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The run up to Financial Independence (part 1)

Let me tell you about the time I ran out onto Wembley Stadium, nearly died, and found myself on the road to Financial Independence.
This week marks the first anniversary of the date I conceded to myself that I was actually Financially Independent. I was going to write a post reflecting on how that year lived up to my expectations, what changed, what didn't, and where things go from here.

But first I thought I would set the scene a little, by telling the story behind what motivated me to learn about Financial Independence in the first place.

Let me tell you about the time I ran out onto Wembley Stadium

In March 2016 I ran (then jogged, then shuffled... my kids called me "Slow Dad" for a reason!) a half marathon, taking 15 minutes off my personal best time over the distance.

The chances of achieving a good time began auspiciously. By the time my echelon eventually made it to the starting line the announcer informed us that the race leaders had already reached the half way point and were travelling at world record pace! That was certainly inspiring.

What he didn’t tell us was that the course second half of the course was mostly uphill!

The race organisers had planned a dramatic finish to the race, with runners emerging onto the hallowed turf of Wembley Stadium.

As they entered the stadium each runner’s name was projected up on the giant scoreboard, while a small but enthusiastic crowd very generously cheered the exhausted runners home over the final hundred metres around the outside of the pitch.

I must admit it was a very cool feeling to see my name up on the same scoreboard where sporting giants likes Usain Bolt, Jonah Lomu, Lionel Messi, and even Michael Schumacher have all worked their magic.

The hallowed turf of Wembley Stadium

I’d managed to out stubborn that bastard chimping saboteur voice in my head that was telling me I was too tired, too sore, and way too smart to continue pushing myself beyond my now exhausted (and thoroughly undercooked) reserves of stamina.

I had told myself not to be soft, that if I was going to bother doing something I should do it right, and that only failures fail while if I were determined enough I would succeed.

Turns out I was wrong.

After a half marathon, nothing beats a relaxing holiday

The next day I flew out on holidays, enjoying a fun day at the super fun Wild Wadi waterpark in Dubai before visiting with friends and family for a great couple of weeks in Australia.

Wild Wadi water park. Image credit: Sarah Ackerman

On my return to London I was jet lagged, dreading the prospect of returning to the client site I was working at, and generally feeling quite flat. I put all that down to the traditional post-holiday re-entry problems, slapped myself upside the head for being soft, and valiantly soldiered on to work.

Turns out I was wrong again.

It is all good fun until somebody ends up in hospital

A couple of days later I had been admitted to hospital.

A few days after that the mystery that ailed me hadn’t responded to any of the treatments the doctors had tried, and they had exhausted all but one treatment option.

A friendly yet very worried grey bearded senior doctor had a very confronting conversation with me, telling me that I’d likely be dead within 48 hours if this final “treatment of last resort” failed to cure me.

Dead within 48 hours.

Either way, being the “nuclear” option, the side effects of the drug were likely to be almost as bad as what I was fighting.

The doctor certainly wasn’t wrong about that!

Sometimes in life there aren’t any good options, and all you can do is choose the least bad one.

Fortunately the treatment worked, and I lived to tell the tale. Yay for me!

Swiss cheese, systemic failure, and aligned stars

About six weeks later I returned to the hospital for a final check up, and to hopefully get the all clear.

As best I can understand, what the doctors concluded was I’d pushed myself way too hard when running the race, and flattened my batteries. While I was splashing about at the Dubai water park an uncommon yet opportunistic bug native to that part of the world took advantage of my rundown state and stowed away inside my body. It made itself at home over the next couple of weeks, before seizing the opportunity when I was next run down (the jet lag resulting from the 21 hour return trip from Australia) to stage coup d'état.

My doctors hadn’t seen the bug before. They hadn’t even heard of the bug before. The bug apparently wasn’t one they screen for routinely because it just doesn’t occur in this part of the world, and unlike an episode of House M.D, in the real world hospitals have to weigh up cost of testing and treatment versus the probability of them finding something. Unsurprisingly therefore, there was no standard treatment for it.

The grey beard doctor told me I was very fortunate, and that the only reason I remained alive was because of a “Swiss Cheese” series of unlikely events coinciding to make it so.

Reason's "Swiss Cheese" model
Reason's "Swiss Cheese" model. 
I must confess I had to go and look up what he meant. Apparently when investigating catastrophic failures such as airline crashes or nuclear power plant meltdowns, some big brained researchers named James Reason and Dante Orlandella worked out that often times there wasn’t a single fault that was responsible, but rather a series of otherwise unrelated failures that cumulatively caused a systemic failure.

They likened this to a stack of holey Swiss Cheese slices. For the end result to have occurred a failure (represented by a hole) in each system (represented by a cheese slice) must line up with failures in the other systems (other holes in other slices), effectively resembling a contiguous hole from top to bottom through the stack of cheese slices.

Anyway in my case the layers of Swiss Cheese were that the “treatment of last resort” was only an option because it was suggested by the former university roommate of the grey beard doctor...

Who 40+ years previously had happened to spend a few months in the Middle East, and while there had one time observed somebody else being treated for what looked like the same bug...

And I had only gotten to see the grey beard doctor because he was doing rounds for the first time in 20+ years while all the junior doctors had gone on strike during the week I was in hospital...

Finally speaking of doctors, I had only gone to see one at all because my wife nagged me into getting checked out after the first signs of trouble.

Moral of the story?

It could be seen as confirmation of my long held suspicion that exercise is actually bad for you!

An actuary I once worked with had a theory that your heart was only good for a certain number of beats, and fitness fanatics use theirs up faster than couch potatoes. Personally I don’t put much faith in his theory.

My wife is convinced that the moral was that she is always right and I should always listen to her. Personally I don’t put much faith in that theory either!

No, personally I think it was a much needed kick up the backside to take stock and reassess my life, my choices, and my priorities.

So what?

While a bit overly dramatic for my tastes, these experiences gave me a wake up call. Next time I will talk about how it motivated me towards achieving Financial Independence.

Grand Master of Procrastination

You are the boss of you, take ownership of your time. Learn to recognise, accept, then work around your shortcomings by pushing your own buttons.
I had set aside today to complete a university assignment that is due early next week.

The assignment wasn’t a big deal, 2500 words that should have taken about 3 hours to complete... had I just sat down and done it!

A promising start

I got up, had breakfast and was all ready to get started.

Then I defrosted the freezer instead.

Then I went and read Monevator’s weekly round up, followed by Miss Mazuma’s heartfelt defence of the Avocado Toast guy, followed by TFS’s tongue-in-cheek rant against rich entitled folk.

Then my 4 year old son wanted to build a Lego garage together, but instead of throwing up a quick couple of walls (which would have sufficed) we built a 12 storey six foot tall monstrosity, with interconnected walkways, stair cases, slides, and so on. It had picnic areas, a helicopter landing pad, and even an ice cream shop.

