I have maintained a daily chronicle of my thoughts and experiences during this most interesting of times
{ in·deed·a·bly }

adverb: to competently express interest, surprise, disbelief, or contempt

War games

I read something outrageous today. Ridiculous to the point of being a parody.

Or, in FIRE terms, £139,500 needed to be financially independent (using the 25x rule).

Not a further £139,500 was needed. No, this was the full amount.

This assertion suggested that with little more than the cost of a fully-loaded Tesla X to their name, a person could lead a sustainable Financially Independent existence. Within commuting distance of London.

I snorted my drink. A decidedly unpleasant experience as sticky caffeinated carbonated liquid flooded my sinuses. Leaving me choking, coughing, laughing, and outraged in equal measure.

My elder son glanced up from his iPad. Observed that I looked uncomfortable. Then his attention was once more drawn to the siren song of the YouTube vortex.

Once my breathing returned to normal, I read the article again. There had been a few caveats, but none that fundamentally shifted the needle on that bold statement in the eyes of the casual reader.

The lapsed financial planner within me died a little on the inside.

I imagined seeing Pete Matthew’s face going pale in horror.

A little bit of vomit rising in the former Mr YFG’s mouth.

In the author’s defence, their proposed lifestyle sustaining amount of just over £15 per day would provide a life of relative luxury, when compared to the £8 to £10 per day that a Universal Credit recipient currently subsists upon.

Survivable. However, I think my son’s description aptly summarises the existence: uncomfortable.

Should those numbers prove to be undercooked, they would need to consume the vast majority of that small nest egg before they too became eligible for those social security benefits.

Long before that point, they would likely have returned to the workforce. Possibly as soon as the first major “life happens” financial event occurs. A case of basic survival. Adapt or die.

Expect the unexpected

One thing the coronavirus pandemic has shown us is that the unexpected occurs. Often at inconvenient times. With some obvious impacts, and many more knock-on effects.

For example, commentators are starting to discuss the likely persistence of remote working once the pandemic lockdown concludes, and the corresponding decline of commercial real estate demand. The German Labor Minister plans to enshrine in law the right for employees to work remotely. The CEO of Barclays, employer of 70,000 people who are currently working from home, predicted that now that employers have successfully made the adjustment “large offices may be a thing of the past”.

This outcome may be applauded by a generation of workers who have recently learned that remote working provides increased flexibility and an improved work-life balance. Yet it would be decried by bar owners, dry cleaners, gym membership managers, landlords, and sandwich shop proprietors operating out of Central Business Districts the world over.

Remote working was an existing trend that had been slowly gaining traction for at least twenty years. Therefore this outcome should surprise few. Yet the speed with which that change has occurred this year will be dizzying to many and financially ruinous to some.

Will things play out as predicted? Maybe. Maybe not.

Not long ago the financial world was getting all excited about the potential stock market IPOs of loss-making businesses like Airbnb, Uber, and WeWork. Home runs all. Certainties to generate vast wealth for investors.

A combination of bad business, bad luck, bad management, and bad timing proceeded to cruel the dreams of investors in all three businesses.

Some of these events were predictable.

Others were unexpected.

A global pandemic brought the world’s economy to an abrupt halt. The sort of spectacular deceleration I haven’t experienced since the time my (then toddler) son unexpectedly applied the rental car hand brake as we attempted to traverse the diabolical Almondsbury Interchange outside of Bristol.

Unexpected in the sense of Willem de Vlamingh discovering that proverbial black swans actually existed on the other side of the world. Those birds had provided the textbook case study of an absurd impossibility for over a millennium. Suddenly, they were real.

Which raises some interesting questions about those flying pigs which society swiftly substituted for black swans, when referring to implausible events. Could they too exist? A rare and exotic breed, bordering on fantasy, like a thirty-something sustainably retiring near London on just £15 per day.

Not impossible.

But unlikely.

Imagine what happens if that intrepid FIRE seeker were to lose their wallet containing £100.

Do they not eat for the next 7 days, until their financial reality once more aligns to their forecasting spreadsheet?

