73-year-old Jacinto Bonilla demonstrates what happens when you defy preconceived notions of your society. We define such independent thinking here as “kickass”.
Sure, I’m interested in becoming rich and maybe even having the option of early retirement. But nobody ever got rich by clipping coupons or skipping lattes. Shouldn’t I concentrate on boosting my income?
sincerely,
A member of the Middle Class
A few days ago, I had the opportunity to go out to lunch with a dozen of my old coworkers from the high-tech company. It was quite a reunion, as I hadn’t seen many of these gentlemen since September 2005 when I retired from my engineering job. Everybody seemed just like I remembered them. A few distinctive silver strands had sprouted from many of the heads and beards. Many of them had moved on to jobs at other local companies. But the most notable thing to me was that they all still had jobs.
Since the Mr. Money Mustache identity has become quite a fun little part of my life, I let some of them in on this secret of what I’ve been doing with my free time. But invariably, when you talk about early retirement with a person who gets by on a high middle-class income, they become baffled by how small things like riding a bike or understanding electricity consumption can make such a big difference. To a standard office worker, early retirement is what happens if you win a lottery, get a huge inheritance, or have ground-floor stock options in a company that makes it big.
I was baffled in the opposite way. I imagined what would have happened if I had stayed at that company for all these years. I would have earned an average of perhaps $110,000 per year in salary, as well as cashing in about $200,000 in stock option profits (I gave up quite a few in-the-money options upon departure, with strike prices set during the tech crash of the early 2000s). The company’s generous benefits plan would have further saved me some out-of-pocket expenses, like the cash we paid to the hospital when our son was born.
All in all, I would have earned at least $1 million since then. And assuming Mrs. Money Mustache had kept working, she would have earned close to that amount as well. $2 million before tax, which would have gone straight to the bottom line and compounded since income from investments was already covering our expenses as of late 2005. In short, as we added that income to our existing savings, we would be ridiculously wealthy by this point.
But yet many of these coworkers, most of whom are older than me and were already working before my career, continued throughout my career, and are still doing it seven years and counting after my career, still somehow need to work, according to their own accounting. Some people in this situation are even living from paycheck to paycheck.
Quite accidentally, this group of coworkers has formed a nice control group for the study of Mustachianism. They have a wide variety of incomes, but all live in the same area, so the base cost of living and the tax rates are held constant. But one participant in the study tweaked only one variable while leaving the rest unchanged: the spending rate.
Somehow, Mr. Money Mustache maintained an outwardly-normal appearance among this peer group, showing up at work in acceptable clothing, achieving similar job performance, earning an average amount, and participating in all the usual social activities, yet adjusted his spending downwards enough to make a drastic difference in his financial outcome. How could it be?
The answer is as simple as the following table. Observe the monthly spending of a Typical Fancy Professional Worker versus a Future Early Retiree. To be fair, let’s adjust the spending estimates to assume we are comparing two double-income families with two school-aged kids.
