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Monday, March 27, 2017

A Million Isn’t What It Used to Be

Posted by Tim Stobbs on February 6, 2017

I sort of find it bit odd that people have a fixation on being a millionaire.  While it sounds like a lot of money you have to keep in mind that over the years inflation keeps dragging down that benchmark so it gets more and more diluted as being a lot of money.  After all I had to even look up what is a millionaire and there isn’t even a standard definition.  Anyone with a million dollar net worth technically counts, including myself.

Pardon? Yep, I don’t really pay attention to the millionaire target other than it happens to be roughly around my retirement amount.  Yet I also tend to ignore our true net worth as it includes our kid’s RESP account balance, rather than what I post on the blog where I leave the RESP balance out.  Yet the other day while I was on Mint cleaning up our transactions from over the holidays I happen to look down at our true net worth and was a bit shocked to see a seventh digit.  So without really meaning to or even paying attention we drifted over that imaginary line in the sand.

Of course the issue is people still tend to consider a millionaire rich, when in fact, as I noted above it becomes less and less meaningful as time goes on.  For example, my father retired roughly ten years ago now.  Let’s pretend he had exactly a million saved, even with a modest degree of inflation over the last ten years that money would be worth $1,177,655 today.  So even if I wanted to retire I would technically be doing it with less money than him.  The further you go back the worst this gets, so 20 years ago a million would now be worth $1,433,667 when you adjust it for inflation.  So in general the older you are the more likely you are to think a millionaire is something impressive.  So your grandparents might find that impressive, but your kids won’t really care at all.

But on a functional level in your everyday life it is utter meaningless.  It really just is a number or a line in the sand that mainly for popular culture references gets a lot more attention than it should.  After all, what happened the day after I found our we were a millionaire? I went to work.  Yes, totally anticlimactic.

Yet on the other hand, getting here is a big deal.  As there is only 1,117,000 millionaires in Canada (according to this story) out of population of 36.4 million or just 3% of the population.  So crossing that threshold tells you that you really are well off compared to the majority of people.  But I don’t consider us rich.  Perhaps well off, but not rich.  After all ‘rich’ is highly subjective.

Another problem with the word millionaire is it ignores the quality of your assets.  After all there are a number of millionaires in Toronto and Vancouver just based on home equity, but selling a home isn’t easy or quick.  Thus some people think the term should only be used with those with investments of $1 million or more excluding home equity.  Which is sort of a logical but doesn’t tend to ignore the popular culture references which dominate the word: millionaire.  Beside the banks solved that issue years ago with the term: High Net Worth Individual.

In the end, a millionaire title is a bit of fun, but I don’t take it too seriously.  If nothing else, it tells us we are heading the right direction for my retirement plans.  So what do you think of the term millionaire? Useful or meaningless?

What Do You Want?

Posted by Tim Stobbs on December 21, 2016

During the holiday season I tend to get asked a lot by well meaning people: what do you want?  So I prepare for the question by working on a ‘wish list’ over the last several months prior.  Months?  Yes, making a ten item list takes me months now because of a very simple reason: I already own just about anything I could really want from a store.

When I was a kid, I used to think that older people were nuts for saying: I really don’t want anything.  Now that I’m a bit older myself I actually understand that a LOT better.  After earning a good income for a number of years and having a lot of saving the reality is the phrase ‘I can’t afford that’ is laughable.  Now understand that a good life really isn’t about the stuff anyway.  So buying everything that you may passingly think about wanting is rather pointless.  Most of the stuff you won’t really use or like anyway, so why bother getting it all in the first place.  Hence, figuring out a few items I really do want to own takes some time since I need to determine if this is a passing want like I could go for a doughnut right now or something I really could use like a new tie since my oldest one is starting to fall apart after 20 years of use.

Then after watching a few Christmas shows you really do get it hammered home that it really isn’t about the stuff anyway.  What do I really enjoy about Christmas?  Visiting with friends and family, eating a good meal together, and doing activities as a family.  Most of that doesn’t actually cost a lot.  After all sledding is largely free after the initial purchase of the sled.

So while everyone sort of gets this, I find it funny we don’t extrapolate the idea to your retirement dreams.  Why does your retirement ideal consist of travel for six months of the year?  Do you really want to own three different properties (a city house, summer lake home and a winter getaway)?  Do you think getting every possible want in your head is going to make your retirement that great?  Come on.  Just think about your yearly reminder that getting everything you want under the tree doesn’t make you happy in the long run.

No the harder question is what do you really want to do with all the time in retirement?  Do you want to start a small business?  Do you want to help others in some way?  Do you want to turn your current hobby into a part time job?  What do you really want out of your life?  Those shouldn’t be easy questions to answer, but at the same time allowing yourself the time to figure that out is a good investment of your time.

For me, I’ve always wanted to write novels.  I actually keep trying to draft them even if I don’t have any of them published yet.  I know I won’t make much money doing it, but I love telling stories so that is what I want.  I also know that trying to do that is going to take a significant amount of time (like five years) to get okay at doing it.  So that is why I’m going after early retirement.  I’m going after an old dream of mine which may turn out to be a failure and not sell many books, but I don’t really care.  The point is I’m going to try and live a dream and that a worthy want for me to go after.

Writing novels may not be for worthy want for you and that is okay too.  Yet we all have our wants…perhaps it’s time we start looking past the stuff to those wider and harder dreams to fulfill.  It can be something odd, or something that is kind of pointless to most of the world, but if you really love it, who cares?  It’s your dream, no said it had to be approved by others.  So take some time to figure out what you really want in life.  You just might realize you can start working on that today rather than putting it off for 20 years.  After all, I’ve already finished the first draft of five different novels over the years and I’m not even retired yet.

So what do you want that doesn’t come from a store?

The FI Irony

Posted by Tim Stobbs on December 19, 2016

After the long hard work to get to Financial Independence (FI) I’ve realized something fairly ironic about it.  You see I just spent the last ten years of my life working on saving, investing and planning so that in the future after FI I can spend less time on saving, investing and planning.  What the?!?!

In the beginning when you start on your path to FI there seems to be a million decisions to be made.  You have to decide on ways you want to save money like do you take your lunch each day or do you buy it up to one day a week?  You have to decide what investment strategy is best for me?  Can I choose more than one strategy?  Then you have to come up with the retirement plan?  How much do you need to save?  When do I want to leave work and then what do the numbers tell me about leaving work?

I’m starting to realize that once you actually get here to FI that it’s a lot less work.  After all you have already made all your investment decisions now you only have to spend a minor amount of time on maintaining them.  So of course there is a bit of planning on how you will take out the money from your investments but once that is done again you done the work all you have to is keep up the process and make the odd adjustment.  All the saving I’ve done is also largely completed, now I’m actually just saving the last cash reserves for my plan so in fact there is very little to think about other than moving money from chequing to the savings account once a month or so.

If effect, once you reach FI you are resting because of all your previous work on your decisions.  You life is now highly optimized to your priorities so your spending is more of a habit than an effort.  Your investments make money without you doing much of anything.  And you make minor tweaks to your plan because you already gone over it at least a hundred times by now.

Perhaps this is why so many personal finance bloggers upon getting to FI drop off in their frequency of posts, they feel they don’t have anything left to say.  The decisions are all done, the results are in, so what more is there to talk about.  Aren’t you all lucky I’m obsessed with psychology? I plan to keep writing for a while on the entire mental transition in my semi-retirement.  After all getting here to FI is one thing, adjusting to the early retirement side of the world is entirely a different thing.