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

[clearview]

I would like to try to explain what I was saying here and in other threads more concisely. I think the best way is to break down my points into three parts:

1- when you have a business, there are things you spend money on that you classify as business expenses, but you would still have those expenses even if you did not have that business. they serve a dual purpose. examples of this include cell phone service, a car, a computer, a printer, internet service, travel, etc. even if you did not have your business, you would likely still have all those things, but you would have to classify them personal expenses.

2- these $25,000 of expenses do not include the rent/mortgage he would have to pay if he didn't own his home, which in his case would be about $15,000 a year, making his spending $40,000.


3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

[matchewed]

I would like to try to explain what I was saying here and in other threads more concisely. I think the best way is to break down my points into three parts:

1- when you have a business, there are things you spend money on that you classify as business expenses, but you would still have those expenses even if you did not have that business. they serve a dual purpose. examples of this include cell phone service, a car, a computer, a printer, internet service, travel, etc. even if you did not have your business, you would likely still have all those things, but you would have to classify them personal expenses.

2- these $25,000 of expenses do not include the rent/mortgage he would have to pay if he didn't own his home, which in his case would be about $15,000 a year, making his spending $40,000.


3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

He includes 1 in his annual breakdown of spending, freely admits that owning his home reduces his expenses, what does this have to do with his business expenses from the original topic? Are you making a different point? If so what is it? See the above posts about beating dead [cows].

As I've asked before, what is the point of all of this? To me it just reinforces the power of FI. What's it saying to you? Are you saying he's being disingenuous? Lying? Are his points being invalidated?

[4alpacas]

I would like to try to explain what I was saying here and in other threads more concisely. I think the best way is to break down my points into three parts:

1- when you have a business, there are things you spend money on that you classify as business expenses, but you would still have those expenses even if you did not have that business. they serve a dual purpose. examples of this include cell phone service, a car, a computer, a printer, internet service, travel, etc. even if you did not have your business, you would likely still have all those things, but you would have to classify them personal expenses.

If I didn't have to work, I wouldn't have my car.  I don't have a printer.  I definitely wouldn't go on all of the work travel I have to go on now. 

3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

You're thinking about W2 income.  Consider income sources for FIRE--dividends, Roth IRA, and sale of investments.

[arebelspy]

3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

You're thinking about W2 income.  Consider income sources for FIRE--dividends, Roth IRA, and sale of investments.

Except for those of us with rental properties. :(

;)

[4alpacas]

3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

You're thinking about W2 income.  Consider income sources for FIRE--dividends, Roth IRA, and sale of investments.

Except for those of us with rental properties. :(

;)

How is rental income taxed?

[arebelspy]

3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

You're thinking about W2 income.  Consider income sources for FIRE--dividends, Roth IRA, and sale of investments.

Except for those of us with rental properties. :(

;)

How is rental income taxed?

It's taxed as ordinary income.  Same as W2 income.

[EscapeVelocity2020]

3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

You're thinking about W2 income.  Consider income sources for FIRE--dividends, Roth IRA, and sale of investments.

Except for those of us with rental properties. :(

How is rental income taxed?

It's taxed as ordinary income.  Same as W2 income.

You'll routinely see people in ER.org lamenting being a landlord into their 60's or onward.  Lots of negative long term tax implications, depending on how you've depreciated the investment and what your plans are going forward (e.g. selling, will).  Real Estate investments, especially marginal ones (as opposed to renting out a duplex to pay your half / buying a pure profit apartment building) probably aren't worth the time.  Hoping for RE appreciation is not a good strategy IMHO.  Either it works on a 'day one' basis' or else there are other better places to go.  It makes me wonder, RE landlords, if they aren't better served in the modern age by becoming entrepreneurs...  Less start-up and unlimited potential.  Why get mired down on an anchor, a long term physical asset play, when being nimble is the way forward (even via a barbell-type strategy - index funds for the weights and individual stocks, freelance work, app gen, etc. for the handle.)

