26 Nov 2015, 10:55am
personal finance


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  • An Ermine finds himself working but not worth training

    I have spent the last three years running the other way whenever anything associated with the dreaded W word came up, blanked the ranks of recruiters (they thin out fast enough after six months), turned down the odd design and build and done the odd one pro bono rather than face the grisly issue of self-assessment. But eventually my luck ran out and I was offered just enough to be worth registering for SA, particularly as I am short one year of NI for 35 years to get a full State Pension 😉

    That’s working as a minimum-wage contractor, rather than as HRT paying consulting engineer that is, sic transit gloria mundi, eh? At least it’s only about three days a month. I did some scientific work and electronics for a bunch of guys, so I have to lose about five grand of income somewhere – my SIPP looks like a great place to start. Paradoxically, I would be daft to claim the cost of my microscope and chartered engineer subscriptions to reduce my income as real self-employed workers do, because washing as much income as possible through the SIPP nicely returns me the 20% VAT I paid on the microscope in the form of an income tax refund on tax I don’t pay. It’s a strange old world indeed, working below the tax threshold.

    I’m a deeply lazy bastard, and after 30 years of it I don’t need to sell my time for money. I didn’t even have Jim’s transitory ennui, three years out of the workplace has taught me the world is plenty interesting enough to keep me occupied. Unlike Jim, my exit from the workplace was a rout, not a controlled exit, I was therefore saved from that sort of angst. You just don’t mourn the scenery of the long road trip if you got to crawl from the wreckage fifty miles from journey’s end 😉

    However, recently I failed to step back quickly enough after a fellow doing the books for an enterprise dropped out hastily, and I ended up with  running the books, and doing in the corporation tax and companies house annual return, so I will continue to earn some wedge for that and some on and off scientific analysis and engineering. I followed TFS’s step by step guide how to register and fill in your self-assessment tax form It’s early days yet, and I have the suspicion that I really should have started here since I am not an employee. It appears I have a year to get this right, and he’s dead right, it is not straightforward. 1.

    work... I calim no originality here, it's more system integration/applications than design

    one example work in the form of a remote temperature sensor… I claim no design creativity here because this is a COTS product, my role is more system integration/applications than design

    You can’t motivate the financially independent with money

    I did this to help out rather than to be able to buy a Cornucopia of Crappy Christmas Consumer Shit 😉  On the other hand I am not a Zen being of true light and ultimate detachment. I have a problem with working for free 2 in a role where people have been previously paid for it, and also particularly where there is something that needs to happen by particular times. However, I’m not that sure that the money will change my lifestyle.

    a different aspect fo the activity called work

    a different aspect of the activity called work

    Being a lazy toad the first thing I did was make a PERL script to munge the downloaded online bank statements 3 into something I can import into Quicken, because life is far too damn short to key hundreds of transactions on minimum wage. I set them up way back when with Quicken, because I understood it. The dude who quit in haste was setting things up with Sage One Accounts and running parallel, but I shut that down because Sage One will nickel and dime us for add-on this and add-on that to get the management reporting of product lines and cost of goods sold that Quicken already does. Sage One will make the figures add up and track VAT but it won’t help you answer the question “are we spending more on making product X than we get selling it” which is a pretty fundamental thing people want to know if they’re running a business.

    It was the classification and categorisation of Quicken that help me understand and bring order to my own personal finances. While I wouldn’t go as far a the Rhino and consider myself Ermine Enterprises PLC tracing where the money went, using the principles I learned running that multimedia company taught me to chase the waste. Before, I had simply used Quicken in order to make sure Micawber was satisfied and get the numbers to add up. Spending less than you earn is 80% of the win of personal finance – do that over a working life and some of it will stick to the sides.

    By the time they’d finished upgrading Sage to be as useful as Quicken it would be cheaper to pay an bookkeeper to reconcile the bills from the time-honoured shoebox. And anyway. the Ermine Does. Not. Do. Cloud. I just don’t get it how people entrust key functions like that to cloud, but then I’ve seen dodgy sorts hold my data to ransom. You spend a lot of effort putting transactions into an accounting system, and cloud providers own the keys to your effort. When they say pay more or else, you get to pay more. Of course they all offer a low cost trial period, I believe this is the same way street drug dealers work to raise their customer base 😉

    The strangeness of inverse taxation

    I’m not doing this for the wedge, though it will enable me to pump up my SIPP contribution this year to more than the £3600 my non-earning self has been putting in, which will mean I get an extra 20% payrise from the taxman simply by washing this through the SIPP. I will stay below the personal allowance and am a mustelid of sufficiently grizzled fur as to be able to use flexible drawdown. Once you earn more than the personal allowance then that’s a waste of time in a money roundabout 4, but an Ermine is far too idle to put in enough work to earn the personal allowance.

    Now I’ve managed to get through my working life without ever having filled in a tax return because I was a PAYE wage slave and I can’t say the prospect thrills me – I’ve turned down odd jobs in the past because I couldn’t face that. But the win on SIPP and State pension shifts the needle on the dial enough to make this worth doing, at least for one tax year, where I will put my entire gross pay into the SIPP, although it will only cost me 80% of my gross pay. It’s only going to be about 5k, but it’ll work hard for me, and I get to spend the remaining 1k on beer and crisps… It’s interesting to observe that last year the Consolidated Dividends dept of my ISA almost worked as hard as I will this year 😉

    There’s something deeply futile about working post FI

    What’s the bloody point? I’m still of that opinion – I have to take this wedge and lose it in a SIPP, purely to game the system and win the £1000 I can’t be arsed to juggle 20 bank accounts for. One of the things I learned in the seven lean years 5 from 2009 is what enough looks like. I’m not currently there yet, but once this SIPP starts paying out on average £15k 6, then there’s no point in earning more from then. No consumer shit is worth spending more time in an office, and above all else, I don’t like working for free, particularly for the taxman. End of – so as soon as I draw my main pension I need to cease earning any income from work ‘cos it’ll all be taxable.

    OTOH if I don’t manage to work out how to transfer this SIPP I might consider working enough to stall drawing my main pension for another year or two, then take an actuarial hit and invest the AVC tax-free PCLS. One of the other things I learned in those seven lean years is stay flexible, nothing ever turns out as planned.

    National Insurance deliberations

    The other place this is useful for me is that I only have 34 years of NI contributions. I need 35 for a full State Pension, should such a mythical beast still exist in 12 years. A lot of those years are contracted out, but 10 aren’t. I need one more year, and it so happens that buying NI contributions as a self-employed ‘striver’ is much cheaper (£2.80 × 52 weeks ≅ £146 p.a.) than buying Class 3 voluntary contributions as a gentleman of leisure (£14.10× 52 weeks ≅ £733 p.a) , because the Government fetishises earned income over rentier income, the Calvinist devils. Investing £146 to get a potential 2.5% uplift in State Pension sounds like a punt worth taking to me. The Government is going to have to sort its shit out with this ‘working is good for you’ prejudice if robots really do start to drive jobs out of the economy.

    There are, however, other subtle issues which  I don’t really understand. To be honest, anybody with a fair amount of DB pension should basically appreciate their good fortune and maybe not carp like this about losing out, because you’re losing out something you wouldn’t have got had the change not been made, and FFS there are a whole load of problems to do with pension saving you just don’t have compared to everyone else. But yes, if you contort yourself in knots you might make a case that under some circumstance you lose out. The issue is described in more detail here, but boils down to

    The old basic SP without add-on SERPS etc was £116pw if you got the full whack, and you should not lose out by the move to the new system, even if as a teacher you were contracted out of the State Pension earning related bits. That sets a lower floor, assuming you have 3o years of contributions up to next tax year, but it’s not inflation-linked. Your DB pension provider has to compensate for the loss of SP up to some arbitrary inflation linking – about 3%, and historically the compensation over that has been the inflation-linking of the old SP. But that nominal £116 is frozen at the change, and the contracted out years are held against you.

    The new SP is £151. Even if I hadn’t been contracted out, because I am a year short I’d lose £151÷35×0.8 (0.8 because I’d be 100% taxed on any extra, reducing the loss) or £3.45 p.w. which is £180 p.a. That will be sorted, but I will still lose (151-116)×24(contracted out years)÷35×0.8=£19.2 p.w. which is nearly £1000 p.a. for being contracted out, and the effective value of that deduction will increase with inflation.

    I therefore have the opportunity to add 80p a week to my State Pension (£41.60 p.a) for each year of NI I pay after April 2016. It’s not actually clear to me whether this year (where I would not be contracted out) counts for contracted in years under the old system, where it would punch higher than the new system (due to 1/30th rather than 1/35th). If it won’t then I will choose not to pay it this year from the small profits threshold regulations. Although £42 a year isn’t much, I may choose to consider myself working for some small amount and electively invest £150 NI a year for the next five years as I have a reasonable chance of living for three years beyond 67 (after which I’d have my money back) and after that I’d be in extra time.

    The ONS is right. An Ermine’s human capital is shot – it’s not worth training older guys…

    The ONS have officially declared older workers a waste of space. I will wear my badge with pride :) It was that Monevator fellow that stated young people are already rich, and the ONS is right behind him

    Doomed, i tell ya, doomed...

    Employed human capital by age group, 2014

    Figure 4 shows that the stock of human capital is disproportionately concentrated in younger workers. For example, 41.4% of the working age population are aged between 16 and 35 but this group embodies 66.1% of the human capital stock, showing that being relatively young and having more years of paid employment remaining more than offsets the effect of having higher earnings whilst being relatively old.

    Arguably a 21-year-old Ermine leaving Imperial College in the teeth of Thatcher’s first recession carried the potential of all the putative earnings of an Ermine all the way up to retirement in 2012. Since a pension is deferred pay it’s hard to know where to allocate the next 25-30 years of pension ‘earnings’, after all I have to live that long to get it. As for the dividend income from my ISA which is effectively my DC pension, presumably the ONS looks at investing returns with the same dim view as Osborne looks at leveraged Buy to Let – as a tax on the otherwise productive activity of the economy.

    I was looking at improving my competence at this bookkeeping lark. 20 years of running Quicken and about 10 years of running a multimedia limited company on the side taught me the basics of doing this, and although I used to submit VAT returns on paper the online version asks the same things and numbers the boxes the same as over ten years ago.

    So I take a butcher’s hook a the AAT. Now the Ermine is an individualistic and solo learner, I am happy to read books and try and take the AAT test which is a modest investment of the odd hundred pounds. But it appears that you can’t self learn all of it and have to involve a training organisation, and all of a sudden the costs skyrocket. I want the learning but I don’t want to pay the training fees, and now that ONS chart makes sense. There’s no point in investing in training an Ermine because there’s no decent return in it compared to the school leaver. I’d have to set up in business and start doing other people’s books and that sounds far too much like work to me.

