The math doesn't give a shit about your savings rate

[samustache]

Wow.  Consider having your assistant write your posts with a touch less elitism and they might be better received.

Kindly point to the elitism part of the post. 

If you follow any of my posts you will see that I think pretty much anyone willing to put in the work can do this.  I'm not sure how that correlates with elitism.

I for one would love to know what this side business is that one can earn 400k and anyone can do...

If one plans to have no changes in their consumption between now and death, then the simple math works fine. My consumption when I've built a good stache is likely going to be a lot less than today - discovering Mustachianism after having kids definitely complicates the spreadsheet.

[RyanAtTanagra]

Wow.  Consider having your assistant write your posts with a touch less elitism and they might be better received.

Kindly point to the elitism part of the post. 

If you follow any of my posts you will see that I think pretty much anyone willing to put in the work can do this.  I'm not sure how that correlates with elitism.

I for one would love to know what this side business is that one can earn 400k and anyone can do...

He'll sell you a book explaining how to make $400k a year by selling books on how to make $400k year. ;-)

The Shockingly Simple Math post is still the best post that MMM has ever done in my opinion because it summarises the whole early retirement concept so well.

I think the most important thing to remember is that anyone, whether they earn $200k a year or $20k a year can start reducing their expenditure (thus increasing their savings rate immediately). This is something you have full and direct control over.

Increasing income is something that is beyond your direct control. I can't just go and tell my supervisor that I want a promotion or an increase in pay, and expect him to just make it happen.

To get a new job I may need to spend months networking and befriending the right people. I might need to spend tens of thousands of dollars and a few years of my time upgrading my skills with no guarantee that I will actually get the job I was hoping for. It's like making an investment and then not getting any return on that investment. It's risky. It may not pay off.

Increasing your earnings is something that you have some degree of indirect control over, but you'd be a fool to think that people can just go out there and start earning a lot more within a few days, weeks or months. More often than not you can't, and if you could it will more than likely take a couple of years to requalify or whatever else.

As other people have said on this thread lifestyle inflation is the biggest enemy to earning more i.e. you go from earning $50k and spending $40k of it, to earning $80k and spending $68k of it. Has anything actually changed? (These are made up numbers and may not be accurate, but you get the point).

The value in focusing on reducing expenditure first and foremost is that it helps to change your mindset and set you up so that if and when you do start earning more, you have the ability to avoid lifestyle inflation completely and pocket the difference between the old level of income and the new level of income. Reducing expenditure is about so much more than just temporarily increasing savings rate. It's developing the mindset that enables all of this stuff to work.

I would say that without the change to a permanently frugal mindset all of MMM's teachings are irrelevant.

Having $5 million saved for retirement is nothing if you still have the kind of mindset that would blow through it all just 12 months with big cars, bigger houses, crazy parties, luxury holidays and massive over consumption of all manner of unnecessary consumer goods and services.

However having £300,000 saved for retirement might be great if you are perfectly happy with a lifestyle that would make that amount of money of last for 20-30 years.

I used to think that MMM and Mrs MMM had a massive advantage over me because they had a much higher income than I do. Now I've had a year of so to reflect on it I no longer think that.

I realise now that the greatest advantage they had over me was that they discovered these simple concepts and started to apply them consistently about 8 years earlier in their lives. That's basically 8 years of compounding that I can never have, unless I can travel back in time. Why? Not because of earnings levels but because 8 years ago I didn't have the mindset I have now.

If, like the MMM family, I had known about this in my early 20s, I would be really close to retirement now. Instead I'm entering my mid thirties with only 18 months of this mindset under my belt.

Mindset is everything, that is priority number one the sooner you get that, the sooner you can start making rapid and lasting progress toward FIRE.

If you happen to earn loads of money that's clearly going to help, but it's not essential. Earning is less important by quite some way simply because lifestyle inflation can render increased earning irrelevant in a heartbeat if the mindset isn't there ot back it up.

Yes the overall figure of what you save is important, but that is governed by the savings rate as a % of your take home pay.  I think savings rate is still THE thing that we should focus on. A minimum of saving 50% of your take home pay is the first target.  The only people to whom savings rate is not important is people who are earning so muhc that even if they saved just 10%, they'd be saving $100k a year and still have loads of play around with. Thing is, that isn't going to help build the mindset that can cope once the $1m earning stops.

Thinking of it in the terms used in "The Millionaire Next Door", good financial defense is more important than good financial offense.

This needs to be a guest post or something.

[zephyr911]

1. Annual Savings

Directly affected by savings rate x income.

2. Real Rate of Return

Not affected by SR, but has the lowest variation, and is the variable we have the least power over.

3. Current Investments

And how did we get these current investments? Oh, right: lifetime earnings X SR + returns to date

4. Withdrawal Rate

Like 2, it's unrelated to SR, but the range is fairly small and unlikely to change much based on things we can actually do.

5. Expenses in Retirement

FFS, we're all good at math here, so if your FIRE scenario involves substantial changes in spending, then factor them in. For most people, current spending is an obvious, and convenient, baseline, and it is directly related to SR. Don't like the (current spending = future spending) assumption, then add caveats. None of this invalidates the impact of SR.

On your list of 5 factors, 3 are directly tied to it by simple mathematical relationships.

The point of emphasizing SR isn't to disregard all other factors in achieving FIRE, it's to illustrate the relative power we have over each of them. Most of us can't go out tomorrow and double our income, and if we did, inflation would ruin the fun immediately. But most of us either did cut our costs by 50% or more, or are on the path to doing so. Are we still increasing income? Yeah, and every time my income goes up my SR goes up too. It doesn't matter how I got there.

[mr_orange]

Our business is real estate development.  I also have various other ventures relating to crowdfunding securities and private equity.  These are the businesses I have chosen, but there are hoards of other ways to make money by running your own small business on the side.  Some of my wife's friends in Houston run a business that produces custom lighting and sound for parties, raves, etc.  They're not rocket surgeons and they make a lot more money than we do. 

A few of the posts above focus solely on selling your time for money, retraining, asking the boss for a raise, etc.  This is precisely the wrong mindset.  The mindset should be to focus on how you can deliver value for society and increase your income by doing so.  If you ever watch Shark Tank you'll see many diverse sets of companies doing just this and profiting handsomely by doing so.  Not all of the ventures are heroes, but the people on the show are practicing learning to grow their money.  This is no different than practicing learning to save money and cut expenses.  With some concerted effort and discipline either can be achieved.  You DO have direct control over this. 

