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Sticking to a financial plan when the honeymoon is over [Members]
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Nice piece focusing that it’s often our primitive brains and inherent inertia that get in the way rather than numbers themselves. Personally I found the whole Covid great forced home hiatus a great test of baseline needs (and from that point I knew I’d make it – the only question was how much buffer). But it has rather reduced the celebratory nature of anything since – it’s just numbers and “Trump/Farage/other chancer can snatch them away” pessimism tends to moderate elation. Which is maybe as it should be.
I admit, I have been struggling recently. I have been ‘nearly at the half way’ point to FI since December 2021! Every time I think I am approaching the half way point – next month I will get there – something else happens and I drop back again. Sometimes it is the markets fault, others it is increased family spending (some is inflation, others is kids getting bigger and doing more expensive activities!)
Your article has prompted me to have a look at my spreadsheet and see if there are any better metrics I could be using – particularly focusing on things in my control.
Great article the Accumulator. Thank you. Can I mention something that I use as a visual representation to let me know how I’m doing with my long term repayment tasks. Let us say that you have bought a new house and want to know how well you are doing in paying off the mortgage.(Whether through regular payments or over payments). I take a picture of our house (or use the one in the estate agents marketing). I split the picture up into 100 squares, each square representing 1%. Calculate what 1% of your mortgage value is? So a £100k house – 1% is £1k. Write it down somewhere on your picture. And finally I keep the picture somewhere where I can look at it regularly. (Mine is currently on the inside door of a cupboard above my desk). Let us say you bought your home with a 25% deposit – fine you cross out the first 25 boxes. Because you have 25% equity of your home. Then let’s say a year has passed and you hit one of the dark periods of your journey to FI that the Accumulator mentions. Simply call your bank and say, “Could you tell how much I owe left on my mortgage please?” Then work out what that is as a percentage of your total mortgage and unless you are on an interest only mortgage, you should be able to cross out a few more 1% boxes. I find this motivates me and it’s not too onerous as banks will often take calls at 8am or even do automated mortgage balance once you have gone through some telephone security. As I said it works for me.
My pick me up metric was to divide my non-pension savings by the months left before I could access my SIPP. Each month that passes is a month less to be funded so it is almost guaranteed to be an improvement!
It served little purpose beyond cheering me up and I knocked it in the head when access was shuffled back two years.
“Keep drawing notional lines in the sand, some way ahead of you. If your mind works anything like mine then you’ll fixate on the next target, not the distant one.”
Definitely resonates with me. I was taught a similar mantra many years ago when confronted with seemingly endless distances to cover or tasks to carry out: if you can do 10% then you can do a quarter of it. And if you can do a quarter then you can do a third. If you can get to a third then you can get to halfway. And so on until you have somewhat miraculously arrived at your destination. Where someone immediately always tells you to go a little further.
It’s working so far with solidifying investing steps from early stumbling in the dark to something akin to a plan.
Looking back, the biggest obstacle is not one of being able to consistently pay down debt, nor is it being able to save up or to put money aside to invest per se.
Rather, when investing, the biggest practical psychological issue is experiencing that intense and unbearable pain of seeing (when you’re starting out in this game, likely earning less than later on, and, most importantly, having much less IRL experience of the market rollercoaster) one’s hard earned, and hard fought for, pounds, schillings and pence notionally go up in digital smoke as Mr Market has one of his panic attacks, and equity prices fall faster than a failed lift in a seventies’ disaster movie.
The temptation to quit the game, sell out your holdings, and ‘preserve’ remaining capital value is strong, to put it mildly.
You’ve not then got the learned and lived through experience to just say ‘mehh’ and to do nothing, less still to go out and seize the day, capitalising on the opportunity by (mixing metaphors) backing up the truck, and filling one’s boots with more shares at a substantially lower cost base.
Panning out to those 100 year equity return charts just doesn’t cut it when you’re in the early stages of the journey, and probably haven’t accumulated that much.
Hardship seems close to hand. and the market fall looks like a wolf at the door, rather than an opportunity in disguise.
So, psychologically speaking, even though, from a pure evidence point of view, it’s sub actually optimal to do so (as arithmetically, over enough time, LSI beats DCA on CAGR), I’d recommend that any investors who haven’t yet got through at least a couple of epic crashes (in the style of 2000-03, 2007-09 and 2020) to either DCA, even if they’ve saved a lump sum up to invest, or if they are doing LSI then to keep cash on the fund platform for immediate access explicitly as dry powder to then use on a really big drawdown.
That way your almost rooting for a fall even though you’re substantially invested because, if you can get yourself into the right mindset first, then you really want to use that cash to buy at what might be multi year (or even generational) lows.
Yes, it is market timing, but it’s done to keep you invested when B&H alone might cause you to fold like a deckchair.
Barry Ritholtz summarises his approach to this like this: “Assuming you have a fun trading account equal to 5% to10% of your liquid assets, make a list of what you would like to own if it were 20%, 30% or even 40% lower, and be prepared to buy into a deepening retreat. Don’t pick a point, but cycle in as markets fall, then again as they recover. Look at a stock-market graph of 2008 and 2009. Now let’s assume this only gets half as bad as that, and figure out what you would like to own if it were much cheaper. Also, keep a slug of cash on hand, in case things get worse. You will not catch the bottom, and you might look foolish for a while; in a few quarters you will be grateful.”
Thank you all for the additional thoughts and ideas! I don’t think there can be enough of these.
@A14M – good luck pushing through!
Really enjoyed this one, I’m a pragmatist at heart so good to hear some thoughts on motivation that can help ease the grind. Easy to fall into the head down and keep on going approach. Especially liked the idea of the trial FIRE lifestyle weeks – one day….
Very interesting. My prime motivation is getting out of my 30 year profession working in supply chain within the manufacturing sector. I have grown to dislike like it, not the technical work as such, but the other moronic humans I have to deal with on a daily basis – is it just me or is the workplace getting worse, expectation, entitlement, ‘it not my job’. I am sure this was different years ago, or am I just getting old.
Anyway, this had led to an obsession with FI – probably an unhealthy one. Head in the spreadsheet looking at the same numbers every week! Probably need to lock up my laptop for a couple of months.
My celebration was becoming a member of Monevator, having played a big part in my 3-5 years left in the rat race – rock and roll!
Anybody in a similar boat, tried anything different? I changed job 6 months ago -same issues just different walls to stare at 🙂
@SP – TI and I had a long debate over whether the solution was to change employer / job or to stay put and accelerate towards FI.
I opted to stay put rather than find out if a change of scene would make the difference.
In truth, that’s because I was sure it was the demands of my role, my approach to it, plus the grinding BS of contemporary workplaces that were the problem.
FIRE has proven to be the tonic I hoped it would. Freedom from the BS is wonderful. Having more time to spend with the people I love is amazing. Being rid of the low-level anxiety that accompanied every day at work is incredible.
I’m also very happy to carry on doing some work of my choosing. It’s a useful counterbalance to too much freedom. And it’s undoubtedly a positive when confined to a few days a week, shorn of the standard-issue grief you reference.