Guest Post: ERE-Lite or, How I can easily live on £5000 per annum — Part I
About the Author:
I encountered Macs first in Early Retirement Extreme (ERE) way back in 2008. He would leave an occasional comment, the keyword being “occasional”! His comments(*) were quite thoughtful, intriguing and added a complementary angle to Jacob’s post, so I filed him away in my memory as an intelligent and an interesting person. I really started having interactions with him over at Simple Living in Suffolk (SLS), where we found more opportunities for shared discussions. Macs’ ideas generally represent a non-mainstream approach to irritating real life issues, which is his unique selling proposition (USP).
(*) And if I might add, like the majority of comments at ERE
About the Post:
The old Chinese curse about living in interesting times has come true, or so it seems. Whichever direction you turn, there’s talk of austerity and unemployment, volatility and inflation, companies reporting profits and layoffs(!), and of course the no-longer-ignorable-and-widespread protests, etc. All talk for the common man is centered about the difficulty in making a living in these tough times. Over a few interspersed discussions at SLS, Macs outlined some of his own approaches towards shoring up his “quality of life” to be as free as possible from all these extraneous factors. So much so that: By Toutatis, the only thing he worries about was, if the sky would fall over his head!
I asked him if he could consolidate all his ideas into a single post to provide strategies and validation to others that might be looking for inspiration. Macs kindly consented, and he sent me a classic one.
At times, the unfamiliar words that were leaping from the page kept reminding me of a Nero Wolfe mystery novel (Part I), whereas all the people names and the description of fun activities were reading like Enid Blyton (Part II)! I had good fun reading and digesting it. I hope you will too. Thanks Macs!
Serendipitously, the theme of the post is similar to Jacob’s recent “How I live on $7000 per year“.
Early semi-retirement lite — Social capital and the garden economy
They always say you should begin at the beginning, but that presupposses that there is a beginning, that it is singular, and that events follow on in a linear progression thereafter. To meet such requirements, I’d have to start with “FIAT LUX” although – denominational & teleological controversies aside – that would surely be absurd.
Instead I shall begin with what has become my ‘word of the week’, which is oikos (οἶκος) — the Greek root common to both ‘ecology’ and ‘economy’. Oikos denotes a dwelling, a household, and encompasses both one’s place in the world and one’s manner of inhabiting it. One’s environment and one’s self, if you will.
This is simultaneously a duality and a unity, like the Taijitu (yin-yang symbol), a glyph of enantiodromia, the principle of one condition at its height containing the very seed of its opposite. A tendency of the Universe to abhor extremes and redress balances. These tendencies are evident in both ecology and economy. In ecology there is the ‘logistic equation’ which describes predator-prey population fluctuations based around the over-predation / population collapse / explosive recovery / over-predation cycle. Each species in its extremity is its own downfall – there is no total domination without overshoot. Yet in the longer term the ecosystem — the ‘big picture’ — persists stably, over-arching the cycles. In economics we talk of ‘business cycles’ and ‘supply and demand’ where prices and goods sit on the see-saw.
In the cusp of tension between these warring children of oikos — ecology and economy — we human animals must make our homes and derive our livelihoods. But what has any of this to do with early (semi-) retirement, you may well ask? In my case it all speaks to the ideas of home and how to inhabit it.
An alternative start point could have been the day I handed my boss a little envelope which contained my letter of resignation. Or the day I first read Jacob’s ERE blog. Or the day I first took peak oil seriously. Or … you get the point — beginnings never are, are they? There’s always something earlier. Consider a river – say the Amazon. Where is the source of the Amazon? I know some intrepid explorers have risked life and limb in tracking it down along many tributaries, yet the very concept is a fallacy. The source of the Amazon is its entire watershed, nothing less than maybe a third of the continent of South America. Likewise, my journey towards semi-retirement draws its sources from many and varied roots.
Needless to say, I wasn’t enjoying my previous job managing online sales for a small bathroom supply company. All I could say in its favour was that it paid the mortgage and the bills, and that it kept me connected to the internet all day, and like all cubicle-jockeys I found there many things more interesting that my allotted tasks! It reminded me of peak oil (an issue I’d buried from my consciousness a few years earlier), and that as things stood I would be very vulnerable to the changes I expected over the next few years. For a start, my job was vulnerable, and it was also soaking up so much of my time and effort that I had none left over to prepare my home life. Then I discovered ERE and a few other ‘working a job sucks’—themed sites, and an escape plan started to form.
From LATOC, I took on board ideas about ‘prepping’ for an imminent collapse of Western industrial civilisation (which I now regard as slightly less imminent, but no less inevitable (Ed’s note: See this article by Jacob for a detailed, yet similar prognosis), but it was mostly short-term ‘lifeboat’ style preparation — stock up on basic foodstuffs, save rather than squander spare cash, and of course, buy a bit of gold… So I got to the point where — if the lights went out tomorrow — I wouldn’t starve for six months or so, and I had something of value I could slip in a pocket and run away with should the Four Horsemen come knocking. But I was still tied to my job and Jacob’s ideas about financial independence really started to kick in. I’d got the quick panic out of the way, but of course that always leads to ‘what next?’ (Ed’s Note: See ERE’s 21-day makeover)
What I liked about Jacob’s ERE was that it wasn’t just another ‘get-rich-quick’ site, or dependent on earning a wage three times what I was earning, but rather a series of alternative viewpoints, different ways of looking at finances, and ultimately the power of reducing needs — or more specifically of reducing the need for cash to fulfill them.
