RE: The problem with FIRE

My FIRE journey is approaching 1 year old. I first came across FIRE around this time last year by reading a New York Times article about it and was completely inspired. I set about doing it right away. I chucked some money into a Stocks and Shares ISA before realising I was making a false start. I had to pay off my vast debt before anything else and now I’m actively investing.

 

Over the past few months, I have had a niggling pain in my side about the whole process. Although I am completely enamoured with the FI part, the RE end is what is bothering me.

 

I think I have come to understand what it is that is causing me an issue.

 

Firstly, I should say I am highly enthusiastic about obtaining financial independence. The benefits are clear in that you are beholden to no one and you are free from the shackles of work.

 

Retiring early is, in theory, a great thing. When you rock up to work on Monday morning wishing you could continue the weekend, it never seems more appealing.

 

I may be speaking from a position of privilege as I have a professional job, but work is good for you in many ways. Beyond making money, you have a daily challenge, meet interesting people, and can have a sense of achievement once you have done something.

 

In my line of work, managing the design and construction buildings, it is rewarding to finish a job. Yes, the journey there is often a war of attrition, but overall it can be a very interesting and rewarding job.

 

Is giving that up in my mid-forties, at a time when real success is likely to come knocking, really going to make me happy? Giving up decades of hard work at the peak of my career is likely to be something that would be quite depressing.

 

I feel like if I was 10 years younger retirement would allow me to undertake some sporting challenges, but I’m getting older. In 10 years I will likely have kids and be in my mid-40s. I won’t be able to do the physical challenges I once thought I could do. I’ll also have mouths to feed!

 

However, with success comes time commitment. It may be that spending more time with my family (yet to have one…but fingers crossed!) will be the reward. FIRE will give me the choice.

 

I know lots of wealthy people who work by choice. My old boss was married into the Pilkington glass fortune. They were so rich that they sold some vases they had in the family home for around £20m. I oversaw him on his iPad once looking at his current account. It had £140k in it. He came in every day, worked and had a jovial attitude to work. He perhaps could see it for what it was rather than a financial need and I think that led to him enjoying the challenge. I think this is where I would like to be once Financially independent.

 

Going forward, I am going to strive for FI but maybe take it easy on the RE part. If I retire at 50 that would probably be great. After all, they say the Devil makes work for idle hands…

 

Savings update Nov 2019     

It’s that time again – my savings update. This month I put a lot of effort into developing a spending tracker so I can accurately calculate my savings rate. I had previously been using a theoretical savings rate based on my budget. However, as we all know, sometimes we go a bit off course and I need the data to reel that back in. I now have that data but first the figures in a spreadsheet.

 

The Figures

 

My Saving rate for Nov 2019 was 84%.

 

Yes, I was as astonished as you perhaps are. I actually thought I had made an error, but no, I have achieved this.

 

My investments increased by £6199 in one month. Again, I am astonished. It is more than my salary already. (Sorry for the small size!)

november assets

How did I calculate this?

 

Very simply, it is as so:

 

((Total Income – Expenses) / Total Income) * 100 = Savings rate.

 

If expenses are (Total Income – Investments) then the formula becomes.

 

(Investments / Income)*100 = Savings rate.

 

I back-calculated my savings rate to give the following:

nov 2019 SR

As you can see, a general increase throughout the year (with a few hiccups along the way!).

 

Key points of the month

 

Several significant things happened this month; firstly, it was the first month with increased pension contribution. I am putting away 14% of my salary. This has the benefit of increasing the amount of tax I claim back (which counts towards the savings rate). My employer puts in a higher amount than my previous employer too which increases the savings rate even further.

 

I also invested £1600 into my S&S ISA.

 

All these things made my savings rate higher.

 

On a down side, was hit by a bigger tax bill in my salary than expected (thanks to my old employer totalling the annual taxes rather than paying out the average PAYE). This left me with £600 less than I was expecting. Combined with the increased pension contribution, this is putting a squeeze on the budget as my new employer whacked it out my pay. Payroll say it will be back to normal next month.

