Financial Flexibility

Rebirth by Hannah Yata
I was at work, and it was just one of those days where everything that could go wrong did go wrong. The not so uncommon occurrence of my coworkers not knowing how to properly do their jobs meant I had to step in and fix their problems for them. It was a long day, and I couldn't wait to be done with it.... And then suddenly I was. I woke up, realizing that it was all just a dream, but then the nightmare began because I  had to get ready to actually go into work for the day.

Right then I knew I needed a vacation. It has been about 2 years since I've taken a "real" vacation. I've had some smaller few day trips but they weren't really trips about escaping for a while and really unwinding. That dream happened a few weeks ago and immediately after I started thinking about vacation, it took me a little time to decide where and when I wanted to go but today I booked my flight and on November 27th I will be flying to Japan for 24 days to truly recharge for a while.

This is one of the main reasons that I save a large portion of my income, so that I have financial flexibility.

Financial flexibility is basically the precursor to financial independence. When you finally reach financial independence you are free to live life without feeling restricted by having to exchange your time and efforts for money (within reason, if you decide to start buying yachts and planes then you will probably not be financially independent for very long). But financial flexibility is like the younger brother to financial independence, you have money stashed away so that if something comes up you won't feel as stressed about the money aspect of a situation. You can even take risks like changing careers to something more agreeable to your lifestyle because you have a financial cushion to fall back on.

Imagine a life where any monetary related stress is relieved. For example if you were in a car accident and had to buy a new car to replace it, or a medical emergency suddenly caused you to need to pay the maximum for your health benefits for the year (let's just say 10k). All of those situations suck, they are terrible to have to deal with, but if you didn't have to worry about the financial side of things it would make them significantly easier.

The other day a friend of mine posted on Facebook about how their refrigerator died and that they could not afford to purchase a new one. They started looking online for used/refurbished ones but weren't having a lot of luck there either. I feel bad for them since they are struggling when an unexpected expense comes up, having to pay possibly close to an extra months rent to replace a large appliance is not something you really want to deal with. If they had some financial flexibility in their savings/monthly spending then this might not be as difficult of a time for them. Sure the situation still sucks, no one wants to pay for a new large appliance, but things like that happen. In the end, the more financial flexibility you have the easier these unexpected events become.

On the other hand, I don't feel too badly for them since I know that just a few weeks ago they went to Burningman where they probably spent a few thousand dollars to hang out in a giant dust ball, so I know they can get by, it's just a matter of allocating their money to what they think is important.

Some people might call what I described an emergency fund, something stashed away for when the unexpected occurs and in my friends case I would agree with them. But in the end, isn't having money stashed away just building up some financial flexibility?

Since I've been diligently squirrelling away money for a number of years I've reached a place where I can have a lot of financial flexibility in case something comes up. In my case it was a bad dream that made me realize that I had been neglecting a part of my life that I think is very important to people, the part where you disconnect and unwind from it all.

Do you have financial flexibility? When was the last time you took a vacation? And more importantly do you have any advise for travelling to Japan?

Overestimation Versus Underestimation

Kelly McKernan - Illusory
Illusory by Kelly McKernan
I was recently reading about long term goals and some other peoples planned journeys to financial independence over at Frankly Frugal Finance and Big Guy Money. They had some fairly detailed analysis of what their long term goals were, going out 15 to 25 years even. While I have gotten out the spreadsheet from time to time and plugged in numbers and calculated out 10 years or so I've never really put much weight into it.

Every year for the past 4 years I've put down a financial goal for myself. I get the balances of all of my accounts, tack on a percentage rate of how much I think it will grow, add in how much money I expect to add to that account myself, and then tack on a smaller percentage rate of how much my new money will grow throughout the year. Each year I seem to get more and more detailed with this because each year I find that my estimates are significantly off. Every year, including this one I have beat that initial goal. But I shouldn't get ahead of myself yet, the market could tank before the year ends and I have a significant vacation coming up that will not be cheap, either way, unless something major happens my financial goals for the year look like they have already been achieved.

