A Virus Free Review Of 2020
Firstly, happy holidays to all the Tribal Fi readers, I hope you're having a good one.
Secondly, Tribal Fi turned 1 year old on Christmas eve so happy birthday to us.
Thirdly, this post will be doing it's best not to enter into any Coronavirus opinion or debate, I think we've all heard enough of that for one year.
So with the pleasantries out of the way, it's time for the obligatory and inaugural annual review of my newly implemented Fi life. It has been quite the year for Mrs H and I.
It was on the 24th December 2019 that I wrote my first post having just resigned from my fancy corporate job with all of the financial trappings it came with. I can remember the feeling now, I was excited, giddy and terrified all at the same time. What had I done? I just spent the last 25 years climbing the corporate ladder. I left school at 16 with basically no qualifications ( I think I had a GCSE in maths and English, the rest were all sub par) and worked my way up from a Civil Engineering Chain Man ( I carried things for a living like hammers and wooden stakes for an engineer) to a Corporate Vice president of a multi-billion dollar company. Had I actually lost the plot? Was I going to be homeless inside a year?
My 3 months notice turned into 6 months (my own doing, if I left early I forfeited a fairly sizeable bonus) and it felt like the longest days of my life. two massive things happen when you resign for early retirement. Firstly, you immediately stop being told anything that might be remotely sensitive, which means you don't have a clue what's really going on so you can't really do your job very well anymore. Secondly, the things that you used to think were really important like numbers and targets and company performance become uninteresting and uninspiring. These two things made my final months of corporate life like living in a groundhog day style purgatory.
I was pretty difficult to be around during that time.
But the day finally came and at 5pm on the 30th April 2020 I become gainfully unemployed. That day was in the top 5 happiest days of my life. It was like the stresses of the last 10 years started to fade away and in the coming weeks I began to relax and see things differently. My tolerance for the latest gossip or what so and so had done or said almost disappeared. I couldn't get excited about things that weren't important even though a few months earlier, it was how I spent a chunk of my day.
I spent April getting our house in order. I had been neglecting my personal admin through my entire working life, doing just enough to stop the wheels falling off or ending up in financial or legal trouble. I hate form filling and filing and scanning and all of those kind of words but the more I did it, the better I felt and after a month, I had a calendar with every important date, I had a Google drive with everything on it nicely categorised and filed and I had a full view of what was going on in our lives. We were actually compliant for the first time in our adult lives, with everything.
I was in control!
Through April and May it didn't really feel like I was unemployed as wages and stock options and bonuses were still coming in from my old job so there was a bit of false comfort. That was making me uneasy as I knew it wasn't real and I was actually willing June to come when there would only Mrs H's salary coming in so I could start to feel the reality of being "Retired".
I monitored our finances like a hawk with a vendetta, from every penny we were spending to how all of the investments were performing and if in fact we were spending less than we were generating. By July, I was starting to get concerned because things seemed to be going too well (As you can tell, I see the glass half empty most of the time). By the end of July, I hadn't done very much to generate any "Side Hustle" income and what I had been done hadn't been paid for yet but we were still well ahead of plan.
On the 1st May (my first day of retirement) we had R13.5m / $0.9m / £0.7m in all of our investments. That needed to grow at around R100,000 / $6,666 / £5128 every month with around half of that coming from Mrs H's salary. My job was to manage the investments and do a little hustling to make sure we saw the other half. Between May and July, we managed to bring in a monthly average of R226,000 / $13,700 / $10,500, more than double what was required and I hadn't brought in a penny of hustle money.
Was this going to be easier than I thought?
In August, I started to get my little consulting gig moving and received a big cheque of around R500,000 / $33,000 / £25,000 when all of my customers decided to pay late but all at once. Mrs H and I decided to spend it all on getting the house back up to code after literally neglecting any form of maintenance for 6 years since we moved to South Africa.
That was later going to prove to be a mistake
In September, the stock market turned against us for the first time and the building contractor that we chose ran off with most of our cash after half finishing the work. Instead of the R220,000 / $15,000 / £11,000 growth we needed in August and September, we posted a loss of R250,000 / $16,500 / £13,000 bringing us firmly back to earth with a bump.
That was just the kind of motivation I needed
I've learned (often to the detriment of my health) over the years that I perform best in a crisis and the more stressful and pressured the crisis, the more I rise to the occasion. It had all been too easy so far and this kick in the pants got my ass in gear and focussed. I started to build my business aggressively and I also started to treat our finances like a business and all of our financial service providers like my employees. It turns out that few of my merry band of men were feckless freeloaders getting paid for doing very little to protect my wealth. Throughout October I wielded the axe and chopped out anybody and anything that wasn't putting beer in the fridge and steak on the braai (that's a barbecue for all non-south africans). No stone was left unturned and I did a forensic analysis of our finances that would have made CSI Miami jealous. I even brought in some professional help in the form of an Independent Financial Adviser.
And it worked. Oh it really worked.
For October and November, we needed combined growth of R225,000 / $15000 / £11,500 and by making a few changes, cutting out the deadwood and putting some focus into my side hustle we delivered growth of R900,000 / $60,000 / £46,000 which put us firmly back in the driving seat.