A nice, ancillary benefit of starting your own business is that you can plow profits straight back into the business and generally make the money work a lot harder than it will in the stock market using indexing.  So you get increased income AND increased return on dollars invested. 

To me cutting expenses definitely makes sense to a point, but past some point it really does impact your standard of living and I would argue happiness for most people.  This amount varies by the individual and their circumstances.  I'm not advocating buying crap or being a spendthrift.  I am advocating applying an equal or greater amount of energy to growing income and learning to invest as compared with cutting expenses. 

[samustache]

A nice, ancillary benefit of starting your own business is that you can plow profits straight back into the business and generally make the money work a lot harder than it will in the stock market using indexing.  So you get increased income AND increased return on dollars invested. 

Well I'm in full agreement with you until the "easy" part. If you can make money at will - which generally requires being a naturally excellent salesman (be it selling yourself, a product etc.) - then you should focus on making more money. You may overestimate how many people are capable of this... It's taken me years in my field to be able to confidently sell my ideas to my bosses and co-workers and changing to some unknown niche sounds pretty daunting.

Any ideas for side gigs for someone who has excellent matlab / dsp (for audio) / tinkering skills would be appreciated :)

[deborah]

To me cutting expenses definitely makes sense to a point, but past some point it really does impact your standard of living and I would argue happiness for most people.  This amount varies by the individual and their circumstances.  I'm not advocating buying crap or being a spendthrift.  I am advocating applying an equal or greater amount of energy to growing income and learning to invest as compared with cutting expenses. 

Unfortunately, this is fundamental to the MMM message. MMM challenges "standard of living" at every turn. Why do you need a new car? Why do you need a large house? Why not ride your bike and enjoy nature rather than be a spendipants?

Challenging my standard of living has brought me a lot more happiness as well as reducing the amount of money I needed for retirement. As a side effect it also reduces our impact on the planet. I think this has also been the case for many in this forum.

[FFA]

To me cutting expenses definitely makes sense to a point, but past some point it really does impact your standard of living and I would argue happiness for most people.  This amount varies by the individual and their circumstances.  I'm not advocating buying crap or being a spendthrift.  I am advocating applying an equal or greater amount of energy to growing income and learning to invest as compared with cutting expenses. 

Unfortunately, this is fundamental to the MMM message. MMM challenges "standard of living" at every turn. Why do you need a new car? Why do you need a large house? Why not ride your bike and enjoy nature rather than be a spendipants?

Challenging my standard of living has brought me a lot more happiness as well as reducing the amount of money I needed for retirement. As a side effect it also reduces our impact on the planet. I think this has also been the case for many in this forum.

IMO cutting expenses is where to focus most energy, I agree with MMM and what Deborah said. Sustainable cuts have the biggest impact due to the double effect of increased savings and lower stash requirement.

Clearly growing income is important too but not on the same level, especially in a progressive tax system where you get less and less at the margin. And a society that tempts you towards lifestyle creep that requires discipline too.

Investing well also makes a difference but for most people I think likely to be the least impactful of these three. If you just take a default approach (regular invest into low cost, diversified index funds) you can basically cover this point. Ironically, you'd probably do better than many people who try to actively invest and enhance returns.

[neil]

Managing with your expenses is more than an exercise in frugality.  If you don't have financial integrity and understand the value of the items you purchase has to you, there's really not a limit to your spending and your FIRE failure rate could be anything.  The root cause of lifestyle inflation must be solved if you expect anything other than a godly sum of money to last you forever.  I assume a lot of people read MMM and swing the other way (thus depriving) and that can be harmful as well.  But if someone convinced me that what makes them happy requires a $25M target, I wouldn't feel the need to challenge that number.  On the internet, it's hard to tell the difference, and the crowd here have other reasons for their expense levels beyond simply minimizing.

The problem is, most people rarely get to that point of true fundamental understanding.  However, they are still probably better off analyzing their budgets to death and actually saving some money rather than digging themselves deeper into debt.  You can tell these people to earn $1M a year successfully and they will still have negative net worth and the end of the day.

[simmias]

That assumption is that your current spending is the same as your retirement spending.  For many people, this is a horrible assumption.  For one thing, many of us have mortgages that will be paid off before our FIRE dates.  There may be significant costs related to work.  And your taxes are likely much higher than they will be in a frugal early retirement.

Does nobody worry about increased medical expenses in early retirement before Medicare kicks in?  I'm banking on that expense covering all the spending I'll save from my paid off mortgage, non-existent work costs and lower tax bracket.  These subsidies aren't going to last forever, and medical expenses tend to escalate substantially with age, no matter how many miles we bike or lentils we eat.

[fb132]

That assumption is that your current spending is the same as your retirement spending.  For many people, this is a horrible assumption.  For one thing, many of us have mortgages that will be paid off before our FIRE dates.  There may be significant costs related to work.  And your taxes are likely much higher than they will be in a frugal early retirement.

Does nobody worry about increased medical expenses in early retirement before Medicare kicks in?  I'm banking on that expense covering all the spending I'll save from my paid off mortgage, non-existent work costs and lower tax bracket.  These subsidies aren't going to last forever, and medical expenses tend to escalate substantially with age, no matter how many miles we bike or lentils we eat.

In the US maybe, but if you live in a country where you have universal healthcare, it's no biggie. In my mind, the best solution is to workout and eat healthy. It doesn't guarantee a long life, but the chances of dying young (or living with medical issues) are smaller than if you are someone who smokes, eats bad or doesn't workout. If you are retired, I don't see how you can't have 1 hour of your time to exercice.

[Dicey]

Very much enjoying this discussion, just posting to draft.

[tomsang]

Our business is real estate development.  I also have various other ventures relating to crowdfunding securities and private equity.  These are the businesses I have chosen, but there are hoards of other ways to make money by running your own small business on the side.  Some of my wife's friends in Houston run a business that produces custom lighting and sound for parties, raves, etc.  They're not rocket surgeons and they make a lot more money than we do. 

