Author: Johnny Moneyseed

Would you rather work 1920 hours per year or 8?

Preface by J. L. Moneyseed: When I thought to myself, “if I could have any other Financial Independence blogger do a guest post for my site, who would it be?” I really didn’t have to look very far, as I had been chatting it up with Mr. 1500 on Twitter for the past month or two now. He’s like the future version of myself. Him and his wife are both hysterical, and strive for what so many people will never really understand: Early retirement.

They may be pretty new on the Personal Finance blog-scene, but they are in no way newcomers to understanding how money works. Their out-of-the-box thinking is going to secure their rightful place as early retirees at the ripe old age of 43… No, I didn’t say 63. I said 43. Most people are just warming up in their early 40s, but the 1500s will be able to take a step back from the Rat Race and really live the life they deserve.

Now, open your minds (and hearts) to Mr. 1500 from himself:

I’m frequently asked about my investing moves and how I manage my portfolio, but there isn’t really much to say. At heart, I’ve always been a “buy and hold” guy. I put money in investments and then sit on them. At the beginning of every year, I set my 401(k) contributions at 75%. At that rate, it quickly maxes out and I don’t have to worry about it anymore.

Now that I share my finances with the world, I keep a tight record of all things financial. In the past, I wasn’t as diligent. I would enter my investment balances every January 1st. I’d make a couple entries during the year when something interesting happened and that was about it. I didn’t think much about it.

A couple weeks ago, I was going over some old records and discovered something that nearly made me fall out of my chair. I started 2012 with $391,000 and ended with $586,000, for a gain of $195,000. About $75,000 of this was from new contributions, so after accounting for that, my portfolio appreciated by more than $120,000. For the first time in my life, my earnings from investing surpassed the net income from my job.

I was amazed and have some quick thoughts about it before I get to the bigger lesson.

  • This didn’t happen overnight. I’ve been in the workforce now for about 15 years, consistently saving that entire time.
  • 2012 was a very good year for the markets, with the S&P 500 returning almost 16%. It’s much easier to go fast when you have a strong tailwind.

1920 hours or 8?
The really cool and important point is this: In 2012, I worked at my day job 1920 hours. Contrast that to the 8 hours I spent working on my portfolio. At least 7 of these were random checks of Mint to see how things were going. My money was working very, very hard for me.

I believe that Joe Average plans to spend 40 hours per week or a couple thousand hours per year working at his 9-5 until he hits the ripe old age of 62 or 67 or maybe even 70 if he is a bad saver and social security isn’t around in its present form. It is a way of thinking that the populace buys into that is sold to them with fear tactics from the mainstream financial media. Our consumer culture, encouraging people to buy, buy, buy, certainly isn’t helping either. However, it doesn’t have to be this way.

Go grab a dollar and look at it. What do you think of when you see George Washington or the Loon? I’m encouraging you right now to start thinking about that dollar in a different way. Every dollar has potential. Don’t think of it in terms of what it can do for you today; think about what it can do for you in a decade. If you spend that dollar on something, it is gone forever. However, put that dollar to work and just like rabbits or Tribbles, it will make more dollars. Put enough of them to work and in time, you will have a big pile of dollars making new piles of dollars. When those dollars produce enough new ones to account for your expenses, you are free. If you work from that point on, it is because you choose to.

When I discovered what my portfolio had done, I was so excited, I jumped out of my chair and told Mrs. 1500 about it. After discussing it for a while, she said something which I thought framed the situation perfectly:

Would your rather work for your money or have your money work for you?

I’ll take the latter any day of the week.

For me, it all comes down to freedom. I don’t have enough money to last for the rest of my life, so I have to give up almost 2000 hours every year to a job. However, it won’t be that way forever. I can almost hear my dollar pile getting bigger as I type. Soon, very soon, those little dollars are going to be doing all of the work. And I won’t have to.

Establishing a new American Dream

I don’t really understand the American Dream. At one point or another I guess it made sense, and I was convinced that it’s what I wanted with my life as well. The house, the family, the white picket fence, the pension after 20 faithful years of service to a company. Wait, what do you mean that doesn’t happen anymore? Pensions are a thing of the past? Well shit I guess if they’re just going to change stuff on us, we need to change our values as well.

We need a New American Dream. It can still involve the house and the family, but we need to do something to replace the non-existent pensions in today’s workplace. We need a way to combat the dependency on Social Security, because who knows if it’s even going to exist when Gen X/Y/Z go to retire? I’ve been saying for a while now that I’m planning my retirement as if Social Security won’t be there. It isn’t a guarantee like it once was, so what should we do instead?

The realization that you need an alternative to a government retirement check is a great first step. The second thing you need is an idea of what you want your life to be like. If you don’t give in to the “Wahhhh! I’m so broke! It’s everybody’s fault but mine!” mentality then you stand a chance at making your life match your dreams. The great part is that unlike the old American Dream, we don’t all need the same thing. The New American Dream is all about options, and the possibilities are limitless.

