The hardest part of investing for me was learning how to save. My partner and I spent all we had, though we knew the future would catch up with us in the end.
Restraining our present-day spendaholic selves was the best decision we ever made and has given our future selves a fighting chance.
And though our investment train is rattling full steam ahead, the amount we save right now will make a critical difference to whether we hit our financial goals.
The trick is knowing where to start. Many people I know fling their hands up in despair at the wall of challenges they face:
It seems impossible to even begin chipping away at this list on a moderate income.
Yet every journey begins with a single step and, in my case, a website.
Savings saviour
To change the bad habits of a lifetime you need a helping hand. I found it at MoneySavingExpert.com.
I’d like to say it was a book that changed my life, but really it was this website.
You may well know about it already. The site’s owner, Martin Lewis, is like a TV evangelist: preaching and teaching Britons how to save cash.
The site is most potent when used as a complete programme to turnaround your finances. It maps the way forward with the inspiration, knowledge and tools to dramatically change your spending habits.
The first move has to be yours. I had to admit that the way I was running my financial affairs (or rather ignoring them) was a problem.
But then Ms Accumulator and I used MoneySavingExpert to do something about it.
Step 1: Budget control
Where was all the money going? We thought we knew, but the truth was our bank account had more leaks than the water board.
The scales only fall from your eyes when you budget for everything – from your early morning Starbucks to your summer holidays.
That sounds like ten shades of agony until you discover the hard work’s already been done for you by MoneySavingExpert’s Budget Brain (scroll down a bit after clicking through).
This fantastic tool rounds up every relevant expense in easy-to-swallow online form. All you’ve got to do is fill in the numbers to see the state you’re in.
Once you know where the money goes, you can work out how to stem the flow.
Step 2: Cut the bills
Yep, it’s obvious. We pay so many bills it’s like we’ve got financial fleas.
But if we can cut the blood-suckers down to size then there will be a bit more cash left at the end of every month to have some fun with (like sticking it away for 20-years in a low-cost tracker. That’s my kind of fun!).
It may be obvious, but so few of us find the time to get a good deal. Or we sort out the gas and electricity but forget about squeezing insurance premiums or motoring costs.
Again, MoneySavingExpert charges to the rescue. The site’s easy-to-follow guides show you how to score a great deal without wasting your life.
Go to the full Money Makeover page. Here all life’s expenses are lined up like ducks in a row. Shoot them all down. One-by-one. Large and small.
Martin Lewis reckons the average person gains the equivalent of a 25% pay-rise by completing the makeover.
I don’t know exactly how much we’ve saved, but it’s easily hundreds of pounds a year.
Step 3: Re-value everything
Here’s the key question Ms Accumulator and I had to ask ourselves:
What do you really enjoy in life?
The answer more than doubled the amount we could save.
With our spending habits laid bare by the budget-planner, we could go down the list and cross out the things we didn’t really need / want / think were worth the money.
Personal finance sites invariably home in on a classic list of wasteful expenditures:
- Satellite TV
- Gym membership
- Magazine subscriptions
- Eating-out at lunch
- Ready-made meals
- Fast food
- Fast cars (in our case!)
- Anything replaceable by own-brand goods
In fact, anything that’s bought on auto-pilot should be scrutinised and struck off where possible. Especially if it’s on direct-debit: the evil leech of income.
There are a couple of excellent tools to assist your austerity drive:
1. MoneySavingExpert’s Demotivator tool
This is a shock-tactic designed to stop you spending. It reveals your annual outlay on any particular item and how long you must work to afford it.
It turns out that I spend £143 a year on my weekly bacon sandwich. I could have 10 shares in a property ETF for that.
2. The ‘before-tax’ price tag
Buy a shirt for £40 and it actually costs the average Joe about £58 in earnings before tax.1
That shirt was an expensive luxury at £40, but now I realise I’ve got to earn £58 to pay for it, I can’t put it back on the rack quickly enough.
The pay-off
The idea isn’t to make yourself miserable every time you spend a penny, but to find simple ways to make yourself think twice about what’s really worth spending money on.
- The Demotivator tool helps you visualise whether seemingly harmless expenses are worth the long-term cost.
