The Money Mustache Community
Around the Internet => Continue the Blog Conversation => Topic started by: clearview on January 16, 2014, 12:14:23 PM
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I understand and agree that these expenses are not considered personal expenses for tax purposes, but what about for our purposes?
There are several examples:
Charity
It makes total sense to donate from the business. If he transferred the money to himself first, it would be considered business and personal income, and he would have to pay business taxes on it first, and if he reached his limit for personal charity deduction, then he would have to pay personal taxes on it too.
But in reality, either way, he is giving this money that belongs to him away from his business or his personal money. He could for example choose not to give to charity at all, from his business or personal money. I'm not saying that he should, I'm merely pointing out that he is giving money away to charity through his business and not counting it as spending.
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Vacations
He takes vacations and pays for them on his business' dime, then doesn't count it in his spending. Two examples I remember were vacations to Hawaii and Seattle where he would attend a conference for financial bloggers.
Again, legitimate business expense, but it was his choice to go and spend the money. And again, i'm not saying he shouldn't have, I am just asking, isn't this really a personal expense?
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Experiments and other discretionary business expenses
He often pursues optional hobbies or conducts experiments in the name of his business, and doesn't count them as part of his personal spending. One example is when he decided to conduct an "experiment" of blowing $1,000 in a week to find out what it feels like and to blog about it. This apparently included buying drinks for a bunch of people at a bar for something like $150 and buying a $12 piece of pie at an expensive restaurant.
he could have imagined,or just observed without spending himself, or forgone this experiment, and at the end of the year have an extra $1,000 in business income. It is his money and he is free to do what he wants with it, and everyone splurges once in a while, but I am asking whether this and other expenses like these should be excluded from his spending?
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These things could at least be considered quantifiable benefits to his employment.
Just like having a Job that provides a car, or provides housing, or provides health insurance, these things could be considered like having a job "expense account" or a credit card provided by and paid for by your employer.
These types of benefits may or may not be considered income for taxable purposes, but come on. If you have a job that gives you a car and a credit card that you use to pay for the car's gas with, and you get to drive that car personally, you would consider it to have a quantifiable value.
Lots of people with their own businesses find ways to pay for things with their business to save on taxes. If you use your business to pay for vacations and charity and spending experiments and funding hobbies, shouldn't you count that as part of your annual spending for your own purposes (though not for tax purposes) ?
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but what about for our purposes?
I don't know what you mean for our purposes.......but
It's not relevant. Sure he gives to charity (you actually make a good point as to why he would donate through his business as opposed to donating himself) and I am pretty sure he said at one point that any profit he made from the blog goes to charity. If I had to guess this value is probably close to his annual spending, if not more.
The point of showing his annual his personal spending is to show that you can live a fulfilling and exciting life while still being being smart about your money. He included the 1,000 dollar spending spree in his budget that he laid forth, and it doesn't state explicitly, but I'm assuming his budget includes his trip to Hawaii (which he stayed for free and probably used reward points for airfare).
What he might not include is any rewards that he may earn on credit cards through business expenses, but then uses the rewards for himself/family. I would argue this category would be one he could/should include.
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"Clearview"..
You've made 6 posts on this forum and they've all been to pick at some real or imagined inconsistency in MMM's expenses.
News Flash: Nobody Cares.
If you're a superior financial genius, start your own blog. If you believe we're all financially doomed and none of it is under our own control... start your own blog. :-)
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Cromacster, by "for our purposes", I mean for us, the readers of the blog/forum (as opposed to an accountant or tax revenue agency, for example).
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Kendallf, the purpose of a forum is to state your opinions and have discussions, specifically this section, which is titled "Continue the Blog Conversation" . I'm not sure what your problem is or why you're here if you don't want to that.
It seems there are people on this forum who attack anyone who tries to start a conversation
and I'm not insinuating that I am a "superior financial genius" nor do I "believe we're all financially doomed and none of it is under our own control"
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Lots of people who have their own businesses pay for things through their business. Cars, internet, phones, health insurance, etc.. (not to mention people who furnish their offices with expensive fixtures, equipment, artwork, etc.. instead of what is necessary, or provide a luxury car instead of a cheap one)
I heard of a Spanish teacher claiming cable as a business expense and winning in court because he said he needed to watch Spanish programming for his mastery of the language
I know a guy who sells cruise/vacation packages, who goes on them and claims them as business expenses because he says he needs to see the package or cruiseship for himself so he judge the quality and so he can describe it to his customers
Also, a lot of professions have their conferences or continuing education in vacation spots like Vegas or Hawaii, sometimes even in resorts.
But for our purposes, its clear that the enjoyment of the experience/entertainment is the reason for making the expense.
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I don't see how including business or experiment expenses is at all relevant. I know it isn't relevant to me. MMM is talking about personal expenses and readers (presumably) try to apply and/or compare to their own personal expenses. Unless you want to start a financial blog, why in the world do you care what it cost him to go to a conference?
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I don't see how including business or experiment expenses is at all relevant. I know it isn't relevant to me. MMM is talking about personal expenses and readers (presumably) try to apply and/or compare to their own personal expenses. Unless you want to start a financial blog, why in the world do you care what it cost him to go to a conference?
It is relevant because to some extent, they are personal expenses paid for through his own business. He is his own employer, he decided to give away charity, to send himself to conferences, to find out what its like to spend $1,000 in a week. These are discretionary expenses.
If he didn't have the business, he would have to give to charity and pay for vacations out of his personal expenses.
Its like having a job that pays you $28,000 a year
vs
having a job that pays you $28,000 after taxes, plus pays for your housing in a $400k house, pays for your vacations, gives you an expense account, gives you a charity account, etc..
benefits should be counted
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I can see where clearview is coming from, if airfare etc for Hawaii/Seattle/Costa Rica was not included as personal expense on some level this is cutting a corner, I think mmm did say that some of these costs were included in his annual budget. But it in other ways I think it hinges on if he would have done them fully on his own dime without the blog picking up part. When I tack on a fun weekend after a work trip I would not count the airfare ageist my savings rate.
End of the day I dont think it really matters, worst case without the blog the annual spending might go up a bit but is still very low with a high quality of life and that is the entire point of the blog. 25,182$ vs 26,000$? Sorry, I see where you are coming from but I dont see it really changing anything.
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Other than the charities, those are business expenses. If he happens to enjoy himself as on "vacation" when attending blog related activities, then that speaks more to his optimism, IMO.
As for the charities, why does it matter where that comes from? Giving to charities is an option to a lot of people.
I can't imagine how frustrating it would be to expose one's admirable spending to the world only to have people nitpick as if he is trying to lead the rest of us on to some fool's errand.
I agree with Kendallf on this.
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Eh.
It depends why you are reviewing his expenses. I look at it more to get ideas for cheaper ways of doing things and to inspire me to spend less, and less to see if he's walking the walk. I also am impressed he's willing to open up his spending and invite everyone to see it. I particularly like he links to certain articles related to his spending, very useful.
I could care less re business v. personal expenses, though perhaps a footnote at the bottom elaborating on some business expenses would be benefical.
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After reading kendallf's post, I went back and reviewed clearview's previous 6 posts and they all seem to be well-written and logical. He is making valid points about true living costs, as opposed to what's on paper. Nothing about what he has written comes across as trollish or an attempt to discredit MMM.
I'm pretty new around here myself, but so far I'm surprised at how closed-minded many of MMM's followers seem to be. This board has an almost cult-like mindset in certain ways.
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rant
Christssakes don't do "typical internet broad stroke this place is like X" posts please.
It just brings down the tone of the whole place.
Enquiring minds are helpful. Tarring everyone with the same brush (either "this forum is the best and MMM should be President" or "this place stinks of donkey wee") just ends up in flame wars. Really.
/rant
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Other than the charities, those are business expenses. If he happens to enjoy himself as on "vacation" when attending blog related activities, then that speaks more to his optimism, IMO.
As for the charities, why does it matter where that comes from? Giving to charities is an option to a lot of people.
I can't imagine how frustrating it would be to expose one's admirable spending to the world only to have people nitpick as if he is trying to lead the rest of us on to some fool's errand.
I agree with Kendallf on this.
It appears that you have missed the point entirely. Did you see the title?
No one is nitpicking his charity or saying it matters where it comes from. In fact, I find it admirable and I support the way he does it and agree with it completely.
But at least you agree that the charity is really a personal expenses.
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rant
Christssakes don't do "typical internet broad stroke this place is like X" posts please.
It just brings down the tone of the whole place.
Enquiring minds are helpful. Tarring everyone with the same brush (either "this forum is the best and MMM should be President" or "this place stinks of donkey wee") just ends up in flame wars. Really.
/rant
Sorry it bothers you but I've seen too many constructive comments/questions get responses similar to kendallf's. In my mind, that's what brings the tone of the place down. I think the OP brings up an interesting question, so I would hope the personal attacks wouldn't discourage him from posting.
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Eh.
It depends why you are reviewing his expenses. I look at it more to get ideas for cheaper ways of doing things and to inspire me to spend less, and less to see if he's walking the walk. I also am impressed he's willing to open up his spending and invite everyone to see it. I particularly like he links to certain articles related to his spending, very useful.
I could care less re business v. personal expenses, though perhaps a footnote at the bottom elaborating on some business expenses would be benefical.
this section of the forum is "continue the blog conversation"
the topic is about his annual blog posts which about their annual spending.
He says they live lavishly spending about $28,000 a year and gives the breakdown of the spending.
what I am trying to point out is that there are particular things about his situation that make that possible.
One of those things was that he lives in a $400k house that he owns free and clear of any mortgages; it's paid off. This saves him as much as over $30k a year in mortgage and PMI
Another thing is that, because he has businesses, he pays for a lot of his expenses through his businesses, that someone else would otherwise pay for from their personal spending, including giving to charity, vacations, hobbies/experiments , credit card rewards earned making business purchases, etc. also worth thousands
other things worth pointing out are that this is $28,000 of spending, which is equivalent to thousands more pre-tax. Each person's situation is different, but $28k after tax is thousands more before tax..
another thing is that he saves thousands by having passive income rather than having a job he has to shave and dress up for and commute to everyday..
another advantage of his lifestyle is the time in two ways:
first of all, he has more free time and the energy to shop around and research to save money.
the second way time is on his side is that he may not have the urgency to get something as fast as a working person needs it, so maybe he orders something online and waits for it to come in the mail instead of buying it at the store because you need it immediately. Or maybe he does something himself for free or significantly less because he has the time to do it. maybe you live 20 miles from the nearest big town or city, so you buy things from the more expensive local store instead of the costco in town. Maybe his car breaks down, so he spends a day finding out what the problem is and buying the parts on the internet, waits a few days for the parts to come, then spends a day fixing it himself, instead of taking it to a shop to get it fixed immediately because he needs it to get to work
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Eh.
It depends why you are reviewing his expenses. I look at it more to get ideas for cheaper ways of doing things and to inspire me to spend less, and less to see if he's walking the walk. I also am impressed he's willing to open up his spending and invite everyone to see it. I particularly like he links to certain articles related to his spending, very useful.
I could care less re business v. personal expenses, though perhaps a footnote at the bottom elaborating on some business expenses would be benefical.
this section of the forum is "continue the blog conversation"
the topic is about his annual blog posts which about their annual spending.
He says they live lavishly spending about $28,000 a year and gives the breakdown of the spending.
what I am trying to point out is that there are particular things about his situation that make that possible.
