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The Simple Math Behind Early Retirement

mrmoneymustache.com

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Re: The Simple Math Behind Early Retirement

#141

Post by grecy »

liber8 wrote: post #52

MMM has a philosophy that is mathematically sound, and might even work for some people. Unfortunately, it's proven to fail for just about everyone (the spend less, save more advice has been around since the industrial revolution, and it isn't working to well: the average American has $16k in credit card debt). The reason it fails is because it ignores basic psychology. The key quote in this article is: >>But simply c…

>> But simply cutting cable TV and a few lattes would instantly boost their savings to 15%, allowing them to retire 8 years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for???> Again, mathematically accurate, but not helpful

Is extremely helpful to those that have the willpower and motivation for early retirement. I personally think about this kind of tradeoff/decision every single day of my life, and as a result, I'm saving an enormous amount of my paycheck and will "retire" before I'm 35.

Of course, it's not helpful advice for lazy, unmotivated people who are stuck in a rut, but what advice is?

> Then, when he inevitably heads to starbucks he thinks he's failed.

I personally approach the whole thing like I approach my gym routine and healthy eating. When I have a "bad" or cheat day, I don't focus on that. I like McDonald's. I just look ahead to tomorrow and say that's OK, I can get back on track. It's not about focusing on what you did wrong, focus on trying to do a little better tomorrow.

> Finally, this quote is complete nonsense:

>> The reason is that every permanent drop in your spending has a double effect:(1) it increases the amount of money you have left over to save each month, and (2) it permanently decreases the amount you’ll need every month for the rest of your life.Actually, I think that's the best piece of advice I've ever received in my entire life. When you open a retirement plan at a bank, the adviser won't even blink when they say "The average person needs 70% of their pre retirement income when they are retired." Let's think about that for a second - by very definition that's saying the more I earn the more I'll need to spend - FOREVER. That's saying that when I have my Ford Focus paid off, I will buy a BMW, then a Mercedes, Then a Porsche, then....

In my last job I wasn't even earning 70% of what I am now, was still saving tons, and yet people plan my retirement saying I'm going to need that much when I'm retired?!?!?!!? It's any wonder my "planned" retirement was at 65 years old.

I absolutely promise you from the bottom of my heart, you absolutely can train yourself to be extremely happy while spending less money, and the more years you do it for, the better you will get. I will never have a TV, cell phone or new car for the rest of my life, I'm extremely happy about that, and it means I can have 50 years of my life to do exactly what I want every day.

Re: The Simple Math Behind Early Retirement

#142

Post by brads84 »

I'm surprised how many people are agitated by the article suggesting that they can stop working earlier if they save more money.

As the article stated: "The only reason Mustachians will remain a rare breed, is because this article will never appear in USA Today. (Or if it does, people will be too busy complaining about how it can’t be done, rather than figuring out how to do it)"

Re: The Simple Math Behind Early Retirement

#143

Post by jcdavis »

jerf wrote: post #20
praptak wrote: post #5

Earlier quoted context omitted.

Covered here: http://www.mrmoneymustache.com/2011/06/06/dude-wheres-my-7-i... Google cache (his server seems not to take HNing well): http://webcache.googleusercontent.com/search?q=cache:UjYtrDk...

One of my favorite infographics ever: http://www.nytimes.com/interactive/2011/01/02/business/20110... As I say every time I link it, read it carefully ; it does not say what most people initially think it is saying when they first see it. In this particular case I bring this up to show that the "standard" 7% over a long term can be optimistic. As it happens that corresponds to the first light green color, and that is…

That chart takes away inflation. When people say the expect 7%/year they are not including inflation. 7% a year pre inflation and taxes is likely roughtly 3.5-4%, which is grey on that chart.

Re: The Simple Math Behind Early Retirement

#144

Post by 3minus1 »

cynicalkane wrote: post #112
Swizec wrote: post #83

Earlier quoted context omitted.

Ramit Sethi's advice on this really rang true with me "Stop saving on lattes, that doesn't matter, negotiate a $5k+ per year pay increase instead"

Someone who spends $5 on a latte everyday, that would make you no happier than coffee from the break room, is likely not in a stable equilibrium of spending. If better tasting drinks really did make you happy--something I don't believe--the rational thing would to be to brew your own coffee or tea. This has the added bonus of being a learning experience. The $5 latte drinker, at most income levels, is someone who has…

Some people feel stylish with their $5 coffee. It's not all about the taste.

Re: The Simple Math Behind Early Retirement

#145

Post by hudibras »

smackfu wrote: post #47
jrheard wrote: post #40

Earlier quoted context omitted.

If you save a high enough percentage of your take-home income, the article actually argues that you could be done in 7-10 years starting from scratch, which sounds a lot more doable to me than the 30 years you're expecting.

The problem with the extremes of this logic is that if you scrimp and save and live poor to get to that 75% savings rate... you still have to live poor for the rest of your life on that 25% of your take home.

And never have to work another day in your life, don't forget.