- The before-tax price tag helps you resist the allure of the impulse purchase. If adding almost 50% to the price of an item helps you see its true cost then you can assess its true worth to you, even in the heat of consumption arousal.
It’s easy to get embarrassed about thrifty living and write yourself off as an old skinflint. But the emotional pay-off of controlling your spending is every bit as great as the financial benefits of saving more.
We know we can’t afford everything we want, and trying to do so is a short-cut to anxiety and possible disaster.
But by working out what we really value in life, we spend more time doing the things that actually make us happy while saving enough to secure our future financial well-being.
Take it steady,
The Accumulator
- Approx, assuming income tax @ 20%, National Insurance @ 11%, and not worrying about personal allowances, thresholds or the odd penny. [↩]
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Excellent write up! I regret to admit that I tend to visit Moneysavingexpert for the PizzaExpress vouchers and tips on buying car insurance etc.
2 and a half years ago, I followed a suggestion on MoneySavingExpert, to write down everyday, what you spend. On any items. It’s amazing what this revealed – how much money I was actually wasting. My casual spending has reduced to a minimum.
> What do you really enjoy in life?
That is the key. What do you want, and whom do you serve…
When it is your time to surrender this life, it will be who is in your life, not what was in it, that matters, in general…
@ Tony – Heh, the vouchers are tempting. GBK and Wagamama are my downfall.
@ DBSausage – Great name! That’s a good tip. Bet I could squeeze a few more pips if I was that meticulous. Now I come to think of it, that tip works really well for dieting too.
@ Ermine – I heartily agree. Although I find it’s a continual struggle to remain true to yourself. I’m constantly battling demon impulses and desires that make me want ‘stuff’. I think we need constant positive reinforcement that we’ve chosen the right path and are doing the right thing. I think that’s partly why I enjoy the community that’s grown up around Monevator. It helps to know you’re in good company.
Incidentally, I’ve been meaning to ask you if you’ve read any good books on retirement finance. With a UK, already-retired bias ideally. It’s to help out my mum.
The book equivalent of this would be ‘Your Money or Your Life’ by Joe Dominguez. Well worth a read.
You say moneysavingexpert, I say monevator
After sorting the big items what really helped me was having a separate account for discretionary spending. Money I can spend guilt free but that is limited by how much I put in. Highlighted how much i was burning away each month on tat.
Meh
The ugly truth of the early retirement for the wage slave is this:
(1) work in finance/IT and earn in the top 10% of earners (I think thats about £60k pretax for an individual and about £100k for a couple)
(2) if you are married don’t have kids
(3) spend money like an average earner (average post tax household income in the UK is about £25k)
(4) save the difference, including use of income tax deferment (sp?) through pension
(5) be smug
yes MSE can save you a few hundred a month, which is good, but its (1) that makes early retirement achievable through earnings
@Neverland
There’s a dark truth in what you say that is worthy of an article in itself, though it will make some folk spit bricks. However, the average earner spending is still a little OTT, maybe…
@Ermine
Someone already has written that article, it comes pretty high up in a Google search:
http://www.flannelguyroi.com/dirty-little-secret-early-retirement/
And I quote “Part of the reason this harsh reality doesn’t really get highlighted too often is that it doesn’t sell; it doesn’t bring in page views.”
Funding Circle? Question for the board. Anyone used this site for “investing”
My question is …. FC ranks loans , A, B, C, D, E according to risk.
Having just read “The Predators Ball” about the junk bond king who made a fortune buying and selling miss priced Bonds.
The thought crossed my mind, are the C,D,E ranked investments fairly priced. The % interest is much higher than the A,B ones but is the risk priced correctly, maybe they are badly perceived and hence a great wild punt?
Not quite the passive investing meme of this site but food for thought.
Re: free magazine subscriptions.
Free magazines are available from your library via a company called Zinio.
http://www.cnet.com/uk/how-to/how-to-check-out-free-zinio-digital-magazines-from-your-library/
Not all towns libraries are signed up to allow this however a lot of them are. or if you have a relative in a town that does who will give you their library number 🙂
MSE is an awesome site, but it always goes too far. You have to
follow the first one or two steps, then ignore the following
eight when it comes to any of the process’ for buying car
insurance, travel money, whatever.