One of those things was that he lives in a $400k house that he owns free and clear of any mortgages; it's paid off. This saves him as much as over $30k a year in mortgage and PMI
Another thing is that, because he has businesses, he pays for a lot of his expenses through his businesses, that someone else would otherwise pay for from their personal spending, including giving to charity, vacations, hobbies/experiments , credit card rewards earned making business purchases, etc. also worth thousands
other things worth pointing out are that this is $28,000 of spending, which is equivalent to thousands more pre-tax. Each person's situation is different, but $28k after tax is thousands more before tax..
another thing is that he saves thousands by having passive income rather than having a job he has to shave and dress up for and commute to everyday..
another advantage of his lifestyle is the time in two ways:
first of all, he has more free time and the energy to shop around and research to save money.
the second way time is on his side is that he may not have the urgency to get something as fast as a working person needs it, so maybe he orders something online and waits for it to come in the mail instead of buying it at the store because you need it immediately. Or maybe he does something himself for free or significantly less because he has the time to do it. maybe you live 20 miles from the nearest big town or city, so you buy things from the more expensive local store instead of the costco in town
I was responding to your first line in your post: "I understand and agree that these expenses are not considered personal expenses for tax purposes, but what about for our purposes?" I was sharing MY purpose in reading his post.
I think the whole point of the MMM blog is to show people the advantages of doing things his way, which as you note, includes more time and fewer job related expenses. I'm a little confused by your point regarding his advantages as a result.
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Who gives a *?
It's all (more than) offset by business income.
I don't see what nitpicking does to improve your situation, so why do it?
Take the message, not the details.
You're missing the forest for ... not even the trees. Tiny shrubs, maybe. Irrelevant ones.
Live your life, not MMM's.
/shrug.
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Who gives a *?
It's all (more than) offset by business income.
I don't see what nitpicking does to improve your situation, so why do it?
Take the message, not the details.
You're missing the forest for ... not even the trees. Tiny shrubs, maybe. Irrelevant ones.
Live your life, not MMM's.
/shrug.
Rebel - I agree with your point to understand the message.. the problem is I think as a mod, this message doesn't really set the example it needs to with tone and is exactly what daverobev is talking about with regard to the bashing that goes on. I know this is also in-line with MMMs writing style, so it really isn't a surprise to me that it is like that on the boards.
Personally, I don't think the clearview understands the message that well (which is basically what Rebel is trying to say). MMM isn't just about living frugally. It's about being FI and having your money work for you. That could be by having rental income, dividend/stock income, or having a side business that you can devote hours. That devotion can lead to a great following and membership such that companies want you to provide feedback on products. Yes, clearview is right - MMM does spend more when you combine his business expenses with his personal expenses that are budgeted. FI gives you the ability to not have to work hard, get passive income, and have time to do what you want. If you get there first, things are MUCH easier.
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I understand and agree that these expenses are not considered personal expenses for tax purposes, but what about for our purposes?
Hey clearview, I totally get where you're coming from on this. I'm feeling ambivalent about it, myself. As I read through MMM's spending post I had a vague sense that there was some number fiddling on the business side-- I was thinking mostly of the Costa Rica trip. I also think that he should've included the house purchase/materials but that's just me. However, I also understand why he included/excluded what he did and see it as a totally legit way of doing expenses.
It's just that from a purely voyeuristic perspective, I want to know EVERYTHING that he and his family spent money on and not just the things they subjectively threw in the "personal" bucket.
On the other hand, I feel more challenged and energized by the low number of the aforementioned bucket.
What I would have really loved is if he detailed everything from groceries to conferences to hosting fees and then broke it out by "this is what I spend because of the blog" and "this is what I spend just for life" -- best of both worlds!
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Just seems rather strange that this topic is around other than a giant meh, (https://www.youtube.com/watch?v=LCcZqcPOlNM) what is it we gain in this exercise?
What is "our purpose" in this?
I see this board and see people discussing concepts and how they apply to their lives, or how they make their lives better. If you'd like feel free to start a thread on how to start a business that would let you maximize your tax write-offs, or why donating to charity through a business is superior. But this dissection exercise lacks value IMO.
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It is relevant because to some extent, they are personal expenses paid for through his own business.
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benefits should be counted
That's just it, I don't consider them personal expenses at all. I don't think he would have gone to HI or to those conferences if they were not business related. So its not that he was taking a vacation and happened to to a little work while there. Its that the trip was created due to a work purpose.
I sometimes travel for my job. I've been to Nashville, VA Beach, Baltimore, the FL keys. I paid for the trip with my personal cc, then expensed it to the company (travel, hotel, meals, etc). I note these on Mint as such and do not include them in my budget. It makes no sense to me why these should maybe be counted in my budget.
Charity giving is a whole other can of worms, but frankly, I would rather he leave that off. I don't consider that "spending."
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Just seems rather strange that this topic is around other than a giant meh, (https://www.youtube.com/watch?v=LCcZqcPOlNM) what is it we gain in this exercise?
What is "our purpose" in this?
I see this board and see people discussing concepts and how they apply to their lives, or how they make their lives better. If you'd like feel free to start a thread on how to start a business that would let you maximize your tax write-offs, or why donating to charity through a business is superior. But this dissection exercise lacks value IMO.
Big +1.
It is relevant because to some extent, they are personal expenses paid for through his own business.
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benefits should be counted
Counted for what? Who the hell's counting, and why do they care so earnestly about MMM's spending? He tosses up a blog post with some interesting information, neat. Nitpicking apart what you want to "count" and not gains you...?
I'm all for questioning things. But harping on them, not so much.
Personally I disagree with MMM on a number of things. One example: savings rate calculation. (We have both posted in threads with differing opinions on this exact topic.)
There are two options then:
1) I could go on and on about how he's doing it wrong, this or that should or shouldn't be counted when calculating savings rate. Because I'm right, dammit.
2) I could choose the way that works for me, and move on with my life.
I know which makes me happier and leads to a better life for me.
Which option are you choosing?
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I'm a lot less worried about whether or not he counts business expenses in his personal income reporting than I am about whether or not a man with $100k/year of business expenses can seriously call himself retired. Yes, I'm the Internet Retirement Police today. From one perspective, filing business taxes sort of means you're running a business. If you're running a business then you're not retired. Unless Warren Buffet is retired?
Yes, I get the whole "freedom from the man" aspect of being self employed. But being self employed is still being employed.
What bothers me much more than that, though, is that he doesn't account for his (currently very large) house remodel expenses. Those ARE personal expenses, in every sense of the word. He's hoping they pay off in the future with the sale of another house, but in the meantime it is spending. Not claiming them as such would be the same as not claiming the proceeds from the eventual house sale as income, and I tend to side with the IRS when making these decisions.
So yes, there's some funny business in the family spending post to make a point. I'm still behind the basic idea (you don't need to spend much to be happy) but he's kind of undermining that message by distorting the numbers in obvious ways.
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I'm a lot less worried about whether or not he counts business expenses in his personal income reporting than I am about whether or not a man with $100k/year of business expenses can seriously call himself retired. Yes, I'm the Internet Retirement Police today. From one perspective, filing business taxes sort of means you're running a business. If you're running a business then you're not retired. Unless Warren Buffet is retired?
Yes, I get the whole "freedom from the man" aspect of being self employed. But being self employed is still being employed.
What bothers me much more than that, though, is that he doesn't account for his (currently very large) house remodel expenses. Those ARE personal expenses, in every sense of the word. He's hoping they pay off in the future with the sale of another house, but in the meantime it is spending. Not claiming them as such would be the same as not claiming the proceeds from the eventual house sale as income, and I tend to side with the IRS when making these decisions.
So yes, there's some funny business in the family spending post to make a point. I'm still behind the basic idea (you don't need to spend much to be happy) but he's kind of undermining that message by distorting the numbers in obvious ways.
Retirement has a very weird definition given that it says "ceasing work".. What is work? Well there is this "mental or physical activity as a means of earning income; employment".. and then there is income -- "money received, esp. on a regular basis, for work or through investments."..
Based on these definition, there is no such thing as retirement. After all, there is in some way shape or form mental or physical activity being done on a regular basis to earn income -- it could be through dividends or physical labor, it could be active, or it could be passive… There would be a VERY small subset of people who are actually not doing anything to manage their income at a point in time when they are not working. (did that make sense?)
MMM has defined retirement as leaving a job you have to have and doing what you want to do.. It is more than FI. It is saying: I'm only going to work occasionally through the year to get money and I'm going to enjoy the bulk of my time (in his case it is learning and home remodel).
I don't have much of a problem with how he is reporting his numbers nor how he is declaring his retirement. I don't agree with everything he does, because it becomes judgmental (i.e.: watching TV is bad, your "circle of concern" conversation).. but these are not part of the overall message which is:
Save as much money as fast as you can so your money can work for you later and allow you to do what you want.
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Counted for what? Who the hell's counting, and why do they care so earnestly about MMM's spending? He tosses up a blog post with some interesting information, neat. Nitpicking apart what you want to "count" and not gains you...?
I'm all for questioning things. But harping on them, not so much.
I mostly agree with this sentiment personally, however, MMM put up a public blog, posts his annual spending for all to see and comment on, and then hosts a forum with a section called "continuing the blog conversation". So, it would seem that in a way he is welcoming the nitpicking, questioning, etc.. Call it complainy-pants, call it questioning his assumptions, whatever. If folks want to do it, knock yourself out. Personally, i don't really get how its important but then again, I also don't get why folks are insisting on calling out people who want to talk about it.
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I'm glad that this thread has continued to this point, I thought Kendalf tried to cut this off way too early and these last few posts have been very interesting to me. I agree with the philosophical questioning about if MMM is really 'retired', and if he's not, then what the heck is retirement? My 70 old Dad has been retired for 15 years, my wife has not been retired, although she is not doing 'fun things that she wants to do every day'. She doesn't earn W-2 income, but she doesn't go around saying she's unemployed or retired either.
To me, I would also want to understand the MMM cashflow situation. They may have a great networth, with assets kicking the crap out of liabilities, but if you go cashflow negative (owning two homes and remodelling one), then you don't stay FI very successfully. But we have no insight into the income from the blog or the outflow, other than the categories he has labelled as personal.
I wish, if MMM were going to go full disclosure on how to be Mustachian and provide a transparent budget, that he would give the readers some of these big gaps painting the full picture of income and outgo over the course of the year and let us decide if they are relevant. Sure, it's his blog, but please don't be hostile and attack readers and forum posters for 'nitpicking' valid and interesting issues.
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I'm glad that this thread has continued to this point, I thought Kendalf tried to cut this off way too early and these last few posts have been very interesting to me. I agree with the philosophical questioning about if MMM is really 'retired', and if he's not, then what the heck is retirement? My 70 old Dad has been retired for 15 years, my wife has not been retired, although she is not doing 'fun things that she wants to do every day'. She doesn't earn W-2 income, but she doesn't go around saying she's unemployed or retired either.
To me, I would also want to understand the MMM cashflow situation. They may have a great networth, with assets kicking the crap out of liabilities, but if you go cashflow negative (owning two homes and remodelling one), then you don't stay FI very successfully. But we have no insight into the income from the blog or the outflow, other than the categories he has labelled as personal.
I wish, if MMM were going to go full disclosure on how to be Mustachian and provide a transparent budget, that he would give the readers some of these big gaps painting the full picture of income and outgo over the course of the year and let us decide if they are relevant. Sure, it's his blog, but please don't be hostile and attack readers and forum posters for 'nitpicking' valid and interesting issues.
I don't see attacks, I see people asking what value does this bring?
What would more details on MMM's income or outflow give you? Would that make you more or less able to FIRE? How does MMM's finances change your path? It shouldn't, much like I said above you can infer certain strategies such as starting an LLC so you can write off business expenses and take advantage of owning a business.
As for whether he's retired or not there is already a post about that and I feel it falls in the same category as this post. When the overall message is controlling your expenses, living a simple life, and saving the rest; then what impact do the details of MMM's life have on any of that? Remember the blog is as more about presenting an image or an ideal of the concept than it is a "how-to" guide.
This reminds me of some reasons that Jacob stepped away from ERE (aside from the "been there done that" aspect). My view is that this is supposed to be less about the messenger and more about the message.
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I'm a lot less worried about whether or not he counts business expenses in his personal income reporting than I am about whether or not a man with $100k/year of business expenses can seriously call himself retired. Yes, I'm the Internet Retirement Police today. From one perspective, filing business taxes sort of means you're running a business. If you're running a business then you're not retired. Unless Warren Buffet is retired?