Or, do they drop back to skeleton rations? Reduce their outgoings to just £10 per day for the next 20 days to absorb the loss?

Or, do they ignore the loss and carry on as normal? Risk jeopardising those carefully laid plans, by outspending the “safe” withdrawal rate that all their FIRE calculations had been based upon.

This simple scenario illustrates just how fragile that existence would be. Uncomfortable indeed, for a week or a month.

Now consider the implications of a rise in the rate of council tax or VAT, as broke governments scramble for more income. A sustained recurring reduction to that £15, as opposed to a one-off.   

Perhaps Brexit results in the loss of double taxation treaties, or the imposition of a withholding tax on British folks investing overseas .

Both are possible outcomes, that are well outside the control of the FIRE seeker.

Simple changes, with potentially material impacts when the margin for error is so vanishingly small.

Stress test

After the Global Financial Crisis, armchair experts possessing 20/20 hindsight found it easy to point at large corporates like banks and insurers, knowingly proclaiming that they should have stress-tested their balance sheets and capital adequacy.

Quantify risk exposure.

The resiliency of cashflows.

The ability to honour their obligations.

Withstand the unexpected.

Survive as a going concern.

Some more conservative commentators even dared to suggest that these war games should take into account not just a single event, but a confluence of concurrent calamities occurring all at once!

Regulators now do conduct periodic stress tests on large financial institutions.

Attempting to identify emerging problems early.

Allowing root cause analysis to occur.

Corrective actions to be taken.

Disasters avoided.

Protecting creditors, customers, employees, and shareholders.

Hopefully.

War games

The pandemic lockdown has ably demonstrated how precarious our financial existence often is.

In good times it is easy to become complacent. To believe that our carefully mapped out plans will resemble a journey down the yellow brick road towards the attainment of our wildest dreams.   

At times like the present, we relearn the lesson that reality resembles a game of snakes and ladders. When measured over the long term we appear to make slow and steady progress towards our goals. However, as we experience the journey it can often feel more like riding a roller coaster.

Our sense of being in control is often transitory and to some extent a delusion.

Fortune plays more of a role than our egos are comfortable to admit.

Like financial institutions, we too should stress tests on our personal finances.

War game how various scenarios may impact us. How would we respond? How would things play out?

Consider some of the following scenarios.

Wages

What would be the impact of losing your job? A minor inconvenience, or an unmitigated disaster?

Now imagine you were unable to find another one.

For a week.

A month.

A year.

Would this represent a speed bump, or propel you into personal bankruptcy?

Rent

Perhaps one of your tenants falls on hard times and is unable to pay the rent. How long can you afford to cover the cost of the mortgage?

Now imagine the large employer in your town relocates operations, and all your properties experience void periods simultaneously. What do you do?

How would you meet your financial obligations, in a market suddenly containing lots of sellers and no buyers?

Dividends

Maybe you rely upon dividend income to finance your lifestyle. What happens if a change in government policy changes the game significantly. Temporarily banning dividend distributions, or punitively taxing them. How will you pay your utility bills and buy groceries?

Disability

What happens if you suffer an accident or debilitating long term illness?

How about if your spouse or one of your children does? Requiring your full-time care and attention for an extended period of time?

What if?

Some of these scenarios can be insured against.

Others might be mitigated via restructuring our affairs or selling assets to address cashflow issues. Assuming that at the moment you need to refinance or sell, there are counter-parties who are both willing and able to do business with you.

A few may represent the permanent and irrecoverable destruction of our plans. Requiring a new priorities and more realistic goals.

Nobody likes to think about what might go wrong. However, it is much easier to deal with an unexpected crisis when we have already done the thinking ahead of time. This provides a rough script to follow in the moment.

The existence of contingency plans help to avoid panic and making stupid mistakes while under stress.

Most workplaces do business continuity planning and disaster recovery testing. You should too.

Mutually assured destruction

Finally, consider a scenario that few of us would like to think about, yet nearly half of us will experience at some point: divorce.

