I’m going to break this down into 3 sections which broadly cover everything that this site is about – Save Hard, Invest Wisely, Retire Early. Before we go there let us first set the scene. I graduate in 1995 with precisely £0 worth of assets. I start living my life like most others – get a job, start consuming, get myself into debt with a car, then get myself into debt with a house and finally save a few percent with the scraps that are leftover both personally and through an employer defined contribution pension. 2007 comes around quickly and I have one of those light bulb moments. While preparing some financial documents I actually calculate how much I’ve earned over those 12 years and looked at how much I had to show for it. It was a scary moment where I realised something had to change.
Not realising I was probably no different to 99% of the population I immediately assumed I was well behind the curve. I thought if I was to catch up I needed some professional help and so I visited a few Independent Financial Advisor’s (IFA) with a view to picking one to help me. After the meetings I sat down and thought a little about what I’d just been through. It all sounded so impressive and clever but working through each point in turn made me feel that they were deliberately trying to make it sound complicated. It was also at about the same time that I saw the book Where Are the Customers' Yachts? I made a decision. I was going to take responsibility for my own actions and control my own destiny. If it worked I could proudly say I’d done it and if it didn’t then I only had myself to blame. 2008 was then the year where I developed the strategy that you largely see me using today. I made some mistakes but it was largely positive. Then in 2009 this site was launched and I’ve been staying the course ever since. So what is that course? Let’s visit those 6 words again - Save Hard, Invest Wisely, Retire Early.
Save HardThere are 3 elements to this and none of them are easy. Firstly, if I can maximise my earnings power I can then maximise savings. In most industries I believe that it is about 1% inspiration and 99% perspiration. I’m not the most clever person in my industry (the 1% inspiration) however I am one of the most hard working (the 99% perspiration). For me that’s leaving home a little after 6am every day, not returning home until around 8pm and working nonstop while at work. Additionally I have never asked for a pay rise in exchange for what I am about to do. Instead I’ve done any job that could get me to the next level without complaint. Then once I’d secured the new responsibilities I researched what that new role was worth and then asked for that salary. The result is that my nominal earnings are up 70% since 2007. Sure inflation has taken a large chunk of that benefit but I’m still ahead.
Secondly, I haven’t increased my standard of living to reflect the increased earnings. All of those extra earnings have instead been invested. Thirdly, I’ve actually reduced expenditure by opting out if consumerism and living a far more frugal life. These 3 elements now enable me to regularly achieve a savings rate of 60% of earnings.
Invest WiselyThis is clearly laid out in detail here but in simple terms it is a non emotional mechanical strategy focused on diversification, minimisation of expenses, minimisation of tax and an understanding of the damage that inflation can wreak on a portfolio. Back testing the portfolio suggests I should be able to make a Real (after inflation) Return of around 4%. Calendar year to date it’s up a nominal 10.3% with a couple of weeks to run. So even allowing for inflation I’ve so far won this year. You might even say I’ve Invested Wisely.
Retire EarlyThis is the goal and the fruits of the Save Hard and Invest Wisely. For me retirement is really about financial independence with work becoming optional. What will I do when I reach retirement? I haven’t given myself the pleasure of dreaming about it yet as I still have a few years to go. All I can say is that the chart below shows me that my 2007 decision has set me on a new course and with a fair wind early retirement is within my grasp.
Click to enlargeHow is your course looking?