Author

Gordon Stein

Browsing

Retire early, love every minute

There is a lot of focus on the FIRE movement (Financial Independence, Retire Early). Lots of ink spilled on homemade cleaning supplies, tin foiling windows and clipping coupons whilst whilst living in a nano house. All in an effort to mass up cash, exit the rodent race and find freedom. Does the math add up? And if you get there, is there happiness? And, of course, will you run out of money? I think yes, possibly and done right, your cash keeps growing. Retire early, love every minute. Let’s take the pieces one by one:

How to retire early

Financial wellness isn’t complicated. In fact, it’s dead simple. Forget the get rich schemes, the lottery tickets and the hot stock tip. Find work that meets these criteria:

  • Something you love
  • A skill you are good at
  • An offering the world needs and values

If you add a dash of hard work and innovation, you will be successful. Stay with it for a while. Think twice before you email your boss angry. Smile a lot. Befriend your HR team. Along the way, be sure to squirrel away at least 10% of what you earn, invest it well and you will retire eventually. Up the savings to 20% or 30% and you can retire a lot sooner. How much sooner or wealthier?

Let’s take a look using the example of someone who earns $150,000 for their entire career. A long plateau, granted. Let’s assume they want to retire with an annual budget of $100,000. The usual rule is that they can draw down 4% of their retirement account. This implies a saved stash of $2,500,000. How long does it take to get there if they can earn 6% after inflation?

retire early

Assuming they started working at 23, a 15% savings rate would have them retired at 58, while a 30% savings rate would have them on the golf course at just 48. Not bad.

Is it possible to actually save 30%? I think that it is. Simple changes like shopping your car insurance, saving on pharmaceuticals or slashing housing costs can make this a reality. Heck, even buying vodka smarter can help. But it raises a more important question in this race to retirement. Namely, what’s the rush?

How to love every minute of it

I had an interesting conversation with my eldest son a couple of weeks back. Kind of a future-musing session. It was nice. He mentioned that it would be cool to retire early. I asked what he would do if he was retired. He painted a picture of doing some writing and speaking, playing music, doing some biking and skiing and finding ways to help others. We both laughed. A lot like the lifestyle of the old man.

Many people idolize early retirement since they see it as a way of escaping a working life they hate. They are running from their current career. How big is the issue? A Gallup poll indicated that 85% of the full time working population are unhappy with their toil. With 1 Billion people working full time, that is 850,000,000 sad souls dragging their sad butts off to the office, plant or field. No wonder everyone is trying to retire.

But rather than running from something you hate, might it make more sense to run to something you love? A possibility is to change your existing career to something that offers you more meaning. A cause that you can embrace. Could you crunch numbers for a group whose mission inspires you? Or craft code for a company that is solving a massive human issue? Or switch to a new line of work where the work itself is more meaningful?

After retirement, you are still you

It’s just an arbitrary date. A mostly North American concept of a finite end of a career. Followed by an abyss of non-work. Sure we can advance the date, but meaning, joy and fulfillment don’t just arrive. They need you to invite them. Find them while you are still “working in your career” or look them up “after you retire” But they won’t crash your retirement party to save you. There is no “work”, then “post-work”. It’s just a continuum of life along which we all need to craft our personal ribbon of joy.

What brings us joy? Certainly the triumph of learning new things. There is happiness in accomplishments, particularly the more impossible ones. Stretching ourselves in multiple ways adds some intrigue. And nothing unlocks fulfillment more than the key of helping others. And let’s tack on completing whatever bucket list items are left.

Financial wellness opens the possibilities

Perhaps it’s not the surly bonds of our jobs we hate, its the perception of limited choice. Without financial security, it’s harder to take risks. How will we service our debts? Whither our families if we fail? Maybe the real quest is to get to a point of financial freedom, of living below our means, so that our capital rises whether we work or not. The joy of choice.

