by Chris McGinty
As a society, we tend to have weird belief systems when it comes to numbers and other things that seem to form patterns. Rorschach would have been out of a job if we didn’t. There’s this thing called the gambler’s fallacy that I often use as shorthand when I start believing that there is a pattern forming or a pattern that is about to break. The basic idea is that the last roll of the dice, the last spin of the wheel, or the last hand dealt has no real bearing on the current roll, spin, or hand. It seems very unlikely that a person could legitimately flip a properly balanced coin and have it come up heads 100 times in a row. If this did happen, and you knew that everything was on the up and up, you might start to believe that the coin was due to come up tails, but it isn’t really due. This flip has nothing to do with the last flip or the last 100 flips. Or Flip Wilson, but that’s probably not relevant.
A few years ago, I had a pattern that kept coming up, and I’m not even sure if I could get it to repeat now if I tried. I was using a retirement calculator to figure out what might be a reasonable plan for me to get away from employment jobs. Everything that I put in that felt reasonable would come up at around $1,400 per month into investments. I want to be clear when I say this. If I did something unreasonable like retiring in two years while making $20,000 a year, it wouldn’t work. If I presumed a 250% return on investments, it wouldn’t work. If I presumed that I could live on $200 a month when I retired, it wouldn’t work. If I presumed Flip Wilson was going to be my sugar daddy, it wouldn’t work. It was only when I was putting in reasonable timeframes, return percentages, monthly expenses, and potential comedic geniuses to date that it would seem to hover around that $1,400 a month figure.
This long haired guy in the front row needs to stop telling me to come look at his retirement plan. I died in 1998, long before Urban Dictionary, so I have no idea what freaky stuff this so-called “retirement plan” might involve.
One night, I was talking with Nathan about money. I think that sometimes he doesn’t want to hear what I have to say because he’s relatively comfortable in life. Other times, I think he wants to hear what Chris McGinty passes off as reasoned logic about the way money works. It involves some amount of math and research, but it also involves some amount of idealism. It’s probably a lot like “Rich Dad, Poor Dad.” It won’t answer any of your questions about how to retire young, but it’ll make you think about money in a completely different way. And before you say it, yes he does give some practical advice starting in “The Cashflow Quandrant,” but “Rich Dad, Poor Dad” is more philosophical. Yes, I’m Nathan’s rich dad. But only if Flip Wil… eh, I’ve run that joke out by now.
“retirement plans” by Hamza Hydri is licensed under CC BY-NC-ND 2.0
RETIRED CHRIS: According to this, Flip Wilson died decades ago. Hmm, I’m really skirting the line between tribute and tasteless here.
I whipped out my phone and put some of Nathan’s numbers into the retirement calculator I’d been messing with a few months before. The funny thing is that when we put his basic information in with a reasonable timeline and a reasonable rate of return, I found myself looking at another number hovering around that $1,400 a month. I think we were doing 20 years at an average return of 10% and it would make him a millionaire. I don’t remember exactly. By the way, he would be a quarter of the way there if he started doing it immediately back then.
The only reason the $1,400 worked for both of us is because I would need a lot less in the bank to fully retire at my current lifestyle. The presumption was that I would work more or bring in more income to meet the $1,400 and that when I had enough to replace my lifestyle income, I would work less. With Nathan we were presuming that that he wouldn’t take on any extra hours, and his lifestyle would decrease by $1,400 a month to meet the investment amount. This meant that by the time he reached his retirement age his lifestyle would be in line with his retirement income as a combination of having a lifestyle around $1,400 below his means and by then a paid off house. If you don’t pay off your house in 20 years then Tom Selleck got into yo damn head.
I don’t think that $1,400 a month is some sort of magic number. The circumstances have to match up to make the math work. The fact that it kept coming up in previous calculations has nothing to do with the next calculation. See how I neatly tied that back to the gambler’s fallacy thing. That’s why I should be paid the big money for writing. I’m thinking around $1,400 a month to start.
Here’s what I realized about the $1,400 a month figure though. It’s somewhat doable for most people and it would change the financial math of most people’s lives if they did it even for just a few years. Almost like it could be a rough target for someone to try to achieve to improve their overall life in a short amount of time. If your monthly expenses were around $2,800 a month, finding another $1,400 a month for a little over a year would give you a fully funded emergency fund of six months of expenses. Even that changes your financial math. This could be by temporarily reducing your expenses, increasing your income, or preferably both starting with the expenses.
I can’t say exactly how long it would take for you to retire investing $1,400 a month. There’s too much life to account for. I can say that even without earning interest that in 60 months you could have an $84,000 down payment on a house, or have your current house $84,000 closer to being paid off. It really does change the financial math.
How difficult is it to save $1,400 a month? It depends on how much you make and how much your monthly expenses are. Almost goes without saying, but it’s the truth. Let’s presume that most people making an average household income and has average household expenses is going to have to increase their hours. Well, if that’s the case you’re really looking at about $325 a week to achieve basically the same results. That’s roughly an additional full time job at the current minimum wage of $7.25 an hour, and working a little over 40 hours a week. If you’re already working a full time job, then that’s probably not attractive and maybe not even healthy. Obviously, everything I just said is bullshit then. Sorry to waste your time.
This is why I said to start with the expenses though. I live in a house with my dad, and the access to under the house is in my bedroom, but that’s not exactly living in my parent’s basement. If you’re not creating drama and your roommates aren’t creating drama, it’s really not a bad setup. The second full time job presumes that you need 100% of your household income to meet your expenses. It’s also why I did the figuring at minimum wage. If you have two jobs that pay significantly higher than minimum wage, you probably only need to work the better job full time and the other job closer to part time. The important part is to make sure that the $325 a week (aka $1,400 a month) is the first thing paid. It means that you might not buy something you don’t need (defined as much of what we buy) if you can’t afford it. It means that you might pay better attention to things like keeping your food budget low while still being healthy. It means that you might get rid of a number of subscriptions because you won’t have time for them anyway.
Now, I’m not a financial advisor. I’m just giving you some math. I also know that working over 40 hours for too long will wear you down. I’ve done it. I’ve tried to be clear that $1,400 is not a magic number. It’s just this random number that kept coming up that got me thinking about money a little differently.
A long time ago, I suggested to Nathan that he stop using debt to pay for things and that he get a job at Taco Bell for 20 hours a week for around three months. This was 20 years ago and Nathan was making $15 an hour at his full time job. That’s not really a whole lot these days, but back then it was pretty good. This was because at the time he was treading water with his credit cards, and those suckers only float if there is no pressure on them at all.
Everything he made was going out in expenses. The simple act of no longer buying on credit cards would have changed everything pretty much on its own. The 20 hours a week at a minimum wage job would have given him right around $1,400 in take home pay over three months. It would have reduced his expenses by just enough that he could have quit the Taco Bell job and slowly started to make more and more progress on his credit card debt. When he no longer had debt, he could have started putting everything that he was paying out on credit card debt into investment savings. It might not have been $1,400 a month, but I bet you if he’d done so he could have retired today if he wanted to.
Chris McGinty is a blogger who is already in the first stage of retirement, which is working when he wants. It might not be sustainable, but he’s working on making it so. He’s not doing $1,400 a month into investment yet. His mind keeps drifting back to that goal though, so maybe he’ll try this out and see if it works for him.