This is the first instalment of my monthly reports, where I’ll be disclosing my financial circumstances as of the previous month, with snapshots of the spreadsheet I use to track everything! You can download your very own template of my spreadsheet at the bottom of this post. I’ll go into a bit of detail on each snapshot to give you some context. My hope is, that this will highlight to you that I’m very much similar to a lot of people my age, I don’t make a ton of money, I live a relatively average life, and yet I’m able to retire many, many years before most of my peers who are of a similar age. Simply by applying the tools and the knowledge I’ve picked up from those in the FI community. By sharing this, hopefully you can draw similarities to your finances and see where you might be able to make some positive change to help you get your finances in check and maybe retire early yourself!
Anyway, let’s get stuck in!
Our Expenses for March:
As in a previous post, I’m blocking out the names in the gifts section so as to remain anonymous. But in summary, last month was a pretty average month! The only thing I’d point out on this tab of the spreadsheet, is that our ‘Shopping’ in the ‘Luxuries’ table is a little higher than usual. We’ve had to accept that having a baby in the house who needs new clothes and new toys and everything in between on a monthly basis makes it difficult to stick within our previous average monthly shopping spend. Also, I made my final payment on my car this month!!! SO HAPPY about that. That’s £190 extra I have per month to save towards retirement and our other pots. The overview of his month’s spend is put into a nice chart in my spreadsheet, which looks like this for March:
Our Savings for March:
So, we managed to save just under £500 this month. Not bad considering my wife is on maternity pay right now. Also, this doesn’t include our salary sacrifice pension savings, which together, more than double this! I only count on this tab what comes out of our take-home pay each month.
You’ll notice, since January my total savings in the top table (our pension savings) has gone down in value 😒 this is due to the current volatility in the stock market because of Coronavirus. So, despite adding £hundreds each month in additional savings, it’s STILL going down. However, I’m comforted by the fact that I’m in a better position to buy shares now than I ever have been. And deals in the market have never been this good for me! So, take my advice here, if you’re in a similar situation, seeing your investment account go down month after month. Fear not! It WILL bounce back. I think it’ll get worse before it gets better, if I’m honest. So I plan to take full advantage of that! Then, when it does bounce back, you’ll see the total row in that top table start to shoot up! And the graph below will look a great deal more promising!
Side note – I need to remove the row for my wife’s pension as hers is based on average earnings rather than a total pot to draw down on like mine.
Equity & Assets
So, I dunno if it was something to do with the current market volatility resulting from the global pandemic. But our house value shot up last month from £309,000 to £314,000! Giving us total equity of £93,550.12. This, in addition to our other assets, comes to a total of £100,159.
Our total long-term and short-term debt for March was £230,736. We’re only three-and-a-half years into our mortgage which forms the bulk of this. I’m looking into the benefits of overpaying on the mortgage vs investing what we would be overpaying to see which route to go down. I’ll write a separate post about my findings as I’m sure others want to know how the most efficient option, too!
Finally, this is where our net-worth stands as of March 2020 – £115,113.35. It’s not going up as much as I’d like at the moment due to all the Coronavirus stuff impacting the markets which has seen our investments go down in value. However, like I mentioned before, this is only temporary and I expect to see this pick up towards the end of the year!
That brings March’s monthly report to a close. Subscribe below to ensure you don’t miss next months report! If you like the look of the spreadsheet I use to track all of this, you can purchase the template below.
My Path to Fire Spreadsheet Template
There are instructions on each tab so you know what information to put where. The formulas within the spreadsheet work out everything else for you! Once your payment has been processed, you'll receive the document to your inbox within 24 hours. If you need any help with it, reach out to me via Twitter or Facebook using the links at the top of this page.
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This first frugal win is a really obvious one that I’m surprised more people don’t do. And one that has easily saved us thousands of pounds! DIY. I have a few examples of this, but the biggest one, in terms of savings was when I refitted our bathroom, floor to ceiling, plumbing and all, completely by myself simply by taking advantage of the plethora of free information, tutorials and ‘how to’ videos available on YouTube.
We were somewhat forced to refit the bathroom in our house only a year or so into moving in. After returning from a family holiday to discover the shower had leaked in the wall, through the floor and the downstairs ceiling causing quite a lot of damage! Here’s a picture I took of the damage after removing the tiles to expose the leaking plumbing above the bath.
This all happened long before I’d discovered Choose FI and started my journey towards early retirement. But I had always been capable with tools and mindful of unnecessary expenditure. Plus, we’d just got back from a holiday and had £0 in the way of savings.
We had two choices: borrow money to pay someone to re-fit our bathroom, or borrow less money and try to do it myself. The first option was going to cost us somewhere in the region of £3-5K. After a little investigation a la internet and YouTube, I was able to find all the materials I needed (tiles, shower units, bath tub, taps etc) for under £1K and all the how-to videos for every skill I needed to complete the bathroom myself: tiling, plumbing, radiator installation, etc. The clear benefit with option 2 being, I don’t need to pay myself labour. The only sacrifice was having to use two weeks of holiday from work in order to complete the task.
Frugal Hack Stack!
I’ve mentioned in a previous post about how I love combining, or ‘stacking’ various methods of saving money together to get the maximum saving/benefit! For this frugal win I was able to take advantage of my company benefits, which got me discount at Wickes & B&Q (plumbing & tiling materials). I also had B&Q discount vouchers for £10 or £20 off when I spent £50 or £100 (which you could re-use due to a convenient flaw in their system!). AND I paid with our rewards credit card and then paid this off with the loan we had to get to pay for the bathroom (because we weren’t financially savvy and had no savings at the time). That’s a triple frugal hack stack!
Here’s some images of the before, during and after:
Again, I had zero experience with tiling or plumbing prior to starting this job. But with the help of YouTube I was able to achieve this! If I can rip-out and re-fit an entire bathroom from top to bottom, I know you have what it takes to complete that job that needs doing in your house that’s been on your mind, that you’ve considered getting a quote for and letting someone else do. Don’t get me wrong, if it’s dangerous or something that requires certification, like a boiler installation, get a professional in! But if its decorating a bedroom, installing a new toilet, some tiling in the kitchen, these are all things you can do with a little thought and time. And it’ll save you £hundreds! If not, thousands! Like my handy work here. This would have cost be around £3-5K. Instead, it cost me a touch under £1000 in parts and materials!
So, go on! i challenge you to take on that job in your house and see how much you can save yourself. Tweet or message me your pictures and let me see your handy-work!
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Herein marks the beginning of an endless series, all about frugality.
My intention with this post is to talk about what frugality is and what it means to me and go into some detail on the frugal actions I take which enable us to save money on everyday expenses, purchases and bills.
I’ll follow this up with a numbered series of ‘Frugal Win’ posts, where I’ll record any and all wins that have saved us money as and when they happen.
Hopefully, you’ll then be able to apply some of these wins yourself and maximise your savings rate by saving the difference!
Remember the motto: Earn more, spend less, save the difference and enjoy the ride.
This is the ‘spend less’ part.
Noun: the quality of being economical with money or food; thriftiness.
I want to start by making it clear that frugality is not about limiting your life to the point that you’re miserable.
