Author Topic: should some of MMMs business expenses be counted in his yearly spending report?  (Read 59862 times)

clearview

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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) ?
« Last Edit: January 16, 2014, 12:16:27 PM by clearview »

Cromacster

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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.

kendallf

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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.  :-)

clearview

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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.
« Last Edit: January 16, 2014, 01:36:13 PM by clearview »

MandyM

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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?

clearview

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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
« Last Edit: January 16, 2014, 01:33:19 PM by clearview »

AlanStache

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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.

BPA

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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.




CommonCents

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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.

Poorman

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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.

daverobev

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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

clearview

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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.

Poorman

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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.

clearview

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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


« Last Edit: January 18, 2014, 07:35:00 AM by clearview »

CommonCents

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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.

arebelspy

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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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Insanity

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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.




frugalNYC

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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!

matchewed

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Just seems rather strange that this topic is around other than a giant meh, 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.

MandyM

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It is relevant because to some extent, they are personal expenses paid for through his own business.
...
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."

arebelspy

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Just seems rather strange that this topic is around other than a giant meh, 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.
...
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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sol

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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. 

Insanity

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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.

thepokercab

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Quote
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. 

EscapeVelocity2020

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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.   

matchewed

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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.

clearview

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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.

« Last Edit: January 17, 2014, 10:54:15 AM by clearview »

arebelspy

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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.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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matchewed

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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?

Poorman

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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.

arebelspy

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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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randymarsh

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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:
Quote
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.

lbdance

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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.

ShortInSeattle

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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*

daverobev

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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?

arebelspy

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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.)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
I (rarely) blog at AdventuringAlong.com. Check out the Now page to see what I'm up to currently.

BPA

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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.






Mrs MM

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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).

BPA

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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. 


BPA

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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]!"

Mrs MM

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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. :)

frugalNYC

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Haha - perhaps! But, there will always be new readers and we should be nice to them. :)

+1 for this!

arebelspy

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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. :)
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
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Fletch

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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.

steveo

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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.

mm1970

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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.

clearview

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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)
« Last Edit: January 18, 2014, 11:02:08 AM by clearview »

AlanStache

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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.

arebelspy

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where is mrs mm's reply?

12 and 9 posts above yours.
I am a former teacher who accumulated a bunch of real estate, retired at 29, spent some time traveling the world full time and am now settled with three kids.
If you want to know more about me, this Business Insider profile tells the story pretty well.
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