The concept of working a 40-hours a week didn’t exist ever in the 10,000+ years that humans have lived civilized lifestyles until the Industrial Revolution. Until then, people just did what they needed to do to survive. It wasn’t about commercialism, or saving up to buy fancy new things, it was about acquiring legitimate necessities like shelter, clothing, food and water. People spent the bulk of their time with family and friends. This was the typical behavior for thousands of years, going as far back as the hunter/gatherers. They would work for about 3 days collecting food, then they would take a week off to eat and play games.

Don’t misunderstand me, though. I’m not saying that people didn’t work 40-hour workweeks, it just wasn’t the only way to make a living. You were deemed successful solely on your ability to provide for your family. It  wasn’t uncommon to have a 3 hour workday, until people were forced into factory work, and prices on common goods began to rise. Fast-forward to the 21st century, and the quality of life has continually decreased over time. You may say life is great, but you spend half of your waking hours behind a desk, working for someone else’s agenda.

Regardless of how or what you do to earn your living is irrelevant to the overall achievement of the Dream. All you need is a clear understanding of what it means to you. What do you want from life? Are your goals realistic? Do people tell you that your goals aren’t realistic because they go against social norms? Do you not have any goals at all?

Whether or not you have clear, defined goals now won’t hinder you from becoming successful, but it may be a good time to start thinking about what you really want in life. Do you want to work until you’re old enough to draw from your 401k/IRA (59 1/2 years old)? Would you rather be a corporate slave or work for yourself? How does early retirement sound? Did you even know that was an option? It isn’t conventional, but it’s the 21st-century. You don’t need a “conventional” lifestyle, because, hell, the current definition of the word only covers about the last 300 years.

Johnny’s confession: “I used to suck with money”

At times I may come off as someone who isn’t sympathetic to those who struggle with consumer debts, car payments, or who generally don’t make enough money to cover their lifestyle. This is more of a half-truth than anything, because I’ll let you in on a secret: I used to be one of them.

To be honest, I used to have a pretty terrible financial track record. When I was younger I had such a bad spending problem that I had to give my mom my debit card so I wouldn’t spend money…on multiple occasions. That was always a pretty good deterrent from spending for me, but I’d always end up in withdrawal (from not making withdrawals). I’d resort to writing $50 checks for $5 worth of groceries so I could receive cash back. I lived paycheck to paycheck and way beyond my means.

It was all fun and games until the debt collectors started calling. Oh yeah, I forgot to mention, I had a couple maxed out credit cards and stopped paying the bills on them. If you’ve ever had a debt in collections you’d know how awful the feeling is. Your phone will ring. Another random 800 number. You don’t answer it, because you know who it is. You hide your phone out of sight while your chest crushes in on itself, no matter where you are or what you’re doing.

It’s truly one of the worst feelings in the world. Your mind will constantly revert to thinking about your finances, which may cause a sleepless night or twenty. You don’t want to look at your bank statements, because you know you’re broke. But you keep spending, because you have to.

I would love to lie to everybody and say that I’ve never been a victim of consumerism, and that I don’t know the sound of a collections call. I would love to tell you that I’ve never tried to run a credit card for a purchase and prayed that it would go through. But I can’t tell you that, just like I can’t tell you that I don’t know what it’s like to tell a cashier “I don’t know why that card would be declined”.

Then all of a sudden one day I started caring about money. No one would have believed in a million years that that was even a possibility, and to this day I’m still surprised myself. I chose the unpopular path of spending less than I made and after not too long I hit a milestone that I had never been able to achieve until that point: I was about to maintain a comma in my checking account. Yep, I was a thousand-aire. I knew I wanted to keep my precious comma, and I never went back to my former life as a spendthrift.

Sometimes when you make an improvement in your life you forget what your life was like before you decided to make the change. You might become more confident and maybe even develop a hint of arrogance. You might possibly look down on those that haven’t taken on the same changes within their own lives. You might think “When are they ever gonna learn?” as if you didn’t just figure it out yourself.

I went through a phase similar to that. And to be honest I think it did a lot of good.

In my younger days when I was lousy with my finances, I harbored financial insecurities. I wasn’t confident with money, and how could I be when I knew my credit card was going to be declined over and over? So when I made my transition, and stopped living paycheck to paycheck, I began to think “Why does anyone else live paycheck to paycheck. It isn’t that hard to save money.”

My thoughts that may have been negative at times actually kept me on track with my own personal goals. I was able to look at a desperate situation and think “That will never be me!” and fortunately I’ve been able to keep my head above water.

I don’t condone outward negativity towards others. I believe that everyone has a unique situation, and without close inspection there’s no true way to make a determination if they’re doing everything they can to improve their life, or if they’re just another hopeless over-spender.

Since then I’ve humbled myself quite a bit. I don’t look down on people who are less fortunate than I am, or even those that just need a wake-up call. I can now understand and respect the struggle that many families and individuals deal with on a daily basis. And I know firsthand what it feels like to be in their shoes. I know what it’s like to have to make the decision to either pay my rent or make a car payment, because doing both isn’t an option.

If you were to try to help me out before I was ready to change, myself, your advice would have fallen on deaf ears. It’s almost impossible to make someone see the bad situation they’re in for what it really is (this applies to more than just finances for a lot of people). Before I was ready, I wouldn’t have taken financial advice from the legendary investor and entrepreneur Warren Buffett.

