29 Mar 2012, 9:33am
personal finance reflections:
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  • Retiring Early – a high-level view. It’s not all about the money

    Most people think of the main issue in retirement as having enough money. By observation, there are two other main issues for people. One of them is retaining a social connection, and the other is health being a worry, though less so for early retirees :) You can do something to improve both, but they take time, measured in years, to get right. Many people, particularly guys, get a lot of their social connections through work. Talking to people who have retired from The Firm, this changes, absolutely and almost overnight.

    Maintaining a connection with other people

    Humans are social creatures, and isolation isn’t good for us. I’m less gregarious than many. Early Retirement Extreme had a view that early retirees tended in this direction being drawn from people on INTJ and ISTJ axes of the Myers-Briggs spectrum. I don’t have much idea of if he’s right. Perhaps early retirees who choose it as a life path are, but I’m met enough people who just get pig-sick of the rat-race and bail early who I wouldn’t describe as introverted. Anyway, even those INxJs need some connection with other people, and it’s something that many retirees get wrong, even if they retire at a typical retirement age. Early retirees will take a greater hit from this, because their friends and peers of a similar age are often still at work because they haven’t retired early!

    I would have been more exposed to this a few years ago, but DW setting up a community supported agriculture scheme means I’ve met a number of people from various walks of life over this last couple of years. Some of these even work(ed) for The Firm, though most haven’t. I can’t claim any strategic direction here, growing thing has been one of DW’s passions for decades, and I’m simply taking advantage of the free ride here. But hey, why not ;) It also comes with some activities that are working with others, after all it’s not really possible to raise a polytunnel on your own and it’s far more fun with a bunch of other people anyway.

    raising a polytunnel - much more fun with other people

    Building the frame is something you only need one or two people, DW and I constructed that beforehand rather than waste other people’s time. But skinning it needs more boots on the ground, and there is a feeling of satisfaction when it’s done!

    I’ve also tried to maintain a toehold in interests, though this narrowed down greatly over the last three years, slightly from the reduced outgoings but mostly from the stress. But I kept a strategic view and low-level activity with interests and membership of societies. One of the keys to lowering costs is to be creative, originate, don’t consume. Things to do with the natural world in particular are often a modest cost, and living in an attractive part of the country is good. I’m not yet realising the upside of this investment, but I hope it will pay dividends, in quality of life, not in money. I’ll find out after I do finish work, and a period of convalescence perhaps.

    Health

    Yeah, it’s the big one, and I’ve been lucky so far in terms of physical health. Retiring early is a very good thing to do for ones health all round, provided you don’t fail on the human connection part, and don’t have the stress of being poor. I hope to avoid both of those. Eliminating the stress of working will be good for my long term health, as will drinking less.

    No longer working in an office and spending some time in the open air will probably be good for my physical health. There’s a theory that willpower is something one only has limited resources of, and using it in one area depletes reserves to apply to another. Ending the working in a environment that isn’t suited to my values and saving heavily should give me some of these reserves back, and I will apply them to doing something about losing weight and getting more exercise, some of which will happen as a result of the change in lifestyle anyway. Cycling is a great way to reduce running costs for the small but frequent journeys. I’m not quite sure I will ever achieve MMM’s levels of badassity, but I can shift myself  some distance along that axis. It’s made a lot more attractive by having more time.

    What I eat is probably fine – we eat hardly any processed food and our veg is about as fresh as it’s going to be, within a couple of hours from field to kitchen. DW is a great fan of starting from the basics. In comparison with the typical modern Western diet we do fine.

    There’s a lot to play for

    If I die ten years earlier than my grandparents or indeed get as far as my parents are now then I have more of my adult life ahead of me than I have behind me. So staying interested in the world, connected to other people and in decent and hopefully better health is something worth playing for. And health of course gets a little bit harder as you get older, so while the best time to start sorting some of the strategy out with health was a decade or so ago, now is a good second-best.

    Things I can learn from younger people

    Quite a few people in the community supported agriculture scheme are in their twenties, and something that strikes me is how incredibly generous they are with their time, volunteering with things like the CAB and other interfaces wit hthe wider community. Particularly over the last three years, time has been exceptionally precious to me. I don’t understand the concept, I can’t ever imagine volunteering for anything that isn’t a specialised use of my skills.

