net worth fears and intentional living reflections

This is a part 2 to getting perspective. It’s a strange world we live in in the West. To see just how strange, you have to step outside it for a moment, and I seem to have inadvertently done that in my attempt to retire early..

As I grew older the nature of what mattered to me gradually changed, turning from the outside world and Stuff into trying to understand what mattered and has value to me. There’s some evidence that this isn’t particularly specific to me – I find resonance in Carl Jung’s description of the process of individuation as one of the primary developmental aims of the second half of life.

Jung understood individuation to be something that began in the second half of life, when individuals reach the zenith of their lives and suddenly find themselves facing an unknown vista or some unforeseen upheaval. Sometimes this turning point takes the form of a crisis: such as a financial failure, a health problem, a broken relationship, or a change of residence or profession – something which upsets the status quo. Sometimes this experience assumes the form of a profound self-doubt, a loss of meaning or religious conviction, a questioning of everything previously held so dear. Sometimes it presents itself as a deep yearning or a call to change direction

In some of these respects my story follows that path, meaning began to drain from what I had pursued before. This showed particularly in respect of the value of Stuff to me. For example, amongst financial bloggers I have probably shifted past MMM towards what ERE pre-return-to-work was (and maybe still is!) in terms of spending. I don’t have ERE’s intensity of purpose, nor do I have his material minimalism as a result of a lifetime’s accumulated material wealth, so that isn’t to say I follow an ERE lifestyle. I have neither MMM or ERE’s physical fitness mania, for instance, which seems to be a common thread in low-spending PF writers.

a random walk over psychology and investing

Many people prize the intellectual aspects of mind in personal finance, treating finance as an analytical problem. It is true that a lot of issues arise because people don’t pursue their goals rationally, indeed PsyFi has created an entire blog on the foibles and inconsistencies that separate people from implementing their financial dreams. This leads to a subtle confusion, because intellectual and analytical treatment can improve the how in personal finance. However, it is almost silent on the why, and some of the biggest wins are to be had in changing what is of value to you.

Money is a great medium of interchange and a mediocre store of value. How you allocate money and invest is important, but even more important is why you allocate the fruits of your labour to the various facets of life. There is a time to buy jewellery and a time to save for retirement.

We don’t really do enough on the why in the personal finance blogosphere, probably because this is such a subjective call fraught with individual variance. Some people would look at my drop in spending on Stuff and feel heck, the Ermine is living all in the past and the future, not enough jam today. For them, the call is right – spending now is what matters more. Breaking the binding chains of consumerism is hard, and even harder after you’ve been at it for a couple of decades.

The emotional centres of the psyche give empathy, but they also animate the ability to determine values and intentional living IMO. With only the intellect available after getting to see the wall of the doctor’s surgery a year and a half ago, I focused mindlessly on achieving a narrow goal, trying not to let my networth fall. It is a daft goal, because taken to the limit it will make me the richest guy in the cemetery, but it was simple enough to focus on. It’s easy to specify and hard to do – save 20 x my outgoings and job done. Obviously that’s a fair sized ask, and in practice you do that by slashing outgoings. This is not easy if your sense of value is externally based or you need to see yourself in the reflection of others.

I don’t really need much Stuff to inquire within, though I have bought a copy of Jung’s Red Book for an insight on his journey through the transition, which is them most I’ve ever spent on a book! That’s by no means the first place to start for an introduction to his work, his autobiography Memories Dreams Reflections is probably a good place to start.  John Betts’ free podcasts are good, but the organisation of the podcasts is a hellacious mess. The first one (intro) is here, about halfway through the list.

Knightley in A Dangerous Method

Many people, particularly of a highly intellectual/analytical bent find Jung’s work overly mystical. That’s fine – his model matches enough of my life experience so I’ll go with it, other models may suit other people better. The recent movie A Dangerous Method featuring Keira Knightley is sensationalist twaddle IMO ;)

preserve networth or reduce income fluctuations

Anyway, in pushing my costs down, I generated an projected income profile something like the blue line (the x-axis is the zero income reference for the y axis, and the numbers on the x axis are years with 1=2012)

That line would preserve my(numerical)  net worth, as  I spend the income from my ISA and non-sheltered shareholdings plus the income from cash. Notable is that this blue line is some way above the current level of jobseeker’s allowance and tax-free (well actually tax-pre-paid due to the unusual tax treatment of dividend income in the UK).

