Sunday, 29 July 2018

The secondary benefits of minimalism

During the week I was asked by a family member how much we’re paying for our contents insurance annually.  I replied that we don’t have contents insurance to which I was asked but what would you do if you were robbed or the house burnt down.  I replied with as you know we don’t have much stuff so I’d just buy replacements.  I was looked at like I had two heads and the topic of conversation was moved on.

Afterwards though I thought about this a little more.  As a family we don’t live out of suitcases but at the same time of all the people I know I’d say we have the least amount of possessions.  This hasn’t really been planned but is more the output of our intentional focus on quality of life which has led us more to a life based on security (one of the drivers behind FIRE), experiences and relationships.  So in our case the primary benefit of not coveting stuff is that it has accelerated our quality of life journey.

The insurance question did however make me think of a number of secondary benefits.  Firstly, to the insurance question itself.  As a collective group those that take out insurance have to lose out financially when compared to those that don’t.  This is because insurance companies need to pay wages, other operating costs and satisfy shareholders meaning what is paid out in claims must be less than what is taken in via premiums.  As an individual though you could win or lose.  Don’t take out home insurance for 40 years and never make a claim and you’re ahead.  Have your home burn down in year 2 under the same scenario and you’re definitely a loser which might include ending up under a railway arch in a worst case scenario.

When thinking about insurance I therefore ask myself what are the consequences of not insuring.  A couple of examples to demonstrate.  If I had to replace all our contents it would hardly make a dent in our wealth and wouldn’t derail our financial journey in anyway (it of course would hit us psychologically but that would be the case whether insured or not).  This is because we have minimal possessions meaning it wouldn’t cost a lot to replace them.  I therefore haven’t taken out contents insurance and because I haven’t had to replace anything (winning on the risk side as well) combined with not having much stuff our journey to FIRE has been accelerated.  Not buying much has also has accelerated our FIRE journey as well because that capital has been invested.  If I had to replace our Med home it would certainly affect us as it would represent a significant portion of our total wealth so we’ll insure and I have that as a budgeted annual cost.

There are a number of other secondary benefits of minimalism as well.  By not having a lot of stuff we then don’t need somewhere to store it meaning we can live smaller.  Our current home is the smallest of all our friends / family and we certainly don’t have a storage unit / garage for the less used stuff.  By living smaller till now it’s therefore created cash flow we otherwise wouldn’t have had, which we’ve been able to invest, which has accelerated our journey to FIRE.  By living smaller in FIRE it means we’ll need to tie up less capital in a home which again has accelerated our journey to FIRE.  By living smaller we also have smaller heating / cooling / lighting /maintenance bills which again have accelerated our journey to FIRE.

The secondary benefits even come from left field.  We’re starting to get quotes for our Med relocation and they are quoting via cubic metres of stuff.  You get the picture.

Finally and most importantly I wouldn’t call myself an environmentalist but we do try to live consciously and tread carefully on the planet.  By living small it definitely puts a smaller footprint on the planet.

This approach to life and risk is of course not for everyone so as always please DYOR.

30 comments:

  1. same with car breakdown cover, you can still sign up at the side of the road at 2 time an annual membership, but if you break down once every 5 or 6 years, then that extra hour of waiting by the road-side is the best paid hour of your life.

    just common sense really.

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  2. Its hard to be frugal and minimalist, as there is always the temptation to keep stuff just in case. I inherited a large pile of bits of wood in the garage, and have been adding to over the years. The worst combination is to be spendthrift and a hoarder, as you keep duplicate copies of things you don't need.

    I do like to know that when I'm stressed over the car breaking down, its not made worse haggling with a rescue company

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  3. Insurance is also much more expensive than it should be because premiums have to cover the fraud element - e.g people making up claims for damage that never happened, courtesy cars that are lent for weeks at a time with simple car repairs taking far longer than necessary, fake whiplash injuries, vets making pet treatment unnecessarily complicated, and many other examples.

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  4. One reason I've contemplated doing without contents insurance is that our contents include non-trivial amounts of (i) stuff we wouldn't replace, and (ii) stuff we couldn't replace. We've considered gifting some of (i) to the offspring so that they can demonstrate their e-baying skills.

    We never insured the pets because we felt we could carry the risks ourselves and if the poor things fell expensively ill of old age they could always be put down.

    As for breakdown insurance I have no intention of leaving my wife stuck on her own somewhere haggling about cover.

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  5. Yes, I only insure those things that would be catastrophic to pay for and go for high excesses to reduce the costs still further.

    I've known people who used to pay for every holiday with a travel insurance claim.