As you already know, this is a very risky venture.  So alluding to it being easy money or simple to make money is not portraying the true risk that is inherent in this type of venture. I have a number of very successful and conservative friends who declared bankruptcy or were wiped out in real estate development during the 2007 - 2009 nightmare.  These were not the Trumps of the world leveraging up a storm, they were taking what they considered to be reasonable risk in their leverage on land for development. In my opinion, this risk is not something that you want to carry into retirement.  Like BigChrisB at some point you have to deleverage and take the chips off the table.  Hopefully, that is before the next economic nightmare.  I have a number of side businesses that provide a healthy return.   As I get closer to hanging up my high paying job, I will be removing the risk as I can not afford to lose it all or half once I give up my lucrative career. 

[nereo]

That assumption is that your current spending is the same as your retirement spending.  For many people, this is a horrible assumption.  For one thing, many of us have mortgages that will be paid off before our FIRE dates.  There may be significant costs related to work.  And your taxes are likely much higher than they will be in a frugal early retirement.

Does nobody worry about increased medical expenses in early retirement before Medicare kicks in?  I'm banking on that expense covering all the spending I'll save from my paid off mortgage, non-existent work costs and lower tax bracket.  These subsidies aren't going to last forever, and medical expenses tend to escalate substantially with age, no matter how many miles we bike or lentils we eat.

I certainly factor the expense of health insurance into my early retirement plans, but I wouldn't say I am overly 'worried' about it.  Like food and shelter, it's an inescapable periodic cost.  There's lots of info out there about the cost for various health-care plans for all ages today - and while the rate that these plans may increase in cost is unknown, I think it's safe to say that costs will increase somewhere between 2 - 8% per year over the next few decades (based mostly on historical data - personally I think increases will be in the 3-4% real-adjusted range).
It's a fairly easy and predictable expense to plan for. 

agree with fb132 that maintaining good health is the most surefire way of prolonging life and reducing medical deterioration at all ages.

[happy]

Nice spreadsheet, thanks sirdoug007!

[deborah]

What is REALLY interesting is how much it changes with 10k less spending in retirement and 10k more saving. It really doesn't look like much changes until you do that to the spreadsheet supplied.

[Playing with Fire UK]

I see both points of view, I've been tracking my pre-FIRE spend and estimated post-FIRE spend separately for a while ( I won't be spending on work expenses and will be taking more holidays).

However, someone that is currently eating at pricey restaurants everyday and never looking to reduce their expenses before retirement is probably going to act in a similar way after retirement. Similarly, if someone is careful and purposeful about spending now, that is probably similar to how they'll behave after retirement.

What I'm getting at is that one's best first estimate (guess) for your post FIRE spending should be one's current spending.

Sure, there will be exceptions, and you'll get a better second/third estimate by running more numbers, but the spending rate is a valuable first pass calculation, that you can do on the back of an envelope.

[2lazy2retire]

Our business is real estate development.  I also have various other ventures relating to crowdfunding securities and private equity.  These are the businesses I have chosen, but there are hoards of other ways to make money by running your own small business on the side.  Some of my wife's friends in Houston run a business that produces custom lighting and sound for parties, raves, etc.  They're not rocket surgeons and they make a lot more money than we do. 

A few of the posts above focus solely on selling your time for money, retraining, asking the boss for a raise, etc.  This is precisely the wrong mindset.  The mindset should be to focus on how you can deliver value for society and increase your income by doing so.  If you ever watch Shark Tank you'll see many diverse sets of companies doing just this and profiting handsomely by doing so.  Not all of the ventures are heroes, but the people on the show are practicing learning to grow their money.  This is no different than practicing learning to save money and cut expenses.  With some concerted effort and discipline either can be achieved.  You DO have direct control over this. 

A nice, ancillary benefit of starting your own business is that you can plow profits straight back into the business and generally make the money work a lot harder than it will in the stock market using indexing.  So you get increased income AND increased return on dollars invested. 

To me cutting expenses definitely makes sense to a point, but past some point it really does impact your standard of living and I would argue happiness for most people.  This amount varies by the individual and their circumstances.  I'm not advocating buying crap or being a spendthrift.  I am advocating applying an equal or greater amount of energy to growing income and learning to invest as compared with cutting expenses.

Shark tank ? - The American Dream is alive and well just got to work for it eh

[mr_orange]

Shark tank ? - The American Dream is alive and well just got to work for it eh

Yup....and you have to be focused on it.  If you invest all of your energy in cutting expenses and begging an employer for a raise you can't exert effort toward fending for yourself and making your own way. 

[2lazy2retire]

Shark tank ? - The American Dream is alive and well just got to work for it eh

Yup....and you have to be focused on it.  If you invest all of your energy in cutting expenses and begging an employer for a raise you can't exert effort toward fending for yourself and making your own way.

DW is starting a business doing lighting for kids parties - hopes to pull in north of $400K this year - or was that $400, anyway just got to get out there.

[DoubleDown]

Should you lower expenses or earn more to get to FIRE? Yes.

[mm1970]

Wow.  Consider having your assistant write your posts with a touch less elitism and they might be better received.

Kindly point to the elitism part of the post. 

If you follow any of my posts you will see that I think pretty much anyone willing to put in the work can do this.  I'm not sure how that correlates with elitism.

That statement right there is pretty elitist.  I bolded it.

I can't speak for your particular "side business".  But most of them require some sort of: time, education, knowledge, skill, effort, energy, etc.

Never have I found a "side business" like that.  As a parent with two young children, I don't have time.  My time outside of work is spent with them.  I haven't found a side business that I can do while playing with my young children, that will make me six figures.

I have a number of friends with "side gigs", or full time gigs like consulting, and have watched how they got there.  It requires work, skill, dedication, and interest.  Often it requires specific education.  Frankly, not everyone has these abilities or skills or time - or interest.

[mm1970]

Our business is real estate development.

Ah. 

So "anyone can do it" is definitely a fallacy.  For sure you can see a lot of real estate development shows on TV.

If you have the interest, and the skills, you can work on that.  And the knowledge.  But "real estate development" isn't exactly something that "anyone can do".  I've seen many people fail at this.

It also is highly dependent on where you live.  As someone who lives in Coastal So Cal, where a nice small 2BR starter home is $750k, it requires a ton of money to get into any kind of development.