Perhaps your spouse meets somebody else. Or you catch them playing away.

Maybe they realise they are gay and no longer want to live a lie.

It could be something as simple as the relationship has run out of steam. The couple has grown apart. No longer sharing common goals, interests, or aligned plans for the future.

Whatever the cause, wargaming this scenario is likely to prove eye-opening.

What would your finances look like after an amicable split? An even distribution of communal assets?

Would your new circumstances require a change in where your primary source of income originates?

A formerly dual-income household becoming a single income household is an adjustment. Somebody who was previously living on passive income generated by an investment portfolio that has suddenly halved in size may be in for a rude shock.

Do you still own the property you live in? Or will you find yourself house hunting, either as a prospective tenant or a future homeowner?

How does your current age impact your ability to obtain a mortgage? Do you have enough working years remaining to repay what you may wish to borrow? That may be a decision your lender makes for you!

Next, ask yourself how your answers may change should the divorce be on less than friendly terms.

Perhaps you returned home to find your suitcase packed next to the front door.

Or a bonfire of your possessions raging in the front yard.

Restraining orders and ravenous snarling pitbull lawyers.

War of the Roses” levels of animosity.

The need to punish resulting in a Pyrrhic victory or mutually assured destruction.

What if you got cleaned up by the courts, or felt the need to completely start over?

New residence. New furniture. New wardrobe. New life. New you.

Where does the money come from?

What would you be left with afterwards?

Happy path

If everything goes right all of the time, then these war games amount to nothing more than challenging thought experiments.

Our plans would successfully deliver our hopes and dreams with a minimum of fuss. That yellow brick road really would provide the direct route to our desired outcome. The happy path.

However, it has been my experience that “life happens” events do frequently occur. We seldom can predict exactly what they will be, but it is a reasonably safe assumption that something will crop up. Often.

My contingency fund provides a shock absorber for the small stuff. Smoothing the ride, and shielding me from the noise.

It is my contingency plans that have made the difference for the big things. Arrived at via conducting war games like these.

A series of “IF [this] THEN [that]” exercises.

Independent events in simple cases.

More complicated cases require considering interrelated events. To understand knock-on impacts, like falling dominos. To avoid everything collapsing, like a house of cards.

When things go spectacularly wrong, it is often the result of a chain reaction of events that are each triggered by another. Therefore it is important to understand what risks we are exposed to, how they are related, and what we will do should one (or more) of them occur.

Our plans need to have resiliency and redundancy baked in, to ensure they are not fragile.

Otherwise, we end up uncomfortable.

Or worse.


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31 Comments

  1. Codefreeze 4 May 2020

    “Or, in FIRE terms, £139,500 needed to be financially independent (using the 25x rule).”

    At £465/month I assume the mortgage is paid off, or the person is living with Mum and Dad?

    • {in·deed·a·bly} 4 May 2020 — Post author

      Possibly Codefreeze, it wasn’t clear from the article.

      Even without housing costs, £15 per day is a pretty fragile existence.

  2. weenie 4 May 2020

    In [REDACTED]‘s defence, nowhere in his post (or indeed in his blog) does he state that he will stop working or stop earning money once he’s gotten his FIRE number – he mentions undertaking entrepreneuraial activities, writing and releasing software and doing side-gigs. Not impossible for a guy still in his 20s with no kids! Also, you missed the bit at the start of his post where he states that the expenses reported are only his half and that he’s aiming for a buffer of around £12k for expenses, so a pot of £300k. This might still seem ridiculously low for someone like you but people’s needs and wants in life differ dramatically as we all know.

    • {in·deed·a·bly} 4 May 2020 — Post author

      Thanks weenie. It is heartening to see bloggers standing up for one of their own.

      The focus of my post was not one blogger’s specific personal circumstance. I read an outlandish throwaway comment, and used it as a relatable literary device to illustrate the need to stress test our individual approaches to personal finance.

      As you correctly observe, the circumstances of the blogger who penned that line are markedly different to what I have written about here. That is intentional, as this post is not about them, but rather the mental picture that their memorable quote conjures. For this reason I consciously chose not to attribute the quote.

