In January 2012, I came across a blog called Mr. Money Mustache. MMM is part of a community of blogs that promote the Early Retirement philosophy – using a very high savings rate to retire after relatively few years of working and receiving a ‘decent’ income (in American terms). For example, MMM uses compound interest calculations to show that if you save 70% of a US$60,000 per year income, you can retire after 8.5 years with over US$550,000 in the bank. You then live off the interest of this lump sum for the rest of your life and can stick it to the man.
The key to making this plan work for your life is frugality. No nice cars, no expensive restaurant dinners, no fancy vacations. For ten years your focus is on saving every dollar you can because each dollar is your employee – you can either fire him through consumption, or put him to work for you. If you put him to work, you reap exponential rewards because of compound interest. I decided to try this out in 2012.
This idea appealed to me because I don’t want to work for someone else for very long. I don’t believe in our modern working structure where you spend the best years of your life grinding away for someone else and only get to enjoy your life after 40 years when you’re old and grey. I want to enjoy all of my life, as much as possible. In fact, I don’t really want to ‘work’ at all. If I were a trust fund baby, I would spend my time traveling and writing books. MMM showed me that this lifestyle wasn’t reserved just for trust fund babies or Internet millionaires. Anyone can access this lifestyle if they have a very concrete plan to get there.
I decided to try the frugality thing for a while and spend as little as possible to pay off as much debt as possible as quickly as I could. I developed a crazy spreadsheet to track how I was doing. There was a sheet for each month where I tracked what I spent on each item each day; then there was a yearly sheet that showed all the months side by side so that I could see my progress over time.
The results were surprising. For instance, I was shocked by how much money I spent on lunch. I was trying to eat a salad everyday, and I spent on average J$1,000 (US$12) per day on lunch, or J$30,000 (US$330) per month. This was just lunch! It doesn’t include dinner, drinks, the movies, grocery shopping, rent, debt, utilities, cable, etc. Many of these other categories were surprising as well.
Over time, just by being more aware of what I spent, I was able to stabilize my spending and make a small dent in my debt, but I never hit the 60-80% savings rate that MMM proposes. Not even close.
I’m starting to work on the second half of the plan – once you stabilize spending, find ways to increase your income, while keeping spending constant to hit that 60-80% savings rate. Wish me luck!