It’s All About the Safety Margin

Being the bossiest personal finance role model on the Internet, Mr. Money Mustache naturally receives quite a few challenges on the accuracy of his math and assumptions.

It is with a palpable sense of glee that some people dig into my calculations, find something they disagree with, and then jump up and down and throw it in my face like a monkey flinging its feces at an opponent.


You just told me that your property taxes are only $2400 but mine are twelve grand! And, your assumptions about future stock market returns are different than what I just saw in this random article on Buzzfeed.

So therefore, everything you write about is bullshit and all the principles of Mustachianism are therefore invalid!”

And I will admit that I do make mistakes sometimes, both plain old typos, and even overly simplified assumptions. This is because it is not easy to model something as complicated as a Human Life into a series of income and spending equations – especially when the income portion is derived from investments, which in turn further depend on the activities of other unpredictable humans.

But yet I am incredibly confident in the future – my family and I will lead a happy life, and we will almost certainly have a growing surplus of money for the rest of our lives. We started the clock on retirement about six years ago, and despite a negative stock market performance, and even some expensive business and legal problems a few years ago, we have still done just fine and are ending up further ahead each year.

What is causing all of this good fortune? Baby Angels? Envy-inspiring Luck? Smugness?

Nope, it’s actually just another example of math and statistics playing out behind the scenes, in the form of something I would like to re-introduce to you as the Safety Margin.

Back in Engineering school, they used to teach us that every piece of real-world information comes along with an unspoken “Error Range”.  By testing a sample of soil upon which you want to build a bridge, you might find that the soil can support a load of about 2000 pounds per square foot. But because you don’t know what is hiding deeper inside the Earth, the real value could range between 1000 and 3000 PSF (based on what the other bridge builders before you have measured and recorded around the world). So you design your bridge strong enough to survive even on 1000 PSF soil.

You will be using concrete that can withstand 5000 pounds of pressure per square inch. But because there could be an error at the cement factory, the real range is between 4000 and 6000 PSI. So you design the bridge even stronger, to survive even if it was made of 4000PSI concrete on 1000PSF soil.

If you continue the chain of calculations, you end up with a longer and longer list of error ranges, and you can adjust your design to accommodate all of them. If you use the most pessimistic number for all possible decisions, you’ll end up with a bridge that is incredibly strong. But it will also be incredibly expensive, because you’ve over-engineered it. As a house builder, I would often joke about the over-cautious nature of  structural engineers for my houses – they would design everything ten times stronger than any house I had ever seen, and then just for extra insurance, add a footnote at the bottom specifying

*the structure shall also be built upon a titanium column that extend to the center of the Earth

So yeah, that is over-engineering, and I hope we can all agree that at a certain point, there is such a thing as being too careful, because caution is expensive.

On the other hand, if you design the bridge to withstand exactly the expected amount of stress and not an ounce more, it will collapse as soon as something unexpected happens to it. This is under-engineering, and it is easy to see why it is dangerous.

Somewhere in between is a happy medium where your bridge is statistically very safe, yet not nearly as expensive as a worst-of-all-cases design.

In my old field of Software Engineering, the same principles applied when estimating how long it would take to develop a big product which took the cooperation of many people to build. Each stage of the project might be estimated to take five days, but in reality it could take between 2-10 days depending on unforeseen hardships in working with the new technology.

The most pointy-haired managers would create what they liked to call “aggressive” schedules that would assume each stage would get done in 3 days (a brilliant idea often accompanied by the suggestion that we all put in some nice unpaid overtime to accomplish this). Sometimes work would fly along without any problems even on the shortened schedule. But then the inevitable unforeseen hardships would occur, and there would be no slack in the schedule to allow the designers to catch up. This would in turn cause delays and stress, which in turn would compound, causing people to get flustered and create low-quality work that took months to clean up… (or sometimes which never got cleaned up and would eventually destroy the company in the form of buggy products.).

Wiser managers with knowledge of the Safety Margin principle would schedule 5-8 days for each component. On average, some would go more quickly. But then the engineers would also have time to solve the problems in the more difficult parts. In the end, everything would be completed just a little bit ahead of schedule, most of the time, leaving everyone feeling good about their jobs and creating a higher quality product as well. Once I learned this trick, I started running my own group’s projects this way, much to the amazement and scorn of the pointyhairs.

But the safety margin isn’t just for engineers. I had a friend once who was late for almost 100% of his appointments. It was because he planned them like this:

“OK.. I need to meet with MMM at noon. But I also want to meet my friend in Boulder for coffee that morning. So, a 15 minute drive, an hour for my coffee date, plus 15 minutes to drive back home for our second meeting. So I’ll leave my house at 10:30am”.

All of these times might be accurate in ideal conditions. But with no safety margin, they don’t leave time for a traffic jam, or a conversation running longer than expected, or a freight train crossing the road, or getting an emergency phone call from your Mom just after your coffee date.

On the opposite end of the spectrum, I’m a compulsively cautious planner, because it is never okay for me to be even one minute late when another person is waiting for me.