Yes, I get the whole "freedom from the man" aspect of being self employed. But being self employed is still being employed.
I'm glad that this thread has continued to this point, I thought Kendalf tried to cut this off way too early and these last few posts have been very interesting to me. I agree with the philosophical questioning about if MMM is really 'retired', and if he's not, then what the heck is retirement? My 70 old Dad has been retired for 15 years, my wife has not been retired, although she is not doing 'fun things that she wants to do every day'. She doesn't earn W-2 income, but she doesn't go around saying she's unemployed or retired either.
It seems that to him the definition of retirement is a state of mind. It appears to involve some combination of not having a regular job commitment and having enough mostly-passive income to cover your spending.
But there are people who work as real estate agents or carpenters/metalworkers/plumbers/re-modelers/builders who only get work occasionally, and get business mostly by word of mouth and from neighbors, friends and relatives. There are people who consider buying, fixing up, then selling/leasing houses a job (and some people live in each one for 2 years because you don't have to pay taxes on the gains if it was your home), there are people who consider being a blogger a job, there are people who consider investing and managing investments a job, there are people who consider managing property a job.
Another thing is, I think he may have retroactively decided that he had retired at 30, rather than at the time.
What happened was that during his last couple years of having a regular job, he started a home-building business with a friend, and they bought two plots of land. During his last year and half or so, he reduced his working hours at his regular job to 4 days a week. The first house went rather well, though he didn't seem to feel the partnership was equal. But they built it and sold it at a profit.
He quit his regular job sometime around when they finished the second house, presumably to dedicate all his time and attention to the business, but the real estate market was crashing and the 2nd house wouldn't sell, and things started getting worse with the partner, who didn't want to continue paying the mortgage after a year and a half, so he bought out his partner, kept the house, and rented it out. And he shut down the business. (He decided that in the future he would buy fixer-uppers rather than build houses from scratch. He mentioned how building a house costs about $100-200 a square foot, so a 2,000 sq foot house would cost at least $200,000 to build, but you can buy an existing house for a lot less than that and fix up and still come out way ahead).
So it seems that his intention/mindset at the time was that he was quitting his regular job to go into the home-building business rather than retire.
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I second that the people trying to cut this conversation off are doing a disservice to the forum.
Again, no one is cutting off any conversation. We're simply asking why it matters, and how it helps. I.e. trying to turn it into a productive discussion that we can learn from or improve our lives with, instead of a whining/complainypants one.
Why does MMM need so much protecting?
He doesn't, and plenty of us are critical of various things. I myself don't agree with his definition of retirement (aside form the earlier example I mentioned of savings rates). But the nitpicking is useless.
Asking why this thread matters has nothing to do with "protecting" MMM (whatever that means), but has to do with trying to keep the forums productive, positive, and useful, not just filled with complaints that don't get anyone anything.
It is the people clogging up the forums with multiple threads and posts about the same issues - some by the same person, using multiple accounts - is doing a disservice to the forum, IMO.
/shrug
But by all means, proceed. Please just try to keep it helpful, instead of negative.
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I second that the people trying to cut this conversation off are doing a disservice to the forum. If it doesn't interest you, then why not let others comment in peace? Why does MMM need so much protecting? He put the numbers out there so clearly he doesn't mind them being scrutinized.
Personally, I've gotten a lot of value from this thread. If MMM is saying he lives on $24,000/year, but takes some liberties with how he gets to that number, then I think it is relevant. Nobody is criticizing him, just trying to understand. It's a conversation about what actually constitutes a living expense... a pretty relevant topic to how the rest of us construct our own FIRE budgets.
Pfft, where have I tried to cut it off? Saying I don't see value and asking questions to understand your point isn't cutting off but engaging. Saying I shouldn't participate because I don't agree with you or rather how this conversation came about is closer to that sort of behavior.
Cool you want to have a conversation about what constitutes a living expense then have it. Does travel for a business count as a living expense to you? Why? Do you think constructing a business to support extra activities is a valid strategy for FIRE? Why?
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I second that the people trying to cut this conversation off are doing a disservice to the forum.
Again, no one is cutting off any conversation. We're simply asking why it matters, and how it helps. I.e. trying to turn it into a productive discussion that we can learn from or improve our lives with, instead of a whining/complainypants one.
Why does MMM need so much protecting?
He doesn't, and plenty of us are critical of various things. I myself don't agree with his definition of retirement (aside form the earlier example I mentioned of savings rates). But the nitpicking is useless.
Asking why this thread matters has nothing to do with "protecting" MMM (whatever that means), but has to do with trying to keep the forums productive, positive, and useful, not just filled with complaints that don't get anyone anything.
It is the people clogging up the forums with multiple threads and posts about the same issues - some by the same person, using multiple accounts - is doing a disservice to the forum, IMO.
/shrug
But by all means, proceed. Please just try to keep it helpful, instead of negative.
No offense, but go back and reread your first post in this thread and tell me who took things in a negative direction.
The topic clearly has value to at least 3-4 people that responded in constructive ways, so the only thing unproductive was the 3 or so posters that tried to silence the OP (including you) and those of us that wasted our time by engaging you.
If the thread doesn't matter, it will die on it's own.
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No offense, but go back and reread your first post in this thread and tell me who took things in a negative direction.
None taken. Go back and read multiple posts right before it. It was just bickering, thus my response.
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Maybe some of those expenses could be considered personal spending but not all of them.
The blogger conference wasn't personal spending. He only went because he's a blogger, using income generated from said blog.
He never said the $1,000 was a business (blog) expense. From the post: I collected about $700 in cash, through a combination of selling some things on Craigslist and withdrawing some recent construction earnings from a very fun local project.
Since he already owned those things, the money was already spent once. He simply took the item's value and used it on something else. Say he bought an iPhone for $200 in 2011. Then in 2013 he sold it for $50 and got a nice dinner with Mrs. MMM. Should we say he spent $275 overall? Isn't that counting the same spending twice?
I don't think the Costa Rica trip cost anything; I believe MMM, JD Roth, etc. were actually paid to speak.
IMO, that is how I want my FI life to be. I want enough money to have a comfortable life. But I also expect to earn some income to finance a few optional luxuries. That may be more "lifestyle design" than early retirement, but that's good enough for me.
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I think some of this 'spending' may not have happened if it wasn't for the 'extra' income.
E.g. would he have given the same amount to charity, if he didn't have the blog / lending club income to give?
I think some of the assumptions in the original post imply that he would have undertaken all these activities anyway. Where I feel that MMM is only doing them because he has the extra resource to do so e.g. from the business. I treat what he shows as 'personal' as what he could reduce his life to, if he didn't take on any extra projects.
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The following points occur to me:
1) MMM did account for his home remodel expenses. He listed them right there on the blog post.
2) Business owners have separate accounting for home and business expenses. The post was about his family's personal spending, not business spending or business income.
3) He was sharing his family's spending, not a complete P&L or a tax return.
I guess I don't see a problem, and I don't understand why the post should have been written differently. I see nothing misleading or dishonest.
*shrug*
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I think.. the point is, if you're 'living on $24k' while spending half (?) your time 'working', the question becomes... what would you do if you were NOT spending half the time working. Would you end up spending MORE than $24k because you got bored sitting at home?
I know I love 'being out and about' - I spent a day helping install soap dispensers this week, which isn't my normal occupation - so it got me out of the house, over to a different city, into a new place, free lunch, chance to drive someone else's car (which I love doing - I love driving other vehicles! Sad but true.. if someone could hook me up with a job where I got to drive a different vehicle every day I'd be in heaven, I swear).
It was 'work' but on the other hand, it was entertainment. So MMM is getting more than money from this 'job', he's getting the fun of visiting places, making things, etc. That's the true luxury - no, that's the wrong word - well, the saying goes something like 'you've made it when you would go to work whether they paid you or not'.
Well maybe that's not 'the point'. But that's what I've been thinking about for the last couple of days. It's more about.. yeah, a state of mind, that you have enough capital backing you up so you can say 'yes' to all sorts of things.
Hmm, kind've like the Yes Man book (the film is an aberration).
But I take the OP's point - if you look at it and go, well, how much do *I* need to retire, you might have to replace MMM's business income-which-generates-fun with some expensive thing (cruises! Off roading! Horse! Etc!). But of course this is entirely personal so there's nothing wrong with *the blog post*, rather that as an individual you need to add in the cost of doing stuff - which is the free time you have, that MMM uses to do fun stuff that makes him money.
A'ight?
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I think.. the point is, if you're 'living on $24k' while spending half (?) your time 'working', the question becomes... what would you do if you were NOT spending half the time working. Would you end up spending MORE than $24k because you got bored sitting at home?
Ah! Now that's an interesting thought.
But I take the OP's point - if you look at it and go, well, how much do *I* need to retire, you might have to replace MMM's business income-which-generates-fun with some expensive thing (cruises! Off roading! Horse! Etc!). But of course this is entirely personal so there's nothing wrong with *the blog post*, rather that as an individual you need to add in the cost of doing stuff - which is the free time you have, that MMM uses to do fun stuff that makes him money.
Sure. I'm planning on a budget of nearly double MMM's (40-50k) in FIRE, because I'm planning on extensive travel (up to 1/4-1/2 of my budget). That's where I think MMM's post is especially helpful - you can use it as a baseline for reasonable costs on things like insurance, food, utilities, etc. and then tweak to your own level and plans (larger house = more utilities, smaller = less.. larger family = more food, etc. etc.)
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Other than the charities, those are business expenses. If he happens to enjoy himself as on "vacation" when attending blog related activities, then that speaks more to his optimism, IMO.
As for the charities, why does it matter where that comes from? Giving to charities is an option to a lot of people.
I can't imagine how frustrating it would be to expose one's admirable spending to the world only to have people nitpick as if he is trying to lead the rest of us on to some fool's errand.
I agree with Kendallf on this.
It appears that you have missed the point entirely. Did you see the title?
No one is nitpicking his charity or saying it matters where it comes from. In fact, I find it admirable and I support the way he does it and agree with it completely.
But at least you agree that the charity is really a personal expenses.
Well, aren't you condescending? Only you have the "clear view," I guess, because I did get your point, I just don't agree with you.
No, they shouldn't be counted in his yearly personal expenditures, because they might not exist if he didn't have the business and that includes the charity. For example, my brother, who lives with me, pays enough rent to cover my property tax. Because he is my brother, I don't have to claim his rent as income. If he didn't live with us, then we might move to another place with cheaper housing expenses. Someone could argue that I should include property tax as my yearly spending, but I won't do that because it's canceled out by my brother's rent and keeps my annual spending lower.
People make decisions based on what works for them at the time. They can change those decisions based on a different reality. MMM went to Hawaii to work. That is a business expense. He went to Seattle because of the blog. That is a business expense. He might not have donated as much to charity if the blog didn't make money.
Keep thinking about things in traditional ways instead of finding creative solutions if that's working for you. For a lot of the rest of us, we've found legal hacks that keep our expenses lower. Complaining about those hacks and condescending those who see opportunities and take them isn't exactly a clear view. It's whiny. And it means that you don't understand the spirit of creative problem solving leading to FI.
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I do think this is a valid question. No need to get riled up! :)
To address some of the concerns/questions:
- everything business related that we would have spent anyway was included in the expenses report. For example, cell phone, internet, stuff we would have bought anyway.
- the $1,000 spending project was not a business deduction - this shows up in the expense report.
- the blog costs money that we wouldn't otherwise spend. This includes a tiny bit of travel for MMM (not much - this year it was Ecuador and the Financial Blogger Conference - there is no doubt that these were business related expenses), but it also includes things like web hosting, web site redesign (which we are currently undergoing), etc. This is money that we wouldn't normally spend. It makes sense to include it as a business expense.
- for the Hawaii trip (which was on last year's budget), the only thing that was labelled as a business expense was MMMs flight. All our other spending (including my flight and our son's flight, car rental, any hotels we stayed at) were included in our expense report.
