Mr. Money Mustache – Early Retirement Made Easy

Intro: I’m blinding you with fience!

Mad Fientist: Wow! What a ridiculously amazing intro. Welcome everyone to the first episode of the Mad Fientist, Financial Independence Podcast. I’m thrilled to introduce my guest today. He was able to retire in his early 30s and is now one of the most entertaining and informative personal finance writers around. It’s only been just over a year since he started his blog, mrmoneymustache.com, but his popularity has exploded and continues to grow with each intelligent and hilarious article he writes. Without further delay, it’s my absolute pleasure to welcome Mr. Money Mustache. Thank you very much for being here. I really appreciate it here.

Mr. Money Mustache: All right. Thanks a lot, Mad Fientist. It’s good to be here.

Mad Fientist: Thanks. For those that don’t know your story, could you just take us back to the start? How did you get on this journey to financial independence?

Mr. Money Mustache: Yeah. The thing about the story is that it’s not really all that amazing. In fact, it seemed pretty normal to me. That’s what led to the blog, because I did something that I felt was fairly normal and then I ended up as sort of semi-retirement shortly after age 30. Then I looked around and nobody else was even closed to retired, so that’s what compelled me to feel like I had to start writing about it. If you go back before that, how it started, I think I got a relatively early start to saving up some cash and getting to financial independence. I had slip-ups along the way and I wasn’t particularly hardcore, but a few things that did speed me up were … I started pretty young.

In high school, my parents made it clear to me that I need to pay for most of my own education, so I had jobs starting around age 15 working at a gas station, the convenient store, a hardware store and all those years I saved up towards college. The understanding was like when you get these part-time jobs, you’re not just buying a car with it or just drinking it away. You have to save most of it. I probably saved up maybe 10 grand towards college tuition back in high school. Even then, there was room for spending, too. I had a motorcycle back then, a nice stereo and girl friend. I thought I was leading a normal high school life.

In college, I think that’s where the real difference happened because I just got a good job every summer. I’m making 12 to 15 bucks an hour and I would save that for the next year’s tuition. I notice a lot of my co-students, they had stuff that I thought was amazing. They had laptop computers and back then that was pretty an amazing thing, expensive thing to have. They had cars. They had their own dedicated $600 a month apartments, whereas I was just living with my family. It’s a real difference in … My goal was spend no more than what I earned. For other people, borrowing was an option. It’s really just a foundation of not living beyond your means. I think I didn’t even know that you could get loans back then, or if I did, I’d thought, “Why would want a loan? It’s scary.”

Mad Fientist: Right. That’s interesting when you said that you didn’t even realize that this was eventually your goal. You were just living this lifestyle and it just came easy. As you discussed a lot in your blog, this isn’t rocket science and that it isn’t impossible for average earners. You’ve demonstrated that you can still live a really good life without all of the stuff that all the other people are buying. Now you’ve retired and living an even better life. That’s incredible. As you amassed this amount of savings, when did it click that you’re like, “Hey, wait a second. I could actually stop working soon”?

Mr. Money Mustache: Yeah, that took a while because at first, once I graduated as engineer, I got a job, so the pay was better. I was making like $40,000 when I first graduated. That eventually went up to just over 100 grand over the next five years. I just kept spending at the normal level of what a typical person who makes 30 to 40 grand might spend. Eventually, my goal was just to make as much as possible and I figured I don’t want to waste money but I’ll just spend on whatever I want, so travel and everything else. Then the money just start building up. I think I just read books on investing and I started to think, “What do you do when you have extra money and you don’t want to spend it?” Then the idea of getting more serious about understanding investment gradually formed itself in my mind. I finally, I didn’t have like an epiphany moment, but I just realized that money makes money for you. Your real goal is just to have enough money that it continually makes money so that you don’t have to work anymore.

It was probably about, I don’t know, like five years into my career and I had savings growing and then I thought, “Let’s just go the rest of the way and get these savings up to a big enough level where we can quit.” I was also, by the time I just recently gotten married, my wife and I were thinking of starting a family at some point and we always wanted to have the type of…not the busy kind of lifestyle that we saw other people with kids have where you’re like shuttling your kid around and you’re always busy. We wanted to be just home with the kid. Free to do whatever you want. You can spend days at home with them or you can go out on trips with them. There’s no mandatory office shifts mixed in with this already difficult thing of having a baby or a young child in our house.

