Decluttering can save you time and money

I have always been a collector. I remember in elementary school I collected stickers, In junior high, I had my cassette tape collection (yeah I'm showing my age. CDs were expensive when I was in high school! and my first CD Player was stolen at school though I never reported it).  Anyway, although not an extreme pack rat, I know that I've always had the tendency to collect and keep stuff.

I'd always justify keeping something when I'd do my spring cleaning. I'd say, "but I 'm sure I'll use it later." and surprise the next year I'd say the same think even though I never used it all that year.  

I'm trying to improve, but it is hard to go against nature. I really believe that the collecting tendency or desire is genetic like so many other behaviors.  I remember my Mom still had her old record collection in her bedroom.  I can't remember her ever playing them when growing up.

Unfortunately if you have a lot of stuff, you need a house or room big enough to store it all. You also need the storage supplies (shelving, book cases, boxes, etc.) to put everything in. Additionally you need some kind of organizational system and labeling so when you actually need something you know where to find it or your spend hours or even days looking for it. How many middle class family garages are full of storage while the cars are parked on the street? That's serious clutter!

Another thing I've learned about myself over the years is that I'm very much out-of-sight, out-of-mind.  What I mean is that if something is stored in a box or some other container I can't look into without opening, I forget I have it. Perhaps I would have used it sometime during the year, but I didn't because at the time I had forgotten I had it. 

Since I share an apartment, I try to keep most of my stuff in my bedroom. That means that I have my large plastic containers stacked and on top of other things. One container is on top of my file cabinet. Another box is on top of my armoire/wardrobe, and I have two stacks (3 and 2) along the back wall of my room. 

I have my desk, a tall book case, and another piece of furniture (about the size of a dresser but with shelves instead of drawers) for storing stuff.  Most, but not all of my clothes fit in my wardrobe when folded correctly.  My wardrobe isn't very big. I have quite a few small boxes with CDs (games and backups)

When I moved in December 2011, I stared my efforts to remove the clutter. I realized that in just the last few years my collection of stuff had expanded out of control.  I got rid of half my clothes (mostly worn out stuff) and at least half of my books. 

I was quite proud of myself to have gotten rid of all that, but I still needed to rent a moving truck mostly for boxes of stuff. I really don't have that much furniture.

Now, only a few months later, I got the bug to remove more clutter. I guess you'd say that my clutter is pretty normal, but I'm in a small space so my room always looks like a mess.  

This weekend I went through my file cabinet and got rid of some papers and at least one small box worth (probably 2) of stuff. There was an old wireless router, a bunch of cables, wires and adapters for only God knows what, and misc. stuff that I'll never use again like two checkbook holders. I haven't had checks for at least 5 years, but I brought the holders with me on the last two moves. No, they don't take up much room, but you could say that about a lot of stuff. Believe me, I've used that same excuse many times.

I then went on to boxes of stuff. In my CD boxes I found many old software application install CDs for some very old versions. I'll never use those again. The shoe box I keep them in was almost full. Now it is half empty!

One of my large plastic containers had my extra hanging folders for my file cabinet.  With the extra room I got by throwing out the junk from the file cabinet, I found the space to keep the extra folder boxes in one of the drawers. Now that large plastic container is empty.

I found quite a few books that were out-of-date or warn out. They'll go in the trash if I can't find a way to recycle them.  I decided to keep almost half of my books and now they are all on ONE shelf of my book case.  Just last year they would have taken almost the entire bookcase. 

I later went through my other boxes and shelves. I didn't do a 100% job, perhaps next weekend I'll finish, but I was able to put some tote bags of stuff that were on the floor on a shelf that was completely packed and disorganized. 

I've rediscovered a few binders and notebooks that were almost unused or had stuff I don't want anymore so I got rid of what they contained. I just need to decide if I want to keep or give away the binders. Just a year or two ago I went to the store to buy a binder because I thought I didn't have any! 

How does this incredibly long post relate to early retirement and financial independence?  Well, if I had remembered that I had binders with junk in a box I could have saved the time and money I had spent on a new one. 

Additionally, things that are improperly stored are more likely to wear out or break. Of course if things are packed away you lose time trying to find them if you even remember you had them at all. Time is money. If you are efficient, you get more done!