[arebelspy]

Real estate is the fastest path to FIRE, IMO.

The drawbacks, which I'm well familiar with, are more than worth it, IMO.

[EscapeVelocity2020]

Real estate is the fastest path to FIRE, IMO.

The drawbacks, which I'm well familiar with, are more than worth it, IMO.

Fastest path to FIRE, IMO, is expat status.  I don't have any data on that, or Investing vs. RE, but certainly increasing you income quickly has marked positive outcome.  Lowering expenses is also, of course, somewhat effective, but expenses might just be 'put off' as opposed to how sticky income gains typically can be.

[arebelspy]

Real estate is the fastest path to FIRE, IMO.

The drawbacks, which I'm well familiar with, are more than worth it, IMO.

Fastest path to FIRE, IMO, is expat status.  I don't have any data on that, or Investing vs. RE, but certainly increasing you income quickly has marked positive outcome.  Lowering expenses is also, of course, somewhat effective, but expenses might just be 'put off' as opposed to how sticky income gains typically can be.

You still need income though.  RE is the fastest way to get that.  Yeah, if you combine them you could probably fire in a year or two.  ;)

But you'd have very little flexibility and other options for the future, you'll be pretty locked in.

[Wile E. Coyote]

3- spending is equivalent to after-tax, take-home pay. in order for someone to have $40,000 a year to spend, they need income of $50,000+ before taxes.

You're thinking about W2 income.  Consider income sources for FIRE--dividends, Roth IRA, and sale of investments.

Except for those of us with rental properties. :(

;)

How is rental income taxed?

It's taxed as ordinary income.  Same as W2 income.

And potentially worse, since it can also be subject to the 3.8% net investment income tax imposed by Section 1411 unless you meet certain material participation safe harbors, show that it is a trade or business, etc.

[EscapeVelocity2020]

Real estate is the fastest path to FIRE, IMO.

The drawbacks, which I'm well familiar with, are more than worth it, IMO.

Fastest path to FIRE, IMO, is expat status.  I don't have any data on that, or Investing vs. RE, but certainly increasing you income quickly has marked positive outcome.  Lowering expenses is also, of course, somewhat effective, but expenses might just be 'put off' as opposed to how sticky income gains typically can be.

You still need income though.  RE is the fastest way to get that.  Yeah, if you combine them you could probably fire in a year or two.  ;)

But you'd have very little flexibility and other options for the future, you'll be pretty locked in.

RE is Not the fastest way to get income.  Being selected for an expat assignment, or being a big fish in a small pond in you company (so as to get outsized bonuses or raises), or going successful entrepreneur... income is always going to have REAL power.  I don't really know why our MMM disliked his software job, but it surely made him money and could quit while thinking he'd still make a similar income later if he wanted.  Turned out he was a pretty good entrepreneur. 

Passive income is a weak force (people outside your sphere of influence can change it), and active income is a strong force.  As long as you have enough longevity of your weak force, you will do fine.  But life might get a little more contentious going forward for anyone retired at 30, this unprecedented bull market coupled with Fed balance sheet expansion, well, this hasn't happened before...  I'm just not sure that we can count on the spreadsheets and history that cFIRE and FIREsim have to offer...  I, certainly, hope I'm wrong.  I'm living my life as though something will convince me that I'm wrong, and so far I win either way.

[arebelspy]

We'll have to agree to disagree then.  :)

[EscapeVelocity2020]

That's fine too.  Financial Samurai had a nice post on this if you haven't seen it, www.financialsamurai.com/ranking-the-best-passive-income-investments ... He has some juicy RE in SF and also does not rank RE very high.

[arebelspy]

That's fine too.  Financial Samurai had a nice post on this if you haven't seen it, www.financialsamurai.com/ranking-the-best-passive-income-investments ... He has some juicy RE in SF and also does not rank RE very high.