Mad Fientist: That’s the one thing when reading your blog that I really picked up on this just how lucky your child is to have both parents at home. You see all these parents buying three different types of strollers for all different terrain and things like that, but then they have to work 40 hours, 60 hours a week. It really comes out in your writing just how great financial independence is, not only for you and your wife, but for your son.

Mr. Money Mustache: Yeah. It really changes the parenting experience, which is a little hard to express to people who don’t have kids yet. Kids are such a huge commitment. They take so much time and they keep you all up at night when they’re babies. The more time you have for your kid the better, especially if you’re one of those types of people that really wants to do a good job at whatever you do, say you’re a dedicated career person. Then you have a kid or two, you’re going to be comparatively quite crappy at your job because all of a sudden you have to miss sick days and you’re always taking calls from home or you don’t feel like you can work late because there’s people waiting for you at home. Your mind is divided.

I really like the idea of if you are lucky enough to get started early, thinking about this plan like when you’re 20 to 23 or whatever, get your money earning and your career kickassing done in advance while you have time to focus on it. Then when you have the kids, you have time to focus on them. It’s OK if you suck at your job or preferably you don’t even have a full-time job during your kid-raising years because just one thing at a time.

Mad Fientist: Yeah, absolutely. That seems definitely like the best way to go. You mentioned five years before you actually became financially independent, you started seeing your savings grow and thought, “Hey, I need to invest this and help it grow it more.” You mentioned that you read a few books. Do you have any that you would recommend to other people that are in the same shoes you were at that stage?

Mr. Money Mustache: Yeah. Investing is pretty simple at least if you do the stodgy old man way, which is basically you don’t buy Apple stock, you don’t buy a Facebook stock, you just buy a big index funds from the Vanguard Company where you’re basically buying a huge slice of the US economy and then you buy another huge slice of the European economy. You’re not trying to predict ups and downs. You’re just throwing all your money in there. It grows by itself. It’s very stable. You get dividends from it. The funny part about that style of investing is that it’s the easiest kind. From an academic perspective, people who do studies on this, they prove that it’s also the most efficient kind in terms of risk versus reward ratio and stuff. Yeah, it really does work great. Vanguard is, in my opinion, one of the best companies to do that because their fees are the lowest, so it ends up being hundreds of thousands of dollars that you save up for lifetime in investment management fees, which is pretty significant. It makes it really simple.

One book that talks about that and nice, all-in-one, is one called The Four Pillars of Investing by William Bernstein, I think is the author. That’s pretty good. You can go from a beginner to everything you need at one book. Another one is cool, it’s called The Random Walk Down Wall Street by … I forget. Is it the same author or another one? Anyway, it’s a pretty famous book. It basically will be able to teach you to fear crazy, active investing, which you should fear. You should be afraid to buy Facebook stock on its IPO day. You should be afraid to try to time the market. That’s the kind of the stuff that you want to beat out of your natural personality if you want to become a long-term wealthy investor.

Mad Fientist: Excellent. Five years, you started to invest in index funds and it’s really starting to grow then. Can you describe that day that you realized you’re going to be able to stop working and quit your job? I guess you said that you and your wife are both on this path together. Was that a joint decision or did one of you work longer than the other?

Mr. Money Mustache: Yeah. The having the wife on board thing was really great. I think if you want to put a chronology to it, it’s the guy and the girl decide they want to have kids and then they decided to get more serious about the savings. I think we would just each made our own spreadsheet of how much we’d saved up and how things are doing. Maybe after each paycheck or every couple of paychecks we would update our stuff and get the latest stock prices and stock amounts and dividends and add it all in. We were excited because we would see this forward progress.

Then we started tracking our spending a little bit and we figured … I thought then we were spending a lot because we were traveling a lot and still with mortgages and everything, too. I think we were spending about $40,000 a year just between the two of us with no kid. The idea was get enough money saved up so that the passive income could equal this $40,000 we need. Gradually, that formed into rough guess of how much we needed to save, so then we just started working towards that number, savings, and then got closer and closer. There were various hiccups along the way and changes, but eventually, once we got to the number safely, then we felt, “Oh, it’s fine to quit the jobs,” so we did. I quit mine and she quit hers and then my wife moved into a part-time casual job for a while and then I’ve done a bunch of stuff since then. I’ve done various kinds of work and non-work.