However, the side business thing - while again, I reiterate "time away from my kids" thing, there is a point.  Many people in my town "eke out a living" doing things like dog walking, landscape design and maintenance, face painting, kids' parties, etc.  Considering the typical "kid party" costs upwards of $200 if you rent a place and DIY, there's money to be made there if that's your thing.

I'm not particularly artistic, so I don't see myself selling fancy cakes and cupcakes, or offering my own face painting services, or getting into catering, to develop a side business.  I enjoy a variety of arts and crafts (that I don't have time for), but I think the enjoyment would go away if I were doing it as a business.  (It's one thing to quilt for fun, it's another to do it for money.)

Food for thought for a day when I'm not deep in the trenches of child-rearing.  I have to admit, there would certainly be money to be made in summer camps, if I were licensed. 

[Kaspian]

Challenging my standard of living has brought me a lot more happiness as well as reducing the amount of money I needed for retirement. As a side effect it also reduces our impact on the planet. I think this has also been the case for many in this forum.

Sing it, sister--Amen!!  :)

[velocistar237]

There's very little risk and no market competition in expense reduction, and you quickly adapt to the results. The difficult parts involve things like downsizing and dealing with transaction costs, or other constraints. Pretty much anyone can do these, or at least the steps are well-defined with near-guaranteed outcomes.

Earning more income involves finding a niche with room to spare, or having specific skills, or doing sales and marketing. And it definitely requires time outside the day job. I do think that any of us forum members could move to east Texas and do pretty well in real estate. Maybe not $400K/year, but maybe retire under 10 years, like arebelspy. But there are hurdles: there's a steep learning curve, and there's a good chance that the benefit will be small compared to the income of our current jobs. I have about five years left to FIRE. Should I spend my free time starting a business instead of spending time with my family? My kids are only young once, and no well-off person ever said they wished they'd spent more of their life working.

It looks possible to make money in a side gig, but the effort is daunting, the get-rich-quick schemes are discouraging, and the success stories maybe even more so. I'm at the point where I'm almost all out of expense reduction steps, I'd like to have some part-time income after I FIRE, and I'm willing to try, but I'm not sure where to start. I have computer skills, but it's still intimidating. I'm thinking I'll try a throwaway business just to get a feel for the possibility; I'll replicate something that's already out there just to learn without spending significant time on it.

[deborah]

Going back to OPs post

The math doesn't care about savings rates.  It just doesn't.  I'll show you why.

Many people think the math behind early retirement is all about savings rates due to popular posts such as the "Shockingly Simple Math Behind Early Retirement" 
http://www.mrmoneymustache.com/2012/01/13/the-shockingly-simple-math-behind-early-retirement/

However, savings rate is really a simplification that requires a big assumption.

That assumption is that your current spending is the same as your retirement spending.  For many people, this is a horrible assumption.  For one thing, many of us have mortgages that will be paid off before our FIRE dates.  There may be significant costs related to work.  And your taxes are likely much higher than they will be in a frugal early retirement.

The accumulation of invested assets does not depend on your income, it depends solely on how much you save per year.  If you save $30,000 a year for 10 years with 7% growth you get $414,493.  It doesn't matter if your income is $35,000 or $1,000,000.

So sorting all those things out the only variables that affect accumulating assets to the amount you can retire on are:

1. Annual Savings
2. Real Rate of Return
3. Current Investments
4. Withdrawal Rate
5. Expenses in Retirement

The final variable is time to retirement.  We can arrange the equation to solve for time to get us a forecast on when we will reach our savings goal.

I've been noodling on this for a while and put together a spreadsheet that calculates the years to FIRE with some savings already accumulated.  The spreadsheet and curves for years to FIRE versus annual savings are attached below.

You may be surprised at the amount of money that must be 'stached away every year to retire under 10 years (and maybe this is why MMM and others chose to present the math as savings rates).  For example, FIRE at $20k/year annual spending in 10 years requires you to save nearly $40k/year.  This is a 67% savings rate, consistent with the Shockingly Simple Math post but it's a bit more eye opening when you look at it this way. 

I find this helpful, especially thinking about the inevitability of FIRE with significant savings.  Once you get to a certain point you are destined to reach your goal, if a few more years out, by market returns alone.  These of course are never guaranteed, but I still like seeing how the account will grow with zero or minimal additional contributions. 

EDIT: Here is the actual equation for those intrested which has been posted in other threads by MDM

There's also an older(?) math formula first posted in these forums (AFAIK) by Heart of Tin:
    Time in years to FI = Ln((S + i*E/WR) / (S + i*A)) / Ln(1 + i)

A = Asset amount currently invested in funds you will draw upon in retirement.
E = Total (including taxes) annual expenses in retirement
i =  Return on invested retirement funds.
S = Annual amount invested in funds you will draw upon in retirement.
WR = Withdrawal Rate planned for retirement, using Trinity Study definitions.

Networthify  uses an equivalent form of this equation, with
“Current annual savings” = S,
“Current annual expenses” = E,
“Current portfolio value” = A,
“Annual return on investment” = i,
“Withdrawal rate” = WR.

I have added another chart and graph to the spreadsheet (using all the numbers from the original spreadsheet), showing the extra years you save if you decrease your spending by $10k a year and at the same time reduce your retirement spending by $10k a year (this is what MMM proposes in the incredible maths - basically reducing your spending now and save that money). It is dramatic how much better this is than increasing your savings by $10k a year (presumably you got a $10k raise and don't inflate your spending) or by only decreasing your retirement spending by $10k a year (in my opinion wishful thinking).

[KittyCat]

I love these spreadsheets; they show me that FI is quite realizable as long as I stick to my current habits.

[mr_orange]

It looks possible to make money in a side gig, but the effort is daunting, the get-rich-quick schemes are discouraging, and the success stories maybe even more so. I'm at the point where I'm almost all out of expense reduction steps, I'd like to have some part-time income after I FIRE, and I'm willing to try, but I'm not sure where to start. I have computer skills, but it's still intimidating. I'm thinking I'll try a throwaway business just to get a feel for the possibility; I'll replicate something that's already out there just to learn without spending significant time on it.

The key is devoting effort to it.  Anything in life worth having requires hard work and dedication. 

