Gipsy queen My net worth is around $63k and growing roughly $24k a year. I am still a year or two away from seriously considering buying, in the meantime where would you suggest keeping this money to work for me while I wait? The Masked Investor Even though it’s not *always* the mathematically correct answer.). More money wouldn’t change our daily lives in any way, but it would certainly shorten the time to financial independence. I read another post above highlighting a gentleman turning down a golf trip with friends. The more vigorous method has multiple exponential benefits: every dollar of debt you pay off creates a compounding snowball of savings that continue for a lifetime. That said, I’ll still have some debt left over. Personally, I never realized that distinction until I had been using YNAB budgeting software for over a year. But I recommend the more efficient path: put on your walking shoes and start walking as much as you can. When I needed a car loan all I could get was a loan at 16%. March 24, 2015, 3:17 pm. April 18, 2012, 8:40 am. I just don’t understand how they sleep at night – I know that I couldn’t. Good stuff, Mr. Mustache! As you point out, we should be suspicious when the credit card limit is more than one months’ net salary. When somebody does something worthwhile, you celebrate it and use it as an example for others. Thanks MMM! Take a look around. My biggest memory of watching Little House on the Prairie was Mr. Ingles insistence of “paying cash on the barrel”. He lives in Longmont, Colorado. Every little bit you take off that loan at this point removes not just the principle you pay off, but also the interest on that principle you would be paying for the next 7 years. I gave him a four-digit sum (€, not $) and as he was and still is my best friend and I have known him for 25 years, I never really expected to see a penny of it. I currently have approx. At one point last year I was feeling unsure about my contract situation so instead of investing my savings each month I held them as cash for 2-3 months. Yet these budget sketches also include amounts for entertainment, cable TV, and multiple cars. March 24, 2015, 3:20 pm. DividendMan It has been shown, with research I gave send you if you like, that making large sweeping changes does not work long term and those habits will not be formed. I know MMM preaches to the choir a lot here, but it still feels good to be amongst like-minded company. Without F-you Money you are a slave. I think it depends on the amount and type of debt. It can happen, I guess, is what I’m saying. beyond that, since I have absolutely no experience with consumer debt, I’ve yet to offer a post on the subject. My family all still live paycheck to paycheck, one makes minimum wage and bought a car to drive to work which is half a mile down the street. I even made a culture out of it among friends – it was called the “Drink Booster Program” (DBP for short), and part of the challenge was to do high-drama booze pours – boosting your drink in public without being secretive.. while the others might discreetly chant “DBP! The point is to own a house, not rent it from the bank…. All three siblings are equally terrible with money. I was therefore surprised when the friend proceeded to live a normal university life of partying and eating out, even during the delayed repayment process. Which is effectively a guaranteed 5.3% , and it is tax free as it is interest “saved” not earned. Thanks MMM!!! Only after making those drastic changes and having them be “habit” after 2-3 months could I relax a tiny bit and incorporate an occasional meal out or glass of wine, and by then, I was no longer overweight. They had to explain to me that you were allowed to carry a balance on your credit card. Beside, paying off and then cancelling ones credit card might have a negative afeect on ones credit score. For larger amounts, you consider a balance transfer deal to buy 6-18 months of 0% time, probably paying 3% up front for the privilege, or get a low fixed rate by using your car or home as collateral. Yeah, definitely don’t touch that. This unique history and perspective allows me to see some things that are not immediately obvious to people who have been raised in the current consumer/debt society. I’m debt free and live a relatively frugal lifestyle, but I have a number of friends who have student loans, and perhaps they should cut other costs but the golf trip – never. Keep the peace, or do the financially efficient thing? For a few years, we gently nudged it. Instead of photo album I used small box that was hand decorated with beads. I was hoping you’d feature him sooner or later! Suddenly I reached up and instinctively caught a 12oz mini bottle of vodka which had come flying at me out of nowhere, followed by two others aimed at two nearby friends. I’m on board with you bogart. Bonds produce decent returns in 4-5 years. That’s what got me slowly, tentatively started on digging my way out. Then I set my sights on early retirement. Thanks for the great comments. Some fancy bank accounts even let you connect a line of credit directly to your bank account. August 18, 2015, 6:44 am. My prediction is that he’ll be back in serious debt in 5 years. I was FI at 36 and am really thankful for both of my responsible parents (who have been FI for years)! 