I joined a retirement session on Zoom recently. The group leader began by saying that we are all in a period of physical and cognitive decline. The curse of the post-50 set. Inspiring! Heck of an opening. I see the opposite. With some financial freedom and advanced years, we have new tools that we didn’t have when we were younger:

  • The choice to chase a dream
  • Money to invest in ideas and in ourselves
  • Kids that are now self sufficient
  • More patience to stick with things
  • Lots  of connections who can help
  • Endless online information to learn anything
  • Deep wisdom from years of wins and failures
  • The freedom to surround ourselves with those who inspire us

An absent quest is a recipe for a bad movie and a sad retirement. There is no value in winning the financial race to retirement, only to wallow in aimlessness. Craft a life that brings you meaning, challenge, beauty and joy. Start a small business – it doesn’t need to make money. Learn an instrument – no one else needs to hear you. Tackle a challenge that scares you – cheer the win or the attempt. Help a group that really needs you – you’ll matter to them. Bask in fulfillment. Grin at the win. Enjoy.

But will I run out of money while self actualizing?

It’s interesting to actually give up the 8-7 (plus commute) life. No matter how many times you do the math, the fear remains. What if I outlive my capital? If you estimate that you can live on 4% of your savings, most financial models will say you are set. Now that I am actually living it, I notice a few things that should give you calm:

  • You will draw down 4% a year, but your investments will likely average more like 8%. That means your money is growing, not shrinking most years. The 4% co era just the worst case. Test this at firecalc. It will run dozens of market scenarios. One will show you exhausting your capital at 90. The rest show it growing two three or four fold. The spray nozzle is crazy wide. A lot depends on Mother Markets.
  • If you stay active and connected, most likely some fun opportunities will come your way. Coaching. Consulting. Investing. They can add income and leave your stash to continue growing like hostas.
  • You will see some extra income from Social Security
  • Your expenses may be much lower than you thought with kids grown, mortgages paid and homes decorated and furnished.

Now is your time. Whether you are 20 or 60, working or “retired”. Go live your best life. Scare and challenge yourself, appreciate all that you have. Help others. You got this.

What are your thoughts on retirement? Let me know in the comments.

Photo credit: the author. Taken mid day on a Tuesday as a cow crossing paused a kayak trip with a buddy. Blissful!

How to control your spending?

It was shaping up to be a financially prudent month. Until you checked the bank statements. A few “dangs”. A handful of “ugh, forgot about that ones”. And some “what was I thinkings?”. Oh, and that was before viewing those 2 other credit card statements. Sadly they all added up to make your month fiscally regrettable. Wouldn’t it be handy to have a list of spending considerations to apply before giving your credit cards a workout? A pre-spending checklist. A kind of monetary mom to control your spending.

In fact, there is! Here are some ideas to control your spending with minimal effort or sacrifice:

Shop mindfully – lead us not into temptation

The science of shopping has developed immensely. Every aspect of retail is fine-tuned to make you spend. The lights, colors, music, product placement and last-chance urgency are all there to fill your cart. Store sensors are monitoring where you move, what you buy and where your eyes look. MRI testing reveals what merchandising and messaging lights up our internal “buy buttons”. Heading to the mall with no real needs is like swimming with the sharks. While wearing a meat swimsuit.

Instead, shop mindfully. Shop when you actually need something. Bring a list to the mall or to your laptop of exactly what you are looking for. Double-check that you don’t already have the thing at home – hidden under the couch, in the attic or in your closet.

Set a cooling off period – desperate needs become vague wants

Marketers do everything possible to create passion for their products and drive urgency into your buying process. If the item isn’t an urgent necessity, give yourself a little cooling off period to regroup. Consult with some friends to get their thoughts. See if your Dad thinks it’s a good idea. Set a calendar reminder to see how important the item still is in a couple of weeks. This is often referred to as “the thirty day rule”. In Quora, someone asked me if there is a shorter version of the 30 day rule. Weird question. I suggested the 15 day rule. While you are waiting the 30 or 15 days, spend some time glancing through your credit card bills and account balances to temper your spending desires.

Can you share or borrow one to control your spending?

If the thing you need is large, heavy, expensive or will be rarely used, think about buying it with a neighbor and sharing the cost, maintenance and maybe even the storage. I did this for years with a snowblower. My next door neighbor, Peter and I split the cost, shared the maintenance and took turns plowing each other’s driveway. Way better than us each buying a machine and plowing solo. This idea works well for power washers, table saws, Spiderman costumes, chainsaws, prom dresses and dinosaur cake molds. Less effective for linens, stuffed toys, floss or pajamas.

Can you rent one?