So I might allow 20 minutes to get to the coffee shop, 90 minutes for the meeting, 20 minutes to get back, and then a further 15 minute safety margin just in case anything else goes wrong and also in case the other person shows up early for the appointment. Thus I’d be out the door by about 9:30. My own slogan for timeliness is “If I’m not at least 5 minutes early, I’m late”. By never packing too much into my day, I was always able to commit full effort to the things I did schedule.

Now we can finally bring it all back to financial planning. When a young lad graduates from college and gets a new job and an apartment or house-with-roommates, he is implicitly choosing a safety margin. If his job pays $2000 per month, and his food and rent is $800 per month, the margin is fairly reasonable.

If he signs up for a car loan at $300/month, the margin shrinks considerably. As more services and especially loans are added, the margin can approach zero or even become negative. And even with a small positive margin, the slightest change in life situation – like a medical bill, a job loss, or a partner or spouse losing their job, can tip the whole balancing act quickly into the shitter.

Modern life also creates the the issue of a time safety margin. When people design a long double-income commute into their lives, add kids, and schedule an Olympic Roster of events for everyone involved, they have eliminated their time safety margin.

With no slack in their schedule, they feel overwhelmed when the prospect of change is suggested to them, and many of them complained violently on Hacker News and Metafilter when an MMM article pointing out the fact that most long car commutes are in fact self-imposed and ridiculous went somewhat viral on the Internet last week.

Because of all this, I would suggest that modern life works best if you design in at least a 50% safety margin. In other words, find a way to live on no more than 50% of your take-home pay, and keep plenty of your non-work time open for freestyle learning and new experiences.

If this means living with parents, family, or in a nice house with roommates initially, so be it. On average, the 50% that you save will build up rapidly and start providing an income stream of its own, and also on average, the take-home pay of many recent graduates will tend to rise over time.  So a lifestyle of increasing luxury is still available as time goes on. But the safety margin will always be there for you, preventing financial disasters as well as giving you a vastly wider range of choices in your life.

I think I may have been born with too much of a love of the safety margin. As a kid, I was afraid to try new things until I was sure I could master them on the first day of trying. As a teenager, when I played real-time strategy video games I would always amass a ridiculously overpowering army before swooping in to destroy the opponent – I was too cautious to risk an earlier attack. And as a planner for early retirement, I built up a ‘Stash of savings that was big enough to live on, as well as several backup systems that could also provide a living if anything went wrong with the primary system.

So let’s review what I view as my own financial safety margin. Doubters and Anti-Mustachian complainypantses should pay close attention, because it is this network of flexible parts that allows me to safely brush off minor details like “what if your health insurance premiums rise?”, or “how will you pay for your kid’s university education?”

All told, the safety margin represents a 500-1000% flexibility in the income to expenses ratio that can be adjusted to meet any situation. And in all reasonably probable cases, Mr. Money Mustache will both retain and further entrench the status his doubters on the other discussion boards so happily like to question.

First level of safety:  a primary income. Right now, this is a rental house that provides an income of $24,000 after expenses – just a bit more than our family’s spending last year. If the rental house happens to go up in value faster than general inflation by the time we sell it (aka, a housing market recovery), this would be an unbudgeted additional safety margin.

Second level of safety: a backup income. We also have some index funds in taxable accounts that provide capital appreciation (admittedly negligible in recent years), and a strong level of dividends  that are just building up for eventual future use.

Third level of safety: optional part-time work. Levels #1 and #2 are paying the bills and continuing to build a larger safety margin, but Mr. and Mrs. Money Mustache also have some free time during school days, and we love to accomplish things during that time. We happen to get paid for some of these things – financial and real estate work on her side, construction and internet-related things on my side. This income gets saved as well.

Fourth level of safety: 401(k) plans. We stashed away quite a few years worth of maximum-level 401k savings back in our working days, and they will collect dividends and appreciate until we can crack into them at age 59.5. Assuming a reasonable level of stock appreciation over the coming decades, these funds alone will be enough to live off from that age forwards – despite the fact that we aren’t even planning to spend the Level 1, 2, or 3 money before then!

Fifth level of safety: Social Security! This is an unpredictable benefit due to the political questions surrounding the program, but it will very likely still provide a substantial portion of our living expenses, since even $600 per month in today’s dollars is a substantial portion. All of the first four levels of safety don’t even assume any support from Social Security.

Sixth level of safety: lifestyle flexibility.  The MMM family currently spends about $24,000 per year, but there is plenty of room for improvement if money ever became tight. All of the safety systems above have been built assuming a level of spending even higher than our current $24,000 rate. We could easily move to a much smaller house, take fewer month-long trips, go car-free, stop buying organic food, and more. And, I also assumed that our child-related expenses will never go away, which in fact they probably will in less than 20 years as Junior ‘Stash grows up to forge his own way in the world.

Seventh level of safety: Work Flexibility. I could start building more stuff for people, and earn three times our living expenses from that alone. Or I could go back into software and earn even easier money. Mrs. M. could probably out-earn me by using her golden reputation among the people she used to work with to get a new job. Or she could just start rustling up real estate work. I have a huge fancy finished basement suite in my house that we could rent out for about $8000 per year with only minor modifications. I could buy a multi-unit apartment building for thousands per month in cashflow. I could start peddling “Mustachian Wear” clothing and e-books on this website. Or we could start some sort of entirely new business!

