Early Retirement Savings
Thank goodness I have some better news this week!
In last weeks post, I shared some of my investment nightmares. Mistakes that I made which cost me an unbelievable £427,000 ($606,000) of my early retirement fund.
Although that's a serious issue for me (do I win the understatement of the year award?), the wider problem is that most people will probably make one or more of the same mistakes, and cost themselves money and early retirement years.
I promise this is not shameless self publicity but, if you haven't already done so, do visit my post of last week to see what I did wrong so that you can avoid falling into the same traps.
Fortunately I still got to retire early. But working out the numbers last week was still a massive shock. I've therefore tried to think of a more positive subject for this weeks post.
OK, maybe it's not the most sexy of subjects, but it sure beats last weeks topic in the smiley face stakes.
Mostly I've thought of savings as the money that we try to put away to fund something in the future. It could be saving for a vacation, an emergency fund, or saving towards financial independence / early retirement.
My thesaurus (a real one with actual pages - I mean, how old does that make me seem!) describes this use of the word saving as a "fund, nest egg, provision for a rainy day, reserves".
I was quite good at that type of saving.
Then there's the slightly different use of the word, or maybe it's just the flip side of the coin. The saving which my dictionary tells me is akin to "frugal, thrifty, bargain, discount, economy, reduction". This is the type of saving that is making me more cheerful today - ha, you can't say that I don't live an exciting life!
Why are my savings making me happy?
Because I seem to be getting something right - that doesn't happen too often, so it's worth celebrating. What I've done is think back over the past year and list some of the things where I have saved money.
And the good thing is that my quality of life didn't suffer in making these savings. It's like I've got something for free, and who doesn't like that?
How much did I save?
A surprising amount. I'll get to the numbers in a moment.
In fact, I'm sure the savings are more than what I show here because I've listed only things that easily came to mind. If I went through my spending in detail, I imagine I would come up with more areas where I've saved.
The little blue boxes show the areas where I found savings.
And here are the same headings with a bit more information and the amount saved.
As the kids have moved out, we've downsized from a large four bedroom house, firstly to a three bedroom townhouse, and now the two bedroom apartment that we are currently in. Just think of how much can be saved by downsizing, either in terms of rental payments, or equity released that can be invested for a return. My figures probably won't match your circumstances, but I'll show the difference in rent between our previous three bedroom house and our current two bedroom apartment - we live in an expensive place I think!
Amount saved £9,930 ($14,000) per year
Changed TV & mobile phone packages
Over the years we added extra channels to our cable package, most of which we don't watch anymore. We've gone back to a basic cable package, and now watch YouTube and Netflix more.
Our mobile phone bundles were overkill for what we needed. We switched from post-paid to pre-paid packages and reduced the data package as we can access wifi in many places.
Amount saved £972 ($1,372) per year
Switched to a lower cost supermarket
We changed to a lower cost supermarket. They sell the same stuff, just for 20% less! Why didn't we make this change years ago?
Amount saved £1,390 ($1,960) per year
Use a shopping list
This one sounds a bit boring, but I'm sure it works. I used to wander around the supermarket putting whatever took my fancy into my trolley, and I bet it was the expensive stuff in the glitzy packaging that caught my eye. Now I make a shopping list of what I want and pretty much stick to it.
Amount saved - I'm not sure, so I won't put an absolute figure, but I'm sure it's at least a few hundred over the year
Take the time to shop around
I'll pick just one example, car insurance. I spent some time on the internet and also phoned some brokers to get a good price. I also tailored the policy for my requirements by excluding main dealer repairs, adjusting the excess, and the like. It took a bit of time, but the saving was worth it.
Amount saved £290 ($408)
Exchange time for money
Sometimes we pay extra to get things done quickly, or to get from point A to point B more quickly. I take quite a few flights, so the latter could apply to me. Now, instead of taking a direct flight, I'll see it it's worth swapping a little extra time from a layover for a cheaper ticket. I keep it sensible, but a 3 hour layover isn't any real hardship for me. I don't know the exact savings, so I've given a very conservative estimate (I'm sure the actual amount is much more).
Amount saved £425 ($600) per year
Use public transport
Admittedly, this won't work for everyone, although I may have said that about myself in the past. I sold my car, and now Sally and I share her car. Public transport does take longer, and sometimes it's a bit awkward, but it works fine on most occasions. At other times, I borrow Sally's car, a friend gives me a lift, or I can take a taxi. Based on the car that I had, the savings on depreciation, servicing and maintenance, insurance, registration, fuel, etc really add up.
Amount saved £3,900 ($5,500) per year (at least)
Change utility provider
In fact, I didn't even have to change the utility company for gas and electric, just switching to a different tariff with the same company saved me money. These companies make extra profit by us being lazy and not checking that we're on the best deal. It doesn't take long to check and the savings can be significant.
Amount saved £309 ($435) per year
Don't accept the first quote
We had a leaking toilet. The first quote said that it was a major job and the floorboards needed to be lifted and some of the wall plasterboard had to be cut away to get to the problem. That was expensive. Their quote didn't feel right, and I didn't have a good feel when I questioned them. I got another quote and, guess what, it was a different story with a lower price tag, and happier ending for our pocket.
Amount saved £695 ($980)
Use a gift list
My family enjoy giving gifts at Christmas, and it is nice to be able to give something that is wanted and will be appreciated. Approaching Christmas, if there is something that I'd like, I try not to buy it, but add it to my Christmas list. To be honest, this isn't about saving, it's a thoughtful thing to do, and one that my family find useful when searching for gift ideas. Obviously I don't calculate how much someone spends on a gift, so I've put an arbitrary figure for the amount saved.
Amount saved £142 ($200) per year
Thoughtful spending / Pause before buying
I have certainly become more thoughtful in my spending over the past year, and it is something that I really value. When I was working, I would see something, and on a whim I could buy it. Quite often, hindsight would show that I didn't use the article that much, so it wasn't a thoughtful purchase. I now take time considering whether I really want things and whether I'm going to use them. The savings figure is a conservative guestimate.
Amount saved £248 ($350) per year
The Grand Total
Splitting it into three headings, how much have we saved over the last year?
On the small stuff (that's everything apart from downsizing our accommodation and selling the car) we saved £4,471 ($6,305). Wow, that seems a lot! And remember that I said my quality of life did not suffer to get this.
If I add going from a two car family to a one car family (£3,900 or $5,500), then our total savings increased to £8,371 ($11,805). Now and again, getting rid of one car may add a bit of inconvenience but, in my circumstances, it isn't too much, and well worth doing for the extra saving.
And if we add the accommodation downsizing, the figure is even bigger, a whopping combined saving of £18,301 ($23,805). I feel this is an inflated figure, because we are temporarily living in an expensive city. However, the principle is the same, even if savings on downsizing or moving to a cheaper location are less where you live.
Does this matter?
Why would my savings be of interest to anyone else? Perhaps the specific details are only vaguely interesting, but the principle of choosing to spend less and still maintain the same quality of life ought to be of interest to many.
Why would anyone want to give more of their hard earned money to someone else than they need to? By choosing savings, you get to keep more of your money yourself to put towards your objectives, whether that be financial independence / early retirement, or simply being able to take that dream vacation. The choice is yours, and it's quite easy to make some fairly big savings without too much effort. Why wouldn't we do that?
So there we have it, my good news story. It feels much better posting this one rather than my investment nightmares of last week!