Meet the Realist

This is email #2 of roughly 52 in the MMM "Just the Classics" boot camp series. You can always find the original versions of any of my posts in this complete list of all posts.​
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Whoa, did you read the opinionated garbage in that last article?

Who is this Mr. Money Mustache? The guy thinks he’s got it all figured out. And is he trying to offer financial advice, or just financial scorn to those less fortunate than himself? Sure, maybe you can retire early if you are born to a frugal family, get a good education and never make any mistakes. But what about the rest of us? Is there any hope at all?

My name is The Realist. I’m contributing to this blog to add some perspective to the hard-edged idealism of this “Mr. Money Mustache” (who needs a fake catchy name like that anyway?).

So, life is hard in the modern world. Rapid changes in the business environment mean frequent layoffs and difficulty in holding a steady job. Health care inflation means we waste more of our small paychecks on medical costs each year. Gas prices are higher than they used to be, and so are other costs like food, child care, and education.

Yet some people manage to get by while others go bankrupt. Is it all just luck, or is there something we can do to beat the odds ourselves? As the Realist, I’ll step in to present small but powerful steps to help you get ahead. There is sometimes a fine line between financial solvency and bankruptcy.

How fine? How about $25 a month?

Here’s your lesson for the day: say you are breaking even – paying all your bills, buying $500 monthly of necessities on a credit card which gets paid off IN FULL each month with no interest, but not able to save a cent.

Then a McDonald’s opens up next to the office where you work and you start buying lunch once a week instead of brown-bagging it. All of a sudden, you can’t quite pay the credit card bill each month so a small balance starts to accrue.

• Month #1: there’s a $525 balance and you pay $500
• Month #2: you are charged interest on the unpaid $25 from the first month at 20% ($0.42) so you’re $25.42 short
• Month #3: interest on $25.42 ($0.43) plus this month’s shortfall ($25) – you are now $50.85 short
• Oops, you are just a few days late for a payment and suddenly the whole $550 balance is subject to interest ($9.16) plus a late fee ($30). Now you’re $89.16 in the hole.

Ahh, one burger a week, 89 bucks after 3 months. That’s not so bad, is it? YES IT IS.

After 10 years, you’ll have a credit card debt of about $5,000. If you couldn’t pay it off when it was $525, things are looking much tougher now.

And that is $25 per month. Imagine someone so free spending that they went to McDonald’s once per DAY?

That person would be over $50,000 in debt after ten years.

Wow, that is truly extreme. So the lessons for the day are:

• Never EVER let a credit card go even one month without paying the balance in full – because the interest rate is ridiculous, and if you ever slip up on the due date, they trick you by charging you interest on all your purchases for the whole month.
• There is a surprisingly fine line between staying afloat and sinking, even over a short period like ten years. Understand this and then all those stories about people going bankrupt start to make sense.
• But there is also a fine line between staying afloat and rising up quickly to become very wealthy.

What if the person breaking even above found a way to save $10 a day instead of spending $25 more than she made each month? The quick answer is that the same person would would have a $50,000 stack of rapidly growing money in ten years.

And that’s just ten bucks a day – we can do much better than that, with some careful, surprisingly easy, fine tuning. Read on!