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One of the most popular and widely-shared things we do on this blog are Reader Cases, and we totally get why. It’s hard to get unbiased advice on your finances. If you try to walk into a bank to talk to someone about money, all you’re going to get is an hour-long sales pitch on why you should put all your money in that bank’s mutual funds, or turn over your money to their advisors so they can just churn your account to generate commissions.
We, on the other hand, don’t want anything from you. We don’t charge people for analyzing their situation, because we don’t care about making money from you. We just want you to be free and happy.
As a result, our inbox is constantly exploding with people writing in and asking us to look at their finances. It’s actually a pretty strange situation that people are so willing to share their most intimate details of their lives with a stranger over the Internet, yet can’t talk about this stuff in real life. Money is a deeply emotional topic, so maybe the fact that we’ll likely never meet them in real life makes it easier to discuss this over email than over a dinner table.
By now, we’ve done dozens of reader cases, from people all over the world and all across the socio-economic spectrum. And generally, I’m happy to say that we managed to come up with a way for most of them to retire, usually with a few tweaks to their situation. Very rarely have I ever thrown up my hands and gone “Welp, you’re super-screwed. Sorry.”
So I thought it’d be interesting to write about the trends I’ve noticed analyzing so many people’s finances, the most common problems people face, and what they do to solve it.
Summarizing Your Finances is the Hardest Part
Regular readers will know that one of the things we love to do is yell MATH SHIT UP before we, you know, math shit up. And that’s given a bit of a misconception that math is the magical key to making sense of money. As if people show up at our door with a shoebox full of receipts, we wave a magical math wand and then BOOM. Money problems fixed!
The math is easy. You’ve seen us do it over and over again. First, we take the person’s total annual expenses and multiply it by 25 to figure out how much money they need to retire. Then, we figure out how much money they save every year. Finally, we throw those two numbers into a spreadsheet and generate those projection tables that predict how long it will take to get there.
That’s pretty much it. Sometimes the time-to-retirement number comes out pretty good, and we call it a day. Other times, it comes out kinda sucky, at which point we’ll see if there are any unreasonably high expenses, unused tax shelters, or obvious low-hanging fruit line items that we can optimize away. Then we’ll re-generate the projection table and see the impact that would have on their time-to-retirement.
It’s not hard. But what’s actually hard is the process of even writing into us in the first place.
When people write into us to do a reader case, we ask that they follow a general format given here. I need to know your income, your annual expenses, any debts you have, and any assets/savings. Once I have that, I just plug it into the math and I know when you can retire.
And here’s the secret of the reader cases: By the time someone’s gathered all that information and written it all down into an email, they’ve already done 80% of the work.
The biggest problem people have with their finances is that they don’t know where any of it’s going. “I’m working really hard, I’m not getting ahead, and I have no idea why,” is the #1 problem people face when it comes to money. But by digging through all your tax returns, and adding up your monthly expenses, and chasing down all your bank statements and writing all that stuff down onto a single piece of paper, it’s actually really easy to see what the problem is. The problem is that most people never do that.
So even if we never get around to doing your reader case (at this point, our backlog easily extends to over a year), simply by writing out an email in the format we ask for, you’ve already gotten most of the benefit. At that point, you can probably read over your own email and see yourself what the problem is.
Most People Who Own Real Estate Are Doing It Wrong
People seem to think we’re biased against real estate, and as a result keep telling people who invest in real estate that they’re idiots. The truth is actually in the opposite order. Most people who write in and own real estate don’t know what they’re doing. Seriously. Easily I’d estimate 80%-90% of reader cases who own real estate are doing something horrendously stupid, and when we spot someone doing something stupid we call them out on it. That’s not because we’re biased. On the rare occasion that someone’s doing it right, I congratulate them and say “good job.” But that happens so rarely that it appears that we’re biased.
If you own a house, and you think that just because your mortgage payment is the same as what rent would be, you’re doing it wrong. If you’ve bought and sold three houses by the time you’re 35, you’re doing it wrong. If you’ve ever used the phrase “owning a home is not a financial decision,” Holy Shit are you doing it wrong.
Houses are not necessarily a bad investment. Housing can be a very very good investment. But you have to know how to distinguish between a good housing purchase and a bad one.
The thing about investments is that normally, if people don’t understand something (like the stock market) they don’t invest in it. Housing is the opposite. People who don’t understand how to evaluate a house as an investment are often the ones most desperate to buy. It’s the most dangerous and insidious thing about this asset class. Housing is actually pretty dangerous, yet it “feels” safe, and that’s why housing tends to screw up so many people’s finances.
Most People Can’t Tell When an Expense is “Reasonable”
This may not be terribly obvious, but one of the most valuable thing about doing these reader cases is the ridicule in the comments section.
Let me explain.
Because most people don’t talk about finances in real life with their friends, they often don’t have any way to compare their expenses with anyone else. And even if they do, their friends may have similar spending patterns so they can’t tell when they’re vastly over-spending on a certain category. So they blindly continue over-spending thinking “Oh, it’s normal to spend $1000 a month on a gym membership I never use.”
