Tag Archives: Mr. Money Mustache
How to Retire in Your 30s With $1 Million in the Bank
The very good headline of this New York Times article on the FIRE—financial independence retire early—movement.
As a minimalist and student of Stoicism, I’ve been intrigued by and read lots about this movement. I’ve even locked horns with the movement’s most popular spokesperson. Steven Kurutz does a nice job explaining the phenomenon. And he provides lots of good links for readers who want to dig deeper.
There’s lots to admire about FIRE folks, but too many of the movement’s advocates wrongly assume anyone can save $1m and retire in their 30’s. They argue on their numerous blogs that people can do it if they only follow their steps which start with securing a high paying job usually in engineering or computer software. To which Kurutz writes:
“They are. . . benefiting from an lengthy bull run in the stock market and, in some cases, the privilege of class, race, gender and background. It’s difficult to retire at 40 if you work a minimum-wage job, say, or have crushing student-loan debt, or did not have the same opportunities as others because you grew up poor in a crime-ridden neighborhood.”
Those two sentences will not go unchallenged by the FIRE orthodoxy. Probably skimping on humanities and social science courses in college, FIRE zealots tend to overlook the fact that the US economy is not a level playing field. Their counter arguments will not be convincing. It’s their blindspot.
It’s okay that they have a blindspot, because there’s a lot to admire about the movement, including the practitioners’ disciplined saving, their rejection of mindless consumerism, their emphasis on family, and their determined nonconformity especially in creating non-work identities.
Frugality’s Point of Diminishing Returns
Frugal people like me sometimes take bargain hunting too far. We need to be smarter about frugality’s point of diminishing returns.
Writing in the New York Times, Henry Petroski states the obvious—U.S. airports, harbors and highway systems are often poorly designed, built, maintained, and funded.
. . . infrastructure can also refer to things on a much smaller scale, like private homes . . . . Thinking about the construction, aging and care of this domestic infrastructure can provide insight into how we as a nation might better respond to our mounting public works problems.
Our 60-year-old home is an example of how infrastructure can be built to stand strong, age gracefully and be almost maintenance-free. The foundation sits firmly on solid granite. From the full basement you can see how the exposed beams, joists and underside of the flooring were made of good wood, built to last.
When I see a commercial building under construction today, I see nothing like this in the materials and workmanship, perhaps because it is simply a function of finance, expected to survive only until it is fully amortized in a company’s budget.
I can see the same decline in quality when I try to do work on our house. When it was built, two-by-fours were actually only an eighth of an inch short of those nominal dimensions. Today, a two-by-four is a full half-inch shy. This sort of thing frustrates carpenters and do-it-yourselfers alike, making old construction more difficult to fix and encouraging tearing down and starting over with inferior newer materials and less skilled labor. What a waste of time, effort and money — and, more important, superior infrastructure.
Why the marked decline in the quality of home building? Petroski argues it’s because “expert craftsmen—carpenters, roofers, painters—who work with precision and pride, are increasingly being pushed out by cheaper labor with inferior skills.”
And then adds:
This is not the fault of homeowners, but of the industries whose practices favor the use of inferior products and labor that drive modern construction: the developers, lenders, builders and realtors who, to make quick money, have created a stock of domestic and commercial infrastructure that is a waste of resources and will not last.
One commenter vehemently disagreed:
“‘This is not the fault of homeowners’. Wrong wrong wrong! I work for homeowners remodeling their homes in San Francisco and environs, and their relentless pursuit of the lowest cost is costing them dearly in the long run. Many do not want to hear that I am licensed, insured & bonded; that I have only full-time long-term employees on whom I pay all required taxes and insurances, and who are respected with medical & retirement benefits; that I pay to have my hazardous waste disposed of legally (rather than pouring it down the toilet); that their toddlers will be in college before they will need my services again; in fact that their toddlers will not be intellectually impaired by improper disturbance of lead-based paint. No, many prefer the fantasy that Yelp is wise, that the China price is obtainable, that my price is merely my opening bid. We here have just built a multi-billion dollar bridge that took a quarter-century, went to the lowest bidder who subbed out major components to China, which is already showing alarming signs of premature senility, and which may not even meet it most elementary function of surviving the next Big One. Some bargain! No, we homeowners, we taxpayers, you & I, us cheapskates, we are at fault.”