| Category | Middle Class | Kickass | Notes |
|---|---|---|---|
| Mortgage Interest | 1333 | 1000 | MiddleClass: $400k house, Kickass: $300k |
| Property Taxes | 200 | 150 | |
| Car Payments | 700 | 100 | MiddleClass: 2 new cars and bikes every 5 years. Kickass: 1 used car every 10 years |
| Gas, Insurance, Stealership fees, Maintenance, registration, on the auto fleet | 800 | 100 | Kickass lives close to work and bikes |
| Home Maintenance, Renovations (appliances, roof replacements, pest exterminators, house insurance, painting, carpets, floors, plumbers, tree trimming, etc, etc). Plus water and trash service. | 1000 | 450 | Insourcing instead of Outsourcing |
| Miscellaneous "shopping" (stuff you buy at the mall, coffee shops, trinkets on vacation, $4.00 gourmet juices at the airport, voluntary ownership of multiple large animals, plus anything else not covered in this table!) | 600 | 100 | |
| Groceries | 1000 | 400 | Killing your $1000 Grocery Bill |
| Beer and Wine | 200 | 50 | Bota Boxes, drinking only a reasonable amount, and even home brewing |
| Restaurants and takeout/deliveries | 600 | 50 | Cooking great food at home. |
| Work Lunches | 200 | 40 | Kickass goes out every Friday, otherwise uses the Secret Food 'Stash |
| Gym Memberships | 100 | 0 | Barbells at Home, Rocky Balboa-style urban workouts |
| Housekeeper | 400 | 0 | |
| Lawn Service | 100 | 0 | Don't be a giant wuss! Put Muscle over Motor. |
| Ivy League Child Activities | 800 | 100 | Avoid Ivy-league preschool syndrome. |
| Toys and junk for kids (and other people's kids) | 100 | 10 | More creative and less consumerist gift giving |
| Clothes and Shoes | 200 | 50 | If you can't live on $600/year of clothes, I have a fist you need to meet |
| Outdoor and Sports Gear | 100 | 20 | Craigslist, plus realizing you do not need the same bike as Lance Armstrong |
| Haircuts, nails and waxing | 80 | 5 | A $1.00 pair of nail clippers and a $40 Universal Men's Grooming Device (aka hair trimmer). |
| Golf Membership | 50 | 0 | |
| Apple Products | 100 | 10 | Unless you earn a living as an iOS/Mac developer, you may own one Apple device per person.. period. Upgrade every five years. |
| Music and Movies | 50 | 10 | Netflix and Pandora. No, you may not buy DVD series of TV episodes! |
| Electricity | 100 | 30 | I'll show you mine if you show me yours |
| Heating/Cooling | 100 | 50 | Understand then Destroy your bill |
| Cell phones | 150 | 50 | Check out Google Fi ($20 per person, 15 for each additional) |
| Cable TV | 100 | 0 | Cut your cash-leaking umbilical cord |
| Landline Telephone | 25 | 0 | News flash: it's not 1998 any more, which is when I last had a land line phone. |
| Internet | 50 | 50 | |
| Books and Magazines | 60 | 0 | The Library will make you rich. |
| Vacations | 500 | 200 | Kickass still likes to travel, but avoids Tourist Traps |
| Prescription Medications and doctor visits for stress and overweight conditions | 100 | 0 | Allowance for healthier body due to more exercise, less restaurant food, and no stress about money or career |
| Monthly Total | $9898 | $3025 | |
| Annual Total | $118776 | $36,300 | |
| Annual Income (after tax) | $140,000 | $140,000 | |
| Annual Savings | $21,224 | $103,700 | |
| Savings Percentage | 15.16% | 74.07% | |
| Years to Retirement | 43 | 7.5 |
Wow! Just by switching from the typical high-income family’s spending, to the slightly-less-ridiculous-yet-still-luxurious level of spending that comes as part of adopting a more Mustachian lifestyle, this typical family was able to reduce its annual spending by over $82,000 per year. Far from being stuck in a deprived lifestyle, the family on the right still gets to live in a $300,000 house, own a car and some bikes, eat great food, stay in shape, read great books and watch great movies, and in general lead a solidly kickass life.
And as you can see in the table, each of the areas of optimization aren’t just wand-waving or imaginary – they are documented in more detail in the underlined links in the right column. It is essential for the typical high income reader to understand that I am not making this shit up. The “Middle Class” column represents realistic numbers gleaned from my own middle-to-high-income friends, peers and former coworkers. And the “Kickass” column is a mashup of the typical spending of my own family and those of other people trained in the art of more efficient living.
And all of this comes with a time-tested guarantee that you will gain, rather than lose, happiness as you implement the changes.
So now I can turn the question around: what do YOU think is more effective: optimizing your spending, or relentlessly working overtime and hoping for a “generous” $10,000-before-tax raise?
And is the effort of learning how to do it worth the reward of slicing 35.5 years from your mandatory working career as shown in the table?
I think we’re going to see a lot more ass-kicking in the months and years to come.
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