Could We Spend Less?

Compared to some of the other “Early Retirement Guys” I read online, the plan that why wife and I have set out to complete – retire at age 45, is fairly moderate. As much as we’d like to exit the workforce as quickly as possible, we realize that with both our level of income and the activities and things we enjoy spending money on, a more moderate course will allow us to live the lifestyle on basically a consistent basis. I don’t think we live super cheaply, but we could definitely spend much more frugally, in order to reduce the amount of time it would take for us to get to retirement age.

There are things that my wife and I could do in order to reduce our expenses, with the goal of becoming Financially Independent. We could eat more cheaply, visit family and friends less often, I could stop golfing, and my wife could stop buying cheap disposable clothes.

We, along with most people, would have a difficult time explaining why we spend money on things that we spend it on – the vast majority of the things we buy are completely unnecessary. Most of the things, beyond the initial rush and enjoyment of a new purchase, really don’t add a significant amount of enjoyment to our lives. We have more stuff sitting around our house that seemed like a really good idea to spend money on at the time, but now are just sort of part of the landscape, and will eventually be shoveled out the door. Having a “tighter” monthly budget would allow us to invest a bit more into our accounts, while probably reducing some of the waste that we get frustrated about about once every couple of months.

Realistically though, I don’t know if the marginal change in our spending vs. the increase in retirement funds available would result in that much of a change in our retirement date. Even if it is wasted money, counting pennies would probably cause more problems in our relationship than it would be worth in the 4-6 months our date of financial independence would occur. My wife likes to buy disposable girl clothes that are made in a hard to pronounce country, as much as I like to swear on the golf course in the summer. Getting rid of this stuff – although possible, wouldn’t make us happier at all.

Becoming financially independent at age 45 was chosen as a moderate date on purpose, so that we could “screw up” and still have an achievable goal that we could shoot for on the way.

Could you reduce your retirement / financial independence date if you made some changes? Why haven’t you made them yet?

The Big Ticket Items

The main thing that gets me to go to my local gym three to five days a week is the sauna break that I have after my 30 to 60 minute workout. I love the heat the sauna provides, especially in a winter is as cold as this one. I like the quiet and moderate solitude I get there as well – it’s a great place to sit and semi-meditate for 15 minutes or so. Normally, there’s nobody in my gym’s sauna with me, but last week I struck up a conversation with a guy who was having furnace problems.

Ontario was REALLY cold early last week – something like -20 or -30 C. This guy’s furnace conked out during the night, which made for an uncomfortable sleep for him and his family. They had a furnace repair person in the next day to look at their 16 year-old unit and were told that the parts and labour to fix the problem would be approximately $600. On the other hand, a replacement unit would cost substantially more. The guy chose to pay for the repair, and start shopping around for a furnace unit, hoping the unit would make it through the rest of the winter.

A quick Google search (2 sites) shows that the replacement cost of an 80% efficient furnace is somewhere around $2,000, with the price increasing as the furnace efficiency increases. The problem with replacing a furnace in the winter is (of course) the cold. -35 and water pipes don’t mix well, and could result in super expensive plumbing repairs. If you have a broken furnace that can be fixed, it makes a lot of sense to do what my sauna friend did and repair it for now so his house and family don’t freeze solid in the extreme cold and replace it at a more convenient time.

I worry about big expenses like a furnace, or a car purchase. These are things (especially the furnace) that my wife and I need. They are also things that I have no idea how to fix myself. With both of these large purchases, it’s usually best to get rid of them when they have almost 0% of life left in them – they have been all “used up” then. The problem with this strategy is that you’re sometimes left stranded somewhere or frozen in your own home if these large items break at an inopportune time.

My furnace is 13 years old as of this winter (according to the installation sticker). We know that there aren’t that many more winters left in it, but are hoping that it doesn’t explode one night and leave us scrambling for a replacement. Cars and furnaces are the kind of expenses that I can plan for – there is a “known” replacement date (approximately) and cash can be set aside over time. From a retirement planning perspective, these larger capital purchases have to be added in – things such as roofs or appliances, hot water heaters or septic tanks.

