Exposed! The MMM Family’s 2013 Spending!

Thanks for this article. I kept track of our family spending last year for an identical demographic to MMM– two adults and 8-year old kid. We spent around $40k on living expenses in a similar community, about half of our income. I thought we were doing well– but I appreciate the kick in the butt to look at how we could put ourselves closer to retirement by needing less.

The escaping $$$ is in two primary categories, food (both groceries and eating out) and travel. There are other lesser leaks as well.

This year, I decided to challenge myself in the following ways:
— riding my bicycle to work twice as many days as last year
— taking my lunch to work every day– not just “sometimes.”
— improving my core strength (this isn’t monetary but MMM has sold me on the concept of good healthy underpinning one’s total net happiness)
— traveling a little less this year, and choosing to go to one place and “base camp” out of there rather than doing long meandering road trips (which tend to lead to more hotels and restaurants than home-cooked meals in the camper).
— asking myself, when confronted with a spending opportunity: “do I want this now, or do I want my freedom more?”

Last, I would point out to complainy pants that you don’t have to do everything MMM suggests, and you don’t have to justify yourself to him or anyone else in the matter– this is the Internet, not the spending police. You join the blog, you set yourself up for the virtual manly face punch if MMM deems it appropriate.

I am not, at this point for example, prepared to quit seeing my hair lady who has tamed my locks for ten years now. But my eyes are opened that I have choices in the matter (what an interesting video on cutting one’s own hair) and I am making this choice with full information now– and perhaps someday I’ll take the plunge. That is the value of this blog to me.

Great article, and great blog, Mr. and Mrs. MMM, thanks for sharing all these. Since I’ve started reading you, I’ve been through serious thinking about my money situation, and where I finally settled was 1) deciding that I will be much more conscious about what I’m spending money on, and 2) the fact that our countries (I’m from the small Central-Eastern European country of Hungary) are really different in the possibilities given for early retirement.

Please allow me to share a bit of this story, so everyone’s perspective broadens a bit. First, about the economy here.

As you write, the US is “a strange and grand country […], where the necessities are virtually free” – unfortunately, this is not true for Hungary. The average net income per person in 2013 was around 650 dollars per month. The minimum income threshold (published by the statistics bureau) for two adults with one kid is around 890 dollars a month. A kilogram of bread costs 1.5 dollars, and – to jump to the other extreme end of the scale – a new Retina iPad Mini costs 521 dollars (I think this is under 400 in the US). A gallon of gasoline costs around 6.5 dollars. You would need some experienced economists to provide detailed in-depth reasons for these symptoms – you know, the economy is not in cheetah mode nowadays, we have serious taxes, etc. I must add that we have state healthcare, so if someone needs basic medical attention that is free to some extents (of course this results in additional taxes, reducing the income side).

Summing that up, costs for necessities are not any lower (on the contrary), but incomes are way under US numbers. Now let’s see some options for saving.

I started working when I was 18, as a freelancer, going to university at the same time. I got my first full time job in 2004, still studying at the university. My first income was amazing for me at that time, it was around a net 750 dollars a month. Unfortunately, as I just had a life to start building, living in a rented apartment with others in a city far from my parents, I did not manage to save too much of that (I must add that if I read your blog back then, I may have done some things differently, not compensating that much for my low-budget early years).

Now, ten years later, I’m a father of two, work as an engineer with an MSc degree in informatics and get a salary that is way above the average income in the country. In my views we are living in absolute luxury, provided that we are never cold, we have lots of food, we have a car, and we are likely to be able to dodge any common financial emergencies regarding our home repairs or our health. Still, with all our spending as a family of four, the most we could spare each month, watching our spending closely, is around 250 dollars. And, from what I hear from others and the news, that is way above the amount that people around here can save nowadays (which is much closer to zero, or less, if we are talking about mortgages and car loans as well – options that you definitely need if you start from scratch and want to buy your own home or car, because with these incomes you would need around 15 strict-budgeted years to accumulate enough for these).

I calculated that even if I could start saving 500 dollars a month now, doing this for the next 25 years, calculating with the 4% interest (which is achievable here with some agile banking, although not automatic), increasing my monthly savings 10% each year, I could get to around 450K dollars, which, looking at only the yearly interests, could provide a not-too-luxurious-but-more-than-modest retirement at the age 60. I remember from your early posts that when you’ve started to work you were able to save 4K, not too much later 7K a month – well, that is definitely not an option here as with two incomes in the family our total income is not even near the half of that.