Then I took myself away from the distractions and finally opened up my computer... and completed my PAYE tax return that was not actually due until January 2018!

Clearly my heart wasn’t in it.

Now it was lunch time, time for a well earned break.

Grand Master of Procrastination

A couple of sandwiches later I sat back down at the computer, starting to despair. Trying to get myself to knuckle down was like trying to get my kids to do their own homework, only funnier. Force myself to sit down and do something I clearly didn’t want to do was about as difficult (and productive) as trying to nail jelly to the wall.

If at first you don't succeed... go do something else?

I decided rather than force it, I would start out typing up something I might enjoy. Like this blog post. The idea being that I had plenty of time, the words would start to flow, and then I’d be able to seamlessly move over to the assignment.

That got me to thinking, how did it come to this?

Back when I was a university student ~20 years ago I learned the hard way there wasn’t much mileage in being super organised and completing assignments early.

The few times I did during my first year, either the lecturer subsequently changed the question or provided some form of guidance or clarification as to where the big marks lay.

Inevitably I’d approached things a little differently, and as a result I had to effectively complete the assignment a second time.

Which sucked mightily, because the reason I’d completed them early in the first place was to ensure I’d have the time to work on the assessment due in the other 5 courses I was concurrently studying at the time!

Climbing the corporate ladder for fun and profit

A few years later, after 74 rejection letters, I landed in the full time work force as a freshly minted Accountant.

I’d seen through the slavery of unpaid/low paid internships, and the long cons that are graduate programmes.

If I was going to be graduate cannon fodder then at least I wanted to earn a decent wage while being exploited!

Instead of targeting graduate level positions I aimed one rung higher up the ladder (which effectively beat the typical graduate programme starting salary by about 50%).

I observed that in the workplace you get asked to do things.

Lots of things.

All. The. Fucking. Time.

Every time a random idea appeared in the head of a lackwit boss or gormless co-worker, it would shoot out of their mouths in the form of some ill-conceived request that inevitably landed on someone else’s desk (often mine).

I also observed that more than half the time that same boss or co-worker never asked about their request again. The need went away, priorities changed, the urgency diminished, or it just plain got forgotten about.

This taught me a valuable lesson: that somebody else’s panic does not have to become my own.

somebody else’s panic does not have to become my own
It also taught me to be the master of my own destiny, within the remit of my role I would choose what I worked on, when I worked on it, and in what order I would complete the tasks I had been assigned. If a task had no apparent value, or was clearly bullshit, then I just didn't do it. I didn't make a big song and dance about it, just put the request in my bottom drawer and sat on it.

somebody else’s panic does not have to become my own

You are the boss of you. Take ownership of your time

This epiphany has served me well throughout my working life, though I suspect it made me an even bigger pain the backside to manage than I had already been!

However it also meant I was much less stressed out doing busy work than any of my co-workers, which in turn meant I usually had the time to volunteer for interesting projects or to tackle the real value add tasks.

Both get you noticed, in a good way, far more than those colleagues for whom the only tangible measure of their productivity was how many hours they occupied a desk (unless you work for a large American investment bank or a large consultancy, in which case the amount of time you are seen to be at work is far more important than the actual value of any output you may happen to produce!).

This "don't sweat the small stuff" approach meant I had a far more enjoyable work life than I would otherwise have experienced.

don't sweat the small stuff
Unfortunately it also reinforced a behaviour if I ignored most unpleasant task they would eventually go away.

Learn to recognise, accept, then work around your shortcomings

Luckily I recognise, and accept, this shortcoming in my character.

I have learned to work around it.

The reason I semi-regularly sign up for organised long distance running races isn’t because I’m an obsessive runner. Or super competitive. Or even that I particularly enjoy the atmosphere and camaraderie associated with sharing the experience with thousands of fellow runners. To be honest I could care less about all those things.

No, the real reason is because I recognise that I’m lazy.

Procrastinators are lazy... and good at it!

However I am also stubborn, and stubborn beats lazy.

stubborn beats lazy
Therefore if I’ve shelled out for the price of admission then I will make myself turn up for the event rather than see the ticket price wasted.

Once I have started a race, I will make damn sure that I finish it.

And the effort of hauling my idle self around a silly number of kilometres is much less painful if I’ve put in some training for the event.

Therefore to get myself exercising semi-regularly it requires the motivation provided by the fear of going into a race undercooked. Otherwise I’d stay sat on my backside writing blog posts that poke fun at the followers of the 4% rule.

Outside influences can ensure accountability

Which brings me back to studying.

The reason I’m doing this unit isn’t because it would particularly aid the profitability of my business. Nor because I am chasing yet another qualification to stroke my ego or enhance my employability.

No it is because I am genuinely interested in learning the finer points about a somewhat dry topic that would cause most healthy minds to turn tail and flee at great speed.

However I also know that this won’t be a rollicking Peter Hamilton or Brandon Sanderson plot, with George Martin-esque characters or an early Jeffrey Archer twist in the tale.

Therefore the chances of me actually sitting down and forcing myself to wade through vast quantities of turgid academic writings on the matter are about as good as those of me lacing up my trainers and going for a run in the rain on a cold winter morning just because I should.

Push your own buttons to achieve the behaviours you desire

How do I get myself to read it then?

Sign up for a post-graduate university unit, pay some tuition fees for the privilege of having deadlines imposed and a need to grasp the concepts well enough to convince an assessor of my work that I have at least a vague inkling about the subject matter they are teaching.

And yet here I am, nearing the end of a blog post and about to actually start that much procrastinated over assignment.

Procrastination over Personal Finance... a common affliction

Before I go I wanted to note the one other time that my mind dances, dodges, and does anything possible to evade performing a task that I know I should do, but seem to be able to find an infinitely long list of preferable things to do instead.

No it isn’t getting a proctology exam.

Nor going to the dentist.

Ironically (given where you are reading this), it is actually looking at my own personal finances.

More precisely looking at my family’s spending, savings rate, and evaluating whether or not our living costs at growing at a greater rate than our passive income streams will support.

Don’t get me wrong, I think monitoring and understanding this stuff is super important.

It is just no fun at all.

Nor is it likely to make me happy, let alone give me a warm fuzzy feeling of inner peace.

Dances, dodges, and evades
This picture has nothing to do with my post, but it is cool nonetheless.

For a bunch of different reasons (families are complicated) I’ve always found it much easier to generate more income, than it is to tighten belts or cut back on spending.

Partly that is because we don’t lead a particularly extravagant or big spending lifestyles.

And partly because we happen to call an expensive part of a super expensive city home. It is the cost of housing that is a killer, and the lifestyle trade-offs required to achieve a material difference on that front just don’t pass the smell test for me.

No matter how much we would like it to be otherwise life is about compromises, and every choice we make comes with an associated opportunity cost of other things we have forgone.

So what?

I am very fortunate to run a profitable business that offers an in-demand service (for the moment) to a wide range of clients who are (for the moment) willing to pay a pretty penny for the privilege.