I’ve also realized that not everyone wants help. People may ask for your advice, because you seem to have your shit together, but they may not have any intention of following through with your suggestions. They may just want to hear themselves admit that they’re in a financial rut. Letting the words leave their mouth is a way of telling themselves that they tried to fix the problem. You can try till you’re blue in the face, but people are always going to make the easier decisions, until they truly want to change.

I feel that if you make a serious positive change in your life you should become a beacon of hope and inspiration for those who need you. You only have the power to help those that you reach out to. Not everyone is going to come to you for help, but at least let them know it’s alright to. Leave your judgments with your bad habits, and try to understand what it’s like to want to help people. Not because you’re better than them, but because you might know what it’s like to be them, and you know that life doesn’t have to be that way.

Winning the lottery vs. Good old fashioned hard work

I remember my parents playing the Powerball when I was younger. They wouldn’t buy tickets on a regular basis, only when the jackpot was like $75 billion. The ones that make the news. The ones that would drive millions of people to their local 7-eleven to try to get their hands on their Golden ticket, their opportunity to leave Middle classdom and take their rightful seat with the elite class.

There’s just something about a big jackpot that make you scream “I can’t let someone else get that money! That’s my money!” inside your head. As if the jackpots that are less than $10 million are pauper money.

This trend ain’t no passin’ craaaze either. People I work with talk about how they need to buy lottery tickets whenever the big ones come up. The radio and TV news probably talk about it as well, but I tend to rock out to Pandora or NPR in the car, and as you already know, I don’t have cable.

It makes me contemplate why people want to win the lottery at all. You’d probably think I was nuts if I told you that I didn’t want to win the lottery. Well, not only am I against buying lottery tickets, but I would prefer to build my wealth through hard-work, and financial cognition.

Most people would rather come into a large sum of money, because they “don’t have the ability” to build their own fortune. It’s an easy way to take responsibility of their financial house. They could pay off all of their debts (if they have any) and then they’d be able to buy everything they ever wanted.

They could buy everything they ever wanted.

What are the important things that need to be done if you ever win the lottery? Pay off your mortgage? Pay off your parents’ mortgages (if they have one)? Invest enough to live the rest of your life with a moderate lifestyle? Maybe donate the rest to charity? It all depends on what you value.

In some cases, winning tons of money can destroy people and drive them into depression.

When you go from being a financially-unenlightened consumer to a mega-millionaire, you skip the whole stage of learning how money works. It would be like giving a little kid $1,000. They’d probably ask to go to the toy store, and they’d blow all of their money on new toys. The result is that they’d have a bunch of new toys that aren’t special or unique to them, because the child has passed the point of fulfillment. They would also have no residual money.

Adults who come into money are a lot like children. Things start off great. They can go on shopping sprees, transplant their family into the most wealthy communities, pay cash for high-end vehicles, and basically anything else that they deem necessary for a successful person to have. They do the things that they think rich people would do, because they never learned the secret to becoming richthemselves. They fill their lives with the things they couldn’t afford when they were living at a modest income, or in some cases, paycheck-to-paycheck.

You know the expression “Money doesn’t buy happiness”. The same thing can be said about possessions as well. Humans have a psychological point of “maximum fulfillment” programmed into their brains. It’s the point where you have just enough. Anything past this point in either direction will make you feel a little less complete. So, having too much stuff can make you feel just as bad as not having enough.

Here’s a personal example from my more spendy days: 3 years ago I got a taste of how awesome board games could be, so we ran out and bought one. Extremely satisfied with our purchase, we played all night. The the next day we went to the store and bought another one and we played it just as much. Every so often we’d buy another game or two, and they would continuously get a fair amount of play.

But one day I got a pretty hefty bonus from work, and decided to buy 15 new games at once. We’ve maaaaybe played 2 or 3 of them. Ever. They now collect dust. They’re a constant reminder of wasteful spending and they bring me no joy whatsoever. My point is that I probably would have been happy buying all 15 of those games if it had happened over time, but instead they remain shelved, and I, a victim of over-fulfillment.

You don’t find depression or overspending as frequently with the millionaire next door type of person. If you’re unfamiliar with that term, a millionaire next door is a regular person who builds wealth off of a moderate income over time. These aren’t lottery winners, or corporate fat cats. They could be a postal worker, a computer technician, a nurse, a military member, etc. These are people who choose to use money as a tool rather than a way to keep up with the Joneses. They diligently tuck away money every month, and tend not to indulge themselves with the newest gadgets, clothes, or vehicles. Every purchase is calculated and Return on Investment is usually the determining factor.

When you figure out how money works, and you work hard for the money you earn, you develop a sense of responsibility and pride for what you have. Your few possessions will bring you joy, and you will subsequently take very good care of them to extend their lives. You will realize that you aren’t the car you drive, the clothes you wear or the things you have.

You are how you feel and more importantly you are how you spend. A good way to figure out what you care about is by looking at your financial transactions over an extended period of time. Do you spend a lot in the grocery category? You might be a foodie. If you put a significant amount of money into debt repayment or investing, then it’s pretty evident that you care about your future.

Most people would prefer the easy way out instead. Caring about money is too hard, waaaahh! And reducing wasteful spending isn’t possible, because most people don’t know what the term waste actually means. If you’re one of these people who would rather win the lottery than work hard, save and reduce waste to become financially independent, then I wish you luck, because no matter what you think, you’re going to need it.