The bottom line of these figures is that my retirement will definitely not happen before I’m 65-70, and that point still mean a decrease in my lifestyle. And with this, I should feel really lucky that I could have earned a degree and have a job that I love, with a really compelling wage. Also, although in the paragraphs above I only mentioned finances, I found that over a certain minimum income my finances only affected my life when I was worrying about them.

So OK, with all this said – I will try to make a point, if there is any.

1. If you are planning an early retirement, choose your place to live carefully (that is actually a MMM advice as well, I believe). And choose in your teenage years, so you have time to build your savings.
2. Do not worry too much when you find out early retirement is not an option for you where you want to live, or based on the job you have. Finances are important, but there are many bigger players in your quality of life, focus on finding these. Worrying about finances and lack of options can seriously screw that quality.

Looking forward to many more great posts from you! :)

Hey MMM.

Loved your post, very candid. The people criticizing your charitable contributions are only looking at the part of the iceberg that is above water, and mistakenly believing that they see the whole thing. Even if you wrote nothing, did nothing, and donated nothing, I still would have far too many of my own character flaws to worry about before I started criticizing others.

I saw your recent interview on Marketwatch. The comments were obscene, and completely ignorant of what you and your website have and do accomplish.

It agitated me enough to write a rebuttal article to all of those comments:

http://theconservativeincomeinvestor.com/2014/01/18/retirement-myths-and-other-terrible-ways-to-think-about-retirement-planning/

Sorry you’ve had to deal with “The Weirdness of the Internet.”

Best,
Tim

I review this post often to assure myself that I am exceeding your frugality and basically pump up my frugal ego.

A question arose in my superego today. You are of course doing a great service to the world with this blog but from a budget/numbers view it appears that there is little emphasis on charity.

Could you explain or write a blog post on financial charity and your unique perspective on this? It would seem that with your investments and income that 10 – 15K per year would be a nice personal number to shoot for.

Of course this would need to be a MMM supper efficient/effective charity.

In that vein, I could easily imagine that if you established the MMM foundation with a focused, reader inputed design that there would be many readers willing to kick in.

The framework might be something like this.

1. Readers are invited to contribute (Think of the PBS model)
2. The funds are managed by a donor advised community foundation in perpetuity. They generally strive for a 10% avg annual return with a 5% annual payout. The Community Foundation of the Ozarks is a very nice and successful example of this. There is no set up charge.
4. Suitable charitable investments might be — Community gardens, bike paths, electric cars, budget education, loan guarantees for home efficiency projects, ????

You might consider throwing this up to the community for input and consideration. By having the funds managed by a community foundation there would be very little time and management involved. You could lead the pack by making the first and ongoing donations.

I established a similar fund several years ago and within 3 days had $20,000 in donations.

One could easily imagine a fund with over 5 million invested and paying out $250,000 per year in a 5 to 10 year time frame. (actually if you pushed it, it might be much more!)

I suck at this. I get subsidized family healthcare at work, and my portion is $320 per paycheck, or $7,680 per year, and I get the HMO! My groceries/dining out/household items is $19,600 per year. Yes, I know how ridiculous this is. My mortgage is $25,200 per year. I’ve already doubled your budget and I haven’t turned on a light switch or turned my ignition key, yet. This was just the kick in the face I needed…thanks for posting. My first focus will be on my groceries.

If I don’t include my mortgage ($900) we (4 people) live on $29400 a year…I’m a mustachian by necessity.

How is your home owners insurance so little, whats the deductible?

What kills me is that my household expenses are far higher than this pretty much *solely* due to health related expenses.

Health insurance alone is $6000+/year here, and this is *after* Obamacare (it was $12000/year before!), and it’s necessary because the ‘list prices’ for hospitals, labs, most primary care physicians, and certain specialties (like gastroenterology) are outrageous, at levels which I consider fraud; you can’t get the real prices (which are typically 1/20 the ‘list prices’) without the insurance.

And worse than that, the health insurance doesn’t even *cover* a bunch of key medical needs; it’s simply not worth my time, which I value at $100/hour, fighting with them trying to get coverage for a bunch of stuff like orthotics and wheelchairs — and physical therapists and psychiatrists. (The “in-network” options for specialists in those fields are routinely the incompetent ones only. Thankfully, in those specialties the competent specialists charge reasonable rather than obscene rates.) I used to fight that stuff, but it’s just not worth the time; I was spending 20 hours a week on the phone at one point, which was obviously not worth it.