I am also very fortunate that I long ago got my finances in order, following the basic principles of personal finance, that have allowed me to become financially independent.

For the most part it is good to be me. Except for the procrastination part, and the assignment I must now go complete.

Living off capital is playing chicken with mortality

The fable of MooDoona. Planning to sell down capital to pay for your living costs? You are playing chicken with mortality! Good luck with that.
Once upon a time there was a man, we’ll refer to him as Dave, because that was his name.

Dave had a cow named MooDonna, who was a “wonderful magical beast” in the true Homer Simpson sense. She was seemingly ageless, year after year churning out a veritable multitude of renewable foodstuffs including butter, cheese, milk, ice cream and yogurt. He also has a supply of manure he can sell.

One off steak dinner, or renewable source of butter, milk, cheese, ice cream and yogurt

One evening Dave was found himself parked in front of some late night television. He’d hoped to see something witty featuring Jon Stewart or John Oliver, but instead found himself being hypnotised by late night television advertising. After numerous repetitions from breathlessly excited, cosmetically enhanced, big haired presenters imploring him to “ring now, but don’t send any money... we’ll bill you” Dave was ripe for the picking.

And then an advert for certified Aberdeen Angus Steak appeared.

Certified. Aberdeen. Angus. Steak.

A marketing con if ever there was one. Angus cattle are the most popular breed of cattle in the world (according to the authoritative sounding American Cowboy website). There is absolutely nothing special about them.

It is the biggest marketing manipulation since Haddon Sundblom came up with the Coca Cola Santa Claus campaign of 1931 (prior to which Saint Nicholas wasn’t a jolly fat man in a red suit we all know and love today... the current version turns out to be a marketing campaign based upon a 1832 Clement Clarke Moore poem!).

Dave loved a good steak.

The next day a slightly sleep deprived Dave took MooDonna to his friendly neighbourhood butcher, where she was promptly turned into a succulent 32 ounce t-bone steak served medium rare with béarnaise sauce and some sweet potato fries.

Empty plate. Image credit Jon Scally

Once Dave happily digested his way through a meat induced food coma he fancied some cheese and a tall glass of ice cold milk.

Except there wasn’t any.

The next day Dave was making himself a packed lunch to take to work. He went to the fridge for some butter, but there wasn’t any.

There wasn’t any the next day either.

Or the next.

After a few days Dave came to regret selling off MooDonna. He had traded a seemingly infinite supply of dairy goods for a single (wonderful) steak dinner.

Dave was lonely. And hungry.

It sucked to be Dave.

It sucked more to be MooDonna, though she was beyond caring at this point in the story.

There is an old saying that “you can’t have your cake and eat it too”. It turns out this expression applies just as well to beef cattle as it does to cakes... or money.

You can either have money or spend money, but you can’t do both.

Living off capital is playing chicken with mortality

When I read the masses of personal finance bloggers worshipping at the altar of the “4% rule” I think of Dave.

I think Dave was short sighted.

I think Dave traded his scarce capital for a one off return.

I think once Dave’s capital was gone, he went hungry.

If MooDonna was Dave's only store of wealth then he is now going to starve. Or rely on social security. Or sleep in doorways and beg for change outside his local Tesco.

Living off capital is playing chicken with mortality

Income gets taxed more heavily than capital gains

Yet here is the thing.

The financial equivalent of MooDonna’s butter, cheese and milk are dividends, interest and rent.

All three of which are taxed as income.

In fact all three are added to a person’s earned income. This means they are often taxed (apart from a diminishing allowance at the low end of the earnings spectrum) taxed at their highest applicable marginal tax rate.

That means the chances are pretty good that much of Dave’s earned income is actually taxed more favourably than his passive investment income.

Think about that for a second. Tax payers are penalised, in that they are taxed more harshly, for earning passive income. Doesn’t that sound counter intuitive to you? It certainly sounds wrong to me, governments should be encouraging people to establish additional income streams, as it reduces their demands on the pension/social security system.

In fact the story gets even worse.

In the UK capital gains are taxed at more favourable rates than earned or passive income.

If your income + capital gain puts you in the basic tax rate then you pay 10% capital gains tax on the sale of an asset (excluding your own home… which is also stupid, but the subject of another post).

If your income + capital gain puts you into the higher rate tax bracket then you pay 20% capital gains tax.

Now think about that for a second. The capital gains tax rate is half that which is applied to income, either earned or passive!

Is stupidity contagious?

This means the government is actually encouraging short sighted behaviour like Dave’s, taxing people heavily for retaining an income producing asset, while taxing them lightly for selling that asset off.

Had he kept MooDonna he would pay up no capital gains tax, but up to 45% tax on the income she produced.

On the other hand if sold MooDonna, he would pay only 20% tax on the one-off price she fetched.

The story actually gets a bit worse.

Unfortunately the government is using the taxation system to attempt the execution of social policy, and as such capital gains made on the disposal of residential investment properties are slugged with an additional 8% capital gains tax.

Therefore not only is the short sighted disposal of income producing assets being rewarded, but the direct ownership of an asset classes that has a long history of generating wealth for individual investors is being actively discouraged through punitive tax rates.

Stupidity is encouraged

Urban legend has it that Fidelity once conducted a study to identify which of their clients achieved the best investment performance, and what common characteristics they shared. It turned out they were dead, or had forgotten they had an account.

Moral of the story: unsurprisingly buy and hold investing performs better than regularly trading or selling down capital.

What is the answer?

To my simple mind the focus should be on encouraging those behaviours that have the most beneficial outcomes.

One of those outcomes is to encourage people to provide for the own financial needs, via the creation of a multitude of income streams.

Passive income streams scale much better than earned income streams do.

For example a guy I once met was a member of a unremarkable and unsuccessful band. At some point he wrote a song that they regularly performed at gigs, but that had no real commercial success. Somehow that song got noticed and used as the theme song for a successful kids cartoon show made in Japan. Now the guy gets sporadic royalty cheques that over time have been enough to finance the purchase of an apartment.

He performed a little bit of work.

Once.

That has subsequently generated ongoing income without any further effort on his part.

The effort required to earn £1 in dividends as the same as that required to earn £1,000,000 in dividends.

On the other hand there is earned income, where the individual sells off their life by the hour in return for a salary. They only have so many hours in the day that they can sell.

Some people seek further earned income, trading some of their free time for side hustle income. A noble intent, but if most people were honest with how they value their time then their side hustles probably aren’t financially worth their time. They are more like (hopefully enjoyable) hobbies that earn a little income, blogging for example!

So what?

If anything the tax system should discourage the disposal of income producing assets, rather than encourage it.

Dave should have to think twice about whether disposing of MooDonna was financially the right thing to do, with the default answer being no.

Learning from the best

Always listen, yet question and challenge what you are told. Copying answers will get you to your goal sooner, but only if you copy the right ones!
When you own a business that makes its money by successfully solving problems for clients then you end up working for a very diverse cast of characters.