The classic example of this is the money flipping exercise for
current accounts. It is totally batshit crazy. Someone will definitely
tell me now that it makes them £50 a year extra so its well worth
it. They are wrong though. Its not.
Neverland, I think you are probably right.
If you have no kids and are disciplined then it can be done with
a good but maybe not stratospheric job (I think ermine may be an
example?). You have a whole heap more flexibility with your
lifestyle frugality if you don’t have kids.
But if you have kids you have to be more of a RIT (I think he has
kid/s). His recent ‘coming-out’ activity does highlight this. He
is earning 100s of k and has still had to suffer like a good ‘un
for years on end. His descriptions of his working day are
horrific.
In all cases you have to be monumentally self disciplined. RIT
has blown my mind with his last few posts. Regardless of what you
think about the slightly OTT micromanaging of his portfolio (has
all the hallmarks of the full 10 MSE steps about it) it is beyond
argument that his self-discipline is off the chart. He spends
almost nothing and he is earning a fortune. No wonder his post FI
life-plan looks suspiciously like a summer holiday. He must be
absolutely shattered!
The other route is to drop lucky and inherit while you are still
young. But thats hard to plan for.
Another thought for the day, if you happened to be born on the
wrong side of the great property divide, say you are late
generation X, Y or millenial – you also have a much steeper FI
hill to climb. Might well render it close enough to call it
impossible. Massive additional drag if you want to stay in the UK.
I have been thinking recently that if the motivation for FIRE is
to be able to do what you want, you might be better investing
your efforts into finding work that constitutes ‘what you
want’. Its more of an ‘in-the-present’ rather than
‘jam-tommorrow’ type strategy which stands up to the
‘run-over-by-a-bus-tommorrow’ principle a bit better. But that
said, frugality has intrinsic merit and i would pursue it
regardless of whether I was trying to retire early or not.
@Rhino
You forgot “marry money” as financial planning
We are really going back to the 18th century…
@Neverland “The ugly truth of the early retirement for the wage slave is this:”
There is no ugly truth, all those points are pretty obviously apparent (bar 5) to anyone with even a superficial understanding. You don’t have to be on anything like £100k+ household income to be able to retire early; though obviously it’d be easier if you do all other things being equal.
Re: Current account flipping – I do that. Even the best instant access ISAs can’t beat it right now. It’s no work because I use standing orders to fulfil the requirements, and nets at least £150 a year that I wouldn’t otherwise get. So I guess if £150 free money isn’t up your street then fair enough. That doesn’t make those of us who exploit current account loopholes “wrong”, though.
@Neverland – good spot, marry money may actually be the best route of all
re-reading, i feel using the term ‘drop-lucky’ with respect to inheritance may seem a little cold-hearted. I meant this only in an Aunt Agatha type way and not nearest and dearest..
@Moongrazer – I did predict someone might chip in and tell me current account flipping is actually the right thing to do (its not).
I’m only joking – if its a bit of fun and makes you some cash then go for it.
@The Rhino – the big trouble with this
is not that it doesn’t work, but that it depends on other people – employers but even if you are The Boss customers and fashions change. Work is far less stable now, both because the cycle of creative destruction is faster and also because power has shifted from labour to capital over the decades.
@ermine you’re right – its an ever-changing world out there and nothing is ever or remains perfect for very long. It would be a constantly moving target. But maybe if you just ‘tend-toward’ work you like then to use the applied-calculus parlance you may experience a better quality of life today as opposed to tommorrow (when presumably the intention is to just quit)?
It doesn’t have to be ideal but just a bit better than the shit-sandwiches some seem to want to stuff into their faces day after day in the spirit of careerism and consumerism?
I could be wrong, maybe the inertia tied up with jobs makes this unrealistic.. but reading RIT he talks of continuously striving to go the extra mile too increase pay, clearly something he has worked hard at and has been very successful with, just substitute the word ‘pay’ with ‘satisfaction’ or ‘happiness’ but keep the effort the same?
Other obvious rules
Don’t buy on credit. Your house should be the only thing you borrow to buy, because as a secured loan it has the lowest rates, and the sums are so large. For everything else, wait until you have the cash first.