JSA is £71 a week, so to produce at least this income I had to save, outside the pension system, 71 x 52 x 20 = £74000-ish. In practice there are subtle distorting factors – more half of this ended up in cash, a form of investment that I despise and that gives paltry returns these days as well as quietly dying into the night due to the depredations of the Bank of England’s QE. So in practice I saved a bit more, compensating for the rotten return on cash and ending up with a higher income.

It’s an interesting exercise, when people grouch about the paltry level of JSA, exactly how much capital the taxpayer has to raise to pay it. Even on that, my lifestyle is higher than most people on JSA because I don’t get to pay rent/mortgage out of it, and have to some extent prepaid some household expenses from capital.

Nevertheless, according to the Joseph Roundtree Foundation, I am stuffed. Doomed. Boracic lint. Insufficient spondoolicks.

Straight between the eyes, no? You do not have enough to live on

Note their definition of a minimum standard of living is a little bit more than what I would imagine

“A minimum standard of living in Britain today includes, but is more than just, food, clothes and shelter. It is about having what you need in order to have the opportunities and choices necessary to participate in society.”

Presumably that includes Sky TV and a flat screen telly to watch it on, neither of which I have ;) Although as an INTJ type I am probably less gregarious than most I don’t feel I am totally out of touch with society.

Last weekend’s party. Even INTJs don’t totally shun their fellow human beings…

I had to fudge some of the inputs to the minimum income standard calculator, like subtracting the amount allocated to rent and income tax and NI because these don’t apply. Plus some handwaving to try and split out this household calculation to make it more specific to me. Presumably the help links go to somewhere where the Fairness Fairy is going to wave her magic wand and sort all this out for me.

I may hit up the tax and benefits system to get the £1800 worth of contributions-based JSA I am owed (26 weeks x £71) before Universal Credit stymies that due to the £16k capital ceiling in April next year. But after that I am done with the benefits system, and it’s hardly like I am making a profit on the deal, I’ve paid more than that this tax year alone! Presumably there’s some way of winning the excess back from HMRC as I worked really hard to avoid earning over this year’s tax threshold, though I had to lose income into pre-tax employee share schemes and pension AVCs to do it.

Most retirees have an income from their pension, so I am probably not the typical subject for the JRF. However, I was surprised at some of the line items making up their minimum required. F’rinstance, when I was drinking  the JRF’s £16 worth of alcohol a week I was also somewhat over the NHS recommended limits because I was compensating for not living my values. I came to the conclusion this needed to get knocked on the head in the interests of health. Okay so some of the households JRF modelled will be spending in pubs and clubs where the unit rate will be higher, but a fair number will be downing wife-beater at 5.2% in front of the big flat screen TV at home. Tesco runs 20*440ml cans at £16 (less on a special offer from tomorrow!)

20 cans of Stella at 5.2% is 44 units of alcohol. Don’t try this at home

so some of our JRF households are getting seriously hammered on 44 units per person a week, running about twice the NHS recommended limits for a man at 21.

I could meet the JRF requirements if I run down some of the cash over the eight years before pension age. Preserving my networth gives me a 1:5 ratio of income pre and post pension, running the cash down softens that somewhat to 1:3. I should also add to that the income from the pension AVCs, but there’s only so much what-iffery it is worth doing after the ‘enough’ bar is reached. I’ve done too much Excel in a past life ;)

avoiding tax is all about being able to spend less than people of a similar income

Looking at this perhaps it would have been more rational to accept paying more tax over the last 3 years to have a larger capital stash now to reduce the variation in income. However, as I tried to save to retire early the amount of tax I was paying started to really piss me off, particularly when it exceeded what I was living on. So to hell with it – I lived my values in keeping more of my income out of the rapacious maw of the Government even if I had to accept a large income variation. Indeed, being able to eat a high income variation by living below your means seems to be the key element in being able to minimise tax liability. As a result these tax breaks accrue to the people that either earn much higher than the norm or who can drive down their costs much below the norm for their income cohort. I fall more into the latter camp than the former. Most people, who spend > 80% of their disposable income get particularly rocked by the tax system with no opportunity to beat it.

