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Round 2 - The Naive Fighter – La La La (when is X factor on?)

In the last post we had a look at the "middle class lifestyle". How was this seen as a normal lifestyle in the first place? Here is an overview of how it is easy to get into debt (especially a mortgage) and its consequences.

You have been taught how to look, talk and act the right way to get ahead in life. You get a good degree, a corporate job, expensive car, mortgage, go on expensive holidays, get married have kids etc. This is the good life…… unfortunately all of a sudden you are seriously in debt unless you are fortunate enough to earn mega $$$$$.

THE.CONTENDER went down the generally accepted route "to get ahead in life". THE.CONTENDER had student loans and a brand new car (investments in my future). A significant daily commute  burning through my pay checks. I was "entitled" to expensive gadgets, movies, games and exotic holidays. At the end of each month I had no savings, just debt repayments. Pressure to conform continued - you must get on the housing ladder. How could I? Debt payment was a large chunk of my salary and taking years to pay off (5). Did I really want mortgage payments on top - it was supposedly good debt?

Work = Significant increase in Spending

THE.CONTENDER needed to excel at his corporate job - work harder and climb the corporate ladder. Surely the salary would sky rocket and a CVP (Contender Vice President) in 20 years! So next steps:
  1. Make sure THE.CONTENDER looked the part - expensive suits, shoes, leather designer computer case, flash mobile - THE.CONTENDER was going places (factories)
  2. Study - buy all of the latest books on professionalism and business management - why can't it be simple and in one book or in 5 page books?
  3. Go beyond the call of duty in work - work on additional or suggest new projects whilst putting in all of those extra unpaid hours
  4. Go to a bigger company for more opportunities
It is hard to quantify how much was spent on "getting ahead in work". As an estimate suits and computers etc must have cost at least £7K. Books another few hundred of pounds. Hundreds of extra hours worked for no overtime and a small end of year bonus (probably the bonus worked out at a£1 and extra hour worked). 1,000's of pounds!!!
Life was still good. THE.CONTENDER was working hard and slowly progressing his career, as was his wife. Frequent holidays were a must to unwind and relax. We needed those breaks as work was becoming harder and more time consuming. Downsizing the workplace resulted in greater and greater workload. 9-5 working hours seemed like a pipe dream.

Our always "on" connected culture left little time to turn off from work. Weekends turned into recovery time from the increasing hours and stress levels. As high skilled individuals with good jobs we were not being significantly rewarded for these sacrifices. The idea that good job = good stress somehow introduced itself in the workplace - what rubbish is that - and who in their right mind thinks continuous stress is a good thing? In our opinion work life balance was going in the wrong direction

How could we possibly keep this up for at least another 30 or 40 years without developing health complications?

This is where we stopped and started to question our lifestyle. At that point we decided we did not want to spend all our time at work just to pay off the next piece of debt. Work did not really care about us. Why should all our effort and time be spent on it - did WORK=HAPPINESS? Retirement at 67 seemed a long way off.

Please read on for the two hottest topics we had: Debt versus Saving and getting on the housing ladder.

Debt and Spending versus Savings


Historically debt was always seen as bad (Consider the Merchant of Venice and the pound of flesh for the loan). In modern society debt has been transformed into a God send. Have it all now on credit. We are bombarded with "cheap" credit options, credit cards, car loans, bank loans, reward cards....

We are told there is "good" debt such as a mortgage - secured against "real" estate (house prices always go up you know). Go out and get some today as you MUST get on the housing ladder. Secondly there is unsecured debt which exploded with the introduction of the credit card. These allow you to get into debt extra fast for what are generally immediate wants and desires. This is generally a bad thing to do. In the past you would have had to save to get your want. Saving makes you think more carefully about your purchase as you have the discipline of earning the money first (all that time worked = a bigger TV is it worth it compared to I have a credit card I want it now give it to me).


Today we are introduced to debt at an early age (earlier the better). This really gets going with College and University. This is where it all started for THE.CONTENDER as well. On moving away from home bed and board had to be paid for. THE.CONTENDER needed the latest Pentium 400MHz computer with 32MB of memory and money to go out and chase girls.
    Unfortunately most students graduate with a huge amount of debt in the western world. Does this indoctrinate them into relying on it all their lives? Here is highly recommend film (1hr plus) Maxed Out on the impact of excessive debt in American Society:


    You have to be free of debt to be really free. Debt is at the detriment to savings and SAVINGS= FINANCIAL FREEDOM. Debt just reduces your options. Consider interest on the debt as your productive time being given to the lender. Savings on the other hand give you choice - what shall I do with the time \ money I have?

