11 Apr 2012, 11:09am
personal finance:
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  • Five tips to Save Money and Retire Early

    I will be retiring about eight years early, or, as far as the Government’s expectations are concerned, 14 years ahead of time. Here are five tips on how to get there.

    From age 25 I managed to do 1 and 2 of these, and as I came within five years of retirement I did the whole lot.

    1. spend less than you earn
    2. never pay interest to borrow money for consumables, only productive or cost-reducing assets
    3. save six month’s running costs as an emergency fund
    4. pay off your mortgage before you reach retirement age, preferable five years before so you can use pension tax breaks to the full
    5. minimize fixed recurring costs such as mobile subscriptions, Sky TV, gym and magazine subscriptions. Of those you keep, make sure you get utility from them.

    I’ve had good luck in some areas, such as being employed 95% of my working life, and unemployed only 1.6% of it (the rest was when I did an MSc with a grant), and having a final salary pension in a company with a normal retirement age of 60. I’ve had rotten luck in other areas - buying my first house in the Lawson boom and writing off half of it to negative equity.  I trashed over £10k chasing momentum in the dot-com bust. But these were mistakes I could afford to make. You can be too fearful of making mistakes – and then you will never take opportunities. Getting the balance right is the key…

    I am not a City banker, my job probably classes as middle management if equated to the rest of The Firm. Earning a little bit  more than the UK average isn’t the secret to early retirement. There are plenty of people who earn a lot more than I do but can’t make ends meet.  The secret to early retirement is pretty much in these five tips on how to stay on top of your finances over a working life-time. These are strategic and high-level rather than immediately actionable. Indeed, if you want to use them it helps to start at half my age :)

    They worked for me, and I’m toying with the idea of going along to the Write on Finance Blog Up in Leeds. I will have finished work by then, and DW has identified a Turkish Baths at Harrogate which is 12 miles away. She has a weakness for that sort of thing. And I’ll take the opportunity to say hello to these old friends, the Devil’s Arrows, as mediaeval Christians titled the three prehistoric standing stones by the side of the Great North Road.

    Devil's Arrows, Boroughbridge

    I like that. There is something special about a construction that has been standing sentinel for four thousand years.

    This is an entry in the competition to win a 2 night hotel stay during the Write on Finance Blog Up Leeds which runs 22-23 September 2012; gold sponsor is MoneySupermarket

    15 Jun 2010, 1:01pm
    living intentionally simple living:
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  • Wake Up Call – Is Fear Standing In My Way

    There’s a guy in the office whose worked for The Firm for 39 years, he’s been with it man and boy. Let’s call him X, he’s 59 now, working as a project manager, on a project which is basically doomed. The suppliers were screwed down so much on price that they lied about the functionality of the products, and as a result it has no chance of being launched on time. They’ll be lucky if it does anything at all even when it is launched.

    X highlighted this, and as a result he’s been shifted to the bench. Don’t be the bringer of bad news, people don’t like it. Last week he wasn’t at work, and we found out why this week. He came in looking a shadow of his former self, apparently having suffered a TIA. Wikipedia doesn’t pull any punches – under treatment there is the stark phrase

    TIA can be considered as the last warning.

    Last year X discovered he had late diabetes, and generally the toll of working is showing on him. We’ve been getting onto him about it’s time he listened to his doctor and indeed his body, and simply pulled his ticket and left. He’s entitled to within a whisker of full pension, so money isn’t an issue.

    The tragedy is, that his whole world-view is associated with going to work. He has interests outside, but he has no vision, no mental model of what his life would mean if he didn’t go to work.

    He is holding, ready for the final approach, but has no map, no concept of where he is going to land. And so he fears leaving work, though he doesn’t need the money.

    I thought of X as I read McKenna’s book. He needs to take a look at where he is, where he is going, and why the hell he is still working when warning sings are flashing Wrong Way, No Entry, Do Not Carry On. He doesn’t need the money, but something that beggars belief is that he is hung up on it. Yes, his pension is about half his salary. But he’s got no mortgage, he isn’t raising kids, what’s he need all that for. One thing is sure. He’s not taking it with him if the warning signals continue to get louder and one day they stop all of a sudden.

    I thought of another guy who I used to work with, in his 50s. He hadn’t progressed as far as he would like, and could be bitter about it. He lived to go hiking with his wife, and was saving massively in AVCs and the like so he could leave early. He was physically very fit – you don’t get to do all that hiking without developing muscles like steel.

    He never got there – in his mid 50s the clockwork stopped, and he died of a heart attack.

    I would say mental health at The Firm is below average, partly because as an engineering facility it is male-dominated, and partly because its age profile is skewed towards the middle-aged. It can’t hold young-uns because it doesn’t attract many of them in the first place, and it is deskilling so they see a lack of future potential. This isn’t a great problem for HR, as it probably needs to thin out the ranks a little bit more.