Don’t insure losses you can afford to bear. If you are building up a cash buffer for other things, use that to replace phones and appliances when they go wrong.
And the one that’s rarely discussed
Don’t let your spending track your pay rises. If you keep a new graduate lifestyle as your pay increases, and bank the rest, you will save very fast. Obviously children derail this a bit, but its all to easy to reward your pay-rise with non-essentials that lock you into a new lifestyle. A classic is friends who witter on about airline upgrades as they can’t bear to travel in economy. I’d rather have mild discomfort for the trip and retire a day earlier. Ditto hotels, why pay more for a room when you spend most time in it unconscious.
@rhino
Well actually “tend towards work you like” is what the much maligned mr and mrs money moustache actually do. Career trajectory from a dip into the blog was in fact:
IT bods of some kind (90s dotcom boom when it paid loads) ->
Property developers (early 2000s during the US housing bubble) – >
Personal finance blogger and real estate agent (something like five years ago to now)
Its perhaps a bit less soul killing than being a galley slave in a global financial institution then blogging about how special/clever you are to validate your life
It is possible to agree with this article and also agree with Neverland.
Cancelling Sky, remortgaging to get a better rate, moneysupermarketing all your annual bills for insurance and utilities. Cut up your credit cards, or at the very least set up an auto direct debit to clear the full balance monthly.
A ban on any kind of loan for cars, or other consumer credit/loans.
Another major one – switching to shopping at Aldi or Lidl can easily save £150-200 a month on its own.
But you still need to focus on getting in that top 10% of earning households, which is very often likely to be in finance and/or IT if outside of medicine or law.
One for The Accumulator – how did you wean yourself off Fast Cars? I recommend fast bicycles for those with a Need For Speed.
@neverland
i was thinking just that about MMM the other day – it would seem to be a sensible strategy with reasonable probability of success. I think he is currently easing himself out of the blogging, wonder what he is up to next? Maybe thats why everyone is upset with him? I think he is quite enviable, though not when it comes to his home-schooling (hard work in the extreme)
possibly a little tough on RIT. His story is interesting, but only with what can be read between the lines, i.e. not his in-depth treatsies on portfolio related spreadsheets.
He is clearly an outlier in terms of earnings, ability to absorb punishment and general discipline. I am fully intrigued to see what he actually does when he hits FI.
You can see why he reduces his SWR over time as he knows once his job is gone, it is gone. At his end of the market the competition must be intense. Pull a stunt like FIRE and they’re not going to let you back in if you change your mind. And if it came to it, it would be hard to get out of bed for £30k when you used to get out for £300k
@rhino
I wasn’t particularly thinking about RIT, i like his blog although i think he might be a more plausible suffer from asperger’s syndrome than tom hayes the LIBOR fixer…
My particular peeve in terms of personal finance blogs are two other blogs by london bankers: under the money tree; and the escape artist
Its bad enough having money stolen from me in commission by financial intermediaries; I don’t want to read about how clever and special they think they are when in fact they are just economic rent extractors
@neverland
Ah I see – I thought the last para was RIT directed.
I like UTMT and EA as they have both posted on the joys of push-biking and i am a sucker for that sort of stuff. EA is a bit hit and miss though, his paddling-pool and recent holiday posts were pretty wide of the mark. Plus I think his ‘£160 for my portfolio’ isn’t in the spirit of things. Far better just to read Monevator and buy Hale.
One last musing on RIT though – where I think RIT may have it wrong is that he isn’t humble
enough in the face of risk. He attacks it with a few more cells
in the old spreadsheet and calls it a job well done.
My belief is risk is riskier than that. The only thing that might
help when it strikes is some sort ofgeneric resilience (you never know
what form the risk that gets you will take), how you develop that is anyones guess, maybe you just have to drop lucky and be born with it? EA has developed
this notion in a few of his posts, particularly in relation to
being to stingy with SWR (which he thinks you shouldn’t be as you can just go out and earn some money if you get it wrong). I agree with him on that. I think RIT believes that risk can be
mitigated by digging an ever deeper moat prior to pulling up the
drawbridge. I think I fundamentally disagree with that
notion.
what still intrigues me is whatever happened to the infamous Mr. Squirrel – the Lord Lucan of the FI world..