As I mentioned in a few previous posts, it’s about being intentional; when you’re about to make a purchase, be it in a store, a supermarket, for insurance, a holiday, or for a household bill, stopping and thinking:
a) Do I really need this – what are the consequences if I don’t make this purchase?
b) If I need this, do I really need it right now?
c) If I need this right now, is this particular purchase good value for money?
d) If I don’t feel like it’s good value for money, can I get it cheaper elsewhere?
e) If I can’t get it cheaper elsewhere, can I save money (discount code/coupon) or collect points, via a rewards card or credit card that earns you redeemable points?
Let me know if I’ve missed anything!
These are the questions that go through my head any time I’m buying anything. To me, this is something I quite enjoy and treat like a game.
Parting with my cash only happens when I’m happy with the answers I’ve given to all of the above. Let’s go through these questions and list out some examples and what my responses and thoughts are.
“Do I really need this”
Obviously, this largely depends on what it is. If it’s food for your household grocery shop, then yeah! You probably need it.
But even with this, there’s opportunities to save and get more value for your money. Using myself as an example, when I shop, I avoid branded foods wherever possible and go for the store brand wherever I know that the quality is the same, as it usually costs a fraction of the branded equivalent price.
Obvious, right? Good.
Also, go to the store with a list. Going without a list is a recipe (pun intended) for disaster, as you’ll end up buying things you didn’t need because they were “on offer”. I see you! 👀
Many in the FI community rave about Aldi and Lidl for getting great value on their shopping, and I think these stores are great.. so long as you have one close enough to your home.
I don’t have one near where I live, and don’t fancy driving 20 minutes each way to get to the closest Aldi.
I don’t see that as a good use of my time and fuel when I have a Sainsburys, literally around the corner from my home that I can walk to in less than 5 minutes!
Also, I’m reassured by the fact that they won lowest price supermarket of the year in 2019 out of the big four: Sainsburys, Tesco, Asda & Morrisons. I also get added value by using a nectar card which awards us with points for every £1 we spend.
These have a monetary value we can redeem in store or with their partner brands. In addition to this, we have a Sainsburys credit card, which earns us additional points for every £1 we spend in store or at their petrol station, and points for every £2 we spend elsewhere.
We use this and then pay it off immediately from our ‘food-shop budget’. We earned around £300 in points last year, which we put towards our Christmas shop and gifts.
In my view, we earned money by spending money we had no choice but to spend! No-brainer.
If you regularly shop at the same supermarket and don’t, at the very least, have a rewards card for that store. Get one now and watch as your points pile up!
“If I need this, do I really need it right now?”
So, similarly to the above question, if this purchase is for an ‘essential’ item like grocery shopping, car/home insurance or anything else otherwise unavoidable, then it’s easy to tell that there are clear negative consequences to not making that purchase as an when you need it.
However, that doesn’t mean there’s not money to be saved! You should move on to the next question.
On the other hand, impulse buys are a category of spending that you need to apply this question to. We’ve all been there, scrolling on our phones and getting targeted adds for all this cool stuff you’ve recently searched for and, wow, it’s miraculously on offer too! Stop!
Ask yourself the first question.
If you decide it’s something you do need or really really want, then think about if you really need it right now.
If it’s not an immediate need, my recommendation is to put it in your online basket and leave it there for two weeks. If you still think you need it in two-weeks-time, go right ahead!
In most instances, you’ll find yourself forgetting about it completely, or, coming to your senses and realising it was very nearly a blatant impulse buy.
You just saved yourself some money! Now save that and invest in your future.
“If I need this right now, is this particular purchase good value for money?“
This one’s simple.
Once you’ve established that this purchase you’re about to make is an immediate need, shop around!
Check similar retailers, use pricespy.com, check ebay as well as amazon. Don’t assume amazon has the best price.
Identical items can often be found cheaper on ebay with free delivery! If the purchase is for some form of insurance or household utility, check at least two different price comparison sites.
Or, check what offers your chosen supermarket bank has on. You may find their prices to be competitive, and if if slightly more expensive, that may offer large amounts of bonus points which have a monetary value and therefore, actually makes the price cheaper than the next best quote.
This brings me to the next question:
“If I don’t feel like it’s good value for money, can I get it cheaper elsewhere?“
I’ve managed to save us thousands of pounds over the years by simply shopping around for the best deal.
Our gas and electric utilities when we first moved into our home were £120/month.
The first time I switched, this went down to £98/month.
The next time: £58/month.
Insurance is a similar situation. Never stay with the same provider out of convenience.
There’s no excuse these days with the number of reminders you receive when your insurance is approaching renewal.
I guarantee you, you will find the same product, or better cheaper elsewhere if you just take half-an-hour to put your info into a couple of comparison or switching sites.
“If I can’t get it cheaper elsewhere, can I save money (discount code/coupon) or collect points, via a rewards card or credit card that earns you redeemable points?“
If you happen to find yourself in a situation where you’ve scoured the comparison sites to no avail and you can’t find the item or service you need elsewhere, then consider your other options.
For example, can you earn rewards points on the purchase? Is there a discount code or coupon available anywhere?
Usually a simple google search throws up all sorts of offers and discounts.
Or, can you simply pay with your rewards credit card which gives you points for every pound you spend anywhere?
My favourite thing to do is to stack these options.
For example, our home insurance is through Sainsburys. We got a discount of 10% for being a nectar card holder, received 7,000 points (worth £35), got double points for the rest of the year, and we paid on our Sainsburys credit card which earned us 2 points per pound of the £156 the insurance cost us.
Also, if you or anyone in your family has access to their University email account, you can sign up to services like Unidays or Studentbeans.
These give you access to dozens of discounts and special offers for all sorts of goods, services, food and drink!
If you ask yourself these questions and explore, for just a few minutes how you might be able to save money on, or benefit from the everyday purchases you make, I guarantee you’ll get addicted and save yourself a small fortune in the process!
This is the start of a live series in which I will document my own ‘frugal wins’ – real life scenarios where I’ve saved me and my family loads of money by applying the above steps.
Make sure you subscribe below so you don’t miss a single one!
I’m certain you’ll be able to apply the learning’s from my frugal wins to save yourself a nice stack of cash!
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So, our house needs ventilation. The reason being, it was built in the 1930’s and has a cavity wall which has since been filled with rock wall insulation. This was commissioned by previous owners in an attempt to improve the thermal efficiency of the house. And it works! The building also has double glazing and 300 mm of loft insulation. It’s pretty air tight to say the least! For any older home, this is a problem.
Why? These houses weren’t built to be sealed up. There were designed to allow moisture generated within the home to dissipate through the walls and ceiling and into the atmosphere outside. As soon as you block the escape of all this moisture, it has no choice but to settle wherever there are cool spots around your home. This, normally, is the side(s) or corners of the house that get no direct sun light on them or are shaded and thus, are cooler. For example, if you have a south-facing home, the north side will be cooler. And as such, you’ll notice condensation and moisture more on the windows and walls of that side of the house. For example:
Now, a little condensation isn’t necessarily a problem. However, it’s estimated that an average household produces and releases more than 10 Litres of moisture into the air inside their homes every day! Just from everyday tasks like showering, drying your washing, washing your dishes, ironing, even breathing! This can become a big problem if your home does not have the ability to disperse this moisture out of the house. This is when you’ll find that you have persistent condensation in the cooler rooms of your house, when the rooms in which you find the condensation rarely get a chance to normalise the relative humidity by allowing the moisture to escape. This will eventually lead to the formation of mould. Around windows, on your walls and skirting boards. Anywhere that there is poor air circulation. Simply opening a window will help. But in the winter, this goes against all logic and the aim of having a warm home, right?!
