“Badass Mustachian Eagle of Freedom” by M. Mustache. 2013, 8.5″x11″, Kid paint on scrap paper
I’ve had the chance to go to lunch with quite a few visiting Mustachians of late, and a theme has been popping up in the conversations. Like my own family, many of these readers have been leading slightly-less-ridiculous-than-average lives for years, which has led to a considerable surplus of money.
But amassing money is just one side of the coin. The other is knowing what to do with it: deciding upon your own definition of freedom, figuring out when you have saved enough to accomplish it, and gaining the confidence to make the jump when you get there.
So when this incredible comment showed up on the post about The Rules, I knew I had to get in touch with the guy who wrote it. His general theme is not uncommon among readers of this blog, and if we study the theme, we may all be able to learn a thing or two.
(our conversation has been edited for length)
Dear MMM,
Love the blog. Actually, I read it obsessively, and have even begun preaching the precepts to all (including friends and family – I’m trying to convert the kids into Mustachians before it’s too late).
Anyway, here is my problem: I am a BIG FAT GUTLESS PHONY! That’s right. As far as I’m concerned I can afford to retire now at 54 years of age. Our net worth (the wife and I) incuding the house, is $4.25 million. However, any time I suggest to the wife that I am packing it in (I hate the meaninglessness, imposterism, drudgery, uncertainty, depression inducing self-esteem sucking, soul wrenching boredom, of my useless pseudo-middle-management-faking-it-all-day-$100K a year plus automobile-desk-job), she disagrees and expresses concerns about our lifestyle and the children.
I tell her it doesn’t have to be that way, and point out the huge wealth of information that you have so concisely articulated in hundreds of articles. But, alas, it does me no good.
I’m just a regular dude who happens to have some very basic Level 3 Mustachian instincts (assuming the levels go from Level 1 at the lowest to Level 15 at the highest) who got lucky with my timing in life. I bought a house 30 years ago before prices were insane, moved once, 25 years ago, paid off the mortgage aggressively a long time ago, and enjoyed the quadrupling of its value.
Similarly, I was as frugal as I could be, earning a basic salary through employment over the last 30 years, with a semi-spendthrift wife and 3 kids with quasi-rich friends, while investing in basic stuff .
So now that I’m TIRED, FED UP, DEPRESSED, and I JUST WANNA QUIT and read books, and fix up my house, and ride my Harley, and exercise, and go skiing, and ride a bike (a real bicycle), and do my photography, and cook, and volunteer, and indulge in a mid-day Bota Box if I get the urge, and stay in California, or Arizona, and shop at Trader Joe’s in the U.S., and beach bum in Florida for a couple of months a year.
Yeah – I know it’s my fault. I SUCK. So, other than just manning up and breaking free, do you have any advice on an alternate way to present the facts to convince her we’ll still be OK, even with keeping the house for now, and investing the $3M for income?
Please. I’m ready for a change. Time to break the rules.
Sincerely,
Yin Yang
This comment blew my mind. So many aspects of Mustachianism, so many successes and failures and emotions and common themes, wrapped into a single comment. This is a man of 54 years of age who is ready for a plate of Freedom, but thus far has failed to walk up to the counter and claim it. So I wrote back to him and requested further details. His reply was:
Financial Figures
Combined Employment Income:
$140,000.00 Gross (pre tax) (My portion is $110K – that will disappear with retirement.)
Monthly Expenses:
Property Tax $670.00
Electricity $400.00
Heat:$125.00
Phone: $30.00
Internet: $125.00
Home Alarm System: $30.00
Home Insurance: $200.00
Car Insurance: $660.00 (4 vehicles)
Motorcycle Insurance: $100.00
Lawn care/Maintenance: $100.00
Life Insurance: $200.00
Disability Insurance: $250.00
Critical Illness Insurance: $225.00
Cable TV: $70
Cell Phones: $160.00 (Wife’s plus 1 kid)
College Tuition and Living Expenses (2 kids): $2500.00
Food: $650.00
Fuel for 4 Cars: $400.00
Vehicle Maintenance: $200.00 (4 vehicles)
Vacations: $1000.00 (3 trips a year plus some long weekends)
Miscellaneous:$200.00
Total expenses $8295/month
Assets:
Home -mortgage free; Estimated market value: $1,000,000.00
Liquid non-tax sheltered investments: $2,350,000.00
Includes an allocation of Stocks, Bonds, Preferred Shares, REITS (real estate investment trusts), ETF’s, Mutual Funds, GIC’s (CD’s), and some Cash.
Income yield across the board on all of this is approximately 5% annually. The market value of the holdings fluctuates depending on the way the market goes, interest rates, and other variables.
Registered (Tax sheltered) Funds (RRSP) (i.e., 401K)
$750,000.00 in ETF’s, Mutual Funds, GIC’s
Mostly growth oriented equity funds, some dividend reinvestment. Mostly long term outlook.
Rental Income Property
Value: $325,000.00
Mortgage: $200,000.00
NET positive monthly cash flow (after all expenses): $450.00 ($5,400/year)
(If I bailed on it now, I could likely add $100,000.00 liquid cash to my portfolio).