Financing this kind of thing is possible, but depending on the interest rate you get, paying for multiple unbudgeted items at a time may make a huge impact on available cashflow.

Do you plan for the replacement of “Big” items now, or in your retirement budget?

“Ragrets”

One of the funniest tattoos I’ve seen was in the movie “We’re the Millers”, where a stereotypical punk teen had inked across his chest “NO RAGRETS”, with the guy, and I would assume his tattoo artist both not knowing how to spell or Google a word that is going to be permanently on him. Having viewed the Internet, I’m always amazed at how many people have either misspelled words on them, or have decided to get a word done in a foreign language that they don’t understand that turns out to say something like “Chicken McNugget” instead of Peace and Love.

I don’t have any tattoos – mostly because I’m too fickle to have something put on me forever, but also because needles are the worst, and paying someone to needle me for a while would seem like my least favourite thing to do with free money. At 35 , I do have some “Ragrets”, especially when it comes to money.

I think like everyone, I wish I would have had similar priorities at 25 as I do 10 years later. Instead of (for example) buying a fancy car for cash, I could have driven an older beater and been much further ahead now. I could have invested more heavily in my early to mid-twenties to take advantage of compound interest and have been much closer to any financial goal, instead of essentially treading water (and thankfully not getting into debt) during my twenties after I got out of University.

I’d like to say that education in personal finance would have helped, to place blame my financial “Ragrets” on the Ontario education system and their pushing of Calculus and Algebra over actual useful math skills. The truth is, I probably wouldn’t have listened to anyone in my late teens and early twenties if they told me what I was doing was probably not a good idea. Taking a student loan and spending it on beer and bad food would not make life better for more than that night. If I had been told to use the time that I was spending playing Playstation 1 (Tony Hawk Pro Skater, which I excelled at) and found a job to help me break even on bills, I probably would have thought that was laughable – I had “lots” of money.

My financial goals had to be my own – I was too stubborn and unable to look into the long-run (or even six months down the road) until I was almost 30. It sucks to look back and see the opportunity I gave up a decade ago, that would have put me in a much better place today.

That’s one of my regrets (I almost spelled it wrong) – would you have changed anything with your finances in the past?

Will More Time Help?

One of the main reasons I’m looking to not have to work anymore is that I have lots and lots of things I’d rather be doing then trading my time for a paycheque. The work that I do is fulfilling, and (the way I see it) interesting. Given enough money right now though, I would probably choose not to do my current job, or any other one – choosing to do the same things I do on holidays and weekends.

The way I look at it, I’m awake for about 16 hours a day. Being at work for 8 hours, and adding in commuting and “getting ready” time for an hour and a half gives me about 6 or so hours to do what I want to do. If I were super efficient with my time, I could get lots and lots of stuff done in 6 plus hours a day. My problem is that I am kind of the opposite of that, full of good intentions, but lacking on execution when it comes to being overly productive in my spare time.

The stuff I want to do in the spare 6 hours a day I have during the week are not hugely important – they’re skills I want to pick up, like learning basic Spanish, or learning how to draw. There’s always house projects to do, like painting a room, or fixing something that’s been broken that my wife and I have just been living with (I hope I’m not the only one who has that sort of thing around). Finally, I’d like to get more fit than I am now – the problem I find is that it’s just difficult to split time between the gym, or going on a long walk, or other exercise and then finding any time to get the “normal” life stuff done, like cooking and cleaning.

My hope is that gaining an extra 10 hours a day will let me get done the things that I want to get done in a day. None of the stuff I want to get done is interesting to anyone but myself, but I find getting done my various weekend projects to be very fulfilling. Given more time, I’m hoping I will be able to get more of the stuff done that I want to get done, and not use the spare time watching excessive amounts of Netflix or mindlessly searching the Internet.

Occasionally, I’ll read a book that will get me super excited about being productive – both at work and home. The same with most things, the enthusiasm for the new way of thinking wears off, and I usually revert back to my “old ways”. One of the things that I’m going to keep working on is to try to find ways to be more productive now, so that as I get older I will hopefully have grown out of my current procrastination strategies.