    However, I am struck by the blaze of energy and the remarkable generosity of spirit. Perhaps I never had this by nature. I used to think it was being a young adult in Thatcher’s Britain and joining the workforce in Thatcher’s first recession, but the situation with youth unemployment is probably worse now than it was then so this is no explanation of why I lacked that sort of generosity as a young person, and have become a miser with time now.

    This isn’t the only thing I could learn from younger people, but it’s the one that is most obvious to me at the moment.

    A finance detour

    Though the most common concern is having enough money, reducing outgoings is a very good alternative. In the end it is the difference between spending and income that matters. DW and I have focused on reducing costs and winning self-sufficiency in some areas. Early retirement in particular is about spending less.

    Looking ahead, there will be two obvious battlefields for everybody in trying to maintain living standards over the next four or five decades. These are the cost of fuel, a fight people are already losing, and the cost of food. Both are non-negotiable, and both of these DW has in particular applied herself to reducing. I have also tackled energy, reducing electrical power usage drastically, while we have used the wood resources of the hedgerows and our wood heater to eliminate using the gas central heating totally this winter. We do use the central heating boiler it to heat water, if we can achieve success with the heating then there are other approaches to water heating. We have a biomass willow plantation elsewhere in town that is four years into its rotation and we plant into the hedgerow more than we take out, as well as using Italian Alder for windbreaks and potential firewood in future.

    Unfortunately since I switched to a fixed tariff EDF have been really slack on reading the meter. They already owe me several hundred pounds for electricity and I hope they will owe me a fair amount on gas, since they haven’t jumped to the change is usage.

    Fuel is serious work. Mr Money Mustache probably wouldn’t approve but we use a chainsaw for harvesting wood. There’s enough grunt involved in moving it and splitting it with an axe. Which may help with the exercise and health stuff, but hand sawing wood is no fun at all. There’s a balance to be had here, and it’s not always in favour of muscle over motor!

    The long view

    I will have worked for a shade over thirty years, and just might see more ahead. The world will be very different. That much is clear looking back to what it was like when I started work. ET and Star Trek 2: wrath of Khan were in the cinema, and over the next few years Greed was Good for Michael Douglas a Gordon Gekko summed up the rising Yuppies. People feared being wiped out in total nuclear war rather than the environment and global warming. There were only three channels on TV, and people listened to portable music on Walkman tape players, and vinyl records at home.

    The years to come will hold their own challenges for people and the economy. I don’t share this chipper view of the world in 2020, never mind the world in 2040. I think in particular the experience is going to be pretty rough for people in the West looking to retain never mind advancing their living standards. If we can get our heads round it all and stop living the consumerist lie then we may be able to salvage an improved quality of life; earning a living shouldn’t grind us out of the workforce in our fifties and sixties, particularly if people are going to start routinely living to 100.

    Retiring from the workforce

    I will retire from the workforce as far as earning an income from work – at least this is my current plan. I have paid far too much income tax. I’m not going to go all Ayn Rand – some contribution to society is fair enough, and I really do appreciate not having the stress of US-style healthcare insurance costs. But I’ve done my share. Last year, while saving furiously for retirement, I paid twice as much tax and NI as I was living on and a shade more than my pension will be. I’m pig-sick of paying for other people’s lifestyle, or indeed hard-done-by Guardianistas and high-rate taxpayers’ children.

    I am not going to retire from adding value to projects, I am merely going to retire from working for other people and working for an income; the value-add will show in either increasing the capital value of an asset, its ability to do work or it will increase other people’s income which may reduce my costs. I still won’t be able to escape the demon of income tax on my pension, even after Nick Clegg and his merry men achieve their goals with the tax threshold. At least you don’t pay NI on a pension, and I’ve got more than my thirty years’ NI stamps paid now.

    In my attempts to reduce taxation over the last three years I took my eye off the ball as to the damage NI does – for all the trumpeting of the aim to take low earners out of income tax I note wryly that the 12% NI tax still starts at £6000. Barstewards…

    So I’m retiring from income, not from adding value to stuff. I’m not yet ready to hang up my soldering iron, keyboard and spanners for good ;)

    And on that note I am going to start with that health kick, get up off my ass and bike to work, so the fuel tanker drivers and the Government can stick it, too ;) Tossers, the lot of them.