1) That guy is on my list of "ridiculous bloggers I don't understand why people listen to,"

2) Of course, his RE is in SF, and

3) His conclusion says: "I’ve written before that real estate is my favorite asset class to build wealth. But, the longer I last on my entrepreneurial journey, the more I realize generating online income is even better."  -- so it has been his favorite in the past, and now he just likes some online methods better.  I don't see this as a strong argument against RE.

[EscapeVelocity2020]

I don't read all of Sam's posts, but this one was especially good (as were the 100+ comments).  The fact that he had always spoken so favorably about RE and then put it as second to last in being a good and passive income source - below dividend paying stocks and online hustles - said a lot (to me at least).  I have had my ups and downs with index investing, but it has blown the doors off what my RE investor friend has accomplished since 1996.  He hasn't done badly, but he certainly has worked harder cumulatively for his income, appreciation, and accounting.  I think that it's work he enjoys (home improvement, fixing stuff, finding good tenants, etc), which I think is an important theme with successful RE investors.

[SarahMD428]

some people reading the blog might be either dissuaded or incredulous that this family does all this great stuff and still claims to only spend $25k/year.

I can personally attest to the fact that the 2014 spending post dissuaded me.  I came across MMM while reading an online article.  Everything sounded great; I tore through a year and a half of posts in a week.  I told my husband how cool this MMM guy was.  I started quoting him and spouting his philosophies.  I secretly resolved in my head that I was going to be that guy!  I even dusted off the bike I hadn't ridden in over 7 years.  Yes, there were some things that didn't sit quite right with me - the super hard line on things - especially as the blog progresses, some of the cult-like (just my personal impression) followers.  I chalked it up to the fact that this was all so new and I probably just didn't like all of the face punches I was giving myself.  Then I made the mistake of reading through the spending post.  I started scribbling figures, trying to compare my spending to his.  But the whole tax thing was tricky and then the principal vs mortgage interest thing seemed strange, then thinking about little things that I read - like new phones (pretty sure that was from another year, but I figured there'd be similar spending on some gadgety-thing) - but not seeing them accounted for was sort of the last straw.  It was like how after you find out about Santa, Christmas goes from downright magical to just a fun time of year.  The pedestal I put MMM on sort of crumbled - not that he asked to be put there. The bike is gathering dust again.  My inspired diy projects have been shelved.   I pretty much stopped reading the blog.  So while I'm still here on the forum and the motivation to pay down debt and spend less are still with me, the magical aspiration to be MMM has died. 

This is my very long-winded way of saying, I wonder if Clearview, this whole time, was seeking validation that MMM can still be an idol to the average nube with in-the-box accounting.  If it's just wonky math, then maybe he too can someday be like MMM.

Alas, I have concluded I'm just not that cool.

[arebelspy]

That's unfortunate.  A teacher shouldn't be confused with their teachings.

If the message is right, what matters the messenger?

Thank you for sharing Sarah.  I hope you can move past that mental hurdle, for your own sake, and that of your family.  :)

[tomsang]

some people reading the blog might be either dissuaded or incredulous that this family does all this great stuff and still claims to only spend $25k/year.

I can personally attest to the fact that the 2014 spending post dissuaded me.  I came across MMM while reading an online article.  Everything sounded great; I tore through a year and a half of posts in a week.  I told my husband how cool this MMM guy was.  I started quoting him and spouting his philosophies.  I secretly resolved in my head that I was going to be that guy!  I even dusted off the bike I hadn't ridden in over 7 years.  Yes, there were some things that didn't sit quite right with me - the super hard line on things - especially as the blog progresses, some of the cult-like (just my personal impression) followers.  I chalked it up to the fact that this was all so new and I probably just didn't like all of the face punches I was giving myself.  Then I made the mistake of reading through the spending post.  I started scribbling figures, trying to compare my spending to his.  But the whole tax thing was tricky and then the principal vs mortgage interest thing seemed strange, then thinking about little things that I read - like new phones (pretty sure that was from another year, but I figured there'd be similar spending on some gadgety-thing) - but not seeing them accounted for was sort of the last straw.  It was like how after you find out about Santa, Christmas goes from downright magical to just a fun time of year.  The pedestal I put MMM on sort of crumbled - not that he asked to be put there. The bike is gathering dust again.  My inspired diy projects have been shelved.   I pretty much stopped reading the blog.  So while I'm still here on the forum and the motivation to pay down debt and spend less are still with me, the magical aspiration to be MMM has died. 

