# Reader Case Study: Portland Man Thinks He’s Doing Well

## By Mr. Money Mustache

## Fri, 31 Aug 2012 12:00:50 +0000

All right, here’s a neat case study for you.

A guy from Portland emailed me way back in May. He sent in a nice proposal for a case study, but I didn’t get around to writing it up until now.

Now, the time has finally come. And when I got back in touch with him, I found out he had been reading MMM and participating in the Forum section ever since. And during this time, he has both made some positive changes and scored a raise for himself.

So what follows is the original case study, some MMM recommendations, and then an exciting epilogue showing the current scene.

Dear Mr. Money Mustache,

I bet you get a lot of “hey will you do a reader case study” requests, but I have to be honest with you – most of the ones you select suck a little.*

I know you gear it towards upper middle class, so I’ll forgive you for most of them, but at least pick someone hard, rather than the easy pickins of folks with $800/month in car payments.

So, if you want a challenge – do me, do me.

The quick and dirty – Single Income, married with 1 kid (19m0).

Income summary:
$62,500/year salary
Stock dividends from a partnership $2400/year
Income from teaching basic motorcycle riding course on weekends: $2000

Monthly take home from salary – $3,960

Spending – the high points:

Household spending – $726/ month, includes utilities, pets and $260/month in food.
Cars – $300/ month, includes fuel, maintenance and savings for replacement.
Mortgage – $917, we’re on an ARM, so we’re only paying 3.8% right now. We want to refi this into a rental and put 20% down on a bigger place for ourselves in a couple years.
School Load – $120 – interest rate is something like 3%, it costs us less than $10/month, so at this point I’m in no hurry to pay it off.
Allowance – $150 for me, $150 for my Wife, $50 for the baby and $80 for the dog. (The dog allowance will probably go away sometime soon, it’s actually just accumulating in a savings account in case we need it for something.)
Health Care – $525 – my wife and daughter are healthy, and we have a $260/mo policy that covers them, the additional is to cover actual care costs. Typically that’s me, even though my work covers my insurance I have a heart defect and tend to run up co-pays.
Charity – $40. Lip service, it’s mostly even to NPR, but whatever

Total Spending: About $3050/month

Assets:

Home equity: About $30k on a $175k house
401(k): $42k, I only drop $550/month on that, including employer half matching.
Cash: $22k in the long term savings account that will be used for a DP on a house when it hits the $40-50k mark. (Projected in about 2 years.)
Other misc money accounts: $8-12k.

Okay, here is where you can make fun of us –

Cars – 2004 BMW 325i wagon. I love that car. We paid cash for it in January 2010. For all you bag on BMWs they are really good cars, we’ve got a good independent shop that I trust for service.
1995 Land Rover Discovery – hey, it’s got a fucking 5 speed! Rare. But a shitty car really, we’ll be selling that shortly, but it’s nice to have as we drive over the Cascades to visit my parents about once a month and in the winter a 4wd with good tires is good piece of mind. (And it’ll only sell for a couple thou, I’m not that motivated)
I’ve got a 2002 VFR murdercycle that I ride back and forth to work – 7.5 miles each way, it averages about 35 mpg commuting so I use about a half a gallon of gas a day.

That’s about it.

The problem: I’m not terribly fond of my job (engineer). At this rate I can retire pretty safely in 20 years, but then I’ll be 53 (and with a bad ticker I don’t know what that will mean), the kid will be all growed up.
The real problem is that I didn’t read Early Retirement Extreme until about the same time my daughter was born (and while I was having a particularly hate hate relationship with my job)

Why should you do us? We are right around the median household income. We are slightly better off than our peers (on average), and I think we do a pretty damn fine job of living the Mustachian life, but I don’t consider 53 to be early retirement or financial independence.

So tell me, Master of All Things Mustachian – how can I (significantly) quicken my path to financial independence? Can I proudly grow a mustache, or must I hide my head in shame until I cut the needless spending on… whatever is excessive.

*Excepting the teacher one, that was real good and the minimum wage one.

Mr. Money Mustache Responds:

This is an interesting case because we’re starting with a fairly Mustachian-sounding family, who wants to go further. By his own calculations, he is 20 years from retirement, and would like to pull that in significantly.

If I were to start running this show, my first step would be to clarify the numbers. I can see from the way this reader details his finances, that things are a little bit mishmashed, with some expenses grouped together, a variety of random streams of savings, and no clear picture of what the REAL monthly expenses are. And this is after I spent about 15 minutes hacking up the above list to the items at least slightly more comprehensible.

For example, when calculating your housing expenses, I suggest separating the principal repayment (a form of savings), and interest (a monthly cost which will eventually disappear once you pay off your mortgage), from the things that will be ongoing expenses in retirement (property taxes and utilities).

Similarly, your car expenses should include registration, maintenance, and fuel. But I don’t recommend “savings for replacement” because that category is too vague. If you drive a small enough amount, you may never need to replace your car. And when you do replace it, you could be buying a vehicle priced anywhere from $500 to $20,000 depending on your style. Instead, you might replace “savings for replacement” with a “vehicle wear allowance” of about 15 cents per mile. Once you start thinking of car costs as directly proportional to how much you drive, you’ll start having appropriate motivation to drive less.

So let’s boil it down to what I see:

Assets: $108,000 (including home equity):
Annual Living expenses assuming a paid-off house: About $25,600 ($2133/month).

To escape from your job, you need to do some combination of

- paying off your house
- accumulating stocks that can provide some income or managed payout, and
- acquiring other assets that might pay more in exchange for a bit of work or knowledge.

If we wanted to do it all with stock investments using the 4% rule, you’d want $640k invested plus the $175k of home equity for a total net worth of $815,000. With your current savings rate of around 40% of take-home pay, you’re right that it will take around 20 years to get there, starting from where you’re at. The actual balance of your student loan balance was not listed, but you’d want to add that to the amount as well.

On the other hand, if you could cut your annual expenses by 10k per year, or increase your net income by that much, or do a split of the two, you’d be at a 60% savings rate. Adding in your existing savings, that would slice your time to retirement down to about 11.6 years, according to the nifty Networthify calculator (which was in turn based on the Shockingly Simple Math post, which was in turn inspired by a chart in the Early Retirement Extreme book..)

And it gets better than that: if you plan to keep the motorcycle instructor income and the $2400/year income from the partnership shares, you’ll only need to replace $21,000 of income after retirement.

If you own and manage one or more profitable rental houses after retirement (you’d want to rent your own out for at least $1500/month to make it really worthwhile when you move), this can pull things in even closer.

So that’s the bright side. Now let’s look at improvements that can be made immediately:

Your vehicle fleet is a bit off the hook for a family in your position. You’ve got three machines for two drivers, and none of them are even remotely fuel-efficient for the job they accomplish. I’d suggest selling all of them, and getting a single manual-tranny hatchback – maybe one from the Top 10 Cars For Smart People List. It should get at least 35MPG, making it acceptable for occasional single-driver travel, although in general you’ll be using your bike a lot more from this point onwards. And sorry, you have to sell your motorbike. I had the same bike, and I sold mine, so you can do it too.

This move will not only cut your gas, insurance, and maintenance costs, but it will free up several thousand dollars towards your goals!

Once you’ve done that big step, there is still plenty more fat that can be trimmed. Allowances? Why not try the Spousal Frugality Check method to make them unnecessary. A dog? That’s a pretty expensive optional companion to add to a family that is trying to get ahead financially. Keep this in mind if there’s ever a temptation to add more pets!

However, I can definitely offer my stamp of approval to your housing and food costs. There is not much that can be trimmed from that, which is the main reason you have a fairly good savings rate in the first place.

Summary: Find an extra $10k per year, and you’re good to go. Build up alternate income sources and you’ll really be on fire. You could be free from office work within as little as 5 years!

Epilogue: When I got in touch with Mr. Portland this afternoon, he shared the following update with me:

I did get a raise to $70k after getting an additional license since I wrote you…

Looking at the list, some other things changed too, I guess:
Sold the Land Rover, Started Bicycle Commuting 2x per week, Refinanced the house, Paid off Small Student loan when MOHELA took it over… I didn’t realize we’d done so much recently.

Wow! Congratulations again to this reader. For the most part, he has solved his own problems with the help of other readers of this blog.

Procrastination on my part has paid off. But that only works when you’re already retired.

In your case, perhaps you can see some parallels to your own situation, and a shortcut through the maze to financial freedom?

Have a great weekend.