Do you have any tricks that you use to optimize your free time (besides cutting off the cable and Internet completely)?

Finish Strong, or Limp Over the Line?

Over the last few years, I have had a similar discussion with both of my parents. I’m the oldest of three kids, and probably the most vocal about financial matters. I have explained to both of my parents that I hope they leave everyone a total of $0. The way I look at it (and I’m hoping my siblings see it the same way) is that they earned all of that money, and I hope they spend every penny of it.

The “problem” with retirement savings is that nobody ever knows how long you’re going to need to make the dollars last. It would be much easier to plan for retirement if I knew I would need “X” amount of money for “Y” amount of years, and could work out an amount of money that would fit my lifestyle. The issue that arises with retirement savings, is that even though I think I can easily get by on “X” dollars, it would be terrible to get to age 84 and find out that I actually need “X times 50% more” dollars, due to health issues or unexpectedly higher costs of living that come up.

These are the kind of things that worry me. As much as I’d like to get out of the workforce as soon as possible, I don’t want to leave a steady income too early, in the off chance my calculations are completely off and my wife and I end up destitute in our old age, and not really be able to do anything about that. If I base (as an example) our retirement calculations on interest and dividend payments over our retirement, with the assumption that starting at age 75, we will start drawing down capital that will hopefully last until we don’t need it any more. It is difficult to know what our dollar requirements will be at that time (I’m just hoping we will both still need money at that age).

There is a significant opportunity cost to “over-working” for the purpose of hoarding unnecessary funds. I would rather just have exactly as much as I need and quietly exit the workforce at that moment. Whether retirement happens at 45 or 75, this kind of calculation is difficult to figure out.

Have you reconciled this risk? Are you planning for a $0 exit like I hope my parents have, or do you think you’ll die with a bunch of money sitting around “Just in Case”?

Setting a Low Bar

Part of the reason my wife and I are even able to contemplate retiring early is our low cost of living. We have looked at our bills and have minimized the fixed portion as much as possible. There are areas that we could probably remove entirely, such as Internet and my expensive cell phone data plan, but for the most part, our expenses are pretty low.

Our major difficulty is keeping lifestyle inflation in check. When we were able to pay off our mortgage last May, removing the last of our household debt, there was a while that things really could have gone off the rails with our spending, which would have negatively impacted both our ability to stay with our plan of Early Retirement, as well as probably resulted in some buyer’s remorse down the road when we looked back at how we had spent our money.

I think at 35, compared to where I was at in my head a decade ago, I have a better understanding of what I really find worthwhile to spend both my time and money doing. I am much more comfortable now saying “No thank you” to things that I have no interest in doing, because I know I won’t look back with fond memories at the majority of those instances.

Ten years ago, I had significantly less impulse control around the spending that I took part in. I don’t think I would have been satisfied living in as small of a house as I live in right now. I also don’t think I would have held off on buying the next generation of awesome video game system (I know this for a fact, because I spent most of my time playing video games a decade ago). I don’t think I would be happy driving around a tiny hatchback car, knowing that I could afford a much peppier and fun car.

I think that my wife and I have accepted that we’re boring people who enjoy being boring, and are comfortable in our own skin. We’d rather sit around and play board games or read instead of seeking out a concert somewhere. We’d rather drink homemade beer and wine with friends at a house party then go to a loud pub most of the time where conversation is impossible.

I look at our lifestyle as kind of setting a “Low Bar”, but I think I compare what I used to find fun to what I actually do now. Realistically, the main reason why my wife and I are able to work towards Early Retirement is because our lifestyle is so cheap to live. Our main hobbies are library books and the Internet (Netflix) for most of the year (since golf season only lasts for about 4 months of the year for me). If our lifestyle included going out to pubs or restaurants most nights for dinner and heading out to concerts and expensive trips in our free time, we would probably just be breaking even now.