    A very British fuel panic

    On the way to work I spotted this very British fuel mini-panic (it was taken after the rush hour). Exactly what the Minister Francis Maude ordered. Panic, but only a little bit. Oh and on the topic of increasing fuel costs, that’s the last time you get to see a price of under £1.40 a litre. That’s up 40% from this time two and a half years ago.

    petrol at 101.9 ppl

    Clearance at last to begin the Final Approach to early retirement

    The birds are singing in the air, the sun is shining and the blackthorn is in bloom before the leaves come out.

    Blackthorn in bloom - before the leaves appear

    Birds recorded in the cemetery on the way into town. I love the sonorous resonance of Woody Woodpecker :)

    About three times a year The Firm invites staff to apply for voluntary redundancy. There’s usually an incentive of up to a year’s salary redundancy money, and I’ve put my hand up enough times in the last couple of years.

    This time the stars are in alignment, it seems, and I have clearance to begin the final approach for the exit. HR spent a lot of time spitting bricks about that everybody has to be out by the 31st of March. However, I have a unique skillset for the Olympics work, and local management found a way to extend my leaving date to the end of June.

    Which I’m absolutely cool with, though it confused the hell out of me when I received the confirmation with a leaving date contradicting everything else HR had said. Where there’s a will there’s a way, eh, guys ;) Not only do I get the opportunity to finish the job, I get the opportunity of getting the year bonus just as I leave, I will only have earned half a tax year’s money so I have less tax exposure and I get to benefit from another load of Employee share schemes and Sharesave. Thank you Mr HR and line management.

    Oh and I don’t exactly have to sweat the infernal performance management system because there’s nothing to play for. It gets back to how working used to be before a bunch of American HR twunts got a hold of the system. I didn’t realise that the punk Peter Drucker who is responisble for an awful lot of things that enable Digital Taylorism was the architect of Management By Objectives. The Firm seems to have explored pretty much all the avenues listed as Limitations in the Wikipedia article on this.

    It seems W Edward Deming identified the thing that The Firm did wrong – in my area, which originally had a scientific and technical skill base, management was along Deming’s lines of leadership, which worked well. Only in the last seven years did they switch to MBO, which ended up destroying the esprit de corps. Indeed, the undesired outcomes of MBO seem to be rife in capitalism at the moment, with objectives causing our CEOs and bankers to run amok chasing short-term gains and hypercomplexity at the expense of  the rest of us muppets.

    Oh well. This isn’t my fight any more, though it does deeply hack me off that this damned performance management system and its abuse caused me to have the longest period off sick that I ever had in my working life.

    Most people who take voluntary redundancy only get a window of about two weeks between when they hear if they’ve got it and getting to clear their desk, and to be honest that’s all I expected to have. The luxury of the extra time means I have more opportunity to set my financial affairs in order and take opportunities.

    Joining the rentier class is a huge change from being an employee.

    Living off capital is a massive change from living off a wage. I have always got the vast majority of my income from being an employee. This will change; my work pension is deferred pay of a little bit more than the NMW because I am a very early retiree, which fits conveniently with the aims for an increase in personal allowances from the Budget yesterday. Nevertheless, it is enough that  I will probably always be a basic rate taxpayer as a result, which eliminates many otherwise useful ways of avoiding tax.

    As far as the capital is concerned, to my employee-income-attuned eyes the numbers are enormous – and this often leads people into temptation. The AVC lump sums and redundancy money plus the savings I already have add up to the largest sum of money I have ever seen in my whole life, I could easily buy my house again, cash, and furnish it better than it is ;) A friend of ours asked if I am going to blow the redundancy money on something nice.

    No. That sort of thinking is madness. For a while I am not going to change any spending in any significant way, with one exception, I may go on holiday, but along the lines of The Accumulator’s staycation rather than a permanent Gap Yah. Other than one special occasion, I haven’t been on holiday since 2008, and this was one of the harder things about locking down spending while working. I came to this conclusion myself, however, the rationale is delivered with more vim and vigour by this writer

    The one thing everyone must do the moment they get fired or quit is…

    …NOTHING.

    Don’t do a damn thing. Nothing at all. Got that?

    So why no change? After all, though my total income will be less than half of my gross salary, that’s actually a hell of a lot more than what I have been living on these last three years, because I have been saving most of my salary. I could increase my lifestyle and not touch the capital

    No change for several reasons. I only gained control of my spending after I had accumulated a lot of data on what it was. My spending will inevitably change – I lose the modest work-related costs, I will probably pick up some other costs. I need to know what these are before making any strategic changes. I have no experience, only a theoretical and intellectual understanding of what it is like to live off capital. This is eased in my case by having deferred income which is significantly more than my outgoings, so there really is no rush, and I have much to learn.