Hello gas powered post hole diggers, drywall hoists and wedding dresses. And believe it or not, even caskets, camping geargoats and luggage. The cost savings can be considerable – e.g. caskets rent for about $750 vs $5,000 to $20,000 to buy. Renting seldom used items can also free up a lot of storage space. How often do you use all of the gear that lines your garage? Renting things you might have bought can be a good way to control your spending.

Can you get a used one?

If you kind of need the item around all the time (like kids, dishes or pets) borrowing or renting likely won’t do. You may need your very own. There are tons of marketplaces to do that. Reverb for musical instruments, Poshmark and Tradesy for used fashions and Craigslist, eBay, Offerup, Facebook Marketplace and Letgo for everything else. Most of my guitars I bought used, typically in mint condition and saving more than half. Or allowing twice as many guitars.

Get the best product

For products, Amazon reviews are great even if you don’t buy from Amazon. Their process limits the reviews to actual purchasers and the large numbers help with accuracy. One of the all-time research bargains is ConsumerReports.org. Sign up for an online membership for $30/year. Completely unbiased reviews of everything from snow tires to sun screen, tractors and strollers. Makes sure you have a product you enjoy, saves on repair costs and the hassle of replacing it before its time.

Make sure you aren’t overpaying

Once you figure out that you really want, but also need, a thing, do your research. On home renovations, there are lots of ways to save. Shopping around is a powerful use of your time. It works on just about everything. A couple of weeks back, I realized that CashflowCookbook.com was running too slow. A local company offered to speed it up for $3,000. A quick online post introduced me to a highly-rated Australian company whose specialty is speeding up Wordpress websites. Boom! Their premium offering is all of $495. They did a stellar job and left me with an extra $2,500 in the bank. On the consumer side, there are dozens of sites that focus on comparison shopping on your behalf. Here is the amazing results of my car insurance shopping project. Lots of comparison sites for anything else you need to buy. Check out Google shopping, PriceGrabber and shopping.com.

How do you control your spending? Share your tips in the comments below.

Photo credit Ellie Burgin on Pexels

Bad money habits are standard equipment for most of us. Not your fault. Great news is that they can be easily upgraded to good ones. And all the details are coming, I promise. But let me back up.

Last week, I ordered a chick pea and kale wrap for dinner. I know, I know. A bit rabbit-ish. Then came the option of fries or salad. Isn’t that one a bit obvious? Who would order the healthiest thing on the menu and then pair it with a basket of fries? Salad it was. And just a glass of ice water to drink.

To the outsider, the dinner looks a bit Spartan — pretty bland fare to say the least. Especially when you look at the rest of the menu. Bacon wrapped scallops, rib steaks, baskets brimming with onion rings and a double meat lasagna. Did I lose a bet? Was I being punished for something?

No. Just some habits at work.

The habit epiphany

Way back before songs were 3 minutes long, I would order whatever looked the tastiest. And with the blessing of youth, my waistline stayed intact. My body did its best to process whatever I shoveled in, forage for usable nutrients and keep me moving along. It all worked well. As the years slid by, I noticed a decline in my doctor’s enthusiasm as he pondered the results of my annual physical. A few changes were in order.

Bit of a wakeup call that got me thinking about eating healthier. Food became more about what my body needed and less about what looked tasty. Breakfasts became almond milk, high fiber cereal and berries. Lunches were big salads with minimal dressing and dinners were any kind of healthy, low fat, nutrient-packed fare. A good snack was a protein shake and some celery sticks. Everything washed down with lots of water.

In short, it was awful.

But I stuck with it. Over time it became my new habit. Sodas became way too sweet. Greasy food was just too, well, greasy. I began to crave the healthy stuff. All it took was a first step and a bit of time. Could this be a path to fixing bad money habits? Wait for the rest of the epiphanies.

Turns out bad habits have a vulnerability.

If it works for diet, might it work for other things?

I grew up a non-runner. Tried it a few times, just not me. Felt awkward and clumsy. Even a mile or two was painful.  Maybe my legs too short? Was I too heavy for my height? And please give me a break with all of this talk of runner’s high. After a few hundred yards, every step sucked. I hated that I couldn’t get a running habit in place.

So the logical step was to sign up for the New York City Marathon. A way to force my hand, er, feet. I got a training schedule and clicked off a mile. Then worked up to two. Stayed with it as I lumbered through every yard. After a month of steady running, my body adapted. It shed a few pounds. My mind wandered away from wanting to quit with every step. It started to feel, well, natural. Fun even. I felt strong and alive. No natural ability, no gift in my gait. Just some kindling of determination to get the fire started. Forcing the habit until it became, well, a habit. And the habit stuck. One marathon grew to three and running was my silent therapy for decades.