    The other thing is the pace of the CBT e-learning is terribly slow. I was totally unaware that businesses could transfer the risks of customer invoices to banks, and it appears in two ways – either debt factoring or invoice discounting. With one you get the customers to pay a third party, who advances you a lump of the invoice as they chase the customers, with the other you get a credit line which is a certain percentage of your outstanding sales invoices. The e-learning takes five minutes to play-act out what I’ve just described in two lines. I really hate the trend towards video for instruction nowadays – it forces a dreary pace on things, you can’t speed up or slow down with bits you get or don’t get, and unlike reading you have to grind along at the pace of the slowest learner. Likewise for the solvency sketch, it’s pretty ‘king obvious that you run out of money if you have to pay people faster than you get paid. I believe I would have jumped to that even as a callow late 1970s school-leaver.

    Much of this training seems targeted at school leavers who have little idea of what a business does. I am okay on that, it is the peculiar conventions of bookkeeping and accountancy I am unfamiliar with. I can make the numbers add up, identify if things are costing more to make than they earn from analysing the classifications and the flows of money in Quicken. I can fill in the VAT returns and the annual accounts, again from understanding the flows of money.

    But I find the specialised lingo counter-intuitive – take this for example. WTF is an increase in assets the same sort of thing (a debit entry) as an increase in expense? If I buy a load of shares my bank balance goes down, yes, but I have something of value to show for it. Whereas if my expenses increase, my bank balance goes down but it just gets to piss me off. This really isn’t the same thing at all.

    However, I solved the problem for the princely sum of £0 with this Open University book on accounting free on Kindle. Apparently years ago in the 1600s the Italians decided assets increasing were classed as debits, and we’ve been stuck with this bizarre convention ever since. Which explains why I kept on failing those AAT tests 😉

    You do not need expensive classroom training for many things. Sometimes an enquiring mind and having learned how to learn will do, so the ONS can take their human capital and stick it where the sun doesn’t shine as far as this human capital deadbeat is concerned.


    1. I owe TFS a beer, because I have managed to complete this now without gnashing of teeth
    2. The Guardian asserts this is a specific problem with my generation and gender, though I don’t observe this particularly in the local environment, grey hair predominates in charity/volunteer roles, and I note the younger generation may be forced into unpaid work to broaden their CVs, which may distort the survey
    3. the modern way is to use a third-party service like Yodlee, give them your bank login details so they can log in to your bank and transfer this data, which is how Sage One does it. As soon as I read that I decided these were not people I am prepared to do business with, because doing that instantly gives the bank carte blanche to repudiate any losses you incur due to fraudulent activity even if unconnected. No thank you sir. Not. Going. There.
    4. until you reach the HRT threshold
    5. I know, it’s six, but I will only start to draw this in the next tax year
    6. when I toss in the PCLS spread out over five years, assuming it isn’t recruited to save my sorry ass from a market swoon

    The Guardian misinforms punters how to deal with the cost of Christmas

    The Guardian, which is a broadsheet paper aimed at the left-of-centre middle classes, hipsters and other good sorts, brings us an article on how to deal with the fiscal impact of Christmas. Which is absolutely, totally, stupendously wrong on all counts. It is like, WTF is wrong with these guys. It’s a total riot of wrong-headed gormless thinking. They trip up right out of the starting gate, with the headline.

    Overdraft or a ‘money transfer’? How to ease the cost of Christmas

    Repeat after me, you addle-brained punters, you never, ever, ease the cost of anything by borrowing money to pay for it 1. You always make your future self pay more and go without so your greedy current self can Have. It. Now. That’s fine and dandy when you’re in short trousers, but by the time you’ve gotten to 18 and over when you can legally buy beer and drive a credit card, you should have noticed something about Christmas.

    Christmas is not a random event

    It’s so unrandom that I can tell you when it will be in a hundred years time – 25th December 2115 since you ask. It’s not a random event or some act of God – well, depending on who you speak to it might be, but not in the OMG that’s totally unforeseeable category of things.

    less bad than the timer.. just. Still begs the question, why...? Just why make it, why buy it?

    Do not spend more than you have to on crap like this

    The choice is not overdraft or money transfer, you blithering nincompoops, because the other thing about Christmas is that is a totally gratuitious and elective expense. There is nothing at all wrong with spending shitloads of money on consumer trash to see the beatific smiles on your kids’ faces for five seconds if you save up for it first. You did, didn’t you? We presume since you are an adult you have noticed that regular things happen, er, regularly…? Mind you, I do wonder when the writer was born

    This is a relatively new facility on offer to some credit card holders, and allows someone to take part of their credit limit in the form of cash that is paid directly in to their bank account.

    Err, I used this newfangled facility to borrow £15,000 interest-free from MBNA to put down as a bigger deposit on my first house, over 25 years ago. There was a lot wrong with buying that house, but the MBNA loan was repaid and did not cost me any more than £15,000. This feature ain’t that new.

    Not only are the Guardian normalising infantile consumer behaviour, they are also telling their readers

    Go find a store that is offering x% higher prices for your Christmas goods. And shop there

    Normally you’d look for money off, but borrow for Christmas and you are spending more on your Consumer Stuff than you need to, which is the mark of a prize airhead.

    It’s simple. You spread the cost of Christmas by saving up for your consumer splurge before Christmas. Otherwise all you are doing is getting the same goods but paying more, or paying the same money and getting fewer goods. And that’s just pain stupid, dear Guardianistas. Don’t do it to yourselves.

    If you need to borrow money for Christmas, you can’t afford it

    So do yourself and your family a favour, cancel it for a year, and resolve to start saving in January for this predictable expense that will come round in 12 month’s time. You worked hard for that bloody money, and it’s rude to take 10-20% of your time working for the Man and just toss it down the toilet because you can’t think ahead. Suck it up for this time and resolve to get your act together for next Christmas, because y’know what? You have 13 months, starting now 😉

    That’s an F for Total Fail, Guardian. Do not borrow money for predictable expenses, because if you do you are spending more to get less.


    1. unless you can borrow for a total effective cost below inflation, which is not the case now

    the penny and the steamroller at Monte Carlo

    Note: the lower part of this post has rapidly moving/flashing graphics

    I am slowly inching my way to being able to run my DC pension flat in front of my DB pension, effectively burning up the DC fund over five years, drawing my DB pension at normal retirement age. The latter will give me enough to live on, and I can keep my ISA tax-free income reinvested against the day when wages in Britain begin to increase in real terms, whereupon I will start to fall behind without being on the side of Capital. Or I can use it to hedge against the demise of the NHS, when healthcare will become at best insurance-based like in most other European countries, or at worst like the evil that is the US system. I am fortunate enough to avoid doctors and hospitals at the moment, but nobody gets healthier as they get older.

    Running a DC pension flat over five years is an odd time-frame

    There’s an age-old rule of thumb, never have money you will need in five years anywhere near the stock market. Ever ask yourself why this is so? The basic reason is that the equity premium is tiny – about 1/20th of the capital sum per annum, and this is the fella who is fighting on your side. He is such a puny bastard you either need a lot of time or a lot of money on your side. They ain’t making any more time, which is why compound interest won’t save your ass unless you work till you have one foot in the grave…

    On the other side of the ring is the Bad Guy – volatility. He’s a moody bastard – sometimes euphoric, and sometimes down in the dumps. He will drag the aggregate value of your share portfolio up and down as he pleases, and that volatility is massive, because Mr Market is the 600lb gorilla, and if he’s in a grump everybody gets to know.

    So I asked myself what would happen if I started out with a lump of about 80k – if I want to run it flat in five years I can’t really use much more than that, and there is no point in running my DC SIPP into the revenue from my main pension as that is already over the personal allowance, so I’d be taxed on the SIPP in its entirety.

    Right off the bat I can take ~£20,000 as a tax-free lump sum, and this is the obvious thing to do. 1.

    After taking the PCLS I can take ~£11,000 per annum income tax-free from the personal allowance, and simple arithmetic shows that after I have iced £20k from my stake I have £60k to run out, and 5×£11,000 2 is 5k short of the £60k balance. If I am lucky they will lift the personal allowance towards the end of this Parliament 3 and an Ermine will squeak under the finish line with the goose feathers unplucked.

    What about that steamroller then?

    about that steamroller

    about that steamroller

    I have paid a lot of tax in my time, and I considered contributing £3600 a year to the SIPP over those five years at a cost of £2800 p.a.. Somehow I want a way for the taxman to share in the risk, so I asked myself the question of what I think about tackling the steamroller of the stock market

    What would happen in my SIPP if rather than cash I held it in some index fund of a market that isn’t on a high CAPE, so FTSE 100 or 250 rather than S&P500…

    more »


    1. the PCLS is a special case, the actual income from the SIPP is the tax-free personal allowance each year
    2. the personal allowance is £10,600 at the moment
    3. the aspiration that nobody on the full-time national minimum wage should pay tax ought to help with that

    The Latte Factor and the Coffee Outlet as Performance Art

    The Latte Factor is one of those personal finance staples – the meme is that if only you could kick your daily coffee habit you would retire years early and help the environment too. It’s also unAmerican thinking and to be stamped out in a consumer society, natch.

    I’ve been lucky enough to work in places where people got together in coffee clubs and the companies provided hot water taps and tea points where you could plug in a kettle and sit with colleagues and set the world to rights every so often. Sometime I wonder if this was simply the more relaxed working pace of the past before everything got all so dreadfully competitive. There now seem to be workplaces you have to log out to go for a piss never mind entertain the concept of a morning and afternoon coffee break.

    Forces in the economy are making luxuries cheap and necessities dear. Sometimes I gawp in amazement at what you can do now – coffee, 3d scanning with a kinect games controller, the power of computers that I paid thousands for in the mid 1980s packed like sardines into smartphones the size of a packet of cigarettes (remember them?). We’ve go so much better at Stuff but in crafting this consumer cornucopia we’ve also built a world where everybody wants to be somewhere else, preferably facetweeting in smartphone-space as they run into lamposts in the real world.

    And yet for all that awesome technology more and more Britons will never earn enough to buy a house, and the pressure of work on their relationships is such that having kids is less fun for anybody involved in the enterprise. But all that is a different rant. Let’s take a look at this particular consumer luxury, where our office workers at least have other wage slaves to make them coffee.