    A signal received at the eleventh hour…

    Just over three years ago I took the initial hit that started me on this path. So I decided I wanted out, and started making the calculations. This was in February 2009, and after loading a Cash ISA I started to look at more sustainable returns from saving, splitting between financial and non-financial investments. I read this on Monevator. These were among the darker days of the financial crisis.

    Points of crisis magnify the power of small actions. It was clear that I was a long way away from financial independence, and I have a very dark view of the future of Western economies. And yet, I saw that combined with the power of a 41% tax saving on going into pension contributions, there was an opportunity highlighted in that article. It was time to take a chance like a Stagecoach bus driver, but with far better odds. At the time it did look to me like there was a very real risk of the entire financial system going titsup. I did know the ‘be greedy when everyone around you is fearful’ theory before but it took that article and some desperation to stiffen the spine to actually execute it then. I continued to invest in AVCs ever since, and have just issued the sell stock market funds to convert to cash fund command, at a 20% uplift (less about 5% inflation).

    The echo of the initial hit still stayed with me, and so I saw these last three years as trying to manage the slow decline of energy as I fail to live my values for the sake of money.  It is not necessarily the most motivational image, but it allowed focus. Sometimes it isn’t necessary to win, it is enough to lose less quickly.

    I was ready to quit of my own without a redundancy package after August, by which time I will have run out of space to save 40% tax in my pension contributions to be able to take out as a pension commencement lump sum without having to take out an annuity, for which I am far too young. However, it was always good to roll the dice of voluntary redundancy if there’s an opportunity of a free win, and this time my number came up at the eleventh hour.

    Retirement isn’t all about money, of course. I will probably not want for things to do, and the work,  community and people at the Oak Tree will mean I won’t get to see too much of the attractions of daytime TV or the Jeremy Kyle show.

    Though I chose a similar aviation metaphor to Salis Grano, I reversed the direction, I see the journey to early retirement as being on the final approach, where his is one of taking off. SG probably did the planning in the way you should do it, saving over many years. I started late, already from a weakened position and anticipated the three years would be the point where I was all out of energy from the enervating performance management system.

    I’ve never had any actual trouble with it after the first hit, but I associate the whole procedure with a time when I felt I was within months of being run out of The Firm, and since it happens every quarter that is a lot of stress. I did wonder if I paid for psychotherapy then it might be possible to break the power of this association. However, in my view modern performance management systems are deeply screwed up. Some things should not be equalised or accommodated, they should be destroyed or eliminated from my life.

    The Tribulations of Holding Lots of Cash

    While I did a pretty good job of working out how to save the most while minimising my tax exposure, what is becoming patently clear is that I didn’t really pay enough attention to working out what to do afterwards. It transpires that the total sum of my AVC savings, redundancy and existing savings is far and away my largest asset, with the possible exception of my pension itself.

    And it will appear as cash, and immediately start to decay in real terms in that unappealing way that only cash does. As soon as National Savings and Investments open their doors again for index-linked savings certificates I will double up my existing 15k holding with them. That I can leave as emergency fund. Unlike that cheeky pup Monevator who would like to make a profit on his cash holdings, I don’t have any aim to make money on cash. It’s quite enough for me to find all of it still there in real terms when I come back for it, I just don’t want to have it die away quietly into the night in order to pay for some Government largesse like Tarquin and Jemima’s school fees. And I don’t want to pay tax on it, either. However, in the grand scheme of things NS&I can’t really help me very much to stave off the rust of inflation for most of the capital, because of their savings limits.

    The high-level aim is to invest most of the money, somewhat along the principles described here, and carry on on the general HYP lines my existing ISA operates on. I was also planning to hold a big wodge of The Firm’s shares unwrapped. The old principles of not holding shares in my employer kind of go away when The Firm is no longer my employer. It has a decent yield, reasonable prospects and I have totally avoided the sector in my shareholdings. However, this comment implies this will cause me problems with tax again. I had hoped to avoid paying tax as a retired Ermine by using ISAs but it will take me well over a decade to finish shovelling cash into ISAs.