Most importantly, the less stuff you have, the less space you require to live. That means you could live in a smaller house or smaller apartment or share an apartment before all your clutter took up the extra room.  If you want to go really extreme, share your bedroom with a friend that you can trust.  The cost of bunk beds or a loft for one or both beds will probably be less than what you save in two months. Rent is the largest fixed monthly expense for most people. Save a lot of money by downsizing to a smaller home and put that money toward saving and debt reduction.

Even if you prefer living alone in a one bedroom apartment, you'll save more on moving costs (smaller truck), and you'll save time packing and unpacking.  

Sometimes you need to increase income to reach very early retirement

Being frugal is sometimes not enough for extremely early retirement (or financial independence) 

Extremely early retirement is possible through frugal living, but it is also important to have a decent come to let you save up fast. If you only make what counts for minimum wage in your country, even a high percentage isn't much money and who wants to live on a completely bare-bones depression budget?  We should live off of the basics, but not suffer to get by.

To me frugal is to only spend on what you need to be healthy, happy, and comfortable over the long term. I don't need to have a night at the cinema to be happy. At least I don't need that more than once a month (or perhaps once every two months.

I do however need to eat a variety of vegetables on a regular basis. If I don't eat my veggies, I feel bad and lethargic. I know that if I only ate the cheapest vegetables I'd spent a little less on food, but it would cause a large decrease in happiness compared to the savings of perhaps 30-40 pesos per week.

Being frugal is also not buying on impulse or getting something just because it is cool, trendy, or what all your friends have. It is living without spending a lot of money on entertainment.

Having said that, we all have to eat, pay for a place to live, and clothes to wear. Unless you have a several thousand dollar a month income or live for free with your parents, it will be difficult for you to save the 80% of income needed to retire in about 6 years.  saving 80% spending 20% withdrawing 4% annually 6.25 =25/(0.8/0.2).


The less you save the longer it will take you to reach your very early retirement savings goal. I was a little disappointed to see that at my current 50% savings  (about 40% more than your typical earthling), It will take me about 25 years according to the formula. 25 =25/(0.5/0.5) If I were in my early 20s that would be fine, but I'm almost 36 years old and I want to retire in my mid 40s so I need to make a plan to increase that percent!


If I go from 50% to 60% (which would either mean packing my sandwich or rice with vegetables or eating at home everyday and perhaps washing my clothes by hand), It will take me about 17 years. That's still too long for me.


The only solution is to live frugally and increase income. The more I make while maintaining my expenses at the current (frugal, but no suffering) level, the more I will save (the higher the percent for savings).


At 70% savings, I can retire at almost 11 years. That's not bad. It is one year more than I'd like, but I am actually planning on working on my artwork so I could sell a few paintings and digital artwork and sell some graphic design. I very much doubt that Print-on-Demand websites will go away so I won't have to live 100% off my savings. I might go into semi-retirement after 8 years if I can build a small or tiny house in the country and have a garden, internet, and a solar water heater. It is hard to say since I only recently thought of the idea. It would be fun to have a couple years dedicated to creating art and design to survive on and live simply. Sometimes being a teacher with a full schedule can be stressful.


Now that I know I need to increase my income and live simply to reach my retirement goal, the next step is to find ways to increase that income. Do I want to find another job? Perhaps I could blog for someone else or write a book? I could put extra time into creating great graphic design. I could try to find more translation work. It is stressful, but a long translation could mean a lot of income if I could find someone who needs that help. I could also raise prices for English classes, but that also will increase the possibility that people will cancel when they have unplanned expenses.

I want to retire in 10 years when I'm almost 46

Last Thursday, I was talking to a student who owns a small accounting firm. I've had conversation classes with him off and on for probably 7 years. We typically meet once a week.
I'm not sure how exactly, but we got into a conversation about the future.  His plan is to have his big house to enjoy with his family in a good neighborhood and live well. He loves his work, but he plans on stopping around the age of 60 or perhaps late 50s or at 65 depending on how things go. I think he has a great plan since he loves his work. I don't think there is a right or wrong as long as you have a plan that will meet what you need and want out of life.

I told him something that surprised him. He shouldn't have been surprised. You'd think he wouldn't be that surprised, but I saw a shocked look on his face for a few seconds.  I told him that I want to retire in 10 years.

We started to discuss the numbers since accountants need to see the numbers to fully relate to the concept.  We decided that saving an average of 8000 pesos a month would probably be enough to get by with minimal expenses since I'd make interest which would compound and of course I don't have any children to take care of or a mortgage to pay for.