This is where ventilation comes into use. More specifically, Positive-Input Ventilation (PIV). It works by introducing fresh, filtered air into the house from the loft space, or outside and pushing the old, contaminated, humid air out of the home. Basically it pushes fresh air in, which forces stale, wet air out. Thus, eliminating condensation and the resulting mould.
“Okay, but how is this a frugal win?”
Easy. I had no idea that this was the solution to the problems we were experiencing in our spare bedroom (north side of the house), until I done some googling and quickly discovered that some kind of ventilation could potentially be the solution! But what kind of ventilation? How many rooms need it? Where do I position it? And, most importantly, how much was it going to cost!? Well, to find out, I googled ‘Home ventilation solution’ and the first company that came up was ‘Envirovent’. I made a query through their online form to arrange a free survey. A lovely woman called the next day to discuss the situation. I explained that we had a house built in the 30’s which has been retrospectively insulated and sealed-shut with ‘energy saving’ measures, and that we were experiencing some issues with condensation and mould. She explained that the solution we needed was a positive input ventilation system which they could supply and install for the small fee of £2,800. I was interested. But my frugal brain kicked in. “Okay, I’ll have a chat with my wife and see what she thinks”. The response every sales persons dreads!
I spent the next few minutes searching online for the solution she described to me in great detail to see what else was available. I knew exactly what I was looking for now. Lo and behold, I came across Nuaire! They supply systems which perform exactly the same function as the system offered to me by Envirovent. The difference being that they are specifically for self-install and cost a fraction of the price. For the two PIV systems (one for upstairs and another for downstairs), it’s going to cost me a little over £700. I’ll share the amazon links to the two systems I have below. (In the interest of openness, yes, they are affiliate links. So, I will make about 3%. But I only recommend products that I have personally used that I know are worth the money and I’d appreciate you supporting me. If you need a self-install home ventilation solution, you won’t regret these).
Being a self-proclaimed handy man when it comes to DIY, with a mind wired for frugality, this was clearly the right choice for me! I was getting the same result for £2K less! Amazing!
I used the product in the top link in the loft space to ventilate the upstairs, and the one below that I put in the downstairs utility room/toilet, which is another cold-spot in the house that suffers from condensation and the occasional spot of mould.
I honestly can’t rate these highly enough. Our condensation problems: gone. Our mould issues that we’ve suffered with for nearly 4 years: gone! The only cost, other than the upfront purchasing price, is an increase in our electricity bills of less than £3 per quarter! Less than £1 per month for a mould and condensation-free home with less pollutants. Another no brainer!
I will say, unless you’re relatively confident with the basics of DIY, and by that I mean using a drill and a screwdriver, then you should get a handyman or local electrician to come and install this for you. Honestly though, if I can do this, I think anyone can.
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I’ve been thinking hard about what qualifies me to refer to myself as ‘Financially Savvy’. So, in this post is what I have determined to be the milestones that must be reached in order to achieve peak ‘Financial Savvy-ness’. It’s really quite straight forward. It’s simply an amalgamation of the things I learned about my personal finances and how to improve them. All you need is a little bit of time – a few hours should do it, and a spreadsheet. You can download my personal template at the bottom of this article. I’ll break it down as if I were talking to my lesser-savvy self, just 1 year ago.
1 – Know your monthly income.
I mean really know it. If you’re on a lone quest to FI, this will be much simpler. If you’re part of a household, you’ll need input from your other half. Involve the kids too if they’re old enough to comprehend money. I think it’s healthy to get them talking about this stuff from a young age so they don’t have the traumatic experience I, and many other students had when they first left home and learned how expensive cheese and washing tablets were!
Start by figuring out your after-tax earnings for your main job(s). If you’re salaried, this is easy. If you’re self-employed or a non-fixed shift worker, you’ll want to take an average of at least your last three months. Don’t count bonuses. These should be treated as extra if possible. Invest these bonuses wherever possible! Unless they make up a very large percentage of your monthly pay packet, of ocurse.
Next, it’s any benefits (e.g. Child Benefit) followed by dividends or rental income etc. Although, if you’re anything like I was a year ago, those things won’t even be on your radar.
Once you’ve listed all your income sources, sum them up. You can do this in tab 1 of my spreadsheet. Hopefully, this total looks like a nice chunk of cash! That is, until you minus the sum of your expenses. Which brings me to Step 2.
2 – Know your monthly living expenses.
You read that thinking ‘This is easy, I just add my rent/mortgage, household bills, what I think we spend on shopping… how much is our car insurance again?’ *checks statement*… ‘What’s this payment for Amzn*0024856 for £23.56!? And why are we still paying for the gym membership we haven’t used in a year-and-a-half!?’
Until you start looking into it, you have no idea how much your true outgoings are per month. It’s not good enough to have a ‘rough idea’. And if you don’t have a budget for things like groceries and eating/drinking out, then I can guarantee, you’re sinking way more cash into these categories than you might like to think!
With this in mind, I cannot emphasise this enough… Get a budgeting/money managing app! I use Yolt. It’s incredible! I hear YNAB is also good. Link all your accounts. And I mean ALL of them. Your current accounts, credit cards, savings accounts, e👏ve👏ry👏thing👏! It does all the hard work for you. And don’t worry, these apps are set up with bank level security and encryption so your data and info is safe and protected. All you need to do then is, monitor the payments that come through and categorise them appropriately, e.g. a payment comes through for that cheeky McDonald’s drive-through and logs itself as ‘groceries’ – I’d change this to the ‘Eating out’ category. Once you’ve categorised this transaction, it’ll unearth all your previous McDonalds transactions and ask if you’d like to re-categorise those too! Magic! You can’t change a bad habit if you don’t know you have one!
Run this for a few months so you can get used to the categories and functionality and before you know it, you’ll have a thorough, live feed of exactly what your monthly expenses are! So long as all your active accounts and cards are linked, this will be as accurate as you can get.
Each month, we look at our outgoings for each category and agree on where we’re spending more than we’d like so we can adjust our behaviour the following month. It’s really quite shocking how much we spend on takeaway food some months. But Yolt helps to keep us in line!
You can now write all your expenses out into tab 1 of my spreadsheet with as much or as little granularity as you like. Update this on a monthly basis, along with the rest of the tabs in my spreadsheet, if you’re using it, and you’ll get a monthly reading which you can use to update your ‘Expenses In Retirement’ tab as you approach this phase of your life. This will enable you to stay agile in the face of changes to living costs and ensure you don’t retire too early. Or worse, work longer than you have to! Erghh.
3– Know your debt.
So, you now know your monthly expenses, and this probably includes some outgoings in the form of payments for loans, credit cards, mortgage etc. But what is the sum of all that debt?
You probably don’t want to know. I know I didn’t! But you’ll never be able to tackle it if you don’t know what you’re dealing with! Plus, you’ll need this for step 5. List them out, one-by-one, including what they’re for and how much is outstanding each month. This goes in tab 5 of my spreadsheet, although some of the info is auto populated from the Equit & Assets’ tab, so don’t overwrite this!
If you’re using Yolt or something similar, this should help you capture any forgotten loan payments and direct debits that might have evaded your periphery over the years. Again, sum all of these up in tab 5 and update on a monthly bases. In the spreadsheet, there’s a live, stacked graph showing our outstanding debt each month. It’s a nice visual, especially when it starts going down!
