Posted by Canadian Dream on August 6, 2010
I think I’m slowly driving my wife nuts. Why? Because I periodically go out on a limb and try something completely new with fairly regular frequency. For example, this week I’ve started a little wine making experiment. I’ve got a sour cherry tree in my backyard that I’ve picked clean and trying to make a mini batch of wine from the fruit. Will it work? I don’t have the slightest clue, but I certainly having fun trying.
Because of this tendency of going out on a limb we have managed to find some extra saving/income in our house including:
- I’m cutting both my boys and my hair. The kids were an easy step but doing my own was scary, but it worked out just fine. Now I’m doing it all the time.
- I started picking my own investments. Given the huge MER costs associated with the average mutual fund it is actually fairly easy to beat them with a little planning and learning a bit about investing.
- I’ve tried doing some canning (jam, salsa). I learned that freezer jam is drop dead easy to do and started there. Then the salsa was less scary to do once I found myself with most of the ingredients one fall.
- Running for an elected office and winning. I admit I was a little freaked out that a won, but after almost a year of being on the school board I rather enjoy the job.
Each time I will freely admit I was a little or a lot terrified of trying something new, but I did anyway. Often I picked things that would have very small costs associated with them to try first. If that works out I might then go with a larger or most costly project. It also helps I’m ok with the odd failure since the majority of my experiments have worked out just fine.
Yet why do it? Why do I go out on a limb all the time? Because I think people need to do that to grow and the only way to do that if leave your comfort zone periodically to try something new. Also I consider all of these a little bit of training for early retirement which will be the ultimate in leaving my comfort zone.
Leaving my day job career behind at 45 is just about the most uncomfortable thing I can think of to do. I will leave behind all my co-workers, most of my professional contacts and basically be misunderstood by most people I know. I will be told I’m a slacker with no ambition or people will think I’m completely insane to give up a six figure job so I can write more. Therefore in order to be emotionally ready for it I think I need to do some training now. Thus my continuing plans to be out on a limb.
So how about you? Do you go out on a limb a fair bit? If so, what have you tried? If not, how are you planning to be emotionally ready for your retirement?
Posted by Canadian Dream on August 4, 2010
The pay stubs are finally in from my first month of reduced working hours (80% time) and I’m only down about $550/month on a take home basis since I conveniently just got a raise which offset some of the reduction. That amount is just about the same amount of extra income my wife will be taking in this fall with some new kids for her daycare.
Of course my wife has some expenses and in the mean time will have lost one older child she used to care for before and after school. Taking those into account we are down overall by about $200/month. On top of that I’m also losing out on some pension contributions since that is tied directly to my salary so that’s another $120 a month. So in grand total overall reductions for our family is $320/month. Which is a lot softer of a hit than I was expecting. My initial estimate for potential loss was closer to $750/month.
With regards to my retirement plan to be free from having to work at 45, well that is an interesting story. I did the calculation, but I won’t bore you with the exact numbers but the results go something like this. During my last calculation set it was starting to look like I would actually be able to retire at 43 rather than 45. Today that has shifted back to 45 so in reality my decision to work less now has cost me 2 years on my retirement date, but put me back to my original goal to be free at 45.
You might wonder how it is possible to take a 20% pay cut and still be mostly on track. It’s because I always do my calculations with several conservative estimates build it. In this case the ones that come to mind are:
- I assume my salary only keeps up to inflation. The reality is I tend to roll over all of my non-inflation raise which was 3% this last year. So this slowly creeps up the amount I’m saving to offset the pay reduction.
- I assume I only get a 5% real return on investments. The reality was I’ve exceeded that at times. The classic example is the TFSA accounts which turned out a stunning 48% average increase in a year (which was from dumb luck).
- I don’t include any extra income. For example the plan does not require me to make any money at this blog or have my wife take on any additional clients beyond what she will have this fall. We just need to keep the base savings the same and anything beyond that just accelerates our goals or can be spent on other things.
Overall I feel a little like a kid who got to have his cake and eat as well. Things turned out much better than I was expecting with this decision. So have you ever had that feeling where things turned out better than you hoped? If so, please share your story.
Posted by Dave on July 20, 2010
Cashflow management is very important in early retirement, but is significantly more important when retirement is reached and large purchases need to be made, such as a car, a new roof on your home, furnaces etc. Most of these large purchases can be anticipated well in the future, for example my car will last approximately ten years (give or take a few years). To buy a large item, I’d prefer to pay cash rather than finance as I have a large aversion to paying other people interest.
The ten years between car purchases can be used as an example of a large purchase that our household will budget for. After retirement, it will be difficult to come up with the $10,000 to $20,000 needed to purchase a new car (this would be a large capital divestment from your portfolio). So to solve this issue our household has implemented a long-term savings plan for our next car. The same kind of system will likely be employed for other large items, but for us a car is the largest and most pressing purchase that will need to be made in the next year or two (but hopefully longer, as this would allow further savings to accrue).
If, for example, I retired at 45 that would mean purchasing 3 or 4 cars (anticipating our household’s ability to drive until approximately 85 years old). To pay for that I would rather save $150 per month as part of my budget for the next car rather than finance it. I personally don’t like financing because I don’t want any liabilities in retirement or alternatively taking the capital out of investments.
Planning like this when you are going into retirement, whatever your age, is very important. Too often it appears that people go into retirement with a huge pot of money and assume that everything will work itself out. If plans are made ahead of time that would mitigate foreseeable emergencies (loss of heat from a broken old furnace) retirement will go much smoother than going in with just a pot of money.
I will admit I may be an over-planner on purchases like this. Perhaps having a large pool of money sitting around would be easier. But I would rather know that I have a specific “necessary expense” covered so that if several of these things needed replaced in a short period, I would know that financially I would be okay.
So, that’s my plan to deal with large purchases in retirement– do you have something similar in your spending plan now or in your retirement? If not, how do you plan on making large purchases (I’m always open to ideas)?
