How are you funding this mini retirement? 

When I said I was taking a mini-retirement in good old Upper Hutt there were a number of questions, such as “How did you get to this point?” and “How are you funding it?”

But the most common was “Does Katie work”? The answer is yes! What I think the question is alluding to is “do we factor in or rely on her wage to survive”?

As well as her unpaid, but super important Mum job, she works 2 hours a week at the gym. Not so much for the money (although that helps), she works because it’s something she is passionate about, interested in and genuinely enjoys. She has also been involved in all the business ventures I have been a part of.

Side Note: She has actually helped me in business way more than she gives herself credit for. I am so thankful to have such a smart, supportive and loving wife!

As Tim Ferries comments in the ‘4-Hour Workweek’, It doesn’t take a million bucks in the bank to live like one (millionare), but you do need to be purposeful about defining what you want to do and how much that is going to cost you. Read the Define section of his book for more info.  

Before I talk about how we got to this point, first let me be clear on one thing. I am not a financial advisor, and these are my opinions. Obviously, this is not the only way to do things, but a way that has worked for us.

My Stance on Debt

In Failure: The Ups and Downs of Business and their Challenges I wrote:

“….I was in about $25,000 debt when I was 19 years old. This culminated in the court taking my car from me to pay for all my driving fines. They turned up to Maccas one lunch rush, asked for the keys, and towed the car away. I was left with a personal loan for the car, lots of driving of fines, and no car to drive. In the end, it was a massive turning point, but at the time it felt like my world was crashing down around me

At the time, almost 100% of my income was dedicated to paying off this debt. After my basic living costs, and then paying off debts, there was about $10 a week leftover. It was like that for about 2 years until I paid off the final debt and vowed never again to borrow money to live outside my means…” 

Since then Katie and have lived out this rule. 

The engagement ring I got Katie, when I was 20, was worth $250. We saved and paid for our wedding and honeymoon with cash. This meant our wedding was super basic, but it also meant we weren’t starting off our marriage in debt and on the back foot already. (I did manage to upgrade Katies rings for our 10 year anniversary, again using savings.) 

Early on we knew we wanted to travel so we opened a savings account and started putting in anything we could spare. At first it was $5-$10 here and there but we took on as many extra shifts as possible and eventually saved $10,000. In 2008 we took off to the USA and managed to travel on one way tickets for a year and a half all up.

By no means are we anti debt, we have borrowed money to buy a rental propertry, the family home and the restaurant.

However we have always  

  • only used debt to buy assets (as opposed to “stuff”) 
  • made it our goal to pay off these debts very promptly with aggressive payments 

Living Within Your Means

You could easily be earning a six figure salary, but if you’re spending every cent of your earnings, and then some, you will always be back at square one, or worse slowly digging yourself a hole. 

In Books to Follow up “Rich Dad Poor Dad” I talk about the book ‘The Richest Man in Babylon by George S. Clason

“… This book is very easy reading and aims to pass on timeless principles in a story-based format. While the language is very “old school,” the lessons it teaches are a good starting point and able to be put into action immediately.

The key principle that I took away was this: “A portion of all I earn is mine to keep.”

I pictured a portion of our weekly income going to Pak N Save, Caltex, Insurance, Westpac, and all the other things we spend our hard-earned dollars on. I pictured giving all these corporations all our money and having nothing left for ourselves. I started to think about what I could do to have something left over for us to save and invest.

If I was going to sum this book up in 1 sentence, I would say this – It’s not how much you earn; it’s how much you keep that matters…”

It’s pretty simple maths, you need to spend less than you earn. For every $100 you earn, you need to spend less than $100, there needs to be money left over. It starts with making sure there is at least $1 in $100 leftover. Almost everyone can do that.

The sooner you can get into this habit the better. Then aim for $5 in $100, continue do this and before you know it your in the habit of saving 20+ % of your income

This is the same for managing a business, as well as your personal finance. When we took over the restaurant, it was making over 600k in sales, but it was spending 101%, so no matter how much it earned, there was always nothing left! 

Change the Word Budget to Plan 

For many poeple that moment you hear the word budget you automatically assume that this is some special skill that a select few financial wizards are blessed with, while the rest of us normal people suffer.