You can do plenty of things other than real estate development and make more than I am making.  What we're doing is small potatoes compared to what many businesses make.  What I'm advocating is directing some of the energy spent growing plants to providing value to society instead and/or learning to invest your money.  I never claimed there was a free lunch here.  You have to be willing to work for it.  For my personal situation and I would argue the situation of many others it makes more sense to devote energy to growing income and learning to invest instead of focusing ALL energy on cutting expenses.  You'll never get good at running a business or investing if you don't devote time to these activities. 

Some folks have different circumstances and growing their income would sacrifice things that are too important to them to do so.  I get that. 

[Genevieve]

To OP -- awesome spreadsheet! Thanks for sharing. It's lots of fun to play with. :)

[ender]

Wow.  Consider having your assistant write your posts with a touch less elitism and they might be better received.

Kindly point to the elitism part of the post. 

If you follow any of my posts you will see that I think pretty much anyone willing to put in the work can do this.  I'm not sure how that correlates with elitism.

That statement right there is pretty elitist.  I bolded it.

It doesn't really help that he has a signature that is pretty obnoxiously bragging, either.

[totoro]

I don't know if I've grasped all the controversy but for me it does boil down to what your opportunities are and how motivated you are for earning extra income vs. other values. 

If you don't have many opportunities or are not inclined to be an entrepreneur and enjoy a stable job you are going to benefit most from reducing spending.  Lots of people have successfully used this strategy to retire much earlier than they otherwise could.  Most of the books/blogs out there on ER have this as a main component of reaching the end goal of ER.  And the side benefit is you are already used to living on less when you reach the end ma

Now, if you have opportunity/inclination to use all your time to grow a businesses (for ex.) that will pay off in spades of course your hourly ROI on your time is going to be higher focussing on the business and paying someone to clean your house and take care of your kids.   It is not really the savings rate that is the big factor but the ROI on your time.

As to the question as to whether everyone can make tonnes of more money if they only focussed on it I think the answer is definitely no.  It is not about some mental block but about personality plus opportunities.  In addition, I'm not even sure that is a good goal for lots of people because you give up a lot of your current quality of life when you run your own businesses and the stress would be a killer for many.

Some people would much prefer the quality of life that comes with a set income and being able to be with family and garden and take care of children and take a slightly longer path.  Seems a very reasonable choice to me.

[mr_orange]

It doesn't really help that he has a signature that is pretty obnoxiously bragging, either.

Ahh...I see.  If you earn more and retire on more you're bragging.  If you cut expenses and grow your own plants in the back yard it is something to be celebrated.  Makes perfect sense. 

[mr_orange]

As to the question as to whether everyone can make tonnes of more money if they only focussed on it I think the answer is definitely no.  It is not about some mental block but about personality plus opportunities.  In addition, I'm not even sure that is a good goal for lots of people because you give up a lot of your current quality of life when you run your own businesses and the stress would be a killer for many.

Anytime someone uses words like "definitely" it seems to cut off any logical discussion on the topic.  I'll try though.  I guess the use of the word "everyone" makes the statement pretty valid, but for most of the people on this board that are capable of understanding some basic finance concepts they could have every bit as much success growing income running their own business as they can cutting spending. 

I'll grant you that personality and inclination issues aren't there for some folks and that you do have to trade off lifestyle to make it on your own.  However, when you claim that the opportunity isn't there for some I'll call bs.  Everyone has a chance to make it if they work hard. 

The rest of your post I pretty much agree with. 

[totoro]

We do own a number of businesses and are entrepreneurs.

I just don't happen to agree with you that anyone could do it because not everyone wants to do it and there are perfectly reasonable quality of life reasons for not working as hard as you can to maximize your income through entrepreneurship.

For me, ER and FI are not the way I measure success.  Happiness is.  In our case FI makes our life happier because we have choices and because it is our goal and it is fun to have and reach a goal.  Running my own business made me happier because I could spend time at home and do things in ways that were interesting to me.  Owning rentals makes me happy because I enjoy the process of fixing them up and optimizing them.  It suits me and it has high ROI.

I have family members and friends who definitely could not handle the stress of starting and operating their own business and would be miserable doing it.  They would also be miserable and stressed as landlords or entrepreneurs.  I don't think they are less happy working at jobs.  In fact, as far as I can tell, they are as happy as me.  Some of them seem happier. 

As far as opportunity goes, if you are not born with it, you have to create it bit by bit.  It is a long haul.  I know because I came from poverty and I did trade quality of life for future opportunity and, in retrospect, some of it was not worth it even though you could say it has paid off.  Working full-time since I was 12 is not what I would want for my kids even if they get opportunities.  I'd like them to find non-monetary happiness early and be in a joyful state more often than not. 

And I can clearly see that my kids are different from each other and have different paths to happiness.  Some of them would prefer stability over risk and relationships over financial gain.  I'm not saying it is either or, but the preference steers the direction and I don't think will-power gets you to entrepreneurship - inclination does.

I sincerely believe that some people will never do what I did because they are more tethered to quality of life now and that is a strength and a personality difference.  And some people are just never going to be oriented towards longer-term goals - read the studies on delayed gratification.  I don't believe it is all will-power at play - personality plays a big part.   And type As are frequently not all they are cracked up to be in my books even if they maximize opportunities.  There is a cost to working all the time.

And maybe I'm a good example of being fundamentally different from you too.  I could make more money than I do by expanding my business.  I just don't feel like it.  We have enough and the time involved is just not worth it to me.  I would rather stay at home and garden.

[ender]

It doesn't really help that he has a signature that is pretty obnoxiously bragging, either.

Ahh...I see.  If you earn more and retire on more you're bragging.  If you cut expenses and grow your own plants in the back yard it is something to be celebrated.  Makes perfect sense.

No, I think you are missing the primary purpose of why most people are here and why MMM writes what he does.

Spending $9k a month (or even $5k) is not a goal I would have, even if I had $100,000,000 in the bank.

It's fine that you are making enough money to be able to easily accumulate $100k/year worth of spending in such a short period of time. I don't hold that against you in the slightest, and in fact, if it wasn't the wrong place I'd be curious about how you are doing that - given my goals, it would not take many years for me to be FIRE with the type of income you are claiming.

