The other day for no apparent reason I sudden had a shock of fear go down my spine that I didn’t have enough money for my retirement. I worried that I had made a horrible mistake and that I should have worked longer and saved more money before quitting. There was no particularly logical trigger for the feeling of mild panic that passed through me and the feeling left me shortly afterwards. Yet it did make me double check a few numbers to prove to myself (again) that we had enough money for years.
So as I looked at my account balances and faced the fact that I am in fact fine for the next few years then I relaxed back to my usual state of calm. In reality nothing had changed about our situation during this episode, it was merely a bit of doubt stuck in my brain and likely the result of me adjusting to our changing sources of income.
Previously with my old job, I knew there was risks with a job as your major source of income. I knew you could get laid off, shifted to another job, or have a rollback in wages or cut in benefits (I honestly had experienced all of those during my career at some point). Yet I understood those risks because I had been living with them for a long time. So oddly comfortable with those risks.
Now that we are mostly living off our investments I have a different set of risks. We could see a stock market correction, cuts in dividends from companies we own or drops in our bond portion of our investment portfolio. These aren’t new risks but I honestly didn’t pay as much attention to them in the past because with my old job we had other sources of income to cover expense when those events occurred. Now I’m feeling those risks more acutely than in the past.
The reality is you don’t have less risk once you retire. You just changed which risks you are managing. Yet oddly some of the same principles you learned getting to retirement still apply such as it is better to have multiple sources of income (not just investments or just a job). Which is why partly my wife continues to run her daycare from our home and I continue to run my little publishing business. Neither produces much income but it does help balance out the risks of sudden investment swings. Also both businesses give us something to do and provide options for socialization with others. We do them because we like to and less because of the income they produce.
One other things that hit me during my little panic feeling was I asked myself the following question: what is the worst thing that could happen? This is a great question to force yourself to face what you are fearing. And in my case the answer was simple: get a job. Notice the word ‘job’. I don’t have to go back to my old career or employer begging for a job. I can find something, somewhere that I might enjoy a bit and brings in some money. Honestly with our relatively low expenses making even $10 to $15K a year makes a huge difference to balancing out our spending. And if that truly became required it isn’t really the horrible of a fate…hell it’s sort of normal for most people my age (including myself until recently).
In the end, I’ve come to realize these little flares of panic or worry are just me adjusting to my new normal. Nothing on a fundamental level has changed in my situation other than my thoughts and luckily those can be changed rather easily.
So do you think you would have problems living just off your investments? What would you do to help balance your risks?
Some times you read the right book just at the right point in your life and then interesting things start to happen to you. I recently had this occur to me when I borrowed The Art of Non-Conformity by Chris Guillebeau. Chris’s name might be familiar as he has written the online manifesto “A Brief Guide to World Domination” which is the inspiration for the book.
The subtitle of the book is “set your own rules, live the life you want and change the world.” Basically Chris is trying to teach people that you don’t have to just live a conventional life of: get some post secondary, get a job you don’t really like and buy crap you really don’t need and save for a distant retirement.
We far too often in life settle for what we want. We settle for our jobs, what we do with our time, or how much of a difference we can make in the world. Chris is trying to teach people in this book how to live a different way where you point your compass to your dream life and actually get there. He also deals with the common issues that are going to come up from doing this: fear of the change, people saying ‘no’ and generally people not understanding how you really do want to change the world.
He also rightly points out that most people really don’t want to ‘do nothing’, but we often actually done something that we love so we don’t understand how ‘work’ can be an enjoyable thing. Would you ever really get tired of doing something you love to help others? Likely a lot more slowly than your current job.
In a nut shell it is basically required reading in my mind for anyone wishing to be retired early as the book might change how you view your current goal of early retirement. I know it did for me. You see I have always had this idea that once I’m financially independent that I could then write as much as I want. Now I realize that I’m approaching the problem in the wrong way. By aiming to be financially independent first I’m basically making the assumption that I can’t make a living writing, which is really what I’m after. The problem is that is an assumption that I have made. What if I can making a modest living at writing? Would I need to be fully financially independent? No, I could instead aim for being partly financially independent from my investments and the rest from self-employment income.
So overall I enjoyed the book which was fairly short so you can read through it rather quickly, but working some of the ideas through your mind afterwards might take a little bit longer.
So what’s your dream and why are you not doing it?
Every time I hear the words ‘passive income’ my teeth grind down a little bit. Why do I have such a hostile reaction? Well it comes from the fact: there is no such thing as passive income! Every source of income requires some investment of time and effort on your part.
Don’t believe me? Let’s go down the list of few of the common ones.
- Dividend Paying Stocks – You think this would be a easy one to say it is passive, but most people seem to forgot the up front work of researching the company and then following the news on the company to protect your investment. You don’t have to read every news story on them, but you should have a clue on what the company is doing by reviewing the annual report.
- Real Estate – If you never had to look after a rental unit, people like to think that it really isn’t much work. They can be so wrong! Bounced cheques, late rent, repairs and upgrades and that doesn’t even include the work of showing the place to get tenants in their in the first place. Granted you can hire someone to do this for you, but that still requires the work to get the unit and research a company to look after it for you.
- A Blog – To be honest, this one always surprises me that people think blogs don’t require work. Have you every tried setting up a WordPress installation? Granted it isn’t hard, but it takes time to get all the plug-ins that you want loaded up and running right. Then creating content, linking to other blogs and rising up your page rank. It all takes time to get up and running even if you turn it into a static site down the road.
- Small Business – Depending on what you do here it can be set up fairly easily, but getting sales still takes time and effort on your part. After a while the business may require less handling, but in the beginning you can bet you will be putting in lots of hard work to get it running right.
This isn’t to discourage you from going after these kinds of means of making money, but do keep in mind some front end work will be required no matter what you pick. Granted if you like doing that kind of work, it won’t really feel like a burden at all. So make sure to pick what will work best for you.
So what do you do beyond your day job to earn more money? Why did you pick that method? In my case, I do #1, 3, 4 since I cover off #2 by owning a REIT instead of a single unit because as much as I like real estate I’m not interested in owning a unit directly.