2 months later and we’d paid off the $6.5k on $5k/month take home. I just didnt see this covered, but it need high discipline to stack the extra cash. In this case, I’d keep paying off the credit card, and if possible get a line of credit on your house to pay off the credit cards, and then pay the line of credit down to increase your safety margin. That is, debt that you can pay off or withdraw from, at will. There was a time many years ago my younger brother showed up at my I would also be curious about MMM opinion on this. DiggingForDividends The wife doesn’t think the savings is enough; I see it being useful for eliminating the debt quicker. My favourite (laughable) comment from my good friend about student loan debt is “well it took me four years to rack it up, of course it will take me longer than than to pay it back”. ), Finally, this post made me think of this “modern classic” SNL skit: http://www.hulu.com/watch/1389/saturday-night-live-dont-buy-stuff, Amy Poehler: “Hmm…’If you don’t have money, you shouldn’t buy anything.’ Sounds interesting!” I actually do think there are some cases where loaning money, even to people less frugal than me. People raised in the same household can become massive credit-card overspenders or frugal penny pinchers without any apparent regard for age, economic situations during childhood or any such thing. If your answer to “how do I pay down my debt” is “sell your second car, your motorcycle, your roadbike”, then you’re obviously in a better damn spot that 95% of the people out there. Of course, that would not apply to someone who is living off retired and living off a fixed annuity or some other non-inflation following source of income, but for those still working (and in a job that gives reasonable raises to keep up with cost of living increases) or invested in stocks or rental homes (prices/rents tend to rise with inflation) then keeping the mortgage would result in a better real rate of return as inflation increases. They are again now way under due to credit cards and government loans. Mr. Money Mustache. (We have no debt other than our four properties – one we live in, three apt buildings. I have a cash windfall coming up that I already plan to put towards eliminating debt. Little concept of money, how much people made, and how they spent what they had. I was curious where you stood on the subject of building up a 6 month savings cushion versus flinging money at existing debt? Once you've done that, you can't undo it. My father now is much better off, but he still spends every cent he earns on things he likes, but no longer plays the bouncing check game, or using credit cards, only debit cards. Working in standard tech-industry cubicle jobs in various locations throughout the late ’90s and early 2000s, he retired from real work way back in 2005 in order to start a family. So that’s my real point: consumer debt is NOT a normal part of life. If your lifestyle matches or, god forbid exceeds, your income you are no more than a gilded slave. I think I learned most of this Debt Aversion from my parents. I’m in the same boat, I’ve got a student loan below 1% interest and while on one hand I would love to get rid of it – I know that from a math perspective I should keep that loan stretched out as long as I can while paying down my mortgage (my only other debt) and building my stash. Whole fuckin’ circle. It is difficult to do sometimes, probably very difficult with family, but when someone manages to amass more debt than they know how to deal with, and then you ‘help’ by consolidating that debt into a low or no interest amount.. pretty soon those cards are creeping up again, and paying you back is less important than the scary credit people. Mr. Frugal Toque Yes, exactly. If you have a 30-year fixed rate mortgage and expect inflation to go up in the future, that is another argument for not paying it off earlier. Ha ha DBP I love that! Why not sell your car, buy one of the many great very affordable second hand automobiles out there and use the remaining cash to pay down that 6.8% loan? It wasn’t until I went all ninja on my diet (I was already exercising) that I was able to lose the weight. April 18, 2012, 8:13 am, Hah, hopefully you’ll get a laugh out of this. Now she lives somewhere she can afford. I kinda think the home equity line should go first, even before replacing the car. I would like to get a second job, but I travel so much for my day job that a.) I was spending 100 bucks a month just to own a piece of plastic when I could have had my very own mustache! Mr Money Mustache est l’ami qui dit les vérités cruelles dont le monde vous préserve, en vertu de l’adage « qui aime bien, châtie bien ». (Even writing this makes me cringe now, but at the time all this seemed perfectly logical.)…. Depressing. April 18, 2012, 6:42 am. April 18, 2012, 11:49 am. Dave Ramsey) to pay off the smallest *balance* first, so you feel accomplished about yourself, and then continue in order of size of balance. “Problems that could be solved with money aren’t really problems.”