- Sol - I see what you're saying about the new house. MMM did mention that amount at the end of the article, but the the way MMM sees it, that is part of the house cost. It's the same as if we had purchased a more expensive house that was already the way we liked it. It is true that it is money we spent (and a lot of it). But, to avoid confusion (since most readers would not be undergoing a gigantic house renovation and including it in their budget), we did not include this, but did mention that it was a big cost in the article.
- as far as charity and donations go, most of our charitable donations are personal. MMM has goals for setting up some kind of charity through the blog. As some of you know, the profits made from the blog will all be eventually donated. It's important to keep those separate. In addition, I donate 20% of all my real estate commissions to charity. This is directly related to my real estate business. It makes sense to include it as a business expense. When we donate to the school or sponsor friends or make donations in our regular lives, these are included in our regular expenses. There are big goals for charitable work through the blog, but we want to do it right and are still trying to figure stuff out.
We are very careful with all this stuff and are being as up front and honest about what our real spending is, while also trying to help others and making it easy for them to compare their spending to ours.
(I'm the one that puts the table together, so feel free to ask me any other questions).
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I think.. the point is, if you're 'living on $24k' while spending half (?) your time 'working', the question becomes... what would you do if you were NOT spending half the time working. Would you end up spending MORE than $24k because you got bored sitting at home?
Ah! Now that's an interesting thought.
The answer for me is no, for a few reasons. First, I've been poor before but had a decent life and my planned retirement income of $20k a year is twice as much as I've lived on before (adjusted for inflation). Secondly, I'm a teacher and my spending during summer months does not increase compared to the school year, so I am thinking it will be the same during retirement. I have cheap hobbies. Thirdly, I came to MMM via ERE. Many of those people have happy lives on far less than what MMM lives on.
I do agree with Sol, that MMM is not really retired, the way I view retired. I don't expect to make much money in retirement, but I have opted to work part-time until my retirement which will be older. 50 for me.
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I do think this is a valid question. No need to get riled up! :)
To address some of the concerns/questions:
- everything business related that we would have spent anyway was included in the expenses report. For example, cell phone, internet, stuff we would have bought anyway.
- the $1,000 spending project was not a business deduction - this shows up in the expense report.
- the blog costs money that we wouldn't otherwise spend. This includes a tiny bit of travel for MMM (not much - this year it was Ecuador and the Financial Blogger Conference - there is no doubt that these were business related expenses), but it also includes things like web hosting, web site redesign (which we are currently undergoing), etc. This is money that we wouldn't normally spend. It makes sense to include it as a business expense.
- for the Hawaii trip (which was on last year's budget), the only thing that was labelled as a business expense was MMMs flight. All our other spending (including my flight and our son's flight, car rental, any hotels we stayed at) were included in our expense report.
- Sol - I see what you're saying about the new house. MMM did mention that amount at the end of the article, but the the way MMM sees it, that is part of the house cost. It's the same as if we had purchased a more expensive house that was already the way we liked it. It is true that it is money we spent (and a lot of it). But, to avoid confusion (since most readers would not be undergoing a gigantic house renovation and including it in their budget), we did not include this, but did mention that it was a big cost in the article.
- as far as charity and donations go, most of our charitable donations are personal. MMM has goals for setting up some kind of charity through the blog. As some of you know, the profits made from the blog will all be eventually donated. It's important to keep those separate. In addition, I donate 20% of all my real estate commissions to charity. This is directly related to my real estate business. It makes sense to include it as a business expense. When we donate to the school or sponsor friends or make donations in our regular lives, these are included in our regular expenses. There are big goals for charitable work through the blog, but we want to do it right and are still trying to figure stuff out.
We are very careful with all this stuff and are being as up front and honest about what our real spending is, while also trying to help others and making it easy for them to compare their spending to ours.
(I'm the one that puts the table together, so feel free to ask me any other questions).
At the risk of sounding like the equivalent of a Trekkie nerd, is the real problem here that some of us were aware of all of this because we've been long time, active followers of the blog, and others like Clearview might not be because they aren't as familiar? As Will Shatner once said in a Saturday Night Live skit where he finds a Trekkie who knows more about his life than he does, "Get a life, [BPA]!"
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At the risk of sounding like the equivalent of a Trekkie nerd, is the real problem here that some of us were aware of all of this because we've been long time, active followers of the blog, and others like Clearview might not be because they aren't as familiar? As Will Shatner once said in a Saturday Night Live skit where he finds a Trekkie who knows more about his life than he does, "Get a life, [BPA]!"
Haha - perhaps! But, there will always be new readers and we should be nice to them. :)
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Haha - perhaps! But, there will always be new readers and we should be nice to them. :)
+1 for this!
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At the risk of sounding like the equivalent of a Trekkie nerd, is the real problem here that some of us were aware of all of this because we've been long time, active followers of the blog, and others like Clearview might not be because they aren't as familiar? As Will Shatner once said in a Saturday Night Live skit where he finds a Trekkie who knows more about his life than he does, "Get a life, [BPA]!"
Haha - perhaps! But, there will always be new readers and we should be nice to them. :)
No doubt. It's just frustrating when they create multiple threads about the same issue, then create multiple accounts to post in those threads.
Thanks for handling it so gracefully. :)
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I understand why the OP sees some of the business expenses as personal expenses - MMM and his ideas are his business (at least, the blog part). As a long term reader, when you read the blog throughout the year you get a picture in your head of his lifestyle (including the travel), and then all the costs of the lifestyle you are picturing don't show up in the end-of-year summary. The line between the "he's retired on $25k a year and still gets to take international vacations" and "just kidding, those international vacations don't really count because they weren't a personal expense" isn't immediately obvious.
The yearly post is clear by itself, just matching it up with the big stuff talked about on the blog is the challenge.
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I'm a lot less worried about whether or not he counts business expenses in his personal income reporting than I am about whether or not a man with $100k/year of business expenses can seriously call himself retired.
I think that article was a bit out of line in more than one way. He didn't include his spending on his new house and other expenses. Everyone this is money that he conveniently hid ala numerous other broke companies.
I get that he could live on that amount but he didn't. Why not just be up front.
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Personally I think what MMM and MrsMM have done is remarkable and deserving of nothing but admiration and emulation. Especially in light of the whole home construction business debacle. The way they came through that both in terms of their finances AND their character/world view is such an incredibly positive and inspiring example. Reading through the blog has really helped me (and probably many others) see that it is possible to step off the waaaaahmbulance, tune up the optimism gun, and go boldly forward in a more positive, productive direction. Thanks, M&MMM.
I totally agree. I just think it would be better to categorise additional spending.
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I guess I don't really care.
I mean, I understand, if you consider his trips part of his lifestyle (of the rich and famous) that doesn't show up on the year end report.
But...it's not really part of his lifestyle. I don't see where he makes a big point to go to exotic locations all of the time. I don't see that it's a big part of his life, enjoyment, etc. His life, IMO, would be just as enjoyable and fulfilling without these trips. They are incidental to the business.
Then again, I'm not too terribly big into traveling right now.
So if I posted my annual budget on my blog, would I be considered "hiding information" if I left off the fact that I get free coffee at work? Or if I left off the fact that my husband travels to places like Boston and DC for business and gets paid per diem? Or if I left off the fact that we have "status" due to his travel and get free bags?
Now, I won't be posting - mostly because our computer crashed and we had to reboot it at an older date and lost all of our up to date financials. And because I'm lazy.
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I guess I don't really care.
I mean, I understand, if you consider his trips part of his lifestyle (of the rich and famous) that doesn't show up on the year end report.
But...it's not really part of his lifestyle. I don't see where he makes a big point to go to exotic locations all of the time. I don't see that it's a big part of his life, enjoyment, etc. His life, IMO, would be just as enjoyable and fulfilling without these trips. They are incidental to the business.
Then again, I'm not too terribly big into traveling right now.
So if I posted my annual budget on my blog, would I be considered "hiding information" if I left off the fact that I get free coffee at work? Or if I left off the fact that my husband travels to places like Boston and DC for business and gets paid per diem? Or if I left off the fact that we have "status" due to his travel and get free bags?
Now, I won't be posting - mostly because our computer crashed and we had to reboot it at an older date and lost all of our up to date financials. And because I'm lazy.
Well first of all I'd ask if you or your husband were the ones making the decision to send yourself on a trip or provide free coffee at the office, like a self-employed person or the owner of a business does.
The second question I'd ask is whether for example you would buy your own coffee or go on these trips anyway if your business wasn't paying for them.
I don't know how his per Diem works, but if they give him a flat amount and that amount is more than he spends while on these trips, I think I'd at least count the difference.
Another factor I'd ask is whether the expense was necessary, and whether there was a cheaper way to do it. If you are doing a continuing education thing, and you could do it online at home for very cheap, but you choose to take off work for a week and do it at a resort or convention center that you have to fly to and stay at a hotel for. If you need a car for your work, did you decide to buy a cheap used car, or did you get a range rover to drive yourself around in? did you fly in coach or business/first? did you bring your spouse and kids along with you on the trip? did you need to rent the car ?
The good news is that Mrs. MM has responded to this thread (Reply #38); she did say "I do think this is a valid question" and she said "everything business related that we would have spent anyway was included in the expenses report", including most of the examples mentioned in this thread. Feel free to read the details in her response.
(By the way, Thank you Mrs. MM)
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where is mrs mm's reply?
PerDiem, yes is fixed amount of cash based on location intended to cover food and incidentals. For most locations it is a good bit higher than what it actually costs to eat so you can pocket the difference. It can make budgeting a bit difficult as normally I will take out a 200-300$ in cash before a trip to pay for food and stuff bu then when I get back I get a nice PD check that includes other fully reimbursed expenses-hotel-car rental-etc. So in Mint I have a 300$ withdrawal that gets counted as spending but was not "really" spending. With this and other work travel expenses I dont know that I could give you a 100% accurate year end spending analysis, I dont come out behind for work travel and that is really what I care about. Sorry for going Off Topic. And no I dont think that mmm pays himself per diem but I guess by the letter of the rules he probably could.
As I said above I think a lot of this question hinges on if mmm would have done the travel without the blog. It would have been nice to see a bit more included just for voyeurism and completeness but I can see from my work travel that it can get dificult to track and summarize.
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where is mrs mm's reply?
12 and 9 posts above yours.
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I guess I don't really care.
I mean, I understand, if you consider his trips part of his lifestyle (of the rich and famous) that doesn't show up on the year end report.
But...it's not really part of his lifestyle. I don't see where he makes a big point to go to exotic locations all of the time. I don't see that it's a big part of his life, enjoyment, etc. His life, IMO, would be just as enjoyable and fulfilling without these trips. They are incidental to the business.
Then again, I'm not too terribly big into traveling right now.
So if I posted my annual budget on my blog, would I be considered "hiding information" if I left off the fact that I get free coffee at work? Or if I left off the fact that my husband travels to places like Boston and DC for business and gets paid per diem? Or if I left off the fact that we have "status" due to his travel and get free bags?
Now, I won't be posting - mostly because our computer crashed and we had to reboot it at an older date and lost all of our up to date financials. And because I'm lazy.
Well first of all I'd ask if you or your husband were the ones making the decision to send yourself on a trip or provide free coffee at the office, like a self-employed person or the owner of a business does.
The second question I'd ask is whether for example you would buy your own coffee or go on these trips anyway if your business wasn't paying for them.
I don't know how his per Diem works, but if they give him a flat amount and that amount is more than he spends while on these trips, I think I'd at least count the difference.
Another factor I'd ask is whether the expense was necessary, and whether there was a cheaper way to do it. If you are doing a continuing education thing, and you could do it online at home for very cheap, but you choose to take off work for a week and do it at a resort or convention center that you have to fly to and stay at a hotel for. If you need a car for your work, did you decide to buy a cheap used car, or did you get a range rover to drive yourself around in? did you fly in coach or business/first? did you bring your spouse and kids along with you on the trip? did you need to rent the car ?