The main reason I'm off is because of stock market returns. The market has been very kind to us in the past 4 years so I never plan for the market to grow by over 20% like it did last year but it's a nice bonus when it does. Since every year I seem to beat my goal, each year I make it more aggressive. But I know that this bull market can't keep going for forever, so one of these years (possibly very soon) the market won't do well and I will fall short. Maybe I'm a pessimist, or perhaps I've been listening to all of the gloom and doom warnings about how the market can't keep going up like this forever, but I'm guessing that next year I won't be so lucky.

But all of this got me thinking about why we might overestimate or underestimate our goals and what that might say about the person making them. In the business sense of things this may be easier to measure which route you should take:

Learn From Others Mistakes

Jinkx Monsoon By Chad Sell
We all make mistakes in life, and it's actually a very healthy thing to do provided that you learn from them. Learning helps our brains stay sharp and keeps our life fuller. Occasionally someone close to you makes a mistake that affects their life so profoundly that it touches yours, you realize that you never want that to happen to you. Sometimes it's a parent or a sibling, and other times it can just be a friend or coworker. Either way, you see their mistake and you make sure that it will never happen to you.

But there's already a lot of good advice that you hear everyday that most people ignore, I know that I did. It's so common and you hear it all the time that for some reason we just tune it out like, "Blah, blah, blah, I've heard that grandpa, of course I wouldn't do that." But we go ahead and do it anyways. We think that the older generations are telling us something so obvious that we of course would never do it ourselves. Here are some common ones that you should avoid, many of these I did myself, learning the hard way instead of from others.

New Game: Live like you're Unemployed

Naughty Boy by Brandi Milne
Near the end of 2009 I was fired from my job. It wasn't anything specific that I did or didn't do, it was just that the recession hit my company pretty hard and they had to downsize by about 35%. I was one of the newer people there at the time so I'm surprised that I lasted as long as I did but in the end. I lost my job.

At the time I received the maximum unemployment benefits allowed which I believe was $400 per week or $1600 per month. Depending on what part of the country you live in that might be more than enough to get by, but in San Francisco, that's not a whole lot. After I paid all of my fixed bills such as mortgage, HOA fees, utilities, internet (I still had to look for a new job so the internet was an absolute must). I was left with about $300 to spare for all of the other stuff.

Keep in mind that I said, all of my "fixed bills" I hadn't counted food for the month yet. For me, $300 is plenty to get by for a month, but if I wanted to do more than eat then things got a little dicey.

It shouldn't take a special day to do something

by Sylvia Ji
Most people know areas of their lives that could use some improvement. It can be diet, finances, work, etc. I don't know about you but even though I know what areas I could improve I tend to get lazy and postpone a lot of these things because why start today what I could do tomorrow?

It's this way of thinking that leads people to need a special occasion to start making the changes in their lives that they want to see. For many people that special occasion is New Years Eve.

But why does it take a special day to start?

Sometimes that "special" day isn't so special, sometimes it's just significant. Some people start to fix their lives when something breaks or goes wrong. Sometimes people are forced to exercise or fix their diet after an event such as a heart attack or other medical emergency. Or they will begin to fix their finances once they realize that they can no longer cover their monthly bills.

Don't wait for an emergency to force you to make a change you already know about!

Right now I see a lot of clutter starting to build up around my house.  Some of it is art supplies that are left over from the last time I was inspired to paint, others are just small knick-knacks that have been given to me over time that I feel bad throwing out since they were a gift. Either way, it's building up to a point where I know that I will have to do something about it soon. Instead of waiting for the day to come when I am forced to clean it up (i.e. my girlfriend making me) I decided that I will take action before I am forced to. I've decided to do this by playing the minimalist game.

