The day I paid off my debt

Today I made the final payment on my credit card. It felt scary to do it. I had all kinds of anxiety thinking things like “I’m going on holiday at the end of the month, do I have enough?” Well, the answer is yes, I do have enough. It’s a feeling I’m not used to having, but I have enough because I’ve sorted out my financial life.

 

There have been so many times in the past 6-7years where I’ve been struggling to get through the month, or worse just spending recklessly It’s deeply ingrained anxiety that I’ve lived with for years and now, finally, I have managed to break out.

 

Maybe the magnitude of what I have achieved has not sunk in yet, but I was expecting to feel different. People say it is like a weight being lifted. I agree it does feel that way. However, today the weight on my back was very light compared to the one in January of this year. I have been breaking chunks off every month since then and the weight of debt has been lightening. Today was the last piece and one I’ve been looking forward obliterating for a long long time.

 

Now I have done it and, yes it feels great. I must be 100% honest and state I am not debt free. I still have my car loan and at this point, I’m happy paying that out until it ends in Feb 2020 (I love the car too much) and the car is now worth more than the loan. But all the other debt is gone.

 

The road into debt

 

To mark the occasion, I would like to reflect on how I got myself into the mess I found myself in. As with any story or struggle, it is not one that happened suddenly, but gradually over time.

 

I took out loans for sensible things like education to pay for my law conversion course. I then borrowed a lot to take 10 months out of work to study for the Bar. All worthy endeavours, but expensive. Add to that a general issue with not saving enough because there was always pressure to spend to go to weddings, holidays, drinks and meals out with friends resulting in me struggling to save any money.  I’m glad to say that those days are in the past.

 

Additionally, I had to take out loans to fund a project in the building I live in which is a leasehold property. Of course, the project overran and increased in cost. That has been a struggle and a drain on my resources, however, it looks like I won’t have to pay anything for a while now thanks to a court ruling. That has cancelled £7000 of money that was demanded by my landlord but I refused to pay. I’m only kicking myself that I paid anything at all as I could have not paid at all and been about £10000 better off.

 

In 2016, I lost my father and grandmother within 2 months. That also led to a spiral of spending pointlessly – I bought, or rather entered a PCP agreement to get a BMW to cheer myself up. It did cheer me up and gave me great freedom as I had not previously owned a car for 6 years. Sometimes you have to live a little… but yes I could get a cheaper car.

 

After completing my studies last year, and I started earning again in September 2018, I began to think about the debt. I couldn’t see a way out. I got a tax refund and paid off the rest of my government student loan (£2400) before I started the new job so it wouldn’t come out of my salary.

 

I then came across an article on FIRE in the NY Times which really inspired me. I heard about all these people, some younger than me, who had retired. I couldn’t believe it. How would I ever get there?

 

I started in earnest and made some rookie mistakes. I wrongly started investing in the stock market around November 2018. This was a mistake I realised when reading Mr Moneymustache’s post about debt emergency. The debt should have been my priority. https://www.mrmoneymustache.com/2012/04/18/news-flash-your-debt-is-an-emergency/. I cannot agree more with his philosophy here and urge you to do the same.

 

His philosophy changed my mindset completely. This was a blazing emergency and I needed to change my life no matter what. Over the course of a month, I started to add up all the cards, loans and overdrafts I had. It was frightening. I was about £39,000 in debt (£15,000 car loans, £16,500 unsecured, £1500 overdraft). This was unsustainable. I was paying around £800/month on loan payments alone.

 

I used the tools at my disposal and paid off one of the loans with my savings, then paid off a loan with a 0% credit card offer to save around £500 of interest a year. I also made a stretch plan to pay that card off by June. I cut my expenses back by hundreds a month. https://playingwithfire.uk/2019/02/

 

Every time I got paid, I put the money into the credit card (£1500-1800 a month) so I couldn’t spend it and held on tight for the rest of the month. There were some dark days as I had only a few pounds left in my account at the month’s end. I stopped going out, eating out and skipped holidays. I cooked meals at home (turns out I love cooking). It was not the best fun I have to admit. I viewed it as a sacrifice to get me out of the hole I had dug myself over the years. When things got tough I looked toward the day I would be free and that kept me going. The first few months were the hardest as they were during winter. Lots of PS4 games were played and thank God for Red Dead Redemption 2. As things got easier I allowed myself the odd meal out and the odd pub visit.