    Coffee seems to have taken over from tea as the British beverage of choice over the last 40 years or so, but it seems only recently that we are so coffee-deprived we have to buy it on the go. Judging by the number of Starbucks, Costa Coffee, Cafe Nero and the like it’s big business. The Ermine has a reasonably simple approach to coffee, it needs to be good enough, so generally non-instant, but filter coffee is fine. Those stove-top contraptions much favoured by Mrs Ermine are fearsome – a needlessly harsh and aggressive jolt. A cafetiere/French press is fine though there is always the problem of where to put the grounds, which will eventually block up your sink if you lose them that way. There’s no need for greater complication – the Heston Sage favoured by some of the more metropolitan frugalistas is overkill IMO. Plus you need domestic staff to clean the bugger out, the whole heat and milk combination is never easy on them downstairs…

    I never used public transport to get to work after leaving London and just didn’t get into the habit of buying prepared coffee, for the first half of my career this sort of metropolitan effeteness just wasn’t even available, though it crept in in the last decade or so, The Firm outsourced anything it could, and the introduction of a tuck shop selling overpriced coffee in paper cups was one of the improvements. Which then picked up a Costa franchise I think, and the price jumped 100%. So I’m not an expert on prepared coffee other than the DIY sort, which works fine for me.

    However, I recently darkened the threshold of a Costa Coffee joint with my mother, well when you’re pushing eighty then if you want to go mad and buy overpriced coffee then you can damn well knock yourself out 😉

    A Costa Coffe joint. They all look the same, I hear. And why are mobile phones so crap at taking pictures...?

    A Costa Coffee joint. They all look the same, I hear. And why are mobile phones so crap at taking pictures? Observe the two CCTV cameras over the till… That’s the trouble with paying minimum wage, you can’t trust anybody

    So I took some time to note the carefully orchestrated buying experience. There was a small queue, so they line the punters up by the curved glass cabinet on the right where there is an array of sugary treats, all with enticingly foreign-sounding names, but you know that they are basically industrial sugar with some esters made in a factory somewhere along the New Jersey Turnpike to give it a semblance of something dearer. I resisted, but took the time to observe.

    The theatre troupe has three members –  the first teenager behind the till who takes the order, and flannels the prospective punter a little, presumably they are incentivised to upsell some of the sugary crap. No thanks, two Americanos, and since my mother prefers too little rather than too much milk, he writes it onto the ticket, to make me feel special. I never worked out what the third actor did. Maybe the CCTV is watching them watching the others, we never have found an answer to the centuries-old problem of who watches the watchmen…


    This then goes into a queue to the barista, who was probably a student, at least he looked old enough so he could legally buy beer 1. He may have been on the same course as Monevator, because in front of him he has a gleaming instrument of coffee gustatory creation, a finely honed machine with which the barista of distinction can meld to produce aromatic brews of the finest creations of the coffee-growers art, bringing a colourful piece of sunny Africa and South America to a grey day in Ipswich.

    What he actually does is add three-quarters of a cup of hot water to a quarter of espresso, ‘cos this piece of kit doesn’t do ordinary coffee. The cups are about half an inch thick, instantly chilling the coffee to just about warm enough. I guess you don’t want the punters to take too long over their coffee and want the cups to go through the industrial dishwashing machines without breakage.  I learned in my time as a kitchen porter in the late 1970s you only needed cups to be half a centimetre thick to minimize breakages – we sometimes lost one or two of the cups from the Directors’ lounge running through the machines, which happened to be decent china, whereas the cups for the hoi polloi only broke if someone was hamfisted and dropped a tray of them on the floor.

    So we got to enjoy some watered down espresso. Which is exactly what an Americano is. Now my mother got her value out of her outlay, because she came for the experience of seeing the world go round and to drink a cup of coffee with company. An I got to observe some consumer theatre and wonder on the world a little. But if I did it every day on the way to work, and it was the coffee I wanted, well, to be honest I’d feel ripped off  – watered down espresso tastes like watered down coffee does. You should make it at the strength you want it, not stronger and then water it down. And Costa really ought to change those cups. If you get coffee to go you have the privilege of a paper cup, which reacts with the coffee to give you that prized waxed paper flavouring but at least doesn’t chill the result.

    It’s perfectly possible to bypass all the theatrical drama – at work in the late 1990s/early 2000s they had machines in the canteen which could make a very decent cup of coffee all by themselves – beans went into a great big hopper at the top and they brewed decent filter coffee typically in batches every five minutes, dispensing this on demand, and indeed with a hot water spout if you wanted to water it down. No baristas needed. Of course you don’t get to play with the microfoam and all that stuff, but I fear the Ermine palate is just not as sophisticated as the metropolitan types – like so many products, once you’ve got out of the low-quality bottom end of the range 2 then good enough is good enough and there’s no point in over-thinking it IMO. But of course playing with the microfoam adds artisanal drama and the opportunity for you to feel special, and let’s face it, if you’re prepared to pay over two pounds for your morning coffee then you need to get to feel special – Because You’re Worth It ™

    It was an interesting lesson on the consumer experience. The product is a vehicle for the performance, and a lot of the performance is there to try and make the customer feel special, one of a kind. As Katherine Rosman of the WSJ said, engagingly

    giving that little lift that can come from a quiet moment of self-appreciation. That’s when a cup of coffee is so much more than a cup of coffee.

    This is the principle behind a lot of attempts at consumer marketing . Tesco tell you that ‘your’ store is changing – no it isn’t, their capital asset used to sell you groceries needs a refit. The named Coke bottles are a different take on the same old game, as are all those loyalty schemes that the good people on MoneySavingExpert dedicate much time on getting the most out of. So much consumerism is theatre – you’re buying the experience, not the product. The theatre is cheap value-add – the delightful thing is that this part of the value provides a feeling, it isn’t durable, so you keep coming back to renew it.

    The mysterious marvels of the microfoam…

    Having said that, I’ve also learned that I have been saved from chain coffee-shop coffee by my history. In 1970s Britain people used to make coffee with heated milk and instant powder coffee 3  – they weren’t used to it at all. It was disgusting to my taste, raised on Tchibo and Melitta 4 coffee imported from Germany by my mother and relatives. You couldn’t buy filter coffee in British stores in SE London at the time.

    I still associate the taste of heated milk in coffee with those days, and that was a world where we hadn’t been taught fat was bad, so a skin could easily form on the heated milk, which is just plain creepy. It appears that in the intervening four decades, people apparently prize the unique qualities of heated milk and wax lyrical about the many forms of heated milk in coffee and the art and craft of doing this, to me, disgusting practice. I am therefore always going to be a barbarian at the gates of the metropolis in this respect. I realised this, right at the end of writing this post, when I read this lady

    Yet, I don’t want to make myself a cappuccino at home in the morning, pour it into a thermos and drink it cold and frothless when I arrive at my office some two hours later.

    For Gawd’s sake, disregarding all the intangible Because You’re Worth It ™ bits about the theatre and the impracticality, never, ever, keep hot coffee and milk in a Thermos because the coffee heats up the milk and over time it gets to taste like that disgusting 1970s brew. Keep the hot coffee black in the Thermos and then add the milk after you’ve poured it out. Sorted :) Obviously if you want hot frothy milk added then yes, you are SOL but if you can slum it with hot filter coffee and cold milk that sorts the latte factor problem out, though not the “little matter of self-appreciation”.


    1. that’s 18 in the UK
    2. the low quality end being all forms of instant coffee
    3. I grew up in a working-class background. I sincerely hope that Britain’s doctors and bank managers didn’t do this, although they probably eschewed coffee altogether, after all the whole point of being middle class in those days was genteel bourgeois living and being able to send your kids to public/boarding schools. You just didn’t need the kick to the back of the neck that an espresso delivers to get you out of bed and on the way to work at 6 am, tea was perfectly adequate. The British palate was a coarse and unrefined thing before the 1980s, this was a nation that found the Vesta curry exciting. In fairness to those gastronomically unsophisticated generations, this was a country that had the shit bombed out of it and only exited rationing in the 1950s, so the pragmatic favouring of quantity rather than fancy cuisine was understandable
    4. these are nothing special now but when the alternative is Fine Fare instant coffee powder it’s the height of Continental sophistication

    Compound Interest – quantitative takedown

    I keep getting flack for being cynical on compound interest. I was an engineer in a previous life, and this is amenable to quantitative analysis, here are the charts on why compound interest won’t help you that much to retire early. It will help you a bit. but if you want it to do the lion’s share then be prepared for a nice 40 or 50 year working life.

    You know the story of Alice in a Wonderland of Compound Interest. Astute Alice saves £1000 a year from 18 to 38. She then stops work to have children, never saves any more in her pension and retires at 68 on £1M. Lovely jubbly. Cat-brained Camilla jumps to it at 38, and saves £1000 for 30 years until 68 but lives on cat food and baked beans for the rest of her life.

    Let’s test this for Sensible Susan who works for 40 years from 21 to 61. Nobody in the personal finance field wants to work for 50 years like Alice :)Warren Buffett tells us that she should expect an annual real return of about 5%. She works in the public sector and never gets any real career progression. To normalise everything I have her saving one unit of real money every year, all these entities live in an inflationless world where their nominal rate of return on capital is deflated by inflation to get the real return. At the end of her career she looks back at how much each tenth of her working life has contributed to her pension. Compound interest sees to it that the early years contribute more, that much is clear, and of the total amount of 120 units accumulated, 67% is compound interest – it triples her money.

    Amount each tenth of her career (four years to a pie slice) steady savings contribute to Susan’s pension, saving exactly the same amount in real terms for 40 years and at 5% p.a. real return

    She observes that the savings in the first third of her working life contribute half her pension capital, she goes out and tells all the young pups that the first 12 years of savings are the most critical, if she had started at 35 she would be on cat food and beans. Quod erat demonstrandum.

    Let’s cast a beady eye at how this compares with the real world:

    Susan got no career progression. Let us hear it from the people at the ONS on this subject. The downturn is because everyone took the earnings sucker punch from the financial crisis, I correspond roughly to line 2. Look at how the career paths of people 10 years younger than me leave my cohort for dust 1 😉

    career progression is much faster now

    I got roughly three times real terms career progression over 30 years, this happens faster now though it may peak earlier, and I did better than the ONS average. It’s not unreasonable to expect someone to save to a pension as a constant proportion of their gross salary. Let’s say Susan got 2 times real terms career progression over 40 years – compound interest still more than doubles her money, it’s 63% of the total of 164 units

    Susan saves a steady segment of salary as it doubles in real terms

    Susan saves a steady segment of salary as it doubles in real terms

    Just for the record, this is what this would have looked like for me, getting 3x career progression although that was in 30, not 40 years so I have just taken eight of Susan’s four-year segments, getting 3x career progression over that 32 year time. 52% of my total of 134 units comes from compound interest – it’s doing a hell of a lot less of the lifting than for flatline Susan. But I end up with more 😉

    three times career progression in 32 simulated years - the pies are eighths, not tenths in this chart

    three times career progression in 32 simulated years – the pies are eighths, not tenths in this chart. The pies are more even than Susan’s

    It is the combination of career progression and the shortened working life of FI/RE types that makes compounding a lot less relevant in the real world. I’m not even particularly exceptional here – a 30 year working life is early retirement, not the extreme early retirement, and I dramatically lacked ambition compared to what people like RIT or The Escape Artist were prepared to do to retire early. I would imagine they got more than three times real terms career progression.

