Retirement and Financial Independence

How To Retire Early with Mr. Money Mustache

Updated on October 18, 2019 Updated on October 18, 2019
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mr money mustache

Do you dream of retiring early? We interview the expert in early retirement, Mr Money Mustache. We must learn his ways.

A Crisis

Mr Money Mustache didn’t retire because he was making so much money from his blog. He had actually been retired for six years before he started writing. The blog was born when he looked around at his friends who had good jobs but were still living pay check to paycheck.

They bought into what has long been sold as the American Dream; go to college, get a job, buy a house, fill that house with as much stuff as it can hold (and when it can’t hold anymore, rent a storage unit), have some kids, and get stuck in an unfulfilling job, dreaming of freedom that will always be out of reach.

Retire, maybe at 65 if you’re lucky, and live out your days, just kind of existing, hoping your money will outlast you. The best years of your life long past. But what if you could be retired by thirty?

Why is not spending so hard? It’s largely cultural. We believe it’s normal to borrow money for a car, to consider shopping a hobby, to order takeout every single day for lunch at work. We think it’s normal because that’s all we see.

There aren’t any frugal people represented in the media unless you count those coupon shows but those people aren’t the norm any more than a Kardashian is a norm. But just because everyone is doing it, doesn’t mean it’s the right thing to do or that you have to do it too.

MMM started the blog out of frustration, he wanted to show them, and now us, that they could do what he did. And an empire started.

So What’s The One Simple Trick?

MMM doesn’t have some magical secret. The first and most important step is to keep spending low. Really low. MMM spends 50-75% less than his peers. He was saving about half of his income. He has shown that if you can save 50% of your take home pay starting at age 20 (a time when you probably aren’t making much, so this isn’t about having a big six figure salary), you could retire before you turn 40.

It sounds impossible. Save half your income? You can. Name a category and you are spending too much on it. Your housing costs alone would probably go a long way to getting you to that 50% savings.

Here’s why; the average house size in the 1950’s was 983 square feet. The average household size was 3.37 people. In the 2000’s, the average house size was 2,300 square feet while the average household size was 2.63 people. Do you see the odd inverse? We are buying bigger homes to house fewer people!

Cars are another biggy. It certainly is a convenience to have two cars if there are two adults in the household but is it absolutely necessary? What if one of the cars were totaled and no replacement was available for a week? Would one of you just stay home from work or would you figure out a solution? Like many things in life, if you had to do it, you would find a way.

Saving this way goes against societal norms for sure. If you’re saving this much, you aren’t living in a 3000 square foot McMansion, you aren’t driving a brand new car, and you aren’t eating only the most expensive, hand harvested, organic quinoa from Whole Foods.

You are living in an affordable home, near your place of work. Because you’re so near to work, you don’t have a car at all. You bike or use public transit if you’re lucky enough to have it.

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Real Happiness

But how will you be happy if you aren’t always buying stuff? Because stuff does not make us happy. It’s true. Science backs me up. It’s experiences that provide real and lasting happiness.

And not just the big, exciting (i.e. expensive) experiences like European vacations either. Think back to your happiest childhood memories. Mine are things like nature walks with my grandmother, not trips to amusement parks or toys I got as presents. Those walks didn’t cost anyone anything.

Reconsider how you think of money. Money is not to buy stuff. Money is to buy freedom. For every “stuff” you buy, you are subtracting from your freedom. More working, more commuting, more dealing with annoying co-workers, just so you can have that new end table you could have resisted in Target but didn’t.

You’ll also need to embrace some discomfort. You can ride your bike to work when it’s thirty degrees, you simply don’t want to. Do something because it’s hard, then it becomes a victory.

How do you deal with friends who only want to socialize in ways that cost a lot of money? First, try to find some friends who value the things you like to do. Find a club devoted to your hobby, running or knitting or rock climbing, whatever you like to do. Now you have a pool of people to do those things with.

Or just step up. You decide what the group is doing and announce it. Make your own pizza party at your place. It’s more fun and cheaper than going out to dinner. There may even be those among your friends who are also grateful for the chance to socialize without blowing the budget but are just embarrassed to say so.

Now That I Have All This Money…

Surely, this must be the secret trick. MMM has some kind of secret investing formula that allows for all this. Nope. He invests in index funds like Betterment and Vanguard. He’s to busy riding his bike up scenic mountains out in Colorado to be constantly monitoring his investments and actively trading. Index funds allow you to set it and forget it.

Pay off your home. This seems so out of reach for many people but remember, you shouldn’t be living in a 3,000 square foot place that you only put 20% down on. You should live in a modest, affordable home. Easier to pay off.

Consider getting into the landlord business. Real estate isn’t just for moguls. One of our writers, Allison Karrels, is building a mini-empire right now. She’s up to six rental properties and she’s not yet forty. She is a nurse and her husband is in the military and they are building up an impressive portfolio.

Investment Property 101 – Part One: Are You Ready To Be A Landlord?

Investment Property 101 – Part One: Are You Ready To Be A Landlord?

How Much Money Do I Need?

Okay, you’re sold, wonderful! But how much do you need to actually do this? Take what you spend a year, say $25,000 and multiply it by 25. That gives you $625,000. That’s how much you need to have invested in order to retire.

Retirement isn't the end of work. It's the end of mandatory work.

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So there it is folks. Any of us can do it. It won’t always be easy but neither is working 9-5 for the next forty years in a job we hate.

Actually Retire Early

Manage your cash and optimize your investments in one place. With Personal Capital you can analyze your 401k to better diversify your holdings and reduce fees. I had no idea I was paying over 1% of my assets in fees every year but with there help I was able to get it down below 0.3%.

Once you have all of your accounts linked you can also leverage their Retirement Planner to plot out exactly what your retirement would look like. Using a Monte Carlo simulation they determine how likely it is that you’ll reach the level of income in retirement that you’re hoping for.

I’ve been using Personal Capital since 2013 and I haven’t found a better free online tool for building and managing wealth.

Show Notes

Mr Money Mustache:  Everything you need to know to retire early.

The 4 Pillars of Investing:  A book that helped MMM get his start.

Betterment:  Start investing your 50% today.

Candice Elliott - Editor-in-Chief Candice Elliott is a substantial contributor to Listen Money Matters. She has been a personal finance writer since 2013 and has written extensively on student loan debt, investing, and credit. She has successfully navigated these areas in her own life and knows how to help others do the same. Candice has answered thousands of questions from the LMM community and spent countless hours doing research for hundreds of personal finance articles. She happily calls New Orleans, Louisiana home-the most fun city in the world.

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