The good news is that Mrs. MM has responded to this thread (Reply #38); she did say "I do think this is a valid question" and she said "everything business related that we would have spent anyway was included in the expenses report", including most of the examples mentioned in this thread. Feel free to read the details in her response.
(By the way, Thank you Mrs. MM)
No offence intended Clearview, but in case you haven't realised it, you have a really abrasive tone. It 'sounds like' you're judging, when you may well just be enquiring. I think that is the reason for the 'hostility' you are receiving.
A comment regarding business spending - especially if you are working for someone else - is that the employee's time is more important than the price of things. If I was to send myself on business, for example, I would drop my frugality if it made sense to. There IS a good time to eat at restaurants, and that time is when you got up at 6am to go to meetings, had a 15 minute lunch break, finished at 6pm or whatever and just need to eat before.. going back to the hotel and continuing to work.
No, forget that - it doesn't matter if you're employed or self employed, you'll be doing some work for someone else (the person paying, ultimately, for the trip). If you get a per diem and save some of it - good for you. If you're self employed and really tight on time - get fast food, and get back to doing what you need to do so you can a) put in your invoice and b) go back home, relax, and resume frugality.
Here's the take home: Time is more valuable than money, full stop. Any 80 year old millionaire will tell you that ;) Frugality allows you to 'buy time' if you like. But when on a business trip, saving $50 by stocking up your minibar and cooking in your suite is... non-optimal.
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Well first of all I'd ask if you or your husband were the ones making the decision to send yourself on a trip or provide free coffee at the office, like a self-employed person or the owner of a business does.
The second question I'd ask is whether for example you would buy your own coffee or go on these trips anyway if your business wasn't paying for them.
I don't know how his per Diem works, but if they give him a flat amount and that amount is more than he spends while on these trips, I think I'd at least count the difference.
Another factor I'd ask is whether the expense was necessary, and whether there was a cheaper way to do it. If you are doing a continuing education thing, and you could do it online at home for very cheap, but you choose to take off work for a week and do it at a resort or convention center that you have to fly to and stay at a hotel for. If you need a car for your work, did you decide to buy a cheap used car, or did you get a range rover to drive yourself around in? did you fly in coach or business/first? did you bring your spouse and kids along with you on the trip? did you need to rent the car ?
The good news is that Mrs. MM has responded to this thread (Reply #38); she did say "I do think this is a valid question" and she said "everything business related that we would have spent anyway was included in the expenses report", including most of the examples mentioned in this thread. Feel free to read the details in her response.
(By the way, Thank you Mrs. MM)
Do we choose the trips? No. If we owned a business, or I started to think of blogging as a business, would we? Maybe. Depends on the usefulness of the conference. And never underestimate the value of networking.
My husband always prefers phone conferences because, well, neither one of us is happy about business trips that leave me home alone with the kids for a week. The one exception was about 4 years ago (when we only had one child) - when he was scheduled for back to back trips to DC where he'd be home late Friday night and leave again Sunday morning. That one time we opted for him to stay in DC for the week and a half, and we used miles to fly my son and I out for the weekend. The cost was $150 (to transfer his miles to us). We stayed with friends.
And yes, he gets a flat per diem rate - rarely spends all of it.
Hmm...I guess I'd be buying coffee anyway (making it at home though), but I probably spend more on the gas to get to work than the coffee is worth.
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The only thing from that post that I became curious about was the shared internet connection.
It obviously cost something to set that up, but it was done as a blog project. So, were those initial costs counted in business or personal expenses? Because the long term benefit of lowered internet cost helps the personal line.
Of course, this is nit-picky, and I'm more curious than upset or anything (well I am mad, because I have no nearby friends to share internet with). But accounting for the portion that is personal vs. business gets to be an overly complicated and dumb distinction over a couple hundred bucks.
I get free shirts, free meals, free beer, etc., etc. through work. I don't factor this in as income or implied expenses in my year-end accounting.
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I guess I don't really see the business expense aspect as a big deal. From reading these boards, I get the impression that most people's budgetary black holes *aren't* things like expensive travel or charitable donations. They're more mundane/everyday expenses like gas, car repairs, car payments, overly expensive phone plans, eating/drinking out on a regular basis, movies or other entertainment, etc. To me, the MMM budget post is mostly just an illustration that "hey, your everyday life can actually be pretty sweet WITHOUT most of those expenses", and there is value in that whether or not the business expenses are broken down (unless they're buying daily Starbucks lattes as a "business" expense, then I'll be mad!).
Also, I really don't get the complaints some people make that MMM's retirement is only possible because he owns his own house. Well...sure, but isn't that (hopefully) the case for many retirees???
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To me, the MMM budget post is mostly just an illustration that "hey, your everyday life can actually be pretty sweet WITHOUT most of those expenses"
Right, I totally agree, and that's exactly why I thought that this accounting post undermined that very message.
It's as if he said "look at how sweet my life is on only $25k/year! My whole family went to Hawaii! And Equador! And we got new cell phones and upgraded our wifi! And bought a new house and are remodeling it to be super sweet!"
Those things cost money, and they are the reasons why his life seems awesome to outsiders. The message of "spend less and still be happy" is a hard sell when you're instead spending a TON of money. Doing it through a business is just a technicality.
What would the MMM family do if not for international travel and luxury remodels and crossfit? Those things add value to their lives, and telling people to be happy sitting at home twiddling their thumbs for $25k a year, while technically good advice for most people, isn't in tune with the vibe of the blog, which is very much about spending money to live it up.
I don't mean to be a huge downer. I personally have no problem with anyone spending whatever amount they choose, normally not any of my business. But there's a nagging odor of hypocrisy that results from this particular presentation of the facts.
I know, I know, "do as I say and not as I do" is a cliche for good reasons, and in this day and age we don't really expect our celebrities to live up to a moral standard. But if MMM really wanted to write a blog showing how to be truly happy while only spending $25k/year for a family of three, the preferred way to do it would be to actually live on $25k/year. Not just show that he could have, if he hadn't instead decided to spend twice as much.
Or, you know, do your own thing and don't listen to the cranky man on the internet. That's cool too.
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To me, the MMM budget post is mostly just an illustration that "hey, your everyday life can actually be pretty sweet WITHOUT most of those expenses"
Right, I totally agree, and that's exactly why I thought that this accounting post undermined that very message.
It's as if he said "look at how sweet my life is on only $25k/year! My whole family went to Hawaii! And Equador! And we got new cell phones and upgraded our wifi! And bought a new house and are remodeling it to be super sweet!"
Those things cost money, and they are the reasons why his life seems awesome to outsiders. The message of "spend less and still be happy" is a hard sell when you're instead spending a TON of money. Doing it through a business is just a technicality.
What would the MMM family do if not for international travel and luxury remodels and crossfit? Those things add value to their lives, and telling people to be happy sitting at home twiddling their thumbs for $25k a year, while technically good advice for most people, isn't in tune with the vibe of the blog, which is very much about spending money to live it up.
I don't mean to be a huge downer. I personally have no problem with anyone spending whatever amount they choose, normally not any of my business. But there's a nagging odor of hypocrisy that results from this particular presentation of the facts.
I know, I know, "do as I say and not as I do" is a cliche for good reasons, and in this day and age we don't really expect our celebrities to live up to a moral standard. But if MMM really wanted to write a blog showing how to be truly happy while only spending $25k/year for a family of three, the preferred way to do it would be to actually live on $25k/year. Not just show that he could have, if he hadn't instead decided to spend twice as much.
Or, you know, do your own thing and don't listen to the cranky man on the internet. That's cool too.
If you take a look at it at face value, you are right. But the blog, his remodeling business, and other things are things that he wants to do -- which is no different than what people do in their retirement. He's using his business, his contacts, and his education and desire to optimize to be smart with his money. That's how people can get from the other 98% to the top 1%. Save. Becoming FI. Invest, even if it is safely. And be on your own business so that you can write off a bunch of expenses. His position didn't happen over night. It took a lot of time, and a lot of hard work. He's also learned a great deal about a lot of different areas.
I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
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I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
I don't get this. Its like saying I only spent 10k when I have a business and I write off 80k worth of living expenses or stating because I want to drive a race car or have a boat its okay to spend that money. I mean of course it is but not if you tell everyone you only spent 25k. Its like people going to sales and spending $200 but stating they saved $50.
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I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
I don't get this. Its like saying I only spent 10k when I have a business and I write off 80k worth of living expenses or stating because I want to drive a race car or have a boat its okay to spend that money. I mean of course it is but not if you tell everyone you only spent 25k. Its like people going to sales and spending $200 but stating they saved $50.
Because there two different accounts. It is that simple to me. There's the MMM personal budget and the MMM business budget. They are distinct and different. From what I gather, the income reported isn't total revenue generated by MMM's business ventures.
If I get converted to a full time employee at the one contract I am on, I'll have a paid trip to Vegas ever year. I can take my wife and the only thing I'll pay for is her airline ticket and her meals (and any gambling and side things we do). We'd be out there for five days. I wouldn't record what my company spent on my airline ticket, the hotel room, and my food in my personal budget. but I can still say I went to Vegas!
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I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
I don't get this. Its like saying I only spent 10k when I have a business and I write off 80k worth of living expenses or stating because I want to drive a race car or have a boat its okay to spend that money. I mean of course it is but not if you tell everyone you only spent 25k. Its like people going to sales and spending $200 but stating they saved $50.
Because there two different accounts. It is that simple to me. There's the MMM personal budget and the MMM business budget. They are distinct and different. From what I gather, the income reported isn't total revenue generated by MMM's business ventures.
If I get converted to a full time employee at the one contract I am on, I'll have a paid trip to Vegas ever year. I can take my wife and the only thing I'll pay for is her airline ticket and her meals (and any gambling and side things we do). We'd be out there for five days. I wouldn't record what my company spent on my airline ticket, the hotel room, and my food in my personal budget. but I can still say I went to Vegas!
...which leads back to Sol's question: are you really retired then?
:)
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I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
I don't get this. Its like saying I only spent 10k when I have a business and I write off 80k worth of living expenses or stating because I want to drive a race car or have a boat its okay to spend that money. I mean of course it is but not if you tell everyone you only spent 25k. Its like people going to sales and spending $200 but stating they saved $50.
Because there two different accounts. It is that simple to me. There's the MMM personal budget and the MMM business budget. They are distinct and different. From what I gather, the income reported isn't total revenue generated by MMM's business ventures.
If I get converted to a full time employee at the one contract I am on, I'll have a paid trip to Vegas ever year. I can take my wife and the only thing I'll pay for is her airline ticket and her meals (and any gambling and side things we do). We'd be out there for five days. I wouldn't record what my company spent on my airline ticket, the hotel room, and my food in my personal budget. but I can still say I went to Vegas!
...which leads back to Sol's question: are you really retired then?
:)
Then you are just playing semantics. If your definition of "retirement" is not working, than there are people on "disability" who aren't working but are collecting money -- are they retired?
I think that's a semantically discussion. The true thing is it is personal. Some people want to continue to do things that they enjoy and if they can make more wealth, why not?
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I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
I don't get this. Its like saying I only spent 10k when I have a business and I write off 80k worth of living expenses or stating because I want to drive a race car or have a boat its okay to spend that money. I mean of course it is but not if you tell everyone you only spent 25k. Its like people going to sales and spending $200 but stating they saved $50.
Because there two different accounts. It is that simple to me. There's the MMM personal budget and the MMM business budget. They are distinct and different. From what I gather, the income reported isn't total revenue generated by MMM's business ventures.
If I get converted to a full time employee at the one contract I am on, I'll have a paid trip to Vegas ever year. I can take my wife and the only thing I'll pay for is her airline ticket and her meals (and any gambling and side things we do). We'd be out there for five days. I wouldn't record what my company spent on my airline ticket, the hotel room, and my food in my personal budget. but I can still say I went to Vegas!
...which leads back to Sol's question: are you really retired then?
:)
Always one to stir the pot, aren't we?
It all basically boils down to....
No, he doesn't include travel for work (or other business expenses) as personal spending.