The parenting part has really cut down our ability to work. We’re really unproductive individuals now compared to when we were in our 20s. We’re just being conscious and saying, “Yeah, that’s just part of being a parent.” You’re not going to kick ass at anything in particular. It’s OK if I can’t answer all my Mr. Money Mustache emails or do the best blog posts that I would if I had eight hours a day free. Later on, kids grow up and then there’s a chance you might get more hardcore about something in the future.

Mad Fientist: Did your employer know what you guys are up to or did you just quit or did they actually know that you’re retiring? If so, what was their reaction like?

Mr. Money Mustache: Yeah, they did because I was pretty close with my co-workers at the hi-tech company. I told them over that final year. It’s almost like a religion, financial independence because you start to wonder out loud, “Why that guy just bought a BMW when he doesn’t even have his house paid off,” or stuff like that. We talk about various financial crazinesses in the world and then that leads to talk about how you would eventually want to stop working. When I did stop working, by that time, my co-workers had figured out that I was planning to not get another job. Yeah, most of them thought it was pretty cool. There were a couple of people that were far ahead of me but they just were enough tuned in to work but they didn’t want to quit even though they can easily afford to. Those guys and girls, they were just pretty supportive and not skeptical at all because they’re like, “Yeah, that’s what I’ve been in the situation for the last 10 years but I just work because I like engineering or something.”

Mad Fientist: Wow! Did any of your colleagues see the light and say, “Wow! I should be doing this.” Did any of them drastically change and start on that path to meet you in retirement in a few years?

Mr. Money Mustache: Yeah, there are a couple of people. It’s like a spectrum of people, consumers and spectrum disorder you could call it. There’s some people who were sort of like you, the Mad Fientist, who had the tendency of this and then they got the tendency to want to be financially independent. Once you realize it’s possible and someone tells you, then you start to go more and more that way. On the other side, there were people who were the extreme spenders who just always insist that it’s impossible. Those people still work there today or at other company. Whereas, some other people I know have actually gone into early retirement since in the six years or seven years since I quit there. It’s kind of neat. I don’t know if I influenced them all that much. Some of them are Mr. Money Mustache readers.

Mad Fientist: That’s awesome.

Mr. Money Mustache: With those one maybe are getting more influenced.

Mad Fientist: Nice. You mentioned that you were planning to have your passive income be able to sustain you. How did you generate the passive income? Was that from dividends on your investments alone or did you start any passive income businesses?

Mr. Money Mustache: Yeah, that’s still changing over time. During the saving years, my plan was that it was just going to be stocks. I didn’t really know much about dividends at the time. I just knew that stocks go up and they give you a bit of dividends. You get dividend checks and then you also sell a tiny bit of your shares, that you can live off them. Right before I quit that job, we moved to a different town, nearby town, and I kept the old house and rented it out. At that time, interest rates were going down a lot, too. My first mortgage was 7.8% interest rate, which people thought was good at the time, and then that dropped and dropped and dropped. At one point, I refinanced it down to the fours or something. All of a sudden, the mortgage was lower, but my neighborhood was doing great because it’s right next to Boulder, Colorado, so I was able to rent out the house a lot for a great high rate.

Then the rent from that was just paying for itself and for our new house’s mortgage, so then I basically had stumbled into the magic of real estate and landlording, which a lot of people have known about that for many generations. For me it was new, so I thought, “Wow! This house is working for me and doing a lot more work even though it takes almost no work to manage it.” Then I got a bit more interested in owning rental houses. Now, my biggest source of passive income is another rental house that I have in this town, the city I live in right now. Overall, for people who are interested in stuff like that, like interested in houses and real estate, that’s a source of passive income that’s much better than stocks and dividends if you know what you’re doing, because the rate of return is much higher. In stocks, if you buy a dividend fund at Vanguard, you can get 3% to 4% per year. You can buy real estate investment trusts through the stock market that pay 6% to 8%, which is fairly good. $100,000 invested will give you a 6,000 to 8,000 a year.

A rental house or like a small apartment building or a duplex or whatever, it’s not unheard of for those things to give you 10% of their value even after paying for all their expenses per year. In that sense, you could just have three rental houses worth $100,000 and then you could have 30,000 of income from them. There’s all kinds of people who comment on the Mr. Money Mustache forum who are really crazy into this. People with dozens of properties or somewhere between three and 30. Even if they borrow money to buy these things on 30 year mortgages, these guys have become financial independent with hardly even any of their own capitals. They just have this flock of well-chosen rental houses. Mortgages are paying themselves. They had to put small down payments on but not a huge amount.