Outsiders

I’m sure most people feel this way, but sometimes my wife and I really feel like outsiders. Our goals for life seem to be very different than most people’s. Our financial goals are pretty different than most couple’s, as we’re much more interested in accumulating as much money as possible, as quickly as possible. With my now successful vasectomy (proven by a lab test), we have distanced ourselves a little bit more from the “normal” course of life. We were satisfied with our family of two, and stopped at that.

Of the two of us, I am probably much more of an outsider than my considerably more moderate wife. My odd ideas of what we could do, if only we spent a bunch less money are usually weighed against a much more conventional lifestyle preferred by my wife. One of my grand ideas of living off the grid in a Tiny House butted up against logistical issues such as consistently running water and intermittent electricity – although besides that, the plan was pretty popular within our house with the more costly blueprint additions due to the requirement of installing a water system in a more remote area.

Recently though, mainly due to experiencing the horribly snowy and cold weather, my wife has decided that she would not like to live in this miserably cold weather anymore. Ideally, she would prefer that we moved sooner, rather than later – sell our house and everything else and move someplace where it is both warm, and the risk of catching malaria is somewhat higher.

This move would make us kind of the ultimate outsider family – abandoning our roots and escaping to live a much more moderate lifestyle than we’re living now – in order to stretch our dollars out as long as possible. Realistically, I think this idea could work in the short term (maybe) – we would just be more at risk of financial ruin then we currently are, especially if we exited the job market for an extended period of time. While I like the idea in general (I’m all for exiting the workforce as soon as possible), I’m uncomfortable with the inherent risks associated with exiting the workforce this early and losing my current earning power.

What I feel lucky about and appreciate is that my wife and I can even contemplate any of our “un-normal” lifestyle choices. We’re more than privileged to be able to have this kind of opportunity to be able to discuss this kind of thing. Our plan (for now), unless something significant changes is to maintain our more fiscally conservative and safer road to retirement – although we’re reserving the right to pick up and leave the country like a couple of fleeing criminals at any time.

How conservative is your financial plan? Are you going to have enough money to live until you’re 120?

Paying the Piper

As I have previously talked about, I had a pretty unhealthy December – the result being an accumulation of a bunch of weight, and was concerned that my clothes weren’t going to fit well in the near future with the path I was heading down. I hate buying new clothes – it’s probably my least favourite thing to spend money on. Having to buy new clothes because I got lazy and filled my face for a prolonged period of time would make me extra grumpy, and required an intense intervention.

I made a commitment to increase both the volume and intensity of working out for the month of January (yes, I was one of “those guys” with the New Year’s Resolution). I also tried to limit the amount of “fun” food I was eating, after overindulging for the month of December – I told myself I was paying penance for my unhealthy decisions made. It wasn’t my favourite month, but at the end of 30 days, I was able to lose most of the holiday weight I (around 15 pounds).

While I usually prefer a more consistent work-out and diet schedule as a way to maintain a healthy bodyweight, when I got out of flux, it was much easier to take an “all or nothing” approach. One thing that helped me achieve my goal at the end of the month was to employ a strategy I heard on a podcast (I believe the “Joe Rogan Experience”). In the discussion I heard, the host of the show was asking his guest, who was looking at getting healthier what he would tell himself before doing something unhealthy – to stand outside themselves and ask what they would tell himself to do if he was standing outside himself. This method worked for me – before going out for pizza at lunch (which is awesome and delicious), I stopped myself and ate my much more healthy and cheaper lunch.

My major finding with this month-long project was the amount of time I was able to “find”, once I prioritized this extreme fitness plan over most of the other stuff I was doing in the month. Instead of going home after work, I was spending around an hour and a half at the gym around the corner from my house. Finding 7 or 8 spare hours a week from my busy winter evenings of surfing the Internet and watching Netflix was difficult, but I somehow managed. Since my month of Extreme Fitness is now over, I’m hoping I’ll be able to find the same amount of time to complete other projects in my life. I just need to have a bit of discipline on the way. I just needed the incentive of not having to go clothes shopping to find this time for the month of January.

Did you make any resolutions this year? How are they going?