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  6. as someone wiser than me once said, "you don't keep your possessions, your possessions keep you".

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  7. RIT - why are you teasing us by not revealing your destination ? If you are getting quotes for your " Med location " clearly you have already decided.

    How sad that your wife does not have any jewellery - either bought or heirlooms , a nice watch , valuable clothes and shoes for her to feel cherished in .

    Your approach to life is so alien to mine . As far as storage requirements - do you have bicycles ? canoes ? a dinghy + trailer ? snorkelling gear ? a mowing machine ? wheelbarrow ? If you are going to be owning your own house near the sea these are some of the things that you might need to allow you some fun in your lives . You have been protected from needing garden equipment and ? some tools as well . Luckily you don't need to either transport them to your new location or sell them on ebay before you leave, but you may need to invest in some of these to maximise your new life experiences.

    Your decision not to have contents insurance may change when you need to take out buildings insurance for your house - you surely won't be risking not having that ? Quotes are likely to be a bit cheaper if you have contents and buildings insurance from the same company although that is not necessarily the right decision for value . One company may be excellent for buildings but expensive for contents .

    A dishwasher ( 3 years old ) motor fire overnight in 2001 nearly destroyed part of our house and resulted in substantial claims from separate insurers. There was some arguing between them as to who was responsible for certain aspects of the claims - but nothing too tiresome . The house was uninhabitable for nearly 4 weeks and the kitchen out of use for months - we persuaded the buildings insurer to get us a caravan to live in on site in the garden .They bought us a new one - from April to late September and then sold it - must have saved them a fortune on hotel bills but it was much more convenient for us to be on site.

    Good luck to all the RIT's - I hope your move brings you happiness, some relief from your frugal existence and a lot more fun in your lives.

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    2. I would like to point out that "valuable clothes and shoes for her to feel cherished in" is an incredibly misogynistic way of discussing RITs wife.

      Women are humans too, and as such, most of us prioritize being loved and having the security of savings over being showered with shoes and clothes.

      If you have to show love through shoes, then you are spectacularly bad at loving someone, in my opinion.

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    3. Great - would love to have seen the comment you removed !

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    4. la la la

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    5. I think you have used the wrong word. Misogynist is not a correct useage here - sexist maybe - but not misogynist . Anyway - back to the minutae of contents insurance policies !

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    6. You are right, sexist is the right word. English is not my first language, or indeed my second language, so thank you for correcting my mistake.
      The other points stand.

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    7. Hi la - presumably you are not from LA although that would definitely mean that English was not your first language .

      Folk who start blogs are asking for responses and reactions - RIT's blog has changed significantly over the last 2-3 years - fewer anonymous posts and - if I may say - less RIT- centric - he has let go of feeling he has to respond to most of the posts himself . That is great ( in my book anyway )

      I made my " sexist " and maybe judgmental comments having recently read about Mrs. RIT's fun money account - which intrigued me . Fun money and RIT hardly seem to be natural companions . So I thought maybe Mrs RIT used her fun money for clothes , jewellery, at least one nice watch ,some shoes and regular cut flowers in the house to cheer everyone up. I realise I am poking fun at RIT by saying these things - but he is getting increasingly difficult to wind up these days . Probably he is bored with my confrontational style .

      But if you run a blog - you have to cope with the responses it generates - desirable or undesirable . The worst possible blog would be one that no-one responds to in anyway at all . RIT's blog definitely does not have that problem and I do think it is worth following as so many others clearly do as well.

      Come on RIT - tell us where you are going ?

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  8. On the house contents insurance do people realise you get legal expenses and public liability on most policies. Therefore if you are riding your bike, playing golf etc you have upwards of £1m liability insurance. It would be pretty catastrophic to get sued for injuring someone and not have that cover (not very likely I know but it's still a risk to consider)

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    1. Beat me to it Im all for not over insuring but i definitely would have just basic building and contents insurance

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  9. Oh dear, not sure whether my comment got lost, or is just being moderated!
    To summarise my post - how does this align with your other attitudes to risk? Sticking with insurance - do you have TPF&T Motor Insurance; do you accept high policy excesses for overseas travel / health insurance; do you have life assurance; etc? It's particularly relevant, as you are clearly very risk averse when it comes to financial planning decisions; have you put so much thought into these other decisions? I say 'you', when we are all as likely to fall into these traps of being rationally inconsistent (guilty as charged).