I discovered bad habits have 3 vulnerabilities:

  1. A realization that they aren’t ordained
  2. A start with the tiniest step in the new direction
  3. A pattern of more steps in that same direction

All habits are changeable.

Does this work for every kind of habit?

I think it does. I have tried it on all kinds of things as I went from:

  • non-swimmer to a triathlete
  • mathaphobe to a professional engineer
  • tone deaf music lover to playing guitar in a bar
  • nervous show-and-teller to professional speaker
  • double double to black coffee
  • Complete slob to organized
  • Cow’s milk to almond milk
  • Chronic procrastinator to progress obsessed
  • Hater of Brussels Sprouts to, well, ok so its not foolproof

Not a medal winner on any of these, but I got myself in the game. All with no special skills, gifts or superpowers. Just enough willpower to lace up my runners, get in the pool, add a bit less sugar or learn that first chord. Then do it all again for just one day. And the day after that, but not worrying about that until that day arrives.

Then the benefits start to kick in. The fun of things getting done. The energy boost. The deep refreshing sleeps, The calmer mood. The utter joy of someone recognizing the song I’m playing. Fun new habits. The old habits gone. Now unthinkable.

Bad money habits get shown the door

Think about bad money habits. What are the big ones?

  • A mess of overdue paper bills that taunt your psyche
  • The love of shopping even as your wallet moans in protest
  • The stress of living paycheck to paycheck
  • A crushing debt load that extinguishes the hope of your savings

These are all fixable. Each needs a bit of time to get started and a then some followup time. And yes, we all have the time. The average American spends 28 hours a week watching TV. Skip a couple of episodes and you can learn how to get your bills automated and back in shape. Or re-shop your car insurance to save thousands.

For the shopping, grab your last credit card bill and look over a couple of months of purchases. Regret any of them? Did the fun of the shop morph into the agony of the bill? Maybe review your last couple of statements prior to your next Amazon click. Resolve to shop more mindfully. Give new purchase ideas a month to season. Did they lose some urgency? Savor the sparse statements and the room to clear some debt or invest for your future.

For the make-it-to-the-next-paycheck stress and heavy debt loads, look for ways to free up some cash. There are $13,000 worth of monthly savings ideas in Cashflow Cookbook. And thousands more in my blog. Very likely that one or more of them can help you free up money with minimal sacrifice to pay down debt and ease your money worries. Pick an idea, optimize an expense, pay a debt or add to your investments. Then make another small step. Then add the next tweak.

What financial habit will you start with?

It’s time to banish your bad money habits. Pick a gateway habit to get started. Watch the results. Then move on to the harder stuff. Let yourself get hooked on the benefits.  As an example, maybe it is bringing your lunch to work 3 days a week. Saves an easy $35 a week or about $150 a month. Why not apply that to pay down your car loan faster? Clear out some credit cards. Or invest that at 7% over 30 years and add another $180,000 to your retirement account. And that is just one small habit. That one starts by just making the first lunch. You got this.

Looking for a way to reduce loan interest?

In a perfect world, we would just pay cash for everything. But sometimes you just need a loan. Maybe you need cash for your business, or Elon wants you to invest on the ground floor of his new company. Perhaps you just need funds for a car or other asset. The compounding effect of borrowed loot is nasty, so it makes sense to look for a way to reduce loan interest.

One obvious approach is to do a bit of haggling. On a mortgage or a car loan you might be able to shave off a quarter or a half a percent of interest. Worth a try. Or you could try shopping the loan between some different lenders, banks or credit unions. For mortgages, working with a licensed mortgage broker can get you a better deal than your own shopping. Sometimes attractive financing can be had from the people trying to sell you the asset – like the Ford dealer at month end, in a blizzard, in January, during a recession. All of these are worthwhile, but for the really big savings, you’ll want to dig into another approach. And it’s one that I didn’t really understand until just recently, even after buying 9 houses and about a dozen cars over the last 40 years or so. How much did I overpay on those loans and mortgages? Ugh.