It all seems a bit excessive when you type it out in a big list like that. And indeed, it could be said that Mr. Money Mustache is actually a bit of an overcautious wimp when it comes to financial planning, not the reckless chronic optimist that many people accuse me of being.

But I just wanted to share the thinking process that goes into retiring confidently. By building a large safety margin into everything you do, you open up a whole new world of options for yourself, and the resulting reduction in stress and increase in happiness tends to feed back into more energy, trying more new things, and opening up even more options.

And since in real life, it is very unlikely for every single thing to go wrong in a well-protected system, you will tend to have ever-increasing safety margins throughout your life. Six years into retirement, I already see this happening at an increasing rate.

So what is the lesson? Save your current income, even as you build complementary skills like frugality, adaptability, and the ability to earn money in more than one way. Then you’ll be ready to retire much earlier, because the sum of your safety margins will be enough to make you feel comfortable taking the leap. And most importantly, stop worrying!

  • thebigchuckbowski October 17, 2011, 6:28 am

    Since I don’t see it here, does this mean you don’t believe in the emergency (3-6 months of living expenses) savings or money market account?

    • No Name Guy October 17, 2011, 11:27 am

      I suspect his “emergency fund” is all of his assets. Recall that 2nd level of safety he has. It would be a trivial matter to liquidate some stock holdings to raise cash.

      Of course, you question is geared toward a person in a traditional personal financial situation – one who isn’t heading toward the MMM or ERE way. If you have nothing, and are living pay check to pay check (expenses = income) you must have a 3-6 month stash for those unknowns that come up.

      If on the other hand, you have enough “employees” working for you, by definition, you have a LOT more than 3-6 months expenses in the stash. Jacob at ERE uses the 400:1 ratio – for 400 employees (dollars) in the stash, you earn one per month in dividends or interest. Using Jacob’s / ERE’s 400:1 here for MMM, one can deduce that MMM has roughly 24,000 / 12 = 2000 monthly income * 400 = 800,000 in income producing assets (or more).

    • ChuckW March 27, 2014, 6:39 am

      I just found your website and am excited to learn more. I am very interested in all of the methods you have used to be able to retire early and still lead a successfully family life. I may have missed this – My Question is – without employment – how do you pay for health insurance?

  • AGil October 17, 2011, 8:08 am

    MMM, can you please explain or link to how you profit $24,000 per year on a single rental please? In the NJ/PA area I am struggling to make $300 profit per month on a rental. Unless it’s a multi family home of 4+ units, that kind of profit is obscene in these parts. Or I just may be completely uninformed, please enlighten…

    You are correct, I find life very enjoyable when operating with a factor of safety of 2 or higher. It’s amazing that most people I know operate with a factor of safety of 1, or even less (tapping into CC to sustain their lifestyle). We all know what happens when you design important components with a FOS of 1 – and eventual crash and burn.

    • Brave New Life October 17, 2011, 8:30 am

      Designing life for six-sigma, I like it.

      I’m going to have to bookmark this post. As you know, I’ll be following in your footsteps and retiring in 2 years. I already know I’ll get cold feet when that time comes, but this post appeals to the logical/engineering part of my brain that knows I’ll have more than enough.

    • Matt July 1, 2013, 1:28 pm

      I know this is an old comment to reply to, but I believe MMM has already paid for the house–so any rent (minus upkeep) goes straight to the MMM family, rather than a large percentage going to a mortgage.

      • Mr. Money Mustache October 27, 2018, 10:06 am

        Yes, that’s correct – although it’s now late 2018 and I sold that house a few years ago, it had a gross rent in today’s dollars of $2700/month ($32,400 per year). If you subtract a few hundred per month to account for property tax and maintenance, etc., it still ends up at over $2000 per month.

        And as Matt points out, I owned that house rather than the bank owning it, so I was entitled to keep all of the rental income from it. It’s a time-honoured and very non-fancy strategy the way I did it. Less capital-efficient than levereraging across mutiple properties with borrowed money, but also much less stressful for me and thus more compatible with a retired lifestyle and a good night’s sleep :-)

  • wizardpc October 17, 2011, 8:31 am

    Two is one, one is none. Three is better.

    I love that you have seven.

    Haters gonna hate, MMM. I see it in my life, too. I’ve been debt free for several years and lots of people told me that would be impossible. Those people aren’t rich, and I don’t listen to those people for money advice anymore. That’s how I wound up in debt in the first place!

  • Jeh October 17, 2011, 8:56 am


    MMM uses an open line of credit on his primary home (I think he said the available credit is something like $70k?) as his emergency fund…it’s liquid, as good as cash in a crisis and you’re not tying up those hard working little employees!

  • madge October 17, 2011, 9:55 am

    the bad news: i did not understand these concepts at 20.

    the good news: i am getting them at now!

    thanks MMM, this is a flagpole post that i can totally see myself reading a LOT whenever my motivation flags …

  • Kathy P. October 17, 2011, 10:08 am

    Pointyhairs? Complainypants? Mr. Money Mustache: exploring the undiscovered corners of the English language! LOL!