      For the record, the quote does use the acronym FIRE, which (rightly or not) is typically read to mean leading an existence that no longer requires the selling of time for money. For the purposes of the discussion in this post, my choosing to infer that interpretation is also intentional.

  3. The Rhino 4 May 2020

    haha – i’ve reverse engineered the comment and found the source

    yes its crazy, which is curious as the blog is pretty professional as it goes

    sometimes i wonder if the other end of the spectrum is just as crazy though

    by that i mean never quite having enough

    OMYS and the ‘if I had 1.5 x what I have now I’d be OK’ crowd

    • {in·deed·a·bly} 4 May 2020 — Post author

      Hi Rhino.

      I didn’t link to the post deliberately, as my intention here isn’t to dunk on anyone. My focus is the need to stress test our own personal finances, the quote provided a good framing device for the discussion as it portrays a circumstance that leave little margin for error.

      For mine, the question of how much is “enough” is a subjective one that is best left to the perspective of the observer. Your “Fat-FIRE” might fall well below my comfort levels, or vice versa.

      The important thing is that wherever we draw that line, we have done the thinking ahead of time about how we will cope with adversity or upheaval, so that we can preserve our standard of living within tolerable boundaries. To ensure they are robust rather than fragile.

  4. Nathan 4 May 2020

    Well my google foo failed so I can’t look at the assumptions, but the number is almost exactly the $7K (includes housing) suggested in ERE. I think the argument is that at this level of external spending you are self sufficient in so many areas that you are resistant to many shocks and if you do hit a nasty one that level of assets gives you plenty of time change your life.

    IIRC part of the derivation of that number was the sustainable global consumption level, such that every $1 you spend over that means that somebody else gets to spend a $1 less, now that’s uncomfortable.

    So I get it, but I’ve never figured out how I could do it, even as a thought experiment.
    Scaling up the income to a family of 4 using the OECD modified scale gives £11.8k a year, well rent on my very average house would be 12K pa so total non starter.
    Working it out another way using benefits as a base level would give me ~£8k per year after housing. I can see how I could cut back to maybe £10Kish, but £8k is a completely different mindset, on the road to homesteading I suspect.

    Untill now I’ve felt pretty comfortable with a pile of money rather than those skills, but I sure as hell haven’t felt very comfortable and independent queuing for 20 minutes hoping for my ration of toilet paper and eggs.

    • {in·deed·a·bly} 4 May 2020 — Post author

      Thanks Nathan, that is a couple of interesting takes on the derivation of a low cost of living number.

      I believe the Universal Credit figure is designed to act as a temporary safety net, stopping people from starving during an interim period of hardship. It isn’t intended to be enough that somebody could comfortably sustain themselves on it indefinitely.

      Whether that level is set too high or too low to achieve that outcome is a question for society, which gets determined each election day.

  5. Ryan Gibson 4 May 2020

    Nice write up as usual.

    I read the post by the specific blogger and appreciate your article wasn’t a mug slinging exercise and was more putting some realism to the situation.

    I think in the specific example the individual in question is a talented developer and has ‘plans’ to work on his own software. I think he was purely saying he ‘could’ in theory live off that number.

    I also agree with your sentiments that it conveys an unrealistic view of life, society and what the future holds.

    Again superb writing.

    • {in·deed·a·bly} 4 May 2020 — Post author

      Thanks Ryan, very diplomatic of you! 😉

      Everyone’s circumstances differ. So too their appetite for risk and their ability to weather economic storms.

      How much is “enough” varies from one person to the next.

      The point here is to understand that our own individual approach will contain both strengths and vulnerabilities. It is only once we have identified each that we can work out how to add resilience and ensure that our own hubris or poor planning do not become contributing factors in determining whether a “life happens” event proves to be a speed bump or a catastrophe.