But when people write in and we feature them on the blog, these discrepancies become super obvious, because people in the comments start making fun of them.
“These idiots spent how much on private school? That’s insane!”
The natural response to being ridiculed in the comments is to close your laptop and run away, but these are actually one of the most valuable pieces of feedback you get when we feature a reader case. If you can read beyond the insults and name-calling, those howls of indignation are the community noticing and calling out spending that’s way above what the average person spends on that line item. This usually means that there are far, far better deals to be had in this category, and likely means that this is an area where an easy low-hanging-fruit optimization can be found.
Don’t run away from criticism, people. Lean in!
People Can Make Massive Changes if They Have a Good Reason
I’ve mentioned that we can usually find a solution for people to retire way earlier than they thought if they made X, Y, and Z changes. And after we publish the reader case, our expectation is that it’ll make an interesting read and that’ll be the end of it.
What continues to surprise us is that months later, one of the people who we featured will write in and say “OK, I actually did those things you suggested and now I’m much happier and less stressed.” These aren’t small changes either. People have switched jobs, sold their houses, and relocated to other countries because of an analysis we did.
It’s always surprising and humbling when this happens, because nothing makes us happier than when people finally understand their finances, actually does something with that information, and it actually fixes their problem. So many problems (especially in North America) are self-created, and much of it comes down to a fundamental lack of understanding when it comes to money. And while we first created this site mostly as a vehicle for FIRECracker to yell at Boomers, it’s since morphed into a vehicle for us to help people understand their money. And that’s a great thing.
If you understand money, life is incredibly easy. If you don’t, life is incredibly hard.
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Thanks for alle the effort you guys put in this blog. I have learned so much from you two, and from everyone who was brave enough to be analysed in a readercase. Even though I’m Dutch and some of the situations described do not apply to my country, I have still learned so much. My boyfriend and I have made many changes in the last year; we started investing in low-index funds, our savingsrate is now 60% (which is pretty good considering my not-so-great flight attendant salary) and we decided not to buy a house. I’m also studying right now to get a masters degree in translation (debt free, studying in Holland isn’t that expensive), so that I eventually can earn an extra income. So thanks again for opening our eyes and giving us the control back over our lives. I hope you know that everything you write is greatly appreciated!
Awww, thanks! Out of curiosity, what are some of the major differences for someone attempting to early retire in the Netherlands vs. someone in North America?
3 things. Taxes, taxes and taxes! No RRSP or TFSA type vehicles accounts, only major way to reduce tax burden is your mortgage interest 😮 (Canadian living in Amsteram for 6 years)
Not sure about Netherlands but in UK there are tax efficient vehicles: Cash ISA, and Shares ISA give to tax free savings and investments. A pension scheme is a tax-efficient vehicle (although there are complexities). You get tax relief on pension scheme contributions – this can work out especially well in certain circumstances – such as after divorce, if you are a contractor, and if you are a high rate tax payer.
(UK also has state pension which can be a useful top up.)
Another big difference between USA and Europe – free healthcare at point of use in Europe – no expensive health insurance required.
One line in this post really caught my attention: “calling out spending that’s way above what the average person spends on that line item.”
If your reader case study people wanted to fit with the average, they wouldn’t be writing in and we wouldn’t be commenting on it. The whole point of FI is that we’re striving to nuke the work-forty-years-retire-at-65 convention!
“Average” would look at our household income and stick us with a stupid car loan, a house as a status symbol, and heart attacks by the time we’re 55. I’d love it if that weren’t the case, and the average household did what we try to do, but until then that’s a dirty word.
Yeah, you’re right. Sometimes people also comment when an expense is “not badass enough” too but the really vocal comments are when an expense is way out of line for even a “normy.”
we did housing right. i’ve said before we got a big stone house for 98k and paid it off. we went to get a heloc in case our roof replacement or something major became an issue. we didn’t and probably won’t use it but it’s free to have the line in place. the poor bastard who did your paperwork went over our numbers and i know the bank made him make the sales pitch for something like whole life insurance. i was thinking “you just ran all the numbers and saw a million fucking bucks in assets and zero debt, do you think we got that from making idiotic purchases like that?” i felt sorry for the guy.
Ahahahaha. See what I mean? This guy gets it.
You bought a house for $98k and paid it off? Now THAT’s doing housing right. Good job! You are in the 10% of homeowners who actually know what they’re doing.
There’s something psychological about reader cases, too. It’s work to do the math, but even more, it’s having the vision of how they can unstick themselves.
Often they ask, “Should I do A or B?” and argue both sides, and I think, “That’s true. You could do it either way,” but you’ll make it very clear: Math A or Math B. Choose. That’s a very engineering thing to do, which I appreciate.
BTW, I posted that I was a fan of yours on another forum, and someone else replied, “I don’t believe in magic numbers,” probably referring to the 4 percent rule, etc. I replied, “It’s called math. We’ll have to agree to disagree.”
