Posted by Dave on June 18, 2013
Dave is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
The main reason I am able to even think about being able to retire at age 45 is that I live well within my means. I make significantly more money than I normally spend. Part of this trait is being paid well, the other part is that I don’t really have a lot of stuff that I want to spend money on.
I am, and generally always have been a saver. My parents instilled this characteristic in me starting when I got my first job when I was 11 years old. Part of the deal with me taking a job (farm work) was that I would have to save a significant portion of the money I made. The job paid fairly well, so this was probably a good idea, because I’m not sure what kind of crap I would have bought then. I remember the first thing I ended up being able to buy with my own money was a Sega Genesis (with Sportstalk Baseball – cutting edge technology at the time). I think it probably took me almost a year to save enough money to buy it, and I felt I had really earned it.
When I got my first job, I didn’t really have an ultimate goal, like a Sega Genesis to save for. If there was a small purchase, I could usually pay cash for it. Larger purchases, like my first car (a two-year old Nissan Sentra S-ER) I saved up for it and paid cash. Beyond these shorter-term goals, I was kind of listless.
A large, long-term goal has focussed my finances much more. It forced the “Pay myself first” mentality, which I had been employing, with moderate indifference. My first goal was to pay my house down as quickly as possible, with the second goal accumulating as many cash-creating assets as possible to replace my employment income.
My financial plan mainly works because I stay away from really expensive hobbies. The hobbies I do have (like golf), I do as cheaply as possible and get great enjoyment out of. Obviously, if my annual budget was spending 95% of what I brought home, I would be really unsuccessful in achieving financial independence by age 45.
Besides the ridiculous spending I took part in during University, where I drank and ate too much, and spent more money than I should have, I’ve basically maintained the financial plan that my parents put into place for me when I was very young.
So, I’m not really an original thinker – the financial plan that I’ve been following for 20+ years has been working, so I stick with it. I have refined the plan, and focussed it in the last 5 years, but at the core, it’s stayed the same.
Were you brought up a saver? Did you have to learn how to save money – was it a hard transition?
Posted by Robert on June 17, 2013
Last week, I was back in the junior high schools, visiting the two classes that I taught as part of the Junior Achievement program. It was the last class of the course, and I went in with the idea of finding out what they learned from their fantasy stock trading. The first thing that struck me was how few of them really took an interest in this project. It’s likely that, as with most people, they simply don’t see it as relevant or useful to them. The same was often true when I worked as a financial advisor. It seems likely that people hire an advisor specifically because they don’t want to take responsibility for their investment choices, even though their employer (or former employer) has left them with that responsibility.
But what was even more striking was when I asked what they would do differently, if they could do it over. One boy timidly responded: “I would work alone.” He didn’t want to insult his teammates (they worked in groups of four), but he would have preferred to work alone rather than with his team. The reason was that they didn’t have any strategies for working together and when disagreements arose, they weren’t able to negotiate the difficulties. That reminded me of the fact that many couples fight about money and the idea that money is one of the leading causes of divorce. If I teach the course again, I’ll offer the following solutions to help the students work better together in their teams.
Separate the responsibility. The students began with $100,000 of fantasy money. A team could grant each member $25,000 to invest or trade as they please. The result would be the cumulative result of each player. This would have the benefit of allowing each member complete freedom. It has the drawback that each person experiences the consequences of everyone’s decisions. This could work for a couple, especially if they’re willing to retire (or travel, or spend) separately if that’s the result of their financial decisions.
Make democratic decisions. It’s possible to vote on every decision and to respect the will of the majority. This has the benefit of subjecting decisions to additional scrutiny. The expectation would be that if a member has to pitch the idea in order to sell the team on it, the best ideas will usually be acted on. But in a team of four, or a marriage of two, this isn’t mathematically possible. Another possibility is to make unanimous decisions. If a decisions appears good and both or all members agree, it is implemented; if not, there is no deal. This has the same benefit as the democratic approach, but the drawback is the possibility that one person could block the team, which could result in total inaction.
Authorize a single decision-maker. This seems to be the approach used in most companies. One person is responsible for the results of a team and that person makes the final decision. They usually try to get input from team members, and they often try to keep everyone happy. But to keep the project moving forward, they will sometimes make assignments and executive decisions. The benefit is that this approach avoids inaction, but it has the drawback of potentially sidelining the contributions of individuals. Hiring a financial advisor might fit with this approach.
A hybrid approach. In order for a strategy to work, it needs to fit with a team’s personality, preferences and situation. A couple may choose to have some separate accounts and some joint accounts, as well as working with an advisor, but agreeing never to proceed with changes unless they both agree.
Have you adopted any of these approaches in your family? Is there another approach that works for you? Would you prefer to “work alone”?
Posted by Dave on June 11, 2013
This is a guest post by Dave, who is also looking to retire no later than 45, but unlike Tim has no kids and doesn’t want any. Dave is from Ontario and is working towards his CGA certification.
Last week I read a “prepping” (think zombie apocalypse) blog, where one of the writers wrote about ways to get your spouse more involved with bunker building and food hoarding. The same could be said of people who are much more militant with their finances than is socially accepted. I’m not sure how organic a change in thinking it would be to go from a conventional retirement date of 65-70 that someone would normally expect to leaving the workforce 20 years early.
For my wife and I, our retirement goal changed after I had done a significant amount of reading and decided that I didn’t really want to work until my late 60’s – I would prefer to retire as early as possible. My wife and I talked about this subject for a long time. My preference was to retire as early as possible, she didn’t really care, she just didn’t want to have to “feel poor” (by not being able to buy clothes when she wanted to, or go on vacations, or have other stuff).
Working out the numbers, we felt that 45 was a good number to use as a goal for retirement. Age 45 would allow “fixed” expenses, plus a bunch of (mostly unnecessary) fun expenses, which would make both parties involved happy. I can retire early enough that I will hopefully be able to do the things I want to do, while still spending close enough to a “normal” person to not drive my wife crazy.
In some ways, early retirement would be easier to do as a single guy with as low of living standards as I have. I could live in a room in a house and save a much higher percentage than I currently am. I wouldn’t have a house to pay off, and could probably have exited the workforce at 35 or so instead of 45. The problem with this strategy is, I like women, and there would be very few of them (in my admittedly small sample size) who would accept this lifestyle as normal and see me as a dating prospect.
I really don’t see any way that I could have “talked” my wife into accepting a lifestyle where we don’t spend the majority of money that we make. If she was a huge consumerist, this plan wouldn’t work. I also don’t see a situation (with my spouse) where we would completely split our expenses, with me saving a huge portion of my money and her living paycheque to paycheque. There would be some animosity between the two of us at some point, which I think would sour our relationship quite a bit.
The compromise we came up with works for us. We don’t want to fight about money, and our plan has allowed us to worry very little about it over the course of our relationship. We have a decent amount of money saved, and know that most major expenses we have covered. We don’t have stress at the end of the month when bills come in, we know that we should have a pretty good nest-egg for retirement, and we have enough money to do some “fun” stuff.
Would you go it alone if your spouse wasn’t on board with an Early Retirement plan?