The Art of Manliness - #133： Financial Independence Through the Strenuous Life With Mr. Money Mustache

00:00:00.000 Brett McKay here and welcome to another edition of the Art of Manliness podcast.

00:00:18.240 Now imagine you're in your 20s, a lot of you are actually in your 20s, and someone comes

00:00:23.100 up to you and says, look, with your current job, you don't have to be making millions

00:00:27.080 of dollars a year, just an average middle class job.

00:00:30.860 You could retire at age 30 if you really wanted to.

00:00:34.520 And of course, you'd probably say, well, that's crazy talk.

00:00:36.320 Of course you can't.

00:00:36.980 That's not how it works.

00:00:37.760 You have to work 30, 40 years to save enough so you can stop working.

00:00:42.080 Or the way you shortcut that is you start a business and sell it for millions of dollars

00:00:46.820 or a rich uncle dies, you win the lottery.

00:00:49.280 We're not counting on that.

00:00:50.380 So I'm going to put my 30, 40 hours, 30, 40 years in.

00:00:53.720 And my guest today has done it.

00:00:57.220 He actually retired at age 30 working as a software engineer, and he wasn't making millions

00:01:03.280 of dollars a year.

00:01:05.240 And the way he did it was just through extreme frugality.

00:01:10.300 His name is Pete.

00:01:11.960 He runs a blog called Mr. Money Mustache.

00:01:14.400 I know a lot of you guys follow him.

00:01:15.780 And Pete promotes what he calls financial badassery.

00:01:19.580 And his big argument is that Americans waste a lot of money on stuff that we really don't

00:01:25.420 need, luxuries that make us comfortable.

00:01:28.060 And if we can get rid of a lot of these luxuries or cut back on them, we can actually save a

00:01:35.000 lot of money.

00:01:35.720 And so what he says is like, look, you just live the strenuous life, do things that are

00:01:40.400 hard, and you'll actually save yourself some money that will give you financial freedom

00:01:45.100 a lot sooner than you think.

00:01:46.320 I think it's really fascinating, his approach.

00:01:49.700 So today on the podcast, Mr. Money Mustache and I discuss financial badassery and the mindset

00:01:54.700 shift that needs to take place in order for you to be able to retire early if you wanted

00:01:59.360 to.

00:02:00.160 We're also going to talk about what do you do when you retire early at age 30 or 35?

00:02:05.000 What do you do with your time?

00:02:06.640 And then finally, we discuss some brass tacks things you can do right now to start saving

00:02:11.700 more money to allow you to have some more financial independence.

00:02:15.280 Really great show.

00:02:16.320 I think you're going to like it.

00:02:17.520 So without further ado, Pete, Mr. Money Mustache.

00:02:20.580 Pete, Mr. Money Mustache, welcome to the show.

00:02:24.500 Thanks a lot, Ms. McKay.

00:02:25.360 I'm excited to be here on the Art of Manliness for the first time.

00:02:28.640 So I think you're actually my first mustached guest I've ever had on the Art of Manliness

00:02:32.740 podcast.

00:02:34.080 Well, only in my publicity materials, because actually in real life, I don't always have

00:02:38.180 a mustache, including right now.

00:02:39.960 It's too much maintenance.

00:02:41.800 So in that extent, I'm kind of failing in the manliness contest.

00:02:45.700 But it'll grow back this winter, and then I'll be real again.

00:02:48.800 Then you'll be real again.

00:02:50.060 Yeah.

00:02:50.440 All right.

00:02:50.820 So you have a blog called Mr. Money Mustache.

00:02:53.200 I know a lot of our listeners probably have readers of it.

00:02:57.540 But the story behind it is you retired at age 30.

00:03:00.720 So how did this happen?

00:03:01.660 How did you retire at age 30?

00:03:02.900 And you did this with you're married.

00:03:04.780 You have a kid.

00:03:05.440 I mean, did you win the lottery?

00:03:07.160 Did you have a dead rich uncle happen?

00:03:10.240 What happened?

00:03:11.420 Yeah, it's all the old fashioned.

00:03:12.880 I did everything the old fashioned way.

00:03:14.480 So first of all, I should clear it up.

00:03:15.900 I'm 40 now.

00:03:16.720 So this is about 10 years ago that my wife and I retired.

00:03:19.960 And the reason we did that is in order to start a family, we always figured we were such

00:03:23.860 workaholics back in our 20s that we want to be free from that in order to concentrate

00:03:28.500 on kids when they came along.

00:03:30.620 So that got us motivated to save through our 20s.

00:03:33.780 And we just worked as normal like tech workers.

00:03:36.600 I was we're basically both software engineers.