In this blame game debate I side with San Francisco. My relentless pursuit of the lowest costs helps create the razor thin profit margins that give rise to all kinds of corner cutting. Us cheapskates are at fault.
This is true with respect to home building and our national infrastructure. Petroski returns to our faltering infrastructure:
We have seen short-term fixes and shoddy workmanship at home, and we see our bridges and roads the same way.
. . . we do not have to be homeowners or highway engineers to know that good materials are better than poor and a job done well from the outset will outlast one done shabbily.
As we debate how to pay for infrastructure, we should also have a discussion about raising expectations for what we’re buying. Homeowners, project managers and legislatures alike must call to account suppliers and contractors who do not produce the quality of materials and work they promise.
Again, Petroski places the blame on “suppliers and contractors” and is silent about my tendency to do everything possible to reduce my tax liability.
Meanwhile, some fellow citizens shout that they are “Taxed enough already!” and mindlessly argue that “the government is so wasteful and incompetent, it must be starved.” Any notion of public goods is lost on them. As is the quality of life of our children’s children.
My politics are different than theirs, but I’m susceptible to the same mindless, short-sighted frugality. Until I adopt a more nuanced, enlightened form of frugality, I’m partly to blame for our deteriorating homes, airports, highways, and harbors.
What I’m Reading
Book—College (Un)bound by Jeffrey Selingo. The subtitle, “The Future of Higher Education and What It Means for Students,” is representative of Selingo’s clear and descriptive writing. A must read for anyone interested in the present state and probable future course of higher education.
Magazine essay—Michael Lewis in Vanity Fair, Did Goldman Sachs Overstep in Criminally Charging Its Ex-Programmer? The central character, Sergey Aleynikov is a fascinating case study. And Lewis is on my list of writers who I read irrespective of the topic. On the surface this essay is about a computer programmer, high-speed trading, and Wall Street avarice. Deeper down it’s about human nature, passion, personal transformation, and happiness.
Blog post—The Surprising Effect of Small Efforts over Time by MMM. Here’s a three minute intro to MMM. Wonderful insight, small efforts, repeated over time, will almost always surprise you.
Dare to Disagree
Interesting few days at Wimbledon, the US Supreme Court, and the humble blog. It all started when I criticized “Mr. Money Mustache” in his comment section for ripping into one of his readers. As I explained in the previous post, MMM is a wildly successful blogger who writes about personal finance and early retirement.
He provides excellent details on how he’s managed to retire early and offers no-nonsense advice on how to replicate his success. Understandably, his legion of readers dig him for the tangible help he’s provided them. He typically responds to every tenth or twentieth reader comment, and because nearly every one is in essence an “amen to that” I thought he’d return serve following my critique. But he didn’t. That is, until his next post, in which he not only referred to my criticism, but linked to my previous post titled “What Engineers Get Wrong”.
As a result, on Monday and Tuesday, I had a month’s worth of page views. An unintended part of my fifteen minutes of fame. Most of the mass of visitors just quietly poked around, some engineers however, took the time to rip into me for my criticism of them. If the thought of me being ripped into brings even a small smile to your face go back and read their comments. Or at least Allison’s who it doesn’t seem likes me very much. All I have to say to Allison is I’m much more charming in person. Ask my mom.
I’ve dared to disagree with MMM before and felt some of his readers’ wrath, so now I know what to expect. It’s an interesting phenomenon. It’s almost like he’s a cult leader whose followers refuse to question him. He’s even charismatic, but unlike most cult leaders, he’s not selling his personality or whacked out made up ideas, the vast majority of his content makes excellent sense. What I now realize is hIs readers so appreciate his writing that they don’t take kindly to anyone disagreeing with him. Which of course threatens to make his readers’ comment section a sleep inducing echo chamber.
But then again, you might argue the internet writ large, just like the media more generally, is an echo chamber. The sad truth is civic discourse, in which reasonable people disagree about topics that matter, is a lost art. One reason for that is no one likes to be criticized. We’re all defensive, to varying degrees. So much so we struggle to process contending viewpoints.
