100% life from concentrate
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I have hesitated to share the details until this point, mostly because I didn’t keep a written record through the years and it seemed pretty complicated and imprecise in my mind. Also, it’s embarrassing to walk around in your monetary underwear in front of thousands of people. But many financial bloggers have graphs of their net worth right on the front page, so the least Mr. M. can do is provide a vague summary of some ancient history.
And for my own benefit, it is worth sorting things out just for the record, so doubters can be convinced, voyeurs can be entertained, and aspiring Mustachians can compare their own progress. So here it is, my best effort at retelling the story.
Year 0 (1997): The full-time working career begins. Mr. Money Mustache has just finished a grueling computer engineering degree and is now ready to party. He gets right to work in early May, skipping even the university graduation ceremony because he doesn’t want to miss any work (he had already moved to a new city 300 miles away from the university). Age: 23. Starting salary: $41,000. Student loans: zero — due to low spending, about $10k of help from parents, and good high school and summer jobs.
But also absolutely ZERO net worth. No bank balances, never owned a car, just a bike, a backpack, and a diploma.
Year 1: In this first year I foolishly started out by buying a three-years-new 1994 Ford Probe GT sports car for $16,000 with tax. And I borrowed money from my older sister to do it (what a clueless young man!!!). It took most of the first year to pay off that loan. I also flaunted my new salary around town with frequent bar and restaurant hopping, purchases of computer equipment and furniture, accessories for my car, and a trip to a resort in Mexico.
Fortunately, I did enroll in my employer’s retirement savings plan. I also worked like a crazy company slave, enjoying weekends and late evenings in the office. Because of this, and a rising tech market in general, I got a raise to $57,600 at some point in the first year, resulting in a Year 1 ‘stash: $5,000 (in a retirement account).
Year 2: Through both of these first two years, I lived with roommates by sharing a series of nice houses, which we called Nuthouse 1, 2 and 3. The rent averaged about $350 per month, plus some negligible share of utilities. With the unnecessarily expensive car paid off and the higher salary, I was able to save more: $5,000 into the retirement account, $3,000 into an employee stock purchase plan, and $10,000 in cash. Year 2 ‘stash: $23,000 ($13k cash/shares, $10k retirement).
Year 3: This was late 1999, and both the job and stock markets were on fire. I got a new job and moved to the United States for a salary of $77,000. I drove the ol’ Probe GT down to Boulder, Colo., and used the local newspaper to find another nice roommate situation, so my rent was only $400 a month.
I decided to buy a house — but was disappointed to learn that I would need $47,000 in cash for a down payment on a starter home, which would cost a minimum of $235,000. I cashed out the stock purchase plan shares from Year 2, which were now worth $10k, and saved up a few of my new higher paychecks. After a few months in the new job, I had the down payment. Year 3 ‘stash: 67k ($47k home equity, $10k retirement, $10k cash).
Year 4: My future wife graduated from her longer and more meandering education up in Canada and decided to join me in Boulder. She drove down in her 1993 Civic hatchback, and hunted for a job. She found one for $44,000. And I was recruited to another nearby high-tech company for the ridiculous salary of $83,000. Now things were getting crazy in the income department, although we weren’t thinking about early retirement yet. During vacations, we toured much of the U.S. including Hawaii, and took a trip to Australia and New Zealand at some point too.
I saved 20% of my salary in the 401K and got a $5k match from the company, as did the girlfriend. We both started Vanguard accounts to capture any extra cash. We also made some extra mortgage payments occasionally. Year 4 ‘stash: $150k.
Year 5: We both scored raises. I earned $100k including company bonuses, and she earned $60k. I was also working heavily on the house renovations this year. We hosted many great parties at that house, and life was grand. That year, I foolishly took a $10,000 step backward by buying a brand-new motorcycle. But the investment gains on stocks started accumulating, adding about $10k to our earnings this year. So we still ended up increasing the savings by close to $100k after tax. Year 5 ‘stash: $250k.
Year 6: Salary went up slightly because of an unexpected company bonus, and girlfriend earned a raise to $65k as well. And we didn’t buy anything silly that year. In fact, I finally wised up and sold my car, and we became a one-car couple. I didn’t miss the second car for a moment. Investment gains on the existing savings contributed another $20k. It is complicated to remember what portion of income was taxable salary, and what was nontaxable gains inside of retirement accounts and such. But a reasonable estimate of the total is Year 6 ‘stash: $365k.
