Die With Zero–FI/RE, the YOLO edition

I picked up a copy of Die With Zero, H/T Monevator, and it was a pleasant read over about half a day. The TL/DR summary is that we are doing this FI/RE stuff all wrong, and should start spending more earlier.

I certainly found the book worth the Amazon Kindle price-tag (£7), and I have occasionally wondered if I should be spending more. DWZ’s takeaway is a resounding Hell Yeah, and it’s certainly a different way of looking at things from your normal FI/RE trajectory – eat rice and beans while working in the City/IT Big Cheese/well paid job and quit at 45.

Some things I have already got right – retiring in my early fifties and not working at any significant level is very DWZ. I’d really like to be able to say that was a carefully planned strategy marshalling all my resources from the previous 20 years, but it wasn’t. Learn well from the error of my ways, young fellow

There’s an app for that

I was unable to get his app to work properly, in the sense of giving me useful insights, though it seemed to function serviceably¹.

It didn’t like a lot of things about me. For starters it can’t process someone who retired nine years ago. Computer sez WTF?

HAL9000 –> Ermine, I can’t do that

so it’s one for all you pre-FIRE-ees out there. So I decided to start hacking. I pretended that I want to retire in a year from now, I have an income of my pension, and I get 100% of that in future. After all, a DB pension is an annuity, innit.

This is where using an app designed by somebody else where you have no insight into the works starts to go wrong. You’re stuck with poking and prodding a black box. I should bear in mind that Bill is a hedge fund manager, so his idea of enough is probably very different to mine. But most of the scenarios basically come back saying I am too poor. Which, quite frankly, I don’t believe. It is true that at the moment I am spending more than my DB pension, because I am putting money into a project I believe in, but that won’t last forever. But if I were to add 1/25th of the capital in my ISA (to approximate the SWR) I am nowhere near spending my aggregate income. The app is also horrifically sensitive to what I enter as my networth. So I just don’t believe the results, although I accept that I am excluding housing networth, the money I am earning and I adjusted the value of the ISA down by 33% because I believe the stock market is overvalued by at least that much². Perhaps I am not DWZ’s book target market. I don’t think it can qualify my pension properly, and it tells me I don’t have enough networth to sustain my current outgoings. However, if DWZ’s app can’t see my pension, and I don’t regard housing as networth, then perhaps GIGO applies.

I struggled to get consistency from his app, for instance if I set my networth closer to its nominal amount then he tells me that perhaps I have a couple more years of investing to do. So unless you are younger than 50, and have at least five years to retirement I would say proceed with care, this is too simplistic.

DWZ’s app works better for young people. Let’s go back in time

If you’re a 20-something Ermine newly graduated but unemployed, and you are trying to work out if you should borrow the money to see your favourite lady singer at the high-water mark of her career, however, DWZ and a grizzled mustelid are in perfect agreement

Borrow the cash young stoat, go see her, Bill and Mustelid in perfect harmony. The numbers are total guestimates, because after all, it was forty years ago when I failed this test. There’s much hindsight bias, I put in the app’s income the inflation-adjusted value of my first real job, but I only got that job six months after I would have boarded the plane.

The backstory is the mustelid that took/didn’t take that decision was burned out after struggling in the third year of university, into the humdinger of Thatcher’s first recession. It was a tough time, hope had died in the UK as far as the economy went, there was rioting in the streets and the government considered abandoning Liverpool and other cities in the north. There was rioting in Brixton, Handsworth, Leeds and Moss Side.

Unemployment was 10% and rising

Foreign travel was much dearer in the early 1980s – I had never been on an aircraft by then- the first time I got on a plane was for a business meeting at work.

So there’s hand-waving going on here – knowing the track of the next four decades of course I should have borrowed the money. But faced with the same decision now, against the same background of rioting and rising unemployment without foreknowledge of what happened – I don’t know if that was just beyond my risk tolerance.

Intriguing that Bill also says don’t start saving for a pension until you are 35. I have much sympathy for the concept that the magical power of compound interest is vastly overrated. Every time I make that case, I get my head boiled. So three cheers for Bill, making the case for the counterfactual. Saving Hard is what builds your wealth for FI/RE. Compound interest slows the decline once you have it – if you work 40 years steadily saving, at typical long-term rates of appreciation compounding roughly doubles your savings by the time you retire. And Bill makes a good case that the small amount of money you have at the start of your working life packs a greater punch when delivered as YOLO than as you retirement savings. Where I perhaps differ from him is don’t borrow³ it!

