Goal setting for 2018: Traditional vs Zero based

It’s the end of the year, and that means folks in the FIRE community taking stock of where they are at year-end versus their goals/objectives, and then setting new goals for 2018. For many of us (the really crazy ones) this is one of the best times of the year, where we get to pat ourselves on the back for goals met, rationalize why other goals weren’t, and dream about the future – the sweet, sweet financially independent future.

Steven Covey, in his landmark book The Seven Habits of Highly Successful People, wrote about the need for people to create a personal mission statement and to define their roles in life prior to trying to set substantial goals for yourself. An example of life roles might be:

  • Spouse
  • Parent
  • Christian
  • Neighbor
  • Change Agent
  • Scholar

He then wrote that, once you identify your life roles, you can think about the long-term goals that you want to accomplish in each of these roles. He believes that, if you take the time to determine your personal mission statement and roles, then the goals you set are often dramatically different from the goals most normal people set.

He goes further to say that an effective goal focuses primarily on results rather than activity (example: increase weight lifted by 10% versus “go to the gym every other day). These sort of  goals give you better information on your efforts, how to get there, and when you have arrived.

One of the other areas in goal setting that you might benefit from is a move from traditional historic/incremental budgeting to more of a “zero-based budgeting” model. The traditional method is the most common method of budgeting and is used in most financial institutions. It is based on historical information and involves an incremental approach. In simple terms, the managers take last year’s figures and adjust for growth and/or inflation, plus or minus any significant changes in expected results. A person could use this both financially (to track his budget increase) or personally (to show weight loss). Just take the previous years figures, make a few alterations, and “wham” – you have a goal!

Another way of budgeting is zero-based budgeting, which originated in the 1970s. Many businesses will budget and plan out things to maintain financials. In the past, businesses would only look at specific things and would assume that everything is already in place and does not need to be double-checked. However, in zero-based budgeting, everything that is to be budgeted needs to be approved. Since zero-based budgeting requires an approval for budgeting, this means that budgets are started from a zero-base, with a fresh decision on everything being made every year.

Dave Ramsey has a good blog post on Zero based budgeting

I like to think of zero-based budgeting as starting from scratch. It often leads you to different ideas and perspectives, and can be used not just for budgets, but for all aspects of goal setting. You sit back and think about areas that you haven’t addressed before, but that you might want to pursue (new hobbies & crafts, places to travel, etc.) and the creative juices start flowing. It can be very similar to that moment in time when you first got the FIRE bug, and everything seemed new and exciting.

Other types of budgeting:

  • Priority based: Priority-based budgeting is designed to produce a competitively ranked listing of high to low priority discrete bids for resources which are called “decision packages”.
  • Activity based: Activity-based budgeting differs from traditional budgeting in that it concentrates on the factors that drive the costs, not just on historical expenditure.

So as you start setting your goals for 2018, don’t just limit yourself to basing your goals on 2017 – take the opportunity to brainstorm new ideas, and try new things!

 

What are you planning to do for 2018?

Mr. 39 Months

 

Hat tip to Global FS Consulting for definitions on various budgeting methods.

Excellent article on preparing for the next downturn at Get Rich Slowly

In an article at Get Rich Slowly, JD Roth goes through some analysis on the potential for a pending recession (we’re overdue) and what we should be doing to prepare for it.

Some of his simple steps include:

  1. Bolstering your emergency fund
  2. Balancing your budget (don’t succumb to lifestyle inflation when times are good)
  3. Double-down at work, rather than seeking a new job (since recent hires might be the first ones let go at your new company)
  4. Make sure your asset allocation matches your risk tolerance (I rebalance every 6 months, and I’m due to relook at it Jan 1)

Overall, its an excellent read, with some good points.

Mr. 39 Months

Losing the battle with Mrs. 39 Months about Christmas Decorations

It’s the holiday season, and as everyone knows, the world is full of companies trying to commercialize everything and sell you bunch of stuff you don’t really need. I wrote about how we try to resist this, and how others can as well.

Unfortunately, I can’t say we are doing everything right in the 39 Month household. Mrs. 39 Months plays at being cynical, but she really does seem to love this season, and goes out of her way to purchase additional decorations for the inside of the house (the outside is pretty much in place now, with few additions over the last 5 years). Call it the Christmas spirit, call it “nesting” call it whatever – she enjoys adding to our interior decoration.

While I could complain about it, or question why she is spending the money on the items, after 31 years of marriage, I have learned a few things – and after multiple years pursuing FIRE, I have learned others. The key is living deliberately, and deciding what you want to spend your money on. If something truly does give you joy, and you are spending cash on it (instead of going into debt) then you should feel free to spend the money on it!

Why go through 10 years of misery just to say you are financially free, and can start living like you want. This sounds an awful lot like the old retirement plan (work till 65, then live it up). That isn’t the way the FIRE community is working their plan, as evidenced by all the folks whose blogs and podcasts I take in.