The power of your credit rating

Sure, we’ve all heard of credit ratings – those numbers that tell lenders how likely we aren’t to pay things back. They run on a scale from 500 to 850. But how much do you really know about them? I don’t think I ever knew my number or what it meant until my recent move to the USA. Back in the old country, I had lots of credit cards and an awesome limit. In other words, a great opportunity to collect points for fabulous cash and prizes. But when I tried to open a Best Buy credit card here in Ohio, my application was rejected. Whoa! What! Bit of a blow to the ego. Turns out credit records don’t cross borders. I was starting from scratch like a new graduate, but with grey locks, wrinkles and a middle aged body. The worst of both worlds. So I was forced to begin with a bank credit card of $300. Wait for it…secured by $300 that I had to keep on deposit! And those cards don’t earn points. Humbling!

After a few months of carefully paying off my junior card, my credit rating went from 520 to 750. Not bad. Soon I will be able to remove my card training wheels and liberate my $300. Now, new credit card offerings arrive almost daily. And now some of them have points. I’m back!

Good to have credit cards with normal limits, but I got curious and started to learn more about credit ratings.

Credit ratings to the rescue to reduce loan interest

Turns out that your credit rating makes a difference on your loan interest rate. Like a very large and massive difference. Over at myFICO they have a nifty calculator to show just how big a difference your credit score makes on your loan interest.

reduce loan interest
Improving credit score can reduce loan interest

As an example, considering someone buying a new F150 pickup truck for $50,000 on a 60 month loan. How much would the payments be? It depends. Looking at the myFICO calculator, they could be as high as $1,209 a month or as low as $909 a month. The total interest cost over the 60 months could be $22,552. Or as little as $4,567. Hard to believe. But true! It all depends on your credit score. Turns out having a great credit score is a key way to reduce loan interest.

The high payment and interest figures are for a borrower with a credit score of 500-589. Could be someone new to the country (been there), or someone who missed some payments or is carrying a lot of debt. The low payment and interest numbers would be experienced by someone with a strong credit score of 720-850.

Sounds like it is worthwhile to learn about credit scores.

Credit scores are set by the 3 major reporting agencies: TransUnion, Experian and Equifax. Each of them receive information from lenders about your payment history and credit limits as well as public information about you, such as bankruptcies. They then score your file and make that information available to other lenders and/or sell it to companies who want to present you with things you don’t need (like all of those pre-approved credit card offers that line your iguana’s cage.)

You can get your credit score for free at annual credit report or sometimes from the credit companies themselves. Experian, as an example provides your score if you set up an account with them. Each of them offers more advanced services which they enthusiastically sell you at every chance they get. Your bank may also be willing to provide your score as well. To reduce loan interest you’ll want to find ways to improve your credit score.

My credit score isn’t great. How do I improve it?

There are several factors that the credit companies use to evaluate your score including:

  • Your payment history
  • Credit use
  • How long you’ve had your credit
  • Credit mix (do you have different kinds of credit such as credit cards, mortgage and car loans)
  • Application for new credit (new cards, mortgages, car loans etc)

To improve your credit rating, you need to improve some or all of these factors. Pay the balances in full when they are due, stay under 30% of your total credit limit, cancel cards that you aren’t using, and don’t apply for new credit unless you actually need to. Also check your credit report for errors and get them fixed. Sometimes they will show you as having cards that are long gone, as an example.

Summary

Credit scores are easy to ignore. According to a recent GoBankingRates survey, about 40% of Americans don’t know their credit score. It follows that many people don’t realize the effect that it can have on an opportunity to reduce loan interest. Take the time to learn your score and improve it. This is important if you are thinking about a loan, but even important when you aren’t. Good to be ready should you need access to some extra cash for an emergency or a worthy cause.

I should also mention that rushing out to buy a brand new truck with a loan isn’t likely to be the best financial decision. Especially if you’ll only be using it to carry your lunch and not heavy gear like the dudes in the picture. Buy the vehicle that you need for 90% of your driving. Rent something else for the rest. And a 2 year old used vehicle can represent great value. Learn more about how to buy the perfect car.

And of course, the $17,985 in reduced interest could be put to very good use. Over 40 years, invested at 7% it could grow to a tidy $287,760. Not a bad addition to your retirement account. For $13,000 of monthly savings ideas, check out the book.

What tricks do you have to reduce loan costs? Let me know in the comments.

Photo credit Said Al-Olayan