 

Finally, I had a massive expenditure on a skiing holiday I’m taking in February which became due now. This was expected and budgeted for,but was a lot of money to handover. It counts as expenditure, but It was from my savings.

 

Otherwise, this month has been fairly quiet for me and I was very happy with my spending until the end of the month when I got the double whammy of holiday and less take home.

 

Spending tracker

 

To make my spending tracker I have used the Emma personal finance app. The app links up to my bank accounts and automatically categorises my expenses real-time. It then provides a monthly total for each category against a budget. I have simply used this as the basis for my spreadsheet.

spending nov 2019

 

In the spreadsheet I have also tracked my investments which for this month are as follows:

investments

 

So that explains the extremely high savings rate this month. It does seem to be counter-intuitive that with such high expenditure, but it is what it is. It can be explained somewhat as I now include my investment in my budget.

 

I have massively increased my rate thanks to increased pension contributions which gives increased tax breaks to give a savings boost. My ISA contribution was the first I have done this year.
Well done me. Now I just need to keep this up!!

In other news…

I nearly forgot to mention that I was very pleased to have been featured in on the EU’s FIREhub. It’s a great place to get FIRE resources from a wide range of bloggers from across the EU. Thank you very much FIREhub!

Enjoying life

After perusing the UK personal finance Reddit thread, I came across a post asking people to name their biggest financial regret. Amongst the many depressing and amusing suggestions, there were several people who claimed that they had “no regrets” and that the others admitting regrets should just “enjoy life”.

 

At first, I thought that was a rather strange answer to the question as surely, being honest with yourself, there must be something that you regret purchasing.

 

Despite that thought, I came later to reflect on what enjoying life means.

 

Certainly, it means something vastly different to each and every one of us; however, in the context of a financial regret, what does it mean to enjoy life?

 

Did they mean they don’t regret anything, or that they are not bothered by those regrets? Or did they mean spend recklessly and not worrying about the consequences even if that means ending in £20k of credit card debt?

 

Presumably enjoying life in the context of financial regrets could mean anything, I propose, that includes partying, buying expensive cars, boozing, going on expensive holidays, having an expensive hobby, and eating at the finest restaurants.

 

All of these things: 1. Cost lots of money, 2. (Admittedly) Can be fun and 3. Are part of massive lifestyle creep over time. As someone seeking FI, 1 & 3 are things that will only hinder my journey to FI.

 

Often it is said that you regret the things you did not do more than those you did. That is something I have kept in mind when making decisions (not just financial ones) throughout my life- but will I regret not doing these expensive things because I have chosen to become financially independent?

 

Deep down, having done many of these thing in the past, I think the opposite is true. I think of all the times I went out on a ‘bender’ spending lots of money on food and drink only to feel hungover the next day. The times I went on holiday and spent my way around a city without a care. The times I spent money to make myself feel better or to impress people I didn’t like. Yes I had fun (mostly), made friends and whatnot, but looking back, I could have been less foolish and saved more with little loss socially or otherwise. That money would now be growing in an ISA or where ever and I would be closer to my goal of FI because once I have FI the options to enjoy life become far greater without the little problem of working 5 days a week!

 

So, the saying rings true, you regret the things you didn’t do more than those you did. I don’t regret having a good time in my youth, but I do regret not taking control of my finances over a decade ago and putting away as much as I could. If I had, I would be wealthier, happier and closer to being financially independent.

However, I am not going to wallow in regret and despair over that, and nor should you. As the Chinese proverb says the best time to plant a tree was 20 years ago. The second best time is today.  Now, where’s my spade?

Payslip calculator

While wondering what to do about my pension a couple of weeks back, and starting a new job, I decided that I had no clue what my new take-home pay would be. I spent some time (a lot of time) making this handy payslip calculator.

Pay-Slip-Calculator-v1

It will calculate the tax, NI, student loan, and pension deductions from your PAYE salary and give an idea of what your take-home would look like.

It is useful for playing around with pension percentages to see what impact it will have on your income without having to ask payroll.

Its very simple to use; just enter your salary, pension % and select the relevant student loan settings and it will calculate all for you.

If your salary is over £150,000, you are very lucky, and this calc won’t work for the 45% rate.