00:03:40.020 And so no magic, not really stock options or any kind of stuff like that.

00:03:44.240 It was just we lived sort of like a normal lifestyle, but we earned a little bit more

00:03:49.500 than normal, which is not necessary for early retirement.

00:03:52.460 But the real key is just not spending everything you earn.

00:03:55.440 We spent we lived on a little under half of what we took home and invested the rest and

00:04:00.000 just paid off the house, bought normal index funds.

00:04:02.500 Nothing flashy.

00:04:04.120 I did like a rental house or two at times.

00:04:06.880 And when we were done, when we had enough savings, and we're going to get to that later

00:04:10.640 in the interview, it was enough to just live off the dividends and capital gains and rental

00:04:15.240 income from the houses.

00:04:17.260 And then that was enough to cover our living expenses, which are pretty low.

00:04:20.780 And we've been doing it ever since.

00:04:22.600 And only after we realized that very few people did this, did I feel it was necessary to start

00:04:27.700 a blog to explain like, you know, this weirdo did this weird thing that's actually pretty

00:04:32.200 easy to do.

00:04:33.340 Okay, so yeah.

00:04:33.960 So it was just aggressive saving, living frugally.

00:04:36.320 We'll get talked about some of the brass tack things you do.

00:04:38.560 Before we do that, let's talk about the underlying philosophy, because I feel like it's not so much

00:04:44.100 tactical things that are hard to do.

00:04:46.460 It's the mindset that's the biggest change to do what you did.

00:04:50.860 So what's the underlying philosophy behind the Mr. Money Mustache way of finances?

00:04:56.480 Yeah, it's a good question, because I didn't even realize I had an underlying philosophy

00:05:00.200 as a kid and as a 20-year-old.

00:05:02.680 But then I realized it's, I think of everything as kind of like a game.

00:05:06.260 So some people think you win the game if you get the most luxuries and spend as much as

00:05:12.160 your paycheck as you can without getting in trouble.

00:05:14.300 Whereas I always thought I won the game for keeping as much money as possible and accomplishing

00:05:19.640 the most stuff myself.

00:05:21.140 You know, like, for example, I always thought, oh, I'm 20 miles from work right now.

00:05:25.100 I wonder if I could bike there, or I wonder if I can make the bike trip in the winter,

00:05:28.120 or I wonder if there's a way I can get the groceries without resorting to a car.

00:05:32.380 So just little challenges and doing stuff, pushing your own boundaries and doing things

00:05:36.400 that are harder.

00:05:37.520 If you combine that with thinking about what makes you more money and what saves you more money, 0.93

00:05:41.740 and that also applies to working harder and trying to kick ass a little bit more in your 0.69

00:05:45.700 job, it just kind of automatically, first of all, it makes you happier because accomplishing

00:05:51.260 and learning is a much stronger source of happiness than any kind of like big screen TV or like

00:05:57.300 nicer pair of golf shoes and stuff is going to provide you.

00:06:00.020 So you're happier, but at the same time, you're earning more money and you're spending less money.

00:06:04.040 So it's kind of like these three spokes of a philosophy, which I later rebranded and I call

00:06:10.460 it bad-assity, which is like the desire to be a bit more of a badass in your life tends

00:06:15.180 to make you a lot more wealthy than you'd otherwise be too.

00:06:18.280 Interesting.

00:06:18.780 I mean, but how do you do this when you're surrounded by messaging to do the complete opposite,

00:06:24.300 right?

00:06:24.480 It's not just the media, right?

00:06:25.860 We're advertising, but your friends, your family, they might not do it overtly, but subtly

00:06:30.800 they're like, you know, what are you doing?

00:06:33.080 You should be living this sort of lifestyle, buying stuff, send your, you know, buy your

00:06:37.980 kids nice things, go on that vacation that's really expensive.

00:06:41.480 I mean, how do you make this mindset shift when you're being bombarded with messaging

00:06:45.980 that says, don't do that?

00:06:47.560 Yeah, I really like that question because you're kind of speaking of a US perspective and most

00:06:52.980 of your listeners and readers and mine too are in this country and it's important to

00:06:57.260 realize that we are actually batshit crazy in this country and a lot of other countries

00:07:01.920 don't have the same consumption disease that we have.

00:07:04.860 So you can get a long way just by doing the opposite of what everybody else does because

00:07:09.580 we're all doing it wrong.

00:07:11.080 Everybody is out of shape, you know, like a lot of health problems, self-inflicted and

00:07:15.900 stuff because we're indulging in like, you know, our momentary desires instead of thinking

00:07:21.400 in like a multi-decade plan of like, how can I make my life the best?