    Dmitry Orlov - Reinventing Collapse

    Looking at it I would say that as people get over 50 they become vulnerable to the stress manifesting as physical ailments. Dmitry Orlov, in his book about the collapse of the Soviet Union said that the 45-60 age group was particularly sensitive to the stress of the loss of meaning and what they had worked for. They would look at what they expected and what they now had, and the fire within their minds would surrender and they’d top themselves.

    That’s not unknown at work, though it’s always hushed up – I only heard about it through a guy that worked for me that was in the volunteer first aid service. I’ve never looked at a particular cracked paving slab in the same way after hearing how it got that way.

    I thought of X when I read Early Retirement – Is Fear Standing In Your Way. Everything about him is trying to flag him down, his body is telling him that he is running out of road. And yet like a rabbit in headlights, because he cannot see a meaningful life without work, he is frozen in fear despite all the warning lights flashing red. What part of

    TIA can be considered as the last warning.

    does he not understand…

    So often we stay with the tried and tested, either because we lack inspiration to do otherwise, or we fear the unknown. It is sometimes good to be reminded that it doesn’t have to be this way, and the inspirational RetiredSyd did that for me today, introducing me to Early Retirement – Is Fear Standing In Your Way and to Early Retirement Extreme’s The Voluntarily Dispossessed. A reminder of what is wrong about the status quo is neatly summarised in Never Forget.

    Sometimes it’s good to come up for air.

    11 Apr 2010, 11:22pm
    simple living:
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  • How I plan to retire early

    Firstly, retirement means an end to steady paid employment to me. It doesn’t necessary mean an end to earning money. Early retirees need to make this call. If retirement means your pension arrangements will be your only means of support you will need a much larger pension pot.

    It’s wage slavery I want shot of. I also want my time back; my current job is reasonably well paid so if I’m going to be working for the Man I may as well stay put. But I am looking at retiring about 10 years early relative to the normal retirement age for my job.

    The keys to successful early retirement are

    • clear debts
    • reduce outgoings
    • save more
    • develop alternative income streams

    I owe nobody  – Debt Free and Mortgage-Free

    I didn’t achieve this by winning the lottery. It’s taken me two thirds of my working life and it was done the boring way; I spent less than I earned and I paid my mortgage in 18 years, by overpaying for a few years. There are no short cuts; I had fewer holidays than most and stayed closer to home – while colleagues were jetting off to Egypt or Australia I stayed in the UK or Europe with the odd foray to the States.

    Unlike many personal finance bloggers who became inspired to master their finances after building up frightful debts, I never ran up traumatic debt and juggled credit cards. I credit my parents for that, they’d even put sixpences into a tin towards the bill when they used the phone when I was a kid.

    Clearing mortgage debt is liberating – it means I can focus my efforts on saving over 70% of my take-home pay. By saving half of it in my company pension additional voluntary contributions (AVCs) I keep Gordon Brown’s grubby mitts off it.

    Reduce outgoings

    I live on considerably less than the take-home of someone on Britain’s minimum wage last year (full-time UK NMW is about 12k gross or 10k net). That’s not as hard as it sounds for me since I have no mortgage or rent outgoings. It does mean no foreign holidays and low-cost staycations, which is hard when working the 9-5 life. It was particularly hard last year, what with some of the nutty practices at work after some dreadful business results meant HR are trying to stress people to leave by abusing the performance management process to avoid paying redundancy money.

    There’s no way round it, not getting a decent break is the grimmest part of living frugally but working in a stressful environment. It brings it home just how much holidays were as much a respite from work as a positive acquisition of new experiences. However, I figure a year or two of that is worth it to win a permanent holiday for the rest of my life!

    Reducing my outgoings also gives me a dry run on what it would be like on a lower income – the fact that I can do it gives me good confidence in my retirement calulations. I’d recommend it to anybody thinking of retiring early – live on what you plan to retire on and save the rest. That way you test the theory while you can still back off and work for a bit longer if you got the estimates wrong.

    Save hard

    If you can save 50% of your take-home then for every year you work you can take a year off. It’s obvious when you think about it, the half you don’t use this year pays for your next year.  I thank Jacob from Early Retirement Extreme for bringing it to my attention in his blog post.

    Find alternative income streams

    I have to admit that I am not really doing that well at this. Most of these need creativity, such as writing, recording, photography, and this is at a low ebb while living frugally while tolerating a poor work environment. I’ve got some ideas and am improving my writing.

    And of course I am investing, both in shares ISAs and in pension AVCs, and my ISA and company sharesave holdings are paying dividend incomes. But the stock of capital is pretty low so that is not a large alternative income. And realistically, these alternative income streams are dwarfed by my employment income. At times I am in danger of getting sucked into the one more year before comfort trap that ERE highlights.