    Even that’s not realistic, though. There is a problem in humans called hyperbolic discounting, which means when we are closer to something delivering it gets much more interesting. The young Ermine didn’t really bother about pensions, though of course I signed up the The Firm’s scheme – companies were more paternalistic in those days and told you what was good for you. As the concept of retirement hove into view and I got within ten years of NRA I started to divide the tax privilege of 40% by the number of years (10) and saw I would struggle to get that sort of return on cash, and all of a sudden AVCs (a DC type of pension saving) became interesting, so I set to it. Tax savings mean a HRT taxpayer gets a 66% return on net income foregone, compared to the 25% for a basic rate taxpayer. I was lucky enough to be able to save to AVCs by salary sacrifice, so I took some basic rate tax + NI savings which still worked out to about a 50% ROI. The whole thing gets a hell of a lot more interesting. I don’t know about you, but it really, seriously, pissed me right off to be working two days a week for the taxman to I tried everything legit as I started running into HRT – first employee share incentive plan shares, and then somebody introduced me to AVCs and life was sweet. Life is too short to work nearly half for the government 2, a third is okay, more than that, sod that.

    I tried to simulate the effect of that by increasing the Ermine’s later savings by 1.3 times, which reflects the better return on net earnings lost that a HRT taxpayer gets. It somewhat underestimates my later savings, I was simply not prepared to pay 40% tax at all after a bit, so any bonuses and pay increases were salary sacrificed to AVCs and in the very last two years I hit AVCs harder driving my pay well below the HRT threshold. But ignoring that and simulating my boosted contributions from HRT alone, the contribution to my savings if I had saved steadily as a proportion of net income is much more even across the eighths of my career –

    Add HRT boosts into the mix a way into the career plus career progression and compound interest is beaten out by bigger contributions later

    Add HRT boosts into the mix a way into the career plus career progression and compound interest is beaten out by bigger contributions later

    Compound interest is about half the total 145 units. Unlike for the slow savers it just doesn’t do much for aggressive savers, and I was never a particularly aggressive saver compared to the people who want to retire in their forties!

    There’s a takeaway from this all – yes, compound interest will help you triple your savings to FI, if you are unambitious and you want to work 40 or 50 years. It will roughly double the savings of the typical FI/RE saver. Where it really starts to show up is once you have FI and your aggregate savings are significant. Some anonymous dude called Cumulative Dividends has put more money into my ISA 3 than I have this year. He appears to be gathering speed with time – in the last tax year he contributed nearly a fifth of what I did. He is one aspect of compounding, there is a similar but volatile and flighty bastard called Capital Appreciation that is the other.

    I will not be drawing down my ISA savings for probably another 10-15 years until my final salary pension starts to be eroded relative to other people’s earnings (earnings inflation is usually higher than price inflation) and then I will start to use the tax-free ISA income to top my pension up, and finally start to run the capital down or part-buy an annuity in 20 years’ time. Who knows. Compound interest helps people with capital, but it doesn’t help ambitious early retirement savers to build capital that much, though it roughly doubles the money. As for Alice in compound interest wonderland, well that is Alice in Wonderland – the weakness of that is the unrealistic 10% annual real return. Alice may get that in Wonderland, but you ain’t gonna get that in the real world. Put the work in or put the time in.

    You shouldn’t take away from this that you don’t need to start saving to a pension early, all the parts of the pie matter, but you shouldn’t take it as totally devastating if you didn’t start early. If you have any ambition to early retirement at all, the myth of compound interest and the trickle of free money from Time isn’t going to do the heavy lifting for you in the accumulation phase.




    1. I acknowledge they need that better career progression, to be able to pay for student loans if applicable and housing which is dearer in real terms than back in the day. It’s still an impressive feat and I tip my hat to their superior industry or negotiating power, at least up until ’09
    2. I know, indirect taxes and Tax Freedom Day and all that, you can reduce indirect taxes by not buying loads of Consumer Shit
    3. over its ~six year existence

    Compound Interest won’t help you retire early, but it may help you afterwards

    I’ve always been the cynic on the practical value of compound interest – while it will probably will more than double the real value of a conventional retiree’s retirement savings by the time they get to retire, it’s not magic. The problem is we don’t live long enough, we don’t work long enough, particularly in the PF favourite occupations of finance and IT, and more to the point, particularly for young folk compared to me, you get some serious career progression which means you can save more money as time goes by.

    career progression is much faster now

    career progression is much faster now

    Money is fungible – it doesn’t matter that your pension pot has £1000 from the £180 you saved when you were 25 with a paltry 20% tax lift, boosted by compounding, or £1000 from the £600 you saved in a month when you were 45 and paying 40% tax. It still adds up the same. All the old saws about Sensible Susan saving for 10 years ‘twixt 20 and 30 before she has kids never to save into a pension again doing better than Erratic Eddie who only started when he was 30 are bollocks unless you assume unrealistically high real rates of investment return or very long working lives. A long working life is something that by definition the FI/RE crowd don’t want to have.

    Unrealistic Investment returns

    Before you assume a 10% real terms return from investments ask yourself why that slack bastard Warren Buffett is only good for 13% p.a. average, I was wrong here he’s good for 19%. But he says you are only good for 6-7% nominal, 3-4% real. Bear in mind that the sequence of returns matters – take a hammering at the end and it’s worse than taking a hammering at the start. Cautious fellows like RIT are pushing down the safe withdrawal rate below 4%, the SWR is a proxy for the real investment return modified by the sequence of returns risks. Although you are slightly insulated from sequence of returns risk while you ware working (you can always work one more year for comfort and all that) compare to your retired self, assuming you can do better than twice the average real return year on year steadily is making an exceptional claim. You only get the exceptional evidence to back up that exceptional claim just before you retire. There’s no go-around again option by then.

    Long working lives

    One observation is supportive for this – we live a lot longer now than a few decades ago, possibly up to 10 years longer, and by observation while sitting on our backsides in offices gives us lardy arses the middle-aged of today just don’t seem to carry the burden of musculoskeletal aches and pains of the manual workers of my father’s generation, and arthritis and respiratory diseases are far less common than the middle-aged adults I knew as a child. There is some sample bias in my observation – I grew up in a working-class community but worked and lived in a community of people who didn’t work with their hands, but I would say that in general we are fitter but fatter in middle age than earlier generations.

    The trouble is that to have a long working life there has to be work you can and ideally want to do throughout that long working life. I managed 30 years before I got pig-sick of the way the workplace was changing, and I didn’t even work in the those favourite PF occupations of IT and finance both of which seem to burn people out before they clear their forties nowadays. My Dad worked from 14 to 65, over 50 years, I only managed thirty. Anybody who wants to retire early isn’t going to have a long working life, and the value of compounding depends critically on the amount of time it is given to work.

    Another problem is that the pace of change is faster now. Experience accumulated over a working life counted for more in the past. Much of what I learned as a young pup is absolutely worthless now – things like timing the studio cameras to be synchronous and in colour phase at the vision mixer is just irrelevant to anything now, though it was handy to know 30 years ago. As such you may have trouble in commanding higher pay later in life in technical fields, although it is still true that leading people is a skill that improves with age. But organisations have flatter hierarchies now, the levels in the pyramid are further apart. And anyway, TEA gives it to you straight between the eyes

    the underlying purpose of work…which was to fund getting the fuck out as quickly as possible.

    which sort of goes against doing it long enough for that compound interest malarkey to make the saving easier. Compound interest is the principle behind most people’s approach of only saving less than 25% of their pay to a pension. They get a nice long working life, or suffer an extreme income hit when they stop working.

    This is why compound interest won’t help you, FI/RE wannabee

    I worked for 30 years, which is an old lag in the FI/RE universe – although I had a decent job it wasn’t one of those finance/IT ones (I did some IT but it was peripheral). Many of you are targeting a 20 year working life, which is a good call, look around your office and ask yourself how many 45 year-olds and up are there? If a normal working life is 21 to 67 these days  then just under half your colleagues 1 should be over 45. If you don’t see that many older employees, then don’t count on a long working life in that industry.

    Monevator’s compound interest calculator tells me at a real interest rate of 4.5% your starting contributions will be increased to 2½ times their value over 20 years. If you look at the ONS chart you expect to get a tripling of salary over your short career – it took me over 30 years to get the career progression that seems to happen in half that time nowadays. So your increased later monthly savings will probably beat out the value of compound interest on your early monthly contributions. Plus at the moment the old git gets more help/shafted less by the taxman than the young fellow – I experienced this directly, it’s much cheaper  to save to a pension with a 40% tax boost than a 20% boost. You still need those early contributions, every little helps and all that, but forget that story of Sensible Susan quitting at 30. The only reason that could work is if she works (ie not drawing down) until she is 67 and enjoys a higher than excepted investment return. That ain’t likely – secular stagnation would seem to be lowering investment expectations, not inflating them. And who wants to work to 67? Not you, FI/RE aspirant.

    Who does compound interest work for?

    Entities with long investment horizons. Preferably ones that are longer than a human lifetime, because at realistic rates of return on capital, that’s how long you need for it to shoot the lights out. Apparently there’s something called Downton Abbey on t’telly, and The Escape Artist deconstructs the compound interest message from there. Basically get on the side of Capital – either by earning a shitload more money than most but not living an extravagant lifestyle, or alternately get your ancestors to work for your capital and live off the income it generates. Decency would suggest you don’t spend more than the income, so that you can gift your idle spawn the same gift your ancestors handed you. This doesn’t work well in a world of rapidly increasing human population and increased capital from non-human work, specifically fossil fuels, but it worked tremendously well for a lot of human history. Okay, it worked well for the aristocrats, rather than most people.

    One of the interesting things in the comments on TEA’s article is where parents try and teach their children how compound interest works. Observe how they have to create absolutely unrealistic accounts where Daddy pays a whopping 10% p.a. interest rate to make the story ‘interesting’ enough to attract any attention. Look at how long you have to go back in time to when the Bank of England interest rates were that much – nearly a quarter of a century! That was a special case when Soros was ejecting Britain from the ERM. And look at when interest rates hit 10%+before in the late 1970s – the Ermine was still at school then. And remember what else happened then – we had inflation running at 27% annually at one point, so that 10% interest was still a dead loss. It’s a totally unrealistic rate, and they aren’t going to get that sort of interest unless all sorts of other shit is going down in the economy at the same time.