Re: The Simple Math Behind Early Retirement

#146

Post by rockdiesel »

chimi wrote: post #105
liber8 wrote: post #52

MMM has a philosophy that is mathematically sound, and might even work for some people. Unfortunately, it's proven to fail for just about everyone (the spend less, save more advice has been around since the industrial revolution, and it isn't working to well: the average American has $16k in credit card debt). The reason it fails is because it ignores basic psychology. The key quote in this article is: >>But simply c…

Yours is a very pessimistic view. You have no faith in your fellow human beings. There are a lot of smart enough people out there with sufficient will power to make these changes in their life if only they have the education and awareness of the opportunities. Sometimes all it takes is seeing the impact these changes have. One of the best quotes I have seen about finances is this: Poor people spend what they have and…

> Did you know you can buy an entire house for less than $5,000?

Sounds like a line from an infomercial, but you've definitely piqued my interest.

Can you point me to any resources where I can read up on this?

Re: The Simple Math Behind Early Retirement

#147

Post by chimi »

abstractbill wrote: post #132
chimi wrote: post #105

Earlier quoted context omitted.

Yours is a very pessimistic view. You have no faith in your fellow human beings. There are a lot of smart enough people out there with sufficient will power to make these changes in their life if only they have the education and awareness of the opportunities. Sometimes all it takes is seeing the impact these changes have. One of the best quotes I have seen about finances is this: Poor people spend what they have and…

Where can you buy a house for $5000 that pays out $500/month in rent?

You can actually get them for even less than that and get more in rent. The cheapest way is through Tax Sales. You can buy a 3 bedroom house at a Tax Sale for low thousands of dollars and rent them out Section 8 for $800/mo or more and the US Government pays you all or a portion of the rent so it's reliable residual.

Of course it isn't that simple, sometimes the houses need a lot of work to get rent-ready and if you don't live near them you need a property manager. It's complicated and a lot of hard work but the dividends are incredible. You can also lose your shirt if you aren't careful.

I'll email you.

EDIT: Strike the email, here's a post to a blog with results from a Tax Sale in Tulsa County Oklahoma last year:

http://www.gavelhound.com/blog/Final+Results+for+the+2012+Tu...

Some of what you read in these comments below is true. Skepticism is warranted. It's hard. It's dirty. The houses do need a lot of work. The tenants don't pay sometimes, but the US Govt always does. Property managers take 10% or more of the rent to manage the properties. It's a BIG risk but BIG returns can be had as well. Plus, it does take time and emotional stamina. Imagine buying a house that was a meth lab. It happens. Imagine removing the person who lives in it and they burn it down. It happens.

Re: The Simple Math Behind Early Retirement

#148

Post by sophacles »

abstractbill wrote: post #132
chimi wrote: post #105

Earlier quoted context omitted.

Yours is a very pessimistic view. You have no faith in your fellow human beings. There are a lot of smart enough people out there with sufficient will power to make these changes in their life if only they have the education and awareness of the opportunities. Sometimes all it takes is seeing the impact these changes have. One of the best quotes I have seen about finances is this: Poor people spend what they have and…

Where can you buy a house for $5000 that pays out $500/month in rent?

Two things I can think of:

1) it was a typo for $50k which is a reasonable number. The house down the street from me just sold for $55K and reasonable rent for it is $650 in the neighborhood. My house was a bit more (housing boom) but I will easily be able to get $900/mo in rent for it (nicer inside), and I am only paying $530 on it. Just need to find another house to upgrade to.

2) the 5000 purchase means closing costs/fees/etc on a house with a 100% mortgage, and in a lot of places the rent can easily be $500 more than a mortgage.

The best places to find things like this are college towns, because there are always lots of renters. The example of my neighborhood is based on the fact that there are a pile of grad students living here.

Re: The Simple Math Behind Early Retirement

#149

Post by cerebrum »

grecy wrote: post #141
liber8 wrote: post #52

MMM has a philosophy that is mathematically sound, and might even work for some people. Unfortunately, it's proven to fail for just about everyone (the spend less, save more advice has been around since the industrial revolution, and it isn't working to well: the average American has $16k in credit card debt). The reason it fails is because it ignores basic psychology. The key quote in this article is: >>But simply c…

>> But simply cutting cable TV and a few lattes would instantly boost their savings to 15%, allowing them to retire 8 years earlier!! Are cable TV and Starbucks worth having two income earners each work an extra eight years for??? > Again, mathematically accurate, but not helpful Is extremely helpful to those that have the willpower and motivation for early retirement. I personally think about this kind of tradeoff/d…

Are you serious you don't have a cellphone? Just curious, what do you work in, and how much do you manage to save each month?

Re: The Simple Math Behind Early Retirement

#150

Post by chimi »

sophacles wrote: post #148
abstractbill wrote: post #132

Earlier quoted context omitted.

Where can you buy a house for $5000 that pays out $500/month in rent?

Two things I can think of: 1) it was a typo for $50k which is a reasonable number. The house down the street from me just sold for $55K and reasonable rent for it is $650 in the neighborhood. My house was a bit more (housing boom) but I will easily be able to get $900/mo in rent for it (nicer inside), and I am only paying $530 on it. Just need to find another house to upgrade to. 2) the 5000 purchase means closing co…

No, I really meant $5,000 -- total cash money for an entire house that you own free and clear. No typo. I know it sounds too good to be true -- but it's not. See the link I posted above.

Some of that stuff you see on infomercials really does work, but it's really hard and takes time, smarts, and dedication and most people fail en route to success simply by giving up or making bad purchasing decisions.

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