    The general issues of how to turn savings and a pension commencement lump sum into an income don’t seem to be addressed in any UK PF blog that I’ve found so far so this is a pathless land as far as I can see. The general principles of living off investment income are dealt with well, but migrating a large lump sum into tax-sheltered funds while avoiding the cash rotting away over time is a specialised requirement. The best source of information around the topic is MSE’s forum, however it needs sifting heavily. There are some people on there who believe it is reasonable to take out a loan of £4000 to have some pictures taken of themselves…

    It appears I made a mistake paying down my mortgage early rather than investing using the mortgage as a low-cost loan, which would have given me many more years of ISA allowances, discharging the mrotgage at the end with the cash lump sum.  However, I didn’t really have the brass neck for that sort of thing, so I have to eat the consequences of being risk-averse. My asset allocation and global diversification is now skewed horrendously to cash and to the UK, and it will take some time to fix that.

    Retirement is about quality of life, that means hearing more of this sort of thing

    and less of the incessant babble of densely packed open plan offices and people talking loudly on their mobile phones in buzzword bingo phrases or the roar of datacentre cooling fans.

    16 Mar 2012, 10:45am
    peak oil rant
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  • Obama and Dave, what is it about peak oil that you don’t get?

    Apparently Dave and Obama have decided that the price of oil is too high. So guess what? They are going to push down the price of oil. I could have titled this one don’t fight the tape but I’ve already used that for one of Dave’s previous wheezes. What has got into Cameron’s head? Has Samantha bought him a Superman costume or something, first he goes around encouraging people who can’t afford a house to overstretch themselves for a mortgage, and now he’s going to Do Something about the price of oil

    So how can we do that? We could:

    • increase supply – nope, the IEA says we can’t do that much longer
    • reduce demand. Now there’s an idea, but it sits badly with rising global middle class aspirations

    Hey, I know what we can do, says Obama. Let’s fudge option 1 and release a load of the US strategic reserves. That way American drivers don’t get pissed off in the Driving Season.

    Oh good, says Dave. Tell you what, we’ll help you by releasing some of the UK strategic reserves to help you out, along with out Squeezed Middle. Presumably some Civil Service flack hurriedly whispered in Dave’s ear that the UK doesn’t actually have any strategic oil reserves. Thinking on his feet, he changes it to asking UK oil companies to hold less in reserve.

    Great. That’s all sorted then. What part of ‘strategic’ was it that you guys didn’t understand, or should we send in the DEA to find out what you were smoking?

    The high oil price is a signal. That signal is telling you that more people want oil than production can currently match, and the price will rise to shed demand until it matches supply. It’s also perhaps showing that the currencies of both the US and the UK have been debased in recent years.

    Oh and by the way, guys, you haven’t got enough strategic reserve to deal with the probable war on Iran. They may be mad as a bag of spanners over there but the interruption to production will probably exceed the 40 days capacity of the US Strategic reserve. Just look at what happened next door in Iraq a few years ago.

     

    Don’t fight the tape, Dave, the NewBuy Mortgage Guarantee will cause untold pain

    The trouble sometimes with Government, is that it often gets itself into areas it shouldn’t touch. Such as meddling with the market, offering to guarantee home loans of half a million pounds to buy new houses. What on earth could go wrong?

    So let’s take a step back and see what’s going on here. A putative homebuyer is looking to buy a house that they can’t afford. So Dave waves his magic wand to make lenders accept the risk by guaranteeing the money with taxpayers’ money. Now I would then suggest to the homebuyer they look for good value for money. With houses, like with many other durables, the best value is in the second-hand market. But no. Conflating the desire to help people buy stuff they can’t afford with some dirigiste industrial policy to support housebuilders, Dave makes them buy unnecessarily expensive houses – ie new-build.

    Face the facts, Dave. You can’t make enough on the average income in the UK to buy a house in a lifetime. A middle class man on the average wage used to be able to buy a house on his own, my Dad did it on a blue collar wage. Then it took two people to do it when Thatcher sold off the council houses, meaning people who were too poor to buy a house themselves were robbed of the opportunity to have social housing, though a lucky bunch of 1980s tenants got their houses at knock-down prices to buy their votes.

    I managed to buy a house on a single white-collar wage, but I lived somewhat below my means to do it. Nowadays if I were starting over I wouldn’t be able to afford even the interest on my current house on what my starting wage was in real terms.