“Don’t let your spending track your pay rises.” John B
+1
Just wondering how many here are ingrained followers of deferred gratification?
e.g. leaving the tastiest food on the meal-plate until last?
Certainly helps with saving habits.
We grew up in an era without credit cards and ‘Retail Therapy’.
They really are out to get your money, it is not just paranoia!
@Rhino
My feeling with RIT is that when he hits his spreadsheet calculated number he will bottle it and keep working
The sequence of poor returns risk is something that is getting to him as the finish line fast approaches
Which I view as sensible myself
@Rhino
Re: Squirrell
Got sick of snarky comments on his blog I think 🙂
I love MSE, it is a great resource and Martin Lewis is a great guy. He deserves his millions and his stunning wife!
Probably part of the strength of the site is the enormous breadth of people the simple idea of saving a few quid can appeal too. Everyone loves the restaurant vouchers or news when Debenhams or M&S are doing one of their one day sales. The forums seem to be filled with people who are prepared to share their expertise and support(with the obvious exception of the houseprice and economy forum which is filled with sociopathic lunatics).
There is something to the fact that not many people are going to be retiring in their 20s or 30s, but if you can save £50 on your electric bill then surely it is better in your pocket than somewhere else? And for a lot of people on low income an extra £50 will make a material difference to their standard of living right now. I don’t think the MSE ethos is so much about saving as not spending as much as not spending more than you want to/need to.
@Rhino I do agree that ‘tend-toward’ work you like is probably a more successful way to handle things now, although far be it from me to knock sucking up the shit-sandwiches for a finite period if that works for some people. It used to be an established way for some to do their 20s to make their fortune on an oil rig or some godforsaken place like building the DEW line. A current equivalent was a young fellow in his 20s on MSE who as in Australia working in a – quote ‘girl-free zone’ to earn his fortune. I inwardly saluted that chap for his grit 😉
The trouble in the UK is that to have the choice of jobs to diversify/derisk the creative destruction means you have to live in a place with a big catchment area, which tends to mean London/SE. All of which jacks up your costs and tends to give you a hateful commute. Alternatively you can cross your fingers and hope to find a decent job in the provinces, or even up North where the Guardian tells me the quality of life is better, but if your job goes you then eat all the transaction costs of moving, not to mention having to make a whole bunch of new friends, shift your kids to a different school etc. Particularly when you have two people who need to work to keep the household’s head above water, that starts to get a fragile scenario – much, much more fragile than even 10 years ago and immeasurably more fragile than 40 years ago when a household often only had one breadwinner.
All sorts of things about modern life are hugely advanced on what they used to be, but some of the big things many people ask of life – to raise a family and be near people they love seem to be getting harder rather than easier with time as we reshape the economy in the name of efficiency.
First time I’ve commented here, although I’ve been a regular reader for a while (usually via RSS, which means I don’t always get to see the comments)…
@ Neverland – I’m grateful to you for throwing a bit of grit into the discussion, and to everyone else for responding to challenging remarks in a constrictive way.
I have been steadily subscribing to various PF blogs over the last year and although many are thought-provoking and entertaining I haven’t (present company excepted) found them to be terribly useful.
You might assume that a shared interest in PF would mean shared values, but that’s like saying having a shared interest in football with someone means you support the same team.
I don’t tend to get actively annoyed by high earners discussing their financial plans (although FIRE v London got up my nose pretty quickly, and so I stopped reading it) but they don’t have much bearing on my life, because I’m a basic rate taxpayer.
Equally, I find MSE’s breathless pursuit of a saved tenner here and there a bit trivial and I value my free time enough to spend as little of it as possible comparing energy or insurance providers. (Which, I hasten to add, is not that I don’t do it at all).
@Ermine nails it by emphasising the need to understand on a more profound level what you personally enjoy. I work in the arts and I have enjoyed my career immensely, even though it has never been especially well paid, and even though some of my contemporaries from University have been on six figure salaries for years.