And then there’s dentistry. (Though I have never had a cavity, which helps.)

I wouldn’t get the insurance at all except for the scam being run by the doctors and hospitals with ‘list prices’. I did run a complete actuarial model to pick the best insurance with the lowest maximum-cost-per-year possibility for any additional catastrophes. But there are only two private carriers who offer plans at all in my county (so we have monopoly pricing); the plans they offer were mostly deliberately designed to be junk where anyone with recurring prescription costs would quickly max out to the legally-allowed out-of-pocket maximum, so the high-premium plan actually had the lowest total cost per year. I can’t move because I made the decision to stay near my parents (which they appreciate, being in their 70s and 80s) but it wouldn’t be much better in many other parts of the US, and we’d have to find new medical specialists, which is a tremendous amount of unpaid work (I know, having done it about 10 times).

(I have been running a “high capital gains this year, low capital gains next year” tax minimization strategy, which also works for maximizing the amount of tax credits I get for the health insurance — but that still means I have to pay for the insurance every other year. This is actually the best way to minimize premium costs if you can do it.)

Health is such a crapshoot.

Ridiculous (but sadly well-documented) allergies have substantially increased clothing and food costs. On top of that, the health problems for all my family members have made it frequently impossible to cook at home — we’re just too knocked out from illnesses to do all three meals each day, even with preparing bulk meals in advance — so this increases restaurant costs massively (though we have a lot of very reasonably-priced restaurants in town, and we don’t get drinks, and we don’t get dessert, which makes a huge difference). And worst of all, the medical problems necessitated living further out of town than I wanted to in order to get a wheelchair-accessible house.

In other ways we actually spend *less* than you do. No recreational drugs; few ‘consumer’ purchases; very little in entertainment (mostly just my Internet bill); house running costs are minimal; and the house was bought in cash; electric car costs less than your entire transportation budget (it’s mostly insurance cost) and was bought in cash (I also expect it to last a very long time).

Property taxes are twice yours on a much smaller house, but we do live in one of the highest property-tax areas in the entire country (they run around 3% of value). But apart from that the main excess over your costs is health-related — upwards of $12000/year in direct costs, and a difficult-to-measure but significiantly larger amount in indirect costs (food and transportation)

I am still independently wealthy, spending less than the 4% of invested capital rule, and earning about 10% on my investments. (Mostly with time-shiftable realization like capital gains, which is how I do “high income one year, low income next year”.)

But honestly, every dollar I spend on health, I wish I could be donating to charity or investing in socially useful businesses. So the health costs *bug* me. The problem with health care expenses is that they are the exact opposite of luxury in one key way: they’re *unpleasant*. You don’t want to even *do* it, and you have to spend money on it anyway.

My point is that how much you need to spend to live a comfortable life is almost entirely determined by health needs. If you have your health, you can spend next to nothing. If you get seriously sick, or worse, sick with multiple chronic illnesses at once (I have 2… my girlfriend has 4), you are behind the curve to start with, and have a hole to dig out of, so it’s gonna cost you a lot more. Much easier in Canada or the UK, obviously, but it’s still true.

Half of all bankruptcies in the United States are *still* caused by medical expenses. Post-Obamacare.

You wrote: “What a strange and grand country this is, where the necessities are virtually free”
But this is completely false, and I resent the claim. The crucial necessities of health care are not free at all; they’re outrageously, fraud-level expensive in the US. In every *other* respect the necessities are very cheap, so if you’re healthy, it looks like the necessities are free…

I seriously looked into getting out of the country into a country with a sane healthcare system, but I’m really bad with languages, unfortunately, and what with the chronic illnesses many of the usual pathways into other countries (depending on full-time work or full-time study) are closed (even though I could do part-time). If I had twice as much money, I could safely get into the UK as an investor, but I can’t really do that either, and that door may be closed before I get to that point.

I have been campaigning for single-payer health care like Canada has. Extra special note: the reason property taxes are so high where I live is that they’re used to pay for Medicaid in New York State, which is completely insane and is not done in any other state (Medicaid should be paid for from income tax). So my high property taxes are *also* due to this country’s crazy excuse for a healthcare system…

Anyway, this is why I am still active in politics advocating for single-payer universal health care. It’ll make my life a lot better and cheaper… and it’ll make a lot of other people’s lives a lot better and cheaper too.

Because this is the main source of unavoidable spending.