subscribe to the RSS Feed

Thursday, October 2, 2014

Home Renos Vs Early Retirement

Posted by Tim Stobbs on September 10, 2014

So Tina the other day had an excellent question regarding renovations and saving for early retirement:

How do you prioritize early retirement goals and home improvement? I have paid off my mortgage years ago and don’t plan on moving for many years, if ever. We have two small children and plenty of room in our home. However, the basement isn’t finished although it isn’t used that often we could do some great things with it. Aside from efficiency upgrades and cost saving renos( windows/ metal roof) we haven’t done a lot aesthetically. I’m conflicted about making Plans with hubby that could cost hundreds or more when it could be put towards ER. On he other hand, we are not spendy people in other areas and if I’m going to stay in this home for 20 more years why not deck it out? How do you determine what’s worth doing when your not planning to sell?

Home renovations are an interesting spending category since they tend to blend the practical spending with the fun spending, so at times its hard to separate out which is the emotion spending versus what is actually required.

For example, your sink tap is getting old (over 25 years) and while it isn’t leaking you know they don’t last forever.  So if you decide to replace it, do you just buy the cheapest thing you can find? Do you do it yourself or hire someone?  Do you buck up a few dollars to get a much nicer looking one? Or do you replace all the taps at once to make sure they match?  Where the hell does ‘need’ and ‘want’ start in that mess of decisions?

To help clear the air a bit on this I tend to divide my decisions into two camps.  The first is house maintenance – this is required to keep up my homes functional requirements.  The second is upgrades and aesthetics – which is more about making my family and I comfortable and happy.

When it comes to house maintenance I fall back on my engineer training which similar points out proper maintenance of key systems is almost always cheaper than running something into the ground and doing emergency work.  So when stuff gets old and needs work, or can be replaced by something significantly more efficient I usually just buck up and spend the money.  For example, when our furnace inspection noticed a hairline crack in one the pipes a few years back, I just asked for cost estimates on replacements rather than repair costs since the furnace was almost 25 years old.

To keep costs in check I do shop around for parts and will often try to fix something myself or get a friend to show me how to do something.  I also know when I’m out of my depth – I NEVER touch anything with natural gas (furnace or water heater) or rewire my basement (but I will change a light fixture).  I also keep in mind when some jobs are just too time consuming like dry-walling a large area so I’ll contract those out.  For example, it the job would take me like 50 hours to complete and a contractor can do it in like 25 hours, if you work out the hourly rates I can typically still go to my day job, pay income tax and still hire the contractor for cheaper than my time to do it.  Do it yourself isn’t always the answer.

To keep this easier on the cash flow I tend to space things out where I can.  So next year I’ll do the singles on the roof, a few years after that I’ll do the water softener, then the year after that the water heater…you get the idea.  You might even want to just create a home maintenance savings account and put in a set amount each year, like $1000, and just let it build up for when you need it.

Now that second camp of the upgrades and aesthetics is a bit more difficult. So I tend to fall back on some happiness research that points out a few key points about changing things around you.

  1. You will revert to your baseline happiness after the upgrade.  New flooring might sound wonderful, but within six months I can almost guarantee you never think about it.  Your “new” floor will fade into the background, and it will simply become your floor again.  Don’t underestimate this fact.
  2. Constance annoyance can reduce your happiness.  Seeing that ugly pile of shoes in your front closet every day and digging through for two minutes to find your pair might drive you nuts for just two minutes a day, but it is EVERY day.
  3. Planning for something can produce the same amount of happiness as actually doing something.  So it is entirely possible, to plan your renovation for six months and enjoy it just as much as that first week after you finish it.

So my conclusion on most home upgrades are useless for your long term happiness and frankly can be dangerous as they can fall into an addiction cycle where you always need to be spending on your home to get you next renovation ‘high’. (see point #1). So granite counter tops are useless for 99.99% of the population in terms of happiness, but according to HGTV its almost required in a house today. Ironic right?