I have 3 “adult” children: 26, 25, and 21 – two in university. There is a potential massive expense coming if they pursue law and medical education outside of Canada ($100k for a domestic education, $500k for the US equivalent)
The house will definitely be downsized within 3-5 years, freeing at least $400,000.00 cash for more investments.
I anticipate having these ridiculously high expenses for the next 3-5 years, but would still like to retire in 1 year (at 55). I would like to hang out in Florida and/or California for at least 2 months a year, and in Colorado (to ski) for at least 6 weeks a year as part of my retirement wish list.
Whoo. While that is a lot of information, and I can hear the WHOOSHing sound of 800,000 boxing gloves stirring up the nation’s wind currents as we all read that astonishing list of expenses, let’s start with an end-run around the whole heap of details:
Annual income provided by these savings, using the 4% rule: $124,000
Current (worst-case) annual living expenses: $99,540
See, once you amass a sizeable ‘stash, your money can work harder than you can. And while YinYang’s expenses are massive right now, his great collection of investments is providing passive income and growth that will on average easily outrun his family’s spending even if he never reduces these expenses. Doing the math, the current expenses are only 3.2% of the investments, meaning he has a huge safety margin beyond even that which is built into the 4% rule.
Since the worst case is already good enough, we could close this case study right now and tell our man to retire. Which is exactly what I advised him in my first response to his comment. But since I am Mr. Money Mustache, there is obviously more to be said on those expenses:
Electricity: $400 a month – WTF? Do you live in a one-acre Bouncy Castle that you keep inflated with 1,000 blowdryers? My electric bill is under 25 bucks. You need to get yours down right now my man. Savings: at least $300/month.
Home Alarm System: These are a silly invention – the Timeshare Condos of the suburbs. Drop it, live free, and save $30.
Car Insurance and Gas: You are forking over $15,120 per year (and probably over $20,000 after accounting for depreciation), in order to trash your own environment while driving four unnecessary vehicles around in circles. Why are you punishing your children by addicting them to Motorized Thrones when they could obviously ride bikes? Where is your own bike? If the distances involved are too great, you live in the wrong place and need to move. Savings: at least $1,000 per month.
Life, Disability, and Critical Illness Insurance: What are you insuring against? Your savings are already equivalent to several life insurance settlements. Even if you perish before finishing this article, your family is financially set for life. Cancel all three policies immediately and save $675.00 per month.
Cable TV: Did you throw this in just to enrage Mr. Money Mustache!? Fuck the nonsense of nationally broadcast passive entertainment – as multimillionaires who are raising doctors and lawyers, your family is obviously intelligent enough to find more advanced forms of entertainment than watching TV, for a savings of $70 per month
Cell Phones: $160 is an awful lot of cash for occasional access to radio waves. You might check out this MMM reader’s quick guide to less costly cell plans in Canada. Savings: at least $60.
Vacations and Miscellaneous: with a tighter budget, I would grill you on these expenses as well. However, given your unstoppable cash surplus, I’ll leave these bits of luxury untouched, so you can be free to attack the other areas.
Investments: Although we won’t get into the details, you should conduct an audit and make sure you aren’t carrying any of the nonsense high-fee mutual funds (expense ratio over 0.5% or preferably 0.25%) in the portfolio. Instead I’d carry passive index funds that track the Canadian TSX index, US total stock index (like Vanguards VTSAX), and international stocks (VGTSX). Large REITs are nice too.
Total monthly savings after application of the MMM Face Punch: $2335. This is a 28% reduction of your expenses, even without touching the core of your lifestyle – the ability to help your kids with their education. Applying the 4% rule in reverse, this spending cut is equivalent to increasing your nest egg by about $700,000. And after downsizing your house, the newly liberated cash will add to that, resulting in a total equivalent wealth boost of $1.1 million.
In a Nutshell: Congratulations. You’re set for life. There is not even the slightest logical jusification for you not to hand in your two-week notice at the end of your workday today. While the agreement of a spouse is important, there is no sense continuing an unsatisfying job when all possible calculations suggest your salary is completely unnecessary. And as the final bit of unnecessary safety margin not mentioned in the box above, your wife is still free to keep her own job.
These objections based on fear are often rooted in a lack of understanding of the true nature of investment returns. Money really does produce money when invested, but this fact is not intuitively obvious if you haven’t soaked up the idea. The solution is then some sort of education – simple investing books, or talking to other early retirees. However, the facts are behind you on this one, so I am optimistic that anyone can learn to let go and let their retirement savings sustain them, given a sufficient cushion.
While there are many good solutions to the problem of a misunderstanding like this one, “Continuing to work an unnecessary job you hate”, is not one of them.
You have many adventures in freedom and years of healthy healing ahead of you. And if you’re so inclined, please keep a journal of your experience so we can take inspiration ourselves.
As for you: If you’re more than ready to pull the plug – go for it, and share your story as well!
Further Reading: an older classic on a similar theme theme: the Quitting Lawyer and the Despondent Millionaire
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