So far so good, then what?

However, more to the point is that having destroyed the hold of consumerism over my life, do I really want to re-enter the fray by increasing spending to JRF levels? I have other work to do, to self-actualise, to get my ass onto a bike more, to get to know the different plants that inhabit the hedgerows. I want to witness another stoat fight in the long grass, to record the changes in the dawn chorus over the coming springs.

All these things don’t need me to spend loads of money, but in some of them I may find more of myself. This is the freedom I needed. I accept that to do it means I forego some of the pleasures that money can buy – travelling to see New Zealand is probably a fantastic experience, and I tip my hat to people who make it something they really want to do. But for now, I will leave things like that. I will travel a bit, but I won’t do it to run away from myself or to blot out the negativity of the daily experience of life in an office working for The Man.

As I look back over the recent years, I start to feel that the original narrative of the story, that this was something that came to pass as a result of external forces, in particular The Firm transiting from ‘a truly great place to work gone bad‘, may be only a partial explanation. In this (somewhat technical) article on individuation there is a passage

She went through the expected crisis of losing confidence in her highly developed and refined social identity, and she also came to question many of her previously held convictions and opinions

where I see analogues with my experience – the sudden change, where previously held forms fracture and spall under no obvious provocation. There are more hints in some of the synchronicities. I had more than my fair share of luck in being able to get out, but only when the time was right.

The right answer will probably be a slow ramp, perhaps with a small peak at the beginning in setting myself up. I spent a couple of hundred pounds on getting my bicycle sorted properly to reflect the type of journeys I use it for. I may get a Hameg 2024 oscilloscope at some point in the future to further some engineering interests.

I gained power over personal finance by realising there is a time for everything, and trying to roll with it. Now is the time of the lean years, though less lean than the last three, and the time for a much higher quality of life due to the elimination of The Firm. I have some influence over the profile of these years and a reasonable amount in reserve. Once again, I am reminded of the advice of the Delphic Oracle – Know thyself.

I think you’re right this is under-discussed. Could be a good niche developing here. ;)

In fairness to the Joseph Rowntree people, you are living without housing costs. These are eating up 30-60% of costs for some young people now. (See A Grain Of Salt’s latest post, where I moaned similarly… ;) ).

Personally, I think you want/might want to try working for just one day a week doing something you like. Even £50-100 a week works wonders on these calculations, and you could well find something that pays a lot more and also develops skills/sensibilities you want to develop.

Then you can roll up more investment income, create a bigger buffer, or increase your spending while retaining a margin of safety — and maybe avoid some of the health risks of retirement! ;)

You’re clearly a man with a lot still to offer the world in exchange for filthy lucre. ;)

Your Amazon link to the Jung book is broken btw. Clearly you’re not non-materialistic to mind, but just in case… ;)

(Sorry, far too many smilies in that post).

Thanks, link sorted. Don’t expect too many sales at that price ;)

I subtracted rent and tax/NI from the JRF guys’ estimate. You get to tinker with that in the expanded view. I’d say it’s the extended Sky TV package that’s making out I’m so short!

You’re right that lowering the housing costs are a large part of the solution. I haven’t worked out whether I had a good or bad deal from that. I had to raise a 20% deposit on my first house and was in my very late 30s when I walked away from half the purchase price which was gut-wrenching, paying down negative equity is the most grisly soul-destroying thing PF job in the world. But I’ve had better luck since then. Perhaps over a 20+ year house-owning integration period you average out the peaks and troughs. I’d say it’s better to buy into the trough, as long as you don’t equity release over the peak in the fraught forties when money is shortest for most people due to the lifestyle/peak child-related costs issue.