    • Leo May 14, 2012, 3:42 pm

      Ehehehhe! Google translator doesn’t have it all! But we can understand what it means anyway! :-)

    • Stephen September 30, 2013, 4:13 pm

      Its a Dilbert reference no doubt.

  • Chris October 17, 2011, 11:36 am


    Did you start out with the plan to retire as early as you did or did the plan just develop as you saved and amassed more money? Another way of putting it, 4-5 years into your working life, what was your confidence level that you could actually retire (with a reasonable safety margin) by the time you were 30? I’m trying to do something similar to your plan by the time I’m 42.

    The multi-layered plan of attack is smart. I like all the fallback plans. However, I’m a bit curious how you get 2000$ a month after expenses on your rental as well. That must be one bad ass rental?? When you say “after expenses,” do you mean after property tax and insurance are paid and a little set aside for maintenace/upkeep?


    • MMM October 17, 2011, 11:33 pm

      Hey Chris – yeah – that is the net profit on the house. It is indeed a bad-ass rental, but only because it is a high-end house in a nice neighborhood so it pays $2450 in rent. And I have it paid off, so I get to keep all the cash.

      It sounds good, but as a net payback for the value of the house, I’m only getting about 5% per year, so I’d be better off with just a few good REIT funds. This house will be on the selling block sometime in the next 5 years or so and I will invest elsewhere. I only have it because it’s one I finished building right during the housing crash and decided not to sell until later. But still, nothing to complain about!

      • chilly January 7, 2012, 6:29 pm

        $24,000 net profit is quite a net operating income. In my neck of the woods, a house that would pull $2k+ rent would eat $8k in property taxes alone.

        • MMM January 8, 2012, 8:08 am

          Glad you’ve done the math! My taxes are in the low 3s for that property. It’s still not an ideal rental, and I’ll be selling it eventually. But in high property tax areas with low rents like where you live, obviously single family units should be avoided by landlords. In fact, under those conditions I would also never own a home, I’d be very happy to rent!

      • Jack August 10, 2021, 6:50 pm

        How do you calculate 5% return?

        • Mr. Money Mustache August 11, 2021, 3:20 pm

          For any investment, the return is the annual net income / divided by the value of that investment.

          So for this house, I had a net income of about $24,000 and a resale value of $480,000 at the time, which works out to 5%

          Since I wrote this article, house prices have more than doubled in this area and rents have only gone up a much smaller percentage, which means the return for being a landlord (aka the “Cap rate” is even lower than 5%.

  • Sorbet October 17, 2011, 12:49 pm

    “As a kid, I was afraid to try new things until I was sure I could master them on the first day of trying”.

    Almost laughed aloud at this; I was the same way.

    Wholeheartedly agree with and share the safety margin concept; for finance, time, and everything else. Easier, safer, more efficient way to do things.

  • Thaed October 17, 2011, 3:17 pm

    You have a nice golden goose and good plans if it dies. What I think is important about your blog is your message of frugality and low stress in life. Both are aspirational goals for me.

  • shane October 17, 2011, 7:28 pm

    I do the same thing with my budgeting MMM. Your going to find that people try harder and harder on the internet to prove that the hard way(saving + not being a consumer) is the wrong way because they don’t want to admit to their errors or accept responsibility.

  • Rich Schmidt October 17, 2011, 8:10 pm

    It seems to me that a key part of making this whole thing work is your ability to live on $24,000/year. Congrats on that achievement alone! With expenses that low, it makes covering those expenses (several times over) that much easier!

    Frankly, I’m not even sure what our annual expenses are. We just make sure we’re living with a huge enough margin to not have to worry about it. But I really should try to chart it out…

    • MMM October 17, 2011, 9:54 pm

      Yeah.. I throw that number around quite a bit in this blog because I am quite excited about it as well. I had always assumed it was much higher, until Mrs. M. did the most recent calculation. I am looking forward to the end of this year, when we can re-run the calcs for 2011. I am hoping to see a further drop in spending, due to the added benefit of becoming Mr. Money Mustache this year and writing about frugality every day – and thus having to practice what I preach! :-)

  • et October 17, 2011, 8:37 pm

    You might think: “But yet I am incredibly confident in the future – my family and I will lead a happy life, ” – but there’s more to life than money, calculations and error ranges.

    How can you be sure you’ll lead a happy life? You can have done your best and be financially secure and have a content mindset – but what about accidents, fatal diseases & disasters? These don’t only happen to other people or people who are less financially savvy.

    • MMM October 17, 2011, 9:51 pm

      Et needs to re-read the Stoicism article http://www.mrmoneymustache.com/2011/10/02/what-is-stoicism-and-how-can-it-turn-your-life-to-solid-gold/

      I am already leading a happy life. This will continue regardless of external circumstances – because the happiness comes from inside my own BRAIN!!!

      Even if I die tomorrow, I am happy with the life I have enjoyed. If happen to get to stick around to party another 70 years as I expect, that’s even better!

      • et October 19, 2011, 9:57 am

        Its not that hard to die happily and quickly (“tomorrow”) yourself. But what if your child Mrs MMM become ill and die after years of suffering?