  6. BLAINE k WHEELER 4 May 2020

    In my life I have:
    Been fired because of a ‘restructuring’

    Started a business that failed after 6 years when the economy tanked and I did not have enough reserves built up

    Spent the next six months looking for any kind of work at all. I did deliveries for kind people and spent 1 autumn picking apples (good money but very short term)

    Found out I was ‘overqualified’, ‘under qualified’, not the right fit for our kind of place’. The last one meant my skin color was wrong for the job opening

    Got divorced

    Found work

    Found a great wife

    Kept our heads and plowed on to today’s financial independence. My point is, stuff happens on the way through life. Move through it and on toward your goals

    • {in·deed·a·bly} 4 May 2020 — Post author

      Wow Blaine, that is quite a journey you have experienced! Thanks for sharing your story, and providing a succinct case study in many of the unexpected curve balls that life may throw our way. Your autobiography would make for a riveting read.

      I’m really pleased that you have managed to weather the storms and that you and your wife have succeeded in achieving your goals.

      • BLAINE k WHEELER 5 May 2020

        Thank you for the kind words but my autobiography would be good for putting people to sleep. I just needed to say that stuff happens getting through life and the most important thing is to keep moving along without getting side tracked (at least not for long) in bad stuff.

        Please keep writing. Reading this blog is one of the highlights of my days

  7. bsdb3 4 May 2020

    I read this article about a couple travelling the world on a yacht they’re trying to live off £500/month so maybe it is possible, but like you say it leave’s very little room for error.

    I think the problem is that both businesses and people have got into the mindset of “too big to fail”. The Government will bail us out and credit is easy/readily available, so society has become less risk adverse. You can see the paradox in the difference between the savings rates between the developed, and the developing World. In theory it should be easier to save if you have more income, but the saving rates in the developing world are significantly greater (I guess because of the lack of safety net from a welfare state).

    The Millionaire next door, and Factfulness are both good reads around this subject.

    • {in·deed·a·bly} 4 May 2020 — Post author

      Thanks bsdb3, the couple have led interesting lives of late, trying to find a safe harbour when borders were closing around the world in response to the pandemic must have been extremely stressful!

      I think their story illustrates two things.

      First, that the unexpected can derail the most well thought through of plans. The couple now find themselves stranded somewhere expensive to live, without any means of generating income. This is a similar fate to what is being experienced by many backpackers, international students, and working holiday makers who suddenly lost the ability to work in hospitality or tourism related jobs due to lockdowns. They now find themselves stuck far from home, ineligible for local social security benefits, and with no viable means of extricating themselves from their predicament.

      Second, that the amount of money required to sustain a lifestyle is relative to the cost of living where a person resides. £15 a day probably won’t cut it in central London, but in many parts of South East Asia it would provide a comfortable living. Geographic arbitrage may form a part in our plans, old folks downsizing to release accumulated equity from their homes is a common example of this in action.

      You make an astute point about social safety nets and savings rates.

      • John Smith 6 May 2020

        As you said, this pandemic shows the week points of one of my “what if” plan: have a house in country A, work in contry B, have investment in contry C. Retire in contry D (no tax anywhere, because round trip A-B-C-D every year) aka “perpetual travel” until “pension”/social securities from various countries, etc. But longer lockdown could triger tax residency in one country!

        • {in·deed·a·bly} 6 May 2020 — Post author

          Ouch! That tax residency trap can be brutally expensive John Smith.

          A couple of my friends have found themselves caught in a similar dilemma, anxiously watching the rapidly approaching 90 day mark with borders still closed and planes grounded.

          Best of luck with it.

  8. David Andrews 6 May 2020

    Being a bit of a control freak I’ve “modelled” a lot of the scenarios that you listed and I’m still in pretty good shape. I’ve experienced a forced work departure just before my son was born and had a robust financial plan that allowed me to take a year off without any undue negative (financial) impact. So many households and businesses operate on the hopeful scenario of continued employment / full demand and have little spare capacity for the inevitable bumps in the road. Some landlords convince themselves that their properties will not have prolonged void periods too. I tend to hope for the best and plan for the worst. My investments have taken a bit of a hit and the loss of dividends from some stocks is painful but not significantly life altering in the short term. Personally I’m aiming for an annual FIRE figure of about £30k per annum which would make for a pretty comfortable lifestyle as I’m debt free. I could survive on significantly less than that but i’d rather be able to live a bit than just survive. The trusty spreadsheet indicates I’m pretty much ready to FIRE now but … I suffer from one more year syndrome and I think it may be better to hang on for 6 months or more to see how the current challenges play out.