But the thing is, this isn't just a forum where most of us have the perspective, "how can I earn so much money in life I can continue to live a consumeristic fancy pants lifestyle as quickly as I want?" It's a forum where most of us want to reduce our consumeristic lifestyle. If you want people to admire your high income and high retirement spending goals, that's fine - but broadcasting them via your signature to an audience where most do not share your similar goals (and perhaps even philosophy about things entirely?) should not surprise you if you get negative feedback.

[mr_orange]

No, I think you are missing the primary purpose of why most people are here and why MMM writes what he does.

No, I'm not.  I just don't agree with it. 

It's fine that you are making enough money to be able to easily accumulate $100k/year worth of spending in such a short period of time.

Generally when I think things are fine I don't say that people are obnoxiously bragging.  Most of the time that would be the opposite of fine. 

If you want people to admire your high income and high retirement spending goals, that's fine - but broadcasting them via your signature to an audience where most do not share your similar goals (and perhaps even philosophy about things entirely?) should not surprise you if you get negative feedback.

Where have I claimed I wanted your or anyone else's admiration?  I honestly couldn't care less what you think about my goals.  If you don't share similar goals feel free to ignore my signature entirely.  If, however, you choose to fire nasty posts my way that ridiculously claim I"m bragging be prepared for me to respond in kind. 

[deborah]

It doesn't really help that he has a signature that is pretty obnoxiously bragging, either.

Ahh...I see.  If you earn more and retire on more you're bragging.  If you cut expenses and grow your own plants in the back yard it is something to be celebrated.  Makes perfect sense. 

No, I think you are missing the primary purpose of why most people are here and why MMM writes what he does.

No, I'm not.  I just don't agree with it. 
 

I am not sure you get it at all. Perhaps that is why people are trying to explain it.

"It" is using your money more efficiently while developing more enjoyable habits (which are also frugal). If growing vegetables makes you happy, it may be one of the "more enjoyable habits" you develop. MMM says he doesn't do vegetables, and it can be argued that vegetable growing is not terribly efficient financially. That is why, although I grow vegetables, I concentrate on those that are easy care, and I have a lot of fruit trees. You will note from the discussion above that using your money more efficiently DOES reduce your time to retirement much more quickly than EITHER getting more money OR deciding you will use less in retirement.

Using money more efficiently also means you work LESS, so most people here are not interested in having side gigs that take up a lot of time. They may look at your side gig and decide you are using money less efficiently, and are going to give you face punches for it.

[steveo]

Never have I found a "side business" like that.

I think most side businesses fail and do not provide the returns that people think they will. I see them as the hail mary option when it comes to increasing income. Its much more robust in my opinion to simply work on your savings rate via lowering expenses to a level that you are comfortable.

[steveo]

The key is devoting effort to it.  Anything in life worth having requires hard work and dedication. 

This isn't true. There is luck involved. Small businesses often fail. It has nothing to do with how much effort you devote to it.

learning to invest your money.

Again - this isn't true. How many Warren Buffets are there out there ? How many successful investors that beat the market ?

You have to be willing to work for it.  For my personal situation and I would argue the situation of many others it makes more sense to devote energy to growing income and learning to invest instead of focusing ALL energy on cutting expenses. 

I don't think that you are grasping the concepts of risk and robustness. Most small businesses fail. This is just a random Internet search that I did:- http://www.statisticbrain.com/startup-failure-by-industry/.

A robust approach to becoming FI is to decrease your expenses and save your money. You then invest that money into robust investments ala index funds.

if you choose the small business path I think that's great. There is a tonne of information out there that takes that approach. Its the Tim Ferris or Robert Kiyosaki approach. They emphasise the path of going for the hail mary and it will work for a very few percentage of people out there.

[steveo]

If you don't have many opportunities or are not inclined to be an entrepreneur and enjoy a stable job you are going to benefit most from reducing spending.  Lots of people have successfully used this strategy to retire much earlier than they otherwise could.  Most of the books/blogs out there on ER have this as a main component of reaching the end goal of ER.  And the side benefit is you are already used to living on less when you reach the end ma

Simple and reliable. The key point as well is that you can still live a great life just by changing a few habits. MMM makes this point in this article:- http://www.mrmoneymustache.com/2013/03/19/a-lifetime-of-riches-is-it-as-simple-as-a-few-habits/. Ride your bike instead of driving your car. Eat at home more than eating out. Don't buy coffees or lunch at work. These things are easy for me and I'm definitely not less happy.

[aspiretoretire]

Posting/following to save the thread. Is there another way to do this?

[BTDretire]

Our business is real estate development.  I also have various other ventures relating to crowdfunding securities and private equity.  These are the businesses I have chosen, but there are hoards of other ways to make money by running your own small business on the side.  Some of my wife's friends in Houston run a business that produces custom lighting and sound for parties, raves, etc.  They're not rocket surgeons and they make a lot more money than we do. 

As you already know, this is a very risky venture.  So alluding to it being easy money or simple to make money is not portraying the true risk that is inherent in this type of venture. I have a number of very successful and conservative friends who declared bankruptcy or were wiped out in real estate development during the 2007 - 2009 nightmare.  These were not the Trumps of the world leveraging up a storm, they were taking what they considered to be reasonable risk in their leverage on land for development. In my opinion, this risk is not something that you want to carry into retirement.  Like BigChrisB at some point you have to deleverage and take the chips off the table.  Hopefully, that is before the next economic nightmare.  I have a number of side businesses that provide a healthy return.   As I get closer to hanging up my high paying job, I will be removing the risk as I can not afford to lose it all or half once I give up my lucrative career.

   Or as my guru says, "When you reach Critical Mass, you never want to put it at risk".

[mr_orange]

This isn't true. There is luck involved. Small businesses often fail. It has nothing to do with how much effort you devote to it.

There is also luck involved in keeping your job.  How many people were drastically impacted by the mortgage crisis recently that did everything right in life and were out of work for more than a year? 

You can also select businesses with lower risk profiles.  Opening a franchise is a lot less risky than trying a software startup.  Quoting blanket business failure rates is misleading. 

Again - this isn't true. How many Warren Buffets are there out there ? How many successful investors that beat the market ?