Sarah, the author behind Tortoise Happy, recently complimented me on my frequently proclaimed “trust, but verify” caution.

Never unquestioningly accept what you are told

That got me thinking back to who the super smart, yet very demanding, South African gentleman who regularly trotted out this phrase. This guy could spot a single errant figure hidden amongst a printed A4 page full of numbers from a distance of 10 paces.

The “trust, but verify” message was regular trotted out while he was “triangulating”... his term for independently validating whatever he had been told by someone to ensure he wouldn’t be caught out by believing a line of bullshit someone may have tried to feed in.

This has been amongst the most valuable lessons I have learned over the years, to never unquestioningly accept anything I’m told.

Always trust, but verify
That in turn led me to reflect on the other key messages or ways of thinking I have picked up while delivering projects.

Always trust, but verify

Always ensure the size of the problem warrants the cost of the solution

An impatient Frenchman, sporting what looked like a small dead animal stuck to the bottom half of his face, used to encourage his staff to “spend the firm’s money like it was their own”.

Whenever a member of his staff were preparing a business case, or reviewing a tender, or even thinking of raising a purchase order they would subconsciously hear these words delivered in his heavily accented voice in their heads.

He had a way of staring down his staff and demanding to know whether they personally would spend this much money on whatever the project or purchase being debated happened to be. Invariably the staff member would break eye contact, stare at their shoes, and mutter something to the effect of “no”.

This approach certainly made it very difficult for the firm to purchase any kind of (inevitably overpriced) “Enterprise” software!

This lesson taught me never to accept that asking prices and value provided are seldom similar amounts. By focussing on how much a problem is actually costing, it becomes easy the appropriateness of a proposed solution, or indeed whether it is worth worrying about at all.

This avoids solving a £20 problem with a £2,000 solution.

spend the firm’s money like it was their own

Ensure the size of the problem warrants the cost of the solution

Value other people's time like it was your own... use it thoughtfully yet sparingly

A guy who sported a wig resembling a bike helmet used to mercilessly apply the “So What?” test to anything he read or was told. After a successful career as a Big 4 consulting firm partner, he had made the transition into becoming a serial failure as a Chief Technology Officer.

After washing out at yet another site he had an epiphany, and rebranded himself as a professional Interim Chief Technology Officer.

From that point forward his remit was to roll into a site like a wrecking ball, cancelling projects, make staff redundant, run a critical eye over outsourcing and supply agreements, and construct a playbook of corrective actions necessary to rectify a failing department.

At that point he was usually thanked for his time, paid handsomely to go away, and a newly recruited permanent Chief Technology Office would be able to appointed with a clean slate, a plan to fix things, and without having any blood on their hands.

Some useful lessons learned I've learned via the application of the "so what?" test:
  • No meeting needs to take longer than half an hour.
  • Meetings should only include those required to make decisions. No need for passengers.
  • A slide deck should be no longer than 3 slides. They should contain only the options being put forward to the audience (including one recommended option) and the decision that the audience is being asked to make.
  • An email needs never be longer than 5 sentences. If your point requires more than that to make then you either don’t understand the problem enough yourself, or you need a meeting not an email.
  • People should be measured by the value of their output, not how many hours a day they sit at a desk or how much slideware they produce.
  • Wherever possible questions should be phrased in a manner that can be validly answered with a Yes or No answer.
  • A good blog post is a short, to the point, blog post ;-)
Applying the “so what?” test to what I read certainly helps sift those rare nuggets of wisdom out from the vast quantities of substance-light blather and bloviating out there on the internet.

Apply the “so what?” test
Apply the "So What?" test

Get the right person to the solve the problem... often this won't be you

An old Swedish guy, who was a very seasoned campaigner, taught me two very valuable life lessons.

Firstly he used to regularly greet me on the phone with the phrase “I have a problem, now you have a problem”.

His philosophy was that nobody liked a complainer, so therefore nobody should talk about problems with people who would be unable to help solve them. Therefore a problem shared was a problem delegated.

He certainly felt better after our conversations, I wish the same could be said for me!

I have a problem, now you have a problem
Get the right person to the solve the problem

The second lesson was to never drink beer in the sauna. And if you do, never jump straight onto a flight straight afterwards. The effects of the alcohol are hugely magnified, while the rapid sobering up that shortly follows results in a mighty hangover.

So what?

The take away here is to always watch and learn from those people around you, particularly those who are further down the road upon which you are travelling. It is a much easier to copy proven answers from someone smarter than you, than it is to figure everything out for yourself the hard way.

Select carefully from whom you choose to seek advice, but pay attention to everything you are told regardless of the source. Very occasionally you’ll stumble upon a nugget of wisdom that would be easily overlooked, but when correctly applied could be potentially life changing.

Culture shock

Despite possessing the infinite wisdom of a second year university student, I learned the hard way that I did not in fact know everything.
I like to think of myself as being (mostly) open minded and somewhat worldly.

By the time I was 19 I’d travelled solo half way around the world, through more than a dozen countries.

I used to be able to order a beer and say I love you (when you think about it, this is all the language skills you really need for a fun night out) in eight different languages.

Being able to order a beer and say I love you in the local language is really all you need for a fun night out just about anywhere
There have been very few times when I can honestly say I’ve suffered from culture shock.

There she blows!

The first time was when I arrived in the middle of the night at a youth hostel with million dollar views over Hong Kong island. After dumping my backpack in a dormitory I shared with over 20 snoring fellow travellers, I headed across the garden in search of the gents to answer the rather pressing call of nature.

Million dollar views for a ten dollar price tag

Eventually I found it. Or rather through a process of elimination I arrived at what must have been the bathroom... only it didn’t look like any bathroom I’d ever seen before. There were no stalls. That alone would have been surprising had it not been for the fact that there WERE NO TOILETS!

This is not what I expected to find while looking for the toilet

Now I’m not too big a man to admit that I was perplexed by this. There were what appeared to be a bunch of hand basins set into the floor. For a minute or two I scratched my head in bewilderment, I couldn’t for the life of me figure out the logistics involved in how a person would go about making a deposit using such an exotic apparatus.

Did you face forwards or backwards? Were you supposed to stand, squat or sit? How the hell were you supposed to keep your balance whilst doing the paper work? Come to think of it, where the hell was the toilet paper? How does it flush?

Ordinarily I may have given up and held off until I could either ask someone smarter than me, or failing that watch someone else using the thing. This was not an ordinary time, the mystery meat curry from the aeroplane was determined to make a reappearance, and by the unsettling noises and smells emerging from my stomach that reappearance was likely to be imminent, explosive, potentially combustible, and quite likely to see me turned inside out.

I straddled the basin as an thunderous buttock wobbling eruption echoed around the thankfully deserted toilet block.

The hole was in front of me. I quickly judged the angles and weighed up the logistics.