    Now I know that you often have to simplify and amplify things for pedagogic reasons, because children are simple-minded with short attention spans, but in the end you’re teaching a lie. The difference between 5% annual return and 10% annual return is stupendous 2. This is similar to other lies people tell children to make them believe the world is other than it really is, like Father Christmas and the Tooth Fairy. It’s a good story. But it’s not true. You sometimes have to tell children lies like that, but as adults you should have grown out of such fantasies about compound interest in the same way as hopefully you don’t still believe in Father Christmas.

    Compound interest, if positive and greater than inflation, can give you any amount of money you want. The catch is you have to wait long enough for it to work its magic, and 20 years is enough for a doubling, but not a tripling, at typical real rates of return of the riskiest commonly available asset class with the best long-term historical performance. Of course a doubling is worth having. But it’s not life-changing. Also bear in mind if you carry any debt at all during your working life then that is compound interest working against you. Debt includes a mortgage – you pay roughly twice the real price for a house in the long run at typical British long-term mortgage rates, which funnily enough, happen to be around the 6% mark. The only thing that makes that acceptable is you’d otherwise be paying rent for that time, and even then it takes a long time to break even.

    In comparison, just under a thousand years ago a lot of people accumulated a shitload of capital in the UK, because William the Conk stole it from the previous owners and gave some of it to his mates who aided and abetted the heist. Compound interest worked for them – the aristocracy still owns more a third the land in England, much of which has remained in the same families’ hands for the last 200 years. You’re looking at compound interest at work – it paid for each generations huntin’ and fishin’ and all those servants to make their life easier than the rest of the country.

    No wonder that the middle classes, observing the twin forces of automation and globalisation destroying many of the jobs they hoped their sons and daughters would go into, are bitching like hell to get inheritance taxes reduced so they can featherbed their kids against the incoming economic storms. Get on the side of capital. It sure beats the hell out of working for a living, and it’s doubly sweet if you didn’t have to earn the capital in the first place.I mean FFS, let’s make the middle class’s houses IHT free as they peg it so their children don’t need to work to earn the money to buy a house, because when you die you are reincarnated in the form of your kids so they are entitled to it, and anyway, houses are so cheap in Britain that any poor sap who doesn’t get a house bequeathed them by Mom and Pops can work a few years to buy a house. Not.

    become a long-lived vampire to get the magic of compound interest working for you

    become a long-lived vampire to get the magic of compound interest working for you

    Compound interest works for old money, because it works very well if you have a time horizon measured in hundreds of years. Become a dynasty, or maybe become a vampire, slumbering in a box for three hundred years until your time is ready, while your Vanguard all-world index fund has been working for you for three centuries. Want to see what 200 years of compounding looks like – take a look at the Rothschilds. You can piggy-back on their investment approach, the only thing missing from the compound interest win is you need to do the whole vampire trick of taking time out while compound interest works for you. Becoming a vampire isn’t the only way, if you build a spaceship in your garage and put the hammer down once you’ve cleared Earth orbit you can slow down time for yourself while Vanguard and compounding do the heavy lifting for you. Obviously you lose your entire human web of life while doing so and won’t know any living person when you come back, but hey, that’s just the price of early retirement using compound interest. You could take your entire nuclear family with you and enjoy your winnings. Best to make sure there really is an Earth/human race/society you want to live in when you come back…

    Who else does compounding work for?

    People who have accumulated a decent wedge. Young folk always wonder why the greybeards have all the bloody money – they accumulated it over a working life. The corollary of, say, a 5% real return on income is that if you can keep your spending down to less than 5% of the capital then you won’t run out of capital. Unfortunately the only way to get that sort of return is to accept volatility which makes the spending rate indeterminate and statistical, the nominal SWR is lower than the return because the volatility means you either have to accept a variable spending rate or you will be drawing down your capital.

    That low compounding rate means you need 20 times your desired annual income even hope to achieve stasis, and as soon as you draw income the compounding will slow, or reverse. If you are spending most of your income on living the middle class dream and sending your kids to public school then you aren’t going to get anywhere – in a 20 year working life you aren’t going to accumulate 20 times your annual spend. You need to seriously earn a lot more than you currently spend, or alternatively spend a lot less than you currently earn 😉 Cutting excess spending punches above its weight, because if you want to increase what you earn keeping spending the same you start to find the taxman grabs an increasing share of what you earn, adding a headwind to your efforts.

    The forces that make compound interest are the same ones that pays rentiers and aristocrats (who are rentiers who didn’t earn their rent-seeking capital) an income. It just won’t really help you that much to retire early, if you are a typical FI/RE aspirant. I wasn’t a typical FI/RE guy, by the way – I would have been OK working to 60 if the workplace hadn’t become such a ghastly gamified bullring where form became valued over function. I have since then come to the conclusion that working to 60 would have been a terrible waste of my time, but I had to retire to find that out 😉 That would have been a working life of nearly 40 years, nearly twice the length of the one many PF writers aspire to.

    As it was I worked for one and a half times the usual target. And at the peak of my earning power I sweated three years spending at a level that the JRF classified me below the poverty line 3

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

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

    although I managed to avoid buying money at Money Shops because I didn’t spend £118 pw on Sky TV, mobile phone subscriptions and other manifestations of the Jacob trifecta of tickets, shopping and restaurants.

    This isn’t easy, guys. There is no Compound Interest Fairy that makes it easier for you. If there were, everyone would be retiring at 40. There’s an argument to be made that if we weren’t such damn fools sinking so much of our earnings into our houses then we might all be retiring earlier, but in the end it didn’t work out that way.

    Compound interest is a great story, but a myth at the same time

    It’s a fantastic story, that the passage of time gives you free money. What on earth is not to like? Waiting most of your life for that free money! That’s the bit that aristocrats get right – they had diligent ancestors who put the work in or seized the opportunities from others, depending on your point of view. If you don’t have dynastic wealth and want to retire earlier than other people, do something different from other people.  Make the difference between what you earn and what you spend bigger, and note that the taxman adds a headwind to earning more but not to spending less.

    Compound interest may help you after you retire

    Young retirees have a very long time of not working, and they need compounding to keep their capital topped up. Compound interest will do more for them after they retired, because a) they will be retired longer than when they were working, and b) they will start their retirement with a shitload of capital, unlike their impecunious Younger Self when they started saving. I could take a reasonable estimate that I have 30 (slightly optimistic) to 50 (I would be over 100) years left to live- already that would permit me to spend down some of my capital. This effect is allowed for in the Monto Carlo analyses of things like FireCalc and cFiresim. Extreme early retirees have a longer gap to bridge – a 40-year old is looking to finish work less than halfway through life, and indeed less than a third into their adult life. To a first approximation they need to live like aristocracy – aristocrats never spend their capital, they are merely the guardians of the ancestral wealth for the next generation.

    I’m a compound interest refusenik on early retirement because the maths doesn’t add up over human-sized periods of time if you come from a standing start. And I’m assuming that most wannabe early retirees are humans, and not aristocrats. You gotta get the capital before compounding will help you. It’s helping me – it has put a fair bit more money into my ISA 4 than I was allowed to put in this year. But that seed capital came from some of those 30 years of working, not the Compound Interest Fairy.


    1. you do start to see people die off in their 50s, but it isn’t terribly common
    2. compared to the 2.5 times in the previous example, the Bank of MMM would increase the capital by seven times  over 20 years. I’d bank with the Bank of MMM if I could get an account paying twice the typical real return on equities – on cash!
    3. the JRF think purely in term of income, not wealth. I entered the income I had left after saving into pension AVCs and ISAs
    4. integrated over time 2010-15

    Frugality and the myth of the endless more

    Most of us are rich compared to previous generations, but we are surrounded by talented storytellers who tell us otherwise. These storytellers are paid handsomely to change our perception of the world, because they want us to buy more stuff. Humans love stories, it is how we try and make sense of the world around us, but because of this the stories and myths are powerful, precisely because they frame our thinking.

    Somebody asked me recently if I could give them something actionable they could do to be more frugal. I gave a bit of a double-take, because I don’t particularly regard myself as frugal, but I’m game for it. But first I gave it some thought – what does frugal mean to them? I have a sneaking suspicion that being frugal means something different now than what it used to mean. Nowadays, I would venture for most people the definition is

    Frugality is not spending more than you earn 1

    How the hell did we get here? In previous generations not spending more than you earn was the default assumption, frugality was either spending less than you earn, or having to spend as little as possible because your household income was seriously constrained. We’ve shifted a long way to where the norm is spending up to your ability to raise credit.

    The fallacy that credit increases spending power

    Look at MoneysavingExpert’s forums. There are three forums devoted to credit cards. The first – Credit Cards – is about the normal usage and abusage of credit cards, with the emphasis on the latter. The one about Stoozing (free cash from credit cards) is a misnomer these days – you can’t get free cash from credit cards, though it used to be possible 2


    credit card mandala

    The next one is Credit File and Ratings, which is all about people bitching about not being able to borrow yet more money because they are perceived a bad risk –  either they defaulted previously or they’re just not rich enough. MoneySaving Expert should simply put up a big pop-up dialogue box when anyone posts on this board saying

    HAHA – Consumer Sucka – you have already borrowed more money than you can afford, Stop. Wrong Way, Turn Round now. Pay some back or Just. Stop. Overspending.

    But they don’t. Presumably there’s money in it for MSE 😉 The questions on that board about how to become a better risk (borrow less, pay some back)are far and few between compared to the ones about ‘what is the best way to game this faceless system so I can borrow more money because I Must. Have. Now?’

    Spending Power ≠ Cashflow

    The trouble is that credit is not there to increase spending power. It is there to manage cashflow.This was much more apparent in the early ads from the 1970s

    I’m Access. he’s Money
    Here’s a new way of looking at us

    I won’t run out on you. He will. Money does a wonderful disappearing act. Usually in the wrong place at the wrong time. But I’m always in your pocket, ready to buy what you need, when you need it. And when Money isn’t big enough to pick up the bill, which he often isn’t these days – you can call on me to get things settled.

    I’m flexible. He’s not. My flexibility means that when he’s stretched, I’m not. Using me, you can buy essentials immediately and spread the repayments over whatever period of time suits you best. At this time of year, you could call on me to buy all the presents, drinks, decorations, everything. In fact you could give Money a complete Christmas break. He looks like he needs it.

    Access – your flexible friend (Telegraph Sunday magazine, Christmas 1978)

    You can see some of the rot setting in, the first paragraph talks of needs and the second starts off with essentials. it then all goes titsup when there’s the mention of Christmas. Christmas is a want, even if you have children. It is not a need. If the choice is paying the rent or paying for Christmas, let Christmas go hang – your kids need a roof over their heads more than they need consumer tat.