You probably want to know about the numbers. Well, I get £4005 a month after tax in salary, another £500 in rent from renting my spare room out (tax-free), and £500 to cover expenses from my girlfriend (she lives with me in London).  My monthly expenses are about £2700 all in (and could be less, to be honest). I tried to put every spare pound into paying my debt. I never could find the full £2300 as I always overspent but I got close each month and maybe with the Emma app I will!

Here I am, still in June having achieved it. I have paid off £16,600 in 5 months and had a further £6400 of debt cancelled as it was unlawful. Gone. Done.

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debt graph jul19

I thought it would take literally years to do this. But treating paying my debt off as a blazing emergency worked. All my efforts for these 5 months have gone into saving money and paying it down as soon as I got my paycheck.

 

It’s been an incredible journey and one I’m glad to have shared and held myself accountable to by writing this blog. It had kept me focused on the goal.

 

I couldn’t end this post without thanking my girlfriend who has taught me so much about frugality and self-discipline these past few months. She has supported me through this period of change and now we can have a healthier and happier life together.

 

What now?

 

The next stage could be to sell my car. Then I genuinely would have no debt (other than my mortgage). But I do like that car… no, I love it.. but selling it is the sensible thing to do. Let us see.

 

Next month I shall start building a buffer of savings of around 3 month’s worth of expenses. On my current budget that is around £7000-8000. I will target about 4 months to get there.

 

 

 

May update

May has been a long month by all measures. Many things have come to a head and I’ve felt both directionless and demotivated at times, and extremely excited about the future at others.

Firstly, the issues with the company have made me reassess what I am doing career-wise. I think I’ve mentally checked out of the company, and although I have half-heartedly applied for new jobs, it’s only a matter of time before I do so properly. I just feel there is no point in working hard for a company that is on the brink and is being run so irresponsibly. The atmosphere in the company has become rather unstable and certain individuals are attempting a power grab (the chairman’s son-in-law). As he is a deeply unpleasant man and is unlikely to be going anywhere, it only leaves me with one choice long term. In the meantime, I will keep working and collecting the dough.

Secondly, a visit by some antipodean friends of my girlfriend gave me some great ideas. They had given up their jobs and were planning on travelling round Europe in a camper van. It will be 3-4 months of adventure and fun. Although they were not officially doing ‘FIRE’ they were certainly far more financially free than me. It goes to show that at age 28 and 26, with careful saving, they were able to undertake this great adventure. They don’t do very high paid jobs but decided this was a goal and lived a lifestyle that would allow them to reach the goal. They lived in a shared house in Melbourne and didn’t eat out much. Now they have enough money to give up work, buy a camper van and live carefree for a bit. Well done them.

The great idea was the result of a side hustle that my friend had where he ran a website and provided services to contractors making £16,000 in the process. I realised that I could do exactly the same thing with my skills albeit, providing a different service. So I plan to set up a company of sorts and do it part-time. Should it take off, I would do it full time. Watch this space…

Debt progress

I have been paying off my debts steadily. I have to confess that I didn’t mention a £700 credit card bill that I let sit since February in any of my previous posts (mainly because I was ignoring its existence). So that was disappointing, but it was there and is now paid. I also paid £300 to my other loan which got me below the £3000 mark. This was a huge achievement and the end really is in sight.

I feel like I am 2-3 months away from clearing my debt. This is slightly longer than I had anticipated but I have felt the need to splurge a bit this month. A trip to Bath for the weekend, eating out a fair bit, and a trip to Scotland to visit my mother have eaten into my balance. However, they were all needed and enjoyable. I didn’t use a credit card to pay for any of them and I still have money in my account at the end of the month AND I paid £1000 of debt off. Not bad.