Year 7: No increases in salary, but similar amazing earnings and moderate spending, combined with $30k of investment gains. Year 7 ‘stash: $490k.
Year 8: A raise to $70k for the now-wife(!). Meanwhile, I actually switched to four-day-per-week work that year in exchange for a 20% pay cut — my first test of the waters of early retirement. But it was still a bumper year for me due to cashing out stock options, stock purchase plan, and annual bonus. My earnings must have been something crazy like $125k that year. Investment gains $40k. Year 8 ‘stash: $600k.
Year 9: I quit my job!!! And I started a small house-building company as a semi-retirement job. It earned me about $50k in the first year, and wife still worked for part of the year until the baby came, earning $60k. In addition, we moved to a new town and bought a cheaper house, renting out the first house for a very high positive cash flow due to a low mortgage and its increased value.
At this point in the accounting, we will add in the appreciation of this house — which was about $100,000 after subtracting for the cost of the materials I used to renovate it. About $50,000 of this was due to market appreciation, and 50k due to renovation appreciation. Investment gains continued at about $35k. Year 9 ‘stash: $720k.
Sometime during Year 9, we declared ourselves as “retired!” as we quit full-time work to care for the baby. The rent from the previous house was more than covering the mortgages on both houses. However, part-time work also trickled in after the first few months of baby raising. Eventually we moved one more time to our current house and had two rentals. Eventually both rentals were sold and the gains were put elsewhere. And I became even wiser and sold my motorcycle, to free up both cash and garage space for my greater love: my workshop. Year 10 ‘stash: 800k or so.
Mixed in with those later years, but left out for clarity, was this house-building business of mine. It was a firecracker of success in the first year, then a firehose of disaster in the second year. I’ll save the details for another time, but the end result is happy: I’m just stuck with one newly built house, which we rent out, that is tying up a certain percentage of our retirement savings.
Nowadays I do not build full houses and try to sell them. I closed the old company and the Mrs. and I started a cozy new two-person company that does whatever we want it to do. Custom renovations and finish work only for local, nice people on my side, and real-estate sales for local, nice people on her side. This low-stress career agrees very well with us, and keeps me from sitting on the couch typing to YOU all day.
Some people will say, “But wait! You just said you still work sometimes! That’s not retirement!” To these people, I can only say, “You’ll see.” Because when you quit your corporate job, you end up with even more energy, which means you want to do more stuff! If some of this stuff happens to earn you money, so be it.
I define us as retired, because that is a novel word to throw around for those under 50 that sounds much more interesting than “financially independent.” Also, the cash flow from investments is much higher than our spending, so work is only done for fun and on our own terms. For example, this year I stopped taking on carpentry work altogether and just started typing my blog and doing other unpaid work like school volunteering. Other years, I may accidentally earn hundreds of thousands of additional dollars by starting another company. Who knows!? Even then, Mr. Money Mustache will still be retired, so there.
Since Year 10, several more years have passed, and because the rental house pays all bills and we still do some work on the side when the boy is in school, the investment gains and income have just been building on themselves. We also paid off the mortgage on the primary house.
So, even if we refuse to let ourselves do any more enjoyable part-time work from this point onward, at some time in our lives we will either have to drastically increase our spending, or more likely, do some generous and worthwhile things with the surplus money to put it to good use.
Frugality plays a part
Isn’t that weird? That I would rather give money away completely, than spend it to hire a bunch of guys with noisy gas mowers and leaf blowers to cut my lawn for me every week so I could sit inside and watch them? Yes, folks, I point this out to show how frugality can grow on you, to the point that you’d rather live an efficient and self-sufficient life even if money were not an object.
I’m sure the questions will come about where these investment gains came from. Most of it was just plain old dollar cost averaging and dividends. And the amount saved from capital gains is still small compared with the amount saved from old-fashioned not buying things. The fundamentals of this plan mostly involved the two of us living on a shared $30k to $40k of spending money per year, including housing costs, and saving the rest. The biggest single factor producing this low living cost was probably deciding to live close to work and not commute excessively by car.
Other people will scoff at the high salaries involved, compared with the U.S. median level. I won’t deny that. More normal salaries, of course, would require some adjustment to this plan. You might decide to settle down in a house that costs less than the $400,000 that is tied up unproductively in my current house, for example. Or you might decide to work as late as 40 or even 45! But in almost any middle-income situation, retirement is something that can be earned drastically earlier than age 60-65, if you start early enough.