Life isn’t always sugar and rainbows for all-of-a-sudden-millionaires. Almost half of lottery winners spend their entire winnings within the first five years and 40% of families claim to be unhappier after their big day. [Source] Winning the lottery can also be a great thing, though. Especially for those that have the financial know-how to make the money last (at least) a lifetime.

Next time the jackpot’s in the hundreds-of-millions, stop to think about the difference between being self-made and allowing a new found fortune to make you. You might realize that you actually wanna do this thing on your own, the old fashioned way. Save that dollar, it’s a great start to a new life!

**I am by no means saying that I wouldn’t take a winning lottery ticket, as I would in a heartbeat. I just wouldn’t play the lottery in general, so the odds aren’t ever in my favor. If you are a financially-reponsibile adult, and would just love to enter the passive-income phase of your life, then power to you.

Live everyday like it’s a recession

Life in 2013 is good for most of us. Especially with the economic upturn, the soaring record-setting stock market, and the ever decreasing unemployment numbers. Some of us may even have this crazy thing called “job security”. I know I do, and that feels pretty swell.

Looking around my own neighborhood I see people spending money having work done on their homes. Wherever we’re shopping or eating lunch there are always a ton of people flashing their credit/debit cards. A fleet of brand new gas-guzzling SUVs and soccer-mom mobiles line every interstate from coast to coast.

It’s hard to think that only a few years ago, this country was devastated by a major recession. The “Great Recession” they deemed it. There were 10s of millions of people out of work. If you followed it for 5 seconds you would know that pretty much the entire Presidential campaign was focused on the regrowth of the economy.

With the economy booming again don’t you think it’s time that we sat down and actually talked about the recession? No, not the one that just passed, silly goose. The next one, that could happen as soon as this year.

There have been 12 recessions since World War II with an average time between recessions of just 5.666 years. If you remember, the last recession officially started in December 2007 even though it may have been a while until the entire country (and the world) felt the impact.

Fortunately, we’re past the 5.5 year mark now, and it doesn’t look like the economy is going to be nosediving anytime soon.

Whether the next recession happens in 6 months or 50 years from now, families need to take into account that there WILL be another recession and it’s time to start planning how to survive it. HBO has a new documentary series called American Winter that follows the stories of a few Middle Class families and how they fared through the Great Recession. To save you from having to watch it, I’ll sum it up in one sentence: Most of the families in the show were reduced to dumpster diving and soup lines.

And these were Middle Class families…

You personally might have avoided the soup line, so you may be wary of this cautionary message. But the truth is, there’s no way to predict who will be affected, and how severely, until it actually happens. So why not be prepared just in case? I know that we will be. Will you?

How do you prepare for a recession? Some people might think a shotgun, shells, and non-perishable food is all you need. If only that were the case! You need money, sucka!

If you can pare your spending down to 50% of your takehome income for one month then you can survive exactly one month of a recession without changing your lifestyle. Think about the magnitude of that! In one year you could essentially save up enough to live one entire year without needing a paycheck. If the recession hits your sector specifically, you may be without a paycheck for a while.

When your boss eventually gives you the can, if you’re prepared, you can say to him/her “Thank you, it’s been really nice working here. I know the economy is in the shitter. Hopefully there’s room for me when things improve.” And you can freakin’ mean it too. Your boss will probably look at you funny, but you know what? They may just keep your record on file, in hopes that you would grace them with your employment one day when the rainbows and sunshine are back.

Savings should be kept fairly liquid as well. We all know what happens to the stock market at even the slightest hint of the word “recession”. That means that you shouldn’t keep all of your savings in stocks. CDs or high-yield savings accounts might be your best defense against a terrible economy. I’m not saying you should get out of the stock market, or shouldn’t invest, you should just have a balanced portfolio, and yes that includes cash-money.

Think about what kind of life you would live if you woke up tomorrow with the country in recession, no job, and no sign of any available. Would you continue with your swanky, high-profile lifestyle? Would you consider an iPhone data plan a necessity? Would you still be subscribed to cable TV? Or would you have to live your life on credit, because you weren’t prepared?

I know we like to act super Fancy when we have jobs, because we all live in the moment. I think that it’s because most people don’t even think two weeks into the future. How could they ever plan for something that they don’t even realize is a possibility? Well, I’m here to say recession isn’t a possibility. It’s a guarantee.

Live everyday like there’s a recession going on and once the country is in recession again, it won’t even phase you. That doesn’t mean dumpster dive, it means: learn to live on less money.

But how do I learn how to live on less…?

Lucky you, that’s what this entire site is dedicated to!

Increase your income instead of waiting for a pay raise

If I asked if you were doing everything you could to generate income, what would you say? A lot of people think that pay raises are the only way to earn more money. That’s true, right?? Well let’s see…

First, we need to address the debt situation. Owing money (for any reason) will eat up your monthly paycheck. Next time you think to yourself “I could handle $25 a month for this new TV” the first thing you should do is punch yourself in the face and realize that it’s going to reduce all further paychecks until the thing is paid off (which will probably take a while). The second thing you should do is walk out of the store proudly sans TV and fire off an email to Johnny Moneyseed with the title “You’d be so proud of me”.

