I’m not going to soft soap this week’s message, which is that:
Getting your financial shit together is an emergency.
Generally, I don’t like the alarmism of the news media who grab our attention by
revelling in reporting the latest miseries from all around the world…most of which we don’t need to know.
The Escape Artist generally likes his blogposts calm, with no SHOUTING. He likes chilling with some tropical house in the background…as zen as fuck. But today is an exception…because this personal finance stuff is an EMERGENCY…not for the earthquake victims of some far away country but FOR YOU. RIGHT HERE, RIGHT NOW.
The Escape Artist has come to realise that, when it comes to money, most people out there are doing it all wrong. I thought that after I’d
single-handedly solved the Pensions Crisis shared the story of Kate, everyone would get that this stuff is time critical. I imagined a world where everyone had their pension sorted, no one left angry comments on the internet and we could all go to the pub.
After all, the maths are compelling. You save £15,000 by the age of 25 which, with a Vanguard tracker fund and a bit of luck, could turn into over £1,000,000 by the time you’re 65. That’s right: you get to be a millionaire without saving another penny after the age of 25.
True, inflation means that £1,000,000 won’t buy as much then but still…not too shabby. Pensions crisis? What pensions crisis?
But what happens if at the age of 18 you are too…errr…busy being young and you delay 5 years…only getting started at age 23? Well now you no longer have £1,000,000 at 65….you will only have £644,050. Better than nothing…but quite a difference.
Now what happens if you delay 10 years and only get started at 28? Well now instead of £1,000,000 you will have £399,904 at 65. No need to eat cat food but again…quite a difference.
This DOES NOT mean that you give up if you are 28 or over and have not been going for a decade or so. You can still reach financial independence. It just means that compound interest is going to do less of the heavy lifting for you. Its now gonna be more down to your savings rate.
Which should you be doing: saving hard or investing early? BOTH!! This is not an either / or choice. Whatever your current situation, you can always improve it. But it has been drawn to the attention of The Escape Artist that a number of people have been flagrantly disregarding my earlier article on procrastination and not getting their shit together.
We are going to have to consider the possibility that The Escape Artist was being too subtle. So for those of you that are still pfaffing around and haven’t yet set up your compounding machine, here is the first rule of wealth building:
IF YOU SNOOZE, YOU LOSE.
What is a compounding machine? A compounding machine harnesses the awesome power of compound interest to make you rich. Compund interest is the interest earned on interest. So if you invest £10,000 and get 10% a year return, in year 1 you make £1,000, in year 2 you make £1,100 and in year 40 you make £41,100. That’s real money. The snowball rolls down the slope getting bigger and bigger on its own….without you pushing it.
A compounding machine can be powered by Vanguard tracker funds or it can be powered by Buy To Let properties or it can be powered by your own business. After you have your compounding machine set up properly, then if you snooze…YOU WIN! Whilst you sleep, your compounding machine is working for you 24 / 7 / 365.
When you invest in a global tracker fund you own slices of the leading businesses in the world. The Man is now working for you. All those CEOs, middle managers and workers, turning up every day to factories, offices and warehouses around the world are working so that their companies can pay you a share of their profits. You don’t even have to watch over them – you have people to do that for you.
The capitalist system is the most productive and the least unfair that we’ve ever been able to devise. Unfortunately, most people choose to squander their money buying shit rather than own enough of the system to achieve freedom.
Sadly, when you are in debt your compounding machine is stuck in reverse gear. Your net worth is going backwards. Think of this like being in a black cab with the meter running when you’re stuck in London traffic. You’re going nowhere fast but you’re getting poorer with each passing minute (Pro tip: get out and walk). So yes, if you are in consumer debt, this is an emergency.
Whilst I’m here, I should remind people of the appropriate protocol to follow in an emergency:
During an emergency, you do not buy expensive avocado toast. You do not fly to Ibiza for a mosh-up. Nor do you drive your
clown transporter 4×4 to a designer outlet centre to purchase soft furnishings, plastic flowers that squirt water or more red and white shoes.
You do not go to a Food Emporium where servants in dinner jackets bring you food on silver plates. You do not get your cocktails from Mahiki or your food from Harrods or Waitrose. Nor do you get any additional tattoos or body piercings done.
No, during an emergency period you work and you make bank and, if necessary, live like a monk (sex is allowed) until your debt has been paid off and your compounding machine is up and running.
Now, we all have blind spots. Many procrastinators don’t even know they’re doing it. So here’s a quick quiz to help you see whether you are a FI Ninja or a Clown Prince of Procrastination.
1. How much debt are you in?
A) None, fuck you very much 🙂
B) Only a mortgage. No credit card or hire purchase debt. Refinanced the mortgage last year so have a very low rate and can repay without penalty.
C) No idea, I’d need to ask my personal account manager at Payday Loans R Us…
2.What are your pension arrangements?
A) I’m sorted…I’m picking up the free money on the pavement. I put enough in to max out my employer matching contributions. The government adds more free money. Got me a Vanguard global equity index tracker. Costs less than 0.3% per year. Boom!
B) Errr….I think I got a letter about that from HR when I moved job a few years ago…I really must get around to looking at that…
C) What’s a pension?
3. How much does your financial adviser charge you?
A) Ha-ha!!…Financial adviser?!? As if!
B) Not sure to be honest…I read your post on Is Your Financial Adviser Screwing You? but I’ve been…errr…really busy at work or something
C) I’ve no idea…he seems really nice though. He’s got a tie and everything. And he tells me his fees are more than covered by the extra performance I’ll be getting from all my expensive, actively managed funds
Mostly A) s: Congratulations!
Mostly B) s: You might wanna work on that…
Mostly C) s: Oh dear.
This blog is read by smart people. The problem is that smart people can actually be more prone to procrastination. Smart people often fall into the traps of intellectualising and perfectionism.
Yes, investing can be fascinating. Yes there are lots of interesting ideas, debates and fancy concepts. What are the correlations of your different asset classes? Does combining momentum with valuation enhance alpha? Does a Smart Beta strategy lead to better orgasms? blah-blah-blah…
The Escape Artist says: Keep it simple and get on with it.
What’s the perfect fund for you? Wrong question! This is not getting married. You’re not looking to connect 2 souls in everlasting harmony here…you’re looking to get started.
The Escape Artist says: Just get on with it.
Remember: procrastination is for clowns. In the immortal words of Eminem:
Let’s get down to business
I don’t got no time to play around, what is this?
Must be a circus in town
Let’s shut this shit down