Self knowledge is won hard in the university of life. As I take Bill to task for later on, I am not sure that just being a slowly decaying experiencing unit is the mark of a life well lived. Know thyself, as the oracle at the temple of Delphi intimated to its querents.

What you miss out on hurts more than what you cock up

This story is an interesting illustration of the other effect Bill said – people looking back at the ends of their lives recall the sins of omission more than those of commission. Hopefully it is a little while till I am on my deathbed, but when I look back, this minor failure to believe that I would ever find a job, and not taking the chance looms surprising large relative to other financial balls-ups. The actual amount it would have cost was not earth-shattering. Indeed, when I did get the first job, a few months after I did borrow about six month’s salary on interest-free credit to by a piece of hi-fi secondhand. I didn’t pay interest, and that amplifier served me well for thirty years. So while as a grizzled mustelid I shake my head at the daft headiness of it, the young mustelid made a reasonable call in that case as it turned out.

I’m sure my younger self bought all sorts of overpriced rubbish, but I don’t remember these as particular mistakes. Spaffing six month’s salary is barking on a strict personal finance basis, but I was living with my parents, earning for the first time, not running a car, and the capital plant lasted 30+ years and I didn’t pay interest. A couple of years ago I sold it on Ebay in working order for half the nominal amount I bought it for.

I’ve made much bigger financial mistakes

The dumbest financial mistake and sin of commission that I made, of course, was buying a house at the top of the market. I have spent endless posts on here snarling about that, to push back at the endless house-price boosterism of the UK. In the end the good Lord sees to it, as the Germans say, that the trees don’t grow into the sky, and you really, really, don’t want to be the one holding the baby at that time. We cannot call when it will happen, but I do expect to see it in my lifetime, and it will ruin another generation of young housebuyers. I have the same feeling for the UK housing market as Hunter S Thompson felt about the TV biz

It is normally perceived as some kind of cruel and shallow money trench through the heart of the journalism industry, a long plastic hallway where thieves and pimps run free and good men die like dogs, for no good reason

And yet the passage of Time softens the blow, when I ask myself what are my greatest errors on finance, while numerically the house is head and shoulders up there, but the missed opportunity feels of the same order.

Bill Perkins illustrates this point with the song Cat’s in the Cradle, which I had never heard before.

It doesn’t have a huge resonance for me because I am child-free, and I grew up at a time when there was better work-life balance so I wouldn’t say I experienced this sort of thing as a child. But there is some point there. Aspirational people do some pretty insane things for their children, often valuing money and things for them rather than time with them. But: not my circus, not my monkeys.

a MINO – financial mistake in name only

Another financial mistake I made was churning in the dotcom boom. All the way into the bust.

 

What churn looks like in contract notes. It’s not big, it’s not clever. Buy VWRL. And sit on it. You know it makes sense.

Not only did I act like a dick, I then sold it all in the bust, bought a Virgin FTSE allshare ISA, CATmarked with low fees of 1% p.a (!) and the pain kept coming. So I sold out. In 2003. Inspect this chart of the FTSE allshare and marvel at my younger self’s absolute genius for screwing up market timing. I lost probably the equivalent of £13k in today’s money on that escapade. I don’t even regard that as a loss, nowadays – it was a damn good training in the university of hard knocks in what not to do, and the price of the tuition fee has been refunded many, many times over. It doesn’t even register as a loss, now. You can read Monevator’s sage words as much as you like, but the only way to learn not to sell out indiscriminately in a market rout is to pass through one and come up for air. If you can buy into the low-water mark then all to the good, but if you make it out the other side with what you went in with, then that’s just fine.

If you hold a cat by the tail you learn things you cannot learn any other way.

Mark Twain

You gotta hold that market cat by the tail to learn, until then your knowledge of yourself is all wind and piss. Even once you’ve learned how to hold that tail without getting scratched the first time isn’t a guarantee of success the next, but it helps. There’s nothing wrong in ballsing up – it’s if you get back on the horse that is the mark of the Right Stuff, particularly if the outcome is better second time around.

