This blog has been very influential in my thinking: www.mrmoneymustache.com. Mr Money Mustache (or MMM for short) is living the dream: basically, he is a Canadian who got sick of the corporate world at a young age and dedicated himself to retiring as soon as possible. It’s not just empty advice: He retired in his 30’s and now focuses on finding fulfillment in his life. MMM is a great resource, and my own personal philosophy and approach to retiring at 40 is based on his approach, but where MMM has more of a severe approach (ie. How to live on less than $40k per year) I am taking a more measured approach. Yes, I would like to retire at 40, but my goal is to have enough income from my investments to replace my after tax salary… that is, by 40 have roughly $120k per year in investment income.
I realize that my readers are at different points in their corporate journey and that your goals may be different. By any measure, $120k per year is a lot of money: Your target may be higher or lower. Also, you may enjoy working so your goal for early retirement may be 55 instead of 40. Either way, you will find great insights from MMM. A few of my favorite nuggets are (paraphrased) below:
The High Cost of a Long Commute
Aside from being one of the biggest drains of quality of life measures, commuting is EXPENSIVE. Think about it: A one hour round trip commute takes one hour of precious time from your life 5 days per week (time spent on a hobby, or with family, or generating a second income). This generates a huge amount of stress and incurs REAL costs in terms of gasoline, wear and tear on your vehicle, and insurance costs. The solution? Live close to where you work. Ideally, you would live close enough to work or bike to work. The result? Less stress, more time with your family, dramatically reduced transportation costs, and an overall higher quality of life.
Where you live
Don’t underestimate the impact of cost of living. Yes, you may make $120k per year which sounds like a lot of money, but it is NOT a lot of money if you live in New York or San Francisco. Making the same amount of money in a place with a lower cost of living is money directly in your pocket. A good resource to compare cost of living is Sperling’s Best Places where you can compare not only cost of living but a lot of other metrics. I am (painfully) learning this lesson in reverse. I recently switched jobs from a moderate cost of living/high tax Minnesota and transferred to Montreal, Canada which has moderate cost of living and CRAZY high taxes. For comparison, the “all in” tax rate (MN + Federal) tax rate in in Minnesota was 50% plus a 7.25% sales tax. In Montreal, I pay roughly 60% provincial + federal tax rate plus about 13% in sales taxes. OUCH!!! However, I have no regrets as:
- I wanted the cultural experience of living and working abroad
- Living and working in Montreal is still cheaper than living and working in most of Europe (and 40% of my team is in France, so I spend a lot of time in Europe anyway).
- After my foreign assignment, I will have a role with the parent company in Georgia, which has SUBSTANTIALLY lower taxes than Minnesota.
If you have flexibility and/or work for a company with multiple locations, consider a move to a lower cost of living region. Not only will it free up substantial money you can invest to achieve financial independence, you will get the enriching experience of living and working in a new place- I promise you, moving is not as scary as it sounds!
“Its amazing the life you can live… if you don’t have an expensive house!”
This is a direct quote from a former colleague whose husband sold his software company to Microsoft (it also echoes MMM’s philosophy). Basically, a big, fancy house will be a boat anchor around your finances. Forever. There is something oddly perverse about the American proclivity to own a giant home that (most of the time) is not even furnished (I still struggle with the concept of an “unfinished basement”). Learn from my mistake: My first corporate job after getting my MBA paid $100k per year. I thought I had made it! A six figure salary! So, what did I do? I bought a 2500 sqft house on an acre lot on a private golf course in one of the toniest neighborhoods in the Twin Cities. Yes, I could afford the $3000/month payment (less after I refinanced), but in hindsight it was NOT WORTH IT. In the six years I lived there, I finished the basement, replaced the HVAC system, insulated the ceilings and walls (the house was built in 1957, so it was under insulated) and pimped out the garage. Six years later, needing to move due to the job in Montreal, I sold the house for $50k more than I paid for it. Or did I? The HVAC system was $10k, the garage and basement were another $10k, I paid interest on the mortgage and association fees… best case scenario? I broke even. How does this compare with the stock market? If I would have put the money I put toward my house into the 2010 stock market, I would be FAR wealthier than I am today. Keep in mind 2010 was a “great time to buy a house” but it was a MUCH better time to buy stocks.
Perhaps more importantly, when I moved to Montreal, I decided to RENT a 1600 sq ft condo. A full 1000 sqft “downsizing.” To be honest, I was a bit nervous about this move. I mean, how can two people (my wife and I–we don’t have kids) survive with only 1600 sq ft?!? Three months in? We love it. So much less to clean! So much less to furnish! No lawn to mow, no snow to shovel. 24-hour security, which is nice for my wife as I travel a lot. And, because I travel a lot, we only have one car. Our quality of living has stayed the same (if not gone up) and we literally have hundreds of dollars more per month (it would be substantially more if not for the higher tax rate).
In short, we are bombarded daily in TV and movies on what the “typical” lifestyle should be: big house, fancy cars, designer clothes. Its all a myth. All of it. Don’t fall into the trap–you will be happier and wealthier because of it. Many of these insights came from MMM himself, so go check out his insightful blog: www.mrmoneymustache.com.