4 – Know your assets.
This is the total value of cash and everything you own and don’t owe money on. For example, your house. The portion you own – your equity – can be counted in this. So, say you have a £300,000 house and your outstanding mortgage amount is £220,000, this means you own £80,000 of your house and this would be counted in your assets. Some people include their cars in this calculation. However, I avoid this as cars are generally a depreciating asset that lose value over time. Whereas, a house, is generally an appreciating asset that gains value over time. Things I include:
Your house (Equity only)
Valuable goods e.g. Jewellery
Cash & cash equivalents (savings)
Other real estate
Then, if you really want to get into the nitty-gritty, you can include:
Equipment (electrical, mechanical etc)
You get the idea. Once you’ve listed your assets and their corresponding value, sum these up too. I update this figure on a monthly basis in my spreadsheet and it auto-fills a nice, stacked bar-chart for me so I can see my assets growing. Once you have this number, you can move to step 5.
5 – Know your net-worth.
You’ve done all the pre-work you need to calculate this. Basically, take your total assets and subtract your total debt that you calculated in step 3 for that same month. I set up a basic formula in my spreadsheet so that whenever I update my debt and asset tables each month, it spits out an updated net-worth with another nice graph in a separate tab. Just beware, if you’re anything like me and you’re in the early years of a mortgage and your career, you’ll likely have a very low, or negative net worth. Don’t let this panic you. Stick to your goals and savings and paying off your debts like I talk about in my previous posts and you’ll see your net-worth climbing month-over-month. Before you know it, you could be worth half or three quarters of a million quid! Seriously. Possibly more, if you save and invest wisely! Talking of goals, let’s dive into Step 6.
6 – Know your stash goal.
Your stash, as I mentioned in a couple of previous posts, is anything from step 2 – your monthly expenses – that will still be applicable in retirement. I took off my mortgage and all our consumer debt payments, as I plan for these to be fully paid-off before we reach retirement. I then added on extra for eating out and A LOT more for holidays and travel. Using my spreadsheet, or your own, figure out all these yearly expenses in retirement. Think about the retirement you want to have and try not to limit yourself. Again, make sure your partner is involved in this conversation too.
Your stash goal will also change depending on if you’ll be earning any money in retirement. For example, if you’re part-time consulting or blogging. Factor this in if you can, as it can make an enormous difference to your FI date (the date you can leave your main employment and do what you want). If not, go worst-case like I have and assume you’ll be getting nothing extra. This way, anything additional will be a nice bonus! It doesn’t have to be bang on perfect, you can adjust each year as you approach retirement so it’s accurate. Then, multiply this ‘total yearly expenses’ number by 25. So, say your expenses are £30,000/year x 25 = £750k. Your FI number is 750K. If there are two of you, it’s however you want to split it depending on your saving potential. I’ll leave you to decide that!
This FI number is your ‘perpetual money-making machine’. You can draw down 4% of this each year without ever running out. ‘How?!’ you ask. See step 7. Also, how and where you invest will result in different tax requirements. For example, if you invest now into an ISA you don’t have to worry, as you’ve already paid the tax from your salary and saved into your ISA whatever you had left. However, if you’re paying into a SIPP or, company pension, you get tax relief and can take 25% of what you save for retirement tax-free once you hit 55. Anything else though, will be taxed at the same rate as anyone’s equivalent salary at that time. For this reason, multiply your FI number by 1.25 to account for a rough estimation of your tax and national insurance payments, assuming you’ll be in the 20% bracket that is. My spreadsheet takes care of all of this and has a section where you can manually enter the estimated value of your savings once you reach your TRA (target retirement age). This can be easily calculated using an online, compound interest calculator, entering what you have now, what you pay in monthly and what your average yearly return is on your investments. If you sum these up and calculate 4% of this total, you’ll have your yearly income. Now you know how close, or far you are from your goal! My ‘retirement expenses’ tab in my spreadsheet works this all out for you. Now you need to know how to bridge that gap, if there is one…
7 – Create a plan to achieve it.
Once you know how much you need for retirement, you need to create a plan to get there. This will involve one or a few of a long list of strategies, hacks and techniques that have helped and continue to help many in the FI community achieve true financial independence and an early retirement. Firstly though, you’re going to need to save, and get good at it! See the post in my ‘Early Retirement Strategy’ series: ‘How to maximise your savings rate’ for a thorough overview of how to optimise your savings and get on the fast track to an early retirement.
The next part of your plan is making that money you’re saving work for you. So it grows exponentially in the time you have between now and your target retirement age. The single, most effective and powerful way of doing this is by investing. No, I’m not saying you need to become the next Wolf of Wall Street, or start gambling away your money in the casino that is day trading or buying call and put options. Unless that’s your thing, of course! But I wouldn’t recommend it! I’m talking about a ‘set-and-forget’ strategy of investing that has produced annualised returns for multiple, multiple decades of around 9%. It’s achieve by investing in low-cost index funds. These are the same type of funds that I spoke about in an earlier post, which your pension is likely invested in. However, you’ll need to open up a brokerage account with a provider who charges low or, no fee’s. I use Freetrade. Most in the FI community use Vanguard or Fidelity. The reason I use Freetrade, obviously, is because it’s free to make trades of any size at any time of day. The only charge is a £3/month fee for holding an ISA. They do have a free ‘basic’ account. However, the ISA means I can invest up to £20,000 each year and none of my gains or dividends are taxable!
There are other providers out there who have free ISA accounts, but Freetrade is extremely intuitive and easy to use, especially for beginners in the stock market. They also offer a long, ever-growing list of ETF’s (Exchange Traded Funds), which is another name for index funds. Just always, always, always check the ‘Costs and Charges’ document for these ETF’s. I tend to stick to a 0.5% ‘Ongoing charge’ and below. So long as it tracks a fund which I believe will continue, or, begin to grow over the coming years.
Also, as a side note, they have a referral offer where they will give both you and whoever you share the link with a free share, worth up to £200 if they sign up and top up their account with at east £1! Let me know in the comments below, or on twitter if you’d like my link and I’ll share it with you! It’s free money in my eyes. Then you can go on to recommend your friends and add to your portfolio for nothing!
I’ll have a monthly post where I disclose my investment portfolio to share with you guys where my money is invested and why, to help you make informed decisions about how to invest your cash.
“But isn’t the stock market risky?!”
That depends on your strategy. If you’re investing in individual, speculative stocks without looking at their balance sheets, reading their quarterly & yearly reports and truly understanding the business model of the company you’re researching, then yes. That is extremely risky. However, if you’re investing long-term (more than 5 years), in low-cost, diversified index funds with exposure to the global stock market, then no. Not entirely. Don’t get me wrong, there’s always some element of risk with the stock market, because it goes up and down all the time. But look at any 5-year period of any stock market exchange and you’ll see the same thing in most instances: they all go up over the long run. I’ll be covering this in a separate post, as I mentioned above, to give you much more detail and the breakdown of my personal approach. But ultimately, low-cost, broad-based (diversified) index funds have yielded an average annualised return of 9%. There isn’t a savings account in the U.K. right now, neither will there ever be, that will pay anywhere near 9% interest per year! Plus, savings accounts don’t pay dividends! Most index funds do! The great thing about this is, the money you earn from dividends can be re-invested to buy more of those same index funds, which continue to grow at an average of 9%, and now pay you more dividends because you own more shares of that fund. Your money will grow more money. Seriously.
