Following Mr. Money Mustache’s Simple Strategy to Financial Freedom

Apr 17

Apr 17 Following Mr. Money Mustache’s Simple Strategy to Financial Freedom

17 Apr, 2022

Back in January 2012, blogger Pete Adeney, aka Mr. Money Mustache (MMM), wrote a blog post that changed my life when I eventually discovered it in about 2016-2017. I don’t think I would not be sitting here today, in our position, had I not stumbled upon it.

It was called “The Shockingly Simple Math Behind Early Retirement”, and it blew my freaking mind!

“This blog post shows you how to be wealthy enough to retire in ten years.” MMM

Oh yeah?

What the heck do you mean I could retire early?

How could that even be a thing?

Then this following article, which he wrote in May of 2012, explained in detail “The 4% Rule: The Easy Answer to “how much do I need for retirement” and set our wheels in motion.

“To apply it in real life, just take your annual spending level, and multiply it by 25. That’s how much you need to retire, at the most. A $25,000 spender like me needs $625,000. I’ve got more than that, plus various safety margins in the lifestyle, so all is good”. MMM

No freaking way! You are kidding, right? It can’t be that easy!

There is no way we could live on $25,000 a year, but the math still works, and these two articles gave us a considerable amount to think about.

These two powerful blog posts have just turned 10.

That’s a cause for celebration! I can’t think of a single piece of writing on the internet that I’ve returned to as much as these.

Before stumbling across MMM, I had been deep in the weeds of the financial industry in New Zealand, trying to work out how to invest, where to invest and how on earth it all worked. And I was floundering. One option was the housing industry, which was as convoluted then as it is today. The financial services industry sucked, and I couldn’t stomach the thought that if Jonny and I wanted to make a strong money plan for ourselves, it meant we had to take part in either the housing industry (which appeared based on lifelong debt) or the financial sector (designed in such a way that while they made money for us, they also made money out of us). I didn’t understand their jargon. It was confusing, their products were complex, and when I started to do the math, I didn’t like the cut they each took. I didn’t want a man in a suit in a flash office handling our money either, and I thought I could do a better job; I just didn’t know how.

When I came across the MMM blog, his writing style was so freaking refreshing. He used plain English, with no bull explanations, and it just made complete sense to me. One article led to another, which led me to other blogs, books, and podcasts which opened up an entirely new world of easy to understand investment advice. Collectively this gave me the confidence to strike out on our own path.

And we are still happily wandering down it.

These two blog posts opened up a library of new, relatable, easy to understand, actionable information. They are U.S. based, but I found resources and financial products in Aotearoa. Mind. Blown.

Before this, I always thought that you invested for dividend returns, so I thought I would have to have many millions of dollars invested to make that happen. These blog posts explained that our investments could cover our annual expenses by selling off a portion each year while leaving the remainder to compound. We needed less putea invested than we thought.

Although now ten years old, these two blog posts are as relevant as ever. I still re-read them and share them with readers of my blog. The beauty of having my blog and podcast for the last six years is that I’ve met so many Kiwis who also discovered MMM in the early years, applied his information to their own financial lives and have since made having to go to work optional, or retired.

So, I know that it works!

Our investment journey really began in earnest around 2015, before learning about MMM, when we started to put some money aside into some quite random investments. Unfortunately. That's when I began my spreadsheet and started to track our money. We had paid off our house in full and now had some cash to invest each month. So, I did what I thought I was supposed to; I started to buy individual shares (with no idea what I was doing). Because I felt I needed to, I used a financial advisor, and he began investing in managed funds (I had no idea what he was doing). We had term deposits (ahh, the good old days where you earned interest). We had Bonus Bonds, probably the worst investment out there, but everyone had them! We even bought gold by the ounce! And KiwiSaver, we had that too but had been steered into a very high fee fund by our financial advisor.

By 2016, all of the above carried on, and we made our first tentative step into ETFs, buying the NZ 50, a fund that held the top 50 companies in Aotearoa.

I think it was sometime during this year that I read MMM.

By 2017 we had moved our KiwiSaver to a low fee high growth fund. We were starting to take control.

By 2018 we added our second ETF, the US 500, and things started to snowball from there, and we steadily changed our investment mix to what it is today: US 500 ETF, NZ 50 ETF, Low fee high growth KiwiSaver

We also dabble minimally in a few more niche ETF investments. And we sold a lot of gold but kept a few ounces… because it’s pretty!

We have refined our investments and learned how to manage our money year by year.

By taking MMM's advice, we budget our income and track our expenses using PocketSmith. It used to be that we would weigh each expense carefully, but now we have settled into a fast and easy pattern to manage, which leaves us more time to enjoy each day instead of worrying about money.

It was PocketSmith, which calculates our annual spending, that helped me work out our own F.I. (financial independence) number:

Annual spending = $55,000 x 25 = $1,375,000

A $55,000 spender like my family of three needs $1,375,000 invested in assets to retire from work comfortably.

And I’m pleased to say that we are well on our way towards this goal.

While Jonny (49) and I (48) don’t want to work a heap of hours to achieve an 80% savings rate like the actual hard-core early retirees, we have developed a life that works for us. We have both already semi-retired, which makes us pretty weird in comparison to our peers. Life is too short to work too hard, especially when you can work less and still make it financially viable.