    Charlotte Metcalf can't afford Christmas this year

    Around Christmas 42 years later from the ad this TV producer can’t qualify wants for needs, never mind introduce her daughter to the sad fact that you can’t always have what you want in life. Thatcher, bless her simplistic heart, believed that

    her vision of Britain was of a property-owning democracy of savers with moral restraint. She got indebted spendthrifts. She wanted the British people to be like her father, but they turned out more like her son.

    The cashflow function of credit cards still holds. One of the best ways for a retiree with a steady income to use a credit card is in fact as an emergency fund. This was cited by Jacob ERE and indeed he also cited the exception which is why an Ermine doesn’t use that – I have no income 3. A retiree with a pension has a steady income, so he doesn’t need to carry a cash float against modest emergencies, and for major ones like house burning down there is insurance. If the roof leaks they can use the credit card, and pay it back over a couple of years. Emergencies shouldn’t be a regular occurrence, else they are normal costs of operation and maintenance.

    It’s questionable whether an employed person can use the same method, depends on how likely they are able to find another job if they get fired, because that’s a very likely sort of emergency in one’s working life. All other uses of credit cards that carry a balance are basically a way to pay more for for less. Say you are one of MSE’s Consumer suckas carrying a balance of £20,000 on a 5% APR card. To put a dent in that loan you have to spend less than you earn, which you don’t want to do, and say you buy £10,000 worth of stuff each year and pay off £11000 on the card. So you carry the loan. Effectively you are buying £10,000 worth of goods for £11,000. Well done you. It’s like looking out for anti-sales – everything must go – 10% dearer today. Of course you’ll chase the cashback and the Clubcard points and sing about the 1% off. It is, after all, a much nicer story than the 10% you’re paying over the odds year on year.

    More credit means we get into arms races with each other

    One fellow, presumably a dyed-in-the-wool laissez-faire free-marketeer, opined that the increase in credit kicked off by Margaret Thatcher relaxing credit controls in the  early 1980s that I ranted about here was a good thing. We all, pure intellectual rational agents that we all are, decided that we would use this money to sink shitloads of money in increasing the price (not the value, the price) of houses, because free markets and free agents brought us this result so it was obviously what we all wanted. In the same way as our tax pounds going to Help To Buy has had the thrilling effect of raising house prices by £8000 because as any fule kno what first time buyers really really want, is for some kind fairy godmother to give all the other blighters they are in competition with some extra money so they have to pay more for the house.

    I’m of the opinion that sometimes you shouldn’t be allowed to do what you want to do, but presumably I’m a Trotskyist dirigiste rather than a follower of Ayn Rand. More consumer  credit is fundamentally bad, because it encourages people to live beyond their means. It still beats me why it is allowed so much – it’s not like it actually lets people Buy More Crap. To be honest if they were buying their consumer goods without credit they’d be buying more goods and services  – our MSE Consumer Sucka could be buying £11,000 worth of Consumer Crap rather than £10,000 worth and sponsoring a bank with the remaining £1000 p.a. – what’s so special about banks that they deserve a 10% tithe of his contribution to GDP?

    This is part of the evil heart of darkness behind the way we have set up our economy – it demands that we chase the endless more, and indeed credit does let us get more faster – and then we get a little bit less for our money as we service the deadweight interest of the loans. That way madness lies, and it’s called a Money Shop. WTF is the price of money in a money shop? Any time you are paying more than £1 for £1 you should be asking yourself why.

    The myth of progress being the endless more

    Let’s say we have some technical advance that means it costs half as much to produce product X. We can use that in two ways. We can rejoice that we only need to work half as long to buy the same amount of X as we had before, and then use the rest of our time to spend more time with loved ones, do something else more interesting than working with half our time. Interestingly enough, you 21st century wage slave are probably getting the short end of the stick here compared with mediaeval peasants, because what we do with greater productivity isn’t take more time off 4, which is what people initially did with improvements in efficiency. Presumably the advantage the peasants had over us is that since a day’s travel on horseback is about 20 miles there was a limited supply of replacement labour ready to ride in from out of town and undercut them; whereas if you want to take a sabbatical in a highly paid industry you may find yourself out of a job unless you are unique or can nobble the competition. As a result you start to see success as the endless more, because it’s hard to vary your time at work 5, unlike the peasants.

    Mo’ betta

    We buy more, or we simply pay more for stuff we need, like housing. Funny old world, isn’t it? Say you were a Martian and got out of your shiny green spaceship and looked at how western consumer culture worked. You’d scratch your head and go WTF? These guys are surrounded by historically stupendous abundance, and they charge round like blue-arsed flies after more of this abundance, then grouch to each other how they never have time to see their kids?

    The trouble is those stories we tell ourselves – success is always faster, better, cheaper, more. That assumption underlies so many of the stories that surround us that we start to believe it’s true. More is not always better – for instance it appears that we are becoming fat bastards because average portion sizes are slowly being ramped up. The connection with more=better means we waste a fifth of the food we buy.

    Mo’ betta’s evil twin, hedonic adaptation

    We notice differences more than absolute levels, above certain limiting thresholds. Which means our appetite for more is limitless, if we just follow our instincts. That’s taken humanity to some bad places in terms of excess consumption. In the 1970s your British middle class family might have gone on a foreign holiday every other year. From looking at Facebook it seems four times a year is the minimum these days. Now granted it’s got cheaper, but are they having four times as much fun? The experience of flying anywhere truly sucks nowadays compared to 20 years ago, you can say two good things about it – it is much cheaper and you get there a little faster. Just about everything else is worse. And yet more is more…

    Curiously enough, it’s easy though rarely done to nut hedonic adaptation – increase the gap between your hedonic experiences, and if possible make the gaps variable. If you want to pay a few hundred on a restaurant, do it every six months or yearly. It will be more special to you than spending the same amount of money per year on something more quotidian, or shudder, a weekly stop at Mickey D’s 6. You probably need to squeeze the gaps out to quarterly or more to avoid normalising on the experience.

    We are programmed to buy

    Let’s take a little bit of sage advice from this dear waif who delivered herself of the deathless wisdom that if you have savings in your twenties, you’re doing something wrong. Unlike many in the PF scene, I actually have some sympathy for the message in the title, largely from a cycle-of-life point of view – it is very hard to get started as an independent adult and always has been. Sometimes you have to pay out all your income, to be honest if you are in your twenties and just avoid spending more than your income I’d say you’re doing a damn sight better than most of your peers, who come on MSE’s credit card forums all dazed and confused why they are getting dunning letters. Let’s examine the random noise that passes for cognitive thought in our waif’s cranium, and see if we can detect any coherent signal.

    I don’t have any savings, but I also don’t have any wants.

    Crikey, this young lady has discovered Zen Nirvana a long time before this greybeard. I am in awe of her precocious wisdom, she’s obviously up on the literature of Thoreau, who delivered himself of the same message more poetically

    A woman is rich in proportion to the number of things which she can afford to let alone.

    Hats off to you, Lauren. Unfortunately it all goes pear-shaped right after that

    don’t know about you, but I like to enjoy my life. I like to go out to eat, buy clothes I don’t “need” and spend money with friends on memorable nights out.

    Hmm, so what exactly are these wants you don’t have? For starters you have associated enjoying your life with spending money, enough to enumerate a  bunch of manufactured experiences, clocking ERE’s trifecta in two lines

    In general, if you ask the average consumer what enjoying life is all about, it distills to the following trifecta: buying tickets, going to restaurants, and shopping.

    Well done Lauren. Hero to zero in the first paragraph. She does go on to make some fair points that young people may delay reaching some life stages compared to their parents; this is not unreasonable if they are going to live longer. I have much sympathy with the longer adolescence theory – I wasn’t an adult at 18 and probably only just at 21, which was where the threshold of adulthood used to be considered before the 1960s. So that’s the long explanation of how we got to living within your means being considered frugal these days. Too much Lauren YOLO. Anyway, back to our frugalista:

    Ermine to wannabe frugalista – live intentionally

    What is something that a typical consumer could do? Live more intentionally. We make most of our decisions about spending in a framework of do we have enough money. And yet we are selling precious minutes of our life here. Here was my idea for the prospective frugalista, the techniques are not original to me, but it’ll do:

    • For the next week, note everything you spend. At the end of the week, look back over it, and ask yourself – did this enhance my quality of life proportionately? Classify into wants – that’ll be all of Lauren’s purchases, and needs – tickets to work, groceries etc.
    • Work out how much time you have to spend going to work (including commuting time) to pay for it – if you earn £80k for a 200-day 8-hour day + 4 hours commute  and take home £54k p.a.  net and pay £2k on commuting then your hourly rate is 52,000 ÷ 200 ÷ 12 = £22/hr
    • Armed with this insight, for the next week, simply delay buying any Wants for 24 hours. The next day, ask yourself if you want to buy this Want, and if the answer is yes, knock yourself out

    These helped me; I still use the technique of waiting for 24 hours for some things. For some people it works well enough to take five and attune to whether this purchase is really worth it to them. The 24 hour delay is usually enough to get yourself into a different emotional frame of mind, and this often enough to split off something that looks like a good idea at the time from something that looks like a good idea all the time. It easily halves wants.

    The reason this works is because it is often how you spend your time that matters, rather than how you spend your money. Armed with that knowledge you can often get better value for your money – the stories the ad-men tell us are that it’s all about the money. That’s bollocks – it’s often more about the who, the how, the when and the why. But these are elements not in the admen’s control, so they push the story that it’s about how you spend your money.

    This is one of the reasons early retirement can work well, even though it is never a wise thing to do financially – you always have more money if you work longer. But if time matters more than money for many experiences, the trade can be a win, and many things are much cheaper if you can take longer or be flexible on timing. You can never have enough money to feed every Want, so the secret is in knowing yourself well enough to discriminate between your wants. Some of them are your wants, but all too many of them are illusory, the background radiation of an economy that needs the endless more to survive. As time goes by it’s about the who and the how and the when and the for how long, and less about the what. There’s a delicate balance in all these parameters, and only a very faint sound of Thoreau’s distant drummer to guide you to your inner voice. The rest is the boorish shouting of admen and sales types who want you to sponsor their dreams.