    If the life we were following (debt and work till I drop \ retire at 65) was actually to keep us in debt hence working and paying taxes it was not allowing us to reach our dreams as well. Happy family, friends, community, good food and a healthy life do not necessarily cost the earth. We needed an alternative path. Here are some of the debts THE.CONTENDER built up:
    1. £6,000 in student loans
    2. £2,000 on bank balance
    3. £12,000 on graduate loan for a new car 
    4. All of the business related costs detailed earlier 
    On top of that THE.CONTENDER had some expensive pass times
    1. Very expensive nights out £100 for travel food and drinks was a regular occurrence
    2. Expensive computers and games
    3. Maintaining the car
    4. Frequent exotic foreign holidays (Africa and Asia)
    5. Nice designer clothes 
    At the end of each month THE.CONTENDER was always overdrawn. In the end it took 5 years to clear all of the debt and all THE.CONTENDER had to show for it was an older car, gizmos, good times and an education. THE.CONTENDER was doing something wrong.


    The Positives of Saving

    Moving from live for today (using debt) to consume at a later date required a whole new mindset. THE.CONTENDER  need to start saving. THE.CONTENDER was then able to learn the positives of saving:
    1. You do not have to pay anyone else to do it.
    2. You generally get paid (interest or dividends)
    3. Investing the savings can help a company grow and you will take a share of the profits.
    4. You are investing in the future which means owning a constant value generating asset instead of a depreciating asset such as a car.
    5. Saving will mean less stress as you will not worry about servicing debt \ maintaining a job you hate.
    6. Saving will mean security for the future

    THE.CONTENDER Must Buy a House

    Housing is a very emotional subject and one I would like to briefly touch on in this particular post. THE.CONTENDERwould argue that the general consensus in the UK is to buy. If you get a 25 year mortgage, with the interest payments you will actually pay for twice the house. Yes there is inflation that will erode the value of the initial loan but you are still on the hook for 25 years. There are risks, in the UK for example the interest rate can be fixed at most for 5 years. A 4% rate may be good now but what if it goes to 15%. At the same time don't worry and take as big a mortgage as possible again inflation will erode it.

    When we had the opportunity to buy we thought is there a different way to do this. Would it be possible to not pay double the value of the property over 25 years because of the interest payments - could we buy outright? How long would it take and what would be the long run benefits. We decided we would continue to rent and save like mad here is some of the reasoning:

    One thing was clear to us housing is a COST. If we owned the property or rented it either way it was going to be an outgoing. So why was all of the peer pressure to buy. Our short term costs would be significantly be higher than renting. Here is a video from the Khan Academy on some of the maths:


    For more information please see the post Early Retirement With a Mortgage.

    Key Concepts: 

    1. Conformity, same as the herd, work to retirement age in the same job you don't necessarily love.
    2. Society conditions us to get into debt and be good worker bees for 40+ years. Saving and investing are the key to brake these chains early in life.
    My next post aims to cover the power of the web. You can can quickly gain a real world education that is not taught in school or University.

    1. What should you look for and
    2. How to find it and make sure it is unbiased and true?

    Yours Faithfully,

    THE.CONTENDER


    Welcome New CONTENDER Readers! Take a look around. Start at the first article, browse the all posts or just go for a Random Post

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    Post a Comment

    1. Great video on the buying vc renting debate. Thanks for the post - really clear and I agree!

      ReplyDelete
    2. The video is from the Khan Academy which covers thousands of topics. The video above is from his economics and finance section that has probably 150 individual videos (hats off to him)

      http://www.khanacademy.org/

      I have another post I hope you find interesting on buying versus renting and saving called: Early Retirement with a Mortgage? - Round 5 & 15.7...

      All the best

      MUFF

      ReplyDelete

    Are you planning for financial independence and wondering what to do with it. If so is any of the content on this blog of use to you? I would appreciate any comments you have. All the best C

    Welcome to FISH !
    You have come here looking for answers. How to get out of debt? How to save and invest? How to retire early and how you want to live in retirement.

    Well this is the right place for you as out tribe has been through all of these steps. We no longer work for a corporate employer and have saved enough to retire early. How we did this is shared here on this site for you.

    Our little tribe found out these secrets to financial independence in our late 20’s. Since then we have taken early retirement, in our late 30's, in just 7 years. We now live in the South West of France with our two young children.

    Along the way I decided to share everything I learnt. My articles and tips on aggressive saving and compound investing are there to help you meet your financial goals fast. I discuss ways to help you decide what you want by building a life plan. This helps to work out how to get where you want to be whilst avoiding the pitfalls along the way.

    My expertise was built up working in blue chip corporate jobs, extensive reading and putting it into practice. I have condensed this knowledge into simple strategies to help you meet your goals and not those of the bank or the place you work.

    There are free planning tools on this site that help you make a life plan. A plan for your future. The tools calculate how to reach your financial goals in a timeline that suits you. The tools help set out your life goals, make them happen and how to exceed them.

    There are tips on how to simplifying your life to remove day to day headaches. These include ways to pay off debt fast buy eliminating wasteful spending habits. How to reduce your monthly bills through choices that actually improve your health and wellbeing. Identifying things you don’t need that sap your time and wallet.

    There are little sustainability projects to reduce your dependence on shops and utilities whilst saving money to spend on things you want.

    All of these little steps will show you how save 50%+ of your salary so you can meet your goal whatever it is. This huge saving rate can be compounded for very early retirement. I am sure you will find something here for you.

    Darren Lee (A.K.A the Contender as in my blog)

     
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