My problem is not that I desperately want to retire early, but that I work in an inherently precarious field (I have experienced two redundancies) and I do not want to have to retrain or drastically recalibrate my life if I find myself on the scrap-heap at 50.
However, I am lucky, in that I have never been especially interested in shopping or material possessions – and in that I discovered the Motley Fool website when I was in my 20s, which means I have 15+ years of dilgent regular saving behind me as I type.
I don’t have a specific financial target in mind, but I am starting to feel that with another few years or so of gainful employment I would be in a position to stop working full time, if it came to that.
All of which is a roundabout way of disputing the “5 point programme” that @Nevermind outlines in his first comment; I think that lower earners can end up with significant savings without donning MSE hair shirts. I guess I have largely followed @ John B’s rules without ever articulating them quite as clearly as he does !
“born on the wrong side of the great property divide, say you are late
generation X, Y or millenial – you also have a much steeper FI
hill to climb.” I suspect that’s exactly wrong. Many of that lot will inherit a house, which is more than I ever did.
Personally, I enjoy all the different approaches taken by my fellow personal finance bloggers.
True, I don’t always agree with them (life would be boring if I did) but there’s always entertainment value to be had.
PS. I agree that you don’t need anything like a £60k-£100k salary to be able to save for early retirement. You just need motivation.
@dearieme please note prior caveat in said post on early inheritance. It has to be early mind. Having the folks die and getting the house when your in your 60s doesn’t count. And woe betide if you have a few brothers and sisters
Hey @neverland do realise you sound so bitter? Everyone’s personal circs are different so if the UTMT and TEA aren’t for you, you could ignore them and leave out the ad hominem. Personally find them both entertaining and insightful and not remotely smug. Whatever you’re angry about deal with it, I’m pretty sure it’s not their fault….
Some good comments and thoughts here but also some excessively negative/skeptical ones IMHO.
Of course it’s not easy to retire 20-30 years ahead of schedule. Of course it means doing something different to most people. Not sure what sort of revelation this should really be to anyone, especially not regular PF blog readers. 🙂
More from me in a future blog post I think. (Not the next one, that’s already written and is vaguely related, but more… bohemian… 😉 )
> Of course it’s not easy to retire 20-30 years ahead of schedule
Even doing it 10 years ahead is a big win. You only got three-score-years and ten on this earth. Use ’em well…
Life’s too short to give up a weekly bacon sandwich 🙂
The key point is to work out what you really value and agree that some of mse’s tips go too far unless you value your time at zero
British Spending Secrets was on BBC last night(and presumably is on iPlayer). I can see how that would make a great two minute hate for the thrifty!
Personally I enjoy reading the extreme retirement blogs, doesn’t mean I want to model every element of their life. It does give me some ideas, challenge my existing mindset and perhaps helps me define the limits that I personally am not prepared to go to. It is a bit like reading a sportsman biography might nudge me to go for a run, rather than to give up work and head to a high altitude training camp for six months.
I suspect many coupon cutters and bargain hunters enjoy shopping, so aren’t truly frugal, as that requires the disinclination to buy anything at all. Of course I am frugal, you are mean…
A few random thoughts on this topic.
I’ve been using Quicken 2000 for 15 years. Utterly invaluable. It’s not perfect (investment reporting, especially, can be a bit dodgy) and hasn’t been supported for a decade, but I wouldn’t be without it. I think the 2004 version (the last UK version) is freely available.
I run an “inverse” tracking spreadsheet for my bank account and credit card (i.e. all my normal expenditure). Like the jam jars of old, I put my allotted monthly amount into the s/s (£500 for food and household, £150 for petrol, £50 for phone and internet etc). As I spend in these categories I see how little monthly headroom is left. I prefer this to “totting up” in a s/s as it clearly shows me how much of my budget I’ve got left.
My monthly savings are deducted immediately from the s/s and any left over at the end of the month gets swept into the “free” column. This can be spent on anything, as it’s money not spent from my agreed budget. So even if spent on “luxuries” I don’t see it as that, and so don’t feel guilty.