So does this mean you should never do an upgrade? Of course not, which brings me back to point #2, daily annoyances.  You should consider upgrades or renovations that will help relieve your daily annoyances but keep in mind the solution to many of  your problems is simply: you have too much stuff for the space you live in.  So rather than adding space, get rid of your crap first, then organize what is left and then perhaps do an upgrade id it still isn’t working.

Case in point, my shoe disaster example above.  Rather than assume you need a closet organizer or a renovation to double the size of your front entry closet, consider putting your winter boots into storage over the summer and remove half of the mess.  Then a few shoe racks to help organize what is left.  Boom, easy happiness for a fraction of the cost of a larger closet.

Of course with all of this said you still might have a spouse with an irrational desire for cork flooring in the kitchen (thwack of my spouse hitting me upside the head), which while the floor does need to be replaced you don’t have to use cork.  This isn’t a huge problem, but I recommend you take point #3 into account here.  Do a lot of research and planning before you start your renovation to confirm you are making the best decision for your family.  A way to help this along is to put a preset amount of money aside every month and then do the renovation when you can pay for the entire thing in cash.

In our case, we spend a lot of time at home and decided the flooring upgrades made sense for us.  So I did a lot of research of cork flooring systems and finally found a company out of Vancouver that sells product for about half the cost of Rona or Home Depot.  We got samples and argued about what finish to get for like three months and then my wife decided to push off the renovation for a year and visited her baby niece in Newfoundland last winter.  Yet now it is installed and we are happy with the results.  I also milked being happy planning this for several years.

More minor aesthetic upgrades I tend to pay with spending cash (which is our personal pool of money to spend on anything we like).  For example, my wife was in Winnipeg last weekend and picked up $250 of stuff from IKEA for me.  It was all my spending cash, which I chose to save up and spend on some new glass door shelves for the living room (to upgrade our 14 year old cheap student shelves which had been painted at one point years back).  I wanted to replace that shelves since I spend more time in that room than anyone else.  But again I saved for like six months prior to doing this and thought long about what sort of shelves I wanted in that room.  Again I milked the planning cycle to ensure my decision was well thought out and enjoyed the happiness of planning for the upgrade.

In the end for us, we tend to have early retirement savings firmly as priority #1 in the world, but we do put some money aside for other projects.  There isn’t a point saving every dime for early retirement if you don’t enjoy your life now, so yes do some home upgrades if you want for purely aesthetic reasons.  It is ok, just keep that amount a reasonable amount for your family.  Perhaps even set it as a fixed percentage of your spending towards discretionary items like vacation, home upgrades and entertainment.  That way, if you do really want granite counter tops you can do it, you just might have to have a frugal vacation for two years to make up the difference.  Find a way that works for you.

So how does your family handle home upgrades?  I’m wondering how others handle it.

Out of the Loop

Posted by Dave on February 18, 2014

A couple of weeks ago, a reader asked the following question in response to one of my posts:

It sounds like you are comfortably in the “Esteem” phase according to Maslow’s hierarchy of needs (maybe you disagree?), do you think that you will ever want to get all the way to the top? I have given this topic a lot of thought lately. For example, you are obviously a very productive member of society and I for one really appreciate the fact that you bring an income to Canada and pay taxes. Do you think you will ever [feel] this way about your contribution to society? Further, do you think that you have not achieved your potential? Finally, do you think that you are/will ever become a “drain” on society?

I have put some thought into this over the last little while and thought it would be appropriate to create a blog post as a response, as it seemed in-line with some of the topics that are discussed here. There were several questions asked, but I’ll focus on the one that I found most interesting, and the one I thought about the most – “Do you think that you have not achieved your potential?….Do you think you are/will ever become a “drain” on society?”

Like most people, I really don’t know what my potential is. If my life potential has everything to do with my career and income I can bring in – then I am definitely not achieving that. I care about my job and the work I do to a certain point, but when I leave the office at the end of the day, I’m done – I have no interest in working long hours or attempting to strategically climb the corporate ladder. I can do the best job I am capable of in my current and future jobs, but beyond that, I’m not going to “push” myself in the workplace.

