On Financial Independence

On Financial Independence April 8, 2015


Via this interview on Vox, I came across an intriguing blog by a writer who goes by the unlikely appellation of Mr. Money Mustache. MMM, as I’ll call him for short, argues that an ordinary person can save enough to retire after as little as ten years of full-time work, without winning the lottery or coming into a windfall inheritance. He did it himself, and he’s happy to explain how. Much of his advice struck a chord with me, and I’ve found a lot in what he says that should make humanists sit up and take notice, so I wanted to expound on it.

His first and most important piece of advice is this: Save a lot, and I mean a lot – between 50% and 75% of your income. It sounds breathtaking, but there’s a simple mathematical logic to it.

If you’re only saving 10% of your income, then you need to work nine years for each year you expect to be retired, assuming you plan on spending roughly the same in retirement as you did while you were working. Even if you save 25%, you need to work three years for every year of retirement. If those savings are invested in an interest-bearing account, then compounding improves the situation, but not enough to drastically change this picture. On the other hand, if you save 50% of your income, every year of work pays for one year of retirement. And if you save 75%, every year of work pays for three years.

To keep up with inflation, MMM recommends investing your savings in a low-cost index fund that tracks the market as a whole, rather than gambling on individual stocks. If you have the discipline to set up a budget and follow it, and the fortitude to ride out market gyrations without acting rashly, this will compound over time in a generally reliable way, and if you’re frugal, will allow you to live off dividends and investment gains without ever touching the principal.

Saving three-quarters of your income sounds like a radical proposition, but MMM argues that it’s completely possible for a family to live on $25,000 a year without any serious deprivation. Even a simple lifestyle in our society and era, he points out, allows for more ease, comfort and abundance than the life of almost every human who’s ever lived. But consumer culture trains us in wasteful habits of spending, the better to keep our desires perpetually one step ahead of our income. We buy huge, energy-inefficient houses, drive long commutes in gas-guzzling SUVs, and spend money on acquiring material goods even though the evidence shows that accumulating possessions doesn’t make you happier. I’ve written about this myself in “The Treadmill“, about millionaires who keep working grueling, stressful jobs in an attempt to keep up with their even wealthier neighbors. (MMM mocks this tendency mercilessly, as in one story about a Wall Streeter who earns, wait for it, $350,000 a year and still complains he isn’t making enough money to lead the lifestyle he wants.)

To thrive on $2000 a month, MMM recommends, among other things, bicycling whenever possible, driving only on long trips and then only in a small, fuel-efficient car, dining out less often, and relying on parks and libraries for most of his leisure time. Here, too, I think his philosophy is concordant with humanism, and it has environmental implications as well, which he doesn’t overlook. The cycle of consumption not only keeps us debt-ridden without making us happy, it also imposes huge costs on the planet.

Granted, I don’t think this plan would work for everyone. It requires some luck and a hefty amount of privilege. An unforeseen crisis – a major health problem, a fire or flood, an expensive lawsuit, an inopportunely timed market crash – could devastate those carefully cultivated savings. It also requires a job that pays a decent middle-class income, which aren’t as easy to find as they once were. MMM asserts that almost everyone can get a job that pays $50,000 a year, which I find dubious, although to his credit, he also advocates a higher minimum wage and decent social safety net.

The other criticism I’ve seen – it occurred to me as I was reading MMM’s site – is that not everyone could live the way he advocates. Being able to live off investment gains requires steady economic growth, which arguably requires most people to chase the sort of high-consumption lifestyle he decries. He does address this argument, but I thought of a response of my own.

In the early 20th century, prominent thinkers (Bertrand Russell among them) expected that, as our productivity increased, people would be able to work fewer hours and shorter weeks. But that hasn’t happened. Even though we’re far more productive, we work as much as ever, and most of the gains from that increased productivity have gone to further enrich the people at the very top. MMM’s plan of working a short time, saving and investing, and retiring early could be considered a backdoor way of achieving the same end of increased leisure, just through broad distribution of capital gains, rather than social policy.

Whether or not you want to retire early, I think this philosophy offers a lot to think about. It encompasses our relationship to money, work and leisure; what we choose to consume and why; to what extent we’re self-directed, acting and reflecting on our own desires, or merely following the path laid down for us by capitalist culture. Most of all, it asks us to carefully consider what we value and what makes us happy, which is something most people don’t do nearly often enough.

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