    1. For the sake of completeness I’d make the integration time a calendar year, to catch all recurring costs
    2. Some people labour under the misapprehension that cashback, topcashback, points et al are free money. They aren’t. You are being slightly overcharged for your goods and then sell a bit of your headspace to the card companies to normalise increased spending in return for a little bit of cashback. You save far more than the cashback by just buying 5% less consumer shit. But each to their own – believe the story you want to hear if you like
    3. this is increasingly untrue because my ISA throws off a fair bit more income that I would get claiming JSA, but since I reinvest that I don’t count it as income
    4. there is an argument to be made that early retirement is one way of taking more time off
    5. this is more an aspect of working for an employer – if you are a contractor or you are The Boss you have some flexibility here
    6. £560 for two incl wine at Raymond Blanc’s joint is about the same cost as a year’s worth of weekly Big Mac meals for two in Oxford

    Financial Independence and the cycle of life

    The UK PF scene has expanded a lot of late, and this is all to the good IMO – there are many ways along the path to freedom from The Man. Some are slow and steady, some have Sturm und Drang. Most writers are far more ambitious that I was. As yet there aren’t that many other reporters filing reports from across the FI event horizon, indeed there are more from the US side than from Blighty.

    There are, at heart, two different sides to personal finance, as epitomised in the classic highwayman’s salutation and title of the seminal PF book Your Money or Your Life. You start out in an industrial consumer society as an adult with nothing, indeed, increasingly with less than nothing due to student debt 1 but with a stupendous energy, ability to learn and ambition. You gradually exchange this capacity for financial income, and if you are part of the PF community, you try and accumulate some of this income as wealth.

    The financial side – it’s all about the money

    There is the finance side, this is all about SWRs, reducing fees, seeking opportunities, evaluating risk. I’ve drawn back a little bit from writing about that, because a) there have been a lot of new authors entering the market that fundamentally know more about these things, Monevator is still there and there’s not much that I can add, b) some of the changes Osborne has made have given me the opportunity to seriously derisk my pension savings by allowing me to buy out some of the actuarial reduction to my pension; my ISA will be paying for wants rather than needs, and c) personal finance is interesting but not fascinating for me now – it was fascinating while I was working for The Man and it was an enabling technology to shorten that period. The essential takeaway I have learned by experience is still the same as was taught me by my parents and that I largely followed  –

    Don’t spend more than you earn, son, and never borrow money for Wants, and only for those Needs that are non-wasting assets 2

    I can count the number of times I used more than a month-long consumer credit on my fingers, which is uncommon in the modern world. Once when starting work to buy a hi-fi preamplifier on 9 month’s 0% credit, which although stupid didn’t cost me anything because it was paid on schedule (and is still in service over 30 years later), one bank loan to buy my first car which was also stupid but was paid back on time and never repeated, a 0% credit card loan to pump up the deposit on my first house, paid back on time, a mortgage for 20 years, one time with credit cards when first going out with DxGF where I failed Micawber and started to fall behind but corrective action was taken within two months,  and more recently to avoid having to sell more than a capital gains tax allowance worth of shares.

    The personal and the cycle of life

    The young, of course, bless ’em, know they will never get old. So you start work, and life is good, you’re earning money, and of course you will always have the capabilities you’ve always had. Age shall not weary you, nor the years condemn – after all you have not seen the changes that time wreaks on the human spirit. Or indeed the quieter rewards of wisdom if knowledge is integrated over time.

    It is as it should be, life is not a rehearsal, you pass through the stages but one time, and each of them has value. Unfortunately, to make a decent fist of financial independence/retiring early you need to have some feel of these stages, because the demands on your finances will never be the same as when you start work. As a rough obvious qualification, and making tremendous generalisations:


    huge changes in these years, between possibly university and getting the first job. People often pair up in these years, bringing a different set of rewards and challenges. Deep within the British psyche is the concept that you should be able to buy a house in this period, but I would venture this is unrealistic at the current time. I was 29 when I bought my first house in 1989, which is a time that has similarities to now, that was both unwise and also jobs are less stable now.

    These are the years when you set the foundations of a professional career, because of this, taking time out (to have children or take a break) tend to have a serious adverse effect on your lifetime earning power. This is particularly bad in technical fields like IT – a year out of IT is pretty much ‘hello world’ time again


    Four-fifths of people will be wrangling children and work in these decades. Taking time out in the first half of this decade has some adverse effect on lifetime earning power. People start to slow down towards the second half of this decade – particularly those with children are run ragged, and their focus is not as single-minded as it once was. Mark Zuckerberg summed it up well

    “Young people are just smarter,” he said with a straight face. “Why are most chess masters under 30?” he asked. “I don’t know,” he answered. “Young people just have simpler lives. We may not own a car. We may not have family.” In the absence of those distractions, he says, you can focus on big ideologies. He added, “I only own a mattress.” Later: “Simplicity in life allows you to focus on what’s important.”

    He got slaughtered for it because it’s not politically correct, but I believe he has a lot of point in that the simplicity of young people’s lives is a great asset for work areas that deal with roiling change.

    In the second half of this decade it’s often about domain knowledge, contacts and leadership. You better have some of these, because towards the end of this decade if you don’t, you start to become expensive and replaceable.


    These are often the hardest years for many people, and they coincide with a statistical low-water mark of psychological well-being 3 in people

    likelihood of depression in the UK labour force, by age

    likelihood of depression in the UK labour force, by age

    I personally wouldn’t casually draw a U through this – the peak in the late 20s I think is real – a quarter life crisis, the disappointment is ‘is this all there is’ and to me there seems a clear deterioration from the 30s to the early 50s. I like the personalTao’s explanation

    Quarter life crisis in a nutshell is all about how a person shifts into society. Midlife crisis is the reflection of Quarter life crisis. Midlife transformation is all about how a person shifts out of society to become their own person.

    I’m going to barge off the scientific into the anecdotal. The part of The Firm I was in never had great mental health. It hired people who were already a bit unbalanced, in the early days before a big purging in the late 1990s they had a significant number of serious outliers and downright weird people – stupendously brilliant in some areas and almost dysfunctional in others. They got rid of most of these folk by 2000, as they decided to get out of R&D. But the background radiation of the selection was presumably still there. Every so often someone would top themselves, this always got hushed up but I knew someone on the site fire team who got to hear about incidents. The windows in one of the towers aren’t openable any more, but the paving slabs were still cracked last tie I saw them.

    I saw some people go off with stress. I saw heart disease claim the lives of some colleagues, and towards the end of this age decade is when that starts catching up with you.


    In the early part of my career, this age cohort was well represented. After all, the human lifespan is typically three-score years and ten, even 30 years ago, and in something soft like electronics and studio engineering it’s hardly like the Grim Reaper comes to call early. Indeed, in the late 1980s and early 1990s these guys formed the typical 25% of workplaces that elementary arithmetic would lead you to expect, given my decade grouping and a 40-year working life. Early retirement was not a thing then – I went and got truly hammered at my first BBC boss’s retirement bash – he was 65 ISTR although I’m pretty sure the BBC NRA was 60. At The Firm I saw a fair few old gits swan off into the sunset at 60.

    Something changed in the last decade and a half. Now The Firm ran out a lot of their 50-somethings in the dying days of the dotcom boom. But I went to very few retirement celebrations in the last five years of working there, when some of the late 40’s people in 2000 would be coming up to 60. Some of that is due to other changes in the workplace – The Firm shattered the esprit de corps with some of the changes. But I saw a lot of people go off sick and there were a few funerals. Now I don’t know enough of longevity to know if this is the natural slope of the bathtub curve of reliability, but I do know that in the rest of the community I know I haven’t seen any 50-60 years olds get planted…

    This age cohort is prime target for redundancy at the level of middle management. They’re often expensive, Zuckerberg’s thinking abounds. To be honest, if you are working for The Man, just don’t expect to for most of this time. As a test, look around your office and take the average age of the oldest 25%. It should be in the 50s. If it’s less, there’s a message in there for you that’s worth listening to.


    You’re in extra time, bud. Though you’re probably feeling more chipper :) By definition you aren’t interested in early retirement.

    What’s with this U shaped curve?

    Two things. One is practical and by observation – work and raising kids is no fun when both partners work, and even if you are part of the child-free 20%, work is no fun. As you progress higher up the greasy pole, youfeel less secure, because the last few years in business have been challenging and wider changes are making your position more precarious. It isn’t entirely enough to explain it, and I’d venture that some of the explanation is to be had in these words

    It seems to me that the basic facts of the psyche undergo a very marked alteration in the course of life, so much so that we could almost speak of a psychology of life’s morning and a psychology of its afternoon. As a rule, the life of a young person is characterized by  a general expansion and a striving towards concrete ends; and his neurosis seems mainly to rest on his hesitation or shrinking back from this necessity. But the life of an older person is characterized by a contraction of forces, by the affirmation of what has been achieved, and by the curtailment of further growth. His neurosis comes mainly from his clinging to a youthful attitude which is now out of season….

    Carl Jung, 1929, CW 16, ¶75

    There is a change and a reorientation to be had across this time, and in a consumer society this is a particularly pathless land. The changeover of perspective is felt, and it is never comfortable

    “The truth is that our finest moments are most likely to occur when we are feeling deeply uncomfortable, unhappy, or unfulfilled. For it is only in such moments, propelled by our discomfort, that we are likely to step out of our ruts and start searching for different ways or truer answers.”

    M Scott Peck

    In a materialist world-view, it’s hard to square these changes that seem universal enough to be part of being human, and all too often the discomfort is projected upon the outside world – the hoary new sportscar of the mid-life crisis, the trophy younger wife, the endless striving to avoid the uncomfortable truth that wherever you run to, still yourself you see in the mirror in the morning. To pinch some more of the wisdom of M Scott Peck in The Road Less Travelled

    “Life is difficult. This is a great truth, one of the greatest truths. It is a great truth because once we truly see this truth, we transcend it. Once we truly know that life is difficult-once we truly understand and accept it-then life is no longer difficult. Because once it is accepted, the fact that life is difficult no longer matters.”

    Many, many people fail the test of mid-life – because as they come to the signal-box where the switches will be thrown they project their past upon their future and fail to give the right instructions

    “Thoroughly unprepared, we take the step into the afternoon of life. Worse still, we take this step with the false presupposition that our truths and our ideals will serve us as hitherto. But we cannot live the afternoon of life according to the program of life’s morning, for what was great in the morning will be little at evening and what in the morning was true, at evening will have become a lie.”

    Carl Jung, Modern Man in search of a soul

    You may disagree with some of Jung’s background, and some of the surrounding text is of its time, though I would say still translatable to the modern world.

    the iconography says it all :)

    the iconography says it all :)

    Corroboration is to be had in the Harley Davidsons, sports cars and the existence of sugardaddie.com (tagline – where the classy, attractive and affluent meet). Thank you to the Daily Fail’s Helen for the tipoff!

    Ok Ermine, WTF has all this psychology/metaphysical shite got to do with FI/RE?

    tl:dr – Life is short, use it well. You will change if you grow well through the life-cycle, else ossify and atrophy. Don’t count on a 40 year working life in a stressful field.