Best piece of financial advice I ever received (from the money pages of the Independent some 20 or 25 years ago, IIRC): “Save half of every pay rise”. It has worked well for me. I started on a pittance so I now save over half my salary. It’s much easier never having spent this money than having once been used to spending it, and now trying to cut back. You don’t miss what you’ve never had. And of course, the more you save means the less you spend, so there’s a significant leverage on your future spending power. If you save 10% of your salary, you need to save 9 years to afford one year of the same spending in retirement. If you can bump your savings to 25% then it’s three years working for one year in retirement. A huge difference for a relatively small change in your spending patterns. At 50% saving it’s one-for-one.
I try to see things as “future money”. If you think you’ll retire in 25 years and your savings will return 3% real then the value of money when you retire will be twice what it is today in real terms. Thus £150 of bacon rolls, is actually £300. Even more reason to save. “Do I want a bacon roll today, or be able to buy two when I retire?” Of course if you forgo these treats all your life you’re unlikely to change in retirement, so another win – you pocket the £300.
My current project is to see whether I can live for a year on minimum wage. This is about £1,000 a month after tax.
Adjusting for inflation my first salary (some 20+ years ago) was about £16,000. This is about £1,160 after tax.
Everyone’s circumstances are different (job, location, housing choices, partner, children, other lifestyle choices etc) so it’s hard to generalise. But I reckon I can live fairly well on those numbers. Which makes retirement planning (i.e. “how much will I need?”) much easier than the less-than-helpful “rules of thumb” you sometimes see.
It’s all about freedom. Being able to do today what you want to do today, not what someone else tells you to. In that sense I may well continue to work after I’ve reached FI. But that will be my choice, not someone-else’s. FI and “retirement” are not the same.
Finally I see retiring early as a privilege, not a right and may require a good deal of luck, although it’s always possible to stack the deck in your favour. Many would not be able to achieve it, no matter how hard they try. Those of us on here are – to a greater or lesser extent – very fortunate.
@Richard there have been proposals that automatic pension enrollment should have exactly this sort of uprating of pension contribution with pay rises, for the reason you mention, with opt-out to encourage inertial saving.
There have been many psychological and economic studies about delayed gratification, and future compared with current worth. The funniest of these is presenting young children with a marshmallow and saying if they haven’t eaten it after 15 minutes they can have a second one. Some children sail through the challenge, others scoff in seconds, some lick it and put it back, and others just screw up their faces with all the agony of needing to pee. The video in the TED talk is hilarious http://www.ted.com/talks/joachim_de_posada_says_don_t_eat_the_marshmallow_yet
I’m not entirely sure where the value lies for the FI bloggers
out there – maybe a bit of Freudian analysis required to get to
the bottom of that. I don’t do it so I don’t know.
But for the FI blog readers, a primary use of the blogs is that
they provide potential life templates. I do do this, so I do know.
Now as life is precious, its absolutely right and proper that
these templates get exposed to the proper scrutiny as the
consequences for the FI community are serious. YOLO and all that.
A scientific rational approach is whats required, and that should
start on a sceptical footing, and a touch of cynicism is probably
also wise, and quite british into the bargain.
As a counterpoint, consider the MMM comments. This is in no way a
comment on MMM personally as he doesn’t write the comments. They
are relentlessly optimistic and self-affirming (and huge in
number). Any descent in the ranks is snuffed out. I’d argue that
is bad. You don’t want to go down that route. Its verging on
cultish.
Now, regargind Neverlands comments in this thread, we can see a
pattern from the recent flood of comments on RIT that families
who are making an effort to be frugal are hitting the spending
floor at approx 20-30k (RIT himself drops out at
27k). Singletons/childless couples seem to be able to do
significantly better, but I am talking about families here.
This is spends from net income so we have to add a third to see
what the break even gross family income is approx,
i.e. 30-45k. And thats break even, so no glimmer of early
retirement. So I think Neverland is more right than My Rich
Future when he says early retirement is really only on offer to
high earners, say 60k and up. I certainly think that motivation
is not *all* you need (note its still true that dedication is all
you need if you want to be a record-breaker sic. Roy Castle). As
a families gross income tends downwards to below the HRT band I
think there is a strong argument to say you will not be
retiring (particularly) early. The numbers don’t really stack up
any other way.