The next question was what I would do if I retired in ten years.  He understood my answer although he couldn't really relate.  I told him that I'd travel off and on. I'd love backpacking and staying at hostels and meeting people and trying new things and taking photos and all that.   I don't want to wait until I'm old to experience that. If you wait until you're 65 to enjoy your retirement, you'll probably only have a few more years of good health to actually travel and do all that.  You'll probably live into your 80s if you don't get sick, but most people die in their 80s and have not-so-great health in their 70s.  I want to be able to enjoy a few decades of travel, discovery, trying new things, and spending time with friends and loved ones BEFORE I get that old.

If I had the same awareness 10 years ago, I would have planned to retire sooner, but I wasn't mature enough in my 20s to take the decision to save a high percent of my income skipping some immediate pleasure to have it years from now. I suppose most of us think that we have decades more before we should even think about it. I think that after reading the typical advice of working and saving 10% and retiring when you are too old to fully enjoy it wasn't very motivating to me. To retire early, you need to save a very high percent of your income and invest it, but I NEVER saw any popular personal finance adviser recommend it. I always read to save 10% and have an emergency fund and just keep working until you're old and hopefully have paid off your huge mortgage on the big house.

Yet, I think the problem is really how I define retirement. Retirement for me is NOT sitting on the balcony bored watching people walk by and watching some television.  To me retirement will be living simply, gardening if I can find the space, learning and growing as a person, and getting inspired and helping others when I can without being taken advantage of.

I don't plan on not working at all. I plan on working part time when I feel like it not working because I have to because I need to pay the rent and bills. Perhaps I'll teach one group or become a writer. I might decide to study in a study from home using the internet for a university degree. I might take some painting or drawing courses or learn something completely new.

Retirement for me is financial independence. The ability to choose what you want to do or not do on your own terms.

Determining how much to put in Emergency Savings Fund

Before determining how much money to put in the emergency fund, I had to determine how much money I normally spend since it is best to base it on expenses instead of normal income.  

Thankfully I had created a Google Docs spreadsheet where I had made a simple calculation of approx. income and approx expenses. I discovered that my estimate was pretty correct and that the more classes I taught, the more I spent since I would have to spend more on transportation and food unless I wanted to carry a packed lunch with all my other stuff. 

I also would go to restaurants and stands in the street since it was faster or more comfortable for me. There is also a social aspect involved. It is nice to have a quick chat with someone who isn't a student or roommate.

How much should you save in your emergency fund?

The first thing you'd want to consider is your dependents.  Do you have any children or do you take care of your spouse or parents?  If you do I'd suggest having twice as much money in your emergency fund perhaps to to even a year of expenses (including expenses you pay for them). If you have dependents who cannot work, you should consider getting a life/disability insurance policy in case the worst thing happens.

Next consider pets. Your dog or cat might need to go to the vet. In some places, a veterinarian could get very expensive. If you have a pet, add a couple months more to emergency fund.

Now consider health insurance. Do you have health insurance? If not add a couple more month's to the fund. If you have health insurance, make sure your emergency fund has much more money than your health insurance plan's deductible.

Finally think about your mortgage. If you have big mortgage payments and you don't want to consider selling your home in an emergency, be sure you have enough to cover several months of mortgage payments. You don't want to pay late or missed payment fees nor do you want to have foreclosure proceedings start.

As you invest, you'll need less money in cash since you could sell stocks, bonds, or mutual funds to pay your bills, but until you have large investments, it is best to be ready for problems. 

Emergency Saving Fund

As a private teacher you can imagine that my income is extremely irregular, but there are not that many things I could legally do on my own schedule and still be able to pay the bills. Don't get me wrong, I love teaching, but it isn't exactly easy. I have to know the grammar rules, be able to explain things and of course be willing to teach before my students start work, during the 2pm lunch, after they finish work, and of course be willing to carry a bag with 3-5 kilograms of stuff that I need for teaching since I don't have an office desk to lock things in or a company fridge to store my lunch.

Since I don't think that teaching English classes is something that I'll be able to enjoy or physically do for perhaps the next ten years, I need an exit strategy. Before I started my first investments this April (2012), I had to first fund an emergency fund in cash.  I did that in January and February before I even thought of trying to retire early or become financially independent years earlier than what is considered proper by most financial advice websites. At the time I thought, If I am going to invest as much as possible for my own condo or income fund, I need to have cash for anything unexpected since liquidating investments usually causes special fees. Liquidating investments may cause a loss. Also early liquidation of investments often means having to wait several days or months to get cash.