Ugh.  There are many, many ways to make money without confining your discussion to publicly-traded securities.  Most of the discussion on this board around this topic relates solely to Malkiel random walk concepts and completely ignores other ways to make money.  You don't have to be Warren Buffet to do that. 

I don't think that you are grasping the concepts of risk and robustness. Most small businesses fail. This is just a random Internet search that I did:- http://www.statisticbrain.com/startup-failure-by-industry/.

A robust approach to becoming FI is to decrease your expenses and save your money. You then invest that money into robust investments ala index funds.

if you choose the small business path I think that's great. There is a tonne of information out there that takes that approach. Its the Tim Ferris or Robert Kiyosaki approach. They emphasise the path of going for the hail mary and it will work for a very few percentage of people out there.

Claiming that is a hail mary approach is simply wrong.  This is the classical road to wealth and has the highest correlation with folks that achieve significant wealth.  See The Millionaire Next Door for more information. 

The trouble with these sorts of discussions is that most of the non-immigrants in our country have somehow convinced themselves that there is no way to start their own business.  It is too hard, the big corporations have all of the money, whaa, whaa, whaa.  There are plenty of ways to make nice money as a small businessperson without taking inordinate amounts of risk.  The reason many businesses fail is because the person running them is inexperienced and is practicing.  Thus they're unable to attract the capital or financing needed or there are operations issues due to this inexperience. 

What do you think the failure rate is for someone applying for a W2 job trying to sell their labor for money?  I'd venture to guess it is higher than the failure rate of businesses.  Once you find a job you are good at your success rate in keeping the job is probably pretty high because you're good at it and the economy demands these services.  The same can be said for a small business. 

We're pretty far off the OP's original topic here.  Maybe we should try to steer the discussion back to what that person cares about. 

[Gerard]

This is the classical road to wealth and has the highest correlation with folks that achieve significant wealth.  See The Millionaire Next Door for more information. 

Yes, a large number of people with a lot of money made it through having their own business (although in the case of the Millionaire Next Door, most of them were also pretty good savers). And the majority of successful professional athletes really believed in their dreams. It doesn't mean that the majority of people who believe in their dreams will become professional athletes.

I think we're down to an underlying tension that surfaces in quite a few threads. People who have been successful at something tend to over-weight the degree to which their success was due to their own hard work, and don't see how much was due to luck, broadly defined (timing, perfect match of abilities and opportunities, good connections, right parents). And the same single-mindedness and drive that has helped many of those people to succeed can lead them to arrogance in dealing with "losers" or behaviours that they perceive as "loser-ish" (because they're different).

[wenchsenior]

Personality traits play a huge role is starting business. And those are modifiable only to a certain degree. I have a very modest business of which I am the sole employee. I could, of course, try to hustle, hire employees, expand etc. But, I actively dislike, am disinterested in, and am not suited by skill set for that.

I'm very introverted, as are many on this board. Being introverted is NOT a bug, it's a feature, but it does provide an inborn barrier to business development in many areas. Some of the introverts here have in-demand skills, but some do not. Personally, it would make me anxiety ridden and miserable to have to hustle for clients (I typically avoid using the phone, and I don't like to talk to people that much). So I would have to partner with someone who could do that for me...but that comes with the hassles of partnership. I have served as a supervisor in past jobs, and I find having employees extremely tiresome and draining. So then it's back to business that I could do solo, or with a trusted partner.

Basically, in order to be content and do productive work that I'm well suited to, I need to be left alone, to set my own schedule (not jumping to meet potential clients' schedules at short notice); I prefer to be far from civilization and cities, by myself, collecting biological field data; reading; working with plants or wildlife, etc.  I'm sure there are opportunities to make big bucks within my skill-set (I'm still waiting for  a lightning strike Big Idea), but not as many as if I was naturally inclined toward marketing, finance, computer engineering, specialized law, or generally more social-oriented work, etc. I have arranged my life to maximize my talents to some degree, but at a trade-off of higher income. I could do more contract work to boost income, but I have obligations at home so I can't travel constantly or for very long periods.

I'm not whining about this...I don't feel the world owes me an opportunity to maximize my personal snow-flake self and ALSO reward me with tons of cash. And OF COURSE if making money was my primary motive in life, I would suck it up and suffer through the things I hate to make it happen. My father did this...built his own real estate business, retired early...classic millionaire next door. He HATED his work (though he was proud of his accomplishments) and constantly said wish he'd done something else. Yes, he had money and security, but he was mostly an overworked, pissed off, and unhappy person. It's not worth it to me to go that route, unless I naturally enjoyed the work.

I really think those people who have personality traits more suited to business ventures severely underestimate how hard it is to change your basic talents and inclinations, to find and optimize opportunities, and to identify the more specialized niches suited to less outgoing personalities.

[mr_orange]

I think we're down to an underlying tension that surfaces in quite a few threads. People who have been successful at something tend to over-weight the degree to which their success was due to their own hard work, and don't see how much was due to luck, broadly defined (timing, perfect match of abilities and opportunities, good connections, right parents). And the same single-mindedness and drive that has helped many of those people to succeed can lead them to arrogance in dealing with "losers" or behaviours that they perceive as "loser-ish" (because they're different).

Yes, and the same can be said for those people that discount their own innate ability to do well for themselves and cling to the notion that the only way to be successful is by cutting expenses.  There is no one right answer.  I have claimed repeatedly both in this thread and others that there are various paths to wealth. 

Attributing financial success solely to luck is ridiculous as well.  Luck certainly plays a role in anything, including what job one lands, what training they receive, what school they go to, whether they keep their job, etc.  Claiming that luck is the dominant factor is pretty childish though.  This refrain is often an excuse for not working hard and making things happen.  A lot of this discussion is at the heart of political debate as well.  Some people innately believe that the world is rigged and that they have to be lucky to succeed or need the government to intervene.  Others believe in rugged individualism and making one's own way.  One's attitude toward things is more of a dominant factor for succeeding than luck is in my opinion. 