. There are 2 sides to the ledger: Income and expenses. Great post, something everybody should see. Debt scares me like nothing else. Big, bold changes. You are such a great storyteller, the Waikiki incident was brilliantly described! I’ve got a $30K LOC [not tied to home equity] that I keep empty and use as my emergency fund. Last year I lived on about $27,000 and I expect that to drop to around $24,000 this year. When I was 10, I was such a voracious saver that my mom and my neighbours would borrow money from me constantly. For those of us without a ton of property assets though I would argue paying off the house isn’t a bad idea. That is so expensive, that its worth delaying almost anything to get out of it. ONLY because, for most they’d spend a portion of it on frivolous bullshit. How about saving up till you can pay for it in cash, then use the credit card to get the free airline miles/etc., then paying off the entire balance? If your new to the mustachian way of thinking you’ll probably find other excellent tips on the blog that will help you shrink you loans even faster by cutting expenditure further. There will be lots of more detailed posts on dealing with debt in the future, since a lot of Junior Mustaches might be starting out with uncomfortable levels of the stuff. 1,000 in the bank as a “baby” emergency fund. It’s frustrating. When using a credit card in this way, you have a built in cushion of sorts, wiggle room equal to your grace period…just in case. What’s your emergency fund $ amount? June 24, 2015, 10:07 pm. If you prefer being private, continue searching Craigslists ads for less expensive apartments and don’t be afraid to negotiate with the land lord. Cook up the red beans and brown rice from dry stuff in your pressure cooker. Guaranteed, it will happen. Since I realized that will not help me get out of debt in any reasonable time, I went towards bankruptcy. EDIT- I just saw MMM comment above – stating that he didn’t believe that super low student loan debt was a big concern –. 1) You are in a better debt situation than almost every single one of your peers… that being said, knock out that 1k in debt in with your first couple paychecks.. :), Jared Chmielecki here here, I do the same, but only for family. StraightStache I don’t think any one should even try the idea until they have all their basic savings in place at a minimum (no debts other than the mortgage, six months living expenses saved and accessible in case of emergency, and an ongoing habit of saving and investing. And every dollar you manage not to waste, builds your skill at saving money and learning to spend it more efficiently. Uh, no. Either way, it’s close to one year’s worth of college tuition and expenses for a daughter! First of all, if you search his site for “Bottle Service”, you’ll see that he uses it mainly as an example of a wasteful indulgence. There are only expenses with an unknown date. We already live quite frugally (more so than you on some things) and our largest expense is gas. Lesson: If you lend, be prepared to make a donation, or don’t lend. Panic!” :-D, “Then I’ll see you at the next stage, which is really where this more advanced blog begins.”. 4) Go for as long as you can without a car. Go ahead and click on any titles that intrigue you, and I hope to see you around here more often. (Remember, debt is normal for the vast majority of people, they’re comfortable with it and as far as they can see, it’s the only way.) Some places will waive fees if you have an automatic investment. Got me thinking I need to kick the student loan out to the curb. I had to sit down, count calories RELIGIOUSLY with weight watchers, take zero money with me to work so I wouldn’t be tempted by the vending machine, stop eating out completely, stop drinking wine completely. I would get creative by trying to look it as a game of “How Fast Can I Destroy My Debt”. Mr. Money Mustache I noticed that there is a comfortable neutral area that is tempting to fall into, its the zone between having only mortgage debt as your only debt and not yet reaching early retirement. Mortgages are not an emergency at interest rates like we have today. If you pay off $100 of the principle next month, and your interest rate is 5%, you are actually decreasing what you will need to pay by $135. (I hate how woo-woo that sounds, but it really seems like that’s what was happening.). Money market fund (High Yield) (insured) savings account. Such a great post MMM! As NMHD and many other bloggers have demonstrated (yours truly included), keeping oneself honest in the form of a blog is a great way to achieve (and exceed!) Renting a Tesla on Turo! Take out your sharpest knife and start scraping the little blood-suckers off. Someone who takes a year to get to the point you think they should start off with and keeps it up until the debt is gone will be better off than a person who starts like you think they should and stops it after 3-6 months. In a pressure cooker, at 15psi, water boils at 121ºC. On the way home from work, she had picked up a bottle of wine and purchased a DVD containing some episodes of a popular TV show. That loan free date is the exact moment you begin saving for your forever house. I’ve never had anywhere close to $25k in cash in my life, except just before buying houses when it was needed for the downpayment.. and still don’t keep that much even today! Thank you, Mustachio Man. With so many choices, and so much apathy towards investing, I want to focus on easy things whenever possible. Avoid expenses by adopting a frugal life style. It’s funny that the world makes us feel crazy for not carrying a balance when clearly it’s the only reasonable way to use a credit card. Money? Nobody is, so what’s the big deal? Continue to tell