November update

Time flies when you are having fun as the saying goes. October was a big month for me but it went by very quickly indeed.

I finally finished a job I was hating where I had to wait out my three month notice period. I had a week off at home chilling, resetting and getting my life in order before starting at my new job. I am very happy with the move so far. I’m working on some great projects and my colleagues seem super nice so far. Plus I’m paid more which will accelerate my journey to FIRE.

The figures

My net worth has grown slightly to £313,063, a growth of 0.4% month on month. I believe this is due to my cessation of debt paydown (’cause it gon’) and some weird things happening on my pension accounts.  Savings rate wise – I don’t know! I need to start seriously working this out. My budget says I should be saving 65%, but I am not sure what I have actually achieved. I have not been tracking as haven’t actually been saving per sey as I was paying down debts. The goal for next month is to actually nail this down and report properly as I have seen other FIRE people doing.

Financially this month has been ‘bad’ because I took a week of unpaid leave between jobs. Although bad financially, it was good for my mental health and worth the drop in pay. Although oddly, my take-home did not seem to be affected much due to the increase in salary at my new job.

The week off also made me reflect on where my FIRE journey may end up. Although I enjoyed doing nothing for a week, I was beginning to get antsy by Friday. I wondered how I would cope with actually being retired and having nothing to do. I think I realised that I wouldn’t cope that well.

It has made me re-assess my goals to the point where I still want to achieve FIRE, but I may not want to give up working (so long as I enjoy my job!). I think it is important to be doing something fulfilling with one’s time on planet Earth and doing nothing is not going to help one bit.

So, from now on I shall be pursuing FIRE with that in mind.

 

 

Review of All About The Money podcast article.

I just had the displeasure of reading one of the most childish articles on personal finance I have ever read. It’s an article I wrote when I was aged 23.

https://www.bbc.co.uk/programmes/articles/4Gsq4lf46lWz2tB74LH9KQq/why-im-sick-of-being-told-to-save-money

OK, so I didn’t write it, but I probably had the same attitude to money as this young lady back then, and I know what happens when that attitude continues on as you get older. You get in huge debt believing that you will never get old and have plenty of time to make your first million.

As you are reading my site, and I’m sure you are interested in saving money, you are probably left baffled how such an article was published on a mainstream media site arguing against what is logical and reasonable.

On one hand, she is arguing that she has not saved a penny, but on the other has given no reasonable details of actually trying. The one feeble example given was not going on holiday for a year (or an academic year which is apparently 9 months). She attempts to compare a bus holiday to Butlins to going to Amsterdam or Lyon.

While describing her so called fruggal holiday to Amsterdam, she says she got 2 nights for £99. Yes well done great stuff. What about the flights, spending money and eating out (and well its Amsterdam right)? How can spending money to go on holiday be saving money compared to not going and not spending anything?

If you are in the habit of blowing £100 on a night out and eating out several times a week (she mentions running a failed nightclub business) you are not going to save much even if you go to Butlins. I know, I’ve done it (eating out I mean… I’ve never been to Butlins).

I find it particularly frustrating that she justifies having an overdraft because everyone has one. How can having an overdraft ever be justified as ok? I had an overdraft for many years and it NEVER felt fine. I hated paying the fee every month and being in debt to the bank. Being in debt NEVER felt fine to me so I struggle to see how anyone could honestly say they are fine with it.

I think this article is wholly irresponsible and should not be on such a site such as the BBC without a counter viewpoint. I do wonder if the BBC trying to condition young people to spend all their money by convincing them its ok to have zero savings and fall into debt?

I have had many times when I’ve had zero savings and been struggling to pay rent due to blowing all my money when I was in my early twenties. It never felt good! That’s why people say have some savings.

If you have read any of my other posts, you will know I had massive debt (£40k+) and it felt awful. Only once I grew up, stopped spending, and lost my FOMO did I start to feel secure about finances.

Her punchline is: “If I had listened to my bank manager my whole life, I’d be at zero balance in love, life and gallows humour”.

I find this a bizarre statement that tries to justify an immature attitude to life and money. Blame circumstances rather than yourself at your peril. I would be surprised if she has ever met a bank manager. 

