Plan B

Today I would like to talk about Plan B. I am quite risk averse person and I like to be prepared. For that reason I always consider options. Financial independence, early retirement or semi-retirement, quitting the reliable salary income are important decisions. Something can and usually goes wrong. That’s why I will list here few plans B that we have considered.

So what to do when suddenly our current investment income stopped covering family expenditures and we start living off capital? Do not panic. This fear should not be reason not to have a go at financial independence.

Income

Go back to full time work!
Yes, this obvious solution of urgent financial problem should be always considered by early retiree. Just not as the first option. You might get a pay cut and need to update the skills but if you have worked for decades before, it should not be problem to put few extra hard yards to top up the retirement nest. Also you can get a part time or casual job.

Be well income diversified. We are relying on many sources of income. Salary, dividends, capital gains, rental income, interest, superannuation (savings invested mostly shares and bonds, locked away until you are 60) and as the last option government pension which would kicked in at 67, if everything else failed. Pension is asset tested, quite low and generally you would not feel too wealthy if that would be your only income stream at the old age.

One more temporary, limited and emergency source of cash before something better comes up can be our line of credit which was used to purchase last property and which still has couple of hundred thousands undrawn. Interest is only slightly higher than normal mortgage, but obviously you wouldn’t use it for family expenses except for emergency.

Expenses

Cut accommodation expenses as these are usually largest portion of family outgoing. For example we are now living on acreage in beautiful area of Sunshine Coast in south east Queensland. If we need to make major saving of living expenditures, we can move somewhere close to coast and within 1-2 hours from Adelaide, Perth or Launceston. This move would save about 20-30% of housing cost. We still would be close to major city and the beach but we would make small compromise on weather, as all these locations are slightly cooler.

Is the move better than having to find a job? In my view 100%. You live only once and if the time at your employment is not enjoyable it is better to move location. Especially here in Australia, we are blessed with so many beautiful places to live. We have traveled extensively and to permanently settle I have not seen any other place in the world which ticks for us so many boxes like here down under.

Geographic Arbitrage

You can move the country too. We for now would not consider it as we believe there are many places in Australia which can provide for us great FIRE lifestyle, but in the past I have reviewed quite a few countries for geographic arbitrage. Main criteria are safety, low living costs and friendly to foreigners. According to these we rate highly Bali, Malaysia, Thailand, Portugal and Spain. As so far we have missed Latin America on our travels, we have not much experience with it, but countries like Costarica, some safer islands in Caribbean, Peru, Ecuador and Chile would be high on our list to explore, as these are used often by US FIRE bloggers.

Also as I am from Czech Republic, I can vouch for the great lifestyle you can live there with the living costs generally cheaper than all of the western Europe places, with great choice of well priced homes in historic towns, small villages in the middle of fields or in the mountains. My birth country is also very safe and with great schools and health care. Mostly same is true for other eastern European countries as Poland, Hungary, baltic sea countries and to certain degree Bulgaria.

I can easily imagine myself to cut radically our living expenses by moving back to my home country. Yes it would be a step down in 3 main areas. No ocean, weather is a lot colder with winters up to minus 20 degrees and it would be difficult if I needed to earn similar income as in Australia as average wages there are about 1/3 of the Australian wages.

But I could probably get a nice house in small village in the woods close to some lake still within 30 minutes to the provincial town for about $300k. The countryside there is spectacular. Shopping is more or less same with small savings on groceries (about 20% cheaper) and trades (probably 1/2). Medical care is equal. Travel in Europe is superior to Australia as you can drive through few countries in a day.

Get a tenant

There are many sites like AirBnB which will help you to cash in on your free couch, room, free space in your garden for tent or caravan, or you can even build small granny flat to have permanent income supporting your FIRE lifestyle and keeping you out of office.

Downsize your car

We have currently not very FIRE standard car arrangement. Though we have never bought new car so we did not waste money on depreciation, we have 2 cars and one of them is large 7 seater with powerful V6 and solid drinking habit. On the other hand we bought it as second hand vehicle, reliable Japanese brand with low km, lots of space for our family, safe and car is driving very well. So if we need to save on our transport, we could always replace it with smaller car or keep only one vehicle.

Shopping

With the clothes shopping I would first recommend to go through the wardrobe and start using clothes you have not been using. I realised that I was using only about 10% of clothes I had and for various reasons rest was sitting idle. So we went through our clothes (couple of time actually as we moved last year twice,) and donated what we would not wear and started wearing the rest. Except some minor t-shirt purchases I have not done clothes shopping at least 3 years.

Key to saving on shopping is to be able to distinguish when you are paying for purpose and when you pay for good marketing. Can the handbag be used enough to justify $3000 price tag? Thousand dollar shoes anyone? I can understand there is a market among the wealthy ones at these price levels, but folks on average wages?

In Australia it seems you can get a reasonable quality in Big W or K Mart. Why should I pay for t-shirt $60 when good quality one can be had on some sale for 5$?
Grocery shopping is very simple. Mostly you can get stuff bit cheaper in Aldi, but generally there is not much other choice than our duopoly Coles and Woolies.

Furniture can be often purchased at great price second hand. Also sometimes the quality will be much better because that hardwood table new could be $2000 but slightly used for $200 it becomes great value and useful addition to your household.
Appliances and computers we usually buy brand new as Murphy’s law says “If something can go wrong, it will” and it is good to have a warranty. You still can pick it up on some great promotion.

Marketing

Marketing is quite incredible. Why people part easily with their money often earned in blood and sweat, requiring time away from their kids and friends? Reason is that all marketing companies value highly knowledge of human psychology. If we are rational we buy clothes we like. If we like nice suit, you can have nice wool one for under $400. But if you want to see Boss written on it, then you would need multiples of it. Handbags are worse. But even baby clothes.

I can get good quality cotton tops for few bucks from KMart, but kids brand shops would cost multiple time more. And what is the functional difference? Mostly zero or very minimal. Meaning all is in our head making ourselves happy to part with cash if you can own your favourite brand product. I am not saying I am over it. I have feelings to spend big on certain brands and I need to reason with myself it doesn’t make financial and practical sense. Luckily generally I do not like shopping too much, which makes it easy. But as most of males I do like cars, so generally I try to buy cheapest one meeting my needs but considering general reliability, which is usually determined by kilometers, brand and age.

Apologies if most of the tips are quite simple and obvious, but as in life most of the things are like that. There are times, when we just don’t realise it.