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Tuesday, September 30, 2014

Breaking Habits

Posted by Dave on September 23, 2014

Up until 3 years ago (I was 31), I had never tasted coffee before. Now, I’m a 2 to 3 cup per day drinker. I have a dislike of being attached (or addicted) to anything, however benign it is. Last week I quit coffee for a few days, in order to break my daily habit. My normal day was 2 travel mugs, made from home (at a cost of about $0.20 per cup) and maybe a third one in the afternoon from the work cafeteria. The cost of drinking coffee didn’t drive me to change my habit, it was more just changing my normal routine around in the short-term.

I’ve done similar things like this before. I’ve quit drinking for months at a time, most recently for the month of January. I quit drinking for health reasons, as well as to change my normal social outings on weekends from bar or drinking-based to different activities for a while. I didn’t really feel my life changed for the better or worse, it just changed the type of stuff I was doing on the weekends. I’m far from the hard-drinking-stay-up-until-2 AM-and-feel-like-crap-for-four-days like I was a decade ago. I’m more likely to have a few drinks and be in bed by midnight these days, but I think it’s a good change once in a while.

I’ve also carried out many 24-hour fasts in the past, where all I’d consume for 24 hour periods (after breakfast on day 1 to the same time on day 2). I did this because I read of the health benefits of eating in this manner. Although I haven’t had a fast in the past year or so, when you don’t eat for over 20 hours, you learn the feeling of actually being REALLY HUNGRY (from a privileged North American perspective – I’m sure there are people in the world who could probably describe this feeling much more definitively). Now I know that at 10:30 on a Tuesday morning, I’m probably going to survive an hour or two until lunch, and probably don’t need to have that muffin from the cafeteria.

One of the things that has helped me in my financial planning is that I’m not really all that attached to anything. If I couldn’t afford to do something, or to buy something, I try to avoid spending money on it as best I can. I just don’t like to be attached to anything enough that I can’t really get rid of it, whether it’s a habit or something else. Beyond having a pretty good income to start with and having no kids, I think that this ability would probably be what helps me the most daily in reaching my financial goals.

What are your bad habits? Have you quit them before, or wish you could?

What They Need to Hear

Posted by Tim Stobbs on September 17, 2014

I was talking to a co-worker the other day who was worried about how her report would be received, since my particular group in the company gets to lead investigations into incidents that occur elsewhere in the company.  We basically get to stick our noses in, find out what went wrong and make recommendations on how to improve things for the company (but we don’t assign blame).  To sum it up, I said “Did you tell them what they needed to hear?  Remember we aren’t here to tell them what they want to hear.”  I hoped that helped, but in reality that phrase sums up a good part of my career.

I’ve never been an ass kisser at work, I just can’t be bothered.  That isn’t to say I’m not thoughtful or polite on how to bring up difficult subjects, but I will always tell people my truthful assessment of the situation.  I figure they pay me a lot of money to think on their issues, they very least they can to is hear the results.  So I know some people don’t particularly like me because I don’t tell them what they want to hear, but I do think the vast majority of people respect me for being honest.

So with that in mind, might I offer a point of advice to people.  The average saving rate in Canada is currently just under 4% and has been as high as 5% in the last few years.  If you continue to save at that rate, you will effective never retire without government help.  What?!?  Why because if you save only 5% of your pay it will take you 66 years to be fully financially independent with no government help (see here for a table of values).  So even if you started at 18, you could be financially independent at 84.  Yes, you are fucked.  Well let’s say, you are bucking the trend and putting away a nice 10% of your pay.  Sorry you still have to work for 51 years, so you will be ready to retire at 69.

The long story short on this, if you want a half decent retirement age (like about 60), you need to save at least 15% starting when you were 18.  That folks is the floor of the saving rate you should have, you shouldn’t go any lower.  Yes, I can hear the screams “But I can’t save that much?!?!?” Actually, you can, you are just choosing to do other things.  If you truly want off this treadmill of work, you need to start saving more immediately.

Of course, that assumed you started at 18.  If you are a 55 year old boomer with crap all saved (oh, and by the way those values don’t include any home equity as savings…so a paid house is required above that).  You are beyond fucked and up the creek without a paddle.  Do you feel that panic settling in, do you want to turn away and bury your head in the sand a bit more?  Good, then you are human, but perhaps let’s give you the good news.

There is of course an alternative.  You need to get your ass to the other end of that table of savings rate, because you can save 80% of your pay you can retire in just 5.5 years, so even if you are age 55 or 60, you can still save enough to have a basic level of comfort.  The trick here is you need to give up your currently lifestyle.  You can’t spend 95% of what you take home anymore, so prepare for some radical discomfort in the short term.  Downsize your home to something half the size NOW, stop buying anything beyond consumables (like food) NOW, sell that second car NOW….I assume you are getting the idea.

Now for your second piece of good news, all of this reduction of spending doesn’t have to impact your happiness much in the long run.  Pardon?!? Yes, I’m being honest here and you can go check out the research, but in fact only 10% of your happiness comes from your circumstances.  So it is entirely possible to be at least 90% as happy as you are now on a fraction of your current spending.

So that is your trade off 10% reduction in happiness to have a worry free retirement starting in just five years.  I know what I would pick, what about you?

Ready for Hibernation

Posted by Dave on September 16, 2014

I spend most winters doing almost nothing. Last winter was incredibly long and brutal, and rather than making any social plans, we generally just looked outside and returned to our couch to watch Netflix. The upside of this kind of empty social calendar is that I was able to accumulate quite a bit of spare cash that was a huge help when we made our final payment on our mortgage. In addition, I made it through a pretty good chunk of books I wanted to read (at a pace of about 2 per week) with all the free time I had.

After an extended break, my wife and I made up for our lack of visiting and social interaction over the summer. I golfed around 25 rounds over the summer, we went to cottages, and re-did our backyard patio. All of this stuff was budgeted (as best as it could be with some unplanned stuff that came up). We still have some savings left right now, but I’m almost ready for a break from “society” again.

One of the benefits of having only one main hobby that I’m really into is that it’s easy to budget for. I know the start and stop date, as well as how much money I have available to take part in it for the summer. Now though, as my golf savings have waned, I’m ready to start building up for next year again (it also didn’t help that I just lost in my “final” tournament of the year).

I’m not sure how long my interest in golf will remain. I’ve been playing for almost 25 years now, and can’t see my interest in being constantly annoyed and confused while playing decreasing too much in the next decade or so. I realize that the ~$1000 I spend on this hobby could be used to invest into my retirement. Additionally, I realize that $1,000 at a 4% withdrawal rate in retirement will cost me about $25,000 in additional savings at retirement to fund the hobby, all so that I can bang a ball around some chemically assisted manicured lawn.

So, after a really busy summer, my wife and I are both looking forward to recharging our batteries over the cooler weather months. I’m hoping to be able to get some minor home renovations done, which will finally make our basement a usable portion of our house. Financially, I can re-fill my “fun money” savings account to play again next year, which will hopefully be before the middle of June, like this year.

It’s these times of years that I realize that by choosing an Early Retirement Stream, I can’t do everything – I can do most activities I want to do, but there are definitely limits if I want to make my Financial goal a reality.