1 hr 1 min
How to make up for lost time (#216) The Fat Wallet Show from Just One Lap
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- Education
Most of us kick our 20-year-old selves for spending all our money making poor decisions in Melville instead of taking full advantage of compounding. The financial independence, retire early (FIRE) movement has given us valuable tools to reach our financial goals despite those late nights in Melville. I discussed that with FIRE-man Patrick McKay here.
Since regret over lost investment time is something so many investors grapple with, we wondered whether we could quantify exactly how much we missed out on in order to make it up. It’s a simple question, but the solution is hella complicated. I tried to do this for my own situation like this:
First I worked out how much money I would have needed today so I could stop contributing to my savings and still reach financial independence in 10 years. I never considered this before, but it’s basically the baby version of financial independence.
To do this, I multiplied my current expenses by 300 to get to my FIRE number. (I always do this, even though I know that number by heart.) Then, using an average growth rate of 8%, I worked out what that amount would be in today’s money. 8% is slightly below the 9.4% annual return the JSE ALSI achieved over the last 10 years. (You can use a future value calculator online to do this.) Next, I subtracted what I managed to save so far. I divided the difference by 120 months—10 years—to get to the monthly rand amount. The bad news is it’s a lot of money. To add that to my current investments to reach my FIRE-goal, I’d have to take on another job. The good news is, I don’t have to stop investing now. Remember, that’s the amount of money I would have needed to stop contributing to my investments today.
I wanted to arrive at a simple rule of thumb to help us think about making up for lost time. It turned out to be far more complicated than that, but hopefully this discussion gives you something to chew over. I’m excited to hear your thoughts.
Subscribe to our RSS feed here. Subscribe or rate us in iTunes. Win of the week: Stippled
I recently listened to your perfect money month podcast.
I for the last 20, and my wife and I for the last 10 years, have followed a very simple "perfect money month" template. We are both 43 now and have recently become financially independent based upon the 4% rule (we are actually aiming for the 3% rule which will probably take another 3 years to achieve).
The monthly template has been as follows:
Give 10% of after tax income. Save 15% into a Pension, Provident or RA. Budget discretionary spend at the beginning of each month. [We use 22seven] Initially pay down debt, then Invest, the extra money [after we became debt free 7 years ago redirected to global broad based ETF . . no individual shares]. One great dinner out each month . . . but only one :-) General rules
No debt except for housing [This means we still driving "student" cars] Automate as much as we possibly can Review insurance, cell phone and medical aid annually [In November for us] Review wills annually [In June for us] Balance investments evenly between each other to maximise tax benefits later on. Married out of community of property with accrual This has really been an unsexy and boring process to follow month in and month out. However the results have astounded us.
They are:
My wife was able to resign from her job when our first child was born seven years ago to be at home with our kids (we now have 2) which was always a dream of hers. We are now financially independent and we have made more money from our investments over the last three years than from my full time employment! We are able to afford to send our kids to any school of our choice which was always an important goal for us [Not that we automatically chose the most expensive, we just never wanted money to dictate the choice]. We are able to support friends and family financially if and when the need arises [Never a loan, always a
Most of us kick our 20-year-old selves for spending all our money making poor decisions in Melville instead of taking full advantage of compounding. The financial independence, retire early (FIRE) movement has given us valuable tools to reach our financial goals despite those late nights in Melville. I discussed that with FIRE-man Patrick McKay here.
Since regret over lost investment time is something so many investors grapple with, we wondered whether we could quantify exactly how much we missed out on in order to make it up. It’s a simple question, but the solution is hella complicated. I tried to do this for my own situation like this:
First I worked out how much money I would have needed today so I could stop contributing to my savings and still reach financial independence in 10 years. I never considered this before, but it’s basically the baby version of financial independence.
To do this, I multiplied my current expenses by 300 to get to my FIRE number. (I always do this, even though I know that number by heart.) Then, using an average growth rate of 8%, I worked out what that amount would be in today’s money. 8% is slightly below the 9.4% annual return the JSE ALSI achieved over the last 10 years. (You can use a future value calculator online to do this.) Next, I subtracted what I managed to save so far. I divided the difference by 120 months—10 years—to get to the monthly rand amount. The bad news is it’s a lot of money. To add that to my current investments to reach my FIRE-goal, I’d have to take on another job. The good news is, I don’t have to stop investing now. Remember, that’s the amount of money I would have needed to stop contributing to my investments today.
I wanted to arrive at a simple rule of thumb to help us think about making up for lost time. It turned out to be far more complicated than that, but hopefully this discussion gives you something to chew over. I’m excited to hear your thoughts.
Subscribe to our RSS feed here. Subscribe or rate us in iTunes. Win of the week: Stippled
I recently listened to your perfect money month podcast.
I for the last 20, and my wife and I for the last 10 years, have followed a very simple "perfect money month" template. We are both 43 now and have recently become financially independent based upon the 4% rule (we are actually aiming for the 3% rule which will probably take another 3 years to achieve).
The monthly template has been as follows:
Give 10% of after tax income. Save 15% into a Pension, Provident or RA. Budget discretionary spend at the beginning of each month. [We use 22seven] Initially pay down debt, then Invest, the extra money [after we became debt free 7 years ago redirected to global broad based ETF . . no individual shares]. One great dinner out each month . . . but only one :-) General rules
No debt except for housing [This means we still driving "student" cars] Automate as much as we possibly can Review insurance, cell phone and medical aid annually [In November for us] Review wills annually [In June for us] Balance investments evenly between each other to maximise tax benefits later on. Married out of community of property with accrual This has really been an unsexy and boring process to follow month in and month out. However the results have astounded us.
They are:
My wife was able to resign from her job when our first child was born seven years ago to be at home with our kids (we now have 2) which was always a dream of hers. We are now financially independent and we have made more money from our investments over the last three years than from my full time employment! We are able to afford to send our kids to any school of our choice which was always an important goal for us [Not that we automatically chose the most expensive, we just never wanted money to dictate the choice]. We are able to support friends and family financially if and when the need arises [Never a loan, always a
1 hr 1 min