There’s all kinds of fancy ways to get a living without even having to resort to stocks. It just depends on how conservative you are. Stocks are the most conservative and safe. Real estate takes a bit more knowledge and skill. There is a risk because if you don’t know what you’re doing, you can end up getting underwater properties with loans like everybody did in 2008.

Mad Fientist: Sure. Reading the Mr. Money Mustache site often, I know that you’re very handy and you have many skills that would be good for fixing up houses and things like that. Do you think that’s essential in getting into that rental investing? It obviously can’t hurt, but do you think it’s something that’s essential or could somebody with minimal skills develop them as they go along with their first rental property?

Mr. Money Mustache: Yeah. It’s definitely not essential because it just depends on your personality type. If you like managing people or making phone calls, you can hire contractors and handyman to take care of your properties and you never have to lift the screwdriver at all. I personally, am the opposite kind of personality where I really don’t like having to call people and deal with people screwing up and everything. I just love doing stuff myself. For my personality, I would only be a happy landlord if I was able to take care of minor or major stuff myself. It all depends. Yeah, there’s definitely some super successful property owners who are not carpenters at all. My idea of fun is building stuff. Even now in retirement, I do a lot of building stuff. Time flies by when I do that and I have a great time. I’m never going to stop that.

By mixing it in with property ownership, it makes even more of a game of it. On the blog, we documented a thing where we bought a really junky house in my neighborhood that was unlivable and then fixed it up over a couple of months period to be somewhat stylish and then rented it out for a pretty good rate. By buying it so cheap from this bank, it was like a foreclosure situation, then fixing it up. You get this great combination of artistic design and carpentry work and a little bit of business work of renting it out. Then it turns into this passive income which is paying 10% per year or whatever.

Mad Fientist: Yeah, that’s amazing. It sounds like you have the ability to continue to make more and more money even after you retire. People will probably get scared that, “Oh no. I quit my job and then this chunk in the bank has to sustain me until I die.” Reading your blog and seeing all the great things you’re doing after retirement. It just makes you think that there’s even more income out there than you can probably expected when you first quit your job.

Mr. Money Mustache: Yeah. That’s a cool part. A job is a bit of a soul-sucking enterprise, especially if it’s not the perfect job for you. All of your creative energy goes into that. Once you quit it, what I find anyway in a couple of other people who have been in the same situation, your creative energy and your skills come out of the woodwork and then all of a sudden, you find yourself doing stuff that you didn’t have time to do before. Then it takes on a life of its own because you’re not too worried about the money and then you end up with neat new careers you never would have thought of. Since you and I have both written blogs now, that’s an example in itself. I never thought I would be a writer of any sort. I enjoy writing and reading and blah, blah, blah, but all of a sudden, this thing has become super addictive and I love writing.

Now my blog is maybe even a bigger job than the carpentry was because it’s taken off in a sense. In fact, even the blog even started making money, which I never expected. Yeah, a bunch of unexpected and fun stuff happens when you stop working for a living. That’s a real key. It makes your life a lot more of an adventure which I like.

Mad Fientist: Yeah, it sounds amazing. What do you think, is that one of the things about being financially independent? What do you think the best part is?

Mr. Money Mustache: It’s hard to pick one as the best part. The idea of freedom is great and the idea of weekdays becoming your weekends. It’s really neat. I still get a bit of a thrill every Monday morning and I wake up and I’m like, “Yes! It’s not a workday today.” Then it feels like … I don’t know. It’s just the idea of an unlimited weekend is really magical. Probably because I worked really hard during my days; I was a bit of a workaholic. In school, I was a bit of a schoolaholic where I always thought you had to get these super good marks. I was probably torturing myself unnecessarily during those years. If I could back in time, I would teach myself to relax then. Now, with the actual lack of a real job, then relaxation comes automatically, so you get this nice thrill like I don’t have to do anything, but I just want to do stuff. It’s just a really nice feeling every morning you wake up and there’s the sun and there’s more stuff you can do. The days aren’t really planned out and stuff like that.

Mad Fientist: Oh, man, that sounds great. Were there any tools or spreadsheets that you used that were particularly helpful as you’re on your journey towards financial independence?

