January/February 2019 – financial situation

I want to track my progress publically for two reasons; one, tracking will allow me to see the progress I have made, and two, it will motivate me and hold me to account knowing I have told people what I am planning to do.  I know it’s February, but I wanted to start at the beginning of the year.

Assets:

Flat: £450,000

Pension 1: £94,000

Pension 2: £4,382

Investment: £1,800

ETF: £961.00

Savings: £8000

Debts:

Mortage: £259,000

Professional studies loan: £7000

Bank loan: £8000

Car loan: £12000

As you may see, I am swimming in debt. It’s not big and it’s not clever.

So what did I do about this precarious situation?

I contacted my bank for settlement figures for both the loans. I used my savings to pay off the professional studies loan. I then used the remaining £1000 in my savings, money from my current account, and £6000 on an interest-free deal on my credit card, to pay the bank loan off.

As of 16 Feb 2019 my situation is:

Assets:

Flat: £450,000

Pension 1: £94,000

Pension 2: £4,382

Investment: £1,800

ETF: £961.00

Savings: £70

Debts:

Mortage: £259,000

Credit card: £6000

Car loan: £12000

 

 

 

 

Why am I doing FIRE?

I am in my mid-thirties. I didn’t really think much about the future when I was in my twenties and I think my interest in FIRE is part of a realisation that life is rather short and there is a limited time to do what you want. Of course, I thought of the future, but it was perhaps a fantasy future which was what we were taught to aspire to, rather than the reality.

I have led a fairly interesting life and have experienced things that the majority of people my age may not have (marriage, divorce, living overseas, loss of a parent). I have also had some extremely positive things happen to me such as returning to university to follow my dream of becoming a barrister (that is an ongoing dream!).

By stopping work for a year, I stepped off the treadmill that so many people my age are on. That feeling of constant pressure to get to the next stage of life. The route set out for us which is seen as a success (school, university, job, marriage, house, car, kids… then what? slow death?).

I was blown off course by becoming divorced at age 30. I won’t dwell on that, but at the time, it felt like a massive step backwards in what had until that point, been a life that felt like I was boosting forwards. I was depressed for some time, but as they say, it made me stronger and a better more compassionate person.

I think realising that taking a step backwards wasn’t the worst thing that could happen was a real eye-opener for me. I realised that I could recover from it, and come back stronger. I also believe it gave me the confidence to take action and pursue an alternative career at a later stage in life.

More recently, finding out about FIRE, which is essentially a movement that encourages people to minimise expenses and live frugally, was appealing as I had given up a well-paid job to return to University.  I had no money and had become used to living the frugal life. When I got a job, I thought, what if I keep living this way? I have kept things under check and found that I am not missing out at all. Most of my friends these days have bought houses and are mortgaged to the hilt with kids in tow.

In the past, I would be eating out 5 times a week, going to the pub and spending £50 a time 2-3 times a week. Did I have an alcohol problem? I may have, but if I did, I don’t now.

I have a mortgage, but no kids, and feel my salary is more than ample to live off. I don’t eat out that much anymore. I don’t eat takeaways. I learned to cook and eat reasonably healthily. I go to the pub and drink moderately. All these subtle changes have reduced spending compared to what I shall call ‘pre-university’.

So I am not doing a full FIRE thing yet, but I am attempting to follow its philosophy. The basics of minimising spending and saving as much as possible are no-brainers.

I’m at the beginning of the journey, but find it has given me a more disciplined outlook. I am looking forward to paying off my debts, followed by building up savings and investments. That is the way forwards!

 

 

Playing with FIRE

Introduction

 

Hi, and welcome to my blog, Playing with FIRE.

I have been reading a lot about the FIRE movement since I came across it in September 2018, and I have started to dabble in the philosophy a bit. There are a great many resources out there, and many are extremely useful. The main thing about these resources is they are very US focused. As I live in London in the UK, I decided that it may be helpful to document my experiences with using FIRE in a UK context. There do not seem to be many blogs that are UK focused out there that I can find.  So here goes nothing…

Philosophy. 

 

The most famous FIRE advocate is Mr Money Moustache. His blog is a treasure trove of good advice. I have started to follow some of it, but I must admit I’ve been rather a scattergun in my approach.

My situation

 

I will start with my position in October 2018. I was one month into a new job and wondering what to do with my new found earnings. I came across an article in the New York times on the FIRE movement, and it sounded good to me.

Firstly, I would like to give you some further context.

In 2018, I had decided to undertake a period of study so was out of work for 10 months.

In studying, I had to make some significant adjustments to my lifestyle. Going from earning £75,000 to £0 was a shock to the system. I cut back on social life and going to the pub.  I also rejigged my finances so that my mortgage payments were as low as possible. I also planned to sell my car. However, my plan to use the re-mortgage to pay for the fees and pay off a loan I had from my last degree and some house bills, failed.  I was lucky to get a scholarship to part fund the fees for the course.