I do feel I will have to reign it in a bit this month however and really get to the end of the debt, but overall I feel that my finances are under far greater control than they ever were before.

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Dream campervan

 

 

 

Housing in London

London, Londra, Londres. What a city. Home of The City, Big Ben and Buckingham Palace. Hub of culture with galleries, museums and stunning architecture. Home to culinary delights and thriving nightlife. It is indeed a great place to live, but I’m not alone in that view.

The result of this popularity is many, many, people arrive from around the UK, Europe and the wider World come to experience what the exciting cultural melting pot has to offer.

My girlfriend came from Melbourne, the world’s most livable city for seven years running, to live in this city. I have many friends here from Spain, Hong Kong, Sweden, and the USA who love this city. I love this city and have lived here for 10 years in total (I myself came from Scotland to live here).

The downside to all this is of course that it is expensive to live in London. No shocks there I hear you say. However, what does this mean for my ambitions for financial independence?

High costs

I have been reading Mr Money Moustache’s (MMM) blog this weekend and I note that he lives in a rather dreary small town in the middle of nowhere in America. Although I love his blog, I am in no way ready to move to a place without the benefits of a world-class city.

To live in the UK in a similar place, I believe one would have live in a small suburb of Leeds or Norwich.

It led me to question, is my love of London hindering my development towards financial freedom?

MMM’s article points out, and rightly so, that your house is a place to live and not an investment. I have taken that view for many years now, but at the same time have benefitted from London’s surging property prices. I now have around a 60/40 ratio of debt to equity ratio.

MMM extolls the benefits of reducing costs to a minimum. Again, I completely agree and I am still on that journey and have made good progress. I was doing this before I’d heard of FIRE as I was simply broke for some time. I will continue to seek savings.

My elephant in the room is the cost of my mortgage and service charges on my flat.

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What can I do?

I could move out and sell my flat. The main issue here is I will have to rent or buy somewhere else. I believe renting a similar place would now be more expensive than paying my mortgage. I could go back to share housing, but I’m going to reference MMM’s article that a house is meant to make you happy and I’m not sure that this would achieve that! I’m 35 and while I loved sharing a house in my twenties, there is value in having my own place.

Having said that, I rent out my spare room for a few nights during the week to a friend. That nets me £500/month which helps me pay my £838 mortgage. The income is tax-free on the ‘rent a room scheme’ the UK government runs. Apparently, this is called ‘house hacking’. I did not realise this until recently either so well done me as I’ve been doing it for 5 years.

I have £350 service charges per month this year so still, suffer massive expense. I hope this will reduce back to something more reasonable next year.

I remortgaged last year to the lowest possible level at the time so I think that I am getting good value (but one I would highly recommend you do yourself).

My girlfriend moved into my flat in November 2018. and that too has been great, but it has the plus side of saving us both money. It’s allowed me to seriously pay off some debt, and also to allow her to fulfil her ambition of being a yoga teacher by paying for the expensive training.

However, today, I am wondering what more I can do. At some point, I may want to have a family and we may need to move to a bigger place. I can’t stomach the idea of getting an even larger mortgage to make that move to a bigger flat or a house (We could manage up to £650,000 which would mean a large 2 bed flat in the area we live in or a shitty house out in the sticks). I won’t even mention the Stamp Duty tax I would pay on that… Too soon for that.

I think I will stay put for now and find ways to reduce and reach the % savings I want. MMM’s article on the percentage you need to save is mind-blowing in its simplicity and is what is leading me to improve my ‘ratio’. If I stuck to my budget I could get about 46% presently, so much room for improvement. Once I sell my car I could get up to 55% (ok I admit I’m dragging my feet on that one!).

The biggest expense I currently have is my home and therefore reducing this will increase my percentage by the largest margin. Perhaps the exercise of exploring options has been useful to see that I actually have an OK deal. Perhaps it is more the exercise of patience on my part that is the real thing I need to do. Either way, I would probably have to do something drastic to make a significant difference. The dramatic thing may be a step too far (for me).

I would really appreciate any ideas from the FIRE community to help me with this conundrum.