        You may remain financially secure – but will you still remain happy “inside my own BRAIN!!!”?

        Have you been in this situation or spent time with families in this situation? In hospices, shelters and refugee camps?

        If you have, and are sure of your reaction I respect you immensely.

        • MMM October 19, 2011, 10:33 am

          Thank you.

        • C40 October 20, 2011, 9:06 am

          Really, Et?

          This blog is about personal finance.

          His family is eating healthy. They exercise. They have health insurance. What else do you want him to do?

          (Again, it seems you should re-read his post on Stoicism)

          • MMM October 20, 2011, 9:57 am

            I think he wants me to Worry. But I keep refusing to do so, frustrating many people worldwide. :-)

            • Erica / Northwest Edible Life September 25, 2012, 3:13 am

              And if these terrible things were to come to pass, would the reaction be: “gee I wish I had spent 30 more years in a cubicle not seeing my family, That would have helped.”
              I didn’t think so.

            • Elenor April 24, 2013, 5:19 pm

              Oh brava, Erica! My beloved husband of 17 years died two years ago at 60 (heat-stroke-related heart attack). Horrible, terrible, devastating loss — however, we didn’t “wait till retirement” to cruise and travel to see family and ENJOY each other! Would I trade ten years of my life for another 20 years with him? In a HEARTbeat! (But no one is offering me that deal, alas.)

              I am now trying to create a stable financial life (at age 57, starting with no life insurance, no pension, almost no savings, and huge credit card debt. He did not handle our money the way I would have; but he handled our lives together exquisitely!) But I have memories worth way more than mere money!

              If you’re young — and hell, even if you’re not! — don’t wait to start preparing: what I’ve read of this blog so far is excellent. But also realize, slaving away, apart from your loved ones, in order to have new cars or whatever is not worth the trade-off.

            • Dan February 23, 2016, 9:38 pm

              Bravo! You are the Badass Buddha of Budget

            • Matt (Semper Fi) July 14, 2016, 7:37 am

              Naysayers and misery love company, as my old pappy used to say …

  • Tommy Vo October 17, 2011, 9:14 pm

    Thank U Mr. Fancypants (MMM)!
    This article is totally narely man. I was like, dude, this guy is bad ass and really knows his stuff. He’s more like an Ogre, and Ogres have layers (Shrek reference :).
    Being risk adverse as i am (esp. the stock market as it is being manipulated by the Feds & banks), i can now see a more cautious, calculated plan for FIRE with multiple income streams.

    @et: You make the argument aboot fatal diseases and disasters – if and when it comes to that, there could be no amount of money to overcome the situation. This is evident with the recent death of the Tech Visionary whose net worth was $8 billion.

  • Alex | Perfecting Dad October 17, 2011, 10:55 pm

    You are special. As a software engineer involved in projects you know that any safety built into schedules or contingency built into budgets always gets used! There could be a software project that is due in two years and on the last day there will likely be programmers working until midnight! Most people cannot help but inflate their lifestyle to consume their entire incomes. Then when the inevitable BAD THING happens, they contingency is used up.

    When I was a finance manager for our $100M IT department the first thing I did was took away all contingency and let the projects go over if they had to. I held the contingency myself. Miraculously, if you gave the PM a 10% contingency he still came in 10% over that, but if you didn’t give it him, he came in with the original 10% contingency,

    You are one of the special ones if you can maintain your own safety margin without using it. That’s one of the reasons I like using a LOC as an emergency fund. It’s there in case of emergency, but you did create a large pool of cash just staring at you saying “spend me!”

    • MMM October 17, 2011, 11:18 pm

      I found the opposite: creating longer software schedules resulted in a shorter time to a reliable product. We always beat our schedules, and we had time to test and do gruelling code reviews so we had much higher quality. This is different from your example, where you were dealing with people who perhaps had no reward for coming in under budget.

      Software developers are motivated by having the chance to do good work – so when you give them that chance, they take it. If you take away that chance by trying to rush them, they do lower-quality work, and you, the manager, pay for it a thousand times over in lower quality.

      And as for the special ones – ALL Mustachians are special! We are all creating an increasing safety margin and not using it. That’s how the MMM way differs from the “cut up your credit cards so you won’t be tempted to use them” way. We work on things at a higher level, because you need to develop the discipline if you want to be a millionaire, yet enjoy living on less than $30k per year even more than standard consumers enjoy living on $100k/year :-)

      • Mike May 25, 2012, 12:01 pm

        I was a director of a development team at a startup for 2 years, and got very good at estimating what my team could deliver in a given time period. The main challenge had to do with this safety margin concept.

        I could look at a given feature, screen, module, etc. and have a pretty good idea of how many hard core productive hours of coding/testing it “should” take, in sort of an ideal-world sense. I would also account for the individual’s productivity (which varied quite a bit–the best developers were easily 3X the productivity of the average, and for some work they were the only ones I would trust with it). Then I would add a very large safety margin, roughly 50-100% to that, to account for unforeseen problems, cross-team communication and other meetings, sick/vacation days, and other miscellaneous distractions and non-productive hours.