So, how can you withdraw 4% of your FI stash in retirement and never run out? In simple terms, say your stash is £500K. This means your expenses in retirement were £20K per year. So, you withdraw 4% of your stash per year (£20K), leaving you with £480K still invested across your portfolio. As this £480K is still invested, it will continue to grow, most years, with the global markets it is exposed to. As discuss earlier, on average, this will be by around 9%. This turns your £480K into £523K by the end of that same year. So, the next year you take another £20K, leaving you £503K, which grows 9% to £548.5K… and so on. Get it? Magical isn’t it!
Now! Obviously, like I mentioned before, markets go up some years and down others. So you need to be flexible. But this flexibility goes both ways. If the markets consistently go up for 2-3 years by more than 9%, you can give yourself a pay-rise! Maybe set some aside or leave it invested for when you really need it. If they grow by less than 9% in a year, I personally wouldn’t worry. Just keep taking your 4%, as this will average out with the years the market outperforms that 9%. However, if the market has negative growth for 1 – 2 years, then you’ll need to give yourself a pay cut to be on the safe side. Therefore, it’s best to factor this in when you’re working out your stash goal! Just rest-assured that the 4% rule has worked out for people 95% of the time. Remaining agile in the rare instances that the market dips for a few years can give you a potential 100% success rate! In fact, in more than 90% of historical cases. The 4% rule meant people ended up with many, many times what they started out with when they first retired.
That covers the basics of investing and the 4% rule. Look out for my future post on my choice of investment platform and which funds I am invested in.
So, hopefully by this point, you now have an understanding of your current circumstances and at what age you’re currently set to retire at. Armed with the information above, you can now form the makings of a plan to bring that retirement forward by as many years as possible. You should start by following all the steps above. Build yourself a spreadsheet to capture everything, or download mine (I’ll link it at the bottom), and read my previous post about maximising your savings rate. Then, take action on the advice in these posts: pay off your debts, save more, spend less, earn more wherever possible, and invest the difference. Once you’ve got all of this in motion, you understand the value behind it, and you see the massive potential this information has, and the enormous, positive impact it can have on your life, then, in my opinion, you can consider yourself financially savvy, too!
Let me know in the comments below if you have any questions. Or, contact me on Twitter @FiSavvyDad. If you got value from this and don’t want to miss any future posts, then subscribe below to join the FSD notification squad to get new posts direct to your inbox!
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Download my Spreadsheet here!
Path to FIRE Spreadsheet Template
You can purchase the template for the spreadsheet I use to track my finances and plan my early retirement here. Each tab has instructions on how to fill it out and guidance on what information to put where to receive a holistic view of your personal finances, your retirement plan and your progress towards achieving financial independence and an early retirement!
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Your savings rate is the percentage of your take-home pay that you save every month.
It’s that simple.
Lets break this out into an example.
Say you earn an average UK salary of £36,000, that you have student loan debt, and that you’re enrolled in your company pension plan which matches your contributions up to 5%, which you went ahead and maxed out after reading my last post. This is what your pay slip would look like:
Your take-home each month is £2,119.56.
Although your pension is taken before tax, we calculate your savings rate by working out what your contribution is as a percentage of your take home pay, because this is the amount you have control over and choose how to distribute.
So, with this in mind, and based on the above example, you’re saving roughly 5.85%. However, your employer is matching your contribution.
They’re likely to be topping that up with the national insurance relief they receive from the government as well. This will be about £15 or thereabouts.
So, £124 (your contribution) x 2 (your employers contribution) = £248 + £15 (NI relief) = £263. £263 / £2119.56 x 100 gives you a savings rate of 12%.
Could it be better? Definitely.
Although, that also depends on your FI number – the lump of cash you need to retire on.
My FI number, as you’ll remember from my second post, is just under £700k. To achieve this in my 40’s, my current savings rate is around 35%. This is made up of: my company pension scheme contribution of 6%, my employers contribution of 4%, their NI relief top-up, my personal monthly investments of £300, and our rainy day savings fund.
I’m also lucky enough to receive bonuses at three points throughout the year: one is performance based, at around 5% of my gross salary in March, another long-service bonus of an additional week’s pay in August, and a Christmas box bonus of about £250. I save 100% of these also. This probably adds a couple of percentage points to my yearly savings rate.
Now, it sounds obvious, but the trick with this percentage number is to increase it as much as practicably possible.
I say this, because there will be periods of your life when you can save less and periods when you can save more.
Right now, we have a 16-month-old in the house burning through clothes, nappies and toys like there’s no tomorrow.
This is set to continue for about 17 years, minus the nappies, I hope.
But then, my salary will more than likely be increasing along the way too. And, as your salary inevitably increases with promotions and performance reviews over the years, you increase your savings in line with this, like I have, so that your savings rate as a percentage of your increased take-home pay does not go down.
Some people find it easier than others to save. But, essentially your savings rate will be hindered by any number of a few things. These could be:
Consumer debt – Credit card repayments, personal loan repayments etc.
Student loan repayments – eurgh.
Lifestyle inflation – buckling to the pressures of society to buy the latest version of everything: cars, phones, technology, expensive clothes, a bigger house than you’ll ever need… the list goes on.
Pay off all your consumer debt
Consumer debt is something that probably applies to most of us and is the single greatest hurdle to enabling us to save enough to do anything we want.
Sadly, this often leads to us taking on more debt to do or have those things from the third bullet above. Consumer debt enslaves us.
However, not all debt is bad. I’ll go into this in a separate post, as it deserves more attention. But basically, if you can achieve a low interest rate, below 3% and the loan is for something essential that cannot be saved for in a reasonable amount of time then it’s okay, in my opinion.
I would still avoid it wherever possible though!
Also, credit cards.
Many people see these as the root of all evil. However, when managed properly – used for every day essentials and then paid off in full at the end of each month, they’e an incredible way of earning rewards points that can be redeemed for things like travel vouchers.
The problem is, most of us have debt that is hindering us rather than helping us and often leads to vicious cycles of further borrowing down the road.
Take time to focus on paying off all of your consumer debt.
Yes, all of it.
It might seem impossible at this point, especially if you have loans with repayment terms stretching 3, 5 or 10 years down the line. But, trust me. Take a year, or two, whatever is feasible to overpay these and get rid!
Start with the higher interest loans first and, once one is paid off, use what you were spending out each month on that loan to overpay the next.
Before you know it, this will snowball and you’ll be consumer debt-free in no time! Once this is done, you’ll realise just how much additional income you have at your disposal to start ramping up that savings rate and bring forward your early retirement.
Student loans are a tricky one, as there are several repayment plans, varying levels of debt depending on when you went to University and varying levels of interest for that same reason.
So, whether you work on repaying these early fully depends on your specific circumstances.
I’ll use myself as an example. I do not make over payments on my student loan.
Well, for starters, I was lucky enough to begin my University degree in the UK before they hiked the price from a little over £3,000 to over £9,000 per year.
And because I started my course before September 2011, I’m on repayment plan 1. For me, this means I started paying my loan off once I earned above £18,924 per year. I then pay 9% of everything I earn above this threshold.
Finally, and most importantly, I pay an interest rate of 1.75% on the balance of my loan. My loan also gets written off if not paid off after 25 years from the first April I was eligible to start repaying. This will be when I’m 48.