I’m currently ISA rate-limited on investment and will be for a few years. Might consider work after that, however, I’m not sure I can work for a boss again. Old gits where the company has no ‘must pay the mortgage’ hold over them are lethal in a corporation for calling a spade a spade. There needs to be a suspension of belief or at least everyone to go along with the lie for the corporate management structure to operate ;)

There is a stage you reach after Jung, at least I did, and I think it is a continuation of the trajectory you describe, and that is to have the insight that Jung, ia just like you and everybody else who ever lived, one life, one experience uniquely his (as is yours) as John Winston Lennon put it “(I) don’t don’t believe in Hitler, Buddha, etc”

I just believe in me.

As you will – in another handful of years I suspect.

> Old gits where the company has no ‘must
> pay the mortgage’ hold over them are
> lethal in a corporation for calling a
> spade a spade.

You could always try government work, provided you can find a position in which your interests lie… talents help, but often aren’t necessary

“Might consider work after that, however, I’m not sure I can work for a boss again. Old gits where the company has no ‘must pay the mortgage’ hold over them are lethal in a corporation for calling a spade a spade.”

Perhaps try something freelance?

You might surprise yourself now you don’t *need* the work and can walk out anytime how much more agreeable it is, and how differently people treat you.

I’m working for myself again (overdue post) and I’d forgotten how much better it is for my self-esteem. :)

Forgive my ignorance Ermine, but haven’t you only just retired in June? Why are MMM and George advising get a job? I thought your reflective posts were about self discovery and personal worth/values?
Could someone tell me if I’ve missed the point or a subtlety please? :-/

@Romany — Probably my fault. I saw @ermine discussing not being over-covered in terms of income according to the source he cites. It makes me nervous! But he’s ok with it I think.

I’m not suggesting a full blown job, incidentally. I’m sure Ermine could make £100 a week on a couple of short afternoons work. Doing a little work is easy and favourably taxed, compared to full time work.

Let’s say he earned £100 a week. That’s worth around £100k at least in terms of the capital you’d require to generate it. Plus gets you out the house, engaged, and makes the other six days different.

But this is me musing, not him, of course. :)

>Why are MMM and George advising get a job?

I suppose that some of us are a little concerned that Ermine does not have a comfortable margin of safety before the pension kicks in. But, then again, he has options in terms of economic resilience and technical skills that many of us don’t have.

Early retirement is a new life, but it’s not necessarily a wildly different one. In fact, it’s probably more durable if it is much that same as the old one, only with the bad bits taken out and more time to do the good bits. That seems to be the case for me.

I found the JRF calculator fun, but it’s such an averaging and simplifying approach to the complex financial strengths and weaknesses that many of us have.

For example, Monevator has his investing abilities but worries about his property situation. Ermine has to go through his ‘lean time’ to get to the sunny pensioned uplands. I have a healthy surplus in JRF terms, but my financial liability is student kids (mea culpa, I know) which will be a drain for next 3+ years.

>I’ve done too much Excel in a past life

You can never do too much Excel or, if you are a tightwad like me, OpenCalc.

Aaaah, I see. Thank you @MMM and @Salis Grano.
I just thought 3 months was a bit too soon to start thinking about going back to more of the same- but of course there are many permutations of a theme. I hope Ermine has lots of fun finding out the one that fits him.

Here, for what it’s worth, is my take on things. Basically, you have simply hit the point at which a person gets The Wobbles. Euphoria takes you through when something great (like exiting wage slavery) happens, but after a time that ebbs and one is left feeling a bit….wobbly.

Fortunately, The Wobbles are generally for a limited period only and begin to evaporate in time, as one adjusts and gains confidence. Trevor Brown has probably got it right (though it may actually take less than a couple of years).

[...] of three years of saving to get out, and wasn’t in the greatest place mentally.  I tried to maintain my net worth, becoming virtually catatonic for a short while after leaving. No, that isn’t living life to [...]

 

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