What timing, Black Friday and an article about Expenses 🙂
Last summer, Mr Z was cruising the internet at lunch, looking for an idea of how much he needed to save for a comfortable retirement.
“I’m miles ahead of the curve.”
He thought to himself smugly and uttered a deeply disturbing chuckle, rattling the more timid fellow cubicle rats.
“With my employers contribution I am putting 20% of my salary into my workplace pension each month.”
The chuckle was caught in his throat and the spooky grin wiped from his face…
My lunchtime reading led to the discovery of Financial Independence, and the fact that retiring early doesn’t mean giving up on life or dropping out of your job because you didn’t have what it took. But rather being free to pursue what it is that makes us tick, without the sole motivation being a salary.
I have been on a journey since then, figuring out my own Financial Independence strategy. Immediately after discovering the concept. I discarded it, “IMPOSSIBLE!” I screamed. “These people are jokers”
Then instantly read more about it. I got hooked on it. I read yet more about it. I calculated my Net Worth. I had a look at the value of my Pension account. I did some projections. I calculated my Net Worth again the following month. I did some more projections. Copious amount of time was spent researching investing, asset allocations, Safe Withdrawal Rates and the most efficient approach from a tax perspective. Ahhh, happy days.
And then, like many, I had the epiphany that it is my expenses I have the most control over. I can’t control the markets or the governments future fiscal policies, no matter how many times I tweet The Queen. Whilst I can start taking steps towards increasing my income, it’s far from being within my tiny sphere of control.
But I can control of my expenses. Now it’s so obvious, and rereading articles I read before it appears this advice is everywhere, cut your fucking expenses. Sometimes you have to come to the conclusion yourself I guess.
|Even spidey took a while|
Since last summer my expenses have been beaten about the face with a wet fish. To the point where I am comfortably saving more than 50% of my after tax income. Save a more than you spend and you have surpassed the point of savings parity, your progress towards FI will be supercharged. My savings have been super charged this year, going from about 20-30% in 2014 up to around 60% now. And I’ve done nothing special.
But, prior to this, I was spending most of my income, dipping into my overdraft like a chump and generally being a bit of a personal finance gimpoid. Now, I wasn’t a spendy consumer, but I would find ways to spend somehow. Save up some money…some asks if I fancied two weeks surfing in Indonesia…sure I got savings. And that’s how it went.
I would save regularly, build up a nice amount in a savings account or a cash ISA. But at some point, I would spend it. On a holiday, paying off a credit card or buying things for a new hobby.
My infantile attempts at saving earlier in life never gained enough momentum, never reached that critical mass, to stop me from spending it. The act of starting to save was only just behind me, a recent memory and an event that seemed easy to repeat.
The amount of time I would need to put in, to build my savings back up to what they had been seemed so small and unintimidating that it didn’t provide any kind of resistance to curb my periodic spending of savings.
|Mr Z’s prior savings willpower|
Roll on the narrative of Financial Independence, providing the back bone of some much needed will power. At some point this year or last year I passed over that unseen speed bump that was impeding my continued saving. My savings hit some critical mass that was to me, at some level, large enough that I didn’t want to spend it.
It’s as if all my pennies were piling up, slowly increasing in mass like it had always done previously, when suddenly a pivotal mass was reached and my savings collapsed in on itself under it’s own financial gravity. I hod found my ‘Jeans mass‘ for savings. The result was something much more than it had just previously been. The sparse, gaseous, initial saving had collapsed and was now a glimmering new Savings Star.
|That embarrassing moment when your savings collapse under it’s own weight.|
Hopefully over the next few years, savings will continue and a nice planet will form that can sustain Financially Independent life. The building blocks are there. But bugger me, getting started was tough and took a while.
Cresting the speedbump
Now that I have crested that speedbump there is more than I have ever had in savings. A weird thing happened, instead of checking out what new bigger, cooler, more expensive things I could buy with it. I now want to protect and nurture it.
There is no checking out what motorbike I could afford with my savings (ok, maybe there is a little bit of looking). No planning on taking a sabbatical, designed to stretch it out for as long as possible to spend every single penny, only to return to work a few months later.
For the moment, there is no desire to withdraw any money from savings, only to add to the pot and help it to grow to the point that I can stick a flag in the ground and declare planet Financial Independence populated, and set up Zombie City.
The Spending Paradox
I have battered my expenses down over the last year and a half, to the point I am nearly hitting my goal of saving 60% of after tax earnings this year.
My approach to reducing expenses was never to create a depressing budget and stick to that no matter what. Some arbitrary, self imposed, limit that would make it feel like I was constantly in some spending prison. I tried to attack expenses where they are most weakest. At the source, deep within my unconscious, amongst odd dreams, an ability to study and work whilst listening to certain music, a distrust of fashion and the weird desire to want to touch fire sits my spending habits.
Most of us question large expenses relatively reasonably.
Should I spend £3,500 on some fashionable, pre-torn jeans?…Nope.
Smaller amounts sneak under our inefficient expense radar. The super powers of advertising and consumerism grab us when we least expect it and before we know it we are excreting little expenses left, right and centre. Completely unknown to our conscious self, we can be in this situation and actually believe we aren’t spending much. Captain, we got a leak!
What I have found weird, since suplexing my unconscious spending into unconsciousness, is I don’t feel any poorer. I don’t feel impoverished just because I spend less, people aren’t throwing spare change at me…yet. My lifestyle is pretty much the same.
I spend less, but feel richer for it. The Spending Paradox.
One of the initial stumbling blocks to increasing your savings rate is the feeling that you will be missing out, that you will be sacrificing quality of life for savings or that you’ll be foregoing some of life’s pleasures. From my experiences over the last year or so, I can say that this isn’t true. You just cut out the unnecessary spending, the “sugar spending” – that spending that just gives you a quick boost.
We are conditioned to align spending with richness, the person who buys Armani Jeans and a Porsche is considered rich. Even though they have done the exact opposite, they are poorer for these decisions, not richer, society seems to be conditioned to think of these people as rich. Another Spending Paradox.
My savings willpower has increased dramatically over the last year or so.
|Mr Z’s new savings willpower is not to be fucked with|
The sum of cresting my savings speed bump, no longer wanting to spooge away my savings periodically and feeling richer for spending less is more than it’s individual parts.
I’m hoping to carry on supercharging my progress from here on out.
So, crest that speedbump, and join me on planet Financial Independence in the future. It’s going to be a hoot.
[I hope you are enjoying buy nothing day]