The reason I don’t make over payments is mainly down to the fact that the interest rate is so low.
I’d only be saving myself 1.75% on everything I overpay.
And when you consider that the money I invest in the stock market is yielding returns of around 80% per year, and the amount I have invested is similar in value at this point to the amount of student debt I have, it’s clear that my money is better put to use in my investment portfolio than it is repaying a super low-interest loan like that.
Your circumstances could be completely different. So, better to look at this on a case-by-case basis.
Also, some people just want to have all their debt gone. Which is fair enough. I completely get the appeal.
I’m just all about making my money work for me in the most efficient and effective way possible. Let me know your situation in the comments below, or DM me on Twitter if you want my opinion @FISavvyDad.
“Keeping up with the Jones’s”
Lifestyle inflation is a savings and future wealth vacuum.
One of the ways I ensure that my savings rate keeps up with my growing income, is by limiting lifestyle inflation.
Getting out of the all-too-often adopted mindset of ‘keeping up with the Jones’s’. If you’ve not heard this expression before, it means buying things because other people do, or because society says you should.
Seeing your neighbours shiny-new car with this years registration plate and feeling like you should do the same so society recognises that you’re ‘successful’.
The thing is, most of the people driving these brand new cars aren’t as ‘successful’ as you might think.
In fact, the only thing most of them have ‘succeeded’ at, is falling for a clever marketing gimmick, thinking it’s a good deal getting the latest Audi or Mercedes because they can get one of those higher purchase plans where they give you a brand new car every 3 years that you’ll never actually own and can never afford the final payment on if you did ever want to get off the plan, so end up giving the severely depreciated car back to the dealership, simply to pay off your remaining debt only to find yourself with no car, or having to get on a similar deal elsewhere so you have some means of transport.
So many people do this now that it’s thought of as good value. Which is mental.
Don’t fall victim to these deals.
Be financially savvy when it comes to buying cars: Buy something reliable, cheap to run, and buy second-hand – cars that are a year, or two old tend to yield the most value.
New cars depreciate, on average, 30% in the first year.
I bought mine when it was 13 months old.
Dealership price brand new: £16,500.
Price I paid after 13 months and only 5350 miles on the clock? £8,000.
In the UK, new cars don’t need to be road-safety tested (MOT’d) for the first three years of use, too!
I did need to take out a loan to pay for it though, and as this was in my pre-financially savvy days, I stupidly took out a 5 year term 🤦♂️. I was half-way there at least!
Needless to say, I overpaid as soon as I recognised the value in doing so, and We now both drive cars that cost nothing but running costs! This means We have >£400/month more every month to deploy into paying off other debt, or distributing between my various savings and investments.
This prospect of limiting lifestyle inflation, also referred to as ‘frugality’ – being economical with money, should be applied to everything in your life that costs money!
Do you need to have the latest iPhone every year, or even every two years?
How much are you spending on coffee from the coffee store near your work?
Add it up, cry for a little when you see the damage, and then stop it.
Buy coffee from the supermarket and take it to work with you.
This isn’t about cutting back so much that you’re miserable. It’s about being intentional; recognising the difference between ‘wants’ and ‘needs’.
I get excited about the prospect of saving money on the every day costs of life and treat it almost like a game. If we’re ever buying something, whether it’s a want, or a need, I always put some time into making sure we’re getting the best price possible!
I plan to write a series all about my frugal wins, which have saved us multiple thousands of pounds, which you can use yourself to boost your savings rate!
One example though – our mobile phones: we very recently upgraded our phones to the new iPhone 11.
Definitely more of a ‘want’ than a ‘need’. I’m not perfect. Nor do I pretend to be.
The justification: we’d had our previous iPhones (a 6s and a 7) for 3 – 4 years, their memory was always running out and the cameras weren’t great.
Our daughter had just been born and we were planning to splash out on a good quality digital camera to capture all the precious memories we planned to make with her.
Then we saw how good the pictures and video’s were with these new iPhone’s, especially the portrait mode.
So instead, we decided to put the money towards the phones. We’d get new phones with ample memory, good cameras and that nice, temporary feeling you get when you receive something new and shiny.
However, I applied frugality here, too:
Discount – Through my company benefits portal, we get access to discounts with hundreds of businesses, services, stores & restaurants. One of which is Apple at 3%. Nothing major, but it’s better than a kick in the nuts! Money saved = £15 per phone (£30)
No contract – We bought direct with an interest-free credit card over 22 months. If you take a pay-monthly plan out with a provider like Vodafone or O2, you’re entering into a credit agreement to pay off the phone over the period of your contract. However, they might charge you interest, and might even charge you more for the phone than it would cost to buy direct from the company. Money saved = ~£200
Separate sim-only plan – as we didn’t go with a pay monthly contract, we got sim-only contract through virgin media. Costs us £18/month as we get £2 per month family discount for having more than one plan. This gives us ample data that we never come close to using each month. Money saved = £44
Trade-in – We traded in our previous phones for £120 off. Money saved = £120
So, basically, our two iPhone 11’s cost us £59/month over 22 months, plus £18 for our network plans. Total = £77.
For comparison, the best 24 month plan I can find is around £48/month per phone. So, £96 total for two. I saved us £20 per month! £240/year and £480 over the term of our ‘self-built’ contract period!
Frugality is fun!
Like I mentioned before, apply this to everything: food, household bills (switching), your choice of gym, discount codes for restaurants and days out. If there’s money to be spent, there’s money to be saved!
Once you’ve taken care of all of the above and you’re in full-frugality mode, you can consider more advanced methods of maximising your savings rate. Or, simply increasing your income.
However, I can’t stress enough to first take care of everything we’ve discussed above. Otherwise, you’ll find yourself burning out, trying to focus on too many new things all at once.
Take small steps every day. As soon as this is taken care of, you can consider something more advanced, like starting a side hustle – earning money on the side of your main income.
This is usually linked to something you enjoy doing that you can carry on with in retirement to keep you sane and earn yourself some cash on the side.
Vlogging, selling your crafts, or consulting are all good examples. Changing your job role, your employer, asking for a raise or, simply changing your career path entirely are all options too!
One of the things I do to increase my monthly income is flipping – buying in demand product for the lowest price possible and selling them on for a profit.
In my first month I made £722 profit! Check out the blog post on how I did it here
Don’t be a barrier to your own success by hindering your money making potential. I’ll dedicate entire posts to all these things to give you more guidance on how to increase your income, as well as answering questions like ‘should you overpay your mortgage?’.
Hopefully, this information will help you to achieve a greater savings rate and bring forward your retirement.
Let me know in the comments below if I’ve missed any of the strategies you use to maximise your savings rate. Or contact me on twitter @FISavvyDad.
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I’m still surprised by the amount of people I talk to who don’t realise that their company pension is invested in the stock market.
And that’s if they’re even enrolled in their company pension in the first place!
It’s crazy that we aren’t educated about how to save for retirement, pension plans and the stock market when you consider the fact that the entire global economy is affected by its movements and vice-versa.
Investing and understanding the stock market used to be the reserve of the rich and powerful. The graphs and ticker symbols are confusing, the hectic images of wall street traders in the news and the sheer cost of executing trades was enough to put anyone off.
So, I can understand that people don’t want to investigate their pensions and find out where their hard earned cash is being invested. I didn’t for more than 4 years!