We are already fully funding our retirement accounts to the max, and putting away more funds. In fact, in 2018, we are going to go from 35% to 50%+ of our pre-tax money going towards achieving financial independence. Smiley faces all around.

So go “splurge” on something you would like, especially if it’s not going to come anywhere near breaking the bank. Enjoy life now, and enjoy it once you reach FIRE.

 

Happy Holidays to everyone.

 

Mr. 39 Months

Putting up with Put-downs: Dealing with Trolls, haters and other miscreants while FIRE blogging

While recently reading through some of the FIRE blogs I regularly go through, I came across and article by ThinkSaveRetire, in which he was discussing the Facebook blowback he was getting after an interview for CNBC on retiring early. Apparently there are a lot of people out there that don’t like it when someone gets of the treadmill – and demonstrates that they could do it to, if they chose to.

The Stoic philosophers (Seneca, Marcus Aurelius, etc.) actually had a few things to say about the “haters” in their day and how to deal with them.  I guess the Roman empire had their share of trolls.

Remember that the ancient Stoics were very concerned about maintaining a sense of tranquility in their lives, and the anger that insults could bring up was unwanted. They wrote extensively about dealing with slights and insults, in order to maintain their “frame.” Some of their ideas:

  1. Pause when insulted, and see if there if the insult is true. If it is, there is little reason to be upset. As Seneca said “Why is it an insult to be told what is self-evident.”
  2. Pause to consider how well-informed the insulter is. He may be saying something bad about us because he sincerely believes what he is saying. Rather than get angry with the person, talk calmly with them to set them straight.
  3. Consider the source of the insult. If it is someone who you respect, then the critical marks shouldn’t upset you – it should make you reevaluate you ideas. If it is someone you don’t respect, then you should feel glad at the insult because “if they think I am wrong, then I must be doing something right.”

In terms of response to insults, rather than insulting back, the Stoics ideas included:

  • Use of humor to deflect an insult, to show that we don’t take the insulter or the insults seriously
  • Don’t respond at all – again to show you we don’t have the time to waste on them

In the end, whenever you “put yourself out there” you are going to get a certain percentage of people who enjoy trying to “get a rise out of you.” Don’t waste your time with them – just keep on your journey to FIRE. After all, living well is the best revenge.

Mr. 39 Months

 

Note: A lot of these ideas I found in the book A Guide to the Good Life (Stoic Joy) by William Irvine.

Excellent post at Our Next Life about fears & excitement as they approach early retirement

Excellent post about the emotions running through a couple as they are just 4 weeks from early retirement.

She runs the spectrum on the uncertainty, sadness, and physical ailments that have popped up as they close in on their final date. An excellent read when people want to understand what it will be like as they approach the frontier.

 

Mr. 39 Months

So what are you thankful for?

It’s that wonderful time of year in the US, when we get in cars, drive for hours, sleep on inflatable beds or fold-out couches, and then stuff ourselves with turkey and stuffing, before falling asleep on the couch while watching football. In truth, it is supposed to be the time of year when you reflect back on a bountiful harvest and all the good things that happened to you and your loved ones throughout the year, and gives thanks for it. Often folks seem to have a difficult time throughout the year counting their benefits, and only at the end of the year do they spend any time reflecting back. This is a mistake.

This year, I have been filling out a 5-minute journal, which is a daily journal with specific things to fill out in the morning and in the evening. The idea being that this will help prepare you for the day (what are you grateful for, what thing would make the day successful, daily affirmation) and clear you mind at the end of the day (what went well, what would have made the day even better). It’s also full of motivational quotes and small tasks to do weekly.

The biggest benefit to it, in my mind, is its requirement to list out three things daily that you are grateful for. It can be silly things (grateful for a warm bed) or profound (grateful for the friends that I have around me), but it makes you remember to be grateful every day.

I’ve also started reading about Stoic philosophy. Yes, go ahead and get it out – I listen to Tim Ferris podcasts and sometimes take his advice on certain things. Sue me. One of the best books I’ve read is A Guide to the Good Life by William Irvine. He describes the ancient history of the Stoics, and then shows how to apply their teachings to modern life.

One of the key parts of Stoic philosophy is to imagine the bad things that can happen to you in life, and then think about how you can react and continue to live, even if these happen. The purpose is not just to steel yourself against the evils of the world, but to appreciate what you have. In discussions on death, they teach to think that this moment might be your last, or this might be the last time you see a friend. This is so you can truly value the time you have, the people you live with, the food you eat.

So don’t just value your friends, family and life once a year. Value them constantly and give thanks now.