Oh no! I was facing the wrong way.

As dainty as a rugby player in a tutu

I attempted a rapid pirouette, like we used to do when playing hopscotch as kids.

I wish I could tell you it was elegant, graceful, and perfectly executed.

It was not.

My left foot hit the raised foot space. My right foot overshot, hitting the rim of the basin and skidding across the wet tiled floor until my toes painfully connected with the wall.

I lost my balance, toppling backwards as I desperately grasped for the only handhold available… the pipe connecting the raised cistern with the concealed outlet at the top of the basin.

An unholy groaning sound emanated ominously from the very depths of my bowels.

No matter how much panicked pucker factor I applied to my already straining sphincter, that evil curry came exploding outwards like some devious seven year old pouring a chocolate thick shake into a spinning electric fan.

As I fell wave after wave sprayed out, a torrential fire hose accompanied by the magnified sounds of a rapidly deflating balloon.

Just before my backside landed in the basin I caught a handhold on the pipe.

Unfortunately that just served to pivot my still plummeting body, so that my very own Willy Wonka inspired chocolate waterfall rapidly transitioned from the vertical to horizontal plains with all the elegance and spray of an Olympic slalom skier carving up the slopes.

Around the same time that I caught my balance, I was finally empty... both physically and spiritually. In fact it is fair to say at the time I doubted whether I would ever be the same again.

The job's not over until the paperwork's done

I carefully righted myself and glanced around in an increasing panic for the toilet paper. Where the hell was the toilet paper?
The job's not over until the paperwork's done
There was none.

There was however a bucket of water.

I wasn’t entirely sure what exactly I was supposed to do with this, but I certainly couldn’t leave the bathroom looking like it had been on the receiving end of an impressionist masterpiece finger painted by a hyperactive birthday cake powered two year old.

Nor was I willing to do the "runny bum run" (probably more of a shuffle in this case) out to the shower block I had earlier spied across the courtyard.

Much water and splashing was applied to myself and surrounds, before I very gingerly crawled onto my bunk, eternally grateful for the small mercy that thankfully nobody had been watching my misadventures. I was soon lulled to sleep by a combination of jet lag, exhaustion and the strangely reassuring serenade produced by the slightly syncopated chorus of snoring backpackers.

So what?

After that I had a great time during my first visit to Hong Kong, having learned the infinitely valuable yet incredibly humbling lesson that despite possessing the infinite wisdom of a second year university student I did not in fact know everything.

Why are you here?

If you can't explain to a seven year old, in one sentence, what you do for a living then you are either incompetent or your role adds no value.
I have long held a theory that if you cannot explain to a seven year old, in a single sentence, what it is you do for a living… then the chances are pretty high that you are either incompetent at what you do, or that your role adds no real value.
If you can't explain to a seven year old, in one sentence, what you do for a living then you are either incompetent or your role adds no value.
If you can't explain to a seven year old, in one sentence, what you do for a living then you are either incompetent or your role adds no value.
At this point some of you are getting up to start burning me in effigy, organise a lynch mob, or find some pins to stick into your voodoo doll. Before you do, think about this for a second.

Builders build things.

Bakers bake things.

Doctors heal people.

Mechanics fix engines.

Accountants keep track of finances.

Programmers (attempt to) tell computers how to do things.

Not all jobs do what they say on the tin

Then there are some jobs that don’t sound like much, but perform a valuable function.

Animal Husbandry Assistants give randy animals a happy ending.

A Bar Useless collects empty glasses and generally tidies up after drunken pub patrons.

Show me the value

But what exactly what value does a senior vice president in charge of marketing operations do?

How about a procurement architect... surely if you are renting or buying a solution as implied by the title then there is a very limited amount of architecting going on?

If somebody really had all the answers, would they need to be selling their life off by the hour as a certified life coach?

How do you quantify the tangible value add of a Beer Specialist?

What precisely are the duties of a full time Viscountess?

You get the idea.

Tales from the trenches

A few years ago I briefly overlapped briefly with an obnoxious old fellow who possessed a truly impressive sense of self importance and an equally impressive disdain for pretty much anyone that wasn’t him.

On my first day on the client site I attended a meeting during which this guy dramatically shoved his chair back, leaned forward glowering over the conference table, pointed his finger accusingly, and demanded loudly “Why. Are. You. Here?”.
Why. Are. You. Here?”.
The target of his ire was a thoroughly incompetent project manager who, to be kind, would have had trouble managing his way out of his own bathroom.

The poor guy physically flinched, his mouth gold fished a couple of times, he stammered unintelligibly, broke out in a sweat, before emitting a vaguely Beaker-esque squeak and bolting from the room.

While the way the question had been asked was certainly lacking in subtlety and tact, it is a question that has often crossed my mind during meetings. “Why are you here? What value do you add? How can you justify your salary/day rate?”.

"What value do you add?"
This has been particularly true of anything labelled a “programme”, or where project work has been outsourced to one of the large consultancies... inevitably there will be vast hordes of expensive consultants holding meetings, producing endless slideware, and being seen to work long hours. Of course the majority of the real work is performed by starry eyed cannon fodder graduates, while their more experienced colleagues spend a lot of time looking very busy performing some indeterminate function for which they don’t seem to be personally accountable.

looking busy
looking very busy performing some indeterminate function
Anyway back to my theory.

So tell me, why are you here? Seriously.

Were seven year old with a short attention span to ask you what you did for a living (not your job title, but what you actually achieve each day), how would you respond?

Should an obnoxious old guy demanded to know why you were in his presence, not to mention daring to be getting paid while being there, what would you say?

Imagine a jaded and cynical semi-retired blogger called you out for not adding any real value, how could you prove him wrong?

You did have a sensible, plausible, quantifiable answer... didn't you?

What I want you to think about is whether in answering these questions you needed to stop and think?

Did your answers sound sensible and reasonable?

Or did they reek of bullshit, uncertainty, or incompetence?

So what?

If you aren’t able to articulate, and quantify, the value that you bring to your current role then do you ever wonder why you are there at all?


We each only get one shot at life, it would be a great shame to waste a sizeable chunk of each day spending our time in some make-work placeholder role that doesn’t really actually achieve anything of value. It certainly won't make you happy.

Acceptable incompetence is a plague on society, help to solve that problem by becoming good at what you do... if you can't do that then don't you owe it to yourself to try doing something else?

What dream car would you actually pay for?

Everyone has an idea of their dream car... but what dream car would you actually buy? I was asked this recently, my answer will surprise you!
Recently my older son asked me why we didn’t own a car.

I replied that because we lived in central London we didn’t need one.

There are at least 9 different bus routes that go past the bus stops located within 400 metres of our front door.

There are 4 separate tube lines accessible from stations within a 10 minute walk from our house.

There is even a ferry pier on the Thames roughly half an hour away, a great way to get home on a summer evening when I’m not in a hurry.