Since 2007 when our daughter was born, Jonny and I have either not worked or worked part-time. Unfortunately, our peak earning years, where we had a combined income of about $170,000, didn’t coincide with our understanding of investing! Duh! We did pay off our house during that time, which has been a crucial part of our success, but we also wasted a tonne of cash that we’ll never see again.

Since discovering F.I., our lowest-income year was about $0 when we both chose not to work; our highest is approximately $80,000. Despite a yo-yo income, we have consistently invested a portion of our take-home pay into our KiwiSaver and ETF funds without ever having missed a month. In that short time, our investments have grown enough that if we were to use the 4% Rule, they can already fully replace one of our incomes.

Which I find pretty incredible. Imagine what we could have achieved if we had worked more!

If you throw the value of our paid-off home into the mix, we have already reached our F.I.R.E. number.

I honestly think I have MMM to thank for this because he set out a path that no one else did.

I basically thought, “what’s the harm here?” If we go all in and invest hundreds of thousands into the share market and the share market drops by 50%, well, we will still have hundreds of thousands left and give it time, the share market will recover. OR, and I know this is the most likely scenario, we turn our hundreds of thousands into a lot more? Why NOT give this s shot?

With each passing year, and as I found the better low fee ETF and index investment companies in NZ, we have refined how we invest. And it’s starting to compound and grow over and above what we contribute to it. In the last 12 months, the NZ and world economies have really been up against it. During that time our total investment value ‘only’ increased by $30,000 (including what we contributed). It’s been interesting to invest during a pandemic. Not frightening, just interesting. But in the last 24 months, the value of our investments has increased by $120,000. We have to give it time.

Another person I also have a debt of gratitude to is JL Collins and his book The Simple Path to Wealth. That one book took away all the hassle of working out WHAT to invest in, and as soon as I absorbed his wisdom and found a way to invest while New Zealand based, we were off! I’ve shared our journey and precisely what we invest in many times on my blog.

Probably the biggest thing I’ve learned throughout the last six years is the calmness and ease I feel about managing our money now. We have a financial balance with our wealth spread across our home, KiwiSaver, ETFs and cash in the bank. We are generous with our money, and we are generous with our time because we have more to spare than most. I am writing this blog post from my home studio on a sunny Thursday morning in Autumn. Jonny’s out for a morning run. Our daughter has wandered off to school. There is nowhere else I’d rather be right now, and that’s financial peace of mind right there. We get to choose how we spend the majority of our time.

Although our daughter has to go to school, you can be sure she won’t have to wait until she’s in her 40s to understand how money works. Part of her education is home-based financial education, courtesy of her Mum. She is investing 50% of any income she makes, so if any member of our whānau stands a chance of very early retirement, it’s her!

Our only issue is my impatience to be done, to have made going to work 100% optional. We could reach our goals faster by slashing our spending and freeing up more money to invest, but I’m happy with where and how much we spend. We could work more, earn more, and invest more, but we have such an excellent work-life balance; why change that?

But we do have a plan which I think will see us financially independent right at the 10-year mark, just like the first paragraph of his blog describes. Our daughter has 3.5 years of school remaining before she heads off to her next phase of life. We are going to spend these coming years just keeping on keeping on, building up our investments by:

Tracking our net worth
Budgeting our income and expenses
Having a 4-6 month emergency fund
Paying into our KiwiSaver
Remaining debt-free
Investing every month without fail
Enjoying life

And we are getting there; technically, if you tally up all of our various investments and include our home, we are already at our F.I. number of $1,375,000.

BUT our money is in the wrong places: too much house and not enough investments.

However, we need somewhere to live, right?

Therefore, when our daughter moves out of home, and I’ve stopped crying, we intend to sell our home, buy a smaller and cheaper one with cash and invest the remainder into our ETFs. This will make our nest egg big enough for us to apply the 4% Rule and generate enough income for the year. Then, if we choose to continue working, we can. If we decide not to, we don’t have to.

Good decisions, consistently made, build wealth.

I want to get across to you in this blog post that slow and steady investment over time works; I think about it as “the gentle path to FI”. Good decisions, when consistently made, do build wealth. I am not following a get rich scheme. I’m not mortgaged up to the eyeballs in rental property. I’m just following the bright idea that MMM so eloquently explained in his blog posts. As I gather more data year after year, I see that this simple strategy works.

I’m fortunate that I’ve met many Kiwis who are further along this path than me; they have retired using the 4% Rule and are happily kicking back and enjoying life even more than they did before. Despite their withdrawals, their investments continue to grow, despite all that’s gone on in the world. For Jonny and I, reaching “our number” will most likely mean that work will become optional. Meaning that if I want to, I have the option to continue to work, which I probably will because I quite enjoy what I do. The point is; that we get to decide.

And as for Pete Adeney, aka Mr Money Mustache. He’s been dancing to the sound of the share market for well over ten years: Boom, boom, crash, boom, the beat goes on. And he remains retired, which for him means he gets to do whatever he wants, none of which appears to be lying on a beach sipping cocktails; he’s a very active bloke. It’s the same with my friends across Aotearoa who have chosen to follow the same path. I can’t wait to join them all.

Had I found his blog post on the day he published it, we would be retired by now! So, who knows, maybe this is the first time you have ever read them. If so, this might also become a pivotal day for the rest of YOUR life?

That would be freaking awesome if it was!

I wanted to create a concise list of resources for you to start your financial education: