Backdoor Mustachianism

I'll start off by saying that my girlfriend remains skeptical of Mustachianism. She doesn't view frugality as a virtue, more as a side-effect of being a cheapskate, I think. (Discussed this with her some more. She views frugality as being efficient with one's money.) One of my medium-term goals is to convert her to the cause. I'd like her to eventually believe that spending less money is a path to achieving her — and our — long-term goals.

As I was reviewing our food budget, I had an idea. Could it possibly be Mustachian to spend more money in the short term? If you recall, in November we instituted a grocery budget that's saving us hundreds of dollars per month. But there's another half of the food equation. I neglected to mention restaurant spending.

Let's look at both items together:

• June
• Restaurant - $145
• Groceries - $684
• Total - $829
• July
• Restaurant - $153
• Groceries - $606
• Total - $759
• August
• Restaurant - $665
• Groceries - $628
• Total - $1293
• September
• Restaurant - $132
• Groceries - $807
• Total - $939
• October
• Restaurant - $86
• Groceries - $831
• Total - $917
• November
• Restaurant - $0
• Groceries - $372
• Total - $372

What I interpret from these numbers is how little we used to go out to eat compared to the number of grocery trips we were making. The clear blip in restaurant spending is August, which contained restaurant week. Other than that we were going out maybe two or three times a month.

Aside from the numbers being high, here's what I think is really anti-Mustachian about the above spending distribution: our spending was massively inefficient. In terms of getting the most out of my money, I was failing spectacularly.

My girlfriend likes it when I take her out. It's one of those showing-that-I'm-thinking-of-her things. And until I get better at doing that without spending money, I think going out on dates is an okay arrangement.

Here's why November's restaurant spending was zero: my frugality kick was in full swing, and my girlfriend felt like we couldn't go out. She felt like, "Great, he's scrutinizing every purchase. Now I feel both restricted and poor." I'll tell you, for someone who isn't accustomed to squeezing every penny, and who has Mustachianism forced upon her — the above arrangement is not a recipe for domestic bliss.

So, I came up with a plan. Why not build a little good will and show her that, no, we aren't poor, just prioritizing our spending. Going forward, we'll have a food budget as follows: $300/month on groceries, $200/month restaurants. This is an increase in our typical restaurant spending. And by keeping this budget, we'll still spend $351 less per month than our June-October average of $851/month.

This is my idea for backdoor Mustachianism. By giving myself an explicit restaurant budget, we'll go out on more dates which will make my girlfriend happy. I'll be as cost-efficient as possible. In the future I'd like to get more creative with dates, find special things to do without spending money. It will take some getting used to, but I'd like to move toward an equilibrium where we spend little to no money on doing leisure activities together, while still maximizing our collective enjoyment.

Baby steps.

Opportunity cost: student loans vs. mortgage

Over the past two weeks or so I read through Dividend Mantra's complete archives. I was introduced to him by MMM; Dividend Mantra had a guest post at MMM which is a nice introduction to dividend growth investing. The only downside is that hearing his story made me want to spend all my disposable income on dividend stocks, instead of paying down my student loans.

I talked myself down from that ledge. I'm the kind of person who gets fixated on certain things, and I've been practicing self-talk to keep my more obsessive side in check. Dividend growth investing does sound awesome. But so does paying off my student loans, and so does paying off my mortgage early.

I specifically brought up paying off my mortgage early. Now that I've read all of Dividend Mantra's posts, I looked for another Mustachian-flavored blog and happened upon Death to the Mortgage. I started reading it from the beginning. It's really inspiring, and I think one of the coolest parts is that they actually paid off their mortgage. Like, they're done, success, the mortgage is dead.

Naturally, Death to the Mortgage has gotten me excited about paying off my mortgage early. But I've already committed to vanquishing my student loans first. The question became: should I switch my goal?

My first consideration was that my mortgage is way bigger than my student loans, so it's a much longer-term goal. But past that I didn't have a good way to weigh one option versus another. So I fired up Excel and started playing with numbers. I was looking for a metric to help me decide where I should focus my early-payoff efforts. Here's the result, explanations to follow:

Loan / Target	Principal remaining	Monthly payment	"Payoff cost"
Mortgage	$ 407,716.50	$ 2,176.63	$   187.32
PMI	$ 42,116.50	$ 147.39	$   285.75
Sallie Mae (before)	$ 5,883.18	$ 69.88	$     84.19
Sallie Mae (after)	$ 3,883.18	$ 69.88	$     55.57
Federal	$ 25,957.91	$ 192.85	$   134.60
Both student loans	$ 31,841.09	$ 262.73	$   121.19

Here I'm listing various expenses that I can eliminate by paying them off early. PMI isn't a debt but we can remove it when we have 20% home equity (that's where that "principal" number came from). I included two numbers for my Sallie Mae loan, since this weekend I sent a $2k payment to pay it down early. And I lumped both student loans together as the last line-item to offer additional perspective.

The last column is "payoff cost", which I got by dividing the principal by the monthly payment. Basically it's the average cost of decreasing your monthly expense by one dollar. For any given amount of money you want to use to reduce your expenses, you get the most bang-for-your-buck by going after the lowest "payoff cost" item first.

Notice how my Sallie Mae monthly payment is the same in both rows, but after I decreased the principal by making a big extra payment, the "payoff cost" number dropped. This illustrates that, now that I have less principal remaining on my Sallie Mae loan, it's cheaper for me to get rid of the Sallie Mae loan expense.

A downside to this "payoff cost" metric is that it doesn't consider term or total interest paid. That's fine because it's not meant to. What I'm looking at here is: how can I allocate my scarce money to best reduce my monthly expenses?

It's clear from the chart that paying off my student loans is a more effective way to reduce my monthly expenses than paying off my mortgage. What amazed me was how ineffective going after PMI is. I mean, $285 for each dollar per month of expenses saved? Expensive! Though, as a side note, a Safe Withdrawl Rate (SWR) of 3% corresponds to a "payoff cost" of $400, so there's another perspective for you.

Of course this isn't an apples-to-apples comparison. PMI isn't a debt, it's akin to throwing money away, and since by going after the mortgage I'll also be going after PMI, etc etc. But in terms of lowering my monthly expenses, targeting PMI should be at the bottom of my list.

I'm glad I did this exercise because it vindicated my focus on paying off my student loans. After my Sallie Mae loan I'll go after the federal loan, and after that I can worry about the mortgage. And some time in there I'll get started on dividend investing :)

Student loan update 12/23/11

Merry (almost) Christmas everyone. I stayed home from work to hopefully vanquish this cold so I'm not sick for weekend holiday travel celebration fun. In the meanwhile I've been looking over my student loans. I figure it's about time for an update.

Remember that time I said my principal balance of the larger of my two student loans was $25,706.29? Well imagine my surprise when I logged into my account and the balance was instead $25,945.14. That's $240 more! That and my next due date changed to January instead of February. I smelled something fishy so I decided to call customer service.

It turns out my double payment didn't actually go through. The customer service rep I talked to said the ACH withdrawl was declined. The checking account I use for auto debit is an Electric Orange account from ING Direct. It has an overdraft credit line that would more than cover the $385 payment, so I'm not sure what's going on there. Maybe you can't use any form of credit to pay off student loans? Or the DoE's system checks your account balance first so your bank won't charge you an overdraft fee?

At this point I'm willing to chalk it up to the DoE trying to be nice. Still, it went counter to my expectations. I'm glad I've been keeping my eye on my student loans. Diligence is very important to a Mustachian.

The old pre-Mustachian me wouldn't have even noticed. He wouldn't care what the payoff balance on his student loans were — only that the auto payment was set up successfully so he wouldn't have to think about it anymore. And he'd continue making payments every month for ten years and wind up paying interest through the nose so he could go on consuming things he didn't really need.

Update: the balances

• Direct Loans (US Dept of Ed): $25,945.14
• Sallie Mae: $5,880.40 (expected)
• TOTAL: $31,825.54

The balance is up about $200 from last time on account of my extra payment not going through. Sallie Mae debited my payment today, so it hasn't posted yet but that's how much I'm expecting to owe after it goes through.

I'm getting ready for a big move. Along with the money I've been saving up, I got a year-end bonus of about $2k after tax withholdings. That plus my paycheck means I have around $4700 in my savings account and I'm gearing up to throw it at the Sallie Mae loan. If all goes well, I'd like to have the Sallie Mae loan totally paid off by the beginning of February.

Parting words

Now that I'm logged into my Sallie Mae account, I have some information to leave you with. Here is the net effect of having interest accrue while I was in school, just for this particular loan:

• Original principal balance: $4,725.00
• Capitalized interest: $1,517.74

Mustachian or not?: the Nest learning thermostat

On Sunday I bought a Nest. This is an expensive purchase with potential Mustachian implications. Let's get down to it.

What's a Nest? The guy who designed the iPod decided he was going to design a thermostat — essentially, Nest is the iPod of thermostats. It learns your schedule and what temperature you like from just your adjustments. It knows when you leave the house and adjusts temperatures accordingly. It connects to wifi, keeps track of stats, and allows you to set it remotely from your smart device. And it looks really slick. I encourage you to watch the video and learn for yourself how awesome it is.

