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Friday, September 30, 2016

Guest on a Podcast

Posted by Tim Stobbs on September 28, 2016

So just in case you were not sick of me, you can listen to me talk about life, money and saving for retirement over at Simple Money Solutions’ latest podcast. Enjoy.

Non-Linear Spending Models

Posted by Tim Stobbs on

‘I’m wrong.’ I thought to myself the other day as I was building out a more detailed model of our spending for the next five or so years.

The reason was for a very long time I had always done my spending models based on a linear spending plan and ran the calculations on an annual basis.  Basically I just assumed I would spend $30,000/year regardless of the year. The year 2020 was the same as 2021 or 2022. It was a conscious choice to simplify things when I started but now that I’m looking at modelling my spending but as I looked closer I realize that assumption really doesn’t hold up.

Spending is actually a non-linear function.  Some months are higher and others are lower, that I’ve always know from my previous net worth posts where I track our spending. Yet what I didn’t consider is how that applies to years of spending as well.  This became particularly obvious when I ran a test case where I assumed I started my early retirement in 2018 and after adjusting for other income sources (like my wife’s business and government benefits) I ended up the the following planned investment withdrawals by month (assuming I don’t bring in any income from a job).

non-linear-withdrawal

So you can see it, while I still averaged our monthly spending over the calendar year the requirements to take money from our investments isn’t a constant stream on a year to year basis.  This is partly why I started down the idea of semi-retirement since because of our non-linaer spending our investments should actually continue to grow even after I’m not at my day job. In fact we will be pulling out less than $1000/month for a period of about two years. This becomes a bit of neat trick as it allows us to keep saving towards full retirement even when we are only semi-retired. Of course any additional money I earn other than investments will further drive down those numbers and allow us to shift to full retirement sooner if we wanted.

Overall I estimate that because of this fact we only need to be semi-retired for about five years or so and then we have the option of shifting to full retirement.  Or alternatively we could keep working beyond that time and put the money into a slush fund for travel or other fun things.  The point would be we really don’t need the money for day to day spending.

In the end, it was nice to know that my idea of semi-retirment looked more than reasonable and put my mind at ease with the entire plan, all because I stopped thinking about things in a linear fashion.  Have you ever had an ‘ah’ moment with your retirement planning?  If so, what was it?

Don’t Forget Your Towel

Posted by Tim Stobbs on September 16, 2016

In the Hitchhiker’s Guide to the Galaxy, the author mentions how very useful a towel can be and insists that you shouldn’t leave home without it.  While I’m not that attached to my towels personally I do consider that people really should consider investing some money into some things that will be used daily for a while like a towel.

In our cause I wasn’t particularly surprised when my wife one day recently mentioned to me that perhaps we should consider getting some new towels for the bathroom.  After all there were starting to look a bit faded and my washcloth was starting to fray a bit at the edge, which isn’t entirely surprising given we have been rotating the same two sets of towels (2 bath towels, 1 hand towel and two washcloths per set) in our bathroom for the last 10 years.  Yes, you read that last line correctly, our current towels are older than my youngest child and almost as old as my oldest son.

This isn’t to say that I’m a cheap bastard that won’t buy a new towel, but rather I’m a picky bastard that wants to use a good towel.  After all if I’m going to be rubbing myself dry with something that often I want it to not feel like sandpaper or be so small that a soak half of it after drying off my chest (yes I’m looking at you cheap hotel towels).  So our last set of towels were bought were not the Walmart special but rather the 100% Egyptian cotton, large, soft  and well made.

Of course just because I want a good towel doesn’t mean I should spend a lot of money on it.  So when store had a sale on their towels (buy one get the second for a dollar) we went looking to see if we liked them or not.  If not, we would get some other sale, after all we didn’t need the new towel today, just sometime.  Yet we found we like the ones in the store and found a colour that would match the bathroom and only ended up spending $69 on two sets of towels (one for us and one for our boys…my wife couldn’t find a second set for us that she liked and insisted she didn’t want just one colour for our bathroom…needless to say I just smiled and agreed).  So $69 might seem a bit pricey for two sets, but when you consider I will be using it daily for the next 10 years the cost per use gets fairly low.

The problem  is people can confuse the fact that sometimes spending more money on something good quality may in fact be the cheaper option per use in the long run.  After all replacing a cheap towel more frequently can end add up.  Let’s say you spend $20 on towels every two years, well over a decade that ends up being $100 instead of $70 for better quality.

For me I tend to be willing to invest more money into high use items like a towel, bed sheets or a pillow.  But of course it does come down to what you personally value in your life.  If you really don’t care what you use for a towel, go ahead and buy what ever.  Just don’t forget your towel if you hitch a ride with an alien prior to the Earth getting blown up. ;)

So what do you spend more money on upfront on?