A Conversation With A Man In A Very Different Financial Place

I had a fascinating conversation with a neighbor of mine this weekend.  I had been helping him trim some of the bushes and trees around the house and we decided to sit down and take a rest in the shade for a bit.  My neighbor, (We’ll call him John), doesn’t actually own the house.  He is living with his brother’s family in the house due to not being able to afford a place of his own.  John is 70 years old and never went to college.  He is divorced and has a couple grown children and grandchildren.  He has absolutely no savings or investments and is living off a low amount of social security.

Previously John and I have talked about money and he has asked me numerous questions.  This weekend he asked me much more pointed questions wondering how someone that is 45 years old ends up in my situation.  I had previously told him that I always pay cash for my vehicles because I don’t like debt.  He also knows that we own our second home without a mortgage and that I intend to retire around the age of 50.  As we sat in the shade, one of John’s first questions was how I ended up “being a saver”.  I told him that there were a few influences that sent me down the path I’m on.  The first was watching my parents suffer through the stress of struggling to pay the bills.  Our family owned a business when I was a kid and I helped work in the business from the time I was about 11 years old.  I would often go to work with my Dad on Sunday’s and sit behind the counter to keep him company.  By the time I was 12, I was actively helping customers.  I remember when I was about 13 years old.  I was sitting in the back office with my mom as she was paying some of the bills for the business.  I remember the stress in her voice and the concern in her eyes as she stacked bills in the “can pay” and “can’t pay” piles.  I knew that she also had a similar approach for the bills at home.  At 13 years old I remember feeling the stress of how they could pay all those bills.  I swore I never wanted to own my own business or stress about paying the bills when I grew up.  John was nodding his head while I told the story and said that he too grew up in a house with very little.  He still didn’t understand how that sent me on such a quest to try to live the opposite of that.

It was really kind of a surreal conversation because I couldn’t help but think that my future would look similar to Jack’s if we weren’t actively saving and investing for our future.  If anything, it makes me even more motivated to continue on the path we have in front of us.

Say It With Me: Diversification!

A couple months ago I was sitting in yet another ALL DAY MEETING with a few of my peers at work and saw something that shocked the hell out of me.  I was sitting behind my coworker who is probably about 55 or so.  The way we were sitting was somewhat sideways looking forward to a big LCD display that had the meeting content on it.  Because he was between me and the LCD screen I happened to be staring straight at the screen of his laptop whenever I looked down.

This guy, we’ll call him “Bob” decided to bring up his 401K account through our internal website.  While I tried not to look, I couldn’t help glancing in his direction a few times.  At one point he brought up his asset allocation screen that showed where his money was invested.  I was SHOCKED to see that he had 100% of his $700,000 retirement fund in the company stock.  Now this isn’t some kind of tiny company stock.  Think Fortune 100 blue chip stock.  Regardless, I couldn’t believe Bob had his entire retirement account in ONE stock.  Our company stock has been relatively volatile compared to the overall market and frankly we are always one bad news article away from wild swings in the price.  If Bob was 25 I wouldn’t really have thought twice about it (although if he was 25 and had a $700K retirement account I probably would have left my wife and tried to marry him).  Unless he’s planning on working to 75 or 80, I just can’t comprehend why he’d think it was a good idea to have zero diversification in his retirement account.  Of course maybe this account is a small portion of his overall net worth and I’m just imagining the horror that might be, but statistically, I think he’s probably just got all his eggs in one single basket.

5 More Years!

I was messing around with one of the tools on the MadFientist site and when I punched in all the numbers it said I could retire in 5 years at 50 years old!  I’ve somewhat been obsessed with the idea of “early retirement” and keep up with all the new posts on the Reddit /r/financialindependence subreddit.  While, compared to a lot of people on that subreddit, 50 isn’t exactly groundbreaking for a retirement age, I know that it’s pretty darned early compared to most people.

I used the figure $60,000 as a retirement income and only used my investment account totals (as opposed to my total net worth with assets like houses etc) and was surprised to see that it calculates I only have 5 more years.  That assumes that neither my wife or I work once I turn 50, which would not be the case.  My wife actually likes her job and is expecting to work about 5 years longer than I do.  That will give us the safety buffer of living off her income for 5 years and letting our investments continue to compound.  We also will have the added benefit of getting our health insurance through her job.

So, my five year horizon is giving me hope and helping me hang on at work, even though I’m not very excited about my job.  (And yes, it will be very hard to walk away from a job that pays over $100K per year.)  I think what I’m most excited about is getting through the next five years and then knowing that I could pull the trigger at any time.  As the saying goes, “I’m just one bad day away from retirement”.  At this point, I’m 5 years and 1 day away from a bad day!

Small Expenses That Seem to Hurt

I’m a completely irrational human being.  I often find myself fretting/obsessing or just plain paying waaaay too much attention to small expenses and then freely throwing around a few hundred dollars on *want* items without a second thought.

A great example of this is my reaction when I opened a toll summary statement to see that my wife had driven in the express carpool lanes three times last month.  These are the lanes on the road that you have to pay a variable toll to drive in depending on how bad traffic is.  We’ve always done well staying out of those lanes but my wife had been driving a carload of kids back from a camp and just couldn’t stand the thought of sitting in traffic any longer than she had to.  Unfortunately the price of admission on that particular day was $10.00!!  Basically a frugal guy’s version of a dagger to the heart.  It KILLS me to spend money on things like that.  To add a tiny bit of a shove to the dagger, she apparently enjoyed that trip so much, she decided to use the lanes twice more last month, luckily at a cost of $.50 a trip.  I guess I have such a strong emotional reaction to a small charge like this because a) it’s not worth it to me and b) I see it as an unnecessary tax that we can easily avoid.  Yes, I know we could spend lots of time discussing what our time is worth (and believe me, my rate is much higher than the $10 toll), but regardless, it’s still something I hate paying.

Compare that to the ease at which I willingly hand over a couple hundred dollars for things like a new Stihl weedeater or a new electronic gadget and it does make me look like an idiot.  The phrase “penny wise and pound foolish” has entered my head a zillion times.  What I’ve had to try to do is step back and look at the big picture.  We’ve never really budgeted for “misc” type stuff each month, but in a sense, we are spending a few hundred dollars a month on just plain miscellaneous stuff.  As a percentage of our budget, it’s really not much and should probably be expected.  I think the most important aspect of this is that we are using cash, not accruing any debt and are meeting all of our other financial goals.  Regardless, it’s really tough sitting here with the dagger poking at my side.