From the items you listed:

1.  Timing - People generally have decades to find the right timing.  This is an excuse.  We got our rear-ends kicked in the '09 crisis and didn't tuck tail and give up.  The timing is better for us now.  If you keep working then the timing will be right at some point

2.  Perfect match of abilities and opportunities - The match doesn't need to be perfect.  Your abilities improve as you practice and work at being good at something.  This is also an excuse

3.  Good connections - Everyone has the equal opportunity to network and make their own connections.  It requires hard work to do so.  This is also an excuse

4.  Right parents - My parents do zero for me now, but I do agree that my upbringing had a lot to do with what I am today.  I'll agree with this point to a large degree

Regarding the comments about "losers" you must be referring to other threads.  I have never once called anyone a loser.  The simple point I am making is that there are various paths to financial independence and that hard work does pay off.  I think that people should diversify where they spend their energy and not focus it solely on cutting expenses.  Growing income or learning to invest are equally worthy of effort.  For some folks these activities are probably more worthy of effort than cutting expenses. 

[mr_orange]

And OF COURSE if making money was my primary motive in life, I would suck it up and suffer through the things I hate to make it happen.

Bingo. 

There is nothing wrong with prioritizing making money lower and other things higher in one's life.  Folks should, however, avoid "face-punching" people that choose a different path than they do.  For some it is far easier to make more money or make their investments work harder while participating in activities they enjoy than it is to shave every last femto-cent out of their budget and focus all energy on this type of activity. 

[totoro]

I think the only really contentious point for me is that everyone could do it by just working harder. 

As far as to what is being attributed to luck (parents/connections/opportunities/inside knowledge), I didn't have any of that and still did the DIY entrepreneur route successfully, as did my DH.  Those that do have those advantages do indeed have a leg up and often attribute their success to their own efforts without recognizing the effects of privilege.

What I did have was aptitude and motivation.  I've been doing business plans since I was a kid but it still took me ages to get to launch point.  I was also good at school and solving problems in general.  I was not risk-averse and very interested in solving the problems created by poverty in my own life.  That was motivating.  I worked hard to change my circumstances and get to the point where a bank would lend me money - that took a long time. I did not value my free time as much as I did the chance to improve my circumstances.  Much like the motivation that many immigrants coming from poverty have imo.

What mr_orange is right about imo is that many more people could be successful entrepreneurs and earn more money if they worked as hard as someone coming from poverty as a recent immigrant with few options does.  What he is wrong about, imo, is that everyone can do this or that it is even a good option for a lot of people.   

A job with security and stability and a nice quality of life along the way can be a pretty sweet deal.  Add in the ability to economize and retire early and I don't see the motivation for those that are not inclined naturally to take the entrepreneur path.  Add in an expected inheritance and pension it becomes sort of irrelevant to earn more when quality of life is put on the line.  It is not really a rational choice to take on more risk and give up a level of comfort to achieve, potentially, way more returns, unless you are a risk taker and get a big kick out of trying to achieve this.  In other words, it is likely to make you unhappier, not happier imo.

And success in business is not just about hard work.  It is about strategic analysis.  That is a skill set/aptitude that many on this board have, but it is not something everyone is inclined towards without a motivating factor like lack of other options. 

And fwiw, I'm fine with someone posting their goals like having $100,000 a year in retirement.  It is not necessarily inconsistent with a reduced environmental footprint.  You can give to charity, employ people to do your housework and other tasks, have a personal trainer, install solar and other green technologies on your home, and live in a high COL area. 

Those that retire on less and intend to take a lot of international flights, as many here intend to do, might have a greater impact on the environment than someone who spends more and stays put.  https://www.eta.co.uk/environmental-info/air-travels-impact-on-climate-change/

[bacchi]

1.  Timing - People generally have decades to find the right timing.  This is an excuse.  We got our rear-ends kicked in the '09 crisis and didn't tuck tail and give up.  The timing is better for us now.  If you keep working then the timing will be right at some point

2.  Perfect match of abilities and opportunities - The match doesn't need to be perfect.  Your abilities improve as you practice and work at being good at something.  This is also an excuse

3.  Good connections - Everyone has the equal opportunity to network and make their own connections.  It requires hard work to do so.  This is also an excuse

4.  Right parents - My parents do zero for me now, but I do agree that my upbringing had a lot to do with what I am today.  I'll agree with this point to a large degree

There's some survivorship bias going on. There are plenty of people who work hard and do everything else right and still don't make it. How many high-school and college athletes are out there that didn't make the cut? How many yard people start their own lawncare businesses and fail? Silly Valley is littered with the corpses of startups.

The simple point I am making is that there are various paths to financial independence and that hard work does pay off.  I think that people should diversify where they spend their energy and not focus it solely on cutting expenses.  Growing income or learning to invest are equally worthy of effort.  For some folks these activities are probably more worthy of effort than cutting expenses.

True enough.

[mr_orange]

What he is wrong about, imo, is that everyone can do this or that it is even a good option for a lot of people.   

I can't say that I disagree with any of your post above except for possibly this passage above.  I think we disagree about what percentage of people devoting energy toward increased income or increased investing prowess is a good decision for.  I think we'll have to agree to disagree on this.  To me most people can improve their skillsets for both of these items and would be better overall by doing so if their goal is increased happiness and decreased reliance on their employer.  To me they'd also be better than they would be focusing all of their effort on cutting expenses.  I'd also argue that people's utility does decrease past some point in cutting expenses despite what many on this board claim about it not impacting their happiness. 

[totoro]

Maybe. 

Although I don't think people here are focussing all their efforts on decreased spending.  They are definitely focussing on investing as well.  Usually through Vanguard, but commonly through rental properties and different types of investing like peer-lending or dividend investing.  Numerous examples on the board of this and side-gig jobs to increase income.

And I think one of the main premises of the philosophy is to decrease reliance on an employer by having FU money.  Cutting expenses combined with the above will get you to FI/ER faster.

There is; however, much less focus on starting a business.  That is, imo, just fine as starting your own business is not a worthwhile or reasonable endeavour for everyone.   The risk/reward ratio will be too stressful for many and a lot of people are just not suited for it.

I would agree that the hourly ROI on your time should be calculated.  MMM has done a good job of this when looking at some of the costs of commuting for example.  The justification for spending the extra money has not been explored as much but it is the basis of capitalism and can be very successful.

For very high income earners they are going to be better off financially by hiring help at home for things like cleaning and childcare and spending the time on earning more money.   They may even be financially better off by hiring a FT personal assistant if it prevents burn out and allows them to increase billable hours.