The differences that grated:

Bill Perkins, DWZ’s author, is/was a hedge fund manager, high stakes poker player and if Wikipedia is right he doesn’t walk the talk – he’s still working. I was already retired at his age… I know, Internet Retirement Police and all that, but if you’re going to write a book telling other people to stop working because it burns your time, then, well, JFDI because it also applies to the guy in the mirror.

It’s probably safe to say that his attitude to risk is six sigma off the mean Don’t get me wrong, I am all for being slightly rabid, but Bill’s up there in the one in 300,000. That will not apply to most of his readers, this one included.

He is an extreme extrovert, with what looks to me a hugely external locus of control. Hats off to him for being a very sharp cookie, because observation shows me that (early) retirement is where introverts finally start to win out. His story of the 45th birthday party on an island where he paid for his mates to stay while Natalie Merchant sang for them struck me as gauche.

I got nothing against Natalie and it sounded like everyone had a good time, but oy vey, Conspicuous Consumption writ large Bill me old mucker. And classic extrovert – you gain energy from other people. I’m not saying it was wrong for this guy and that time, but that’s the problem with any self-help book. There is an implicit generalisation from the particular instance of the author’s life to the general population.

Bill seems to have zero conception of the process of individuation. He values outward focused experiences and sports. The latter makes him feel the fading of physical strength to a degree that I don’t feel, and it stops him doing things that matter to him.

His book is written as if he is atomic. Many people have significant others in their lives, in which case if the first partner one does the DWZ routine the survivor is on rice and beans for the rest of their life. I appreciate that hedge fund managers can probably consider their finances in isolation because both parties are probably rich enough to see themselves out, but it is a very serious anomaly in the book for many putative readers. He deals intelligently with the issue of your financial relationship to your adult children, but in some cases having children creates earning asymmetries that should be at least acknowledged IMO.

There is no spiritual dimension to Bill’s idea of retirement. It is all about what you do, nothing about what you become. Retirement should change you, and hopefully for the better and deepen your character, you should become more you. Bill’s narrative is one of endless attrition, because of his focus on the outward and the physical. Bill, me old mate, a word in your shell-like from a mustelid that is not hugely older than you. Hark the words of Carl Jung

Who looks outside, dreams; who looks inside, awakes

Things I agreed with him wholeheartedly were

Don’t work so bloody hard or so long⁴. Work to live, don’t live to work. This seems a pathology endemic in the high-flyers of the FI/RE movement – to earn enough to be able to consider FI/RE you seem to easily end up with Stockholm syndrome with the means (working), losing sight of the end.

I’ve softened my rabid all or nothing approach, funnily enough, as the dreadful experience of my last years at The Firm recede into the distance, but I absolutely agree with DWZ that while you are working you’re not living, even if you do what you love, love what you do as the twat Steve Jobs exhorted the peons that made him rich.

Jobs to peons. Make Me rich, fanbois, and drink the Kool-Aid

However, I had to do a double-take when I heard DWZ was over 50, because in my view he hasn’t used his time well in some areas that I think I have. I respect his sovereign right to be the raging extrovert that he appears to be, and he’s worth a lot more. I do note that the thesis of the book remains untested by the protagonist, however. No battle plan survives contact with the enemy.

He delightfully deconstructed the kids issue. I hear time and time again how people want to leave shitloads of money to their kids. Fine, in which case give it to the precious fruit of your loins in their thirties, where it can change their lives for the better, but after they have learned to handle money and hopefully built a modicum of character.  Not only does it get to change their lives for the better earlier, but you get to enjoy them enjoying the benefits of your largesse. That’s really tough to do from six foot under. Humans tend to spawn between 20-30, if you’re rich enough to be expecting an inheritance then you will probably receive it in your 60s if in comes when your parents cark it, and the average lifespan of a rich person is 80. That’s too late to make a huge difference to your life.

Think about your spending pattern over time. I hadn’t appreciated the changes of the spending profile over time, in particular spending more 50-70 than later giving you more bang for your buck is set in sharper focus.