Nest sells for $250. It is a ton of money. It would be a ton of money even if I didn't already own a programmable thermostat. The big question is how I can possibly justify blowing $250 on something I don't need, when I am trying to live according to the precepts of Mr. Money Mustache.

I was thinking about my thermostat before I knew about Nest. I thought it would be a good idea to start paying closer attention to heating and cooling bills. I decided there must be some Linux-based thermostat or something I could get my hands on, connect to wifi, throw together a web interface. Maybe I'd have to build a thermostat myself out of a microcontroller. It would be a big project. I decided it was definitely something I was interested in but I wouldn't have the time to embark for a while. So I tabled the idea.

Then I heard about Nest. It's everything I wanted and more. I really don't know why I got so excited about a thermostat. The fact that I thought it up about two weeks before I heard about it — it was too perfect, and my brain decided I had to have it. This was before my conversion to Mustachianism. Even once I started this blog, I didn't want to give up my Nest, even though I knew I'd have to fess up afterward.

The answer to this post's title question is obvious. It's not Mustachian. A true Mustachian would make do with the thermostat he has. He would turn that thermostat down as low as he could tolerate, learn to program it so it would only heat or cool when people were around, and turn it down when he was leaving on a trip.

But with Nest I may be able to save money on heating and cooling even beyond the Mustachian-with-programmable-thermostat baseline. Specifically I'm thinking of the remote control ability. When we're out, we can set the temperature to 60 degrees, and schedule it on the fly to get back to 68 before we're home. Nest utilizes this little green leaf to denote temperatures that are more eco-friendly, to subliminally encourage you to turn the temperature down lower. And the auto-away functionality means I won't forget to turn the heat off when I leave the house.

I'll have two winter months of heating bill data to compare post-Nest results with. I am hoping to see a noticeable difference, but that's probably wishful thinking on my part. I'll post the info here when I have it.

This will be my last splurge purchase of 2011. Not to make excuses but I don't make many splurge purchases. In the new year I want to be diligent about exercising my frugality muscle. I'll have Buy Nothing Days, maybe even work up to Buy Nothing Weeks.

Most importantly, I'll try to avoid splurge purchases all together going forward. I'll post about the big things I want to buy before I decide to buy them, and really ruminate on the decision. You know, get it out there, make it public, maybe get some opinions. Give me the opportunity to step back from the consumerist brink and decide that, no, I really don't need that thing that I want.

Here's hoping I can make impulse purchases a thing of the past.

Weekly update 12/18/11

How am I doing with growing out my Money Mustache? It's time for a retrospective on last week. I think retrospection will be quite valuable so this may turn into a recurring thing. We'll see.

Grocery shopping

If you recall, my girlfriend and I have an $85/week budget for groceries. We've been consistently under budget and this week is no different. We made stops at Harris Teeter ($52) and Giant ($21).

Big-ticket items at Harris Teeter were buy-one get-one chicken breast ($10 for ~4lb), frozen berries ($4.5), shredded cheese ($5 for 3), sliced cheese for sandwiches ($5), and flour ($5 for 5lb packages, one each of bread flour and all-purpose). "Savings" at HT was nearly $30. Giant was mostly Gatorade ($4 for two half-gallons), cold cuts ($8), and dry beans ($3).

Last week I made chili in the crock pot and it was a big hit. I'm planning on doing it again this week, this time with dry beans instead of canned. I figure the crock pot mitigates the fact that you have to cook beans for >30min even after they're soaked overnight. That and it's more cost-effective to use dry beans. I'd like to post my recipe once it gets better after a couple of iterations.

Also last week I didn't make tuna casserole like I originally planned, so that's on the docket this week. That, chili, and sandwiches will probably comprise most of our meals. We've been doing sandwiches a lot since getting our bread maker — I can't wait to blog about it soon because it is fantastic (thanks MMM). I am really enjoying the sandwiches.

Selling stuff on the internet

I listed just a few books on Amazon this weekend. Sold one already, a text book from grad school, for $60. After commission, shipping, and buying some bulk bubble mailers, I should have around $30. Not a bad start.

I'm shipping it tomorrow. This was my first Amazon sale in a few years and they've streamlined their processes. I like that you can buy shipping directly through their site, they fill out the addresses for you and debit your Amazon account automatically. Easy peasy.

Now I just need to list the rest of my stuff.

Christmas shopping


This one is burning my Money Mustache off. I didn't have a plan going in, which in retrospect was a weak move. Luckily my family instituted a kids-only policy for gift purchases so Christmas doesn't completely wreck our collective budgets.

