Paul Solman is consistently excellent in his Making Sense reports on the PBS Newshour each Thursday. He chooses wonderful topics and explores them with whimsy and depth, and he is not afraid to challenge common perceptions. I am never bored and I always take away something useful.
Last Thursday he introduced me to a blogger I had not heard of, writing under the brand of Money Mustache. The founder of the blog is a guy who managed to retire at thirty, and claims he has a method for most others to achieve something similar. Having felt that I did pretty darned well in retiring at fifty, obviously way behind target for these people, my interest was immediately piqued.
At the heart of the blog is the insight that a certain amount of wealth should be sufficient to fund a lifestyle forever, or at least as long as most of us are likely to live. That is because invested wealth generates income. The Mustaches believe that you can spend about 4% of a pot of wealth each year, and on average the wealth will not dwindle to nothing until you are dead. So if you can find a way to live on $30,000 per year, you need first to acquire wealth of $750,000, and then you can retire.
You could acquire the necessary wealth by inheriting from wealthy parents. If that avenue is not available, then anyone who can get a reasonably well-paid job in the USA can budget to save a proportion of their income until the target is reached, noting that things get easier because along the way income from already acquired wealth kicks in.
Then lots of blog postings bemoan how most Americans spend far more than they need to, and often for flawed reasons like being seen to keep up with neighbours. Some of the money saving ideas are rather biased - many would say male-orientated, such as living with only two or three pairs of shoes. Some, such as a penchant for do-it-yourself, are not available to everyone. But many of the ideas are sound, and sufficient to provoke thinking about what satisfaction such expenses truly provide.
I agree with a lot of the blog. I too am astounded how much many Americans think they need to spend. Median salaries are over $60,000 and, the way I was brought up, that should be enough to save plenty for anyone living outside the big cities with high rents. I too have experienced the happy phenomenon of wealth generating income. When I retired, I vaguely calculated how much I could spend per year to tide me through to the time I could draw my pension. In practice it has been much easier than I foresaw because of the wealth-based income.
I certainly agree with the investment strategy of the blog. It is not necessary to be a fancy investor like a day trader or frequent stock picker, indeed for most of us that would be both boring and loss-making. Instead just put money in index tracked funds and leave it there. It will go up and go down, you will feel in turns rich then vulnerable, but leave it long enough and it will grow and generate dividends.
Much of the frugality advice doesn’t really apply to my international family. One trick is to game credit cards, by churning through special offers. Well my circumstances mean I can’t even get most credit cards. We have also chosen to live in NYC with its high rents, and have necessarily high travel costs because of our connections in Europe.
When you first move to a new country, or even a new region, you have to loosen the purse strings a bit, and that is when you are most likely to make mistakes. Even amidst the chaos, try at least to get the big things right, like housing and cars. It is not easy. I found that it took about six months to regain any control over my finances.
I have two pieces of advice for people living abroad though. The first is to try to do things as the locals do. In Sweden, shrimp is plentiful and cheap, so eat it. The locals do things for a reason, usually geographical, so you’ll be rewarded if you follow their lead. The second advice is about planning to leave. These assignments tend to have variable end dates, and the temptation is to live always as though you might be leaving within a few months. Within reason, avoid it, for life in a suitcase is miserable – just act as though you’ll be there for a few years, and deal with it later when things turn out differently.
Going back to the Mustaches, many of the frugal principles are good. The blog hates cars (they are also closet environmentalists). Most people consider the cost of driving to be the cost of gasoline, but a good rule of thumb (in the US) is to multiply that by five. Families with two or three new SUV’s have plenty of scope to reduce costs. Next, they hate cable TV. I can see the point, as the cost is ridiculous, but I do love my live sports, PBS and NY1. Part of the reason they want to ditch TV is to avoid exposure to ads tempting us to waste money, which feels a strong argument. They also try to save on clothing, maintenance, gyms, smartphones and so on.
One common theme is about being wary about future liabilities. That obviously holds true for a car with a low down payment. I didn’t yet find it in the blog, but pets fall in the same category. You can pick up a cat for a few dollars, but that same cat will cost you thousands before you are done with it. Go ahead if the pleasure means that much to you, but do so with your eyes open.
I was brought up in a very frugal household, a product of war and rationing scars on my mother. Bless her, she acted as though her main goal in life was to die with a large bank account, and she duly achieved it, but she could have had a more fulfilled life if she had learned to be generous, especially to herself. As the blog argues, it is good to be both frugal and generous. I have been blessed in my life partners for slowly teaching me the wonders of generosity, and perhaps I have managed to imbue a bit of frugality in them in return.
My frugality has also been supported by my geeky love of numbers. It is much easier to understand accounts and to budget if spreadsheets and estimating and calculating come easily. I do wish school curricula paid more attention to this mundane subject, limited in mathematical depth but crucial to every human. Our daughter was offered a personal finance course right at the end of high school, but it seems that most of it dealt with parochial things like tax codes. There are many more useful, universal aspects to the subject than that. The subject is so difficult for so many people, and, sadly, their reaction is often to wish away the problem and just hope for the best – not an effective strategy.
A frugal upbringing, numeracy and cynicism must be the perfect combination for developing good frugal habits. Perhaps the original Money Mustache was blessed with the same combination. His acolytes certainly seem to be on to something, since this has developed into quite a movement by now. Well played them. And thanks again to Paul Solman for bringing it to my attention.
Thinking of frugality led me to try to come up with a list of top tips from my own experience. I’ll share them next time.
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