Financial Planning Lessons from Mr. Money Mustache: Why "your current middle-class life is an Exploding Volcano of Wastefulness"?
AI's response in regular print | Beverly Hills, CFP®, Joe O'Boyle's in italics
“Financial Planning Lessons from Mr. Money Mustache: Why "your current middle-class life is an Exploding Volcano of Wastefulness"?
“Mr. Money Mustache”, real name Pete Adeney, is a popular figure in the "Financial Independence, Retire Early" (FIRE) movement who saved 66% of his pay for 10 years and retired at age 30. As he points out, most people with much higher salaries are often stuck working until age 65. He provides a variety of money lessons centered around frugality, simplicity, and investing for the long term that he followed in order to achieve financial independence and retire early.
According to Mr Money Mustache:
“Your current middle-class life is an Exploding Volcano of Wastefulness, and by learning to see the truth in this statement, you will easily be able to cut your expenses in half – leaving you saving half of your income. Or two thirds, or more.
What happens when you can save more of your income? As it turns out, spending much less money than you bring in is the way to get rich. The ONLY way.
And the effects are surprising: if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37. If you already have some assets now, you’re even closer than that. If you can save 75%, your working career is only 7 years.
But how can you save so much?
The bottom line is this: by focusing on happiness itself, you can lead a much better life than those who focus on convenience, luxury, and following the lead of the financially illiterate herd that is the TV-ad-absorbing Middle Class of the United States (and other rich countries) today. Happiness comes from many sources, but none of these sources involve car or purse upgrades. No matter what the herd or the TV set tells you, this is the truth.”
Here are the top money lessons from Mr. Money Mustache:
Value Experiences Over Things: One of Mr. Money Mustache's central tenets is that happiness doesn't come from buying stuff, but from experiences and relationships. For example, instead of buying an expensive television, invest that money and spend your time hiking, reading, or socializing with friends. Over the long term, the invested money will grow, and the experiences will provide more lasting satisfaction.
Frugality is Freedom: Adeney firmly believes that living frugally is the key to financial independence. By reducing your spending (which is entirely in your control), you're able to save more of your income. For example, instead of buying a new car every few years, keep your old one running as long as possible. The money saved on car payments can be invested, and thanks to the power of time and compound interest, it can grow substantially over time.
Consider the True Cost of Things: Adeney encourages people to think about costs not just in terms of money, but also in terms of time and freedom. For instance, if you earn $25 per hour after tax, buying a $100 gadget costs you four hours of your life. Is it worth it? This perspective can help you make more thoughtful spending decisions.
Invest in Stock Index Funds: Mr. Money Mustache advocates for investing in low-cost, well diversified, stock index funds. He advises against trying to beat the market by picking individual stocks. For instance, if you have $1,000 to invest, putting it in a broad-market stock index fund will give you a piece of thousands of different companies, reducing your risk (compared to investing in a single company) while providing exposure to the overall growth of the economy for the long-term.
Make Your Money Work For You: The goal of saving and investing, according to Mr. Money Mustache, is to build a 'stash' that will generate passive income. Once your investments are generating enough income to cover your living expenses, you've achieved financial independence and can retire if you choose. For example, if you have $1,000,000 invested and can reliably get a 4% return, that's $40,000 per year in income. Note: Saving up 25 times your annual salary is another way to think about the 4% rule. For example, if you earn $40,000 per year now and can save up 25 times that amount (which is $1,000,000) then you can take a 4% annual distribution from your $1 million nest egg to generate the $40,000 in passive income that you need to replace your salary and achieve financial independence.
Biking and Walking Saves Money: Adeney is a big proponent of biking and walking as a way of saving money on transportation costs. For example, by biking or walking to work instead of driving, you save on gas, car maintenance, parking, and possibly even car insurance. Over time, these savings can add up and contribute significantly to your financial independence.
“So how can you actually cut your spending in half according to Mr. Money Mustache?”
According to Mr. Money Mustache by valuing experiences over stuff, “Here’s how to cut your life costs in half. Start by getting rid of your Debt Emergency if you have one. Live close to work. Move to another city if you enjoy adventure. Don’t borrow money for cars, and don’t buy stupid ones. Ride a bike wherever you can. Cancel your TV service. Stop wasting money on groceries [learn to shop smarter/healthier]. Give your kids the opportunity to achieve greatness without being pampered. Lose the overpriced cell phones. Learn to appreciate the life-boosting joy of using your own body to get things done. Learn to mock convenience. Practice optimism.
That should do it – about half of your expenses, gone in one paragraph. Keep going, as many readers (of Mr. Money Mustache’s blog) do, and you can save closer to 75% of what you make – especially for those with above-average incomes.
But then what do I do with all the money?
You invest it. In stock index funds, in paying off your own house, in rental houses if you are interested in local real estate, and in other sources as you continue to learn about making money work for you… My own retirement income comes from a dead-simple asset allocation: a bunch of [stock] index funds… which pay quarterly dividends.
How long will the money last?
If you can get 25 times your annual spending saved up and working for you, that is enough to live off – forever. This … is a story about lifestyle and attitude transformation. And believe it or not, your attitude determines your lifetime wealth much more than your knowledge of financial nuts and bolts.”
Remember, while these lessons can be highly effective, they're not a one-size-fits-all solution. Financial success can come in many forms, and what works best for you might not be exactly what worked for Mr. Money Mustache.
What did you think? How did AI do?
About OpenAI’s ChatGPT tool:
GPT (short for "Generative Pre-training Transformer") is a type of language model developed by OpenAI that is trained to generate human-like text. ChatGPT is specifically designed for generating text in a conversational style. It is a machine learning model and has been trained on large datasets of real-world conversations in order to learn the patterns and styles of human communication.
Joe O'Boyle is the founder and principal of O'Boyle Wealth Management, a full service financial planning and investment management firm, located in Beverly Hills, California. Joe O’Boyle was named to InvestmentNews 40 under 40 class of 2016, and has a catalog of financial planning and investing articles on Money.com & U.S. News. Disclosure information.