    And now another Tory government is going to dive into this frenetic marketplace with its hob-nailed boots and dance all over the face of the price mechanism in a capitalist society. Dave, the reason your middle class voters can’t buy a house these days is because we don’t make anything of significant value in Britain any more, and our standard of living is going to fall accordingly. You’re going to provide mortgage guarantees for houses priced at up to £500,000!!! I couldn’t even dream of buying a house for that much now, at the peak of my earning power and with a fully paid up house to defray some of the capital! What right do you have to buy your votes with the dreams of some daft young couple that is going to put themselves in hock for far more than they can afford in the long run?

    Imagine a couple both with good jobs earning the average household post-tax income of £25,000 ish. Even if they paid no interest it would take them 20 years of their entire household income to pay that off. That’s assuming in those 20 years they eat nothing, have no kids, never go on holiday. It’s barmy. It is just so wrong, on so many fronts.

    Dave, the price of houses is telling your middle class voters they cant afford a house. There is an old stock market adage from the 1930’s, ‘don’t fight the tape’. It means listen what the price signal is telling you. And for God’s sake, don’t fight that signal, because it will crush you.

    Oh and to those putative homeowners – don’t do it to yourselves. Buying new-build is expensive, you’ll get more house for your money buying second-hand. I didn’t have enough money for the deposit on my house in the late 1980s. So I borrowed an interest-free from my MBNA credit card, and used a low-start mortgage to focus repayments to the credit card in the first year. It worked for me, I got my mortgage cheaper because I had a lower LTV and didn’t pay a bean for the loan. In those days you didn’t have the sneaky 3% handling charge on 0% cash advances. There are other ways of raising the deposit than having the government railroad you into buying an overpriced new-build house when you can least afford it.

     

    Your Standard of Living may take a hit, your Quality of Life doesn’t have to

    Ben said something in a comment that made me think a bit

    for the upper side of middle class these are brutal times with generation X ers significantly harder up than their baby-boomer parents. The desire they have to maintain the same lifestyle they were brought up with is almost certainly overpowering

    There’s a lot in that. It’s hard to equate directly – I am probably tail end of the baby boom, DW is GenX and I had a better experience of work than she did. And work in general is getting less rewarding IMO. I’ve ascribed this to digital Taylorism before, although there is also the possibility that I am losing tolerance and adaptability to business trends through the usual process of getting more ornery and curmudgeonly as I get older.

    Ben’s comment gave me a double-take. A lot of things are far better for GenX than they were for baby boomers, gone are the draughty coal-fire heated houses of the London I grew up in. TV is better, both in programming and in picture quality. Far more people have cars, though that has its downside too. Those cars are far more reliable now – I recall changing clutch cables and water pumps by the side of the road in the freezing winter a couple of decades ago. But I know what he means. Some of the important things in life, like accommodation and jobs early on, were commoner and easier to afford on typical wages than they are now. Britain paid its way in the world more, and had less global competition. More of our consumption was made locally in the mid-20th century than it is now. As a resut we had more jobs, relatively, but our stuff was of a poorer quality, hence the unreliable cars and TV sets :)

    That decline in standard of living will progress and accelerate, as the West loses competitive edge to the East. Robert Peston had a programme ‘How The West went Bust‘ on TV last year and he pretty much laid this out with evidence. We’re overpaid compared to other people, and globalisation and improved communications will see to it that wages equalise. To see the level they will find themselves at, we are probably overpaid by five times relative to the Chinese by his reckoning. Split the difference and real wages will fall to about a third of their current real value, weight by population size and our pay will fall even further.

    It’s not guaranteed, of course. There are some things that could happen that would forestall this sucker punch from globalisation. Peak Oil would put a major spanner in the works of those long supply chains and we’d have to make the stuff we use more locally again or do without. The Raspberry Pi could galvanise a generation of British kids to do something with the sticky grey stuff in their craniums rather than watching TOWIE and wanting to become a sleb.

    However, the tragedy behind Ben’s comment is that each generation will have to strive harder to achieve some of the basics their parents had because of increasing global competition until that is assimilated, or the myth of continuous growth finally goes titsup, in which case it is Game Over for a lot of our standard of living.

    Standard of Living ≠ Quality of Life

    Just because we have an advertising industry hollering out that buying Stuff and Experiences is what makes a better quality of life doesn’t make it true, but unfortunately it makes it easy to believe that’s the case.