The biggest faux pas in this article is her attempt to compare saving money to domestic abuse which I cannot fathom the jump in logic there. Surely saving your own money will mean you are less likely to fall into domestic abuse as you will not be dependant on others and means you can leave the situation you are in.

Establishing frugal habits early on in life such as saving can only snowball later as you gain more income and can save more compared to your expenses. If you don’t get used to a fake Instagram luxury life that you can’t afford you won’t ever miss it. I wish I’d known about FIRE 10 years ago because if I had, I’d be retired by now!

Maybe I’m privileged right now but I worked hard to get where I am – hell i’ve documented part of it on this blog. It’s taken years and years to develop a career that is paid well and I’m proud of what I’ve achieved. I can tell you that since I adopted a FIRE mindset my life has improved vastly. My balance in love, life and gallows humour is infinitely higher than when I was in debt up to my eyeballs and living paycheck to paycheck.

Pension Pondering

 

I had some time on the weekend to consider the best approach to my pension contributions. I found myself going down a rabbit warren of spreadsheets and tax legislation and thought it might be an idea to share what I found.

What are they?

Pension is a term used to describe money which is protected from tax and is intended for retirement. Currently, you may only access your pension funds once you reach 55 years old. Other features include:

  • Mandatory enrolment for all employees who are eligible.
  • Tax-free contributions are limited to £40,000 per year.
  • Max limit of £1,030,000 total lifetime contributions per person.

For more info on pensions in the U.K.; click here.

ISAs are slightly different investment vehicles which are protected from tax but limited to contributions of £20,000 per year. You will not pay tax on any gains on money in the ISA. You may have cash, help to buy or stocks and shares ISAs.  Some more info on ISAs can be found here.

My situation

I have roughly £100k in pension already. So I’m not starting from scratch. After reading a few FIRE blogs that recommend maxing out the pension contributions I built a spreadsheet which allowed me to play around with figures and % of my salary contributions.

Working on the basis that to get the maximum tax efficiency, I should put in all my income above £50,000 which is the level where I pay 40% tax. I would contribute £2533 per month and my employer would contribute £333 per month and it means I could stash away quite a lot very quickly.

Great I thought, let us do it. Then I realised two big problems.

  1. I can’t touch this money until I am 55 (likely to be 57 by the time I get there).
  2. There is a limit of £1030,000 in the pension overall across all funds.

Combined it means I have 21 years until I can touch that money again. It also has 21 years of compound interest growth meaning if I keep contributing to it at that rate, it will vastly exceed £1,030,000, attracting taxes of 45% on withdrawal by the time I get to 57. Not only was it surprising to see how achievable getting to £1m was by age 57, but it was also even more galling that I am having to look at ramping back my pension contributions to prevent investing in a tax-inefficient way.

I worked back to find out the point that if I maxed out my contribution when I should STOP investing. It turned out, based on a 7% annual increase, I would need to invest until I was 41 and then stop completely. The amount left there would grow to £1m by the time I reach 57 and I would not lose money to tax. Although as I will be working and likely contributing to a pension mandatorily, I would have to opt-out and not take up what is effectively free money. It would be foolish to forego that money at a later date. Yes, I understand that if I achieve FI, I won’t need to work but let us not kid myself here, things change and I will be doing something.

Alternatively, I worked out the monthly contribution that I could make until I hit 55 and working back I would pay £1200 pcm to reach the limit by 55. What I should probably do is have a target age for FI, work out the time and the amount I need to contribute to hit the £1m lifetime limit. At this point, I don’t know what age that would be and I am going to assume that I probably won’t really give up working simply because I am FI.

 

I have seen various FIRE bloggers talk about bridging to my pension. Bridging is where you have a pension pot you cannot access until the legal age but use up other funds to get you to the point you can use your pension. I am not convinced by this approach mainly because some of their ideas of achieving this would actually reduce financial independence (remortgage of house and drain resources until you reach pension age). All the time your pension is potentially being hammered by the punitive effect of the 45% tax above the lifetime allowance.

