve this goal according to my financial situation. I would really appreciate honest inputs on my situation.

I am a 34 years old Canadian Government Employee. It's been 5 years since I started working full-time for the government. My actual annual salary is about 70,000$. I have 3 kids (4, 7 and 8) and a stay-at-home wife. We have a house (value: 250,000$, Mortgage: 225,000$, variable rate: 2,4%). No credit card. Personal Loan (debt consolidation including car loan): 12,000$ at 6% int. We have a 2006 Dodge Grand Caravan in good working condition.

We are currently living pay by pay without any savings except for a really small amount (30$ monthly) we put on a school saving fund. I've never really thought about retirement and kept telling me that I will work for the government until I reach the moment when I can take my pension. I know we are spending way too much than what we really need and reading all those articles made me realize that and I want to do something about it.

Let's say I manage to cut our spending by a lot. Is it possible, with our current situation, to grow a big enough mustache so I can retire way before 65? Where should I put my money first? From what I've read so far, I would first clear the personal loan. Then, should I clear the mortgage or the low interests is not worth it and it would be better to invest it? Am I making enough money for my whole family? Next year, my youngest kid will start school and we thought my wife could get a part-time job. What about the government pension plan?

I feel really motivated but seriously, I am lost and I really don't know where to start. I might be well motivated but I am not sure I can grow that mustache that easily. Maybe this is just a dream.

Rebecca Stapler

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #1 on: September 09, 2013, 01:46:25 PM »
Yes, you can do it!

Because you're living paycheck to paycheck with no savings except for a college fund for your kids, the first place I would start is to come up with a feasible budget. Implement that, then evaluate how much you need for retirement. Look at your retirement savings options and instead of contributing to the college fund, direct your money to the retirement account(s). Worst comes to worse, you can borrow for college, but you can't borrow for retirement -- you need to get yourselves on good retirement footing before saving money for college. For that matter, there are a lot of opportunities to save on college costs.

The biggest piece is to know what you're spending and cut out the extraneous things.

Christof

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #2 on: September 09, 2013, 02:00:58 PM »
Looks like your household income is around the median income in Canada, so I think it's definitely enough money to support a family. Before age 65 is another 30 years. By then your kids are your age and probably have their own families. Your house is paid off, your loans are paid off. Your expenses should be much lower by then.

One thing I only realized after applying MMM's principles is that a number of my expenses go away as my stache grows, like life insurance to pay off the mortgage in case one of us dies. Having savings allows for higher deductibles on a number of insurances. I canceled a number of contracts that I only continued because I had them and never really reviewed them. I think you would be surprised how much of your spending you can cut if you really look hard at every recurring expense.

bo_knows

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #3 on: September 09, 2013, 02:07:40 PM »
Of course you can grow your own stash!  If you don't know where to start, check out on of the few blog posts that has mentions to multiple others, by way of example.  For instance: http://www.mrmoneymustache.com/2012/10/08/how-to-go-from-middle-class-to-kickass/  shows a great comparison between two lifestyles, and in the notes section of each row will often have a link to another article talking about that particular subject.

Good luck, and enjoy the ride!

ioseftavi

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #4 on: September 09, 2013, 04:12:31 PM »
Let's say I manage to cut our spending by a lot. Is it possible, with our current situation, to grow a big enough mustache so I can retire way before 65?

Yup!  Totally possible.  It's just math.  Save up 25-33x your annual spending needs, and congratulations - you can live off your 'stash.

One of the amazing things about cutting your annual spending needs to save more money:  You will get better at spending less.  So the money that you DO manage to save will last further. 

Example:
You have savings of $10,000.
Every month, you save $100.  You spend $2,000. 
Your savings rate is $100 / $2,100 = 4.7%. 
You are adding $1,200 to your stash each year.

You currently have savings sufficient to live for $10,000/$2,000 = 5 months.
At the end of 1 year of saving this way, you will have $11,200.  Your stash will have increased to 5.6 months worth of expenses, for an increase of 0.6 months.

Now let's say you find a way to cut 10% from your spending budget, and you apply it all to savings.  Your new figures:
Every month you spend $1,800.
Every month you save $300.
Your savings rate is 14.3%.
You are adding $3,600 to your stash each year.
At the end of 1 year of saving this way, you will have $13,600.  Your stash will have increased to 7.56 months worth of expenses, for an increase of 2.56 months.  Holy freaking multiplier, that is a big difference - more than 4 times as much as your prior savings rate.  This is because your amount saved is higher, but your monthly spending requirements are also lower.