    Obviously, at the bottom end of the standard of living scale it does directly influence quality of life. If you haven’t got enough to eat or you haven’t got a roof over your head then your quality of life isn’t great. However, one of the myths of British culture that causes a lot of misery is that you have to own that damned roof. At an early stage in your adult life you take on a huge financial risk and expose yourself to a big one-time purchase in a cyclical market. To make things worse, some of us don’t understand the repayment part of buying a house and get ourselves into a right pickle.

    Other European countries manage better by having a working rental market with professional landlords rather than our motley crew of amateur buy-to-letters. It’s been a long time since I had dealings with landlords but the professionals always delivered a better experience than the amateur accidental landlords. It sounds like nothing has improved in the intervening quarter of a century.

    That’s just one aspect, but there are many cases where we built non-negotiable costs into our lives. Each and every one of those binds the chains of wage and debt-slavery tighter. It doesn’t have to be this way.

    You can separate Quality of Life from Standard of Living

    Subject to a minimum standard, which you can achieve in Britain on benefits which is part of the financial problem we are in ;) you can improve your quality of life separately to your standard of living. Ray has a much better quality of life than I currently have, though my standard of living is probably higher than his even after saving is taken out. Standard of living you influence by earning more, and/or eliminating debt costs. It is primarily about the amount of money you have in terms of income.

    Quality of life is largely about how well your needs are met. Finance and society address the bottom two of Maslow’s hierachy of needs, after that it’s up to you and the people around you to work it out. Ray is living his values, and he’s comfortable. I am not living my values, so I have issues in the self-actualisation department. I am working towards fixing that, but I’m not there yet. Once I have sorted that, I will probably have a better standard of living and quality of life than Ray ;)

    It’s the job of the advertising industry to convince you that money will buy solutions to the top three levels. They do a very good job of it, and lead most of us into a continual epic fail. Let’s take a look at those top three levels.

    You can’t buy Love

    For a start most of us manage to break out of that fail in the love department, though there’s the oldest profession in the world for those that prefer to use cash rather than charm ;)

    To get anywhere with love you have to be a lovable person and to be able to give enough of yourself to love. That’s about how you are, not what you buy or what you own. However, the admen get in there too, with Valentine’s day, diamond rings, the wedding industry, almost anything to do with children, you get the picture. We are all social creatures to some extent, and again, lasting success in interacting with others is about who and how you are. You can take some shortcuts with what you have, but the sort of love and friendship money can buy tends not to stick around at times when you need it, or when the money runs out.

    You can sort of buy Esteem

    The Esteem level is absolutely rife with products to make you feel you are special by virtue of what you buy, and we fall for it every time.

    The sort of esteem that money can buy you is shallow and impermanent – you achieve self esteem through self-knowledge, consistency, living your values and knowing what you stand for.

    The sort of esteem you get from lowering your car suspension, fitting a loud sound system and detuning your engine with a bigger exhaust pipe is all about trying to dominate the ‘hood. It’s the same sort of esteem as the cock sparrow on the gutter dominating the area with his chirping. The self-esteem you get from what you own is all very well but it suffers from the ancient problem of the sound of a tree falling in the forest with nobody to hear it. If your self-esteem is dependent on other people looking at what you have and where you are then it will fail you in the dark night of your soul when you need it most. You can’t buy that, you have to grow it through hard work and self-knowledge, and even then there are no guarantees.

    You can’t buy Self-Actualisation

    It’s in the title. Doesn’t stop there being a huge industry being out there to separate potential self-acualisers from their money, but the Delphic Oracle had it spot-on, all those years ago.

    Know Thyself in Greek in a stained glass window

    'Know Thyself' in Greek in a stained glass window

    Know Thyself. It’s something only you can do, and to achieve self-actualisation it’s something you have to do.

    Quality Of life is about what you Are as well as what you Have

    It took far too long for me to come to this realisation. Shona hasn’t got it yet, bless her, though she’s on a voyage of discovery. It is something that I found in a crisis point, I saw clearer, that I didn’t need another eight years of a decent middle class salary doing a middle class job.

    So I started to make the biggest purchase in my life, of something no ad-man has ever offered me. In financial terms it is much more costly than my house and car. What I am buying cannot be held, or weighed, it is intangible by definition.