If you make $1000 a month and your monthly bills include $500 worth of loan repayments, you are only netting $500 a month, since the other $500 does not belong to you. Eliminating debt, in this situation, would allow you to buy a $500 TV every single month. And without owing anybody anything.

We started our road to recovery with $60,000 worth of debt. After finding the snowball/avalanche method of debt repayment we paid off our debts about 5 years earlier than we would have by using traditional methods. This isn’t the only method, but it’s the one we used, therefore, it is the best.

The hardest thing you could do to make more money is to give in and get a second job. Depending on your situation it may or may not be a necessity. I would say that if it’s even an option for you to have dual-employment to just do it. If you have kids or your full-time job is 1000 hours a week then this option may not be available to you.

It doesn’t matter if you’re a cashier, a nurse, or a construction worker, the fact is that you need more money, and complaining about it just doesn’t seem to be working in your bank account’s favor. Find something you actually like to do so you don’t add more stress into your life. Like kids? Babysit. Like driving? Deliver pizza. Mow lawns. Walk dogs. House sit. Your options for part-time employment are pretty limitless.

The easiest thing you could do to make more money is to reduce the waste in your life. Having a smartphone is a luxury. Having cable TV is a luxury. Eating out at restaurants is a luxury. Luxuries are non-essentials that weigh down on your paycheck. Not everyone is going to be willing to give everything up, and I completely understand that, but if you are serious about paying off debts or increasing your income, these are the areas under your control.

The most enjoyable way to increase your income is to utilize your talents and resources. I, for example, write these lovely posts for you on the website that I own and in return, when you click on advertisements, I receive a small compensation. Don’t get me wrong I’m not saying I’m talented or that the extra income would make anyone jealous. What I’m really saying is that I love to write, and I love personal finance, which is why my side-hustle involves both of those things.

Figure out what you love to do if you don’t already know. Offer whatever it is as a service on Craiglist. Start your own blog. Teach lessons. Anything that can make you even a few extra bucks from time to time.

All of these things will land you more money. They’ll also probably eat up a good portion of your time. It’s important to realize that more money shouldn’t equal more stress. The whole reason we’re trying to make more money is to reduce stress.

Money isn’t the key to happiness in life, but it does help. Once you get to the point when you don’t owe anyone anything, you can breathe a breath of fresh air. You can go for a hike in the woods, or have a backyard picnic, or whatever you do for fun without feeling the weight of stress on your shoulders. It’s crazy to think that not even five years ago, I used to have to borrow money from my parents whenever I couldn’t pay my bills, and now I write about how to save/make more money.

We’ve done everything from selling stuff to make money,  to significantly reducing the cost of our lifestyle, to paying off all of our debts, to starting this site. I figured that it was time to pass on some of the things I’ve learned over the years, but only the stuff we’ve actually done, or things that have worked. I’m a strong advocate for following my own advice, so anything you see throughout my posts are things we have done, or actively do to further save money.

If you catch yourself talking about “how broke you are” or “how in debt you are”, stop and think to yourself have I done everything I can to make extra money? I know I couldn’t stroll into my boss’s office and say, “Look dude, I need a raise”, and you probably couldn’t either. Let’s stop basing our futures off non-existent pay raises and turn to areas of opportunity that really do exist.

*Johnny Moneyseed does not advocate doing anything illegal to make money. Seriously, don’t do anything illegal to make money. I mean it!

The Neglected “Secret” to Becoming Rich

I guess I wasn’t paying too much attention early on in my life, because I had no idea that middle class families actually struggled until I started my own. I’m not saying that my family didn’t struggle while I was growing up. I’m sure they did, but it wasn’t really a topic of conversation to be had over dinner. My parents made, what I thought to be, a shitload of money.

But now I’m older, and probably a little bit smarter (better looking??), and a fortunate member of the generation that was brought up with the Internet. It’s become apparent through all sources of the media that the middle class is struggling. Not able to pay their bills. Even becoming homeless.

There has to be something that these people missed along the way. And maybe the bills and cost of living truly outweigh the paychecks. I’m not going to claim to know everyone’s situation, so I’m speaking in general to the middle class.

I’d like to share with you today, the secret to becoming rich. The secret to a life of wealth. The secret to having a stash of Fuck You-money* that you can hold over your future employer’s head when you’re up in arms with them. And it’s extremely simple in theory, although it may (in some cases) take a complete life alteration.

The crazy thing about what I’m about to tell you is that I know for a fact most people aren’t doing it, because if they were there wouldn’t be too much struggling going on. There would still be complaints about tax raises and budget cuts, but most people would fare pretty easily.

I think I’ve built up enough of a hype already so here we go: The secret to becoming rich, wealthy and powerful (if that’s what you’re going for) is to spend less than you make.

Now you’re thinking “No shit Moneyseed”. Obviously this isn’t a secret, but with the way that people blow through money, you couldn’t help and think that maybe it is. If this is a known, why isn’t it put into practice? Why are tax returns spent on “me” money? Why do people have smartphones with a $90 data plan and continue to say they’re struggling? Why are they consuming gas? Why why why why!

