Well, it’s been a while eh folks?! It’s amazing actually – I may not be ‘working’ anymore – but the days sure do still fly past.
Bored in retirement? Far from it. Somehow, there’s still not enough time for everything I want to do!
All of which is my lame excuse for the long time since I last posted anything…
So what’s this one about? Well, sharing one of the biggest lessons learned so far from my early retirement – adapting financially….
Managing Volatility...
It seems the world is determined to continue with its craziness. Just as the pandemic starts to feel like it’s receding a little…along comes a war…and sky-rocketing inflation – seriously?? What else will we need to manage through?
As some of you will know, I retired early back in ’18. It was actually a year earlier than we’d planned on pulling the trigger. Circumstances just fell into place financially to make it the right time.
And I’m happy it worked out that way – as it meant we had a glorious year and a half of travel before the pandemic hit.
Not to mention financial stability. All very reassuring that we hadn’t done something totally crazy. You know, just semi-crazy instead…
Since then, it’s been a bit of a non-stop rollercoaster. Both financially and lifestyle-wise.
So, how have we fared?
Learning To Roll With It...
Pretty much anyone who’s done it will tell you that ‘travel’ is different from a ‘holiday’. I honestly didn’t really get it until we tried it ourselves.
Both have their positives and negatives – but they are definitely different. Now that we aren’t limited by my annual holiday allowance, we tend to do what’s apparently called ‘slow travel‘. Staying in places longer, settling in. No tick-boxes of things to see and do. Just absorbing what’s around.
It’s addictive once you start, I will warn you…! It’s also incredibly good at teaching you how to ‘roll with it’ when things don’t go to plan.
After all, it’s impossible to plan for everything. This is something that becomes very obvious once you start exploring more. Anything off the well-beaten tourist track comes with challenges. That’s what makes it interesting!
And so you have two choices when things inevitably go awry.
You can get upset that things haven’t gone as they ‘should’. After all, I spend a good amount of time planning out these adventures. They should be perfect, right?
Well, that would be nice, I guess – but it’s not realistic. Eventually, you learn that any wailing and gnashing of teeth will do very little to actually change anything.
This leaves us with choice number two. Accepting reality and dealing with it.
Learning this through travel has been surprisingly helpful for dealing with financial change with the same mind-set.
Dealing With Reality...
I’ve written before about how well (or not) our annual budget has panned out compared to the reality of our spending.
It’s very different though to plan something, in theory, to then live with the consequences of those choices.
When you are still working and desperate to escape the daily grind, it can be tempting to think you will cope on a smaller budget.
Likewise, when your career is going well, it can be very tempting to stay ‘just a couple more years’. That extra financial padding will come in handy, no doubt…
The reality we’ve found so far is that whilst plans are great as a guide – by far the most important part is being able to adapt.
And how far you are prepared to adapt will go a long way to determining how much flexibility you should aim for in your budget.
For us, our ‘must-have’ spend seems very little. Whereas we have a very generous, by our standards, ‘discretionary’ budget.
Despite all the craziness in the financial world, we haven’t yet had to choose to do anything differently. It’s actually been very reassuring to see all the flexibility and portfolio diversification paying dividends.
But knowing that if we needed to, we could live on much less does help you sleep better. Especially when markets are as volatile as what seems par for the course for now.
Adapting Financially
Portfolio diversification is something that comes pretty naturally to me. After all, it was the backbone of my early career.
But diversification without a strategy can be a little bit too much pot-luck.
Again, strategy is a personal choice. Dependent on your attitude to risk and that previously mentioned ability to adapt.
I wrote about ours recently. And, as it turns out, it’s not something I made up as I thought. Instead, it seems it’s a pretty standard way of thinking about things. ( My thanks to Al-Cam for the tip-off here in the comments on that strategy post!)
In a nutshell, the strategy is to have a certain level or ‘floor’ of lower-risk income which covers our essential spending. Leaving the bulk of our net worth free to be invested in higher-risk areas.
This combination is letting us ride out the ongoing market volatility whilst giving us our best shot of keeping ahead of that head-line grabbing inflation.
But again – it’s being able to adapt financially that helps here. Like a lot of people out there, we’re making sure we’re still happy with how it’s split up. Getting that balance right is always the tricky bit.
It’s interesting actually. We get our fair share of those phone calls telling us about fabulous investments that could net us much higher returns.
But, for us, it’s no longer about making as much as we can. We don’t need to take that level of risk. So why would we?
If anything, we’re likely to de-risk even further as time goes on. As interest rates are likely to rise, bonds and the like will eventually become worth looking at. Not yet though for us.
And yes, I realise most people say you are supposed to do this before retiring!
But I think it’s different when your retirement is (hopefully!) going to last well over forty years. It’s not the same kind of planning as a typical retirement. I can take a higher level of risk if I know I can flex my finances if needed.
And that’s why I firmly believe that accepting reality and being able to adapt is one of the best things you can learn.
True for finances – and true for life?!?
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Welcome back😆
One thing I’m finding in my early retirement is that there are some things that I adapt to quite quickly, and I think well, while other things continue to be a work in progress. Travel in particular is an area where I’m struggling to get good at doing it slowly. I spend longer travelling now, but find I just try to do more rather than slowing it down. Anyway, I’m hoping practice will make perfect…absolutely a very privileged first world problem, I know!
Ola from sunny Portugal, where I’m practicing slow travel right now 🤣!And you are right, a great ‘problem’ to have….
Like you, I just feel very lucky to be able to travel this way. I remember well back when flopping exhausted onto a sun-lounger recovering from working flat out. Having both the mental and physical energy to experience more is wonderful.
I think we’re pretty similar on trying to make the most of our physical health now whilst we can. It’s odd to think there will be a day I can’t carry my backpack so I try and think of that when slogging up a hill in the sun 🤣
Look forwards to hearing about your next travels too we start the Ruta Vicentina hike in about a week – very much looking forwards to it!
Enjoy Portugal. I’m replying from a café in Antibes. Life isn’t too shabby for either of us it seems!
Great to see another update, Michelle. Whilst turbulent markets make things interesting for the likes of us still in our accumulation stage, it must be doubly so for people like you, who are enjoying your retirement spoils, so to speak!
Interesting to read your insights into adaptability and rolling with plans, just using them as guides and not having them set in stone.
This is my favourite post on minimum income floor: https://monevator.com/the-most-important-goal-for-every-retiree/ I just need to remember it when the time comes, lol!
Looking forward to reading your Financial Darwinism post 🙂
Hey Weenie! Yeah, it’s interesting for sure. I think it helps I spent a lot of my working life pulling financial deal models to pieces. Means I know it’s impossible to get a ‘right’ answer – what’s more important/useful is to understand how your finances will react under different scenarios – and what you can/can’t actually do about it….
I shall go read and see what else I should have learned before jumping 🤣! Cheers for sharing.
And ha, I’m feeling inspired now….survival of the fittest financials….
Thanks for the call out.
Love the picture, is it a type of bearded dragon?
I guess that would be a very appropriate choice for a post on “financial Darwinism”.
Ha, no worries – credit where credit due after all!
It’s a great pic, right?! Sadly not mine so I’m not entirely sure what he(she?) is – but I thought of it as a chameleon, and so adapting to its environment ala the post.
But Financial Darwinism’ is an absolutely killer blog post title – I shall have to have a stab at that some point just because of the name!