Mr. Money Mustache: Yeah. I heard that the Mad Fientist is into spreadsheets and I definitely advocate that to people who are saving, but it’s been so long since I used my own spreadsheets. I don’t have a good one to share. On the blog, we’ve had a series of them on the Mr. Money Mustache blog. The most recent one, especially for US-based people, there’s a thing called the Ultimate Retirement Calculator. The people who made it put it on their own website after giving it to me. It’s called lifespreadsheet.com and that thing is a great place for tracking your own earnings and savings and stuff. It’s a pretty fun spreadsheet.

Personally, what I use right now, is just the Mint, you know that financial service thing that’s free. I just use that as a net worth tracker. It just sucks the information out of your bank account and your investment accounts to keep track of how things are going. The spending tracking is the part I find most useful. I’m not super interested in net worth anymore, but I do find it interesting to see how much I spend each month and then what it looks like more, you just click on little part of the pie chart and it zooms in. It’s like entertainment, $500, you can zoom in on that, like, “Oh yeah, this was the month that I bought the whole bunch of stuff for a party or something like that.”

Mad Fientist: Cool. I also use Mint. That’s an excellent tool.

Mr. Money Mustache: Yeah. Mint is great for tracking. Spreadsheets are maybe better for predicting, so making your own predictions of … I’ve been saving say like 10,000 a year for a certain amount of time but it’s been going up. Then my investment are probably going to go up by a certain amount, so making your own spreadsheet is a great idea for when you’re in the early saving years and you want to get some estimates. Also, the spreadsheet that I mentioned, Ultimate Retirement Calculator on lifespreadsheet.com also I think has some pretty good prediction stuff.

Mad Fientist: Excellent. Perfect. I’ll put a link to that on the show notes. Any final advice you’d give to anybody out there, if there’s one thing maybe that you wish you would’ve done five years earlier and you could have been retired before you’re 30? Is there any final advice, that one piece of advice you would give anybody out there that are starting on this path?

Mr. Money Mustache: I think the thing that I would tell other people, I just mostly got lucky. I mean, lucky in the sense that I did things that ended up being the right thing to do, looking back. For other people, what I would suggest is make sure you’re thinking about your spending even more than your income. By understanding what happiness means and helping to decouple the idea of happiness from owning certain things, you can really amaze yourself at how fun your life can be because that’s the whole secret to living a rich life is not feeling like you need more than you already have; otherwise, you’re going to just be always craving more and more and more until you get to the Gulfstream G650 jet. Then you’re like, “Now I have everything but I’m still not happy. Crap!” That’s because the happiness does not get increased by buying stuff.

Learn about happiness. Read books about happiness, that’s number one advice because that’ll help you spend a lot less because all of a sudden it’ll just kill so many of your material desires and then you’ll be so much happier. Really this whole thing about retirement and early retirement and financial independence, it’s really a quest for happiness, so study that independently of the money and then that makes the money part easier.

Then another tactic that’s a little bit less deep is my golden rule is that everybody has to ride a bike, which is almost a little bit related to the happiness thing. A bike is like this distilled essence of life where you get where you want to go, you get fitness, you get socialization, nature, badass-ity in the sense that you get tougher and you’re forced to deal with nature. A bike is like a microcosm of leading a good life and it also saves you a ton of money. Basically, if you lead a life and you’re an able-bodied person and you’re not riding a bike, there’s something wrong in your life and you got to fix that. It’s funny because it sounds so shallow, but it’s actually pretty deep. Basically, if you can get to enjoy riding a bike all the time, then you’re probably on the right path to leading a happy and financially independent life.

Mad Fientist: That’s great. Thanks a lot Mr. Money Mustache. It’s been an awesome interview and I really appreciate you taking the time. Anybody out there that wants to learn more then go to mrmoneymustache.com. Is there anywhere else they can email you from there if they wanted to get in touch?

Mr. Money Mustache: Yeah. Everything you need is there on the site. Yeah, I hope to see some of your readers hanging out there, and I’ll be checking out Mad Fientist as the site grows, too.

Mad Fientist: Excellent. Thanks again.

Mr. Money Mustache: All right, bye-bye.

Mad Fientist: That’s the end of the first Mad Fientist Financial Independence Podcast. I hope you enjoyed the discussion with Mr. Money Mustache as much as I did. If you’ve not checked out his site yet, you should really head over there now and take a look. He recently launched a forum that is very active with great discussion about all things related to financial independence. All the articles he writes are top-notch so you should definitely check it out. That’s it for now. Thanks for listening and I’ll see you next time.

Outro: E=MC Fience