    • {in·deed·a·bly} 6 May 2020 — Post author

      Thanks David.

      Sounds like you’re well positioned, the baked in resiliency of you plans not only allowing you to cope with the unexpected, but also focus your energies on the things most important to you. Well done!

      Where the line gets drawn between robust enough and over-engineered is a subjective one, usually made in hindsight by the budget holder in my experience.

      • John Smith 6 May 2020

        “If you won the game, then do not play it further”, nice, but is about human hedeonistic sin, one more year work etc, Very few people know when they have acumulated “enought”. For me acronim FI(RE) is not so meaningful anymore. First it was about me to be FI (financiar independent), with wfie working, split the bills. Then FI both (as one household). Then to have a buffer for the children (university, house deposit, etc). Then what about helping parents (care houe paymens, medicine). So yes, declaring FIRE is a selfish/personal thinking, the math about a strict selective circle of people for which someone care. Ah, plus avoiding divorce, if targes are aligned but not syncornized about final milestones.

        • {in·deed·a·bly} 7 May 2020 — Post author

          I think Financial Independence is about having choices, removing the financial imperative from time investment decisions.

          It is a subjective judgement rather than an absolute number, driven more by confidence and faith than certainty in spreadsheets. In reality we can never know with absolute certainty that we really did have “enough” except in hindsight, and by that point it is no longer our problem!

          Those who find themselves in that fortunate position tend to be a combination of goal driven and/or very fortunate. The goal driven folks will tend to find further targets to aim for, the expanding circle of financial responsibilities you describe being one such example. Many would share the desire, yet few will have the means to go so far.

          Divorce is an interesting one. Money and happiness are two separate spectrums that intersect at some point. Sometimes one has to give in order to achieve more of the other. When that occurs is another subjective judgement, and potentially an expensive one.

          • David Andrews 7 May 2020

            “If you won the game, then do not play it further” Unfortunately the rules of this particular game are constantly shifting which makes it difficult to establish if you’ve actually “won”. Also the winning criteria may have been met yesterday but in a week’s time the criteria may no longer be met. My situation is perhaps a little different from many in that my partner and I keep the majority of our finances separate. Meeting a little later in life meant we were both financially established and more or less on parity. When our son arrived (5 years ago) we bought a family home in the catchment of some excellent schools ( yes, we are one of those households) but retained our existing properties which are now let out. My partner is a contractor so earn about 50% more than me whilst I have the comfort and relative safety of being a permanent employee. Not being married and having largely separate finances means divorce shouldn’t be a factor ( what a romantic I am ). My primary concern revolves around my deferred DB pensions scheme and it’s medium term health.The CETV for my deferred DB scheme is significant and I continue to monitor the scheme’s health – especially in the current climate. Anyway, being FI gives me more potential choices. Yesterday my partner was given notice from her contract role. Whilst the loss of income will be painful, we both know that there’s a roof over our heads, food on the table and most importantly the WIFI will still work. If my job also evaporates I know I’ll be able to coast the next 7 years until I can access my personal pensions. I’m aware that many households will potentially be suffering catastrophic and life changing circumstances at present and in the near future.

            • {in·deed·a·bly} 7 May 2020 — Post author

              Sorry to hear about your partner being given notice. That seems to be contagious, there is a lot of it going around at present.

  9. John Smith 7 May 2020

    When my wife was made redundand in UK, it was like a death in family. Even with the saving for 5-8 years in a Est country and I had a very good job full time employed. I asked my wife “Why are you angry that a master do not want you to be his slave?”.