For example, MMM wrote that I “criticized his blog’s approach,” but my criticism was of a specific aspect of his thinking. The truth of the matter is I’m down with 90% of what he writes and if we had the chance, I have no doubt we’d enjoy cycling together, drinking a craft beer afterwards, and talking personal finance. I’m not lifting weights with him though.
Especially initially, I struggled to process all the engineers’ criticisms of me too. I’d zero in on one particular sentence that I believed to be especially wrongheaded and slight everything else. Just as my criticism was somewhat muddled in MMM’s head, their messages were muddled in mine.
The youngest daughter got a kick out of these events. “You’ve gone viral!” After she read Allison’s lengthy criticism of my last post, she asked, “So did what she write change your thinking?” That’s the all important question. After the first reading, I would have had to answer no, not at all, because I read it defensively. But thinking aloud, I said to youngest daughter, “It would be awfully hypocritical of me to blow her off when my whole point is to promote critical inquiry.”
Then I considered the criticisms more carefully and realized they had one thing in common—that I had unfairly overgeneralized about one group of professionals. Even though it was a literary device of sorts, I understand why it was upsetting. Because they showed the courage of their convictions and took the time to disagree with me, my thinking was challenged and deepened, and hopefully, that of new and old readers’ as well.
And as a result, my little slice of the internet, for at least a brief moment in time, was anything but an echo chamber.
Why I Ignore Stock Market Doomsayers
Doomsayer—a person who predicts impending misfortune or disaster. Mike, a good friend and running partner, is a stock market doomsayer. Routinely, like this morning, he tells me to sell. The doomsayers are certain that the mother of all corrections is right around the corner.
What Mike and his ilk get wrong is that when it comes to personal finance, the value of the Dow, the S&P, and the Nasdaq aren’t nearly as important as one’s income, investment income, expenses, and “historical risk return”.
If you asked me to help you with your personal finances, I’d want to know four things. 1) What’s your take home pay? 2) If any, what’s your annual passive income? 3) On average, how much do you spend each month? 4) If any, how much of any stock market-based investments can you accept losing in the next few days?
1) Annual income. This is straight forward. In the new economy, nearly everyone’s challenge is increasing it without working inhumane hours. That’s why people continue their education, work hard for promotions, and sometimes decide to work long hours.
2) Passive income. This is the money your savings generate. Nearly everyone’s challenge is increasing it in our zero interest rate world. Historically, cash has generated 3-5%. Today money markets and certificate of deposits earn pennies, so when adjusted for inflation, they’re slowly losing value. That’s why people invest in stocks, bonds, and real estate. Passive income includes stock and bond dividends, capital gains, and rental income. I also consider company matches a type of passive income. And social security for the 67+ set.
3) Average monthly expenses. Few people know this. Start keeping track of every dollar you spend using MINT or something similar and then read this recent blog post from Mr. Money Mustache, The Principle of Constant Optimization, for a great tutorial on managing spending. In particular, I second this suggestion:
Make a list of your ten biggest monthly expenses and tape it to your fridge, just so you know they are all there, constantly using up your money, so they had darned well be worth the resources they are consuming. If they are worth the expense, continue to enjoy them. If they are not, optimize them away. Look at your daily routine from an outsider’s perspective, and figure out if you are really getting the most value from each one of your hours.
4) Historical risk return. Where I invest, I can see my entire portfolio online. And with one link I can see a detailed analysis of my holdings including the all important “historical risk return (1926-2012)”. Right now it says the worst year an investor with my assest allocation has experienced is -17.2% in 1931. Ironically, it also says investors with my asset allocation have experienced losses in 15 of those 87 years or 17.2% of the time. So if I round up, on average, I have to expect to lose money every fifth year. Also, if I have $100,000 invested, I have to be prepared for that to turn into $82,800 overnight. That’s the price of admission to a historic stock market run up.
Here’s what the stock market doomsayers won’t acknowledge. As of May 15, 2013, the S&P 500 is up 141.5% since March 5, 2009. While they’ve been crying wolf, someone that had $100,000 invested in the S&P 500 on March 5, 2009 now has $241,500. Here’s what you won’t hear the doomsayers say, “We missed a historic rally because we we’re too afraid of the downside.”
