It is a big task, and no one else can do it for me. As I’ve mentioned before, now that I have a modified mortgage and a clearer quantification of my finances, I intend to step through the Nine Step Program that helped me retire the first time, back in 1998. It took time then. It will take time now. It was worth it then. It should be worth it now. But, oh, I avoid diving back into the task. Memories remind me that the costs preceded the benefits. Nothing new about that.
Most people spend more time deciding where to go on their honeymoon than they do on how to support themselves financially. Imagine how lives would change if the same effort put into planning weddings went into planning retirements. Both involve major commitments and responsibilities, yet the wedding is ephemeral (though hopefully the marriage isn’t.) Financial planning is unfashionable, seen as a chore, and avoided by most; yet its consequences last a lifetime, marriage or no.
There’s a good chance my first retirement would’ve happened without referring to a program. I’ve always lived frugally. When I made more than I spent, the excess went into diversified stock portfolios. As my net worth increased, my cost of living barely budged – though the ski trips got longer and nicer. The program, however, provided a structure and an authority that provided me with confidence that I was doing the right things and confirmed the timeline. Want details? (Go check out my book, )
Most of you readers have noticed that I am no longer retired and am not financially independent. Plans, even financial plans based on mathematics, are also based on assumptions. Bad things happen to people and to assumptions. (Triple Whammies happen.)
Before I launch back into the Program developed by Joe Dominguez, I’ve decided to check my memory of the process by recounting a synopsis I can check against later. The first time through I followed Your Money or Your Life, which has Joe’s Program at its core, wrapped around by Vicki Robin’s impressive narrative. This time I’ll be working from the Guide that is the official repository of the Program, currently stewarded by the New Road Map Foundation, which Vicki also helped initiate.
Skip the Nine Steps. I haven’t memorized them. What I do recall is:
- Add up every bit of income I ever earned.
- Inventory everything I own. Touch each item. Itemize it. Record it. Give it a value of what it cost new, what it could sell for at a garage sale, and what it would take to replace it.
- Calculate my net worth.
- Compare the income and net worth to see what’s come into my life versus what is left.
- Calculate my true hourly rate; not what I am paid, but what I am paid minus necessary expenses and divided by the total time it takes to earn my income. Work at improving that number because time is precious and the time spent earning money should be minimized so that money doesn’t interfere with life.
- Start tracking my expenses, all of them; ideally, down to the penny; realistically to a loser standard as the engineer in me accepts another definition of “enough.”
- Begin monthly assessments of my expenses measured against my implicit values. Did I receive value for the money and equivalent life hours expended? Emphasize the positive. Decrease the negative.
- Start tracking my assets, liabilities, and net worth, aiming for the “crossover point” where reliable passive income exceeds expected expenses. (Here’s where I deviated from the Program, but that rationalization / explanation has taken and will take thousands of words. I even wrote a book about it. Nudge.)
Hey, that’s almost like nine steps. Maybe I remember more than I give myself credit for.
The main thing I remember, and the main reason I haven’t begun, is that the first steps are the hardest. Emotionally, it can be tough looking back on a life that has generated hundreds of thousands or more than a million dollars, and then comparing it to a net worth that is less than the price of a new car. The other major task is the inventory. I’m a minimalist, and even I will have to spend days to actually touch and catalog everything I own. One consequence is that a lot of decluttering happens naturally; especially, when boxes closed for years are finally opened again.
The majority of the steps are not as intimidating. One consequence of stepping through the Program is a dramatic diminishment of the emotional judgments that go with money. The net worth of my soul has little to do with the net worth of my wallet. Tracking income, expenses, assets, and liabilities comes naturally for me. Tracking my finances is the same as tracking a company’s finances; which also means the investing part comes more naturally for me than for others.
Having been through the Program once, and having invaluable life experiences since then, I am sure this next iteration will be different. The prime rate in 1998 was 7.75%. Now, it is 3.25% (though the Fed Funds rate is less than 1% as are many savings accounts.) The Internet Bubble had yet to arrive and pop. 9/11 was three years away. And adding the entire list of significant history would take too long and make me feel too old. And yes, I am about two decades older.
Financial planning is important as long as we live in a society that operates based on finances. We all feel it, yet few deal with it. You are welcome to follow along as I step through my plan again, this time less innocent, but also with fewer resources. My personal strategy and the Program’s strategy haven’t changed. Let’s see how much the world has changed.