I would add that I still see frugality, or the application of
Occam’s Razor to your own lifestyle until you are rolling round
as bald as a coot, as being inherently valuable regardless of
whether you can retire in your thirties or not. I think its good
for the soul. Bit like going for a run, or eating a salad. You
feel better for it even if its hard work forcing yourself to get
started.
As an aside, I don’t really consider Monevator to be an FI blog,
it doesn’t tell a life story, its a collection of articles by a
collection of authors on how to do manage your finances so I’d
call it an online magazine.
Monevator is good because it is dense in useful information. It
is the culinary metaphor of eating a steak. Read any other online
PF articles, i.e. thisismoney, FT, even BBC and you feel like
you’ve eaten some candy-floss. At the end you’re left desperately
trying to connect all those short chain carbohydrates into some
meaningful, coherent and useful brain-food, usually to no avail.
@TheRhino — Sensible well-considered and even-handed comments like your most recent one do indeed add to the discussion and help hold ideas accountable.
Snide sniping from the sidelines from a perma-grumpy class is on the contrary a scourage of the Internet, and I’ll happily delete it rather than see it take root here. 🙂
“Having the folks die and getting the house when you’re in your 60s doesn’t count.” But the folks will often have the sense to leave the house to the grandchildren, or to a family trust of which they will be beneficiaries. I really don’t see the logic in waving away the fact that the baby boomers will undoubtedly die and their descendants will inherit.
baby boomer has three kids, those three kids have three kids. nine grandchildren. 1/9 of a house each . gets you no-where, total waste of everybodys time. inheritance may not diffuse wealth at the macro-level throughout society but it does diffuse on the micro-level through the family-tree.
and another thing, my real aunt agatha left her 900k house and extensive grounds to her gardener. I got a dusty telescope that someone fished out of her loft.
not that i’m bitter or anything but wheres the justice in that my dear(ieme)? maybe he trimmed her bush really well and she intended it as a belated tip?
For me, there’s a wellbeing multiplier that comes from reaching for financial independence that doesn’t show up in the maths.
There are plenty of studies of human happiness that quote autonomy as a vital ingredient.
Now you don’t have to be retired or anywhere near it to experience a growing sense of autonomy and self-worth once you stop chasing materialism and start building wealth.
There’s also a good chance of benefitting from a growing sense of purpose that will fortify you against life’s daily battles. Plus:
Increasing resilience
Learning new skills
Thinking for yourself
Less time wasted in pointless willy-waving contests
More time spent on things you really value
Having a safety net in place should other things go wrong in life
It’s like the moment in The Matrix when Neo wakes up. At least that’s how it felt for me.
It’s not an easy thing to do. But learning how to optimise your life to make it happen can lead to all kinds of positive unintended consequences.
It’s like being on a diet to lose weight only to discover you feel more confident too, sleep better, have a spicier sex life etc
Yep, earn more and you’ll do it more quickly. I’ve actually taken on more work to make it happen. Spend less and that speeds it up too. Cutting the daily latte alone won’t get you to FI but it’s a symbol of how rethinking your spending can make a powerful difference to your life.
There are plenty of examples of people on unremarkable incomes who’ve achieved FI. Jacob from ERE because he was prepared to make some very radical lifestyle choices. Or Andrew Hallam – The Millionaire Teacher. But read Your Money Or Your Life for case studies of regular Joes and Josephines who got there at their own pace but also discovered the benefits were far more encompassing than suddenly finding yourself with lots of spare time on your hands.
TA nice summary – spot on.
Only slight issue with Dominguez is he happened to write it at a time when suggesting inflation doesn’t exist and that you can get a 10% risk free return from govt debt didn’t make you look stupid. But thats only a small part of the book.
“baby boomer has three kids, those three kids have three kids. nine grandchildren”: if that were common our demography would be quite different.
“1/9 of a house each . gets you no-where”: actually it would give them a nice deposit each.
Back to the point: The Accumulator’s ‘fight your follies’ list is presumably useful for anyone who has suddenly had an epiphany and realised that (to quote I know not whom) the secret of happiness is not spending money you don’t have on stuff you don’t need to impress people you don’t like.
Most interesting set of comments of late.
Nothing useful to add I’m afraid, but subscribe me none the less. 🙂