        These estimates generally ended up being pretty close to dead-on, not because they were each accurate, but because in aggregate the ones that went over were offset by the ones that came in under. Scale took away variability.

        I had to be very careful *not* to explain my estimating methodology to the pointy haired boss above me, because there is no way he would understand planning for significant percentages of non-productive (but absolutely necessary) time.

        • Amonymous June 30, 2016, 2:58 am

          Thank you Mike for bringing up that non-productive time is Absolutely Necessary for working human beings.

  • oskar October 18, 2011, 1:18 am

    Thanks for another very good artikle:-)MMM!

    This makes me think of a time a couple of months ago where I made an online test of my finances where i got to input my income and expenses, debt, retirement savings, additional savings as well as “emergency fund”. According to some rules of thumb we were scoring very VERY well in all categories except the emergency fund one…as I don’t see a specified emergency fund as much of a priority when you have your finances in order. If your only level of safty is the emergency fund it might make sence to have a very big fund but when you have your finances in order, chances to get addtional income if needed, cost flexibility and low or no debt you don’t really need much as your safety net is built in to everyday life.

  • LH October 18, 2011, 2:47 am

    “As a teenager, when I played real-time strategy video games I would always amass a ridiculously overpowering army before swooping in to destroy the opponent – I was too cautious to risk an earlier attack.”

    Yes, yes, yes!!
    We (family of four) live on less than 10% of take-home (after-tax) wage income. We have enough employees to live on for decades, AND send the kids to university and grad school. And yet we are still paranoid about savings and money!

    Starbucks? No thanks, I’ll take the nasty (free) coffee from the canteen.

    • Rich Schmidt October 18, 2011, 7:55 am

      Wow… 10%! That’s amazing!

      I hope you’re accomplishing great things with the other 90%!

    • Jack March 26, 2012, 10:15 pm

      Haha, that quote really rang true for me too. I’m not sure I ever would have noticed that manifestation of my love for safety margins.

    • GregK May 15, 2012, 9:46 am

    • R June 24, 2012, 12:49 pm

      When I read your comment I thought, why would you do that?
      If it is out of paranoia, as you hint, I think you should try to get rid of it, it sounds pretty irrational. If it is because you want the large sum of money that this will create, or enjoy the game of acquiring it, go right ahead I suppose.

  • DD October 18, 2011, 7:58 am

    Wow. That is some safety margin!

    What do you do for child car safety other than car-seat? Fill your car with cotton balls and wrap your kid in bubble wrap? And then you leave him at home because it is still too dangerous to drive?

    Just kidding. Safety is good and it does not sound like you are eating spam and sleeping on a cardboard box to get there so you do have some balance…

    • MMM October 18, 2011, 9:04 am

      Haha.. Actually, we do avoid unnecessary driving with the kid, partly because of auto crash statistics. Not so much that it gets in the way of fun, but it’s a nice byproduct of a local lifestyle. He probably gets to hop in the car once every week or two on average.

  • Dark Sector October 20, 2011, 10:40 am

    The only problem with this article is that you didn’t use SI units in your engineering analogy.

    • MMM October 20, 2011, 11:25 am

      It is true. I have been consciously converting my metric thinking (as well as omitting the letter “u” from “colour” and “labour”) as I translate this blog into US English :-)

      • Johonn March 6, 2012, 8:10 am

        US engineers still know SI though… :)

        • Sky April 19, 2019, 6:23 am

          And any good engineer even in the US (I’m a mechanical engineer), knows that SI is the only sensible system and SAE is for wussypants. Unfortunately is such a difficult habbit for Americans to kick!

  • burntout October 24, 2011, 12:53 pm

    Yes, the concept of “safety margin” is critical to my early retirement planning as well. Which is why my “stretch” goal for my retirement networth is twice my “baseline” goal. I intend to shoot for my “stretch” goal, and commit to hitting my “baseline” goal. Hopefully, I will end up somewhere in between.

  • Chris October 26, 2011, 5:00 pm

    PERT Analysis is commonly used for project managers. The formula goes: [Most Optimistic or Shortest Time + 4 x Most Likely Time + Pessimistic Time] Divided by [6] = Total estimated time. We also will randomly add “padding” to our schedule estimates of 10-20% based on personal experience, despite what these calculations say.

    Rock on MMM with your safety margins! It’s definitely the best practice to plan for the worst, and actively manage life to make it the best possible.

  • Kate November 6, 2011, 2:44 am

    I read your website everyday and we (my husband and I) are thinking about purchasing a second home that needs work. I noticed that you posted a cost breakdown on one of the recent foreclosures that you purchased. I was hoping you could direct me to this post so we could have a better estimate of the costs if we did the work ourselves. Can any MMM readers send a link?

    • MMM November 6, 2011, 12:47 pm

      Sure, this is the spreadsheet – part of the post called “Foreclosure Update: House Bought, Plans Made, Bathroom Destroyed”


      Note that there is a “google custom search” box in the right sidebar of this blog under “Search MMM” – I find it works quite well if you have any keywords in mind. Also, at the very bottom of the website, you will see a list of “Categories” – one of these is the foreclosure project, which will automatically bring up all articles in that series, and as more get written they will show up there too.