    It is freedom and dominion over my time. No Stuff will be as good as Freedom from wage-slavery feels. It has no fixed price – Jacob in his ERE days won his freedom far earlier in his life than I and for a far lower price. There are other ways of doing it – Dolly Freed’s book Possum Living shows another way.

    One of the things that saving towards buying financial independence showed me was I don’t need a lot more Stuff in my life, because my spending on Stuff dropped way down. I don’t miss it any more. Even if I had no independent savings if I drew my pension early I would have to increase my spending on Stuff to use it up. I do miss some things that I had to give up to shorten the period of saving to a minimum, and I’ll probably restart them. But more than half of my spending was a chimera from which I derived no lasting pleasure. To hell with that. I had to find that out the hard way, some times that is the only way; Nietzsche had some point with that which does not kill us makes us stronger.

    Tyler Durden showed why it’s so hard to see this consumerist fallacy in Fight Club It’s only after we’ve lost everything that we’re free to do anything. Because he’s a movie the principle is overstated for dramatic effect, but far too many people cling to the inessentials of life as their standard of living falls only to lose the essentials because they are misallocating their resources.

    Taking a controlled standard of living hit upfront means I haven’t had to give up anything really important to me

    I was ‘lucky’ when I thought I was done for working three years ago. I first prioritised short term savings, along these lines, but what I percieved as an immediate hazard of having to leave work turned out to be less acute. At no time in the past three years have I attempted to recover my original standard of living. I simply aimed for a controlled crash-landing to a satisfactory standard of living, slowly surrendering disposable income to buy my future income, a reverse of the ‘borrowing from my future self‘ by saving to my future self.

    I targeted half my income as a reasonable goal. I was more than halfway through the controlled crash landing when I realised that I was in danger of succeeding, despite not having the benefit of compound interest on my side. Some things make the job a lot easier for me than, say, ERE. I already own my house outright, and I have been saving in a good pension for nearly a quarter of a century. Against me, I want to retire early, which weakens the pension severely, combined with dastardly dealings from my employer which means even if I carry on working to 65 I can never realise the original target of half my salary with that pension now.

    It is only now that I realise I have no need for half my current income, proven by the simple fact that I am saving well over half of it. This is largely as a result of taking the standard of living hit entirely under my control and in ways of my choosing. I will improve my quality of life once I have completed the path.

    The Times They Are a Changing – Choose Quality of Life over Standard of Living

    These challenges are coming to many of us in Britain, and Ben opined

    The desire they have to maintain the same lifestyle they were brought up with is almost certainly overpowering

    They need to kill that desire. The key to preserving your quality of life when your standard of living is going down is to get ahead of the curve and choosing where the dwindling resources will be allocated. Doing that reactively puts you in endless firefighting mode.

    Choose your battles before they choose you. Live intentionally, know yourself, what your values are, what matters to you, what your resources are and what your potential is. Then deploy those resources, stay adaptable to changing circumstances, and live.

    One good tip here is to engineer out as many fixed costs and long term commitments as you can from your life, things like Sky TV, long mobile phone contracts, any sort of contract like gyms. For elective spending it’s sometimes worth paying more for something to get that freedom from long-term lock-in. For things you must have, like mortgage/rent and fuel contracts are okay, but many people see the savings on elective contracts without seeing the invisible chains of spending that tie them down. And think long and hard before taking financial responsibility for anything that eats.

    That’s where Shona screwed up. That family could either pay for school fees, or for their huge house. If the school fees mattered more, they would have downsized ages ago, when the first child went to public school, and not been caught on the hop. If the house were more important, then the school fees would go, and they’d still be living in their fancy house.

    Prioritising worked for me, though I was already living within my means when I started, unlike Shona. I cut the holidays, the gadgets, the media buying. I’ve already bought myself a tax-free income of over a hundred pounds a month with my measly post tax savings, and a potential income of a lot more with pre-tax savings, which I will spring tax-free as a pension commencement lump sum. I also bought myself a stake in a business, three years’ index-linked  living expenses with NS&I and a cash emergency fund.

    It’s all about the choices you make, and I’ve chosen to surrender standard of living to buy a better quality of life. They’re not the same, whatever the admen want to have you believe. If it traps you in a job you don’t like or takes you away from seeing your children grow up, then a higher standard of living is often associated with a poorer quality of life. It’s the dirty underside of consumerism, and it needs to be called out every so often. Choose quality of life over standard of living. You’ll feel better for it ;)