No, he doesn't include any investments that he made or savings he had....which is what he is filing his housing venture under.
Yes, he still "works", but he doesn't have to.
I get free coffee at work! jealous?
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I don't have a problem with it the trips - as they are part of the business that is MMM. He was able to achieve that business by becoming FIRE and optimizing and setting it up.
I don't get this. Its like saying I only spent 10k when I have a business and I write off 80k worth of living expenses or stating because I want to drive a race car or have a boat its okay to spend that money. I mean of course it is but not if you tell everyone you only spent 25k. Its like people going to sales and spending $200 but stating they saved $50.
Because there two different accounts. It is that simple to me. There's the MMM personal budget and the MMM business budget. They are distinct and different. From what I gather, the income reported isn't total revenue generated by MMM's business ventures.
If I get converted to a full time employee at the one contract I am on, I'll have a paid trip to Vegas ever year. I can take my wife and the only thing I'll pay for is her airline ticket and her meals (and any gambling and side things we do). We'd be out there for five days. I wouldn't record what my company spent on my airline ticket, the hotel room, and my food in my personal budget. but I can still say I went to Vegas!
...which leads back to Sol's question: are you really retired then?
:)
I agree that he's not retired, but many people say "early retirement" when what they really mean is "financial independence". The latter term just doesn't have the same allure to the general public, so blogging about early retirement is what draws people in. If somebody achieved FI at an early age, and chooses to do nothing productive, then yes they are early retired, but they may not be living a very fulfilled life. The reason I like this blog more than ERE is that it deals with the mindset and quality of life at every stage. I think human beings, in general, are more happy when they are being productive, so having a post-retirement gig shouldn't be frowned upon. Many people consider retirement to be freedom from the corporate world to pursue dreams, which is really FI not early retirement.
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my only "beef" with the budgeting had been that it wasn't really 25k a year because they didn't have a mortgage to pay, and for normal people you would have to add (in my case) 12k a year to have the same outcome. but then i realized the whole point of MMM is to not be "normal" with your money like everyone else and even then 37k a year for that badass of a life still shabby at all. it makes me wonder how people claim they can't get by on 100k a year.
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I'll just add a quick thought, since Mrs. MMM may be following:
MMM could probably write a good post (or three) about how you GET to the point of being able to "spend" $25k, when you're really spending twice that (or whatever), by having/using a business, networking, having extra time, etc.
I know many (most?) posts sort of hint at this, but judging by this thread, it may be too subtle. Instead of arguing about whether certain expenses should "count," we should be talking about how the average Joe can get those same type of perks out of his own life.
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I agree that he's not retired, but many people say "early retirement" when what they really mean is "financial independence". The latter term just doesn't have the same allure to the general public, so blogging about early retirement is what draws people in. If somebody achieved FI at an early age, and chooses to do nothing productive, then yes they are early retired, but they may not be living a very fulfilled life. The reason I like this blog more than ERE is that it deals with the mindset and quality of life at every stage. I think human beings, in general, are more happy when they are being productive, so having a post-retirement gig shouldn't be frowned upon. Many people consider retirement to be freedom from the corporate world to pursue dreams, which is really FI not early retirement.
Of course he's retired.
http://www.mrmoneymustache.com/2013/02/13/mr-money-mustache-vs-the-internet-retirement-police/
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Skipped most the responses ... I can agree with the sentiment of the OP. I wouldn't include charity though. If for no other reason than I don't include it in my savings rate calculations. I do (pre-tax percent saved) + (post-tax savings as a percentage of (post-tax income minus charitable donations)).
To the guy above me ... love it.
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I agree that he's not retired, but many people say "early retirement" when what they really mean is "financial independence". The latter term just doesn't have the same allure to the general public, so blogging about early retirement is what draws people in. If somebody achieved FI at an early age, and chooses to do nothing productive, then yes they are early retired, but they may not be living a very fulfilled life. The reason I like this blog more than ERE is that it deals with the mindset and quality of life at every stage. I think human beings, in general, are more happy when they are being productive, so having a post-retirement gig shouldn't be frowned upon. Many people consider retirement to be freedom from the corporate world to pursue dreams, which is really FI not early retirement.
Of course he's retired.
http://www.mrmoneymustache.com/2013/02/13/mr-money-mustache-vs-the-internet-retirement-police/
That is one of his great blog posts. I still prefer the term FI because many successful and wealthy people continue to work hard for decades after they've gotten to the point they no longer need to. I don't think the term "retirement" encapsulates what they do very well. I'm not part of the internet police and have no desire to detract from MMM's accomplishments. I think his post was directed more at people that are naysayers trying to disprove that early retirement is even achievable. I'm definitely not one of those people.
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3. Most extreme: Move into a cardboard box by the river
There is a step up from this….
http://www.youtube.com/watch?v=3nhgfjrKi0o (http://www.youtube.com/watch?v=3nhgfjrKi0o)
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my only "beef" with the budgeting had been that it wasn't really 25k a year because they didn't have a mortgage to pay, and for normal people you would have to add (in my case) 12k a year to have the same outcome. but then i realized the whole point of MMM is to not be "normal" with your money like everyone else and even then 37k a year for that badass of a life still shabby at all. it makes me wonder how people claim they can't get by on 100k a year.
Where's the emoticon for "looking for the closest wall so I can bash my head against it"?
Dude, what part of MMM's message do you not get? They paid off their f*ing mortgage! They are not "normal people" and they don't want to encourage anybody to be "normal people." It is about being badass and bringing your expenses down by making choices that "normal people" think are a bit nuts, all the while living a completely awesome life.
In their case, they were able to do that partly because they had two very decent incomes for 10 years or so that they saved most of. And their blog about that experience and everything that came after is so compelling it draws many people here who want to engineer their lives in a similar way. It isn't about coming here to whine about how impossible it all is, or how they are tricking us by not including optional business expenses in their annual personal spending totals. It is about coming here to say, "hmmm, MMM and his wife have a paid for house and are therefore able to keep their living expenses at around 25k/year for a family of three, all while living a very nice, relatively low impact life. HOW CAN I GET ME SOME OF THAT THERE LIFESTYLE?"
A challenge for you -- how closely have you really looked at the $1000/month housing expense you have, and what could you do to bring it down. Options for optimizing range from the relatively modest adjustment to the extreme, for example:
1. Modest adjustment: Refinance your mortgage or move to a slightly smaller/cheaper house
2. More extreme: Take in a roommate, or 2 or 3
3. Most extreme: Move into a cardboard box by the river
Now, there are pluses and minuses to all of these approaches, and the choice is up to you. But the point is you have choices. And they are your choices. And you are responsible for the outcome.
If you don't want to push yourself, fine. Just accept the fact that you are not going to achieve the level of financial and lifestyle awesomeness that MMM has attained. Convince yourself that instead of a 25k budget they really have a secret mortgage on a McMansion in the burbs that they aren't telling us about, complete with a hot tub and a grow op and an electricity bill to match. See if that makes you feel better.
dude, calm down. maybe you didn't understand what i wrote, or maybe i wrote it poorly. i had the word beef in quotes followed by "had been" as in past tense, not present, and then i talk about how i realized the whole point of MMM was to not be normal like everyone else. i wasn't whining, i was saying that even if they did have my housing expense its still pretty bad ass. they do way more shit than i do only spending 25k.
and i am not complaining about my housing expense, i'm totally ok with what i pay. and eventually i'll pay it off early and then my spending will go down by 12k a year. i never said anything about the mustache family having secret bills or hot tubs or whatever, nor do i think anyone is trying to get anything over on us.
and i still stand by what i said saying i do not understand how people can't make it on $$$ a year.
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This is all very interesting.
We've always lived on about $25k, if you didn't include the mortgage (even before the blog). Our lifestyle has not inflated at all, which is the whole point.
The amount spent on Ecuador according to Mint was $0, as all of it was paid for by the retreat organizers. If you had to allocate a dollar value to it, it would probably be the cost of the retreat that others paid, plus the plane ticket, which was about $900. MMM is the only one that went (he had to be talked into it, by the way, so it's not something he would have normally done). We don't normally separate our family for 10 days like that. It was a lot of work for him. He had to prepare a speech and had countless one on one sessions that took up most of his days. Yes, he had a lot of fun, but it was business through and through. It was less fun for my son and I, as we were without a dad for 10 days.
At the end of the expense article, MMM writes: "*Note: I did not include any costs related to rebuilding our new house in this total, which so far have added to about $25,000 including things like engineering, permit fees, steel, lumber, electrical and plumbing parts, kitchen cabinets, and all new windows and doors. This is because the end result will be selling our current house and ending up with $100k to spare from the transaction. It’s more of an investment than a spending spree, although it sure feels otherwise when all these cardboard boxes keep arriving on the job site."
So, he does disclose that we spent $25,000 on the house so far, thereby effectively doubling our spending, yes. Would we have done this without the blog? The answer is likely Yes. We have a line of credit that we are using to fund that purchase. But, we also plan to sell this house, thereby being $100k further ahead. There's nothing to hide here, it is all included in the article.
The only other travel spending (besides Ecuador) is the trip to St. Louis. Again, MMM would never have gone there except for the financial blogger conference. Again, we lost him for 4 days. That trip probably cost about $500.
Hawaii was last year, but as I mentioned, the cost of MMMs plane ticket was the only thing expensed, so it wasn't very much ($700).
I have yet to put together all our blog expenses for the year, but the amount is pretty minimal. It seems that many are imagining this huge amount for blog expenses that is allowing us to inflate our lifestyle beyond the $25k listed in our expenses. That is in fact false. I can honestly say that none of these expenses would have been incurred without the blog.
Our Mint account doesn't even include our business expenses as those are all on separate credit cards and bank accounts.
Anyway, it seems like different folks see things differently. We always do what we feel is right and in the most honest way possible to help our readers as much as possible. There is no hiding of information or trying to trick readers. Remember, this is our private life we are talking about and I personally already feel uncomfortable with how much MMM shares with everyone. He chooses to be open and honest about everything, which I think is what people like. So as a reader, I would be happy that he chooses to trust everyone and share so much of his life and his finances.
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I'll just add a quick thought, since Mrs. MMM may be following:
MMM could probably write a good post (or three) about how you GET to the point of being able to "spend" $25k, when you're really spending twice that (or whatever), by having/using a business, networking, having extra time, etc.
I know many (most?) posts sort of hint at this, but judging by this thread, it may be too subtle. Instead of arguing about whether certain expenses should "count," we should be talking about how the average Joe can get those same type of perks out of his own life.
There are no perks. The spending is $25k. As I mentioned, we have spent about $25k (not including mortgage) since about the year 2000 when we both started working in the US and living together. I've always tracked our annual spending and it was almost always the same, even when we didn't have a business.
There's no secret to reduced spending. We actually spend a lot more than we could/should. You guys know that.
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Okay, for those interested, blog related expenses in 2012 were $2294. That includes flights, conference fees and hotels, hosting fees, etc.
So, it's not really all that much.
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This is all very interesting.
You made some good points here and I appreciate your willingness to engage with this group.
I think the blog's message is a good one. My family of five also lives on about $25k/year in non-housing expenses, and we also feel like it is pretty luxurious. It's totally possible, and a worthwhile message to be spreading. Especially to people who struggle to make ends meet on twice that.
But the blog wouldn't be as interesting to read if every post was some variation of "well, I stayed home with the family every night this month, again. I sure do love them, why would I ever want to spend money to go do anything else?"
So instead the blog features other interesting projects, like house remodeling and international travel. While there is a clear effort to show how even these expenses can be minimized, the recent trend has still been away from the old philosophy of frugality and towards the more typical blog showroll of "look at all this cool stuff we're doing" which is only a short step away from the stereotypical consumerist message of "if you could afford to do this stuff, you'd be happy too!"
I don't think think you're being dishonest, though I gathered from this thread that other people here might lean that way. It's all clearly laid out, but that sort of exposure invites criticism and in this case my contribution to that criticism is that 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. When in fact that number supports a lifestyle that doesn't normally include things like overseas trips and buying extra houses.
