Posted by Dave on October 19, 2010
Tomorrow is a big day for my wife. At 6:00 p.m. she is going to have her first ever in-class driving lesson and she is freaked out. At 27 years old, she has decided that she wants to drive, something that she’s been able to avoid up until this point. What changed her mind was a very interesting job opportunity that happens to be 20 km out of the city that I am unwilling to drive her to daily. This opportunity, along with her dislike of her current job has gotten her to face her fears and attempt something new. So far, she has had her license for over a month and has yet to get behind the wheel of a car (she thinks she will somehow roll it in a parking lot).
I was never afraid to drive, but a few years ago I faced one of the things that just really got me into a cold sweat – public speaking. I think many people have a similar fear, but I didn’t realize I had a problem with public speaking until I attempted to give a best-man’s speech at a friend’s wedding. Needless to say, it did not go over well (I was told I stood there, said “umm” a lot and rubbed my head). This event was both embarrassing, as well as eye-opening. For the next couple of years, I avoided speaking in public.
Avoidance of my problem bothered me, I prefer to meet weaknesses head on. Eventually, I joined Toastmaster’s. With Toastmasters, I was “forced” to give short 30-45 second speeches at first on chosen topics and eventually I went on to give a few longer speeches.
Eventually, what I learned (and also what I hope my wife learns) is confidence. I learned that public speaking was not scary, I learned how to prepare my thoughts into something others could understand, I watched other people successfully and unsuccessfully give speeches, which was a great chance to learn. Two years ago I gave another best-man speech at my brother’s wedding which went over much better, and at my own wedding I surprised people (most of whom had seen me speak at that first awkward wedding) by giving a humourous and well-done 10 minute speech in front of around 150 people.
The same philosophy can be applied to early retirement. Taking a leap by retiring decades before everyone else is scary. There are probably a lot of people who doubt it can be done, who assume you will end up broke in old age and have to go back to the workforce. In order to combat this fear, you have to meet it head on:
Are you afraid of running out of money? Then have your calculations checked by someone – provide them with your assumptions and estimates and see if your math works out.
Do you worry you’ll have nothing to do without work? Take a leave of absence for a year and see if you run out of things to do – leave the door open to go back to work if you’re bored at the end of it.
I’ve found that worrying about things that you can control is counterproductive – educating myself, asking questions and meeting challenges allows me to sleep better at night.
Have you had fears in the past that you have overcome? Do you have concerns about your retirement that is forcing you to sit on the fence instead of leaving the workforce?
Posted by Canadian Dream on October 18, 2010
Hi, welcome to Canadian Dream: Free at 45 a blog about early retirement and happiness. I’m Tim, the main writer behind this site. I hope you enjoy your look around the site and to help you out here are a few things you should know.
1. There are three writers on this site: Tim, Robert and Dave (see the About page). So don’t assume everything is done by one person, the majority of the posts until the last year have been done by me, Tim, but after that you will have to watch out who you are asking the questions to.
2. The Math Behind Freedom 45. The actual numbers on how I plan to retire early are in a series of posts called “Retirement Calculations” located under the Popular Posts sidebar (here is the link to the first one). Before you start asking questions I suggest you read that five part series which will likely answer the majority of the obvious questions on how much I plan to save and what I currently spend each year.
3. Questions? Feel free to ask any questions you have on any post, but I would encourage you to leave questions regarding the series for Moneyville either on that site or on this post. For our regular blog readers here is the link to the first Moneyville article.
Enjoy the site and if you want more please subscribe to the blog.
Posted by Robert on
I think a lot about investing and financial planning. One time, when I was going downtown with my dad, in the passenger seat of his car, it occurred to me that investing is a lot like driving. My dad was frequently changing from one lane to the other, trying to get ahead. It was making me a little queasy and we didn’t seem to be progressing any faster than the rest of the traffic. I teased him by saying: “Buy and hold, Dad, buy and hold!”