The other issue I have is that on a spreadsheet maxing out my savings like that that is fine, but things like life, family, wanting to buy a bigger home at some point, and actually achieving FI at a young age require money to be available to me at some point before I am 57. Doing these sums has had the unexpected effect of focusing my attention on future life goals and how to achieve them.

I want to be FI but I know that things in life change and what will work now may not work later on in life.

To conclude, for now I am going to contribute 15% of my salary to the pension and in addition, my employer will contribute 5%. I will also put £1666 pcm into my S+S ISA. Any extra (which I think is potentially about £1000pcm) will be saved or invested outside a tax-free umbrella and could make a contribution to a deposit for my next home. I believe that having money outside my pension and maxing out my ISA allowance I will put myself on a better path to FI at an earlier age. It will mean I have a boost from my pension later in life to really live it up! I may also investigate paying off my mortgage, but, as previously discussed, I believe this may not be the most efficient use considering the low-interest rate I am paying presently.
I would welcome any further discussion or advice!

October update

I haven’t done a net worth update post for a while, so now seems like a good time to get back into the habit. I have, however, been tracking my net worth in the background and can say that it has been quite motivating to see my progress.

Screenshot 2019-10-05 at 12.19.18

From when I started tracking this a year ago, I have seen a 20% increase in my net worth, which I think is fantastic. It is almost all from paying off debt and increasing savings.

I have three pensions which have increased by about £9k in the past year. I am looking to consolidate these into a SIPP so I may control how they are invested and cut the fee I am being charged. I am waiting until I finish at my current job (in one week!) so I can take them all at once.

I have been focused on paying down debts and building up my buffer. I now have 3 months ‘buffer’ in place which I built up much quicker than expected (thanks to selling my car), I can start investing as it is now safe to do so. I view this as a huge achievement and very comforting to know I could stop working for 3 months and have no worries.

I should note that I do include my equity in my flat into this calculation and that stands around £200k. It is a net worth calculation rather than a FIRE fund calculation.

Screenshot 2019-10-05 at 12.29.44.png

I am going to look at different ways to calculate this and track so any suggestions would be welcome. I didn’t bother tracking it much as I have been so focused on debt paydown and savings that it did not matter much until now.

Holidays and fun

I have just returned from what seems like a month of holidays. I went to San Francisco to visit my good friend and his girlfriend, with my girlfriend. We stayed in their lovely flat in amongst the fog in Richmond, SF, near the Pacific ocean.

They then came to the UK and stayed at our place for a few days before we all went to Munich for Oktoberfest.

This is the first big holiday I have done while on my FIRE journey. It was always going to be expensive but I think it was totally worth every penny.

Having spent several years living overseas, I am no stranger to travelling. However, in the past, it may have been done by loading up a credit card and forgetting about it. I was also ‘great’ at booking things last minute and paying a premium for it.

This time was different…

What did I do to reduce the costs of this holiday? Firstly, planning it many months in advance. We first talked about going in January. Planning so far in advance is not something I am comfortable with, but I did it this time. Having so much time to look forward meant I had time to buy things like flights early and mentally prepare to go on holiday.

The timing was dictated by my friend’s birthday, and also Oktoberfest. so not much room to wriggle. However, it meant that the dates were fixed early and we knew what we had to do. It also happened to be just after the summer peak, so I think that helped with the pricing.

Flights

I bought the flights for San Francisco about 3 months before I went. I have found that often this is the optimal time to book as airlines know people like to book early or last minute. This sweet spot meant I got flights for £400 return from London to San Francisco. If I ditched the hold luggage and had a stopover, it could have been £300 return, but it didn’t make sense to waste time doing that.

Flying to Oktoberfest was a different matter. London to Munich at this time is astronomically expensive. To get around this, I flew to a different city and booked a high-speed train into Munich. It saved about £200 each.

sf

Accommodation

San Francisco is possibly one of the most expensive cities for accommodation in the world. It had the highest rents (double London’s) and the hotels are not cheap. We were able to save a fortune by staying on an air bed in my friend’s home. It was a great way to do it and meant we got to spend more time with them.