This is my very long-winded way of saying, I wonder if Clearview, this whole time, was seeking validation that MMM can still be an idol to the average nube with in-the-box accounting.  If it's just wonky math, then maybe he too can someday be like MMM.

Alas, I have concluded I'm just not that cool.

I am curious on what turned you off?  You mention phones, but what part of that turned you off?  I think a lot of people miss the main point of MMM philosophy is to spend money on areas that provide true value. Stop blowing money on quick fixes or perceived value. He posts his expense by category so that people can see how much he blows on things that he values that many people would not value. Organic, crossfit, etc. 

[RootofGood]

The bike is gathering dust again.  My inspired diy projects have been shelved.

Biking and DIY either make sense for you in your life or they don't.  How much a random guy in Colorado that blogs on the internet spends (or doesn't spend) shouldn't really impact your decision to bike or DIY (assuming those are sensible choices to begin with).

[SarahMD428]

I guess I started reading the blog and began thinking, if this guy can do it, I can do it too.  If he only needs $25k with a family of 3 how much do I really need being a DINK.  And I loved the "spend where it will improve your life" part.  It wasn't just "live in a box while raking in a full-time salary."  But when I started crunching numbers (to see where my "problem areas" were) things just weren't adding up.  Like, his cell phone was listed as $120 - which is $5/month/adult.  What??  Republic's $5 plan doesn't include internet but he has a new iPhone?  His utilities were only $1260; mine are $1800 - but our internet (we canceled cable and have regular speed internet) is another $936 - which isn't listed on his budget.  His spending money (or at least things that I categorize in my "spending money" envelope on GoodBudget) was $9495 and mine is $18,600.  I know he's frugal, and in a better headspace about this and has had more practice, but it left me thinking - does the guy not use toilet paper?  Does he not use soap in the dishwasher, he's had nothing hemmed or cobbled?  What about that cool phone he got?  Then I just started thinking, alright there's got to be some things unaccounted for on this list - even if it's stuff he legitimately does use for business purposes.  There are some expenses that I don't see that he has to have (like internet).  And I don't want this to turn into a math lesson, and I'm not saying that he's doing anything wrong by splitting out business vs personal, and it's his spreadsheet, he can do what he wants.  My point is that my plan was to emulate him, or try my best to.  I was going to get as close to $25K as I could!  But the little things that weren't added in because they're business expenses killed it for me.  It's like if someone tells you they lost a bunch of weight just by eating right and exercising.  I'd think, "Awesome, tell me what you did and I'll do the same."  And then it turns out they're a trust fund baby, don't have to work and started exercising 6 hours a day.  It quickly goes from, "I can do that too," to, "Good for them, but it doesn't seem like that could apply to me."  I'd probably be way more gung-ho still if MMM broke it down by saying if all of my living/fun/quality of life expenses came out of my personal accounts, we'd only need $35K.  Then I feel like I could compare my budget better. 
And I think that might have been Clearwater's point also.  We think it's so cool that you retired at 30 that we want to copy you.  But how can we do that when some typical expenses are calculated in another inaccessible column. 
Don't get me wrong, I've learned a lot and my husband and I have made some great changes.  We've cut our utility bills and went from the worst 25% to the best 50% on our quarterly usage chart.  We're paying off $14K in bills that probably would have languished for another 5 years.  We're paying more attention to our Roths and subsequently opened a Vanguard account and we will start socking more money away into my husband's 401k (after the bills are paid off).  Lots of great stuff!  So while I've learned from MMM and others on these forums, I no longer believe I can be like MMM and get my living expenses to $25k. 

