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The Simple Math Behind Early Retirement

mrmoneymustache.com

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Re: The Simple Math Behind Early Retirement

#171

Post by kyllo »

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…

Cutting out a daily latte might not be worth the savings for a lot of people.

But cutting in half the number of times per month you eat out, and not ordering any alcohol at restaurants, can easily save most households several hundred dollars a month. Eating out is very expensive.

Re: The Simple Math Behind Early Retirement

#172

Post by chimi »

smackfu wrote: post #159
chimi wrote: post #147

Earlier quoted context omitted.

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…

The tricky part is that it's very easy to not notice when your "investment" turns into a "second job" that may not really be paying that well per hour.

It's important to find a good property manager in the area you are investing. They do the work for you but the returns are less of course. Just like anything...

Re: The Simple Math Behind Early Retirement

#173

Post by T-hawk »

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…

Yes, great graph.

It illustrates the fundamental truth overlooked by most retirement planning schemes: the stock market doesn't just automatically grow in value over time. It grows in emphatically punctuated booms driven by technological advances.

The boom of the 1920s owed a lot to the telephone and automobile, linking businesses together in new ways. The boom of the 1960s was mainframe computerization, and the boom of the 1990s was personal computers and Internet connectivity. All these permitted entrepreneurs and established businesses to gain ever larger leveraged multipliers of turning effort into impact and value and wealth.

No breakthrough technology means no boom. We won't have another until another such technology arises. The Internet has largely plateaued in terms of business value. We don't have anything obvious on the horizon that will create a 10x productivity multiplier over email or Excel or StackOverflow, in the way that computers replaced adding machines and email replaced snail mail. Judging by the history of industrialized society, something will arise eventually to spark another boom (my best bet is neural-computer integration), but we can't say what or when. The next 20-year quadrupling of the stock market may begin in 2015 or in 2060.

Re: The Simple Math Behind Early Retirement

#174

Post by muzz »

Irregardless wrote: post #136
jordan0day wrote: post #118

Earlier quoted context omitted.

We should note how fortunate many of us are to be working in an industry where increasing your salary by 30% doesn't require a ton of extra work or going back to school and obtaining an advanced degree. For software developers, increasing your salary by 30% usually just requires: - A little extra work after-hours and weekends, improving on your craft. - Changing the company you work for. I don't think this is quite s…

True, but it's just one example of a bigger point. I.e. stop pinching pennies and aim for larger savings or gains instead. Swizec posted the name of the guy who wrote the article I was thinking of, Ramit Sethi. Here's one where he talks a little about the issues with frugality: http://www.iwillteachyoutoberich.com/blog/save-on-coffee/

I'm always amazed that coffee, cable tv, or smart phones are called out as budget "excesses".

For most people, their biggest expenditure every month is housing, then followed by transportation.

If one wants to cut spending at all, the huge savings are made here. I.e. don't "consume" more housing than you need-- rent out extra bedrooms or get roommates if you have an apartment, don't drive an expensive auto when a cheaper one will suffice. The savings that can be made here-- hundreds in the case of transportation, possibly thousand+ in the case of housing-- far overshadow the amounts that can be saved by cutting back on coffee, etc.

Re: The Simple Math Behind Early Retirement

#175

Post by dmm »

mephi5t0 wrote: post #128

This all works only if everything is steady in life and it isn't. Today you work and save tomorrow you got a kid and your spendings take off and fly. Sometimes you want to celebrate something so you go to a bar and drink with friends which will kill your "latte-savings" for 2 weeks. Then you wake up and your tooth is killing you. you have to do a root canal and even with insurance it will dig into savings. Graph is t…

The author has a kid.

Re: The Simple Math Behind Early Retirement

#176

Post by muzz »

smackfu wrote: post #151
abstractbill wrote: post #132

Earlier quoted context omitted.

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

Foreclosures in bad neighborhoods that are in rough shape that go up for auction, where there aren't many bidders. The unmentioned parts are that (1) fixing these places up costs money on top and you probably can't afford to hire contractors, so this is basically a second job and (2) the renters you get at the low end are terrible, and also require a lot of time and effort. It's not just invest and forget here.

> auction, where there aren't many bidders.

and where there are many bidders, there are likely people who do this for a living and know exactly how much the house is worth, how much it will cost them to fix it, how much they can rent it for etc. AND they have the professional network in place for all of that-- relationships with contractors, etc

as another poster pointed out, it essentially becomes a job. and you will be competing with people who do this as their full-time job, who will likely have more experience and better connections than you.

Re: The Simple Math Behind Early Retirement

#177

Post by muzz »

rockdiesel wrote: post #146
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…

> 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?

Sounds like Robert Kiyosaki too

Re: The Simple Math Behind Early Retirement

#178

Post by illuminate »

chimi wrote: post #172
smackfu wrote: post #159

Earlier quoted context omitted.

The tricky part is that it's very easy to not notice when your "investment" turns into a "second job" that may not really be paying that well per hour.

It's important to find a good property manager in the area you are investing. They do the work for you but the returns are less of course. Just like anything...

"It's important to find a good property manager in the area you are investing."

Also not as easy as implied.

Re: The Simple Math Behind Early Retirement

#179

Post by muzz »

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…

> Why buy stocks and bonds when you can buy a house that pays $500/mo rent on a $5000 purchase?

500/mo * 12 mo = $6000 a year. At $5000 investment that's a return of 120%, as another commenter pointed out.

Why invest in anything at less than 120% return?

Either a) you've discovered some capital allocation inefficiency, i.e. trillions of $$$ are being foolishly allocated into places like stocks and bonds when higher returns obviously exist or b) you don't fully appreciate the risks that come with the 120% annual return

(I guess there is another option, that the scenario doesn't exist, but I'll take your post at face value and assume that it does.)

Re: The Simple Math Behind Early Retirement

#180

Post by stephengillie »

cerebrum wrote: post #149
grecy wrote: post #141

Earlier quoted context omitted.

>> 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?

I went wifi-only last year and I've enjoyed the $70/mo in extra money each month. I don't call people often so I use Google Voice, and the GrooVe android app. which has great call quality everywhere but the office.

I have wifi at home, work, friends' places, and a lot of businesses, so I'm only really offline when I'm driving and maybe the grocery store.

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