Oktoberfest again required a different approach. I don’t have a friend I can stay with in Munich. However, I was acutely aware that accommodation is vastly overpriced around Oktoberfest. I booked a hotel in January and paid upfront to secure the best price. It was also further from the festival, with my plan being to get the metro or taxi’s. Our friends stayed in a grotty hostel near the festival for 235 EUR/night, where we paid 150 EUR/night for an actual hotel room. The cab home from the fest was 25 EUR so a substantial saving! It had the added benefit that it was in a quiet suburb away from the busy areas, something I have come to appreciate at my age.

Spending

To be honest, in both scenarios, I made little effort to save money while on holiday. I wanted to eat what I wanted, and drink what I liked and go where I felt. It was all good. The best thing was I knew all the money I was spending was not on credit. I used a Monzo card to withdraw currency and pay for items which saved on bank charges.

I learned that planning in advance, spreading the cost of the holiday over the year, and being reasonably frugal can lead to big savings with little impact on enjoyment. I realise this is not rocket science or new to anyone, but thought I’d share my experience.

oktoberfest

Car-free and debt-free in 24hrs

Today I waved goodbye to my trusty 2014 BMW M135i. I am a bit of a petrol head and have enjoyed driving this car immensely. Its 3.0 litre, straight-6, twin-turbo engine meant you could hit 60mph in 4.9 seconds. It was also de-badged, meaning most people would assume it to be a basic 1-series at the traffic light and often were surprised when I drove off at such pace. I will miss this car SO much. Thinking back, I was so proud of it when I got it and loved terrifying any passenger foolish enough to join me for a drive.

FullSizeRender 9
My baby BMW. A true ‘sleeper’ car.

Selling my car has been on my to-do list for a very long time as my ongoing ownership of the vehicle was the major elephant in the room for my FIRE journey. How can I possibly justify owning such a car on finance when trying to achieve FI?  I simply could not and that is why I have sold it.

I will admit to procrastinating on the sale because as often with cars, it is a heart over the head decision. Finally, I have come to my senses and sold it. Car ownership is in many ways a sign of status and success. Selling such a status symbol is almost a sign that you have failed. However, that is flawed thinking. We are so ready to buy cars on credit to have this ‘status’ and in the process make a huge commitment to pay something every month. It is almost like having debt is the status symbol in our society.

FIRE is about removing and changing that mindset. I now believe that NOT having a car that is costing me dearly and not having debt is a status symbol. I hope to be able to buy a decent car outright when I can afford it without finance. Then it truly will be something to show off.

How did I sell my car with finance outstanding?

I used the car buying service Motorway to sell it. As the car had finance on it, a private buyer was going to be a challenge as people are wary of making such a purchase with the finance outstanding.

The process was very easy. You visit their website and then upload some snaps of the car. They will find a buyer and give you a call. With Motorway, the dealer will happily give you a price and then pay off the finance directly to the finance company. The difference will be deposited in your account.

The only difficult part is the finance company is often slow to update their records, so it is advisable to go with a reputable buyer who is trustworthy and you know will have paid or are good to pay off the loan. The buyer I have is a large company so I have no worries (yet) that they have not paid it.

They send round a driver to your house to collect the vehicle and away it goes.

The price I was offered was about £800 more than webuyanycar.com and the process seemed easier as the car was collected from my home rather than me going to a location and having to get back on public transport.

I do accept that selling the car this way will obtain a lower figure than selling privately, but if you have finance on the vehicle, it is almost impossible to get a private buyer to go through with the transaction. I tried selling the car last year and had this exact problem. Would you buy a car with finance outstanding? Hell no.

Another way could be to take out a loan to pay off the finance and then sell privately and immediately repay that loan.  I think I could have sold the car for about £1500-2000 more by doing that. However, it added another risk and complexity to a process which I had already put off and made every excuse under the sun to avoid commencing selling the car. Besides, the whole point in selling the car was to get out of debt, and taking on another loan to do so seems counter-intuitive.

It is done and now I really am debt-free. Selling the car will add another £450/month to my budget once finance, tax, insurance, fuel and servicing are accounted for. I also got £2000 in my pocket which I will put in my ‘buffer’ account for now.