That was until I found the ChooseFI Podcast and the Financial Education Youtube Channel, which taught me almost everything I know about the stock market, investing and how to find good deals.
I’ll talk more about retail investing, how and where I invest and my investment strategy in a another post. For the sake of continuity and helping those who haven’t considered any of these strategy’s, I want to first talk about your company pension plan and how to maximise your returns.
Get this all squared away before you consider moving on to building a stock market portfolio.
First and foremost, enrol!
If you’re not already enrolled in your company pension scheme, stop reading this right now and go and enrol!
Speak to your HR department and ask for the forms and whatever you need to get on their scheme ASAP!
If you want to retire at all, ever, you need to be enrolled in your employers pension scheme. Unless you’ve got a huge inheritance of multiple hundreds of thousands of pounds?
Didn’t think so. Enrol!
If you didn’t already know, employers in the UK are mandated to match your contributions to a certain amount. The legal minimum is 3% for your employer but most employers contribute more than this to provide incentive to work for their company.
THIS IS FREE MONEY.
If your contribution is 4% and that means you’re putting in £125 per month, your employer matches that and gives you £125 too! That’s a 100% gain immediately! Not to mention the tax relief due to the fact it’s taken from your pay before tax and deductions.
Also, company’s normally receive national insurance tax relief and will often contribute this too, which is an extra little top up.
The key message here is to get on your plan, now!
The next thing you need to do is max out the matched contribution.
If your company matches up to 4%, put 4% in. If they match 8%, then I’m extremely jealous, but put 8% in!
As I mentioned above, this is literally free money, in addition to your pay that will help you grow a nice, tidy stash in retirement.
Now, how to manage your pensions investments…
At this point in time, your company pension’s investment strategy is probably not optimised.
This isn’t your fault and it’s not your employers fault either. It’s down to a set of defaults that are applied to everyone who gets enrolled into the company pension scheme.
Your employer likely has a third party provider who receive your contribution and your employers contribution, and then invest this in a particular set of stock market funds depending on the risk level you selected when you set it up.
For most people though, their risk level is defaulted to 3 out of 5. These risk scores have corresponding funds which are set up by the provider and, in fairness, they’re normally quite well distributed, low cost, passively managed funds.
A passively managed fund, for those who don’t know, is a fund that tracks a particular index. An example of an index is the FTSE100 or the S&P500. When a fund tracks one of these indexes, it basically splits your investment between every company in that fund. So, you own a tiny piece of every company in that list.
Therefore, if one of those funds in your pension investments tracks the S&P500, you own a small piece of Microsoft, Apple, Amazon, Facebook and 496 other companies.
Pretty cool, right?!
These are much less risky than picking those stocks individually, because if any one of those 500 companies goes bust, or their value drops dramatically, they simply fall off the list and are replaced by the next most valuable company in the US.
Because passively managed funds don’t require a well educated, well salaried investment banker to execute trades and research stocks, their fee’s are usually many times lower than actively managed funds.
This means they take less of your cash in fee’s when you invest, which leaves more to be invested and compound over time! See my previous post to understand the power of compound interest.
But surely these passive funds don’t perform as well?
Surely, if someone can actively buy and sell individual stocks, they can time the market, buy low and sell high and maximise my returns? No. >99% of actively managed funds and individual stock market investors fail to outperform the market.
This doesn’t mean it’s impossible. It just takes a bit of work and research to find those stocks that are undervalued that have the potential to grow dramatically in value.
So, what I recommend for the vast majority of people is to make sure your pension is invested in low cost, broad-based index funds. These give you the ability to set and forget you investing. Meaning your money will flow into these funds each month automatically via your salary sacrifice and grow better than most actively managed funds without you having to do anything.
Which funds, or set of funds to pick is up to you! It depends on what’s available through your provider.
But it’s really not hard to find out, or to switch if you so choose. Most of these providers will have an online portal for you to log in and see your pot of cash and will have an online chat or ‘contact us’ option so you can simply ask what’s available to you.
Failing that, these providers have to give all employees enrolled in their scheme access to free pension advice with a trained adviser for up to one hour per year. This may vary with provider.
Take full advantage of this and ask any and all questions about what funds are available to you on your plan and how to switch and distribute your current pot and future distributions between different funds if you like the look of more than one. What you need to say, is:
I want my money invested in low-cost, broad-based index funds with maximum exposure to the stock market. What funds are available to me, and how do I switch?”
You’ll often find funds available to you, yielding many more percentage points per year than the one you’re currently invested in. If not, and your plan is the one you like the look of most based on your appetite for risk and preferred split between equities (stocks) and bonds (loans – e.g. government or corporate), then that’s great!
At least you now know and can sit back, and watch your money compound year after year! I prefer to have 100% exposure to the stock market at this point in my journey.
Bonds are good for a safe bet. But you’re looking at returns of 1-3% versus 7-12% per year with the stock market. As I approach retirement, I’ll switch portions equivalent to my yearly expenses into bonds every couple of years so I’m less at risk of short term drops in the market.
That’s everything for now on company pensions.
Let me know in the comments below if you have any questions relating to this topic, or want to share your strategy and what your employer contributions are.
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Next up in this series – Minimising lifestyle expansion to maximise your savings rate.
In my previous post, I told you all about my story. I also told you how I track my current expenses, which gives me visibility of what to expect in retirement. This enabled me to calculate my FI number. What follows is a comprehensive, deep-dive into the many strategies I’m utilising to get me to FI in the shortest amount of time possible, without putting a metaphorical limiter on our lifestyle. It’s a constant balancing act and, as I mentioned several times in the last post, it’s about remaining flexible, trying new approaches, finding what works for you, optimising it, and then finding what doesn’t work for you and scrapping it. I’m confident that the vast majority of you will be successful in implementing >90% of the strategies I’ll be describing below and in future posts. Let’s get stuck in! The first Strategy in this series:
The Power of Compound Interest – Start Sooner Rather Than Later!
The first strategy I want to discuss with you is compound interest. You may already be familiar with the concept, in which case you can skip to the next strategy. Compound interest is essentially the process by which an amount of money compounds over time to yield exponential gains. For example, say I have £1000 invested in a low-cost index fund that tracks the United States S&P 500. The average return for this index is just below 10% per year (https://finance.yahoo.com/news/p-500-average-annual-return-231601665.html). So, let’s assume we’re 20 years old and we keep this £1000 invested in the fund until retirement at 50 and save nothing in addition. That’s 30 years. If I go to any compound interest calculator online, I’m using www.thecalculatorsite.com this is what I put in:
And here’s the results:
As you can see, the balance ramps up over time and without doing anything, the £1000 you started out with is worth a cool £13,267.68 30 years later. And that doesn’t account for the dividends you’d receive from being invested in the tracker fund, which further compounds your balance.
Pretty cool, right? But £13k is chump-change. That’s not going to support anyone in retirement for several decades. So, let’s talk real money then. I’ll use myself when I started on this journey so it’s more reflective of your likely situation. I had just opened an investment account with Freetrade (more about who to invest your cash with in Strategy #3) and deposited my first £100. Based on my salary at the time I was aiming to save and additional £250 on average per month, on top of my company pension. My company offers a lousy 4% match which I have maxed out. Should they increase the match in the future, my contribution will follow suit. Anyhow, I was going to invest these additional savings myself, separately, until I was 55. Some months it was less, some it was more. Again, remaining flexible as life is bumpy sometimes. So, let’s put these numbers into the calculator again. This was my plan at the time:
And this was the results:
Based on my target retirement age of 55, I was going to have a cushty £347,974.21! Again, this doesn’t account for dividends which will add multiple thousands of pounds in the latter years of this example as the money earned from that will be reinvested and yield yet further interest and greater dividends. The ‘snowball effect’. It’s a beautiful thing!