00:07:24.740 How can I do the most difficult thing?

00:07:27.020 So if you get negative feedback from society, that means you're doing a good thing.

00:07:31.520 And of course, I'm saying that with a little bit of a joke in mind because, you know, really

00:07:35.740 it's not negative feedback.

00:07:37.040 It's just slightly questioning.

00:07:38.460 Like, for example, you know, people in my town, my friends know that I finished working,

00:07:43.520 I have lots of savings, but I still ride around on an old bike and they see me carrying

00:07:47.820 like a bike trailer full of groceries home from the store instead of having like my servant

00:07:53.020 drive it, drive it in the limo and deliver it and prepare my meals and stuff.

00:07:57.260 They know that I just like doing stuff the hard way because that's a more satisfying life.

00:08:02.960 So you really, I think it's in your mind that people are criticizing you.

00:08:06.340 If you confidently like set out to do a new, more badass lifestyle, really you end up getting

00:08:12.360 more respect instead of less.

00:08:14.340 If people see that you're serious about it and you're pretty confident in your own internal

00:08:17.920 values.

00:08:19.060 And then the second part of that is just tune out of TV and advertising.

00:08:23.480 Like, you know, TV is designed for nothing but to make you want more stuff like a shiny

00:08:28.540 or bigger pickup truck and stuff.

00:08:30.180 And I've never really been into that.

00:08:32.160 So, you know, I just got rid of TV about 1999 and haven't turned back.

00:08:37.160 I'll still watch like great movies and stuff, but just there's just no need to absorb advertising

00:08:42.120 of any sort.

00:08:43.220 You can just wipe it out of your life now that the world is more modern and you get

00:08:46.960 to choose the information that's pumped into your head.

00:08:50.340 Yeah.

00:08:50.740 So between those two things, you know, people should try them and come back to me if they

00:08:54.520 have any problems, see if those are working.

00:08:56.540 Yeah, this is great.

00:08:57.060 And you hit on this idea of not being a consumer.

00:09:00.760 But I think it's really interesting because we've written about this on the site before,

00:09:03.940 you know, anthropological studies about masculinity across cultures.

00:09:07.820 One thing that anthropologists have found is that to be a man, what separates men from

00:09:12.400 boys and primitive tribes, as well as larger industrial cultures like us, is that whether

00:09:18.640 you're a producer or a consumer.

00:09:21.020 Yeah, that's awesome.

00:09:22.000 That's a great way to make the distinction.

00:09:24.100 I think I get a lot of joy out of producing stuff.

00:09:26.860 Like I'm currently living in a house that I built for myself, for my family, from almost

00:09:32.000 from scratch.

00:09:32.560 It was a 1950s kind of dump when we moved in and then I tore like the whole roof off.

00:09:36.640 And producing this house, and I've built other houses in the past, and producing writing

00:09:42.480 and producing stuff through my jobs in the past was always where all the joy came from.

00:09:47.660 And I find like when I occasionally indulge in consumption, it doesn't really give me as

00:09:53.180 much thrill as I thought.

00:09:54.500 You know, like sometimes one time I went to a resort in Cancun and everybody's just bringing

00:09:59.100 me stuff and all the buffets are ready for you.

00:10:01.760 And all there is to do is just take, take, consume, sit down.

00:10:05.820 And I was like, well, what can I do here?

00:10:07.800 Like, is there, do these guys working on the hotel need any help?

00:10:10.540 Like I was looking around for something to keep me occupied for the week I was there because

00:10:14.680 there's no production to be done.

00:10:15.940 And I think that's a great way to shift the balance of your wealth is to suddenly think

00:10:20.860 about producing and consumption is kind of like a necessary thing, but you kind of minimize

00:10:26.780 that because it gives you more resources to produce, which is where all the fun really

00:10:30.280 is at.

00:10:30.660 Yeah.

00:10:31.400 And what I love about your philosophy, it's un-American, but it's very American at the

00:10:36.340 same time, because what you're advocating is basically what our founding fathers advocated,

00:10:40.920 our great, great grandparents, like do it yourself, save as much as you can, produce, don't consume.

00:10:46.160 But I guess there was a shift, I guess, in the after the world, second world war where consumption

00:10:50.560 became a way of life for Americans.

00:10:52.400 Right.

00:10:52.800 And there's still a lot of production going on in the background.

00:10:55.500 I think it's a bit of a, people are trying to fool us, you know, like spend, spend, support

00:11:01.240 the economy.

00:11:02.060 Like that's not really what's going on.

00:11:03.460 The part, the reason the country is strong is because of all the great stuff that we produce

00:11:07.180 and consumption doesn't even have to be quite as much of a part of that.