The Minimalist Game

Find a friend or family member. Someone who’s willing to get rid of some of their excess stuff. This month, each of you must get rid of one thing on the first day of the month. On the second, two things. Three items on the third. So forth, and so on. Anything can go! Clothes, furniture, electronics, tools, decorations, etc. Donate, sell, or trash. Whatever you do, each material possession must be out of your house—and out of your life—by midnight each day.
It’s an easy game at first. However, it starts getting challenging by week two, when you’re both jettisoning more than a dozen items each day. Whoever can keep it going the longest wins. You both win if you can make it all month. Bonus points if you play with more than two people.
via the minimalists 

So instead of waiting for a special day to start this game, (the first of the month) I've decided to just start today and try to go for 30 days straight.

In the past when I've decided that I needed a change such as working out more or eating better I just decided one day to start, I feel like if I'm postponing it for a special day then I must not really be dedicated to the change that I am looking for since I'm already looking for excuses not to do it.

Do you wait for special days to start new life improvements? Feel free to join me in the minimalist game, or even better just decide to start a new change that you already know you need to make. Let me know if you do it!


Hope by Jeremy Fish
Hope By Jeremy Fish
I only have a few people in my real life that know about this blog. I keep it to a minimum for a number of reasons, and based on the number of misinterpretations by the few people that know, I feel like I made a good choice for now. People tend to think that once you start working towards a goal like retirement and you're so fanatical about it that you write about it multiple times a week that you are obsessed with not spending money. Therefore you are cheap. They believe that anything that costs money is something that you avoid like the plague.

Perhaps in some situations they are correct, I know that I could live in a fancier house without roommates, buy nicer food, or even just pay for the convenience of driving to work to save time avoiding public transportation for an extra $200 per month. But I choose not to do any of those things.

I actually think that I am horrible at being frugal. Yes, I will not buy things that I don't really need, but if I feel like it's something important then I will most likely overspend on it. My rationale usually follows along the lines of, "if I'm going to do something, I'm going to do it right." That's also part of the reason that I take this blog seriously, since I'm going to do it, I'm not going to half-ass it. I'm going to do better than the "good old college try" I'm going to see if I can make it work.

Early retirement is ruining my life.

Breaking Bad Bear By Lora Zombie
**Apparently I wasn't very clear that most of this was sarcasm. Please note that none of this stuff is really ruining my life, in fact I think everything I mention is a postive thing rather than a negative. I guess I need to work on my sarcastic writing tone more!**

I always thought it was silly that most people worked from 9 to 5 to 65. Society pretty much set this standard that everyone is meant to live by, and for some reason I haven't been listening to those rules. But a few years back I decided to save over 50 percent of my income so I could reach financial independence early. Only recently have I stared to realize how this is ruining my life, and I'm reminded of it every single day.

Because of my saving habits I don't have extra money to buy stuff that helps me fit in with my friends and co-workers. First of all, when I'm going out to meet up with them, many times I end up taking the bus or even *gasp* walking. When I'm hoofing it to meet up with them at a restaurant or bar I have nothing but time on my hands to think about the poor decisions that led me use my own two legs to get me places.

Surround yourself with like minded people

Indian body building village
The argument of nature versus nurture - which one is more important is ongoing. I think that both sides of the argument have valid points. Mental illness, hereditary diseases and physical traits can all be passed along by genetics and in some cases it can produce children that have natural physical abilities that put them ahead of others.

The other side of the coin is who you surround yourself with. I have no doubt in my mind that the development of my personality was heavily influenced by the friends I went to high school with (and yes, I am still good friends with them to this day). Have you ever noticed how good friends have the same sense of humor, sometimes that's what draws them to each other, but other times that part of themselves grows with that other person.

Not Pulling the Punches

Perhaps it's because I was out drinking after work tonight that I'm in a feisty mood. But I've sort of had this half written for a while but tonight seemed like a good night to finish it.
Here are the reasons why you aren't getting ahead:

Troy By Jessica Joslin
Troy By Jessica Joslin (Animal Alchemy)

You lease an expensive car... Actually, you lease any car.
I personally don't know anyone that has leased a car in the past that thought it was a good idea. My only friends that have ever leased a car regretted that decision when their lease was over. I believe they compared it to having a permanent rental car. You are basically renting a car for 3 or 4 years at a time and you can't return it if you don't need it. And at the end of your lease you don't even have any equity in that car, you just give it back and hope you don't get charged for any dings or scratches.