My plan failed, partly due to my lackadaisical approach to managing my finances, and also my not wanting to give up the feeling that having a fat bank account gave me when I had no income. I didn’t sell the car, because I had it on a PCP deal which was more than I could sell the car for. I couldn’t believe how stupid I had been, but faced with paying £2500 to sell the car, or just keep paying the £299 for 10 months, I thought at least I will get the use of the vehicle in that time. Plus, I love that car, and yes that is a weak point of mine!

I got through the year by renting out my apartment on Air-BnB and to a friend mid-week. This was a very efficient method of obtaining income compared to working in a bar. The return to time was high.

By the end of the course, I was in desperate need for employment. I tried to get an entry-level legal job, but in the end, I decided to go back to project management where I could capitalise on my 12 years experience. Financially this was the best option.

So, knowing I had really failed to stick to my financial plan, with two large outstanding loans (£9k and £10k), a car payment of £299 per month, and a student loan from my first degree, things had to change.

First FIRE move.

After reading up a few blogs about FIRE, I came across the philosophy of investing in low fee ETF funds. This seemed like a straightforward idea. I was so excited by the idea of retiring early that I opened an Interactive Investor account and bought £1000 of ETF fund in a stocks and shares ISA account. Great! I’m on the way to financial independence. What could go wrong?

Realisation.

 

This plan was great, except I had forgotten one key element of FIRE.

My new job was paying £70,000 which I consider is a very good income. However, it was being gobbled up by the debt payments. I had about £8000 in my savings account at this point which made me feel very secure.

I went on a holiday to Australia with my lovely girlfriend who is from Melbourne. This distracted me and used up some money that I had earmarked for my ETF. Christmas came and went.

I then went to a yoga retreat (not my idea, but was very useful). During the retreat, we were challenged to consider our goals for the year. It became clear that the debts hanging over me were causing some anxiety. I decided to take action.

I also read a post on a FIRE blog or forum where someone was heavily criticised for investing in an ETF before paying off their debts. Oops. Looks like I had fallen into that trap from day one.

What did I do? 

 

The first thing I did was to pay off the £2500 remaining in my government student loan. This meant that my salary was not deducting student loan payment of 9% above £25000. In my case, that would have been about £340/month.

I did a review of my budget and realised that I needed to pay off my debts as quickly as possible. How was I do this? I had £15,000 in debt at around 7%. It seemed impossible. Some weeks passed and then I started to seriously look into this.

With some clever maths on a spreadsheet, I first realised that I could pay off one loan which was now around £7000, with the savings in my account. I was reluctant to do this as it would remove the nice comfy buffer I had. It scared me a little.

Secondly, I would use an old credit card which was offering 0% rate on money transfers to pay off the other debt which had gone down to £8000 along with the remains of my savings. This meant I have £6,000 on 0% interest until August 2020. It was a fee for £129 to do this. Only about 1.5%. This is much better than the 7.2% interest I was paying on the loan.

I did this last week. As soon as I did it, I immediately felt better. Almost like a weight was lifted. I also made a plan to pay this debt off within 3-4months.

That brings me to where I am now.

 

Bank account

 

I reviewed my accounts, and decided that the £20/month I was paying for a bank account was too much. It should be said it includes benefits, but I could get the insurance benefits elsewhere for a lot less. I, therefore, switched my account to Barclay’s account which had no fee. I went for their Premier account as my income was enough and also because I wanted to feel fancy.

Mobile phone

 

My phone contract with Vodafone cost me £52 a month. It was for an iPhone 7 which I got when it was new in 2017. The contract was coming to an end and the phone works fine so there was little point in getting a new iPhone. They have a new offer of £20/month which includes Spotify. That saved me total £42 a month if you include the £10/month Spotify costs me.

Contact lenses

 

I was paying £17.50/ month for contact lenses. I have cancelled that as I stopped wearing them. I will order dailies and wear my glasses.

Total

 

Total savings for the weekend:

Mobile saving: £42/month

Bank account: £20/month

Lenses: £17.50/month.

Total: £79.50/month for about 2-3 hours of work. Not bad.

Add that to the £395/month loan payments that I stopped, then this means I have roughly £500 a month to pay into the credit card to pay down the debt. At that rate, it would take 12 months to pay off. However, I am going to put money from my lodger of £500 to make it £1000/month. I will then find more money to pay it quicker. I want to pay £1500/month to get rid of it within 4 months.

Conclusion

 

The message here for those starting, like myself, is not to get too excited by the end goal of having £££ and getting a return. First things first, pay down your debts and reduce costs. Its boring but I have realised it is an important first step. This can be done gradually by looking at each expense you have in your account and finding a way to reduce it.

You will see that I have a poor financial history and have lacked the motivation to do things properly. However, I am determined to change and follow the FIRE philosophy. I also want to blog about it to make me stick to my plans and help people in the process.