 

Mr. 39 Months

Uh – Oh. My Spouse is thinking……

The community typically has a situation where one spouse is “on fire” with getting to financial independence, but the other isn’t as easily convinced that this is the way to go, or how this might benefit/affect them. They will listen patiently to their spouse go on and on about effective tax strategies, paying off debt and high savings methods, but it doesn’t really sink in.

Maybe they pick up on the travel hacking early, because they see the benefit from that – and get a little excited. Still, even if you are sharing the rapidly accumulating savings, your prospective FIRE date, and count it down on a board, they just don’t get excited. They look at you with an amused smirk, pat you on the head and send you away.

Then something happens (bad day at work, a need to travel that they can’t meet do to a work commitment, etc.) and then they start asking questions. Are we really that close to retirement? How do you withdraw the money when we aren’t even 65 years old? How do we handle health care?

It is at this point that you know that it is starting to sink in – they are actually starting to envision a life where they don’t have to work, where they are financially free. It can be liberating, and it can be scary. If someone is just coming to the concept, they will be full of questions, and want justification for the answers (just like all of us FIRE true believers were at the beginning).

Well, the other night Mrs. 39 Months suddenly starting quizzing me on how you do a “ramp down” of your funds after you retire. I wasn’t sure if it was because of a bad day at work or if my comments had gotten through, but she was interested. After about 5 minutes of discussion, she seemed satisfied, though no exactly sure of the method. Still, I take it as a positive sign that she is coming to the realization that we are almost there.

So be patient with your significant other as you travel your road. It may take them a little longer, but they’ll catch up soon enough.

 

What have you and your partner discussed in your run up to financial independence?

Mr. 39 Months

Podcasts

 One of the best innovations in the last decade for those of us who travel a lot (especially by car) or who have long commutes is the podcast. A form of verbal recording, you can download them and listen to them at your leisure. No longer are you forced to listen to whatever is on the radio or to pack quantities of books on CD (or for those of us old enough, books on tape). While there are many who are saying podcasts are “overdone” and are on the way out, for those of us who are late-adapters to technology, this is a great innovation.

 The main benefit of podcasts is that you can choose the topics you want to listen to, so you can load up on cooking, woodworking, knitting – or Financial Independence! My personal preferences are for history, woodworking (odd, I know) and personal finance/FIRE.
 The hardest part is to find ones that you enjoy, and that provide you with the information and entertainment that you want. For that reason, I’ve listed on my blogroll to the right, some of the FIRE podcasts that I like to listen to. I will add to it as I find other ones that I enjoy, and feel that you folks would enjoy as well.
 After that, the only problem is finding the time to listen to them all!
 What podcasts do you like to listen to?
Mr . 39 Months

 

Your Greatest Financial Decision

There is always discussion in the FIRE community about the way to pick stocks, the way to travel hack, or the way to reduce your overall expenses to more easily obtain financial independence. This is the “meat and potatoes” of the FIRE community, and like most of you, I really enjoy people’s thoughts, opinions, struggles and successes here.

I wanted to take the time today, to talk about what I believe is the most important financial decision that you will ever make, especially if you are seeking financial independence. That decision is your choice of spouse/partner.

I can’t tell you how many times I have heard/read interviews of FIRE folks, and they answer back “my spouse is more frugal that I am.” It’s that level of frugality, working together towards a goal that enables most of us to hit out financial independence goals, especially those who hit it in the 30s and 40s. There is a common theme you often here about folks dating/marrying – that you end up with your opposite (you are outgoing and they are more laid back, you like to spend and they are frugal, etc.). If you run into this and don’t discuss it before you get too serious, it could lead to all sorts of problems in the long-term relationship. In terms of FI, it could derail your plans.

There have been stories of prospective spouses who have called off the wedding, due to finding out how much in debt their partner is in. Depending on where you live, you could be responsible for some of the debts, and at a minimum, excessive debt by one of the partners will impact their ability to contribute to the finances of the couple.

Like many of you, I was lucky enough to marry someone who is more frugal that I am. I was always the one who ran the checkbook down to the lowest amount possible – even as I was automatically saving money in my 401K and IRA. My wife likes cash, so she has a significant amount of money in a savings account (not even CDs!). Still, this keeps her stress down, and I just treat that as our emergency fund/cash reserve and put my money entirely into other investment vehicles.

It’s worked for us for 31 years (with some bumps), but we certainly wouldn’t be where we are now (33 months away from FI) if I had married a “spendy” woman. I have friends and coworkers with spouses that like to spend (both male & female) and it certainly causes stress and affects their relationship.

So make sure you talk about finances to your prospective spouse, and ensure you are both on the “same sheet of music” in terms of your financial goals.

One last thing – if you are already married, and you’ve got significant money invested saved, and you overhear your spouse say “It costs $40, but I am not sure I want to pay that much” – give them a big hug and tell them you love them. They are helping you on your way to Financial Independence.

Mr. 39 Months