London ferry
Image credit: alboober
For those odd occasions when we do need a car there is a pay-by-the-hour car club car located about a kilometre away in one direction, and for those occasional weekends away there is also a car rental firm about the same distance away in the other direction.

Both options beat the hell out of the £3,000+ per year the AA estimates it costs the average car owner just for the privilege of owning a vehicle. Fuel, parking, and running costs are on top of that amount!

A road congested with traffic does not lead to happiness

Next I pointed out that the traffic is just plain nasty where we live, and if we had a car we’d feel compelled to use it. That would see vast chunks of our weekends vanish while stuck in traffic watching pedestrians out for a leisurely stroll beat us from one set of traffic lights to the next.

Definitely not my idea of fun!

Physical stores are so 1990s

Lastly I observed that since just about everything I typically buy is available on Amazon, or from the friendly neighbourhood Ocado grocery delivery man, that it takes an unusual purchase to actually require us to visit a physical store to purchase something we would then struggle to carry home.

He was either convinced by my arguments, or (more likely) he got sick of listening to me talk and drifted off in search of something more fun to do.

Why are Audi's seemingly always driven by dickheads?

The next morning I was walking my son to school when we were nearly run over by some dickhead driving a shiny black Audi at great speed down the rat run that can be our street. My son’s reaction was “wow, that car is amazing!”, mine was to demonstrate my mastery universal sign language while volubly questioning the parentage and intelligence of the driver.

That night (in an underhanded yet predictable attempt to postpone his bed time) my son asked what my dream car would be. He had been going on about the Audi from that morning, the Ferrari that sometimes parks on our street on the weekends, and the McLaren we had recently seen parked outside a new apartment complex in Kensington.

What is your perfect dream car?

The blogosphere is full of articles about what kind of car people who have achieved FIRE drive... apparently copying their choice of vehicle may magically result in copying their financial success.

Unfortunately the majority of those choices are much closer to the practical/sensible/boring end of the spectrum, so fell well short of meeting the "dream car" criteria.

I thought about the question for a little while.

Not too old...

I’d always liked the 1960s era MGB Roadsters and the original "Italian Job" style Mini Cooper S (actually the model in the remake are very fun to drive too).

MGB RoadsterMini Cooper S
Image credit: Georg SanderImage credit: Signag
Too old he said.

Not too expensive...

I quite fancied the current generation Jaguar XJ type, the Jeep Wrangler, and the horribly impractical yet oh so fun looking Koenigsegg One.

Jaguar XJJeep WranglerKoenigsegg One
Image credit: Jaguar MENAImage credit: DVS1mnImage credit: Michelin Live UK
He was mildly impressed with the Jag, and slightly more so with Koenigsegg, but when he challenged me on whether I would actually ever buy one I was forced to admit that I would not.

"So what dream car would you actually pay money for?" He demanded in exasperation. "Why can't you be like the other fathers, and go for something normal like a BMW Z4 or a Mercedes AMG?"

There is a reason this site is called Cantankerous.Life!

Just right!

I thought about this some more, then grinned.

I would buy a 1974 model Volkswagon Kombi van...
... extended with a Doubleback...
... fitted with all the cool bits from a Tesla model S, like the battery packs, dual motor, all wheel drive, autopilot, and so on...
... rendered civilised with great insulation, sound proofing, heating/air-conditioning...
... and given a grown up version of the “Pimp my ride” treatment to install a great little kitchen, super comfortable seats and bed, clever tardis-like storage and electrics, and generally make it fun to travel/camp in.

VW CamperDoubleback moduleTesla Model S
Image credit: Bernard SpraggImage credit: DoublebackImage credit: Mariordo59

So what?

The end result? A fun weekender that can go drive itself from 0 to 60 miles per hour in 2.5 seconds while I’m in back making myself a toastie and writing blog posts!

The moral of this story is that you don't need to settle for the least offensive choice from a menu of bad options. Strive for what you want, don't accept anything less, and don't let the naysayers and Jones' dictate your decisions.

My son laughed, conceded that it was indeed a cool dream vehicle, though one he wouldn’t be seen dead in at school drop off time. He wryly observed that I’d likely be riding the big red bus for quite some time to come.

He is probably right.

Gaming the system

Ever wondered why people do what they do? Imagine being able to monitor and test how people respond to financial incentives. I did just that!
One of the most fascinating projects I’ve worked on was a very “big brother” style behavioural monitoring system for a large retail bank.

The project sponsor had figured out that while most staff generally try to do a good job, they’ll try much harder at the tasks for which they perceive they have been incentivised.

The sponsor hypothesised that if the incentivisation was aligned to the bank’s strategic goals, then in the staff would do more of the things that would help achieve those goals and hopefully do them better.

Like all great plans it sounded simple and plausible.

Everybody has a plan until they get punched in the face

Unlike many executives I have met in my time, the sponsor didn’t just like believing he was
omnipotent
infallible
possessing the looks of George Clooney/Julia Roberts, the brains of Stephen Hawking/Rosalind Franklin, and the sporting ability of Sachin Tendulkar/Ellyse Perry correct, he liked being provably correct. To achieve that he needed to have his hypothesis tested.

George Clooney and Julia Roberts in Ocean's Eleven.
George Clooney and Julia Roberts in Ocean's Eleven.
A random (actually it was located on the ground floor of the bank’s headquarters building, located next to a great coffee shop, and down the road for a place that did amazing chicken curry roti rolls for lunch at student prices) bank branch was chosen. The staff working in that branch were to become the guinea pigs in what proved to be a fascinating behaviour economics experiment.

A quick review of the current remuneration and incentives on offer was performed.

The staff were all permanent employees, earning above average but far from amazing wages. This meant they got paid just to turn up. In fact with paid annual leave, sick leave, maternity leave, bereavement leave, study leave, and the like they pretty much got paid regardless of whether they turned up!

If a staff member managed to sell a credit card product they received $25.

If a staff member managed to sell an owner occupier mortgage they received $125.

The thing was a credit card is a “do you want fries with that?” convenience product. It takes almost no time for a staff member to complete the required paperwork whenever some gormless lackwit inevitably said yes to the opportunity to take on even more unsecured personal debt without sparing any thought about how they would pay it back.

A credit card earned the bank an annual fee of $25, plus around 28% interest on outstanding balances.

A mortgage on the other hand was a never-ending paperwork nightmare for staff to endure. Background checks, identify checks, credit checks, valuation checks and so on. The conveyancing process must be successfully traversed in order for the mortgage to be drawn down, and the staff didn’t receive their $125 incentive until the punter had jumped all of those hurdles.

A mortgage earned the bank an establishment fee of around $600, plus around 6% interest on the outstanding balance.

Unsurprisingly branch staff didn’t invest much of their time trying to sell mortgages. In fact the opposite was true. Staff actively discouraged any random drop-ins enquiring about mortgage products, simply because of their sheer horror at the prospect of running that compliance driven paperwork gauntlet.