As far as biking and DIY go, "making sense" could be debated.  I don't usually bike or DIY, I don't have any intrinsic desire to, I don't really enjoy either one (though maybe I would have learned to), but I was willing to if it meant getting down to a $25k budget and being able to retire in 10 years.  However since I don't think I can ever get down to $25k by trying to copy MMM, I don't know that I'll be able to retire that soon.  So why do something I don't like just to try to reach a goal I no longer think is reachable.  Hence the dusty bike and the free-but needs-to-be-taken-to-a-laundromat lace sitting in my garage.

[arebelspy]

Start reading some of the people here, who are more then willing to engage and discuss everything.

Many of us live on <25k/year, even including housing.. when you exclude housing, tons of us do.  Just cause you don't jibe with MMM's numbers doesn't mean it's not possible.

The wife and I average about 21k, for example, and I've laid out how much in what category (and it literally counts every dollar spent--I don't count any personal spending as "business" or anything).

Challenge yourself.  Be badass.  You can do it!  :)

[Erica/NWEdible]

/snip....So while I've learned from MMM and others on these forums, I no longer believe I can be like MMM and get my living expenses to $25k. 

I totally get where Sarah is coming from here. MMM deliberately cultivates a cult of personality. It's right on the main page. And that cult of personality is the reason this blog is so successful. It IS the messenger, not just the message, especially when you get that wave of, "OMG, I can DO this!" that MMM inspires.

I had what I can only describe as Mustachian Frugality Failure Depression for a while. No matter what I did, my expenses were never getting to MMM level low. I was actively guilt-ridden about my SUV, but I loved it, and it totally fit my lifestyle, and the numbers to sell it based on the miles I drive said "keep it" every way I ran them - and I still felt like I was an MMM failure because I wasn't hauling 2 bails of straw and two kids 25 miles in a tow-behind bike trailer.

All kinds of inferiority issues about my own savings efforts kinda snuck in. None of this, I hasten to add, is about MMM except insofar as he presents a public "my way is the best" face punch persona it's easy to be star-struck over.

Eventually, I re-balanced somehow, to take the MMM lessons in, but to still be ok with my spending according to my values and my family's needs and wants, not his. I made peace with my SUV. I saved a shitload of money and challenged myself and did some badass stuff. MMM has made my life better, but I understand the feelings Sarah has described very well. I think we all have to eat the philosophy, digest it, and make it part of us in our own way. And sometimes the process can lead to a little heartburn.

[bzzzt]

I had what I can only describe as Mustachian Frugality Failure Depression for a while. No matter what I did, my expenses were never getting to MMM level low. I was actively guilt-ridden about my SUV, but I loved it, and it totally fit my lifestyle, and the numbers to sell it based on the miles I drive said "keep it" every way I ran them - and I still felt like I was an MMM failure because I wasn't hauling 2 bails of straw and two kids 25 miles in a tow-behind bike trailer.

All kinds of inferiority issues about my own savings efforts kinda snuck in. None of this, I hasten to add, is about MMM except insofar as he presents a public "my way is the best" face punch persona it's easy to be star-struck over.

Eventually, I re-balanced somehow, to take the MMM lessons in, but to still be ok with my spending according to my values and my family's needs and wants, not his. I made peace with my SUV. I saved a shitload of money and challenged myself and did some badass stuff. MMM has made my life better, but I understand the feelings Sarah has described very well. I think we all have to eat the philosophy, digest it, and make it part of us in our own way. And sometimes the process can lead to a little heartburn.

Agreed. I have come to the realization that some things can be done the MMM way while still working and some are really tough to implement.

Ex: DIY projects. M-F this week I worked 50 hours and had 16 hours of commuting, leaving very little for DIY projects. I still made time to cook lunches to take to work, but that's about it. IfWhen I don't have to work, I will be DIYing my ass off!

edit: Evidently can't add after 5pm on Friday.