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  10. Wandering Star30 July 2018 at 21:57

    If you have assets worth £10k and the annual insurance premium would be £200, if you don't take out the insurance, you are gambling £10k at 1/50 you won't lose your assets. You need to win the bet for 50 years to show a profit. By year 49, you have saved £9,800 so the odds the final year are about even money, to save the £10k. Assuming asset values and premiums rise in proportion.

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    2. But insurance companies only pay out a fraction, say 70%, of the premium for claims, and you will have an excess to pay as well.

      You are losing the opportunity cost of investing those premiums in the market, and forgoing the tax breaks of pensions and ISAs.

      The value of market assets will rise in real terms, most consumer items become cheaper in real terms as manufacturing costs reduce.

      Insurance premiums are taxed.

      There is a time cost in submitting the premiums each year, and any claim documents.


      (Anything I've missed?)

      You are better off self-insuring any loss you can afford to bear.

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    3. Yeah you missed my point about fraudulent claims, which you would also be subsidising.

      And clearly if you lost all your stuff there is no way you would go out and buy it all back straightaway.

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  11. I was an optimist about that claims percentage, its nearer 55% for property insurance. Its 84% for motor insurance. https://www.lovemoney.com/news/4378/insurance-policies-that-pay-out--and-ones-that-dont

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  12. Insurance provides some peace of mind . That is worth a lot - one less thing to have to worry about. Not having contents insurance would make me probably over-vigilant on security measures - some of which have their own costs ( and on-going costs too )eg CCTV , entry system into curtilage ,window locks , more movement sensors ( difficult with pets in the house ) etc etc.

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  13. RIT you are right to reflect. Contents insurance is something we have but after 32 years never a claim. Not one.

    Mrs Pops has some jewellery which is valuable but I could replace for <£2k. My watch is £500 but again wouldn't hurt me...that's why I would step up to a £10k Rolex, because it would hurt to lose it.

    My bike was second hand £10.

    Furniture all antique but not valuable eg oak table £100. Three piece Dutch suite £250. Now these are things I could have spent at least 10 x as much getting but I like to buy good stuff cheaply. And if I lost it all I would require similar things in the same way.

    So I travel financially light it terms of 'things' but must admit my footprint is heavier than yours and heavier than it should be. I bet I could replace all my things for £10k. Although some of my Viz comics may add another £5k (whoops we all have a vice).

    Holiday insurance to the US is a must but for peace of mid rather than economics. House rebuilding insurance is similar.

    I have to insured my £200 Honda Jazz but that is protect others rather than my costs.

    I have never insured my life other than the mortgage, which is now no longer insured because of cash....I am self insured with financial assets that exceed what we need. As for IHT insurance that's madness...my Ifa tells me I should worry about it, I tell him my kids should.

    I like the idea of travelling asset light. When I retire this year I intend to reduce 'stuff' further. (Well apart from those Viz magazines).

    Pops 321

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  14. Would love to know what RIT's Viz comic equivalent is .

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  15. "Nothing In Life Is As Important As You Think It Is, While You Are Thinking About It" [D. Kahneman]. And I expect this holds true for most people when they think (or don't think) about their retirement. After all, people will argue (correctly in some cases) that they may never reach retirement age.

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  16. I think our combined contents and buildings insurance is about 140 per year so irrespective of claims the benefit far outweighs the cost.

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  17. I try to keep my insurance costs at an absolute minimum. The only reason we have a contents insurance is that the entire insurance package got cheaper by having 3 products. Yes, as stupid as it sounds they actually paid us to get this insurance. The reason is that I set the value of our items to something like 30K dollars. "Is that really the maximum value of everything inside your home?" the insurance lady asked with a surprised voice. Actually, it's probably lower than that..

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  18. I stopped paying contents insurance once I could absorb a likely loss of say £10k and when my future costs (including cost of money like avoided return) exceeded this amount. I have a fire resistant home safe for valuables.

    95% of the insurance industry is a fraud - so it makes me chuckle when punters blame insurance fraudsters. There are the beginnings of a revolution in insurance, and I would happily pay for it if it was perhaps £30 not £130.

    I do occasionally pay insurance. On a trip to Italy over summer I did not mind paying about 90p per day for separate car hire auto insurance.

    What the post brings to mind is people are not great at seeing the ‘real cost’ of purchases. This includes insurance, but mostly avoided savings. Your £800 iPhone is probably costing you more like £2500. And if you’re adding insurance to that, more fool you.

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  19. TT

    Having working in insurance for 25 years I realise not everything is perfect, but would you like to give some more detail on why “95% of Insurance industry is a fraud”?

    There is real value in insurance and talking people out of buying insurance may be doing more harm than good.

    Boltt.

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