  • Dan December 20, 2011, 11:29 am

    I love safety margins….there is no better substitute for peace of mind than having layers of redundancy. However I know myself. “Temet Nosce”. Using credit is what got me into debt in the first place, so I will be creating layers of safety margins so big I wont be able to “afford” to use a credit card with more than $1000 limit because I cant afford to pay it off in one month. Unbridled use of easy credit is what got all those non mustachians in trouble in the first place.

  • JS January 11, 2012, 6:54 pm

    Wonderful post. I’ve read it several times and bookmarked it for reference. Whenever I get concerned about my future situation I always return to this post. Easily one of your best.

  • Tails January 14, 2012, 4:43 pm

    This article brought tears to my eyes. A deep analysis of Jacob’s guiding principle. It got me thinking about setting up statistically robust lifestyle choices beyond finances, such as health and nutrition. It provides another reason to do something, in addition to the tangible benefits. The world will go on for those who live-paycheck-to-paycheck, but imagine what they are missing out by buying random shit.

    I guess this is just the overarching theme for ERE: Master the essentials of life before buying that coffee machine.

  • RichUncle EL May 29, 2012, 2:11 pm

    Hey just to clarify, I know you have several steps of safety margins. If your living expenses are being covered by your investments including the real estate and you are still able to reinvest some of that income or forgo withdrawing the 4% in its entirety does that mean that you will not take out Social security when it is time. How do you feel about the rich taking Social Security when it really is not needed?

    • Dr. Bone November 30, 2013, 5:40 pm

      Social security is a forced savings plan. It should NEVER be subjected to means testing. The rich should never feel guilty about receiving their social security benefits, no matter how much they have in the bank. That would be punishing someone for being responsible in their financial planning.

  • cdub June 3, 2013, 11:21 pm

    ” As a teenager, when I played real-time strategy video games I would always amass a ridiculously overpowering army before swooping in to destroy the opponent – I was too cautious to risk an earlier attack.’

    You wouldn’t be talking about Dune II by any change – I loved that game. I built huge armies and massacred them. haha

    • MR June 9, 2013, 7:31 pm

      Just found MMM and I to am at the point of early retirement at 45. Just bought 2nd rental property that will cover expenses and still have $600 more a month extra after all my personal living expenses. i invested and lived way below my income level since college and invested max in retirement accounts. I traveled and always drove good cars. All the safety nets Mr Money Mustache talks about are what I did and it works. now I am in a company that thinks it can screw around with me and has me trapped. HA!! is all I can say. If you are young and reading this Blog just watch how you spend your money and invest. Who cares if your friends laugh and call you cheap. Mine did and now I have a little laugh. i don’t want to ever rest on money as the only security (Only God blesses us) but it sure helps in this day and age. My biggest problem is now most people can not believe that i buy a rental property cash with great stock market returns from last year. Thus providing a income to live without the need of my retirement accounts. MMM has great advice and back his ideas completely. PS My average earnings were only 35,000/ yr so I never made above average wage

    • Steve December 20, 2013, 4:27 pm

      “As a teenager, when I played real-time strategy video games I would always amass a ridiculously overpowering army before swooping in to destroy the opponent – I was too cautious to risk an earlier attack.”

      The first thing that came to my mind when I read that sentence was A) laughter and B) Starcraft.

      I loved the whole post but that sentance was by far my favourite because I still do occasionally play the game and the reason I sucked so much when I was a teenager was because I used to do the same thing MMM did ALL the time.

      Now, I’ve learned sometimes it’s better to get going and not worry about safety margins – both in SC and in real life ;-)

  • Carrie April 10, 2014, 8:17 pm

    I have a question! I am a Very New Mustachian and I am still, in fact, getting rid of my Debt Emergency. My job is largely secure in a day-to-day way (I have a union contract) but there are some rumblings about potential layoffs in the coming months. Do you advise me to put my small cash reserves toward my Debt Emergency *even though* I have essentially zero dollar-employees working for me to tap in the event of a layoff? I couldn’t pay my mortgage with a credit card. Would you make an exception for a traditional emergency fund in this instance until I get a bit of an actual ‘stache going? My current cash reserves are only about 22% of my Debt Emergency, so putting my cash toward my debt right now would not actually FREE me from my Debt Emergency in the immediate-term, but it WOULD make me unable to pay my mortgage in the event of a layoff. My instinct is to keep my cash reserves until this specific threat of near-term layoffs passes, and then immediately apply said reserves to my Debt Emergency. WWMMMD?

    • Larissa May 17, 2014, 10:27 pm

      I am not as badass as MMM, but I believe on not having debt, especially if the interest you pay for it is higher than the interest you get on your cash reserves. I think that you should have 3-6 months of spending on your reserve. Everything more i would put to diminish my debts. Always remember you can find another job. Plus, with a union contract you must get extra money, in case of layoff.