The journey to retirement is like a road trip. There are probably some people who will jump in the car and start driving, just to be on the open road. Most people would probably consider the lack of planning to be ineffective, but many of the same people are heading toward retirement without a plan. A retirement plan doesn’t need to be fancy, replete with calculations and projections. It does, however, need at least a destination and a timeline. Where do you want to be and when do you want to get there? The default in our society seems to be: “mortgage-free, company pension, CPP + OAS at age 65″ and that may be fine for most people. My goal is much more aggressive: “cover my current spending with dividend income by age 35.”
There’s a saying that “all roads lead to Rome.” Similarly, there are many routes one could take when planning a road trip. I recall a vacation when I took my wife and kids to Kelowna. That was our destination, but the next choice was how to get there? The kids were very young and we didn’t want to drive more than about three hours in a single day. For that reason, we chose to drive south from Calgary, stopping in a couple town overnight along the way. We could have taken either the north route, which is more direct, or gone even further south, through the United States (for no good reason), and in each case we would have arrived at the same destination. The experience, however, would have been quite different. The same is the case in financial planning. If I need to save $10,000 per year to retire by age 65, I could have it withheld and invested by my employer, I could earn a very high salary and spend most of it, I could earn a much lower salary and save a larger percentage, I could save it monthly or I could save it in a lump sum, once a year. Further, if I invest very conservatively, I may need to save $15,000 per year, whereas investing more aggressively may allow me to save only $8,000 per year, while running the risk of having to save more if the investments fail. All of these choices affect the experience, while all leading to the same destination.
I think that making investments is like driving in city traffic. They are both actions that are ruled by the individual decisions of a large number of people, and affected by the environment within which they exist. Think first of the choice to change lanes. I would decide to change lanes for one of two reasons, either I need to be in the other lane to exit later, or because the other lane seems to be moving faster. Sometimes one lane is genuinely moving faster, either because there’s a blockage in the slow lane, or because cars are exiting from the faster lane, making space for more vehicles. Many times, though, other drivers will move into the “faster” lane, slowing it down. In the end, many times, both lanes will be moving again at the same speed. Similarly, some investments geniunely produce great returns. However, as investors see the opportunity, the price is bid up and the potential for future outperformance is reduced.
I have also noticed that a person’s disposition affects their driving similarly to how it affects their investment decisions. My father is a relatively aggressive driver, trying to find the fastest lane and moving back and forth in an effort to get ahead. Likewise, he makes investment choices that others may consider risky. He tries to be continually aware of obstacles and potential problems, and in this way he has had some success. I prefer to make calculated guesses, then just live with my decision until it becomes very obvious that it’s not working. In driving, I’ll choose a lane based on past experience (the outside lane of the on ramp to the freeway) or based on a reasonable expectation (the inside lane of a large street with many intersections, expecting cars to exit my lane to enter the turning lane). Similarly, I buy investments with large dividends, then patiently accumulate payments, unless something goes wrong with the company. Other people prefer not to drive, and either to rely on others to give them a ride or to take public transit. I assume these same people would be well-suited for passive investing.
A constant temptation is to compare my results to others. My wife believes that, to me, it doesn’t matter how quickly we get somewhere, as long as we get there quicker than someone else. I’ll change lanes, then change back in front of the car that had been ahead of me, just to feel that I’m making progress a little faster than them. However, when traffic in general slows down, or when there are many traffic lights, no one can really make much progress. Similarly, interest rates move beyond the control of investors, and the stock market rises and crashes. We know that these are the parameters within which we invest, and it makes no sense to rail against it. Instead, we should invest accordingly (I try not to drive during rush hour, and I try not to invest unless markets seem cheap).
I’m not sure that we can learn how to invest by driving, but I think that driving and investing both offer glimpses of insight into a person’s personality. How does your personality affect your investing? What methods seem most aligned with your personality? Does this hold true in other areas of your life?