00:11:10.880 Like, first of all, you can export your stuff.

00:11:12.660 If you make the best cars like the Tesla Model S, ship it over to Germany and they're

00:11:16.840 buying them instead of BMWs, then you're winning that part of the economic game.

00:11:20.400 And the other thing is if you produce stuff that delivers long-term dividends, like for

00:11:24.960 example, you build up a big, awesome solar power factor or whatever that delivers energy

00:11:30.280 for like the next century, that's the kind of production that is like a long-term benefit

00:11:35.660 to society instead of just building a bunch of pickup trucks, wearing them out, burying

00:11:39.900 them in the ground, build another bunch of them.

00:11:41.780 Like, so there's different kinds of production and consumption that have different long-term

00:11:45.380 effects on a country's wealth.

00:11:46.700 So I like to move towards the stuff that actually creates lasting strength and lasting wealth.

00:11:52.500 All right.

00:11:52.600 So Mr. Money Mustache is playing the long game.

00:11:54.840 Yeah.

00:11:55.360 Awesome.

00:11:56.140 All right.

00:11:56.360 So you advocate or talk about financial independence and there's lots of books I've talked about

00:12:02.300 that.

00:12:02.900 Your Money or Your Life is one that I read and had a big influence on me.

00:12:06.960 But how do you define financial independence?

00:12:09.040 How do you know when you are financially independent?

00:12:11.900 That one's a pretty easy answer.

00:12:13.160 I think it's just never having to work for money again, which doesn't mean that you don't

00:12:18.420 have to work.

00:12:19.180 You don't feel like working.

00:12:20.380 Like I enjoy working every day, but money is no longer a factor.

00:12:25.000 Like, you know, this guy's going to pay me more, even though I don't like working for

00:12:28.220 him.

00:12:28.840 You no longer make that choice.

00:12:30.520 You never, no longer sell out your core values.

00:12:33.600 And I even call this, I actually changed the word in my blog to being calling it retirement.

00:12:38.240 Some people say financial independence, but I really like the word retirement because

00:12:42.980 it's just sort of has a more of a final say.

00:12:46.160 And I'm trying to redefine retirement kind of and say, well, guess what?

00:12:49.800 Everybody should keep doing the work that they care about.

00:12:52.880 You should quit your job if you don't like it, but you can call yourself retired as soon

00:12:56.740 as you're financially independent.

00:12:58.180 And it's just like a celebration, you know, celebration word, just my own personal preference.

00:13:03.160 Awesome.

00:13:03.380 Um, so, uh, you advocate some serious, a serious savings rate, uh, 50% to 75% of your income.

00:13:11.320 And I know for some people, a lot of people who are listening, there's like, that's just

00:13:14.140 like, no way you can't do that.

00:13:16.240 Um, so how do you do that on a tactical brass tax level?

00:13:20.840 How do you save, squirrel away 75% of your take-home pay?

00:13:24.560 Yeah.

00:13:24.840 Well, that's a key thing is first of all, think about take-home pay because when you first

00:13:28.660 say like 50% of your income, people will say, wait a minute, almost 50% goes to taxes.

00:13:33.260 Like, or whatever you, you got to understand, you're talking about your post-tax take-home

00:13:38.560 pay, and then you should be able to work on saving a portion of that.

00:13:41.880 And so the first thing is to say, so wipe out the prejudice where you say that's not

00:13:46.920 possible because it is, you can live on 10% of your take-home pay.

00:13:50.520 If you really got bad-ass about it, you know, people do this.

00:13:53.420 People live on $4,000 a year in the U S so, um, and it's a matter of being smart and how

00:13:59.760 far you're willing to go on it.

00:14:01.000 Now, I never had to go anywhere close to that far.

00:14:03.560 Like my family lives on, like we've always lived on at around, um, 25,000 of spending.

00:14:09.200 Um, just because that's as much as we can manage to spend without feeling like we're

00:14:14.020 running out of stuff to buy.

00:14:15.940 Uh, as for the brass tax question though, uh, you just got to think about the main places

00:14:20.760 to optimize.

00:14:21.580 The biggest one in America is cars.

00:14:23.280 A lot of people spend about 500% what they need to on driving around and not really ending

00:14:29.400 up anywhere different at the end of the day.

00:14:31.440 So tricks for that include like prioritizing living close to what you do, live close to

00:14:37.060 work, switch jobs, switch houses.

00:14:38.700 If you have to don't drive a big automatic transmission SUV, you know, get yourself like

00:14:43.300 a nice used Honda and make it last for 15 years.

