www.Tobold.com
Tobold@GMail.com
A blog with my thoughts regarding games I am playing and other stuff in life. Please read my Terms of Service
RSS Feed
Sunday, April 09, 2023
Personal Finance Advice for Early Retirement
I never "got rich quick". I did, however, reach a point in my life where I retired just under the age of 60, with a reasonable prospect that I'll be financially okay for the next 20+ years and then die before my savings run out. Which, if you are a generation younger than me, is probably something that sounds nearly unattainable now. So I could be tempted to put on my best Yoda costume and lecture on my blog how early retirement with financial independence can be reached. But if I am totally honest, I don't think that advice would be very good. I do think that my financial pathway to early retirement is reproducible, even if economic conditions have changed. I just don't think that I really should get all that much credit for it, or that the life choices that got me on that path are necessarily for everybody.
The thing is, I am doing the exact thing that the large majority of people do with their personal finances: I spend money according to some inner belief what my standard of living "should be". We all have some sort of inner compass on that. For most people, when they see a Lamborghini, their financial inner compass will tell them that they can't afford that. And that same financial inner compass is in action whenever you see a price tag or any potential purchase, even down to individual items in the supermarket. Caviar? Too expensive! Potato chips? Yes, I can afford that! The problem with that financial inner compass is that it is frequently wrong. But the alternative, of actually making a budget and calculate whether you can afford this or that expenditure, is too much for the large majority of people. The obvious risk is that your inner compass tells you that you "should be" able to afford items that actually you can't. And so you spend more than you earn, every month, until you credit card is maxed out or you are in some other sort of serious financial trouble.
So how did I get to a comfortable financial situation? Basically I primed my inner financial compass to make me think that I could afford significantly less than I actually could. And I didn't even do that deliberately. I just made a life decision that I wanted a PhD degree in Chemistry. That is certainly not something that I regret, but neither is it something that I would recommend to anybody, unless they are as passionate about Chemistry as I was from a young age on. Some hard truths about doctorate degrees in "hard science" fields: They take very long; in many universities all over the world people going for a doctorate or post-doctorate degree are being exploited; and while people with a PhD degree often will earn good money later, if you consider the optimum length of studies with relation to overall lifetime salary, a lesser degree would have been more optimal.
So, by the time I was 30 and just finishing that degree, I had an annual income of $9,000. No, there isn't a zero missing. I really was way below the poverty line, working all day between finishing my degree and doing work for my professor; I was living in a rented furnished room, had no car, and was unable to afford even minor luxuries like vacation travel. And then I got my first job, where my starting salary was already 4 times my university salary. And nearly 30 years later I was earning a low six-figure salary. But between me having been raised by parents who weren't rich, and having spent long years of studies under financial hardship, my inner financial compass was already dialed in at a relatively low setting. So once I had my degree and was working full time in the kind of regular career for somebody with that sort of degree, my inner compass told me to spend less than an actual budget would have told me. My inner compass was as wrong as that of many other people, it was just luckily for me wrong in the lower direction.
You don't need a higher finance education to guess the result: If over the course of a 30-year career you constantly spend a good chunk less than what you earn, and you invest those savings conservatively without ever going for high-risk financial products, in the end you have a pile of money large enough for retirement. And that part is certainly reproducible. But the other part, priming the inner financial compass, isn't necessarily so. Older generations, like mine, still mostly did better than their parents, which means that in their childhoods they were less financially well-off than later in life, which helps with setting that compass low. Younger generations are less likely to do better than their parents, and have a harder time adjusting to the natural drop in financial means when leaving their parents home. Ideally, everybody should live according to his means, and not according to some fuzzy, pre-formed idea of what their living standard should be. But I never managed to do that, and understand that this is way beyond the capabilities of the average person.
- posted by Tobold @ 1:38 PM Permanent Link
Comments:
<< Home
Newer› ‹Older
I believe in the philosophy that if you don't plan to succeed then you are planning to fail. Simple words that can be life altering. I started planning for retirement at 18. The initial plan was not written and it was very simplistic - I want to retire early and to achieve that I am going to save the maximum amount for retirement while still "living". Which meant to me that I didn't want to live a monk's existence, but I wouldn't spend everything I made either.