One final simple reason why an emergency fund is essential:
If I invest every extra peso for investments and I get sick or need money I'll have to borrow from that fund to get by until the next half of the month when I charge my students again. At that point I can put the money back into savings. Without special cash savings, I would either save less or eventually have a problem and need to borrow or put expenses on my credit card.

What isn't an emergency fund?  
An emergency fund isn't an investment that would require waiting a day or more to have the cash. If it is an emergency you need the money today!
An emergency fund isn't a credit card or other line of credit with a financial institution. You don't owe money on it since it is your savings in cash.

How much did I decide to save in my emergency fund?
there are many things to consider for how much money to keep in cash for emergencies. I decided to keep living expenses for 2 months in cash and 2 months expenses in a Certificate of Deposit for 90 days.  Four months of living expenses isn't a lot of money, but it should get me by until I'm able to liquidate future investments if I need it.

Lets say that I lose my classes so my income drops near zero. I'll have 2 months cash expenses to use while I look for more work or blog or do artwork or whatever. By the time that's gone, the CD should expire and I'll have that money available in cash.

If I don't have an emergency, I'll renew the CD for another 30 days. At least this way I'll earn some interest on the cash and still be covered for a few months.

Background for early retirement journey

Getting started for very early retirement or financial independence

Hello everyone! I'm almost 36 and I've lived in the Greater Mexico City area including one of the cheaper suburbs (big mistake)for almost 11 and a half years working as an English teacher. I went independent several years ago. I was saving money slowly and spent it all during the big 2009-2011 recession and thankfully have recovered.

First of all, I talk about numbers in Mexican Pesos. I probably make less than 1/5 the money than most of you do at your jobs even though I'm doing better right now than ever before in the last 11 years. Of course everything could change next month since I'm working on my own and my only "marketing" is asking students and friends to recommend me.

I also sell artwork online. I started at the end of 2007 and slowly growing, but that really doesn't pay for more than my internet connection most months.

Issues:

Rent is a big issue. I share a 3 bedroom apartment in a poor neighborhood 5 minute walk to the nearest subway station, but my roommates are not very stable and they could move out any month.

Transportation is a big problem. Mexico City has a lot of opportunities, but since it is one of the largest cities and metropolitan areas in the world it is very normal to spend an hour or more to go from one place to another. I don't give classes near home, but not very far either.

It takes me typically between 1 and 1.5 hours between classes or classes to home ( I teach at the student's residence typically their office)

I take the bus and/or subway to get around.

Food cost is a big issue when I have a busy schedule (3 classes a day is a lot when you consider distances and travel time). I don't have an office fridge to store food and since I don't have a car either I really don't have the desire to carry packed food along with my books, DVDs, and other teaching supplies.

I've been lurking for about a week since I found the site and many of the ideas clicked. I could never get excited about retiring when I'm too old to enjoy it (How many 60+ are really in excellent health? perhaps half?)

Goals:

I'd like to own a tiny condo near central mexico city so I can't get around well on the subway. A tiny apartment in a poor area starts at 600,000 pesos so by the time I've saved up it will probably cost at least 700,000. By tiny condo, I mean approx. 45 square meters in a building with dozens of poor neighbors.

Goal 2 is to alternatively buy a relatively large property near one of the smaller cites for country living (I miss gardening). It would probably be cheaper to start, but I'd spend more on transportation since I'd need a car to go to the closest city.

I've been thinking about getting 800 square meters near Cuautla which is about 3 hours away by bus. I'm guessing it would cost me about one million pesos for a property of that size and build a decent house and a small pool on it although it could be done in stages. (1 buy a property and get a wall around it. 2. get the pool hole dug. 3. get house foundation poured. 4. build the minimal house and get solar power and solar water heater installed. 4. expand enough to be comfortable.) If I go with this option I'd keep renting and working a room here and go there on the weekends at least until I'm financially independent.

Meanwhile I keep saving and waiting for the shoe to drop. I figure one day my students will get laid off or something else will occur so in any case I need to save for when there isn't demand for classes.

Right now I'm trying to figure out how much money I need to save to be able to take a withdrawal rate of 4% or be able to pay for either land or the tiny apartment. Do any readers have suggestions?  I've been modifying my Google Docs budget spreadsheet and including a page for net worth and trying to figure out how to get it to tell me how much I need based on average expenses and current savings. I think It would keep me motivated to see the numbers improve with a definite goal.