    • Kira August 14, 2014, 3:53 pm

      MMM would do the math for both scenarios :-D

    • Andrew August 21, 2019, 4:39 pm

      I would encourage building a 3 month cash reserve emergency fund before paying anything but the minimum on your debts. After that, start attacking your debts with everything you have. You can later build your emergency fund to 6 months or more depending on your job stability and other assets. Emergency funds cover unexpected loss of employment or ability to work, large unexpected expenses that could otherwise plunge you further in debt, and provided for me at least some surprising mental peace. In the worst case, you can always default on your debts, but you need to eat and a place to live and emergency funds can provide this.

  • Lise November 5, 2014, 10:25 am

    MMM .. if in having a safety margin means to spend no more than 50% of your ‘take home pay’ and your family lives on 24K a year, does that mean your investment earning + income from part-time work is 50K or better? Sorry .. taking knowledge learned from several posts and trying to put it all together!

    • Toshi December 8, 2014, 12:33 pm

      I believe that the 50% figure referred to his pre-retirement years. Nowadays he makes money from advertisements on this very blog, in addition to the rental property and investment income, but the 50% was part of amassing the cache that let him retire.

  • MJ February 21, 2015, 7:48 am

    I recently found your blog and am totally hooked…its blog crack. I’ve always struggled with saving properly but this post completely made sense to me. Nothing else has ever clicked with my brain this well. And the way you described the ‘error margin’ and your different layers of safety…brilliant. Thank you so very much!!!

  • B. July 25, 2015, 6:47 pm

    Hi Mr and Mrs MM! All these safety measures prove that you have more than you need to last you a lifetime. I have seen in your exposes that you do make charitable donations but I was wondering have you ever thought about making a substantial gift to a close family member who might be struggling financially or do you just try to help them by giving them advice and showing them the Mustachian way? I am curious because personally I am in a situation where I have to prioritise helping my aging parents financially rather than saving / investing my money. Thank you for sharing your wisdom with us…I just found your blog a few days ago and have been reading it obsessively from the post onwards.

  • Moof July 3, 2016, 11:13 pm

    One comment about 401k money that is locked up till 59.5…
    There is a loophole to avoid penalties. Substantially equal periodic payments (google it) let you withdraw early, but you are locked into continued withdrawls for 5 years.

  • Jeff Schroeder July 25, 2016, 8:37 pm

    Great post, however I do have one small critique. Being a Software Engineer myself (over 10 years), I do think you massively oversimplify getting a new job in Tech after a 6 year hiatus. Sure the concepts and Math stay the same, but the tech changes so rapidly. The actual tech I was using 6 years ago was quite different than the tech I’m using today. Would I want to hire someone who is green but has recent experience, or someone super experienced who hasn’t been in the game for 6 years? For me as someone who is often a deciding vote on a hiring board, I’d almost always choose the newbie with recent experience and exposure to current tech.

    Not that you’d have any problems making money, but I do think the simplification of that was simply mis-stated or wrong.

  • George July 28, 2016, 5:44 am

    The biggest take away from this post in my opinion is SKILLS. I have an audio recording of Jim Rohn from the early 2000’s stating the best way to succeed in the 21st century is to learn more skills.

  • Fred September 16, 2016, 4:05 am

    I smiled as I read thru your list. I scrolled thru the comments section to see if anyone else had noticed / correlated your “safety margins” to another safety margin script. Ecclesiastes 11:2 says “divide your portion to seven or eight, for you know not what shall befall the earth”. (I counted seven in your article). Its a 2000+ year old writing that says/does the exact same thing. We’ve followed it for many, many years in our safety margin approach and it is exactly what we teach people to use when they ask us how we do it, except that we leave out the bible-verse stuff unless someone is comfortable with talking about it from that perspective. When people ask us for keys to financial success, we simply give them a blank piece of paper and ask them to write down 7 (or 8) sources of income. It takes them awhile, but when they focus on it, they get there. And we notice that beyond 7 (or 8), the sources start to become subcategories of previously listed ones. Great read and Thank you. Fred.

  • Jeff February 15, 2018, 12:36 pm

    “Fourth level of safety: 401(k) plans.”

    In my opinion, 401(k) plans are the biggest plus to retiring early.

    Not only do you save money tax free that grows tax free, you can also get the money out, essentially tax free. All you have to do is transfer the 401(k) to a traditional IRA, and then start a 72(t) Substantially Equal Periodic Payment (SEPP) withdrawal plan. This not only avoids the normal 10% penalty for early withdrawal from an IRA, it spreads your withdrawal out among so many years that you end up paying a *much* lower tax rate on the money withdrawn compared to drawing it down in your retirement years.

    Finally, if you make maximum contributions to the 401(k) account during your working years, you not only pay lower taxes during those years, but you also acclimate yourself to a lifestyle that requires less money for the long term, and is thus more sustainable.

  • Lauren Torrey December 12, 2022, 11:40 am

    I am new to this blog and I am reading them in order so maybe you address this is a later article (if so please send me the link). How much do you recommend keeping in a regular brokerage account (non IRA/401k) for early retirement since most retirement funds you cannot access until 59.5? I am 40 and am comfortable with the amount we are contributing to our 401k so I want to start focusing on putting any other extra income into a non-retirement account and I would like the option of retiring at 50 (but I probably will work a bit longer because I love what I do). I have used your calculators to determine we would need $40,000 a year in retirement that includes 5-10k a year for travel.


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