In life, one year may not be long enough to judge success or failure. As Terry Smith reminds us, a year is the time it takes the earth to revolve around the Sun and not necessarily the right period over which to judge investment performance or anything else.
But the Internet must be fed and I feel I should write something about how my first year out of the Prison Camp has been.
So let’s summarise a few things that I’ve learned in my financial independence experiment. You may think some of these points are obvious. Others you may find hard to believe.
But that’s kind of the point of this article. Some of these points were hard for me to believe before I escaped. Actually, some are still hard for me to believe now.
1.My spending fell
A lot of spending is work-related or can be reduced with time.
For example, as an office worker, I was a bit like a juvenile delinquent going to Court. I used to feel obliged to wear a suit to impress people judging me. Not now.
Here are some of my expenses that have disappeared from my life since I quit: suits, office lunches, cigarettes, season tickets, work shirts, newspapers. These are expensive and none of them are good for you. A railcard to London from my town is £4,580…that’s over £8,600 per year of pre-tax income a higher rate taxpayer will need to make to cover the cost.
I used to believe a lot of things that weren’t true. One of these was that it would be expensive to retire. After all, what would I do with all that time? Surely, I’d need to be entertained? Servants would need to be paid to bring food to me. All those cruises, golf bats, flights, restaurant bills and tickets to Dismaland Florida would surely cost a fortune?
This is based on a misconception that entertainment is something you must pay for. Sure, it can be that way if you choose. But you can choose to do things that are free (see 2. below) or that make you money (see 6. below).
2.The best things in life are free
But it’s true. For me, there is nothing more rewarding than cooking for my children (although they would disagree). How about waking up without an alarm clock? Or achieving goals you have wanted to achieve for many years?
How about an infinite supply of music?
Or sex? Enough said.
3. Everything is a learnable skill
I used to think that some people were just naturals and that many things could not be taught.
For example, people look at George Clooney and think how annoyingly jammy he is. Now a role model for late-developing middle aged men everywhere, Clooney had been a struggling actor for the 16 years between his 1978 TV debut and getting his break on the show E.R. Yes, Clooney was undoubtedly lucky in the genetic lottery. But he persisted and built on his looks with a load of self-improvement work. There are plenty of people in the world who are better looking than Clooney but aren’t making $20m per film. It’s not just me.
Achieving mastery of one skill is like a gateway to being able to achieve mastery of any skill. Not because it’s easy. But because mastery is a skill itself. So if you can figure out how to beat the system ethically and get to financial independence, you will be able to figure all sorts of other stuff out.
4. I am still saving
Let’s be honest, when I quit I didn’t know how things were going to play out. Back then I hoped that a 4% withdrawal rate would be safe….but you can never know 100% in advance.
I had enough self-awareness to realise that I would naturally err on the side of caution. And I knew that you can be too careful. So I pulled the trigger.
I was ready for the prospect of selling some units / shares to fund living expenses. But it hasn’t turned out like that. My spending has fallen. My investment income has increased. I made some changes to my portfolio, selling all my gold and replacing it with high quality dividend paying shares and gilts.
And with me being able to do the school run, cook and generally contribute a little more around the house, my wife has earned more from her super-flexible part time job.
So it turns out that I am still saving…in “retirement”. Go figure.
5. Ignore the news, everything is fucking marvellous
Objectively speaking, me quitting my job has not been a big change for the universe. Global capitalism seems to have coped with losing me from the workforce surprisingly well. Its almost as if I wasn’t indispensable.
Technology continues to progress: a mixture of pointless consumer shit plus stuff that may change the world for the better. Things like access to family planning in the Third World, desalination plants, desert irrigation, solar energy and food techologies like aquaponics that might stop the human race from destroying nature.
The world is what you think it is. That’s because we create our own experience of reality through our beliefs, expectations, attitudes, fears and desires.
The news media is always there ready to beam fear into your living room 24-7. But I have turned it all off. When you live without stress, you realise that (almost) everything is fucking marvellous.
If the Zombie Apocalypse kicks off, please can someone email me to let me know? Thanks ever so much.
6. Start your side hustle early
The last year has also showed me that’s its possible to start a side hustle.
In my case, writing my investment newsletter and doing financial coaching have been very rewarding. Just not financially. Although they don’t make me much money, I love doing it and its valuable to clients. I only wish I’d started earlier.
I wouldn’t recommend anyone quit a solid job to start their own business from nothing without having first built a decent stash. Even if you have the best product or service in the world, it takes time for word to spread. Overnight success is rare: the Facebooks and Twitters of the world are the exception. And even Mark Zuckerberg probably felt at times like it was a long, hard slog.
So the better thing to do in most cases is start small and start early. If you can start your side-hustle when you are still working, so much the better.
7. It’s possible to beat the market
OK, I know that most of you Vanguard fans and passive investing purists won’t believe this, but it is possible to beat the equity market. Not every year. And not with every share. But over time and on a portfolio basis, I’m confident this is possible. Just not for most people.
A year ago I wrote a post How they did it: 12% a year. A year later, the annualised rate of return on my direct equity portfolio is still ~12%. But now that’s over 19 years not 18.
In practice, this growth comes with volatility so it feels anything but smooth to live through. But if you can live with the volatility, 12% annual growth in your portfolio is something beautiful to behold:
I have 19 years of data on my stockpicking performance. But even if I had 50+ years of beating the market, that still wouldn’t prove 100% that it was skill not luck. But each additional year that passes makes me more sure that I’m doing the right things.
8. You can be too careful
I just wrote about this here. I’ve since done my first training run for a marathon.
9. The first million is the hardest
When I started this blog in 2014, the viewer stats page reminded me a bit of a scene from a Western movie starring Clint Eastwood. Tumbleweed would blow and you could hear the wind on the high plains but there were no people to be seen anywhere.
I remember the early days when 10 page views was a good day and 100 page views in a day was an interesting theoretical possibility.
I’m now coming up to half a million page views since I started the blog. Yes, I know that’s still tiny in Internetland. And no doubt some of those people have stumbled across this site by accident and been disappointed by the lack of porn.
My goal is a million page views. In my blog traffic stats, I can see the classic J curve that comes with compound growth. Anything that grows exponentially (like money) obeys the same laws. So the first million is always the hardest.
I’d like to say thank you to Rockstar Finance and Monevator who have both sent a lot of traffic my way. Both are providing a great service to the world. I think the Universe will find a way to reward them.
10. Don’t believe me, experiment!
Some of the so-called “softer” stuff that I’ve learned over the past year about psychology and motivation has blown my mind. Not all of it relates directly to personal finance, so I don’t cover it in depth here. But it turns out that lots of things that I previously thought were impossible are possible.
I don’t ask you to believe what I write on this blog without checking it for yourself. A certain amount of scepticism is necessary in life.
You shouldn’t take my word for anything. But you owe it to yourself to try this stuff to see if it works in your life. According to the Huna philosophy, effectiveness is the measure of truth. In other words, go with what works.
So if you read something that looks interesting where the potential upside is great and the costs of experimenting are small, then what are you waiting for?
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