Learning how to decrease your spending has a huge multiplier effect.  Not only are you saving more money each month, but the money that you do save goes much further.

At your current savings levels, you are correct in that it will take you forever to save anything substantial.  But start poking around the site and the forums, and I bet you that you'll find a way to trim your budget by 5% before you know it.  As your saving muscles grow, suddenly 10% will seem do-able...then 15%...then 20%...
« Last Edit: September 09, 2013, 04:15:07 PM by ioseftavi »

MorningCoffee

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #5 on: September 09, 2013, 06:31:22 PM »
With a federal government pension (usually defined benefit) you're already a step ahead of most people. Even a reduced pension rocks.

You should consider tracking your expenses and eventually posting your budget on the forums - people here won't hesitate to tell you where you can save some money :)

Mega

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #6 on: September 09, 2013, 06:59:07 PM »
You are in a great position to grow a Stache. Your kids are now in school all day and your wife can return to work. Since you have already demonstrated that you can live on your income alone, you can save all of your wife's income.

If she is able to match your income, BOOM you have a 50% Savings rate.

I live in Canada as well (Burlington Ontario), and it is nearly impossible to get costs down to MMM levels due to the higher COLA (especially food) .

MsSindy

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #7 on: September 10, 2013, 08:41:35 AM »
Of course you can do it - thousands of other people already have!

If you feel a little overwhelmed, maybe don't try and think of saving for early retirement, instead, focus on the immediate near future.  What concerns me is that you have a family with only one wage-earner.  This means you are one paycheck away from disaster.  Start with figuring out where your money goes and look for ways to start to reduce - only spend on what is necessary - you may have to re-define what is necessary.  You need to get your wife on board - I wouldn't talk about early retirement (as that may seem a foolish pipe-dream to her), instead start talking about the need to provide security for your family....few will argue or disagree with that fact.

Once your expenses are reduced, your debt is cleared and you start putting some money into savings, you will see that your confidence will grow exponentially.  You will get the feeling that "you're on the right track" and that you guys can do this!  It is a powerful feeling.  Then, and only then, do you even need to consider where/how to invest your money ---- don't let that stuff bog you down.  Take baby steps, but take them now!

Good Luck....we're all rooting for you!

MrMoneyPinch

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #8 on: September 10, 2013, 10:44:03 AM »
Good news! You are already growing one: your federal pension.  Every dollar going into it from your paycheck is savings. 
Of course, you won't retire EARLY with only that, but it is mostly guaranteed that you WILL be able to retire after your 35 year saving plan (aka service).   

So, everything more you do from now on is pushing your situation from good to better.

Bidonet

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #9 on: September 12, 2013, 07:27:02 AM »
Thanks everyone for all the encouragements and suggestions. I don't know much about my pension plan but I know it's a good start. I should concentrate on my expense cuts and a tighter budget. I think this will be my greatest challenge. We are just spending too much, more than we earn. And with debts and interests, the more and more I read this blog, I realize that the losses are exponential and from there, if you do nothing to improve your situation, it just goes downhill. Fortunately, once I follow an appropriate budget (spending less than you earn) the beneficial effects should be exponential too.

I just hope I can manage to plan this well and not only make the right budget but actually follow it. I think the hardest part will be to convince my wife to spend less. I have read a post from MMM about how to talk to your wife about my financial goals but I still have doubts about her reaction. I know I should make her focus on the long term benefits but I am still not convinced that I can easily make her sacrifice everyday's artificial happiness for a long-term happiness (freedom). I would appreciate some advice on that.

lackofstache

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #10 on: September 12, 2013, 09:19:37 AM »

I just hope I can manage to plan this well and not only make the right budget but actually follow it. I think the hardest part will be to convince my wife to spend less. I have read a post from MMM about how to talk to your wife about my financial goals but I still have doubts about her reaction. I know I should make her focus on the long term benefits but I am still not convinced that I can easily make her sacrifice everyday's artificial happiness for a long-term happiness (freedom). I would appreciate some advice on that.

It took a while for my spouse & I to see eye to eye on this. The final piece was getting together on our goals. What we want life to look like in 5, 10, 20, 40 years from now. We decided together that we didn't want to be tied to jobs, large incomes, etc. We wanted to be able to do whatever it is we want to do in the future; make art, music, travel, work at a bike shop, farm, whatever. To be able to not HAVE to work, we can have NO debt. To get rid of debt we had to cut spending. Once we were on track there we figured out how much we could put towards the debt and figured out a timeline. From there it just takes consistency, which isn't easy, but it is rewarding.