00:14:47.460 And, uh, then there's food, cooking your own food, not going out for dinner as much, but

00:14:53.200 still keeping it social by hosting dinners and having friends that do the same thing.

00:14:57.800 So people end up having more fun at lower cost.

00:15:01.080 And then there's just the general leakage.

00:15:03.140 Like a lot of people walk around, like picking up objects all day from stores or shopping

00:15:08.840 malls.

00:15:09.280 And if you just kind of cut that out, reform your days so that shopping isn't really a

00:15:14.560 part of it.

00:15:15.320 A lot of people end up dropping a thousand dollars a month from their, from their spending

00:15:19.500 just right there.

00:15:20.960 Yeah.

00:15:21.480 So thinking of the big three is what gets you to, um, to the 50% or even 75% savings rate.

00:15:28.140 Yeah.

00:15:28.560 And I guess a lot of it's just being mindful of yours.

00:15:30.440 I think a lot of people just spend money mindlessly.

00:15:32.640 They don't even know where their money's going.

00:15:34.880 Totally.

00:15:35.140 Like how many people have cable TV, a hundred dollars a month or more.

00:15:39.240 That's an expense you can just wipe out today.

00:15:41.540 Just be like, hello, I don't need cable TV anymore.

00:15:44.120 And that's like $1,200 a year compounds into like 15,000 per decade by the time you invest

00:15:50.940 that money conservatively.

00:15:52.680 And that's just by erasing something that you don't need anyway, because, you know, you should

00:15:56.760 be out there producing instead of consuming other people's like reality TV.

00:16:00.440 If you like watching sports, go out and play sports.

00:16:03.920 That's it.

00:16:04.660 So it's a, it's a harsh, harsh thing to say on the art of manliness podcast.

00:16:09.060 There's a lot of, a lot of better stuff to do with your time than watching TV.

00:16:12.180 And how do you do this with kids?

00:16:13.460 I'm sure some people are listening.

00:16:14.540 They're like, okay, well, yeah, that's easy.

00:16:16.100 If you're single, right?

00:16:17.440 I can live a Spartan life.

00:16:18.640 But how do you do that when you're married and you have kids?

00:16:21.520 Well, kids are, I always wondered that too, until I had my own kid.

00:16:26.040 And it turns out they're not as expensive as people say.

00:16:29.000 It's kind of up to you how much kids cost.

00:16:31.880 So obviously, like there's a certain amount of healthcare costs with a kid that are somewhat

00:16:36.700 unavoidable.

00:16:37.500 And there's food they do eat.

00:16:39.480 But other than that, it's pretty, pretty flexible.

00:16:42.140 It depends how much stuff you buy your kid and how much time you spend with them.

00:16:46.660 Like, for example, if you're home with your kids, like we were, then that saved a lot on

00:16:51.460 daycare, which often costs over $1,000 a month.

00:16:55.240 There's activities.

00:16:56.800 So I kind of encourage my son to do whatever he wants because we can afford it.

00:17:01.200 But just because he has access to his parents so much, he's less into like the travel sports

00:17:05.840 teams and stuff and more into doing things in the neighborhood.

00:17:08.480 It's a little bit more of like a previous generation, the way things run in my town where 0.99

00:17:13.560 the kids run around in a pack free and they play in the creek and play sports in the park

00:17:19.660 behind my house and stuff like that.

00:17:21.740 So it's amazing how cheap kids are.

00:17:23.680 I think my son, we've kind of added it up just very casually.

00:17:26.960 And it's averaged to under $300 a month since he was born.

00:17:31.480 And some people spend 10 times that amount on a per kid basis.

00:17:36.300 So it's just, I wouldn't encourage you to cheap out, you know, like deny your kids of

00:17:41.380 stuff in order to save money.

00:17:43.000 But if you just think of it in a different way, the expenses tend to melt away.

00:17:48.140 Yeah.

00:17:48.280 The kids aren't that expensive.

00:17:49.240 Like my son, like our, my son's clothes, he's four.

00:17:52.120 We've always bought clothes from friends who had kids and they grew out of them.

00:17:57.260 And it was like nice stuff.

00:17:58.480 It was like stuff from the Gap, but like we got it for like way cheap.

00:18:01.400 Your friends are usually thankful if they can unload their kids stuff to you.

00:18:06.200 So yeah, that's a really good point.

00:18:07.360 I didn't even think of clothes because they've generally, until he was a certain age, they

00:18:12.320 kind of just flowed in from other people.

00:18:14.040 And similarly, we passed his smaller clothes on to other people.

00:18:17.820 Yeah.

00:18:17.980 Now that he's nine, like he's big enough and growing a little more slowly that he truly

00:18:22.380 destroys each item of clothing before it leaves the house.