By my count I'm at around $220 including stuff I'm going halfsies on with my sister and girlfriend. I think I'll drop another $100 at least by time I'm done with the holidays, maybe more.

Luckily our overall spending (my stuff and joint stuff) is about in line with last month. I'm winning some and losing some but at least I'm still moving in the right direction.

Applying the theory of constraints to your spending

Adherence to Mustachianism entails the reduction — nay, the obliteration — of one's expenses. While Mr. Money Mustache has laid out myriad money-saving tips, frugality principles, and lessons to live by, the path toward Mustachianism is necessarily personal. Just because MMM tells you to bike doesn't mean he's going to sell your car for you, figure out how to adapt your lifestyle to one of a cyclist, and then give you rides to and from work in his bicycle trailer. You do the legwork yourself.

I'm the kind of guy who relies on gradual improvement over time. There's a part of me who wants to go cold-turkey on spending, turn the thermostat down to 65°F, run to work every day, and subsist on Ramen and PB&J sandwiches. That's not me though. Not to mention my girlfriend would break up with me after a week. So I'm trying to take an iterative approach to my spending.

My general plan was to identify the biggest expense that has the most fat to trim, then focus on it until it's meaningfully reduced or I hit diminishing returns, then repeat the process. I'm not the genius who came up with this first, though, I'm just applying an awesome management philosophy to Mustachian goals.

The theory of constraints is a management paradigm that's meant to keep an organization continually focused on its goal. It's based on the premise that achieving the goal has at least one bottleneck — one link in the value chain that's lagging behind the others.

Paraphrased from Wikipedia, the steps are:

1. Identify the constraint
2. Decide how to exploit the constraint
3. Subordinate all other processes to the above decision
4. Focus all effort on breaking the constraint
5. If the constrained has moved, return to Step 1

This is my strategy for reducing my spending over time. There will always be one or more things I'm spending too much money on, or I could find a better deal on, or a way to more efficiently spend my money to achieve my goals.

One of these days I'm going to take a high-level analytical view of my spending and expenses, and make a sort of theory-of-constraints road map. I want to be more explicit about what's on my docket for budgetary improvement, not least of all to keep myself focused.

But I wanted to get this out there sooner rather than later. The theory of constraints is a valuable tool for thinking about your budget as you make your way toward financial independence.

Cost of commuting: minimized

There's a reason this blog is called "Toward Mustachianism" and not "Doubling-Down On Mustachianism Hardcore Extreme". There are a lot of dudes on the internet who are more willing to live the frugal life than I am. No More Harvard Debt comes to mind, and I've been reading a lot of Dividend Mantra lately courtesy of MMM. I'm not gonna lie, these guys have frugality muscles that are way more developed.

I really like this simile of "frugality as a muscle". I'd characterize myself as a frugality girly-man, albeit with a latent goal of working out at the frugality gym more often. More on this later.

But it's not all bad. I didn't walk into this blog a completely hopeless high-income high-spending anti-Mustachian loser. Before I started down this road I held one Mustachian belief very strongly: commuting is the devil.

Eerily accurate map of New Jersey

I grew up in New Jersey — Springsteen Country, to be precise. Since I was a kid my mom commuted to north Jersey for work, somewhere around Poor Minorities and Hipsters; then later she worked in Executives Living in Mansions Driving Mercedes-Benzes (all too accurate). Her commute was (and is) between 60 and 70 miles one-way, for around two decades now. That's between two and four hours in the car every work day.

She's not the only one. My girlfriend's family lives in the same town, and her dad works in NYC (over 70 miles one-way). My childhood best friend, same deal, his parents both worked in north Jersey. Commuting is the culture of living down the shore — that or dealing with jackass tourists I guess.

Kids learn by example. I learned that, whatever the consequences, I'm not interested in a lifestyle that involves or entails commuting. When I got my job we settled on an apartment complex barely three miles from my office. Now that we own a house, the commute is about the same distance — a little over three miles. It's an easily bikeable commute with paths the whole way. I could even start running if I want to double-down on badassity.

Yes we're paying more to live in a nicer area. But we're making at least part of that up in reduced commuting expenses and more time at home. Even driving a particularly anti-Mustachian SUV (more on that later), I fill up maybe twice a month.

So you see, even if your focus isn't frugality qua frugality, your life can take on a distinctly Mustachian flavor. That said I'm definitely interested in streamlining our vehicle fleet, biking to work more, and spending less money on gas. It's that much easier when you decide to live where you work and work where you live.

How far away from work are you deciding to live?