    Welcome young PF reader (if you’re an old git you’ll have gone meh way back). Think of the grizzled Ermine as the Ancient Mariner in Coleridge’s Rime of the Ancient Mariner, and you as the Wedding-Guest 4 – because if you are still reading by now then the hidden menace of the tale holds reader in thrall

    The Rime of the Ancient MarinerIt was kicked off by Mr Z’s great post – Sprint, Walk or Jog and it reminded me of a long three-year journey I undertook, in adverse conditions, to try and get out. Believe me, I would have given a lot ot kick back from the sprint phase – The Firm was desperate for people to go part-time and offered decent terms. I considered it, but then lifted my eyes to the glittering prize, and kept going.

    It’s hard to make the figures add up to retire early, and to be honest to do it at all compared to your fellow wage-slaves you need to sprint. Mr Z’s walkers will never get there – subtle trends in the economy are running away from the workforce, and if you do the same old same old then you will probably retire at 70+ if at all. Some of these forces are the same ones that make saving for a house run away from the average punter. FWIW to some extent I am absolutely guilty as charged by Mr Z

    It’s whirlwind at the end, pulling together what ever resources are available and blaming everyone else for not letting you know that this day would come.

    although in my favour I would say that I took corrective action with extreme prejudice when I did realise I had been asleep at the switch…

    but I can return the favour. Beware of the siren song of sabbaticals – because if you plan to get to FI/RE working for a company the cost of taking time off is high and variable, and you are unlikely to get much beyond 50. Many people will think they see lots of 50+ people in the workplace, and it’s true. But there’s a dirty little secret about the whole FI/RE community that is rarely acknowledged – income matters. If you are talking about early retirement you are unlikely to be on the UK average household income of £27k p.a.

    UK taxpayer mean and median earnings by age (taxpayers only)

    UK taxpayer mean and median earnings by age – taxpayers only (source ONS data) Mean reflects the fortunes of the typical striver for FI, median for the average Brit.

    Note that this is taxpayers only – it doesn’t include those with an income below £11k p.a., the unemployed, welfare claimants, Ermines. Now think about the odds, you’re somewhere between the blue and the red lines, and I’d say you can’t necessarily count on a long, highly paid working life of 21 to 65. The signs of the 50-60 flameout are written all over that chart.

    It isn’t predetermined – but the odds ain’t great.

    Like anything else in life, you can shift the needle on the dial. Certainly working for The Man post 40 is a hazardous thing to rely on for FI/RE, but maybe you will run a business or become a contractor, as long as you can stay ahead of the game you can do well. But when setting direction in your 20s and early 30s you don’t know how well this is going to turn out. Right up until the month 5 before I recognized the writing on the wall I was expecting to work to 60 and then retire. Why 60? That was NRA for The Firm when I joined. It would have been a terrible waste to have done that – to call in M Scott Peck again

    “Until you value yourself, you won’t value your time. Until you value your time, you will not do anything with it.”

    I hadn’t got my head round the fact that I really should have been asking myself what do I want to be doing with my time – I was guilty of using the program of life’s morning into its afternoon, without even a celebratory drink when the sun passed the yardarm!

    You’d be unwise to assume a 30-40 year working life in a highly paid/stressful job. Your late forties onwards is when the cracks are likely to start showing up. And the blighters don’t take no for an answer. One of the computations I did was if I bailed early, how many years of working minimum wage at Tesco were going to be needed. Let’s just say that the answers was enough to get sufficient intestinal fortitude to keep going, discard the blandishments of going part time or taking a year out and getting on with it.

    The life-cycle favours doing your sabbaticals either before you start on the treadmill, in which case they are called gap years or postgraduate degrees, or taking them at the end of your working life – as I am doing now. If you want circumstantial evidence of the magnitude of that hit, then look at this chart

    earnings by age (taxpayers only)

    earnings by age (taxpayers only)

    and ask yourself when in the age grouping do women typically  start having children – and remember this is taxpayers only so a SAHM presumably does not feature. Having children may be a very rewarding activity, but it’s not remunerative work, and it has consequences for earnings. Everything worthwhile has a cost; and if a sabbatical is worthwhile than of course it also has a cost. That cost does not appear to be trivial. Although I’m not comparing like with like, since a sabbatical is a one-off setback, it still not zero and it’s more than the pay you forego.

    If you want FI/RE, the odds favour keeping your nose to the grindstone. Extraordinary results demand extraordinary effort to achieve. There’s a damn good reason why most people don’t retire early, and of the rest, many just retire early (50+) like me, rather than extremely early (40+). If you want to make easy money, do something hard.


    1. there’s a strong case to view this as a graduate tax, due to its peculiar nature and to try and not normalise debt
    2. the common examples are a house and education
    3. Is well-being U-shaped over the life cycle? Blanchflower and Oswald, Social Science & Medicine 66 (2008) 
    4. I failed Eng Lit so here is a secondary interpretation of the meaning
    5. Hindsight shows that the evidence was scribbled all over the place in the preceding couple of years, but that’s hindsight for you

    Financial advisers and the triumph of hope over experience

    I thought I had done the whole UK property tragedy in this snarl, but Monevator pointed me to an absolute corker.

    ‘I’ve inherited £15,000 aged 20. When can I buy a £350,000 house?’ [he earns £17k p.a.]

    Let’s imagine our 20-year old hadn’t written to the retired colonels of the Telegraph, but had wandered into the pop-up-shop that is the financial advisers of Ermine, Ermine and Ermine, and asked that of the grizzled mustelid 1 sitting behind a desk with a green banker’s lamp.

    The ermine is child-free, but I don’t totally lack compassion, and a small tear would appear in the ermine’s eye, but he would give it to this young pup straight, unlike the two, count ’em, two, IFAs who appeared in the article. Something like this:

    George, me old fruit, I hate to be the bringer of bad news. You can’t get there from here. You, a twenty-year old young man, have just inherited £15k, which is roughly a year’s salary. You would like to buy a four bedroom detached house. You are on less than the average wage. It ain’t gonna happen. What you need to do is focus on earning more, and also scale back your ambition here. Let me tell you a story. I was earning far more than you in real terms when I stupidly bought a house in the mid-morning of my working life, and while I have had three decades to make stupendous mistakes, no financial error gets anywhere near the magnitude of that cock-up. The UK housing market is a heartless mistress – funded by an army of BTL sugar daddies I regret to say are my age fleecing the young, themselves in servitude to Britain’s rapacious financial industry it will eat you up and spit you out in little pieces.

    Your lucky stroke is that your ambition so outweighs your means that lenders will probably save you from yourself. Invest wisely, though do have a little bit of fun to celebrate the old girl’s passing. First see to your emergency fund of six month’s wages, held in cash probably with Santander to get some interest. Then invest the rest in a S&S ISA index fund and forget about it for five years.

    Your position is not hopeless. Inform yourself about the credit cycle, and the things that drive house prices. Do scale back that housing ambition – you may well want a four-bed house to raise a family, but hopefully there will be a lady of the house who can help with the finance.



    1. one of the advantages of being an ermine is is doesn’t matters if your fur turns white, because that’s what it’s meant to be

    house prices – finance grabs punters by the balls with the invisible hand of the free market

    Housing is the third rail of British investment classes, and I don’t usually go there for the simple reason that I don’t invest in it.

    However, I never really spent much time working out exactly why this asset class is so heady and dangerous. I spent a lot of time looking in the rear-view mirrror working out how it hurt me, examining how, after 20 years of actually paying down the mortgage I had just about broken even relative to the estimated cost of renting, and how terribly front-loaded the risk was – I got away with it because I stayed in the same job for 24 years and bought that house six months into that job.

    Even Monevator declared the asset class overvalued and he’s not a fellow who likes to let on that crystal balls have their place at very rare times :) Although I am still chortling about this –

    by the 1980s they could begin amassing the property wealth they have today – aided enormously by the right-to-buy and buy-to-let booms that the current Government is only just applying the brakes to.

    Not me, mate, I took the sucker punch here and I’ve read the early 1990s news reports that predate the Web where 3 million of my compatriots were in negative equity. The specifically housing part of my networth is probably less than a tenth of the total, and I own half the equity in the house outright (Mrs Ermine owns the other half, not a bank :) ). I do own land elsewhere that roughly doubles that, arguably my property asset class worth is about a suburban semi . Before Londoners start to spit bricks and think the Ermine is on the Sunday Times Rich List, remember that house prices in the provinces are much lower than in London.

    As an aside, I’m intrigued by the result of 80 years of peace in Europe leading to the nonchalance of

    it could eventually be the country I live in. The gulf between what you can buy in the UK and in the great livable cities of Europe is staggering.

    The ermine is a jittery fellow, and even if we discount Brexit, I hear the distant drumbeats of serious social unrest in Europe. Sometimes it takes an outsider to clarify the matter

    At different times and for different reasons, all of the large European states—the United Kingdom, France, Italy, Germany—have blocked attempts to create a common foreign and defense policy, and as a result they have no diplomatic or political clout.

    They haven’t wanted European leadership, and most of them wouldn’t have wanted American leadership either, even if any had been on offer. The richest economy in the world has a power vacuum at its heart and no army. Now the consequences are literally washing up on Europe’s shores.

    But that’s not the point of this post. It is the discovery of the cogent rant linked to here in the comments of Monevator’s Yes, we do have a house price problem article. Unfortunately it’s far too long, so my service here is to summarise some of the observations in a post that is too long but a hundredth of the size:

    In an industrial consumer society, shelter is the one basic Maslow need most people buy on credit

    1402_Maslow's_Hierarchy_of_Needs.svgTake a look at the bottom two layers, which are basic and fundamental needs. Most of us don’t buy food on credit – cash is king here, from income. If you do buy love you probably use cash too 😉 Unlike in the US, healthcare is free in the UK. Although I am sure that there are many who would like to try, we don’t currently charge for air, and most people pay for water as they go along too.

    Unfortunately there’s one big item that addresses homeostasis, sleep, security of body etc, and that is shelter from the rain and other hazards, in short, housing. A hairless mammal in a Northern European climate needs a home. The vast majority of people, on leaving the parental home, are not rich enough to buy a house outright. They need to borrow most of the price.

    The free market fails dismally where everyone buys an essential product with credit

    If I want to buy a pound of apples, or a car, markets work well, because what is called market substitution happens if suppliers price-gouge. I switch to oranges if apples are too dear, I use public transport or a bicycle if cars are too dear. In this way the balance of power is matched – if the buyers are too tight the product is withdrawn from sale because producers don’t find it worth their while, if the producers want all the money the buyers disappear. Adam Smith’s Invisible Hand does its job well when everybody can walk away and do without. When you can’t, the Invisible Hand grabs you by the balls and your heart usually follows. Nowhere is this clearer than with housing.

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