    But bad habits die hard. When I was made redundant in UK it was depresing. Even if my savings were enought for 10 years in a low cost country. So I did not learn the lesson, what “enough” wealth means enough.

    Lucky me, a kick in the ass is a step forward! My new job was better paid and state pension was 4x times better versus UK state pension. Looking back, the stress was for nothing.

    Now I am not rich, but happy! Tax man would see me as a person under poverty threshold (pasive income under pesonal allowance), small capital gain, basically no tax in any civilised country, if I eat my ladder of fix bonds until old age pension. Then a decent pension.

    It is good to have options. But solder skills remains even after the war is over. (will be ever pace for my mind?). Bad habits die hard. Beeing at war with capitalist economy all my life, I can not stop doing savings, thinking in cash flow, working one more year, then another, just in case of… war games.
    Decompression is longer and harder than we first belive.

  10. greencat66 9 May 2020

    Pity you didn’t link to the original article so we could read more. I’d say it was perfectly doable and probably everyone should do the thought experiment of how they’d manage on £15/day as it’s not impossible to sink to those levels of income through a mix of back luck and planning.

    Having managed on similar levels of income in the past, I found you don’t need that much of a buffer for the unexpected. For a young single person, it might be as little as £500 – depending on housing situation. Having that buffer, and later enough to declare some kind of FI – is a mindset changer.

    I modelled a similar scenario a few years back when the possibility of redundancy loomed. I had one dependent, paid off home, about £80K of savings in the bank, the possibility of £20K or so redundancy and ten years to a decent private pension. It turned out to be comfortable even – especially if we considered letting a room on occasion.

    For example, transport-wise I figured I had enough bikes and parts to cover a decade with minimal spend on spares. Food, we had a garden which would allow us to grow some of our own. Energy, a free supply of wood and solar panels covering a decent chunk of our utility bills. Entertainment wise, plenty of books & films in house (+other friends who would likely lend theirs to us). We could even ditch the expensive broadband in favour of an occasionally topped up mobile & library access. Exercise wise, lots of local walks/cycling. Clothing wise, plenty in house. We were comfortably moving up Maslow’s hierarchy of needs!

    Some of the above was only notional, so I quickly took steps to make it a reality. In the event, the moment of redundancy passed and frugal FI has become more comfortable FI. Still waiting to RE, but am enjoying work too much at the moment.

    • {in·deed·a·bly} 9 May 2020 — Post author

      Thanks for sharing your experience greencat66. Great to hear you enjoy your work and are financially content with your lifestyle. Sounds like winning to me.

      There are a few key points that leap out from your story, that are worth emphasising.

      1. You had a paid off house AND a bucket of money. That is a fantastic effort, as it meant that providing you could meet your council tax obligations, you would always have a roof over your head without needing to worry about meeting rent/mortgage payments.
      2. You had a significant asset that could be either sold or borrowed against, should the unexpected occur.
      3. Your savings alone would have had to sustain your entire lifestyle for only 10 years, after which a private pension should hopefully kick in to supplement your income. ~12 years after that the state pension may also become available to further supplement your living costs.

      That is a very different scenario to somebody aged around 30.

      At most a ~30 year old will have been in the workforce for a decade, the majority of which would likely have been towards the lower end of the salary spectrum, as value adding skills and experience take time to acquire and develop.

      That means they would have only ~10 years savings to call upon to bridge the ~25 year gap between their early retirement and reaching private pension access age.

      However, they would have only made ~10 years worth of private pension contributions, again off a lowish salary base, so the size of that pension pot is going to be relatively small.

      Finally, a typical home mortgage has an expected duration of 25 years. Even if the young FIRE seeker had the remarkable foresight to purchase their home on day 1 of their career, they would only have been making mortgage payments for at best ~10 years. The greater those payments had been, the smaller their residual savings pot would be at the point they retired early.

      My point here is that treating the scenario at face value, for the majority of people there simply will not have been enough time to save a sufficient amount by the age of ~30 to sustainably support them through the remainder of their lives.