00:18:25.780 So there's no more hand-me-downs and stuff, but that's, you know, clothes are just amazingly

00:18:30.460 cheap these days.

00:18:31.520 So as long as you're not in, in a fashion competition, you're not going to spend more

00:18:35.160 than like a hundred dollars or $200 a year on kids stuff.

00:18:38.160 Yeah.

00:18:38.760 So are there any things you're doing like to have proactive conversation about money

00:18:43.740 with your, your son?

00:18:45.420 Yeah.

00:18:45.820 I like that question.

00:18:46.700 Cause I'm, I kind of hope he ends up with the same luck that I have with, uh, with not 0.97

00:18:51.620 being really overly material desire burdened.

00:18:55.880 Um, so first of all, there's living by example, which seems to work.

00:19:00.080 He, he sees what his parents do with money and he sees how we're not really into buying

00:19:03.500 flashy stuff.

00:19:04.740 We just have one old Toyota for our car.

00:19:07.560 And, uh, whereas other friends of his, where the parents still do have to work might have

00:19:12.920 like multiple BMWs or big SUVs, but there's other stuff, not having TV, I think really helps

00:19:18.540 him because he's not, he's not barraged with a lot of kid advertising all day.

00:19:22.740 We don't take him around to shopping malls cause I just pick up the necessities just

00:19:26.700 through Amazon and everything gets delivered to the house.

00:19:29.600 So there's not a lot of retail therapy.

00:19:32.320 And, uh, the final part that's been kind of cool is that he gets his own money now.

00:19:35.880 So if he wants something like a toy or a video game, he has to fund that out of his

00:19:39.960 own account and we keep his money in a spreadsheet that I call just the bank of dad.

00:19:44.960 So anytime he gets some money, like earns it or gets it from a birthday present or

00:19:48.520 whatever, from a grandparent, he puts it into the bank of dad.

00:19:51.500 I give him 10% interest, which, you know, kind of updates automatically every month and

00:19:56.500 he can see his balance.

00:19:57.660 He can check it from his little computer.

00:19:59.640 So now he has an incentive to leave the money invested, which is just how it should be for

00:20:03.520 an adult.

00:20:04.120 It was like, well, I could burn $50, but then suddenly I'm making $5 less per year

00:20:09.540 on interest.

00:20:10.520 So he has, he's a balance.

00:20:11.920 He still buys stuff.

00:20:12.960 He's generous with his little buddies, but he's not going to blow it all on just nothing because

00:20:18.140 he likes the idea of the passive income.

00:20:20.720 And that's the real thing.

00:20:21.520 Adults should be trading off too.

00:20:23.000 Like if I'm going to, if I want to fork over $100,000 for a Tesla Model S, I have to realize

00:20:27.740 that a hundred is no longer going to be working for me for the rest of my life.

00:20:31.700 It's going to be sitting in the driveway depreciating.

00:20:34.360 And that's one of the biggest things that keeps my spending in check is just realizing I'd

00:20:40.280 like to keep the nest egg in there working so that kids can actually get that concept

00:20:44.440 pretty early too.

00:20:46.320 Awesome.

00:20:46.540 Well, besides saving, spending less than you earn, what else do you do or what else do

00:20:51.760 you advocate that people do to supplement their income, like support a family while not working

00:20:56.560 for money?

00:20:57.540 Right.

00:20:57.900 Well, that's a, that's a nice shortcut because first of all, it is possible to just save so

00:21:03.660 much that you never have to earn another cent, but most people don't do it that way, especially

00:21:07.840 if you're, you're fairly early in the financial independence and you quit your main job.

00:21:13.340 A lot of people will keep a side job.

00:21:15.740 So for me, I really like doing carpentry, just like pro casual pro level carpentry around

00:21:22.640 the neighborhood for people.

00:21:23.580 So even over these last 10 years, I've still done different sizes of jobs, just kind of

00:21:28.720 like when my son has taken a nap or when he's in school, just go over and do some work for

00:21:33.080 people that I like spending time with.

00:21:35.560 And so it's a little bit extra money.

00:21:37.400 My wife has experimented with stuff as well.

00:21:40.460 After she quit working in software, she got a real estate license, which is a fun thing

00:21:44.920 for a lot of people to experiment with.

00:21:46.620 She did some house selling and now she has an Etsy shop that she, where she's making 1.00

00:21:51.760 like a kind of neat handcrafted bracelet and necklace kind of stuff.

00:21:57.360 And her Etsy shop is taking off quite a bit.

00:21:59.560 So people never lose their desire to produce after you quit the job.

00:22:03.820 So you're probably going to make money even after you retire.