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You made some good points here and I appreciate your willingness to engage with this group.
I think the blog's message is a good one. My family of five also lives on about $25k/year in non-housing expenses, and we also feel like it is pretty luxurious. It's totally possible, and a worthwhile message to be spreading. Especially to people who struggle to make ends meet on twice that.
But the blog wouldn't be as interesting to read if every post was some variation of "well, I stayed home with the family every night this month, again. I sure do love them, why would I ever want to spend money to go do anything else?"
So instead the blog features other interesting projects, like house remodeling and international travel. While there is a clear effort to show how even these expenses can be minimized, the recent trend has still been away from the old philosophy of frugality and towards the more typical blog showroll of "look at all this cool stuff we're doing" which is only a short step away from the stereotypical consumerist message of "if you could afford to do this stuff, you'd be happy too!"
I don't think think you're being dishonest, though I gathered from this thread that other people here might lean that way. It's all clearly laid out, but that sort of exposure invites criticism and in this case my contribution to that criticism is that 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. When in fact that number supports a lifestyle that doesn't normally include things like overseas trips and buying extra houses.
That is an interesting view, Sol. But, we've always done this type of stuff. We've always traveled a lot and the travel portion of our budget has usually been pretty large compared to others. We take a lot of road trips and camp though, which keeps costs down, as I'm sure you and your family do as well. Since we've had our son, we've always taken extended trips to Canada, as being with our family is very important to us. Not needing to work allows us to travel a lot.
The trip to Hawaii might have happened without the blog, as we might have contacted several home owners through VRBO or Airbnb. We've done similar things in the past, although not to this large an extent. In fact, this was our 3rd time to Hawaii. We travel a lot less now that we have our son, as we focus more on things that he would find enjoyable.
House remodeling would have always happened too. MMM loves it and I can't imagine a situation where we would stop buying houses and fixing them up. Before the blog, we owned up to 5 houses at one time and were constantly moving around and fixing things up. It's how things have always been.
The one area we are spending a lot more in, since the inception of the blog, is food. We are paying more to support local and organic food. Plus, we eat more meat due to my gluten intolerance (we used to never buy meat). This is probably the biggest increase in our spending and where we've really let loose.
I think the focus is changing, not due to a change in the old philosophy of frugality (as that is always the undercurrent, I think), but to a broader perspective and to cover what is currently of interest to us and what we're doing. It may seem like "look at all this cool stuff we're doing" to an outside perspective, but mostly it is normal to us. MMM might play it up a bit to show that frugality doesn't have to mean deprivation. For us, having a nice house is a luxury that we spend money on. Travel is another one. Yet, the spending is still reasonable.
Sure, the newspaper stuff and the opportunities have changed a little, but I don't think it has affected us very much. MMM turns down opportunities all the time. Very rarely does he decide to do something, as he will only do it if it lines up with his values. He's the same guy he's always been. He's excited about all the new stuff that is going on, but his message is still the same. It's just that it can reach a wider audience now.
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Counted for what? Who the hell's counting, and why do they care so earnestly about MMM's spending? He tosses up a blog post with some interesting information, neat. Nitpicking apart what you want to "count" and not gains you...?
I'm all for questioning things. But harping on them, not so much.
I mostly agree with this sentiment personally, however, MMM put up a public blog, posts his annual spending for all to see and comment on, and then hosts a forum with a section called "continuing the blog conversation". So, it would seem that in a way he is welcoming the nitpicking, questioning, etc.. Call it complainy-pants, call it questioning his assumptions, whatever. If folks want to do it, knock yourself out. Personally, i don't really get how its important but then again, I also don't get why folks are insisting on calling out people who want to talk about it.
+2
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my only "beef" with the budgeting had been that it wasn't really 25k a year because they didn't have a mortgage to pay, and for normal people you would have to add (in my case) 12k a year to have the same outcome. but then i realized the whole point of MMM is to not be "normal" with your money like everyone else and even then 37k a year for that badass of a life still shabby at all. it makes me wonder how people claim they can't get by on 100k a year.
I have no issues with this at all. Paying off the mortgage to me has the benefit of living a lot cheaper for life.
We've always lived on about $25k, if you didn't include the mortgage (even before the blog). Our lifestyle has not inflated at all, which is the whole point.
I get this 100%. I'm paying off a mortgage and I don't even consider the payments including interest as part of my living expenses because these costs will dissappear within a couple of years.
The amount spent on Ecuador according to Mint was $0, as all of it was paid for by the retreat organizers. If you had to allocate a dollar value to it, it would probably be the cost of the retreat that others paid, plus the plane ticket, which was about $900. MMM is the only one that went (he had to be talked into it, by the way, so it's not something he would have normally done). We don't normally separate our family for 10 days like that. It was a lot of work for him. He had to prepare a speech and had countless one on one sessions that took up most of his days. Yes, he had a lot of fun, but it was business through and through. It was less fun for my son and I, as we were without a dad for 10 days.
I also can understand not including this as an expense but I think a note should be added to the spending.
So, he does disclose that we spent $25,000 on the house so far, thereby effectively doubling our spending, yes. Would we have done this without the blog? The answer is likely Yes. We have a line of credit that we are using to fund that purchase. But, we also plan to sell this house, thereby being $100k further ahead. There's nothing to hide here, it is all included in the article.
I think that this should have been included more clearly but I didn't notice (my fault) the note. Your expenses were 50k but you expect that to save money in the longer term.
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Those of you that have a mortgage should really be counting the repaid principal as savings, an investment with a return equal to your APR. That money isn't disappearing, it is going into the equity of the house. So your 'housing expense each year might be only a few thousand dollars rather than 10k+.
Your only expenses for the mortgage each year is the property taxes and interest paid.
...and the maintenance
...and the repairs
...and the health issues derived from the former
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Those of you that have a mortgage should really be counting the repaid principal as savings, an investment with a return equal to your APR. That money isn't disappearing, it is going into the equity of the house. So your 'housing expense each year might be only a few thousand dollars rather than 10k+.
Your only expenses for the mortgage each year is the property taxes and interest paid.
...and the maintenance
...and the repairs
...and the health issues derived from the former
There's two ways to look at it. Your expenses might be less, but you could have made enough in investments to cover the differential.
Personally, I am not rushing to pay it off, but I am putting a little extra toward it every month. Even if I pay it off a year or two early, it will make FI that much easier to achieve.
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The counter arguement is that if he wasn't taking those business trips, maybe he would have more of a hankering to go on one.
You mention you get free coffee and should that count? What if your work place is buying your breakfast, lunch and dinner 5 days a week? To some extent it depends on what your measuring. You want to know how much money you need to live on? Add that stuff up. Heck you should also count depreciation of things like cars while your at it. You want to know how much you spent? Ignore it.
I guess I don't really care.
I mean, I understand, if you consider his trips part of his lifestyle (of the rich and famous) that doesn't show up on the year end report.
But...it's not really part of his lifestyle. I don't see where he makes a big point to go to exotic locations all of the time. I don't see that it's a big part of his life, enjoyment, etc. His life, IMO, would be just as enjoyable and fulfilling without these trips. They are incidental to the business.
Then again, I'm not too terribly big into traveling right now.
So if I posted my annual budget on my blog, would I be considered "hiding information" if I left off the fact that I get free coffee at work? Or if I left off the fact that my husband travels to places like Boston and DC for business and gets paid per diem? Or if I left off the fact that we have "status" due to his travel and get free bags?
Now, I won't be posting - mostly because our computer crashed and we had to reboot it at an older date and lost all of our up to date financials. And because I'm lazy.
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Doesn't this really just boil down to a marketing ploy? I mean what is more interesting headline: "Retire at 30" or "Quit your job to become a small business owner with substantial savings". If you are still being paid for conferences or have the ability to write off expenses then you are a small business owner regardless of how much enjoyment you get from the activity. The IRS doesn't have a 1099 checkbox for "happiness".
When you start to figure out the details of this MMM's life you realize that his overall message is sound, but the marketing aspects of the site tend to conflict with the nuts and bolts of retirement.
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lol.
It is amusing how some people can read the message and just not get it.
(Because they're worried about a little spending that is related to the blog, or because they want to count this, or that, or whatever.)
If you can understand the message of MMM, awesome. If you get stuck on a tiny thing and dismiss the message due to that tiny thing (or dismiss it all as marketing), well.. Best of luck with your method.
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If you can understand the message of MMM, awesome. If you get stuck on a tiny thing and dismiss the message due to that tiny thing (or dismiss it all as marketing), well.. Best of luck with your method.
I guess everyone asking questions in this thread is a "complainypants" or "doesn't get it". No one is using a different method, we just see that the math is different when we plugin the same inputs as MMM. They are asking the "how" questions, which I think is a great way to figure out your own path.
I also think that new readers have different expectations of "retirement" than those of MMM which can be confusing when you refer to owning your own business as "retirement". I think a better response to these individuals would be: save as much as you can, crunch your own FI numbers and perhaps focus on more flexible work options (real estate, part-time, etc) if you come up short.
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I'm late to the party, but I get how Mr and Mrs MM are portraying their expenses. Sure, they might have lots of blog income to pay for expenses like trips and the blog itself opens up the door to freebies for Mr. MM (like the costs of the Ecuador trip). Are those business expenses, personal expenses, some hybrid? Who cares!
Whether the MM's spend $25k or $33k per year is largely immaterial. I imagine Mr. MM started the blog because he was like "hey, I've got something to say and I'm gonna build my own soapbox to share my ideas". It turned into this large profitable successful animal, and probably opened a few doors along the way. Sweet! Just like his other hobby, carpentry/handymanning, it happens to generate income.
Maybe the take away should be "don't be afraid to make money from your hobbies in early retirement". And if you do end up moderately successful at monetizing what you do for fun, don't be ashamed of it. Enjoy it. Use it for good.
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I also think that new readers have different expectations of "retirement" than those of MMM which can be confusing when you refer to owning your own business as "retirement". I think a better response to these individuals would be: save as much as you can, crunch your own FI numbers and perhaps focus on more flexible work options (real estate, part-time, etc) if you come up short.
I think people are really stumbling because they are coming in to the blog with their own idea of what 'retirement' really means for them, and then try to apply that to MMM and now there's a conflict of understanding.
Heading in to this blog, most would consider retirement that point where you're not working any hours, and you are making enough money to meet or surpass expenses without worrying about re-entering the workforce barring substantial market changes.
Owning your own business, or even more specific owning a selection of rental properties, and only having to do work occasionally to keep them on track: is this still retirement? If you spend 90% of your time with your family and can still do that occasional side-gig for free spending money, is this enough to qualify for retirement? If the side-gig is needed to pay for bills, or pay for a necessary expense (buying a car, or and investment property) then this is probably still at the FI status.
The definition of FI was having the financial independence that you could do your job (or leave) without it really holding you back from exploring what you want to do.
Would ER then mean that your financial security is to the point where all expenses are free and clear of the work you do now? If you need to work a job to supplement that side-gig, you are probably sitll at FI. If you can pursue side-gig and pay all the bills and not even need the side-gig to succeed at all (full loss on all investments in to it) then you have reached the acclaimed RE.
Now, what if you have repeated side-gig failures such that the upcoming future becomes shaky? Have you just spent your way off of ER and are back in to a FI status where you will need to rely on a side-gig / job giving income at any point in your future to meet expenses?
Just tossing out ideas on what might really qualify as FI and RE. Some people think it means a state that once you hit, you never drop off of. This is unrealistic given that sometimes things go South, and sometimes events come up that are not within your plan..
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Just tossing out ideas on what might really qualify as FI and RE. Some people think it means a state that once you hit, you never drop off of. This is unrealistic given that sometimes things go South, and sometimes events come up that are not within your plan..
This is my big issue with the blog/philosophy. I think this blog severely underestimates black swan costs, particularly in health care of those 55+ (at least in the US). Traditional retirement plans take medical expenses in old age very seriously, but here it seems to be an after thought.