The second part of the question, whether I think I am or will become a “drain” on society, is a little more ambiguous. From a social point of view, my wife and I, by choosing to not have children, have, to a certain extent dropped out of society. Once we’re gone (in hopefully 50+ years), there will (from a genetic point of view) be no record of us left. Couple this lifestyle decision, to the fact that we haven’t really bought into the whole “work until you drop” mentality that resonates in North American culture and you could say that we don’t have a lot in common with the vast majority of people we come across.

My overall goal with my Early Retirement plan is to be able to learn and carry out exactly what I would like to do in a day, without having to trade a good chunk of my waking and productive hours to making money to feed and house myself. My intention is to have enough money that I will not become a drain, financially or otherwise to society. I will have paid a substantial amount in taxes by the time I retire and will hopefully not require any assistance from the government/society to support me as I age.

So, that was kind of my long winded answer. I guess a simple TLDR answer would be I’m not sure what is entailed in reaching my potential, and no, I don’t think I am or ever will be a drain on society.

For anyone else out there, do you feel you will end up being a drain? What would happen if everyone carried out an Early Retirement plan?

How to Have a HUGE Saving Rate

Posted by Tim Stobbs on May 3, 2012

Isn’t it funny how something to me is so incredibly obvious that I almost laugh out loud when I read the following comment from Nelson over at Financial Uproar.

But, I’d like to see less of the psychology behind why you want to retire early and more of the specifics of what you’re actually doing. How do you achieve such a high savings rate?

Um, I hate to give circular answer, but how can you achieve a high savings rate…see the obsession with psychology.  Really that is the reason, but perhaps I should explain that a little better.

My current saving rate is about 50% if you ignore my highly inflated and accelerated mortgage payments, if you include those it jumps up towards 75% of my take home pay.  Yes, it’s a HUGE number.  That comes about from two main reasons.  First off with all income sources my wife and I earn about $110,000/year, so start with a higher income and then do some good tax planning to keep most of it.  Then second don’t spend that income, instead get a low set of expenses that are perfectly balanced to your particular needs and wants so I feel just as content as many people who spend double what I do.  How?

Ah, now we are into the psychology part of the answer. Being somewhat obsessed with psychology of happiness and spending I’m actually aware of how people can spend money like water and not be happy.  We buy things on impulse, we treat ourselves (because we deserve it), we lust over the latest movie or gadget or shoes or (…insert obsession of choice here…) but we still aren’t happy and go buy more.  The main difference is I know what I need to buy to be happy and what won’t make me happy.  Now what works for me won’t work for you so you have listen to your own subconscious, but here are some general hints.

1) Buy Experience over Stuff.  New hardwood floor or that kitchen reno won’t bring lasting happiness, in all likely hood it will turn into your new baseline in under a month.  Then the happiness is gone.  So save up for a trip instead, you likely will be more happy with your memories than the new floor.  (Or in my case next year…do both.  As I said these are hints, not rules, you can break them.)

2) Delay Buying Things.  Well most people understand that not buying on credit is a good thing, since you save the interest cost.  What we often don’t know is the lusting after your purchase prior to getting it can bring just as much happiness as buying the object.  So even when I could just pay cash for something, I tend to save up for it.  Why? To drag out the happiness and make sure I buy the right thing.  So more often than not I don’t screw up and instead I buy the right thing for my wants and I’m more satisfied with my spending.

3) Focus on Equal Outcomes.  I tend to really like to watch movies, but I’m often just about 3 to 6 months behind what came out in cinemas.  Why? I realized I really don’t care when something was released, when I get around to watching it.  So yes I do hit up the cinema, but only like once or twice a year for the movie that I’m REALLY WANT TO SEE.  Otherwise, I hit up the library or Netflix to feed my habit.  I focus on the equal outcome for me: I just want to watch the movie, I don’t care about where that much.  So I spend like a fraction of what others would for a similar movie habit.

There are obviously more tricks, but that should get you started on why I have a high savings rate.  I focus on what matters most to me and screw what other people think.  I am the Joneses of my life, so I don’ t have to keep up with anyone.

So how about you?  What do you do to keep up your savings rate?