Yeah, math is math. I love the clarity that it gives. Do this and you can retire in 8 years. Do this other thing and you can retire in 12 years. Is this purchase worth working an extra 4 years or whatever.
Everyone thinks finances is complicated but once you understand the math is becomes really really easy.
Great summary of your case-study learnings FireCracker!
You’ve been doing a great job on those case studies, and in most cases I think you’re more than fair (even when there’s some criticism).
It’s not easy to put yourself out there and ask for financial help… I’m actually pretty impressed by the people who are willing to do it. Hopefully they learn something and can make positive changes in their lives.
Aww thanks. And yeah, I’m always surprised by how willing people are to open up their finances to people on the Internet yet can’t talk to, say, their parents about it.
Do people email you on your blog asking to do an analysis?
I also think you guys are wise beyond your years (adore)
Eh, we’re a’ight.
I tell my kids now to Math that Shit UP! and they look at me funny but know what I am talking about. Now I have to tell coworkers to Math that Shit UP and they don’t get it. Co-worker just leased a new Honda CR-V for 36 mo $3500 down and $389 mo because she didn’t have credit yet. $17,504 Poof and no car in 36 mo.
Thanks for teaching me to Math that Shit UP!!
Ahahaha always happy to confuse people’s family and co-workers.
I had to read that car thing over a few times out of disbelief. That’s a lease?!? Jeez, I didn’t even know there were deals that bad out there. Why don’t they just use Zipcar?!?
I have many Asian friends, and relatives, and I get this all the time, “You have to buy new, else its crap” they all have bought brand new vehicles, and can’t really afford them. But they need to “Keep up with the Jone’s” call it Saving Face. Its a fear factor, probably a psychosis of some kind, a fear of breaking down in the middle of the Hiway?
Even a used car is costing you over $200.00 a month, now tack on a car payment, or lease of $400, thats $600 a month to get back and forth to work…
A bus pass is $65 for an adult here… a bicycle is free.
I enjoy the case studies and also love your travel information and travel budgets. My husband just retired April 20th and we’re using your travel information to help plan our trips. We’re Mathing that shit up on the road to travel!
Congrats! Where are you thinking of travelling to first?
Hi Firecracker and Wanderer —
Just wanted to share a big THANK YOU for all of the generosity, honesty and hard work you put in this blog. My husband and I have been avid readers for months now, and we have learned so much for you both (we’re also both in tech, and I’ve been writing for years, so your words ring very true for us). We’re most impressed with how genuine you both are in trying to help others with their financial health, and especially when it comes in the form of tough love. It comes across in the writing and the time you devote.
Please keep it up and ignore the naysayers. Hope we can give back to you guys sometime and maybe share some travel hacks 🙂
PPF
Thanks, Pan Pan Fan! Always great to hear from fellow techy/writers (apparently, it’s a rare combo, who knew?). Would love to hear of any travel hacks you guys have.
I love the reader cases you guys do. It is fantastic seeing all the options people have.
One follow up thing I’m curious about is what happens to readers when they are close or at FI. I read in Vicki’s book that people get a lot of anxiety in this stage.
I’m not close to FI but I have a side hustle that can cover my living expenses. Not sure when to leave the job because if there’s a recession, my side hustle income will dramatically decrease. Do you guys have any suggestions?
From our experience talking to people close to FI, there’s usually this “wall of fear” that many (myself included) face. Understandable, given that we’re going from decades of work to what feels like “jumping off a cliff”. Very hard to get out of that fear mindset once you’ve been in the Matrix long enough. What helped me was having multiple backups in place (the yield shield, cash-cushion, geographic arbitrage). So I would advise having not just one backup plan in place but multiple. Being location independent also helps, as it allows you to control your costs. I wrote about the “Wall of Fear” here:
https://www.millennial-revolution.com/build/scaling-wall-fear/
Thanks, I read the post and the scariest thing on your list is going back to work haha.
The thing most daunting about not having the actual 25x expenses is what if your side hustle goes down significantly. Having Asian parents don’t help much either, I had a quick discussion and they made it sound like as soon as I quit my job, my side gig income will collapse to $0.
Would it be ok if I e-mailed you my back-up plan to get your opinion?
Oh I totally hear you on the Asian parents thing. Good news is that they gradually come over to your side. They just need to see evidence, over time, that your side gig is producing income.
And sure, feel free to e-mail me your backup plan.
Hi guys, I love your readers’case posts (in case you haven`t noticed!). And I am always surprised at how much information people are willing to share.
It must feel great to know you made a difference in some of their lives.
Cheers.
Thanks, Caroline! And yes, every time we get an e-mail from someone who changed their lives for the better it’s the best thing ever! I’m so proud of them!
I found your website thanks to Mr. Money Mustache (MMM). He tweeted an article about you recently. I am interested in reading your posts to see if you offer advice that is different from Mr. Money Mustache. I am not a fan of the many ads on your website… MMM has none in his website, so I guess I have grown accustomed to not seeing them.
You are getting a TON of FREE info and you are complaining about a few ads? Wow.
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