The work around here is once you are FI you continue to "work" by investing in real estate or running other passive income schemes to hedge against something going south. I think this is a great way to make your money work for you and allows you to hedge the ups and down of the stock market. If real estate happens to be your passion, great, but if not I still think its a good idea to find something to generate income and keep you busy. Best case scenario: you end up with more money than you need, worst case: you don't burden your family with additional medical costs after you can no longer work.
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"Planning" for black swan events is silly, IMO.
There's no way I'm going to work an extra decade on the chance that something disastrous happens; something disastrous already did - I wasted ten years of my life on "what if" paranoia!
It is a very personal decision though, and to each his own. If it makes you comfortable to have your belt and redundant suspenders, each with their own lock and key, go for it.
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If it makes you comfortable to have your belt and redundant suspenders, each with their own lock and key, go for it.
Those sound very difficult to remove! Do they come with a catheter and built in bedpan? :)
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If it makes you comfortable to have your belt and redundant suspenders, each with their own lock and key, go for it.
Those sound very difficult to remove!
Well, yeah, but dammit is it secure!
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"Planning" for black swan events is silly, IMO.
I guess I see real estate purchasing and maintenance as work with a lot of downtime. Maybe we are getting our terms confused again. I would not consider myself retired if I was still managing real estate or a portfolio. I don't see why hedging my bets is bad thing if I can also have time to pursue other things at the same time?
Also, I am a bit more sensitive to medical expenses as I know it has caused some hardships for some of my family members who were also well prepared financially.
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Maybe we are getting our terms confused again.
Must be, because I didn't even understand this latest post, or how it relates to black swan events. ;)
Yes, real estate can be work. Or it can be mostly passive. Same with managing a portfolio of stocks. ...okay? :)
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"Planning" for black swan events is silly, IMO.
I would not consider myself retired if I was still managing real estate or a portfolio.
I hear sirens in the distance (those annoying European ones as that). Do your investments magically work out perfectly for your entire retirement?
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I would not consider myself retired if I was still managing real estate or a portfolio.
I guess you would then be paying someone? or trusting a friend/family member?
Hell I would call myself retired if I chose to work at 7-11 15hr/week because I liked the free coffee and talking to regulars. Retirement seems more about doing what you want to do indefinitely with the freedom to do something else when you like. For me retirement is not about becoming a connoisseur of The Big Wheel spinning strategy from The Price Is Right.
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Must be, because I didn't even understand this latest post, or how it relates to black swan events. ;)
The nuts and bolts would be: choosing to retire with about 2 M in assets, some of those being real estate. It seems to be that the number around here is 800K-1.2 M which seems low to me based on traditional retirement estimates even with frugal spending habits. In my estimation this would be a good hedge against the ups and downs of life while still maintaining a good work/life balance.
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Must be, because I didn't even understand this latest post, or how it relates to black swan events. ;)
The nuts and bolts would be: choosing to retire with about 2 M in assets, some of those being real estate. It seems to be that the number around here is 800K-1.2 M which seems low to me based on traditional retirement estimates even with frugal spending habits. In my estimation this would be a good hedge against the ups and downs of life while still maintaining a good work/life balance.
You also seem to be assuming that once you retire any income you have stops. If I "retire" at 40 yrs old, I'm not just sitting on my porch drinking sweet tea watching the clouds fly by for 50 years. I'm going to want to do something and that something will most likely produce some income. Hell, working at a local coffee shop (or 7-11) for a few hours a week doesn't sound half bad. The appeal is if I ever come to a point when I'm tired of it, I quit. That won't likely be what I do, but who knows.
And I feel you are confusing retirement with financial Independance. That 800k-1.2m mark is the standard for financial independence. Or whatever number where your investment returns meet your spending level. It means freedom.
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Must be, because I didn't even understand this latest post, or how it relates to black swan events. ;)
The nuts and bolts would be: choosing to retire with about 2 M in assets, some of those being real estate. It seems to be that the number around here is 800K-1.2 M which seems low to me based on traditional retirement estimates even with frugal spending habits. In my estimation this would be a good hedge against the ups and downs of life while still maintaining a good work/life balance.
How did you arrive at that number?
Why 2MM and not 3? Or 10?
What SWR is safe? 4%? 3? 1? Only a zero percent SWR? Must it be negative, perhaps?
How safe is safe enough?
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It seems to be that the number around here is 800K-1.2 M which seems low to me based on traditional retirement estimates even with frugal spending habits. In my estimation this would be a good hedge against the ups and downs of life while still maintaining a good work/life balance.
What are these "traditional retirement estimates" to which you refer? Are any of the MMM fans who retire in their 30's or 40's traditional in any sense? Some people are fine on $10,000 per year, others need $30,000 to be secure. Some need way more. It's a pretty individual question based on where you live and what you want.
I guess we might as well use the 80% of income rule to figure out what we need. That would be slightly more accurate than "traditional retirement estimates".
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How did you arrive at that number?
I ran through a lot of different scenarios on firecalc for best/worst cases. I found that there was a wide range of money needed for $30,000-$50,000 a year with a 3.5%-4.0% withdrawal rate depending if I retire during a downswing in the market. The 2MM number was kind of a compromise based on best/worst cases and I think I can get there when my youngest daughter starts college. I'm kind of taking the approach that I can most likely hit that number in about 15-20 years but I will reevaluate if conditions are better than I expected. In the next 5 years I plan on quitting my day job so I can focus on our side gigs (real estate and software).
Also, my savings rate isn't as high as a lot of people on this board, but hopefully it is still respectable (last couple years it has been 40%) so I wanted to take that into account as well and try to be as realistic as possible.
What are these "traditional retirement estimates" to which you refer?
I guess I mean those that retire at 50+ years of age with a traditional pension and/or large net worth (2M+). I use my parents as an example who have a combination of both real estate/savings/pensions which round out to about 70,000+ per year in retirement. My parents retired when they were 52. I talk with my parents how are now in their 60s who stress the importance of saving more than your think for medical costs because they really under estimated how much health insurance/medication was going to cost for them. Granted my dad had heart surgery 5 years ago (not related to lifestyle) so there has been a lot of costs related to that. My dads surgery was a related to a genetic defect which does make me concerned that I could have it as well.
Maybe I am being a bit too conservative? My short term goal is to make my life more flexible by quitting my day job and investing more in real estate. I want to be able to still grow our net worth while also getting out of the 9-5 and I think I can do this without living off any money invested in the market until I'm in my late 40s or 50s.
I appreciate the feedback. Sorry I turned this thread into something that I should have posted in Ask a Mustachian :=).
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I'm also new to the MMM blog and only recently joined the forum. I think this will be my third post.
I think this thread is fascinating. I had a very different reaction to the travel expenses than the OP. I looked at it as MMM was able to set up his finances so that he could take on interesting part time work that provided him the time and money to remodel a house and travel for business. I'm less concerned with whether his expenses are under estimated because his house is paid off or if he (or anyone else) is technically retired, financially independent or any other word used to describe a particular life style.
I'm more interested in the questions that reading the blog and forum has caused me to ask myself:
- What is my ideal lifestyle?
- How do I structure my (actually our since I'm married) current expenses to get to the ideal? If the ideal really is unobtainable, what can we do?
- Does it include an active work component and is so what is that?
- Should we pay off our house or keep the mortgage and invest the money to reach our goal more quickly?
- What do we spend money on that is really important to us and what should we cut?
We won't make exactly the same choices that anyone else makes, but We're trying to reach our goals, and not anyone else's. Hopefully this makes sense. It's getting late and I've spent the last few hours reviewing our 2013 spending and I'm not done yet. We spent a lot in 2013. Talk about an eye-opener. Who spends over $2,1000 on books and movies at Amazon? Not us this year. It's not really important and it should be cut.
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To me i could give a rats ass about the little incidentals. I was interested in the psychological part of it meaning would he/she been able to kill there desires if not able to gain benefits of these trips hence change there way of living or increase there spending. By reading 3 pages of this , reading everyone's posts I feel comfortable with the answer I have come to. The basis of the forum and how he began is still there in the beginning of the blog. The transparency is in the fact he tells you what he is doing. The benefits is having a thread that becomes informative and constructive that perhaps we can learn something from. He posts a weekly thought we debate. People post threads that get ripped to shreds for not saying things that are perfect. I know, I have been ostracized for asking a question and wasn't specific enough in my details. I understand and respect the OPS questions and maybe sometimes people can just say to themselves " I am going to let it go because maybe to me it doesnt matter (as like me) but to someone else it might". Having said that ...I dont believe everything I read anyhow BUT I appreciate the intelligence of alot of people on here and the things I am learning. I hope I have offered up somethings to help someone and I am thankful for the forum even though I too will perhaps not agree with others on Allocating funds, the definition of retirement...etc..!
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I think.. the point is, if you're 'living on $24k' while spending half (?) your time 'working', the question becomes... what would you do if you were NOT spending half the time working. Would you end up spending MORE than $24k because you got bored sitting at home?
What would the MMM family do if not for international travel and luxury remodels and crossfit? Those things add value to their lives, and telling people to be happy sitting at home twiddling their thumbs for $25k a year, while technically good advice for most people, isn't in tune with the vibe of the blog, which is very much about spending money to live it up.
This idea hits home for me, and I *think* is what the OP was originally getting at (or at least, what I read it as). I know what my "number" is to cover minimal expenses (about $600k), and I have a rough upper limit number after which I wouldn't have any idea how to spend the extra (about $20 million). But there is a wide distance between those two, and I struggle to ascertain where on that spectrum to call "enough". I've been working since I was 15 - I don't know what retired-AJ will be like or want to do with her time. Maybe she'll just want to read library books all day and play at the park with her kids. Or maybe she'll want to be a badass philanthropist and fund tons of pet charity projects.
I'm curious to know what criteria other people used to determine their "number", however much or little it may be.
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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.
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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.
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(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....
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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.
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.. 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!!!
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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. :)
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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..
;-)
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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
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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"
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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.
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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?)
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-Children - none till 3 years post FI and 1.5 times your FI needs invested. (way too late for me!)
WTH
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-Children - none till 3 years post FI and 1.5 times your FI needs invested. (way too late for me!)
Wait, what? Why?
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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/
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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).
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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?
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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.
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Why do you care - of all the things in life that are improtant this seems to be a made up issue.
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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
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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.
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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/ (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.
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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.
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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.
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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.
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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
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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.
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I agree with the people who want to see this discussion happen.
What is this? Me, Myself, and Irene? The horse (cow) is dead!
(http://media0.giphy.com/media/27AqY6jmNU8ve/giphy.gif)
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I agree with the people who want to see this discussion happen.
What is this? Me, Myself, and Irene? The horse (cow) is dead!
(http://media0.giphy.com/media/27AqY6jmNU8ve/giphy.gif)
+ like 20 million
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This morning I had a delicious bacon breakfast burrito!
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What is this? Me, Myself, and Irene? The horse (cow) is dead!
(http://media0.giphy.com/media/27AqY6jmNU8ve/giphy.gif)
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
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That's a pretty scene, except for the cow, the cop, and the motorcycle.
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That's a pretty scene, except for the cow, the cop, and the motorcycle.
And the road.
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Hi Mustache friends, the photo I cannot see, is it a sacred cow?
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Don't have a cow, man.
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(http://media0.giphy.com/media/27AqY6jmNU8ve/giphy.gif)
^^^ So much wisdom right here :)
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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.
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No, it digressed over a year and is old news now.
The discussion is over.
What did you have for lunch?
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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.
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Sounds delicious, but what exactly are "field peas"?
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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.
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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.
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Ah yes, and making of the music with beans as your instrument!
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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.
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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?
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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.
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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. :(
;)
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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?
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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.
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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.)
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Real estate is the fastest path to FIRE, IMO.
The drawbacks, which I'm well familiar with, are more than worth it, IMO.
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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.
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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.
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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.
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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.
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We'll have to agree to disagree then. :)
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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.
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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.
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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.
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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.
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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. :)
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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.
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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).
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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.
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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! :)
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/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.
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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.