I can’t really answer why for anyone, besides the fact that it’s what they’ve been programmed to do for the past x years of their life. Advertisement and social acceptance play a huge role in the way people spend money whether they realize it or not.

When the Mrs and I decided to get married, we both lived at our means. There was no saving. The fact that we were both making full paychecks and had no additional mouths to feed and still couldn’t save is borderline terrible. You see, our parents grew up in a generation where they had pretty much nothing, so once they had kids of their own, they decided “My kids aren’t going to have the same shitty childhood I did”. As one might have guessed, this led to chronic consumerism.

We had brand new expensive cars, cell phones, laptops, wardrobes. I’ll summarize: We had expensive taste in everything. But one day it hit me like a piano in an insurance commercial; we can’t keep spending like this. Stuff isn’t as important as our futures. Our future kids’ futures. And the simple solution to have money for the hard times was to spend less than we made.

Starting to save money wasn’t very hard for us. We set ourselves up on an extremely loose “budget”. Once our paychecks hit our bank account, we transferred about $100 into a savings account. Over time our accounting got better and better. Over time we learned what parts of our “budget” we were putting too much money in to.  Over time we learned what areas of our “budget” were completely unnecessary.

You can live your life thinking that other people are the problem. You can think that people have it out for you, or members of your family. You can habitually spend your entire paycheck or more. You can make that stupid joke a few hours after you get paid “my whole paycheck is already spent lulz”.

The media can tell you that you’re struggling. They can make you believe that it’s the system. That everyone is struggling. You might even hear everyone saying that they’re struggling. Well, we heard them too. But we decided to not believe them. We decided to not make excuses.

We decided to take the less common path, and started to spend less money than we earned.

I’d like to personally think that the Moneyseeds have left the middle class. It may not be true on paper, but we don’t live a lifestyle like anyone we know. We save over half of our take home pay. If our employer was downsizing and said “Hey Moneyseeds, money’s gettin’ tight, we’re gonna need to let you go” we would be able to sustain ourselves comfortably for almost 2 years with what we have saved.

Here’s the crazy part of the whole thing: We are average people. If you met us you wouldn’t think that old Johnny Moneyseed is a crampy-pants cheap-ass. You’d probably just think I was a regular dude. You’d probably notice that our kids had decent clothing. And that our cars aren’t rust buckets. But if you looked at our bank accounts, you might have a heart attack. But like I’ve stated before, the only thing we did was spend less than we earned.

You’d be surprised how fast savings can add up over time. If you read this blog regularly, it might add up even faster!

** Credit for the term “Fuck You-money” goes to Jim Collins.

Traveling without blowing a hole in our wallet

Mrs. Moneyseed and I have been married almost 3 years now, and we haven’t taken one actual vacation for leisure, as most of our previous vacation days were used to spend time with family, or to attend weddings, etc.

This year we’re breaking that mold as we are planning not one, but three, awesome vacations.

The first trip is to Orlando, Florida. We’ll be spending about a week in town hitting the tourist traps, but primarily spending our time hanging out with friends, cooking, lounging by the pool, drinking a few beers and playing the occasional board game*.

Expenses: ~$1000

The second trip is the big one, it’s a full-week resort getaway in Ecuador. Mrs. Moneyseed and I will be spending the week with Mr. Money Mustache, JD Roth, Jim Collins and Cheryl Reed, as well as 23 other lucky individuals, doing a little soul-searching as well as helping out the local community.

Expenses: ~$6000

The final trip will be to St Louis, Missouri for FinCon13, an event for personal finance bloggers to learn from, share, and network with some of the greatest members of the community. Apparently this conference is supposed to be the bee’s knees for us finance nerds.

Expenses: ~$1000

Every month we put $750 into our American Express high yield savings account so that we can put it towards new experiences/travels. Even though we have the money readily at hand to go on trips like these at our whimsy, it just wouldn’t be right unless we tried to somehow “earn” the $8000 so our savings would not only be unscathed due to our travels, but they would continue to grow.

Here are a few ways that we can save a little extra money to help absorb the costs of our travels:

  1. Refinancing our house. Don’t get me wrong, we aren’t doing this so we can go on vacation. We’re doing it because we were able to reduce our APR to 3.25%, which brings our payment down by $300/month. We are closing next week, so we will get a pass for April’s mortgage payment. That means we are saving $300/month May-December and saving $1900 in April for not having to make a payment. Total $4300
  2. Utilizing child care vacation days. It’s pretty standard that you have to pay for daycare year-round to keep your kids’ spots even if they are out for a day, a week, or longer. Our daycare center gives us 2 vacation-weeks a year (per child) where we can pull our kids out, and not have to pay for them for the duration. We will be fully taking advantage of this perk this year. Total $600
  3. Selling stuff. I can’t set an exact amount that we will receive from selling stuff this year, but just looking around the room right now all I can see is dollar bills. My aim is to sell at least $100 worth of crap online every month through December. Total $1000
  4. Credit card rewards. Traveling is a great time to cash in credit card reward points. At the beginning of the year we had a balance of $250 unused rewards, and we are projecting $800 additional points this year. Total $1050
  5. Blog income. Since two out of three of our trips can be written off as business expenses, it only makes sense to pay for as much as these trips with blog income as possible. To fully pay the remainder of trip expenses we would need to average $105 in blog income from now through December. Total (hopefully) $1050

Will everything go according to this perfect arrangement? Probably not, but unlike the typical American family, we aren’t just saving for vacations, we are trying to Save Our Savings as well. If we are $1k-$2k short in the end, then we still managed to not spend $6000 on traveling.