Keeping your eye on the prize

The sponsor and I asked ourselves what we would do in the branch staff’s situation. The sponsor said he would sell as many credit cards as possible.

I called bullshit on this. The incentive was so low that it wasn’t worth chasing. If a customer asked about a credit card I’d sell it to them, but I wouldn’t put myself out trawling for business.

Then the sponsor nodded and begrudgingly agreed with me. $25 was chump change to him, it would not make a material difference to his pay packet. It wouldn’t pay for his groceries for a week, or even a full tank of petrol in his car.

The question was how much incentive was enough?

How much is enough?

To answer this I needed more information.

  1. I needed to understand how much each individual product was actually worth to the bank, as sustainable maximum incentive levels had to be below this amount.
  2. I also needed to understand the volume of organic product inquiries for each type of product. This would provide a baseline against which the effectiveness of any incentivisation scheme could be measured.
  3. Next I wanted to know what the conversion rates actually were. What percentage of product inquiries were successfully converted into sold products.
  4. Finally I needed to know the amount of time and effort required to actually sell each type of product.
Once armed with these facts I was in a position to commence the incentivisation mix experiment.

Human guinea pigs for fun and profit

Over the next six weeks various incentivisation mixes were developed and applied. Results and the ensuring staff behaviours were carefully monitored in an attempt to identify the optimal combination of carrot and stick required to achieve the bank’s strategic goals.

So far, so good.


However once I started evaluating the results I noticed something interesting about human nature.

People are largely driven by self-interest.

They are also for the most part lazy and impatient.

These factors combined meant employees seized on the immediate rewards offered by the easy to sell commodity products such as credit cards. However they still shied away from those products requiring more work, like mortgages and insurance products.

Nothing earth shattering there.

Selfishness and self interest win out

Then I noticed that some of the behaviours I was observing didn’t make economic sense. Staff were undertaking activities that would not result in the optimal financial outcome for themselves.

When I dug into this I discovered that the staff had interpreted some of the incentive mixes differently to how I had intended them to be applied, and were attempting to game the system.

On the one hand I was relieved that I could now understand their behaviours, and self interest was still driving their prioritisation decisions about which activities they would pursue and which they would avoid.

This presented the project team with a challenge, as not only did I need to evolve an optimal incentivisation mix to elicit a desired set of behaviours, I also needed to factor in the branch staff attempting to game the systems I was developing. This resulted in my attempting to second guess the likely responses of the staff, creating an elaborate game of cat and mouse that was in equal parts frustrating and fascinating.

Lessons learned

At the conclusion of the evaluation period I prepared some recommendations for the sponsor (who had been actively involving in pulling the incentivisation leavers throughout). They weren’t what he wanted to hear initially, but once he sat down and thought about what I had to say he conceded not every problem can be solved through incentivisation alone.

The report concluded that the compliance paperwork burden of many specialist products was too great for it to be sufficiently incentivised in a bank branch. The staff just didn’t have the time (nor the interest) required to do this job well.

Therefore I recommended all specialist products such as mortgages, insurance, and financial planning be referred to a dedicated team of professionals who specialised in just that one product. This proved to be controversial at first, but several years on all the other leading retail banks appear to have adopted a similar approach… because it works!

I suggested that the relative amounts of the incentives be driven by that product’s anticipated profitability of that product. They should also be aligned with the bank’s business planning and marketing activities. There was no point promoting one product while incentivising another, the conflict of interest for the branch staff was obvious.

There were a bunch more data driven recommendations, but those were the relevant ones for today’s post.

So what?

What does this have to do with personal finance?

Much like the bank branch staff, we are all easily led and manipulated.

Firms constantly dangle carrots… loyalty programmes, frequent flyer miles, and the like.

It was recently tax season, and there were a ridiculous number of posts in the blogosphere talking up the paying of (often large) tax bills using reward earning credit cards. However hardly any of those posts actually ran the numbers to compare the relative costs of the 2-3% credit card surcharge versus the value of the reward points earned.

Using my own reward card (albeit a much less generous UK based one) each £1 spent earns a reward with a monetary value of £0.005. To pay a £10,000 tax bill using that card would therefore earn a £50 reward. Earning that reward would incur a surcharge of £300.
Doesn’t seem like such an amazing deal to me.

What about an airline reward card?

Paying that tax bill would earn 10,000 reward points... again at a cost of £300.

My reward points trip to Cuba earlier this year “cost” 45,000 reward points per return ticket.

Were that reward “earned” via surcharge incurring purchases such as tax bills it would require me to “spend” £45,000 plus a surcharge of £1,350 to pay for a ticket worth £550 (excluding the taxes which I had to pay in cash anyway).

That doesn’t seem like such a good deal either.

These reward schemes are certainly not the most generous or the most smartly used, but they are certainly representative of a common problem confronting all of us.

The moral of the story?

There is no such thing, despite what bloggers may tell you, as a free lunch. Trust, but verify, advice you receive... but always run the numbers to validate whether you’re receiving sage advice or being sold some complete and utter bullshit.

Much like the mindless acceptance of the "4% safe withdrawal rate", unquestioning acceptance of the merits of "travel hacking" should also be challenged. There are definitely times when doing it can result in a win, but there are many others where the blind pursuit of loyalty points will result in a sub-optimal outcome.

Your true net worth

How much of your carefully tracked net worth is actually accessible? Within a month? Within a day? Chances are it is much less than you think.
Many years ago I survived a tour of duty working at a large American investment bank.

It was easily the worst place I’ve worked. For the most part the people were complete savages, personifying on a daily basis the cliched “caffeine and cocaine” driven masters-of-the-universe lifestyle endlessly portrayed in Wall Street themed Hollywood dramas like Boiler Room, Margin Call, The Big Short, and Trading Places.

During that gig one of my colleagues was a quiet guy named Carlos. Like the rest of us, he was slaving his way through the 08:00 to 23:00 working days, and like the rest of us was forever having to cancel plans and make apologies for letting down his friends and loved ones.

The great escape

Mid-afternoon on one random day Carlos reached the point where he had enough. He locked his computer, stood up from his desk, and commented to an inattentive colleague that he was just popping out for a bit.

This in itself was unusual, as the firm had carefully removed any excuse a staff member may make to actually leave the building. There was a free Starbucks on the trading floor where we all worked. There was a concierge service that took care of the dry cleaning, posting letters, even purchasing the occasional birthday/anniversary/Christmas gift. There was a gym and heavily subsidised cafeteria, both open 24x7, in the basement. There was even a drop-in medical clinic, to keep the bankers well supplied with anti-depressants and Viagra.

Carlos never came back.

Where in the world is Carlos?

Nobody noticed Carlos’ absence for the first day or two.

On the third day some of his colleagues grew a little concerned. He hadn’t called in sick or booked time off on holiday, and wasn’t answering his phone.

