Why should kids have all the fun?
Lots of college students take a year off either before or after going to university.
And plenty of young professionals play their cards so they can take a year off to go travelling in their 20s or 30s.
Some couples with children even manage to take time out and have an overseas gap year for the entire family. Which looks like fun but is, I’m guessing, a big ask to take young kids out of school and travel in far flung places.
I’ve just had what could be described as a gap year for grown ups (assuming I qualify for that label). OK, I have not yet been to a beach party in Thailand but I have been able to kick back, go to festivals, get fit and even do some travelling.
I have (mostly) managed to combine this with my domestic responsibilities. These have included cooking for the family (sometimes they even eat it without complaining!), teaching the children about compound interest, doing the school run and other wonderful and exotic experiences.
I have even learned how to do something called “cleaning”. It turns out that you don’t have to be from Eastern Europe to do “cleaning”…anyone can learn it! I try not to go overboard though….no point in wasting your entire life with it and cleaning out your own wallet.
The last couple of weeks have felt different in that I have been doing more financial coaching for people that have got in touch with me via this blog or been introduced to me by other clients. Its almost felt at times like a serious job: I have been on trains and in London and I even left the house as early as 8am on one occasion! I know!
I’m still not a fan of that commuter train, but its been rewarding to do work that I truly enjoy and believe in…without any of the nonsense that comes with working in large organisations.
The great benefit of a gap year is that you get time to think. And over the last year, I have come to realise that there are 2 big issues for most people with the full on extreme early retirement model:
1) It’s not easy for everyone to save up enough to never have to work again
2) After you have enough for financial independence, you still need something to do.
I appreciate that you may think this is obvious and may now be filing this post under “N” for No Shit, Sherlock.
But, to be fair, whilst I always knew these things intellectually that is not the same thing as knowing them emotionally as well. Often you only really know something when you have actually lived through it yourself.
I meet plenty of people that say they know that paying active fund management fees and a financial adviser makes no sense….but who then continue to do exactly that. They say things like:
Yeah Mr TEA, I agree that the financial services industry over-charges people…why should we pay for bankers bonuses and fund manager’s visits to strip clubs?
So far, so good. But they then ruin it by saying something like:
OK, admittedly I still have my pension in Dogshit Asset Management’s Pavement Opportunities Fund….not quite sure what the % annual management charge is….hope its doing OK…I just haven’t quite got around to checking, what with things being busy at work etc etc.
These people may know intellectually that paying active management fees is usually a mug’s game, but if they haven’t got angry and moved their money, they haven’t really understood that they are being mugged. For me, the test of whether I really understand something is whether I action it and live by it in my own life.
So, getting back to my point about the 2 big challenges with full-on early retirement.
The first point is that the time it takes to get to early retirement is mainly a function of your savings rate. If you can save 75% of your post tax income then it only takes 8 years to get to financial independence, starting from a zero net worth. When I tell people this in coaching, they often look at me as if I’ve just said that I can use The Force or bend spoons with my mind. But if you don’t believe me, check out the maths yourself using the FI-o-MeterTM.
The issue is that saving 75% of your post tax income is tough for most middle class people (and perhaps impossible for many lower paid workers?).
The Escape Artist does not claim to be average. I had jobs in finance that paid more than the average salary. My investment returns have been better than average. And I’m a pretty frugal eco-mentalist so I managed to contain and reverse my lifestyle inflation. I was also prepared to
argue have a rational discussion with my wife that we should be saving 50+% (a lot of men are nervous of even discussing an Escape Plan with their significant other). All of which puts me in a minority.
But the habits and mindset of financial independence are even more important for average or below average earners. If you are on less than the UK average salary of ~£28,000, it’s vital to make every pound work hard for you. To put it another way, when you are on the margins, you need the aggregation of marginal gains.
So the stuff on this blog about frugality and not getting ripped off by the financial services industry is great for the high-earning middle classes but essential for ordinary people.
And everyone can and should create an escape fund which is enough to bridge them to a new career or allow them to start a new business. At the very minimum, every able bodied person should be able to fund a gap year in their 30s or 40s or 50s where they take time out – like a sabbatical – to think about what they want to do in the next phase of their life.
This brings me onto the second “problem” with financial independence. Which is that everyone needs something to do so afterwards. It turns out that this is not really a problem at all. Its actually the simple answer to the first problem. If you can find something you truly enjoy and that pays you an income, then maybe you never need get to full financial independence.
Full financial independence is equivalent to a belt, braces and fully bespoke tailoring alteration for keeping your trousers up. Its actually unnecessary for most people just to escape a job or a lifestyle that they don’t like. Many would achieve some of the benefits of FI simply by working flexibly as an interim.
Take an example of someone currently earning £70,000 (about 2.5x the average salary in the UK). For them to quit and spend £18,000 (which should be enough for a single person to live off mortgage free) a year inflation adjusted indefinitely, how much do they need to stash?
According to the 4% rule of thumb for a safe withdrawal rate, they need a mortgage free flat plus a pot of £450,000 (25x £18,000). But if we can change this to an assumption that they earn £10,000 a year net from a micro-business, interim roles or part time work after quitting their full time job, then now the amount required falls to £200,000.
Once we reach the UK state pension age and become entitled to up to £8,000 per year, the pot required falls further. If that person can now earn at least say £5,000 in income plus up to £8,000 state pension, they only need a retirement investment pot of just £125,000.
I think everyone should be able to earn more than £5,000 a year part time whether its babysitting, cutting quiche, stacking shelves or driving a van (to give some examples of part time jobs that The Escape Artist has held down and enjoyed back in the day).
Now you may say that you are Executive VP of Silly Titles at Megacorp and that working part time at Tesco is not befitting of your position in society. To which I say: OK dude, I get it…but now we are not talking about money, we are talking about status which is something different.
For anyone ground down by stress, targets, travel, office politics, compulsory social events and consequent hangovers, I can totally see the appeal of the idea of amassing a pot of money sufficient to never work again.
But having lived through that process and then having had a grown up gap year, your attitude to work is very different when you are well-rested, in good shape, have plenty of sleep etc etc. It turns out that in those circumstances, having some work and some earned income after escaping is not only possible, it can be good for you and for your happiness.
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