Saving money alone isn’t enough to get you ahead. It’s only enough to level you out. Back to zero. To accomplish this feat of traveling practically for free, you have to be creative, and try to find money where most people would overlook it.

What lengths do you go to to save money for traveling or other big expenses?

* In addition to being Personal Finance junkies, The Moneyseeds are also huge board game nerds.

Setting up a passive income stream

Financial Independence can be achieved in one of two ways. The first being that you have a pile of money that is so big you won’t ever be able to burn through it by the end of your life.

The second, and more feasible way for most of us to achieve Financial Independence is by creating passive income streams. It’s a very simple idea on paper: Once you have more passive income being generated annually than you are spending annually you have become Financially Independent.

Passive income creation is paramount to any “FI”er that is seeking early retirement. This is the idea that sparked my lovely moniker, Johnny Moneyseed (which is surprisingly not my real name).

Johnny Appleseed (John Chapman) was a businessman in the 1800s. His dream was to plant so many apple trees that no one would ever go hungry. Legend told of Johnny going to many places across the country planting apple seeds along the way.

Mr. Appleseed knew that he could eventually create an “infinite supply” of apples, by repeated planting, cultivating and harvesting of his nurseries.

Mr. Moneyseed does the exact same thing, but with… you guessed it, Money! Money has an amazing ability to produce more of itself, if handled correctly.

For every $100 you plant, you could expect it to produce an additional $5 a year. Of course I’m not talking about planting it in the ground, I’m referring to the stock market. The stock market is the first area of opportunity to generate passive income that I will cover, but it’s not the only one!

Naturally, if I have $50,000 invested, I can safely assume that $2,500 will be produced every year. If reinvested (replanted) instead of being withdrawn (harvested) then the following year our $52,500 balance will produce (yield) $2,625.

You can tell me that I’m wrong about my numbers. You can tell me that there’s no way of predicting the stock market. You can tell me that we’re bound to see another recession, depression, or otherwise that will gobble up my money and make me look like an asshole. If you’re a naysayer, leave your comments below and I’ll address each one individually!

But if you are still willing to hear me out, let’s look at the one of the more common indexes, the S&P 500, as a benchmark for the following example. The words “S&P 500” may sound familiar, but newscasters tend to focus of the S&P’s little brother instead, the DOW Jones Industrial Average.

In extreme brevity, the S&P 500 tracks 500 U.S. equities and displays a generally accurate depiction of how the entire market is faring.

I’m not going to go all Dave Ramsey on you and try to tell you that the S&P 500 is a sure-fire investment that has gained 12% since it’s inception in the early 1970s. He’s not half-wrong though, because it truly is a beast!

S&P 500 - Johnny Moneyseed

The S&P 500 since inception.

As a point of reference I would like to use the year 1984, because it was a fabulous year. Not only was it the first year that Apple began to sell Macintosh computers, but it was also the year that I was born.

For scientific purposes, if you were to travel back to 1984 in your DeLorean Time Machine and invest $100 into the S&P and then fast-forward back to the future to December 31, 2012 your investment would be worth $791.00. That’s an average climb of about $20 a year. It’s safer to not have such lofty goals, so I’d prefer to sticking to the safe value of $5 for every $100.

Obviously, the more money that we could have invested back then, the more it would produce us today. Unfortunately, you probably don’t have a DeLorean, and even if you do, Doc Brown probably hasn’t made his way to tuning it up for you yet.

The stock market is kind of a weird place. You can’t just say “I want some S&P 500 please” because it’s an index, not a stock. You could buy shares of all 500 companies that it’s comprised of, but the more realistic option is to buy a mutual fund based on the index. Vanguard has a low-cost* mutual fund called the Vanguard 500 Index Fund Investor Shares with the ticker VFINX, which is exactly that.

I wouldn’t recommend creating a portfolio that only consists of VFINX shares, but I also wouldn’t recommend neglecting it’s power. For best results and the highest dividends possible I focus on a technique called Dollar Cost Averaging. That’s just a Fancy term for scheduling recurring investments of a given amount of money regardless of current stock price. For example, every month I may buy $500 worth of VFINX, I don’t care if there’s a recession or the market is hitting all-time highs, because we aren’t looking to time the market, we are looking to create the best average stock price over time.

Recessions, or market lows are actually great times to buy shares, because it’s like the stock market is having a sale! You can buy more shares for a lower price! It can be risky though, because if the stock market bottoms out, you will lose everything (but if that happens, we’re all screwed!).

To become financially independent, with the ability to never have to lift another finger as long as I live, I would have to have a passive income stream of at least $30,000 a year. I had stated that every $100 that I have invested will create $5 every year, so the math to figure out how much I will need to have invested to sustain my minimum threshold is very easy. Just multiply the amount we want to receive every year by 20.

To produce $30,000 a year, I would need to have $600,000 invested.

