# Getting Started #1 – What am I Supposed to Do With All This Money?

## By Mr. Money Mustache

## Sun, 10 Apr 2011 21:06:17 +0000

Hi, It’s me the Realist again.

I think I’ve noticed a pattern with Mr. Money Mustache. He is part of what I like to call, “The Religiously Frugal”. For him, the avoidance of spending is not just a way of reaching a goal… the frugality itself is the goal. He actually likes this shit! If you give this guy an extra million dollars before bed tonight, he’ll still be riding his old bike to the grocery store tomorrow and bringing home the organic produce in a backpack from 1999.

But for the rest of us, who might find lifestyle changes difficult at first, let’s focus on the practical side and the numbers.

As soon as you start not buying certain things, you will find that there are some dollars building up in your bank account. You keep getting paychecks, maybe the odd windfall from selling something on Craigslist or a gift from Grandma, etc., and it all goes straight to the bank.

Your goal every two weeks or so will be to count up all this extra cash, figure how much you need for upcoming bills, and sweep the rest to somewhere useful. Somewhere that either pays you interest, or saves you money by reducing the interest that you pay.
Note that there’s a powerful double psychological trick going on here:

1. You are keeping your bank account very low, which makes you really think twice about impulse purchases.
   “Hmm, I can’t buy this $1500 television set, because I’ve only got $300 in the bank and there’s only one paycheck coming before my credit card statement will come due.”
2. Plus you are keeping the money as active as possible.
   Every dollar is actually a little employee that will work for you, 24 hours a day, for as long as you keep it. But you don’t want your employees hanging around eating donuts in the smoking lounge of your zero-interest checking account. You will simply sweep these green paper employees to wherever they will work hardest for you.

For most people those places, in order, are:

- paying off any high-interest debt like credit cards
- making sure all your deductions for your 401K plan at work are set to their maximum level, especially if they have employer matching
- paying off any other debts like car or student loans
- paying off extra principal on your home loan
- buying a conservative dividend-paying stock index fund – go to Vanguard.com and start an account to buy some units of the VFINX fund, or if you have a brokerage account you can buy VTI shares.
- last resort: just putting the money into a cash account that pays the highest level of interest you can find – Vanguard’s Prime Money Market fund or a savings account somewhere like Capital One that has reasonable rates.

So there you have it. Save this posting. It is simplistic advice, but if you go out and read 50 books worth of financial and investing advice and distill them into only a few paragraphs, you’ll probably end up at the same place.

Mr. Money Mustache actually reads these books every night, since they are part of his unusual idea of fun. He also follows Warren Buffet as if he’s a sports hero and read his 800-page biography over two red-eyed days as soon as it came out. I encourage you to get more into investing too if you find it interesting, but if you just want the cheat sheet of what countless millionaires do with their money, just follow the points above and you are good.

These techniques will keep your employees working for you at a rate of between 5 and 12% per year. If we average it out to 7%, that means for every $100,000 you put to work, they will kick back $7,000 per year to you forever, with no work on your part. Setting some aside for inflation and a safety margin for occasional stock market crashes, we drop that to $4000 (more on that in an upcoming article).

So if you have 800,000 employees, you get a lifetime golden parachute of $32,000 per year, forever, with no thought or effort. Hopefully you are already starting to see the blinding and obvious light at the end of the tunnel. You are now saying, “Damn, I want those 800,000 employees working for me as soon as possible. How can I get them!? When can I start!?

And that boils down this blog to one simple idea – getting rich in the only way that is pretty much foolproof, as quickly as possible.