I already thought about life’s seasons, but more from a psychological angle. His time buckets idea is good and is another of his apps – split the time you have left into 5 or ten year periods, and ask yourself what you want to and can do in those periods. How much time do you have left – if you are rich enough to entertain FI/RE and have no known health issues then a reasonable hypothesis is dying at about 80-85, though you can finesse this eg here. According to that crew an Ermine would be somewhat undercounting assuming 80… If they are right I will have been retired a lot longer that I will have been working by the time I am through.

Although I am a very different person from DWZ’s author I got £7 worth of provocative thought out of the book. I had already been drifting towards his conclusion, which is basically spend more 😉 His rule of thumb taking the amount of years you have left times your annual spending and needing a starting networth of 70% of the total was an intriguing approach. There’s merit in it (you have to read the book to get the reasoning, I don’t find it outlandish). That is probably not a million miles from the Safe Withdrawal Rate (SWR) of 4%. Most people retire with 20-25 years left to live, DWZ gives you a slightly easier ride that a 4% SWR.

In a spot of precognitive clairvoyance, before I’d read the book, I’d decided to do some YOLO spending.

Ermine in the country– prehistoric stones and decadent indulgence

The Ermine household decamped to the neighbouring county of Dorset for three days of decadence and the investigation of minor megalithic marvels.

It was slightly strange venturing out in this halfway-house between in and out. Fortunately we had lovely weather, because eating alfresco in late April in the UK is still on the freezing side. It felt weird to be so close! to so many people! I have the feeling the hospitality sector is a little bit fast and loose with the description of ‘outside’ at times

but yes, this beachfront café was more outside than inside. What’s not to like? Going in the quieter part of midweek meant that we had a reasonable amount of space, and while in general you shouldn’t have anything and chips more than once a week we indulged. And Purbeck ice cream, very fine it was too. We stayed at an annexe associated with a country pub. Here’s a sight I hadn’t seen for a long time.

Beer. In a pub. Or more to the point, on a pub bench outside a pub, but I’m not carping. Been more than a year since I last saw this.

One of the joys of reaching the end of one’s FI accumulation days is you don’t have to feel bad about the latte factor. I’ve never been one for regular coffee on the way to work. Partly because I haven’t worked in a city since 1989 and partly because I am not a connoisseur of weird coffee. Mrs Ermine uses a thing on a stove and favours the punch over grace IMO – she gains something from coffee out because it is slightly less like battery acid than the jolt from the espresso gizmo. I am happy with Americano or filter coffee. I also detest the taste of a cardboard cup, so the honest-to-goodness latte factor was never a problem for me. Because I can’t stand milky coffee in a cardboard cup. Simples. However, in a sort of similar vein to DWZ –

Because you’re worth it

The latte factor gets pushback from some folk that take the line straight out the 1970s – because you’re worth it

Money? It’s easy to make in their world. Drink the coffee, because you’re worth it.

I don’t believe wealth is a scarce resource. I believe wealth is abundant. It’s just that most people aren’t willing to learn the skills and put in the work to acquire more of it. There are almost always ways that you can make more money, especially in the era of 2% unemployment rates, side hustles and six and seven-figure online businesses. More people than ever are finding ways to make an income outside of their day job, through working for gig-economy companies, starting part-time businesses, selling stuff online and investing in real estate.

Hmm, from what I’ve seen of the gig economy and side hustles, it’s low rent. XKCD has got it taped

Sure, if you’re pulling twice the median wage go knock yourself out on the lattes, though perhaps still steady on on the McMansions and vintage cars if you have aims to early FI. Beware any shmuck who is selling you a line straight out of the ad industry.

Vary your hedonism

In my runout at The Firm I was drinking more wine than was probably good for me, but now I aim never ever to drink homebrew again and I am prepared to pay a decent bit more for better wine, which means we need less of it – splitting a bottle is OK. The tradeoff of the higher price is I get to do it once or twice a week, rather than, well, more often. Hedonism is addictive, but it loses its punch in quantity. So spread it out. Mix in some fine dining, and seeing something different. Avoid the demon of hedonic adaptation. Calvinist spoilsports have one solution to that when they say restricting pleasure increases pleasure, but IMO there’s a better way. Too much of a good thing can be too much, so switch to something else good before the first gets too much.