I was in a bind. What I really needed was TIME. Doing a full-time job denied me time, and it ate into my psychological well-being too — stress, exhaustion, existential angst, you name it. I had one ace in the hole — a life assurance policy due to mature at the end of 2010. Back in 2007/8 I was really having doubts about whether the finance industry was going to survive long enough for me to cash out. It was too soon to count that particular chicken, so I carried on working, reducing my living costs and buying more gold with what I saved. By early 2010 further misuse of my employer’s bandwidth had brought me into contact with Monevator and Ermine’s ‘Simple Living in Suffolk‘ and a few others, and this had convinced me that extra income streams, even small ones, were worth cultivating, so I started diversifying. I bought a bulk load of remaindered books and set up an Amazon account; I started doing paid online surveys; I started a high-yield stock portfolio in an ISA. The Amazon business and the surveys meant I was obliged to register as self-employed, which was a great step to take as it freed up my horizons for later.
By the time 2010 ended the finance industry and myself were both still alive, and a nice cheque arrived in the post. The next day the mortgage was paid off, and I still had about 1 year’s worth of my reduced living costs. This is where the envelope for my boss made its appearance, and I left to
‘spend more time with my own business’. That shocked him even more than the fact I was resigning!
On the 1st January 2011 my new life started. I’m now solely self-employed, with a growing portfolio of small income streams, and a much-reduced need for cash. In round figures I can easily live on £5000 per annum, which is actually below the personal income tax allowance. It would be a lot less if I gave up alcohol and tobacco, but that’s a fight for another day (Ed’s Note: Reminded me of a thread on the ERE Forums).
About 20% of that is covered by surveys, dividends and interest payments (bank accounts and peer-to-peer lending) (Ed’s Note: I participate in P2P lending myself, and if done correctly with the right people, is a good income source), on which I probably spend 2 or 3 hours a week. The Amazon returns are trickier to calculate due to the amount of stock I have to shift, but that makes another useful contribution. Being self-employed means I can take up casual jobs here and there, and so I’ve been doing quite a lot of gardening work, with about 10-15 hours a week at minimum wage being enough to fill the gap between needs and other income.
I’m now time-rich and cash-poor (Ed’s Note: Kiyosaki readers will understand what that means, but for the rest, this article by Jacob gives a more detailed explanation and provide a context for the explanations that follows below), which gives me the opportunity and impetus to realign my ideas of what really constitutes ‘wealth’ and ‘capital’, and brings us to the nominal theme of the piece, which is ‘Social Capital and the Garden Economy’ and how I have transformed how I inhabit my ‘oikos’.
What are ‘wealth’ and ‘capital’?
Our immersion in the money economy blinds us to the true nature of wealth and capital. The instant response for most people is to equate both with money itself, and the reasons this is not so are many and well-rehearsed. My viewpoint is that wealth is the means to satisfy human needs, it is rooted in the real economy of goods and services. When you buy a loaf of bread, the wealth is the bread, not the coins exchanged to obtain it (it is also the labour expended to earn the coins you spent). If there were no bread, the coins offer no nourishment. I’m not going off on a ‘we don’t need money’ tangent, I just want to emphasise that the money is a medium of exchange, a marker of wealth. But true wealth resides in the actual goods and services required to meet human needs.
Capital is slightly trickier, for reasons I’ll touch on later, but a working definition would include both an accumulation of wealth, and a resource with a capacity to generate wealth. In money terms it is simple to connect these two ideas as though there were no difference — pile up your money where it earns interest and more money will appear. This obviously doesn’t work with bread — pile up your bread and leave it for a year, and you will have a big stinking pile of mould, not more bread. The wealth represented by bread is derived from it meeting human needs, ie being eaten. If more bread exists than people can eat it ceases to be wealth, but becomes a health-hazard — a cost. What then happens when we have more money than required to buy all the goods and services available in the real economy? When there is more than enough money to meet all valid human needs? Are all human needs then met? I think a quick look around the world will answer that one…
So, I like to distinguish three broad classes of capital. Obviously there is financial, or monetary, capital. This is an accumulated excess of exchange tokens. Then there is non-financial capital — which you may regard as roughly being ‘physical’ capital. It is the means to generate real wealth, be it a pear-tree, or a widget-making machine. It might be a raw resource or something built from previous investment of other wealth. Finally, there is social capital which is non-material and non-quantifiable. It resides in relationships between people and grows with co-operation rather than competition, when it is distributed rather than accumulated. It tends to be local and resilient, and the best currency for building it is simple gifting. It builds and holds together communities.
Ed’s Note: Macs’ application of these ideas will be continued: in Part II
Ed’s Note: Macs has made it a self-contained post, and I have supplemented suggested readings to whatever topic needed more explanation. However, Macs would be happy to field questions ranging from something as pointed as “‘How can you possibly live on less than £5000 a year?” all the way to very strategic questions one might have about his approach. Fee(l) free to ask. ;-). If the answers have to be long and involved, Macs might even tease out a few more detailed posts. So, put your thinking caps on, and throw those questions (but not the kitchen sink!) at him. 8)
Ed’s Note (2): From Barry Ritholtz‘s Blog: Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data, ability to repeat discredited memes, and lack of respect for scientific knowledge. Also, be sure to create straw men and argue against things I have neither said nor even implied. Any irrelevancies you can mention will also be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.
In other words, we have a very liberal approach towards dissenting opinion, but we will choose to block downright inflammatory remarks aimed at the author or his lifestyle. Thank you.