Nor will you hear them say this truism, they’re not smart enough to time the market. Despite Mike’s dire warnings, I’m going to stay partially invested in stocks because I can accept a 17.2% historical risk return in exchange for what my portfolio analysis reveals to be my 87 year average rate of return, 7.6%.
Tune out the doomsayers and forget trying to time the market. Instead, control what you can. Most importantly, whether your earned income and passive income regularly exceed your expenses.
Five Lessons Learned Blogging
What I’ve occasionally written in the past still holds—even though my readership continues to grow, it is relatively small. That’s not easy to pull off, the secret is to start with a really small readership. There are millions of bloggers in better position than me to teach others how to build a readership. Instead of a roadmap to the blog big-time, these are the modest reflections of a small-time blogger after five years and 712 posts.
1. Visuals matter. Clutter hurts, interesting high resolution pictures help. I don’t apply this insight. When it comes to “visuals”, I’d assign PressingPause a “D”. A “C” for the “WordPress in a box” template and an “F” for pictures. For pete’s sake, I’m using a default WordPress picture of a pinecone in my header. Every “D” student excels in excuses. Mine? I gave someone in my family my camera and I’ve been real slow to replace it. I’ll try to do better.
2. Good content matters even more. Ask big-time bloggers the key to their success and they’ll almost always say good content. Which means lesson one isn’t a panacea. It doesn’t matter how beautiful your layout is if your content sucks. And vice-versa, some bloggers, like John Gruber, provide such great content that excellent visuals are unnecessary. Same with Bill McBride. Minimalist templates, few if any pictures, and millions of visitors monthly.
3. Sex sells. I learned this when I included a picture of two bikini-clad snowboarders in a post that became my all-time most read. I’ve since deleted the post because it was skewing my statistics. Although the Huffington Post isn’t a blog, it’s an online newspaper that mostly rebundles hard news from traditional papers, it knows this lesson especially well. A large part of its success can be found halfway down the righthand column. It unapologetically applies the “sex sells” lesson. Here are some of the righthand column headlines from Wednesday, February 13, 2012.
- What I have Risked for the Best Sex of My Life.
- Listen: Graphic Jodi Arias Sex Tape Played to Jury.
- ‘Naughty’ Librarian.
- Beckham’s Bum.
- Beyonce Tries the ‘Boob Window Thing.
- Eva’s Biggest Turn On.
This stuff works! Right now I’m wondering if Eva’s biggest turn on is Beckham’s bum or Beyonce’s boob window. The use of ‘boob window’ is a significant turning point in HuffPost’s short history. To this point they’ve used “side boob” almost exclusively. “Under boob” headlines are also starting to appear. “Over boob” can’t be too far behind.
4. Passion matters. In writing as in sports, the arts, teaching, damn near everything. I was reminded of this watching Mumford and Sons on the Grammy’s. Give this example from a Colorado “Red Rocks” concert a listen. Total effort. Mesmerizing.
People appear more interested in what I have to say when I’m fired up. Angry even. But the anger can’t be finessed, it has to be authentic. And remember my recent post about being tired? These days it takes a lot more to get me to throw a punch. I would like to write angry more often, but it can’t be forced. I can’t get angry twice a week, or even weekly. So that’s a challenge.
Related to this, my most widely read, most opinionated pieces are the result of my subconscience working overtime. An acquaintance of mine, a very successful writer, once shared a memorable writing insight with me. He said if your writing project isn’t the first thing you think about when you wake up it’s not working hard enough. Ironically, my most widely read posts are ones that I pound out more quickly than average. Because I’ve been writing them for days, weeks, or months in my head.
5. Vulnerability matters. Maybe not if you’re writing exclusively about technology (Gruber), or real estate (McBride) or Economics (Cowen). Two positive examples of this are Penelope Trunk (extreme at times) and Mr. Money Mustache. This is another insight I haven’t figured out how to apply. The reason being, I don’t know how to be more vulnerable without compromising my family’s and friends’ privacy. That takes precedence. Maybe someday I’ll spill my guts in a semi-autobiographical novel.
Thanks, as always, for reading.
p.s. Be sure to return early next week for a post featuring vulnerability, sex (well, at least allusions to it), and pictures, oh my.