Don't try to convince her, I don't think that'll work. You'll both have to define what you, as a couple, want out of life in order to do it as a couple. I think you'll find that if you can define it together, you'll become closer and help to keep each other honest. Good luck.

avonlea

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #11 on: September 12, 2013, 09:56:43 AM »
I just hope I can manage to plan this well and not only make the right budget but actually follow it. I think the hardest part will be to convince my wife to spend less. I have read a post from MMM about how to talk to your wife about my financial goals but I still have doubts about her reaction. I know I should make her focus on the long term benefits but I am still not convinced that I can easily make her sacrifice everyday's artificial happiness for a long-term happiness (freedom). I would appreciate some advice on that.

Bidonet, if your wife is anything like me, I would suggest focusing on financial security instead of freedom when first discussing why expenses need to be cut.  When I became a mother, I went into protective mode...big time.  It is what motivated me to educate myself on finances--not personal happiness but protection from disaster.  Your family's current savings are going into your children's college accounts.  Was this your wife's idea? (It sounds like how I would have initially prioritized savings without knowing any better.) Saving for FIRE is a fun goal, but it is not crucial for the family's well-being .  Having security is.  If you lose your job, what will the family do?  If your wife is finding part-time work, her income is probably not going to be enough to take care of the daily expenses.  You need a safety net.

I definitely think you can talk about FIRE, too, but I don't think it should be the main reason for the financial discussion.  It can definitely be brought up, though.

Mega

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #12 on: September 13, 2013, 11:38:33 AM »
Definitely focus on outcomes, and remember their motivations will be different from yours. Maybe she would love to have you around the house more, wants to travel, etc. Find your wife's motivation for saving, and push it.

For example, I think I may have actually found my wife's motivation for saving - paying for our childrens' education. I said to her that if we are FI, we could easily pay for our childrens' education, even for two of them at the same time. That got her interest.

And remember RESPs are WAY too small to save for a full ride at university. Even saving 2500 a year will only cover about 2 years worth of tuition and living expenses at an in province university. You would be SOL if they wanted to go out of province or international.

avonlea

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #13 on: September 13, 2013, 01:06:16 PM »
I think I may have actually found my wife's motivation for saving - paying for our childrens' education. I said to her that if we are FI, we could easily pay for our childrens' education, even for two of them at the same time. That got her interest.

Mega, I might be misunderstanding this, but are you meaning that the amount of money you are saving will be enough to generate your yearly living expenses and also pay for the kids' college educations?  Or that possibly the stash will pay for college educations first and then you plan to ER afterward?  I ask b/c if either of those scenarios is not in play, one spouse might be motivated to save thinking the money will pay for the kids' college and the other might be motivated by thinking the money is a means for hitting ER.  That could be recipe for a future butting of heads.  If all you are hoping for is to hit FI eventually, though, I guess there is no problem using various motivations for saving. :)

Bidonet

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #14 on: September 13, 2013, 01:26:19 PM »
I agree that your comment, Mega, might sound confusing about finding my wife's motivation and pushing it, whatever what my motivation is. I agree with "lackofstache" that having a common goal might be easier in the long run but I think your suggestion is also right to find an earlier motivation so we can start saving now, whatever our motivation is. Eventually, once my wife and I are in the Saving Train, I guess it will be easier to discuss further and achieve common goals. Personally, I would love an Early Retirement but that's not my goal for now. FI would be nice but I will concentrate now on cutting expenses and finding motivation to save.

Daniel

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #15 on: September 13, 2013, 01:31:30 PM »
Also I didn't see anyone say it above (if they did, sorry). But you should try to lock in that low morgage rate. I don't know how well Canada monetary policy tracks the US, but if it does, it's likely that interest rate will be headed up soon.

lentilman

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #16 on: September 13, 2013, 06:00:50 PM »
You can absolutely do it!

You could always post a detailed budget here and ask for suggestions of how to improve.  If nothing else you are sure to get lots of suggestions! 

You have a nice salary - far to much to be living month to month. 

non geordie beth

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #17 on: September 13, 2013, 06:22:46 PM »
I feel very much the same as you bidonet. I am on a part time salary and DH doesn't earn very much... less than half of what you earn, in fact :)

That thing about a journey of a thousand miles starting with a single step. We might not get to retire at 30 like MMM... not least because I'm already closer to 40 than 30 :) But if I don't start now, then when? The longer we leave it, the less likely it gets.