You go to Starbucks regularly - It's even worse if you go multiple times per day
Look, if you need your coffee get your coffee. I know a few things about being tired and it sucks. But if you're a regular coffee drinker invest in a coffee machine and make your first cup of the day at home. I have a hard time justifying any drink that costs $5 and does not contain alcohol. And even with alcoholic drinks I still feel like most of that is paying for atmosphere, otherwise I'll be at home or a friends paying less than half the price at a bar.

The easiest way to early retirement is to fast forward life

Fuck You by Marion Peck
Fuck You by Marion Peck
It's no secret that the older people get the more they start to save for retirement. There's a number of reasons that peoples savings increase as they get older: You start to earn more, you've paid off all your debt, you have paid off your house, you no longer have to support kids.

But I think another reason that doesn't get much credit is that as people get older and closer to retirement they start to realize that they haven't saved as much as they would have liked for retirement. When you're 30 years old most people think they have another 30 years to go before retirement. That's as long as they have lived to that point! If I had to live my entire life again before I retired I would think I had a LOT of time to figure it out before I got there. But the years start to go by, you get busy with new house projects, or your kids always seem to need new clothes because they are growing so fast! The next thing you know you're in your mid-forties and you realize, oh crap! I need to save how much in the next 15 or so years?

Sure you might have saved some by that point, you were diligent, but a lot of financial advisors are saying that for millennials their retirement will cost them 2 million dollars! Wow! That's a lot just to write. So you start ramping up your savings as you get older because you know your future self will not be able to work forever and you need to have something saved.

Once you're in your fifties you are getting into the home stretch, you can start to actually visualize the finish line so you keep making that last push to up your savings to last you the rest of your life. Most people can cut some fat from their budget, they just don't bother trying until they start realizing they need to.

And that's the secret to early retirement. It's pretty simple. Fast forward life. Save like you're 55 years old. Save like you only have a limited amount of time to work. Look for the finish line early, don't put your head down and go with the flow, that's the way you approach a marathon. If you want to reach early financial independence then you need to push like a 4x4 race. Every year you pick it up a notch until your last leg you make that sprint for the finish.

I know that you have bills to pay and other things to save for, but so do I. So do a lot of other early retirees, it's not impossible. If leasing that new car is high on your list of priorities then go ahead and do it, but don't expect to save money very quickly with monthly payments that you could probably avoid.

What do you think? Would you fast forward life? It doesn't have to be everything, I'm not fast forwarding the health problems, I can wait for that.

Employee Retention and Becoming a Better Manager

Layers by Anna Ignatieva
Why do we stay at our jobs?

Well besides for the most obvious factor of money there are many other factors that determine job satisfaction and dissatisfaction. In fact, the reasons you like a job aren't necessarily the reasons you stay at it. It's actually suggested that job satisfaction and dissatisfaction are measured in different ways rather than being on different ends of the same spectrum.

Herzberg's Motivation-Hygiene Theory describes what keeps people satisfied with their work as well as what factors contribute more to job dissatisfaction.

Give Yourself a Bonus!

Crimson by Greg "Craola" Simkins
It took me a few years to get my savings to the point where I could max out my 401(k) every year. The main reason I wasn't maxing it out was because I followed the standard advice of only contributing 10 or 15 percent of my income to it.

Retirement Advice 101

I thought that if was following the advice that I always heard that I was ahead of most people. To be honest, I was probably doing better than most people by saving just 10% anyways. But I wasn't making $175k per year so 10% was not going to even get me close to maxing it out. Years later, if I still followed the 10-15% advice I would still have a large gap between how much I was saving and the maximum allowed.

But why did I follow the standard rules for what I had heard about saving for retirement? I knew if I followed the standard advice I would be comfortable once I got closer to retirement.

But if I followed the beginner's rules, then I would probably end up with the beginners retirement, and 67 does not sound like the age I want to retire at.