Remember Sarah and Paul? Their curiosity got the better of them and one evening at the beach bar the subject of early retirement and the question of “how?” was raised. We talked for a while about creating the gap between income and expenses and investing the difference. They understood the logic, but I didn’t see any light-bulb moments. A failing on my part then, to use examples they would understand.
Smile and Wave
As we talked, they told me more about their personal circumstances. I’m not sure how good a job I did of hiding the horror on my face when they casually mentioned they’d taken a loan to pay for this holiday. And spent an additional £2,000 to upgrade to Premium Economy seats on the plane!!
My immediate instinct was to pull out my compound interest app and demonstrate the long term effect of those choices, but politeness forced me to resist the urge and the conversation moved on. I didn’t want to burst their holiday bubble. To me they had not only already made a fairly sizeable mistake for their immediate financial situation, they had also shown in those two throwaway sentences, their entire attitude to money. If I wasn’t sure before, I could see now with absolute clarity that all their supposed wealth was just an illusion.
Did I do the right thing fighting back the urge to explain how they would never be wealthy if they carried on living beyond their means? They didn’t ask my opinion after all. I have the feeling the evening could have ended on a sour note if I had. But maybe that was exactly the relatable example they needed for the penny to drop. Failure number two on my part?
Wealth Can Be An Illusion
It turned out the house with two acres was on an interest only mortgage, repayable in nine years yet with no investment vehicle in place to make the repayment. Closer to rented than owned. Let’s hope for their sake they’ve built up plenty of equity. But the children were happy with their private schools and Paul’s father was immensely proud of his son’s success in business and life and all the trappings that came with it. Hmmm….
“I wonder how many other people are here that can’t afford to be” said Teenager number 1 over lunch the next day. We looked around the restaurant trying to imagine people’s real lives away from this place. We talked about The Millionaire Next Door. I may have failed to educate Sarah and Paul somewhat, but Teenager number 1 is learning.
8 thoughts on “The Illusion of Wealth (Part 2)”
Imo you did the right thing. People like this will never understand and will resent the intrusion. A few people at work know I’m aiming to ‘retire’ at 50 to 55 and most assume its because i am well paid (im 37). They haven’t yet got the light bulb moment that earning alot is NOT the same as having alotand that i habe always saved. 10% of my salary not including employers has always gone into my pension since being 18. As you say its certainly easier on a higher income but i could cheerfully find things to spend my entire net salary if i wanted to but i dont. 1000 goes into my pension. Another 400 goes into SAYE ANd other share saves and another 600 goes into cash savings and s and s isas. I live quite well on the rest for short term savings and day to day living. My savings rate is about 35% so like you im not trying to live like a hermit. You’re a long time dead. Like you i spend on travel and am happy to pay for this. I am getting rid if my expensive lease car next year (i know i know dont say it) and that will free up another 570 a month to plough into savings.
Learning about the stock market has been a hobby for me and its amazing once you have a decent amount saved how quickly it starts adding up. Currently have about 55k saved outside of a pension and a decent 6 figure sum in my pension. Aiming to get the non pension saving to 6 figures within the next 3 years which might be tough!
Thanks, I think you’re right – most people haven’t had the lightbulb moment. Your savings sound really good – I wish I had thought about this earlier. I’ve never been a big spender so that helped me, but if I had been more aware at a younger age, I feel like I could be already retired. But ho hum, at least I’m focused now.
The goal you have for non pension savings might sound tough, but at least you have the goal and that’s half the battle.
Yes ive been investing for about 5 years and wish I’d have had my light bulb moment earlier but thats still pretty early and i need to try and relax and enjoy the journey. Ive always been a saver and fairly obsessed with financial security but My light bulb moment (and im embarrassed as i work in financial services albeit on the insurance side) was having procrastinated about whether to invest in a s and s isa suddenly realised throughout the financial crash id been gaily salting my money away in a pension without even thinking twice about it. Result by the time i looked at it it had halved then more than doubled from the original amount.
This is what got me on to fire
On another note One thing i certainly feel and you can probably relate is since divorcing 3 years ago is a huge pressure being the only large bread winner. My ex and i earnt roughly the same and could habe lived on one wage whereas my new girlfriend earns about a third of my wage. If i lost my job we couldn’t afford to live at least to current standards. Despite the money in the bank i get very stressed about this.there’s no logic as my girlfriend isn’t bothered and worst case i could sell the house and be fairly comfortable but there you go. It sounds from some of your posts like you can possibly relate?
I did the same as you! Felt like pensions were secure but investing in the market was risky!!! At least we learned 🙂
I can relate to your situation. If you are financial security obsessed then it can be very stressful at times. I am resolutely single now but even if I were to ever pair up again, I would be basing my own financial future purely on my own circumstances. That might sound cold but that’s the only part I can (mostly) control. You have a significant savings rate – don’t forget if you lose your job you would temporarily put that on hold so you would need less than you might think. You wouldn’t be out of work forever. Do you know exactly how much you need for your expenses for a few months? And do you have a cash emergency fund to tide you over that amount? Some people think that’s a wasted opportunity, but I would rather sleep easy at night knowing I can pay my way even if I lost my job for a while. There are not many people who could lose their job and continue with the same standard of living – that’s exactly what we are striving for after all.
Yes i have access to 14k ready cash plus another 10 in p2p that i could get to quickly with minimal hit. Assuming the apocalypse hasnt come and both platforms are in administration at the same time!
So you’re in great shape! Aside from the apocalypse – in which case, all this is academic anyway.
Hi 9to5 and Fatbritabroad
I found that most people “want” to know how FIRE works, but don’t want to spend some time learning how investing works (I think their perception of stock market is get rich quick or lose your shirt!).
Like 9to5 I don’t say people spending all their money are wrong (although borrowing to go on holiday is not the cleverest idea) but lots of people who do spend it all then complain that they are going to have to work till they drop.
It really comes down to people taking ownership of their decisions and if they do want something like FIRE research how it is done. We have managed to pack it in at 58 and 48 for Mrs FIUK, we didn’t live in poverty to achieve this and like yourselves did go on holidays each year. We did however cut out the couple of weekends a year that always seemed to cost as much as a holiday, drove our average cars until they dropped and never borrowed money to buy them even though I would have loved something sporty (and expensive), weren’t always out in restaurants, but enjoyed cooking great meals at home and also got out of the “I want that latest gizmo, oh go on then we can afford it even though we don’t really need a new TV/Surround Sound/Digital Camera/ etc etc.
Congratulations to going it alone.
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Thank you FIUK. I like your comments – you sound so wise! Please keep visiting.