it like it is! Upon further investigation, it was probably a $22, 12-egg omlette: http://www.bethscafe.com/menu.php?menuCategory=omelettes. You may also want to review the loan and make sure that your are paying a reasonable interest rate. Muchos gracias for your excellent blog! Living without debt is a learned skill, and like anything new, you have to get your feet wet, make mistakes, and see what works. As you pay down the principle more and more of your normal loan payment goes toward principle. They had a Sears and JC Penny store charge cards and that was it. As we battled on the Nintendo Wii, the wife came home from working at the part-time second job she had boldly taken to accelerate the paydown of some old personal debts. Yes, but the resentment of watching people not pay their debt to me when they had the funds was eating me up, so now I avoid the problem by not lending anything. The link to ” your money can work harder than you can” needs a http:// or something along those lines. We took him to the vet, to see what is wrong with him. If you spend 10,000 in interest on the mortgage (to pluck a nice round number out of the air) to “save” 2,800 in taxes by being able to write off said 10,000 from the gross……. Mr. Money Mustache Time and creativity are my friends. I consolidated my student loans at an unfortunate time, and I’m paying 7% (ouch). And a year or so later, I maxed it to the $22K allowed under the IRS “catch-up” provision. My husband currently has a 60+ mile commute one way 5 days a week. on the card along with everything else. I liken it to weight loss, because I have experience with that. April 19, 2012, 11:15 am. Correction: you keep just enough cash to pay off *normal* monthly charges, but not enough for an emergency. Mr. Money Mustache This is an increased risk that someone who is paycheck to paycheck is probably less able to handle than those of us who are saving 50% of their income. 1) Those who can never have a credit card because they impulse buy without the ability to pay on time when the debt is due. I’m not even halfway perfect but I’m going to be cc debt free in 2016 and I only started getting my act together in late May 2015 and I’m working on 35% savings (post tax,401k,and benefits) thereafter. Feel free to throw in some early questions. Can someone who is a hardcore mustachian tell me whether it is a good idea to consolidate student loans aka refinance or is it better to pay the loans through the snowball effect (starting with the highest interest bearing one first)??? How again is paying 10,000 to one shyster to save 2800 in taxes a good deal? Here’s an interesting way to make a cash cushion work for you: In Australia we have something called an offset account. Stay on it and let the forward progress accelerate your progress each day. I think I am getting too complacent. But you learn by fixing them, rather than letting them ride. Paying interest on borrowed money is simply stupid:You throw away money that took time and effort to earn. April 18, 2012, 9:09 am. The #1 scenario I can think of that would require tapping into an “emergency fund” (or credit fund in this case) would be losing your job, at which point the loan would become immediately due. If you can save 85%, you can retire in 4 years. NIIIIIICE! Hi Calvin – YES on all counts – I’d definitely dump that HUGE emergency fund into the student loans, as long as you have a nice open line of credit with the checkbook and debit card in hand and ready to use. That is what makes you a unique and valuable commodity. You are in a great position and you can easily put yourself on the path to early retirement (real early retirement… not the BS that Money and other mainstream financial media talks about). I think we are all OK with that. !”, Dancedancekj Then you’re effectively getting a return equal to your student loan interest rate. April 18, 2012, 2:21 pm. The response should be: I just totally blew it and spent more money than I earned! First, we want to save up 5k to cover our new much higher insurance deductible. I haven’t yet replaced my shoes that have a hole in them or taken care of other deferred expenses. When wanting to help out a family member or, friend, I like Bill Cosby’s advice. Despite all this by the time I graduated high school they had lost their cars and their house, and continued to spend on storage units and eating out while complaining about not having enough money. My favourite: “My marginal rate is 39%, therefore I pay 39% on every dollar I earn… I avoid earning extra money because it’ll put me in a higher tax bracket and I’ll lose money on the deal!” @baughman Already, you have to know somebody is up to something fishy. © Mr. Money Mustache. The problem is that the presence of and reliance on any credit card is a constant temptation to get in debt. I would not think about buying a home now. Boosting my emergency fund - I currently have about 7 months of spending in my savings account, I intend to increase this to 12 months of spending over the course of the next several months. Your statement comes due, and you still have 25-30 days to pay the charges, interest-free. So, If I lost my job for 2 months, for example, I would then rely on the line of credit to cover expenses until I get another job and am able to cover expenses again? Every little bit helps. 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