I would evaluate where I stood one or twice a year and adjust the plan. I chose jobs that had good 401k benefits, always with a thought of now (how well I liked the job and whether it allowed me to meet my current responsibilities and whether it moved me towards my job goals) and my future (does this job help me get to where I want to be in X years). I always knew that I'd need some luck along the way as well. I knew that if life threw major challenges in my way like health issues, or if I needed to raise a deceased loved one's children then I would have to totally rethink my plans. I also knew that since the majority of my retirement was based on the stock market that I needed macro-economic help. There are a lot of things that are outside of control and I acknowledged that. Some of those I planned for as well. For example, in the US we have social-security. However, I never included that in my plan since the funding for that program always seemed sketchy to me. So if it goes away it doesn't eliminate my ability to retire.
So I planned to succeed - not everyone will. Life guarantee's nothing but death. Harsh words, but the truth as far as I can tell. So I always viewed retirement as something to strive for, not something owed, not something that "was going to happen", something that I wanted to happen. I think that mentality (along with a lot of hard work, and luck as well) helped put me in the position that I'm in, which is close to achieving the retirement goals that I set and reset for myself.
To me it takes planning, it takes a concerted effort, and it takes some luck. Control what you can, which is planning and making the best decisions at the time with the information that you have. Seek out those who've been there before and learn from them (which is why I'm sharing my views) - although I think that we are all "old" here :) so it's probably just us "preaching to the choir" as the saying goes.
I would evaluate where I stood one or twice a year and adjust the plan. I chose jobs that had good 401k benefits, always with a thought of now (how well I liked the job and whether it allowed me to meet my current responsibilities and whether it moved me towards my job goals) and my future (does this job help me get to where I want to be in X years). I always knew that I'd need some luck along the way as well. I knew that if life threw major challenges in my way like health issues, or if I needed to raise a deceased loved one's children then I would have to totally rethink my plans. I also knew that since the majority of my retirement was based on the stock market that I needed macro-economic help. There are a lot of things that are outside of control and I acknowledged that. Some of those I planned for as well. For example, in the US we have social-security. However, I never included that in my plan since the funding for that program always seemed sketchy to me. So if it goes away it doesn't eliminate my ability to retire.
So I planned to succeed - not everyone will. Life guarantee's nothing but death. Harsh words, but the truth as far as I can tell. So I always viewed retirement as something to strive for, not something owed, not something that "was going to happen", something that I wanted to happen. I think that mentality (along with a lot of hard work, and luck as well) helped put me in the position that I'm in, which is close to achieving the retirement goals that I set and reset for myself.
To me it takes planning, it takes a concerted effort, and it takes some luck. Control what you can, which is planning and making the best decisions at the time with the information that you have. Seek out those who've been there before and learn from them (which is why I'm sharing my views) - although I think that we are all "old" here :) so it's probably just us "preaching to the choir" as the saying goes.
I picked up the concept of FIRE (financial independence/retire early) several years ago. We were already of the "limit what you spend and save the rest for retirement", but getting into the FIRE community really drove us to have a purpose. My hope within the next five years I am retired early (i.e. can stop working if I wanted to) and still in my 40s. We are close to the goal and now I am at the step of "oh wow; almost there - what do I actually do to make use of all these retirement savings so I can extend it accross the next 40 something years of my life! ahhhh!!!".
Unlike some others who struggle with "what would I do if I retire early?" ... I know exactly what I'd do and that is play video games, go fishing, and work in the garden.
Unlike some others who struggle with "what would I do if I retire early?" ... I know exactly what I'd do and that is play video games, go fishing, and work in the garden.
I did the same. I've never stuck around long enough at a single company to earn a good pension but started putting money away at a young age. I'm still worried if I will be able to save enough to retire when I want but I'm progressing.
I think the problem today, at least in the west, is that it's near impossible to live below your means. Rent is increasing well past the rate of inflation or salary increases. Houses have increased in price a huge amount in the last 3 years. Everything has increased in price.
Most of my nieces and nephews live frugally and are still having a harder time getting by. I'm not saying our path is impossible but it's certainly harder to achieve than it was when I did it.
Post a Comment
I think the problem today, at least in the west, is that it's near impossible to live below your means. Rent is increasing well past the rate of inflation or salary increases. Houses have increased in price a huge amount in the last 3 years. Everything has increased in price.
Most of my nieces and nephews live frugally and are still having a harder time getting by. I'm not saying our path is impossible but it's certainly harder to achieve than it was when I did it.
<< Home