Many people have told themselves something along the lines of “I’m not good with numbers” effectively setting themselves up to fail before they have even tried.

Again if you can do basic maths, we’re talking addition and subtraction up to 100, you can do a budget.

Instead of thinking budget, change the word to PLAN. A budget is simply a plan of how much you think you will earn, and how you intend to spend it.

There are 4 parts to a good plan

  1. Evaluate where you are and where you want to be
  2. Identify what you think you need to do to get there
  3. Take action, do it, tweaking it as you go along
  4. Reflect on your progress and repeat 1 – 3 

Take a couple of minutes to work out your money plan:
– How much is coming in?
– How much is going out?
– How much is leftover (or how much are you over spending by?)
– What can you change to increase the leftover amount (ie can you decrease spending or increase earnings, or both ideally!)

As with all successful plans you need to have room for the unknown, the surprises. If your money plan is so rigid there is no room to move you will struggle at the first curveball and not be successful.

There are plenty more in depth blogs and articles on budgeting, such is this one Here on the happy saver

Start with Small Goals: A 3-month Cash Reserve

Our first goal was to create an emergency fund, separate from the businesses, separate from our everyday banking and mortgage. Even though we had a business, paid off with no debt, we were still relying on weekly sales. I had a small reserve in the business, but a couple of bad weeks and that would have be eaten up fast.

This meant I was always on edge about money, making decisions out of fear of losing sales (and therefore income) instead of making decisions from a foundation of security.  

We decided a 3-month cash reserve would tide us over if something unforeseen happened and make us feel more secure about our finances.

How did we start this?

Literally with $10 a week, just like when we saved for our first OE. The first $100, $500, and $1000 milestones seem to take ages then gradually it just seemed to click from there.

Our Next Goal Was to Pay off the Mortgage 

We purchased our first family home in 2014. We had a mortgage in the vicinity of 250k. We set the goal to clear the mortgage and in just over 4 years we paid it off.   

There wasn’t one single big decision but a series of little decisions over and over. It started with ramping up the payments each time we started to earn more. This was a kind of “set and forget” approach. It meant the payments just happened in the background, we adjusted our weekly spending and didn’t miss the money.

We also had a rule for any lump sums over $1000 that came in. We would put
80% onto the mortgage
10% into investments (index fund) and,
10% for something fun

Having this rule automated our decision making and when money came in we quickly made two transfers (mortgage / index fund) and then took out the rest in cash to reward ourselves.

For us personally this worked better than putting 100% of extra cash onto the mortgage and doing the fun / investing later. It meant we still rewarded ourselves with a little bit (really important) and I kickstarted our knowledge of investments and index funds.

A Years Salary in the Bank

Once we paid off the mortgage I set the goal to put 1 years worth of living expenses into the bank. 

Obviously this was way easier without the old mortgage hanging over us, but still harder thank you think. It was amazing how quickly we let extra spending creep in. Lets get a new tv, and it needs an apple TV unit, we need a few nice trips – we desrve it.

It was definetly cool, but before you know we had adjusted our expectations to this new level of post mortgage spending. Luckily we realised this within in a couple of months and made the decision that if we weren’t proactive with the spending and investing we would easily fritter away all the extra cash.

In Summary 

It’s probably not the magic bullet that you were hoping for but that’s my 6 point summary, how to go from negative 25k (when I was 19) to have enough security to survive the next year at least. It only took 15 years haha!

#1 Only use debt to buy assets (true assets that appreciate, or produce cashflow, not cars etc)

#2 Live within your means 

#3 Create and follow a plan for your money

#4 Start with small goals like a 3 month reserve

#5 Then tackle big goals like paying off the mortgage 

#6 Aim for a years basic living costs in the bank

Its easy to wait until “someday”, there is a wise scripture that has guided me well over the years

Being Faithful in the Little Things. “Whoever is faithful in small matters will be faithful in large ones; whoever is dishonest in small matters will be dishonest in large ones” Luke 16:10

My take on this is that rather than waiting for “one-day” when we make lots of money, we need to start saving and investing (to be “faithful”) with the small amounts.

We have treated our small amounts of money, our small businesses ventures, as if they are big amounts. It’s amazing how 1000 little decision add up to become a lot!