### Author Topic: How to compare one's spending to MMM's?  (Read 5084 times)

#### yolfer

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• Age: 42
• Location: Seattle, WA, USA
##### How to compare one's spending to MMM's?
« on: July 24, 2012, 03:40:49 PM »
Apologies if this has already been discussed, I couldn't find it anywhere on the forums. I'm interested making an apples-to-apples comparison of my family's spending vs MMM's famous \$27k/year spending. Is there an agreed upon way to do this?

If not, here's my take: the two variables are # of people in the family, and cost-of-living in your own area (am I missing any other important variables?)

MMM's family has 3 members, so they spend \$9k/person/year.

He once claimed that his \$400k house would be worth \$1MM in Denver, so is it safe to assume that the cost-of-living adjustment between his community and a major city would be 1:2.5? Let's just say 1:1.5 since not everything is more expensive in a big city.

So if MMM had a family of 5 (like mine) living in Seattle (like we do), they would spend \$68k a year? Seems high to me. I'm sure MMM could get by on less than that around here.

Anyone want to take a stab at a more accurate way to compare MMM's spending to your own?

#### tooqk4u22

• Magnum Stache
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##### Re: How to compare one's spending to MMM's?
« Reply #1 on: July 24, 2012, 03:49:48 PM »
I get where you are going but the living costs aren't necessarily proportional to the number of people in your household. Many of the costs are fixed with the biggest being housing costs and utilities with a portion of those amounts having some variability (just because your family increases from 2 to 3 does not mean your electric goes up by 50%).  He has discussed his utility usage.

That said, I have done the analysis and COL seems to be the biggest factor if you don't want to move - in my case housing, property taxes, utility rates, auto insurance are all higher in my area than in his and translates to about a \$12k difference annually (BTW my house is worth about \$100K less and is smaller than his but my taxes are 3x more).  Also I have nitpicked about a couple of things in different posts with the biggest being health insurance (his has been covered out of wifes job) - I think this needs to be added back to his budget. Regardless he still lives on a very low amount.

#### James

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##### Re: How to compare one's spending to MMM's?
« Reply #2 on: July 24, 2012, 04:02:43 PM »
I don't think making dollar for dollar comparisons are useful in almost any way.  MMM is more about lifestyle than meeting or beating a specific cost of living level, no matter how you factor it.  One huge variable you didn't even mention is the different phases of our lives, from paying off debt, to building a mustache, to FI.  Comparing numbers, no matter how it's adjusted and factored, can't convey the complex issues involved.  You simply need to understand the issues at play, the goals in mind, the principles you choose to follow, and make sure you are living accordingly.

#### mcneally

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##### Re: How to compare one's spending to MMM's?
« Reply #3 on: July 24, 2012, 04:29:55 PM »
I agree with the others that it would be fairly meaningless to say something like "my location and household size adjusted spending is 10% higher than MMM." It's not possible to make such a comparison. Looking at housing prices that way isn't very useful either. A \$200k house in one neighborhood could go for \$400k in a different neighborhood a few miles across the same city, but it wouldn't make a lot of sense to say the cost of living is twice as high across town.

Something needs to be taken into account if you do want to try to compare yourself to MMM and you're either a renter or mortgage holder.  MMM's single biggest expense isn't included in his reported spending: imputed rent or forgone interest income on his \$400k house. Since MMM advocates a 4% indefinite withdrawal rate, that should mean that assumed REAL investment returns are 4%, or \$16k on that house.

#### arebelspy

• Senior Mustachian
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##### Re: How to compare one's spending to MMM's?
« Reply #4 on: July 24, 2012, 06:59:52 PM »
27k in Longmont, CO would equate with 35k in Seattle, WA.

http://www.bestplaces.net/col/

Add a little extra for the extra person (but not a full 1/3 more, the extra doesn't add that much).  Maybe 40k would be reasonable, maybe a bit less.

Keep in mind that the 27k he posted is actually quite a bit higher than necessary.  It included some mortgage interest, preschool from Jan-May (lower now that he is in Kindergarten), and they also traveled more than ever in 2011.  All of that pushed it up to 27k.

Quote
As it turned out, 2011 was also a bumper year for holiday travel. We began the year by waking up in a tent on South Padre Island, and the vacations continued regularly from there. As a family, we took trips to Canada, Moab Utah, and Arizona. And as individuals, Mrs MM went on a decadent Ladies’ trip to Las Vegas, while I spent an extremely fun and irresponsible week around Park City, Utah snowboarding with the Boys.

He notes that the MMM 27k budget has lots of "optional luxury spending."

Quote
If you take the “total without mortgage”, it looks like we’re living on about \$27,000 per year. But if you back out things like the \$2600 of tuition that we are now done with, the \$5000 of travel, the \$1800 of  charitable donations, and all the other things mentioned at the end, our basic life could be sustained comfortably at just over \$12,000 per year. Even after we start paying private health insurance premiums in the near future (\$240/month for the family as quoted in this earlier article), the bottom line could still be under \$15,000.

So you can definitely get spending down to a pretty low level, even in a place with a bit higher cost of living, and then when FI bump up all of that luxury spending.  (By all means, do some now.. but maybe not so extravagant.)

And possibly look into lower cost areas once you FIRE (or even before) - see: Brave New Life's example.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

#### yolfer

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• Posts: 553
• Age: 42
• Location: Seattle, WA, USA
##### Re: How to compare one's spending to MMM's?
« Reply #5 on: July 25, 2012, 11:50:06 AM »
Thanks, everybody. This is all good food for thought!

#### yolfer

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##### Re: How to compare one's spending to MMM's?
« Reply #6 on: October 08, 2012, 05:55:45 PM »
Update: Although this is a bit different, MMM just posted a breakdown of hypothetical mustachian spending for a "double-income family with two school-age kids"

With all the above caveats that other users have correctly mentioned, this is a good place to start:

http://www.mrmoneymustache.com/2012/10/08/how-to-go-from-middle-class-to-kickass