I’m going to save how we plan on living our life for under $30,000 a year for a later post, so if your mouth is open or you are squinting at your screen saying “Yea right!” Rest assured, I will let you see how inexpensive life can truly be.

*VFINX has an expense ratio of 0.17%. Comparable funds can have expense ratios over 1.0%!

**Past performance of the stock market does not guarantee future returns. But it’s a safer bet than the casino!

Reducing the cost of commuting by moving

We live roughly 11 miles from work. Luckily, the Mrs. and I, work in extreme close proximity to each other, so we can share a nice car ride to work together every morning, and again at the end of the day.

Even though we live within a mile from the highway that leads right to our workplace, our 11 mile commute takes anywhere between 45 minutes to an hour. Every single time we drive to work. And again every time we drive home.

When we were in the process of buying a house, we were told that no matter where we lived we’d be fighting crazy traffic every morning. We were led to believe that sitting in shitty Maryland traffic day after day was the norm. Everyone does it!

The house we decided to buy was pretty much our dream home. 3 bedrooms 2 and 1/2 baths (one of which being a 12′ x 12′ enormous luxury bathroom). Hardwood, granite, stone face, the works.

Our monthly mortgage payments came out to about $2200 a month, but after closer inspection, it seems like our distance from work should be added into the cost of home ownership.

The first and most obvious calculation is of course gasoline consumption. states that my 2008 Volkswagen Passat has an average MPG rating of 22 miles, with premium gasoline. More realistically, including warmup time, acceleration, braking, stoplights, and dealing with Maryland drivers, I’m probably averaging something closer to 15 MPG.

The old VW traverses about 484 miles each month, divided into two daily 11 miles trips over an average of 22 commuting days . As we speak, the current local price of premium gas is: $3.95/gallon ( 32.35 gallons of gas is the amount that it takes to get us to and from work in one month. In dollars: $127.45.

But that’s not too bad, right? An extra $100, who cares! Well, it’s actually a lot more than $100, since that was only our FIRST addition to the cost of home ownership for us.

Next, you have to take into account wear and tear of the vehicle. has a nice calculator to show “true cost” of your monthly commute. Their estimate of $3.357/gallon adds $.59 to every single mile you drive when you take into account general degradation, vehicle registration, insurance, tires, license, depreciation and finance charges. I ramped up the estimated cost of a gallon to the $3.95 (mentioned previously) bringing the total monthly cost of driving to: $472.71, of which only about $127 of that is gasoline.

Driving together every day for a month is ideal, but it isn’t always the case. Occasionally we have meetings or appointments we need to attend, and they are never as local as we would want them to be. I won’t add those numbers in here. Just imagine a bigger number.

So far the cost of commuting has added $472 to our mortgage, bringing it to a total of $2672 per month.

The most precious expense to Mrs. Moneyseed and I, is our time. It’s invaluable, but I’m going to assign it a value anyway, because that’s what Vicki Robins and Joe Dominguez taught us in Your Money or Your Life. At 90-120 minutes per day commuting, we waste almost 38.5 hours per month in traffic (EACH!). The value of 1 hour of each of our lives is about $8. It’s fair to say that we spend $616 worth of life energy EVERY month, sitting in traffic.

Amending the original mortgage cost of $2200 with the cost of commuting, and the value of personal time lost, we are left with a grand total of $3288.

What can we do about it? Well, we’ve had a hare-brained idea recently, inspired by the trek towards early retirement to reduce the cost of our commute. Without the availability of public transportation or the safety necessary for travel by bike, there’s only one real option: move closer to work. We’re not married to the idea of moving, but the idea of saving money daily is intoxicating.

We could rent our current house out pretty easily for the amount that would make a mortgage payment on it non-existent for us. That gives us the freedom to move without having to pay two mortgages out of the same coin purse we were using for the single home.

After searching the Internet and talking to our realtor, we found a few houses with price tags that are $150,000 lower, and are within 3 miles of work. With a 15 year mortgage, we’d be looking at a monthly payment of about $1400. Aside from the fact that it would be paid off in half the time, our payment would be $800 lower than our current home.

Being 3 miles away from work (and under extremely lazy conditions) the cost of commuting for one month would be: $273.53 Between the location of our potential home and our current place of work there are virtually no known traffic spots. Smooth sailing, 6 miles a day. As far as life energy is concerned, we would be spending a significantly less amount of time behind the wheel. 7.33 hours combined between the two of us @$8/hour that adds about $58.50 to our total. $1400 (mortgage) + $273.50 (commute) + $58.50 (life energy) = $1732, or $1556 LESS than our current situation.

Our full intention with living close to work is to be able to commute by bike whenever it’s nice enough to accommodate this behavior. We would literally be the only people that biked to work, but we’re also the only ones that are going to be retiring in their 30s! I consider biking to be a positive because not only is it free, it’s also great exercise!

The downside? Becoming landlords. We could take the easy route and hire a property manager, but since we live in the local area I feel like that would be a waste of money. I haven’t done too much research on the process, or the pros/cons of becoming a landlord. So I’m turning to you, Moneyseeders.

Do you have any horror stories about becoming landlords? Have you had any problems with the ownership of a second property? Do you think this idea could potentially put us in over our heads?