Hopefully if I really make an effort at this, the worst possible outcome is that we end up the same, except with a savings cushion. Doesn't sound like a bad outcome, eh?!

Good luck to you and me both!

MsSindy

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #18 on: September 30, 2013, 01:46:30 PM »
Thanks everyone for all the encouragements and suggestions. I don't know much about my pension plan but I know it's a good start. I should concentrate on my expense cuts and a tighter budget. I think this will be my greatest challenge. We are just spending too much, more than we earn. And with debts and interests, the more and more I read this blog, I realize that the losses are exponential and from there, if you do nothing to improve your situation, it just goes downhill. Fortunately, once I follow an appropriate budget (spending less than you earn) the beneficial effects should be exponential too.

I just hope I can manage to plan this well and not only make the right budget but actually follow it. I think the hardest part will be to convince my wife to spend less. I have read a post from MMM about how to talk to your wife about my financial goals but I still have doubts about her reaction. I know I should make her focus on the long term benefits but I am still not convinced that I can easily make her sacrifice everyday's artificial happiness for a long-term happiness (freedom). I would appreciate some advice on that.

This gives me a little pause.  If you're spending more than you're earning, then you need to have a talk NOW!  I would lay out the facts: Honey, we make this much and we're spending this much (be clear on where the money is going).  We need to build a secure foundation for our family, and this is how I propose that we get there - what are your thoughts?  Then let her weigh in and negotiate some things on how the money gets spent.

I'm a little concerned with your tone, however.  You have a lot of "I should" and "I just hope" - stop wringing your hands and start to take action.  You say that "we" are spending too much, so it sounds like you're part of the problem-and that you can fix now!  There are things that you can do without getting your wife's buy-in - like go shop for cheaper auto insurance, offer to cook one night a week (even if you have to fix hot dogs!), sell something of yours.  As for the discussion with your wife, don't ask her to "sacrifice for long term freedom" ask her to help make your family secure and debt free - those long-term conversations can come later after you have a foundation.  It's hard for people to even imagine long-term freedom when they're drowning in debt.

So, what are you going to do first?  Remember, no more hand-wringing, just do!!

non geordie beth

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Re: Can I grow a Money Mustache or is it just a dream?
« Reply #19 on: October 19, 2013, 04:06:27 PM »
Thanks everyone for all the encouragements and suggestions. I don't know much about my pension plan but I know it's a good start. I should concentrate on my expense cuts and a tighter budget. I think this will be my greatest challenge. We are just spending too much, more than we earn. And with debts and interests, the more and more I read this blog, I realize that the losses are exponential and from there, if you do nothing to improve your situation, it just goes downhill. Fortunately, once I follow an appropriate budget (spending less than you earn) the beneficial effects should be exponential too.

I just hope I can manage to plan this well and not only make the right budget but actually follow it. I think the hardest part will be to convince my wife to spend less. I have read a post from MMM about how to talk to your wife about my financial goals but I still have doubts about her reaction. I know I should make her focus on the long term benefits but I am still not convinced that I can easily make her sacrifice everyday's artificial happiness for a long-term happiness (freedom). I would appreciate some advice on that.

This gives me a little pause.  If you're spending more than you're earning, then you need to have a talk NOW!  I would lay out the facts: Honey, we make this much and we're spending this much (be clear on where the money is going).  We need to build a secure foundation for our family, and this is how I propose that we get there - what are your thoughts?  Then let her weigh in and negotiate some things on how the money gets spent.

I'm a little concerned with your tone, however.  You have a lot of "I should" and "I just hope" - stop wringing your hands and start to take action.  You say that "we" are spending too much, so it sounds like you're part of the problem-and that you can fix now!  There are things that you can do without getting your wife's buy-in - like go shop for cheaper auto insurance, offer to cook one night a week (even if you have to fix hot dogs!), sell something of yours.  As for the discussion with your wife, don't ask her to "sacrifice for long term freedom" ask her to help make your family secure and debt free - those long-term conversations can come later after you have a foundation.  It's hard for people to even imagine long-term freedom when they're drowning in debt.

So, what are you going to do first?  Remember, no more hand-wringing, just do!!

Bidonet are you still around? Our situations are very different but our reactions are extremely similar. MsSindy, I felt like you were talking to me too. Thank you for your comments. They helped.