      Of course it is not an impossible dream. A very select few do join the ranks of the Masters of the Universe in Canary Wharf, pulling in 6 figure bonuses. Or perhaps they happened to be an early hire in a successful Kings Cross startup that goes on to become an IPO unicorn.

      For the rest of us, having the ability to sustainably retire at the age of ~30 would require some form of external help. Coupling off with a high earning significant other. Or benefiting from some form of financial windfall, such as access to the Bank of Mum and Dad.

      There is absolutely nothing wrong with these externalities. Unfortunately, they rarely rate a mention in discussions of FIRE maths, when they so often play a contributing factor to realising that dream.

  11. Northern lad 9 May 2020

    Setting aside the circumstances of the original author, respectfully disagree with the thrust of this article which I took as that, just because £15 per adult per day is mind-bogglingly low for you, it’s necessarily particularly uncomfortable for someone not used to your earning/spending patterns. Everyone’s experience is highly individual – including when it comes to spending.

    Only tangentially relevant via the general point of “everyone’s mileage varies” but I love this sketch, which I hope you might also enjoy.

    • {in·deed·a·bly} 9 May 2020 — Post author

      Thanks for reading and for sharing your perspective Northern lad. Thanks also for sharing the skit, it was very good.

      The main thrust of my argument is that our plans should be stress tested so that they are robust rather than fragile.

      You’re absolutely correct that everyone’s idea of “enough” differs. My point was that £15 per day doesn’t leave much margin for error, or wriggle room to absorb externally induced shocks.

      For example, consider the increase in grocery prices that has occurred since the pandemic lockdown began. A £2.50 increase to the cost of a lap around the supermarket may not sound like much, yet it would consume an additional 1/6th of their daily budget. Which is not a big deal if that increase can be offset via savings from not commuting or socialising with friends. However, if all of their £15 were already committed to making ends meet elsewhere, then the person now has a recurring problem.

      If such a small change were to have such a major impact, then those plans are too fragile. It isn’t about the amount, it is about the resiliency.

      • Northern Lad 13 May 2020

        Sure. I don’t necessarily disagree about the utility of a certain amount of stress testing, but I don’t think it’s as clear cut as you say. I think we disagree less on “enough” with respect to “business as usual” (where we both think “mileage varies”) and more on “enough” with respect to risk mitgation.

        They may not be the most important ones, but here are a few counterarguments to the “low income, low expenditure is more fragile” notion:

        1) Higher expenses doesn’t necessarily mean more room for manoeuvre. Those expenses could be just as ‘locked in’ at the higher level e.g. higher rent, because your wife/family doesn’t really give you the room to manoeuvre in practice or because you just can’t remember how to live cheaper. I’m not saying any of these apply to you btw.

        2) Low-income, low-expense has a bit of a backstop in the UK in the form of welfare/benefits – which can sustain a fairly similar lifestyle to “self-funded” £15 per day. High-income, high-expenditure has a lot further to fall before engaging that safety net, so may have to adapt much further in the face of stress.

        3) Your £2.50 extra cost on a lap of the supermarket assumes inflation applies on an absolute rather than proportional basis. Covid seems like a special case in hitting basics harder than luxuries (over the very short term). Otherwise, I don’t really see why inflation would cause one person’s shop to go from £3 to £5.50 when it makes the other person’s shop go from £15 to £17.50. If anything, a quick google search suggests that inflation tends to be higher for luxury goods.

        4) Maintaining a lower budget, ceteris paribus, is more likely to involve a degree of DIY/non-monetary solutions to life’s basic problems than a higher one. Skills are more robust than financial capital.

        Ultimately, it’s just a question of risk assessment, I guess. Personally, I think there will always be tail risks that could screw you up big time, which mean that you never have “enough” to be truly confident of unassailable financial security. We all find our own balance on that – but you could stress test yourself into insanity.

        • {in·deed·a·bly} 14 May 2020 — Post author

          Ultimately, it’s just a question of risk assessment,

          Agreed. You nailed it. Understanding the risks faced, then being satisfied the level of exposure is compatible with the tolerances of the individual.

What say you?

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