00:22:07.340 But that just to expand your question a little bit, I also think if you kind of get focused

00:22:11.820 about this and you get excited about challenge and hardship and, you know, the focused mind,

00:22:17.660 you can often earn a lot more than you'd think in your regular career as well.

00:22:21.980 So I was always trying to think of my job as the number one priority while I had it as

00:22:27.080 a software guy.

00:22:27.900 And I think that helped me earn more than I otherwise would, which allowed my career to

00:22:33.160 be a bit shorter.

00:22:33.800 So I think people should, while you're still employed, you should really pour it on and

00:22:38.180 like switch jobs as needed or switch roles.

00:22:41.860 And a lot of people can make a lot more money than they currently do.

00:22:45.560 Awesome.

00:22:46.080 So here's a question.

00:22:47.240 I know it's probably not, you're not going to have a specific answer, but roughly how

00:22:50.740 much does someone need to save in order to retire early?

00:22:54.080 Is there like a rough percentage of your income that you get?

00:22:57.120 What is it you should be shooting for?

00:22:58.660 Right.

00:22:58.920 That's a pretty easy question actually.

00:23:00.300 And because the financial companies, you know, like Fidelity or whatever, they often confuse

00:23:04.840 you by talking about how much of your income you need.

00:23:07.100 And that's totally wrong.

00:23:08.820 What you need to do is figure out how much you're spending and then you need 25 to 30

00:23:13.480 times that amount invested and that will generate passive cash flow that you can live off more

00:23:19.200 or less for the rest of your life.

00:23:20.980 So that's just a really good rule of thumb.

00:23:23.100 So if you spend $10,000 a year, just because it's a round number, you'd need $250,000 of

00:23:28.720 investments to reliably deliver you that money forever.

00:23:32.720 And then this is where the rubber meets the road because a lot of people, higher income

00:23:36.400 people will build up a lifestyle for themselves that costs $100,000 a year.

00:23:41.120 Well, it turns out to fund that you need between $2.5 and $3 million invested to keep

00:23:48.060 that kind of cash fire hose going, which is pretty hard to save up that much money unless

00:23:52.960 you're a really high earner.

00:23:55.140 So I optimize on both sides, trying to earn more, trying to design an efficient lifestyle,

00:24:00.280 which is why I always use this $25,000 figure.

00:24:03.820 $25,000, if you have your house paid off, which is how I do things, is more than enough

00:24:09.820 to fund like a family of three or four in most U.S. areas.

00:24:14.000 So in that case, you need about $600,000 plus pay off your house.

00:24:19.500 $600,000 to $700,000 is enough to retire on plus the value of your house.

00:24:23.400 So you could think of it as about $1 million.

00:24:25.000 It sounds like a scary number if you're a beginner at saving, but once you get into

00:24:29.420 these 50% savings rates, the numbers really start to crank up unexpectedly and suddenly

00:24:35.280 you're dealing in six-figure changes instead of three-figure changes in your wealth each

00:24:40.040 year.

00:24:40.860 So is this money that's not – they're in index funds, but they're not in a retirement

00:24:45.620 account?

00:24:46.560 You're right.

00:24:47.040 Well, I would encourage you put as much as you can into the retirement account because

00:24:50.760 you can read about the details later.

00:24:52.580 But there's ways to get that out earlier or you could spend your post-tax money first

00:24:57.180 and then gradually work into your retirement money as you're older.

00:25:00.480 Or you might end up earning more money as a carpenter or whatever after you retire anyway.

00:25:04.300 So you don't worry about those details other than put it in there.

00:25:07.840 And yeah, index funds is the easiest way and it's a safe way.

00:25:11.820 If you're at all interested and skilled in rental house management or income properties,

00:25:16.580 you can get a higher rate from that than you can from stock investing in general.

00:25:22.600 But it's not an easy – you do have to know a little bit.

00:25:25.020 You have to be somewhat motivated to learn and understand why it doesn't work in San

00:25:29.880 Francisco very well and why it does work in Oklahoma pretty well because of the price-to-rent

00:25:34.740 ratios being more favorable in some different areas of the country.

00:25:40.100 And yeah, the whole paying off the house thing, there's like two sides of that debate.

00:25:44.360 Some people say you shouldn't and some people say you should pay it off early.

00:25:47.940 Why – because I've heard the argument you shouldn't pay it off early because there's

00:25:50.360 tax benefits up.

00:25:51.040 But I've never understood that argument because you're basically paying the bank money so

00:25:56.040 you can save a little bit on taxes.

00:25:57.620 Right.

00:25:58.040 It's true.

00:25:58.700 It's kind of a win-win question.