On the fourth day a couple of us popped around to his flat, and when nobody answered our knocks we broke in. There was nobody home, but all his stuff appeared to be there. Clothes in the wardrobe. Expired milk and leftover takeaway curry in the fridge. Overripe fruit on the bench.

On the fifth day we reported Carlos’ absence to the bank’s HR department, who didn’t really care. He wasn’t a rockstar research analyst or one of the head traders. They didn’t have an emergency contact on file, so there was no one for us to call. We debated whether we should call the police and report him missing, but I don’t recall whether we actually did in the end.

Ticket on the next plane heading somewhere sunny and warm

A week or so later we learned that Carlos had left the office and caught the tube to Heathrow airport. He marched up to the British Airways ticket counter and asked for an economy class ticket on the next plane to somewhere sunny and warm. That turned out to be an American Airlines flight to Costa Rica via Miami.

A couple of days later Carlos had rented a room in a boarding house at Playa Ocotal, and taken a job as a scuba diving instructor ferrying tourists out to the Bat Islands.

Carlos explained he had reached the point where he wasn’t happy with any aspects of his life, and felt that he desperately needed a change. He didn’t like his boss. He didn’t like his landlord. He didn’t like most of his colleagues, and it turned out he didn’t have many friends in London.

So he just grabbed his passport and his credit card and left.

What is in your in your Bug-Out Bag?

In the movie Heat, starring Robert De Niro and Al Pacino, De Niro’s character has the memorable line:

Don’t let yourself get attached to anything you are not willing to walk out on in 30 seconds flat if you feel the heat around the corner.

Think about that for a second.

If you were to decide to do a Carlos, and disappear without any notice or advance planning how much could you take with you? Chances are it wouldn’t be much, restricted to just your cash and cash equivalent holdings.

Sound far-fetched? Perhaps, but depending on where you live you never know when a natural disaster (bush fire, flood, Mum’s cooking, earthquake or similar) will require a rapid change of scenery. Possibly for an extended period of time.

In a similar vein, Rene Russo’s character in the great movie The Thomas Crown Affair has another memorable line:

If I had to be gone, and I mean seriously gone, in about eight hours… how much could I take with me?


This isn't actually the scene containing the quote, but it does have Rene Russo dancing...
In the FIRE world we all wax lyrical about tracking our net worth, and maximising the tax efficiency of our financial affairs. That is a very different number to the amount of cold hard cash you could actually lay your hands on within a relatively short time frame.

If you had to get up and go with a very limited run up, how much are you actually worth? Chances are it will be much less than you think.

Want to see a magic trick? Watch your your net worth shrink before your eyes!

Pension Funds? Unless you are over the pension eligibility age these are locked away out of reach. Some jurisdictions charge huge tax penalties for early access, while others refuse early access altogether. Subtract these from your accessible net worth.

Directly owned property? Property is an illiquid asset class. Even if you listed a property with a bargain basement price to obtain a “quick” sale, depending on your jurisdiction it is likely to take several weeks to complete. Should you suffer the misfortune of owning a property located in the UK for example, then a “quick” conveyancing process would be considered to be 3 months! Better deduct the value of these investments from your accessible net worth too.

Business ownership, private equity, and angel investments? Exiting these types investment can be time consuming, and the outcome far from guaranteed. Often due diligence is required, finances need to be audited, and so on. You guessed it, your accessible net worth should be minus the value of these investments also.

Unlisted managed funds? These financial vehicles can have early redemption penalties, or as investors in many of London’s leading commercial property REITs discovered last year it may not be possible to exit them at all. Remove these from your accessible net worth number.

Your accessible net worth figure is likely looking a hell of a lot smaller than you imagine your actual net worth to be.

Bonds, shares, cash and cash equivalents? Finally some good news, these you will likely be able to liquidate in short order for a fair market price.

However you’re not done yet, your estimated accessible net worth is still overly inflated.

Exiting investments is likely to incur brokerage charges, agency commissions, completion costs, stamp duty and the like.

If your investments have been performing then many of them will likely be subject to capital gains taxes.

When I applied these constraints to my own net worth, it turned out that were I to do a Carlos, then my accessible net worth was just 12% of my overall hoard.

Escapism, greedy investment bankers, De Niro acting with Pacino... WTF?

That is all well and good, I hear you thinking. But why have you stolen 10 minutes of my life you’re your artfully spun tale of idealistic escapism, evil investment bankers, Robert De Niro, Renee Russo and Al Pacino?

I’m glad you asked! The point is that the future is far from certain. The further out we plan the more uncertain those plans must be. Things change. Shit happens. Governments change the rules and move the goal posts.

We all plan on living long healthy lives.

Most of us dream about, and some of us even achieve the almost mythical goal of early retirement.

The common FIRE community mythology features the promise of endless globetrotting (or derbying around the countryside in a caravan), featuring many sleep ins and a complete absence of alarm clocks.

In practice life is unpredictable.
Life happens.
However in practice life is unpredictable. Families are complicated. Accidents happen. Health scares are far too commonplace to merely be a statistical outlier.

Does your life plan include paying for the nursing care of an elderly parent?

How about acting as the “bank of Mum and Dad” when your children want assistance buying a house or paying tuition or establishing a business to pursue their dreams?

Perhaps you’re less benevolent, so how about paying for bail or the legal defence of a close relative who gets themselves into hot water?

Does anyone actually plan to be on the receiving end of a cancer diagnosis, or suffering some form of debilitating injury?

So what?

In an ideal world none of these things will happen to you. However if just one (or more) of them actually does then your carefully laid plans of working for X more years, maintaining a savings rate of Y%, and retiring at age Z will potentially vanish. If that happens where will you be financially? How well placed are you to meet those kind of unexpected, yet commonplace, life events?

Just as it is important to monitor our spending, and track our net worth over time, it is also important to keep a realistic picture on what our accessible financial picture actually looks like. It would be easy to be lulled into a false sense of security by holding a fat pension account, when we may only be a moment away from a significant financially impacting event that all the pensions in the world could not help with.

Romanticism aside, I don’t think Carlos did the right thing. He skipped out on a bunch of bills. He left his colleagues in the lurch. In many respects he chickened out, fleeing in a mindless panic when he could have so easily organised a controlled exit at the cost of maybe one month of his life. Had he done so he would likely have had access to a much larger proportion of his net worth.

Postscript: What happened to Carlos?

A month or so after arriving in Costa Rica Carlos bought a dive boat, deciding that he quite liked the idea of running his own diving business.

12 months later Carlos’ business had gone bankrupt. It turned out that for a dive master he was a good computer programmer.

Last I heard Carlos still lives in Costa Rica, and was now working as a casual English teacher in San Jose.

Post-postscript: An amazing action sequence to reward you for reading to the end

While I was searching for the De Niro / Pacino 30 seconds scene above, I stumbled over a video of the amazing action sequence from the movie Heat. It has nothing to do with this post, but is definitely worth a look if shoot 'em up movies are your thing!

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