Mar 072014

Well, that’s a little bit of a silly question in some regards. Firstly, let’s be 100% clear. The future is unpredictable and ultimately out of our control. We can plan all we like but life’s curveballs are those we never saw coming.

That said, the future is entirely predictable. If we don’t stash away a nest-egg, forego a good solid work ethic and refuse to foster a network of donors then I’m pretty much guaranteed a future of poverty and hardship.

In a previous rant at the career-driven sheep I wrote the following:

The Goal!

While there is still life in the present:

Maximise my income,

Minimise my stress,

Live a little more,

With the ultimate goal of:

Cashing in my chips age 55 [2024 AD], living by the beach, cruising my sailboat in the bay and working a flexible 20-30hr week.

I’ve also gotten the early semi-retirement bit between the teeth and have been reading everything I can get my hands on regarding the topic. The latest reading on Can I Retire Yet? suggests the importance of knowing what your semi-retirement future looks like. I fully buy that and so here’s a stab:

  • Live on a hillside in a smaller, quieter town within walking distance of the yacht.
  • Walk, bike, run daily
  • Cruise my sailboat
  • Have time. Time to read, time to ride, time to sail. Time to travel. Time to just relax and be.
  • Work a flexible week on my own terms to supplement our income

The big thing though is the uncertainty [or is that fear] of not enough cash somewhere down the line. In my line of work a 20-hr work-week will never fly. It’s possible to contract per project and have a bruising 8-month stint and then take time off before starting again, but that seems quite extreme.

In order to deal with this I think there are three aspects of life and earning that need attention: pay down debt as fast as possible, invest and save as fast as possible and fully understand what it costs you to live today.

In the last couple of years we have had several endowment policies mature and, considering the stock performance subsequent to the 2007/8 fiasco, we’ve opted to cash them out and put them into the bond. This, together with dedicated repayments in excess of the minim got us down to under R200k at which point we bought Glencairn. Now we’re up at R1.2bar again, While Highland and Glencairn probably represent a conservatively estimated R3.5M, this level of mortgage debt just seems insane to us and so with the last two policies now maturing we are again faced with the question – pay down mortgage or invest?

On paper, based purely on financial analysis, this should be an easy decision. Current returns on an average UT fund like OM Investor’s has been between 19- 20% for the past 3-5 years, so even at a conservative 15% return, investing should still handsomely trump debt repayment which has a repayment interest rate of 7% at the moment. But, being human, this is not all there is to it. There’s a very good article on the subject by Todd Tresidder here that takes you through the pros and cons of this decision.

At the end of the day, for us, most focus will still be to reduce the debt and revel in the freedom that being debt-free brings. With a roof over our heads, fully paid for, and one of the properties sold to bump up the savings fund, there’s freedom to work a 20hr week at a lower salary. Sure, we may have to ultimately work for  a lot longer into life, but the point has never been to sit back on our patch and die of boredom.

So for now I think we’ll chuck the proceeds into the bond. That will bring us under the 1bar mark and well on our way to getting this down to a more manageable [for us] number – say around R500k. While doing this we will still divert some cash into investing, mostly in our corporate pension and private RA’s to benefit from the tax advantages here [I think we’re still well below the annual limits?]. Once we hit the magic R500k mark we’ll start to really pump the savings, probably into UT’s or the like. That will hopefully bring us to a point in around 10-years time where we are comfortable enough to cash in the freedom chips and move life and the yacht to Glencairn permanently.

Trick to remember though – life is pretty much unpredicatable. There are still tertiary education fees, at least another set of wheels for Caz, skin cancer scares and some other majors expenses in the near future. For now we’re earning OK but nothing in the corporate job market is secure or guaranteed, so top focus – keep living frugally, streamline expenditure where ever possible, do away with all monthly contracts and keep focussed on the goal – off the treadmill by 2024 at the latest.

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