00:26:00.680 You can't really go wrong as long as your other alternative isn't buying a boat with that

00:26:04.360 money.

00:26:05.280 If you pay off your house, you're getting a 4% return or whatever your mortgage rate is.

00:26:10.180 And a compromise to make kind of the best of both sides of the coin might be to leave

00:26:16.220 your house unpaid off while you're working.

00:26:18.360 So max out the index funds while you're working and your income is high, especially if you have

00:26:23.500 an expensive house because you're going to be up in the – above the standard deduction.

00:26:28.080 So you'll actually be really benefiting from the mortgage write-off.

00:26:32.260 And then once you quit, your income will be a lot lower because you're just living off

00:26:35.720 investments instead of your massive doctor or lawyer salary or whatever.

00:26:40.520 And then you could transfer some money to pay off your house.

00:26:43.060 And that really lowers your monthly expenses a lot.

00:26:45.720 They lower your cash flow requirements, which just makes people relaxed.

00:26:50.020 And it's a fairly good investment.

00:26:51.400 It's a 4% guaranteed fixed kind of yield, which you can't really get anywhere else right

00:26:56.980 now.

00:26:57.980 And it protects you from fluctuations in the stock market because you'll always have

00:27:03.420 that $0 monthly mortgage bill.

00:27:05.640 You'll just be paying property taxes and that's it.

00:27:07.620 So what's the one thing that someone who's listening to this podcast right now, what can

00:27:13.640 they start doing today to start on the road to financial independence?

00:27:18.000 Well, you could start learning about other people who have done it.

00:27:20.960 That's one thing to do.

00:27:21.820 Or you can just start taking action, like make sure you have a good working bike and start

00:27:27.480 replacing car trips with a bike.

00:27:29.020 I like that as a psychological bridge to better money management because it's a challenge.

00:27:34.180 It saves you money, but it's also getting you more physically fit and it's changing your

00:27:40.120 mindset so that suddenly you are active instead of passive and you're figuring out how you're

00:27:46.180 solving problems in the world instead of just relaxing and pressing the gas pedal.

00:27:50.140 So I like to use the bike as both like the figurative and the literal model for the first

00:27:55.960 step to a financially prosperous life because it's kind of the perfect example of the stuff

00:28:00.480 you have to do if you really want to get ahead of everybody.

00:28:03.160 Awesome.

00:28:04.240 So do hard things, like find something that's hard and do it.

00:28:06.960 Yeah.

00:28:07.440 And if you, I would say the bike is a perfect, you know, that can be the hard thing unless

00:28:11.780 you've got something else in mind.

00:28:13.640 Awesome.

00:28:14.100 Well, Pete, where can people learn more about your work?

00:28:16.260 There's only one place, just my blog, mrmoneymoustache.com.

00:28:20.180 And it's showed up on a lot of other stuff like newspapers and podcasts and stuff recently.

00:28:25.460 So you can poke through those in my media section too, if you want more of these big picture

00:28:30.180 interviews, but really if you want to just crank through some of the early articles and

00:28:34.420 then see if they, if you take a liking to them.

00:28:36.860 And if you do, then there's, there's a never ending chain because I've been writing this

00:28:40.740 thing for four years.

00:28:41.500 So there's a lot there to, uh, to have fun with.

00:28:44.100 All right.

00:28:44.880 Well, Pete, mrmoneymoustache, thank you so much for your time.

00:28:47.260 It's been a pleasure.

00:28:48.760 Likewise.

00:28:49.300 Thanks so much.

00:28:52.660 Our guest today was Pete.

00:28:53.780 He's the owner of the blog, mrmoneymoustache, and you can find out more about his work and

00:28:58.060 some more advice on personal finance by badassery at mrmoneymoustache.com.

00:29:03.780 Well, that wraps up another edition of the Art of Manliness podcast.

00:29:07.040 For more manly tips and advice, make sure to check out the Art of Manliness website at

00:29:10.380 artofmanliness.com.

00:29:11.400 And if you enjoy this show and you're getting something out of it, I'd really appreciate

00:29:14.440 it.

00:29:14.600 If you would give us a review on iTunes or Stitcher or whatever it is you use or listen

00:29:18.300 to the podcast, uh, that will help us get some feedback on how we can improve the show

00:29:21.860 as well as get the word out about the podcast and more people, the more the merrier.

00:29:26.040 Really appreciate it.

00:29:26.920 Until next time, this is Brett McKay telling you to stay manly, to stay manly, to stay manly,

00:29:33.000 to stay manly.

The Art of Manliness - August 28, 2015

#133： Financial Independence Through the Strenuous Life With Mr. Money Mustache

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