On this last day of December, I've been retired for 8 months and in that time, our net worth has grown from R13.5m / $0.90m / £0.70m to a little over R14.5m / $0.96m / £0.74m and that's after all of our living expenses , blowing a stack on renovations and replacing both of our cars. Despite blowing half a mil on half of the required renovations on the house, we're still managing to bring in an average growth of R130,000 / $8,500 / £6,500 per month mostly from our investments.
It's' going ok!
Finances aside though, I'm happier, healthier and more content than I was when I was working full time. It took awhile to get over the guilt of not doing a full days work and I still can't really bring myself to sit and read a book, play Xbox or watch TV during a weekday, but I do spend time in my workshop making stuff and I watch more Youtube than I probably should but I don't feel bad about it.
I can't say I have any worries about our money situation. I still monitor it daily and if I'm honest that's because I like it, I still get excited when I see the stock market went up and that we made more money from it than we spent that day, that feels great.
I quit the rat race before the FIRE "rules" said I should based on ill health but I really do believe the 4% rule to get to your magic number (25 times your annual expenses or 300 times your monthly expenses) is a good rule of thumb if you plan to generate zero income for the rest of your life but if your willing to put yourself out there and make a little money with a side hustle for a few hours a week, I did find it much easier than I thought. I now have a registered business that has an accountant and bank accounts and a website and all of that good stuff and I did it all from the comfort of my home office with just a wifi connection and a laptop. My customers found me and I've even generated so much revenue in the last 8 months, I had to become VAT registered!
I would estimate I've worked a total of 30 man days (9 to 5) in the last 8 months and as I type, my side hustle has generated R1,850,000 / $123,000 / £95,000 in revenue which will turn into around R700,000 / $45,000 / $35,000 in profit after tax. That, coincidentally, is almost our entire annual expenses, just from my side hustle which came about by me telling the world through my website that I might be able to tell them a thing or two that could make or save them some money.
This is not about bragging or showing off, it's about saying it was much easier than I thought. I'm not special or highly talented and I have never been give a penny in financial help from anyone in my entire life, and neither has Mrs H. Everything we own we worked for. I consumed every piece of information for 3 years about the FIRE movement and early retirement and side hustling and while it was all super helpful, I think I can sum it up in 3 bullet points:
Reduce your living expenses as much as you possibly can, this is worth twice the value of earning more. But don't lie to yourself, track every penny you spend and look for opportunities to reduce it but don't make yourself miserable, rather wait a bit longer to push the button with a life you want than be miserable in retirement.
Take control of your finances. The stock market provides the best return of any investment over the long term but nobody knows what is going to happen in the short term (no matter if they claim to be able to). Think about low risk, low fee investments like index tracking ETFs as good invest and forget money making machines. Know how much return you need to achieve. A good number is 4% + Inflation for your country. I use 9.5% which is 4% + 4.5% inflation + 1% because I retired earlier than plan. My target ios 9.5% so I try and invest in things that might give me 10-12% returns. The S&P500 index is my weapon of choice.
Get a side hustle. If you've done 1 & 2 right, every penny of your side hustle is fun money or allows you to bootstrap your lifestyle. Everyone can do something. From dog walking to management consulting, from ironing to importing, from car washing to sculpture. It doesn't matter what you do as long as you enjoy it. If it pays well that's a bonus. I have two side hustles, one I don't particularly enjoy (consulting) but it pays well and one I love (woodworking) but it pays a lot less. It doesn't matter because my plan from 1 & 2 doesn't need the money so I do both for now to generate some cash and fund a hobby I enjoy.
The only thing I can't give you answer to is coming up with the chunk of change you need to retire early,. that came from 28 years of hard work and saving. I started work on 1st October 1996 at the age of 16 and I didn't have a day unemployed until 1st may 2020 at the age of 44. I didn't start actively saving for FIRE until I was 40, but I took out a pension when I was 18 and paid into it every month (around 6% of my salary), that turned out to be the smartest thing I ever did.
In our last few years years we were earning more than we'd ever earned and saved around 75% of it. If you do the simple math of that, that meant for every year we saved, we had enough to live for another 3 years without working (25% living costs / 75% savings). In just 23 years, we added 9 years of runway to our plan. It wasn't easy but if you want it enough, you'll find a way.
With our monthly expense budget at R62,000 / $4,100 / £3,200 per month, our magic number for 2020 (300 times our monthly expenses) should have been R18.6m / $1.24m / £0.95m. When I retired we had R13.5m / $0.9m /£0.7m so instead of 300 times, we had 218 times. That means instead of the 4% rule, we went with the 2.9% rule. It's still very early days, but I'm pleased to say; we're coping.
So in conclusion. 2020 was almost as big as 2019 for me (in 2019, I almost died and then got married to Mrs H!) but has worked out pretty great. A year on from my resignation I don't regret it at all, in fact, I wish I'd done it earlier. I'm excited by 2021 and I'm eager for the world to heal so I can take my retirement adventure past the front gate or the local grocery store! Until that can happen I'm going to focus on generating some more income and streamlining our investments so when the time comes that we can get back to living there's no need to keep an eye on the finances.
Happy New Year everyone.
For the number geeks amongst you, I'll be putting out the December financial report in the next few days and then laying out the investment strategy for 2021 shortly after.
Until then, keep living.