Not everywhere, not all the time, not all the same thing.

Humans are devils for normalising to a step change. The admen know this and use this. If they get you to try {insert product or service here} for just a couple of months, you will feel the loss of the product more than the initial gain. That’s why Netflix is free for the first month. Amazon keep on trying to flog me Prime. Sure, I don’t want to pay for delivery, but I am generally perfectly happy to wait a day or so. so I keep on having to hit the diddly ‘No thanks, as I was’ text link rather than the mahoosive Try Prime button.

MSE’s Martin Lewis did a feature on the reason behind free offers a few years back and it’s still a good’un seven years later.

There are many people who wouldn’t sign up to a movie service they don’t really need if they had to pay for it but they would do it for a free trial. They go in with a view to cancelling it when their trial ends but at that point they’ve already become accustomed to it and getting rid of it means it’s a loss. And we as human beings don’t like loss.

I don’t like the pain of the loss either. So I take it up front. I don’t do free offers, and I try and tolerate subscriptions as little as possible. They’re OK on needs that you consume regularly, so yes to power, and water, and  no to mobile phone subscriptions, Spotify, Netflix and Amazon Prime in my case.

DWZ on buying services to buy time

OTOH I am prepared to spend either to satisfy intellectual curiosity, or to make life better. I was intrigued by DWZ’s take on paying to buy time. Retiring early is, of course, the ultimate purchase of time with money. There are other places where I’d go that way. I don’t ever want to paint a wall again, both because the result sucks as I lack skill and patience, particularly where the wall meets the ceiling, but also because I can’t be arsed.

But it did also make be think, rather than occasionally pressure-washing my kitchen sink drain outfall because the stupid posers that lived here before dispensed with the outside gulley and u-bend because it spoiled the nice unbroken surface of the patio, maybe I should pick up the phone to a local firm and get them to take all that poncey crap out, reinstate the gulley (which would also stop my feet getting wet when using the outside tap) and be done with it. I’m not quite there yet, but getting there.

The problem with this one is it doesn’t really take that much time, and my 15 year old pressure washer is good enough, now that I have discovered the Chinese sell adaptors on ebay from 20mm ⁵ to 14.5mm quickfit.   But I will occasionally remember Bill and ask myself if I should stop doing this the next time it happens.

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1. The app is a web app, run from https://www.diewithzerobook.com/apps Obviously  prudence is the order of the day with financial information and the Internet, but the parameters are so general I didn’t deem it a risk in my case, though YMMV. He doesn’t demand personal details or email, or even that you buy his book ↩
2. I’m of the view that the world stock market in itself is overvalued by closer to 50%, but that is why there is a significant amount of gold and things like RCP and other ITs. I would say a serious weakness of Bill’s app is that it doesn’t take valuation into account, which is strange, because it could easily get the world or US market CAPE on the backend and adjust the projected future returns accordingly. He is targeting a US readership so the S&P CAPE would do, and let’s not forget that if you are buying VWRL global equity index you are 50% in US equities, so it’ll probably work for you too. ↩
3. The case of borrowing to see that that singer’s tour was a one-off – she was early thirties, and having children poleaxes many female singers’ careers. I probably didn’t boil it down analysing it in those terms at the time, but that’s how it played out. I am not saying that Bill is saying borrow the money, though in that chapter he talks wistfully at his roomie who borrowed from a loan shark to go and tour Europe. I was going to borrow the money on my Access card rather than the sort of guy who will break your legs, milquetoast mustelid that I was. ↩
4.  I observe Bill seems to have missed a trick here. Easy to say, hard to do for high flyers, and he even cites the story of the trader that tells Bill to punch him in the face if he is still working after having made $15,000,000. The trader went on to be worth $4bn, but he burned more of the hours of his life to get there. Eat your own dog food, Bill. ↩
5. Precisely why B&Q went with 20mm thread rather than 22mm which seems to be the industry standard Karcher thread for home pressure washers beats me, but some kind soul in Shenzhen fixed this problem for me, and now this ancient pressure washer can use quickfit and Karcher fittings. And I can buy a secondhand Karcher lance, since replacing the nitrile O rings in the B&Q lance doesn’t seem to make a lasting repair. ↩

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