Also, you’ll notice I’ve added another factor to this equation – the ‘increase deposits yearly with inflation’. This is because my pay will increase by a minimum of 2% each year, which I intend to save. As I’m earlier in my career and very ambitious, I can safely assume that some promotions will come along which will yield pay increases far in excess of 2%! Historically, the two promotions I’ve received so far have yielded pay increases in excess of 12%. So, this is a very conservative estimate. But it’s important to hope for the best and plan for the worst when it comes to money. A mantra I choose to live by when it comes to planning for early retirement.
The thing I was most pleased about, was that this didn’t include my company pension. And I could apply the exact same logic to this pot of cash as it was invested in almost exactly the same way, just with a lower expected return rate. These pension providers are ever the pessimists. But I will apply their view and change the rate of return to 6% based on my selected pension investment fund at the time.
The below is what my situation was at the time. I’d been working there for over 4 years, had about 15K in my pension pot and was contributing £245.66 per month, including the company contribution. I have my pension set up to pay out at the youngest age possible, 55, which gives me another 26 years of saving to do. This also assumes my contributions only rise by 2% per year.
And the result:
So, I have two, conservative estimates for my two pots of cash! You’ll remember from the post before that I needed a stash of £569,421.25 in order to cover the estimated retirement expenses that I’d figured out using my spreadsheet. With the two figures I’d deduced form the above, I was set to have a total of £634,985.88 by the time I hit 55 if I barely increase my contributions. Well, this is more than I need. I could retire 3 years sooner dividing the difference between these two figures by my annual required income of £22K! And that may be the case. But, remember the mantra, hope for the best, plan for the worst. 55 is my worst case. It’s highly likely I will be retiring before this once you factor in dividend compounding and increased contributions over more than 20 years. But for now, 55 is my target. If I do better, fantastic.
The importance of starting early!
Now I want to talk to you about the power of starting this saving journey as soon as possible! Let’s imagine for a second that your 16-year-old self was reading this and decided to start saving £100 per month from their 16th Birthday until they were 60 and never added a penny more despite earning more as their career grew. This blew my mind:
Yes, you’d essentially be a millionaire. This is why I repeatedly emphasise to start saving NOW. Even if it’s just small amounts. Do it. You will thank me, and yourself in the future. I wish I knew the power of compound interest when I was 16 and I started my first job in a convenience store. I’d be retiring MUCH sooner than in my 50’s. Fortunately for my daughter, her path to early retirement started as soon as she was born and as you can imagine, she’ll be learning all about these strategies so she can retire maybe as early as her 30’s! If she wants to of course. That’s the greatest gift I think anyone can give their child. Absolute freedom to choose to work or have unlimited free time to do whatever she loves.
Next up in this series: Your company pension plan. It is probably not optimised. But fear not! I’ll explain how I have maximised my gains and how you can do the same!
If you’re getting value from these posts and want to receive notifications of my future posts so you never miss a strategy, please subscribe below to join the FSD notification squad. Also, leave a comment below and let me know your thoughts on compound interest! Did you already know about this? Are you/will you be taking advantage of this incredibly powerful tool? Let’s start a conversation!
To emphasise the potential of the information and simple, actionable tips I’ll be sharing with you in my future blogs, I felt it best to share my own story as a live case study. I’ll update you on a monthly basis with my progress, including: monthly expenses, savings, net worth and years to FI. Whilst posting weekly about my successes and failures, my investment choices, my frugal wins and anything else I think could bring value to you! This way I can very simply demonstrate the immediate impact this knowledge has had on my life. Implement what I have learned and your future self will be thanking you in their early retirement.
My story: I went from thinking, accepting even, that I was going to work until I was potentially 67 (best case) and then struggle through retirement on a super crappy pension. As you can see in the below images, my workplace pension was not even going to meet that dismal outlook! Not even close for that matter. Unless I was willing to work until I was 82! Which I most certainly was not!
Based on my 4% matched contributions from my salary a couple years back. Doesn’t look good, does it?
I was paying in 4%. My employer was paying in 4%. And that’s what I was going to end up with?! £4.2K per year? PER YEAR?! Something was off.
Of course, not being financially savvy at this point, I had no idea of what our yearly living expenses were, what our savings rate was, what money we needed in retirement, our net worth, value of assets, how to invest properly or what the power of compound interest can achieve! But it doesn’t take a genius to deduce that £4.2K wasn’t gonna cut it! My conclusion? My thought process was a little like this:
“Well, I can’t afford to up my contribution any more than 4%! We’ve got bills to pay and we have to eat! I’m sure as shit not giving up holidays and that new car I’m working towards. What’s the point of working if you can’t do what you want sometimes?! Hopefully I’ll end up with more than that measly £4.2K anyway. I’ll be earning more year over year and they’re obviously giving me worst-case market returns. Besides, my wife has got an NHS pension, so we’ll be okay surviving off that.”
‘Surviving’ – Not really how I would describe the quality of life I hoped for in retirement after 40+ years working my ass off. But, hey! What could I do about it? I was just going to have to knuckle down and hope for the best! I was wrong.
Your situation may, of course, be different. It might be a little better. Maybe a lot better. Maybe a lot worse. My point is, don’t worry at this point. It doesn’t matter. You’re here now, reading this, which must mean you’re at least interested in taking action and taking back control of your finances and future retirement! If you don’t know how much you need in retirement, and you don’t have a plan in place to get there, then you’re in the right place. Subscribe to this blog and apply these tools so you can take control of your destiny and have a meaningful, abundant, and most importantly, early retirement.
My situation now? Well, I’ve taken the advice and tools used by many in the FI community and applied them to my own life. And now, I have a solid plan to retire no later than 55 (worst-case) with an income that will cover our joint retirement expenses, including 15K per year simply for travelling and holidays. It would have been a lot sooner had I found this information when I was 20 instead of 29. I’m confident I’d have been retiring in my 40’s! ‘How the F have I managed this?!’ you ask. Let me explain:
The first question I had to ask myself, and that you should ask yourself was:
‘What income do I need in retirement to support the kind of lifestyle I want my partner and I to have?’
Answer: The simplest way to work this out was to figure out what we were spending on a monthly and yearly basis now, and then adapt this based on what retirement was going to look like. For example, most things stay the same with a little added to account for inflation. However, our monthly mortgage payment for instance is a huge chunk of our monthly outgoings now, but we have a plan in place to have this paid off before we retire. So, that’s a payment we won’t need to cover in retirement. Great! In fact, all the current data shows that as we get older, we spend less. Less on housing, less on food etc etc. This is great news for those trying to reach FI, as the amount we need to save is generally a little smaller than it would be if it was based on our expenses in our 30’s or 40’s. I’ll show some screenshots of the spreadsheet I built to track this below:
This is my tab for ‘Current Month Expenses’ – Forgive me for blanking out the gifts section. Seemed wise in case any of my family should read my blog! I update all tabs at the end of each month and ‘Save as’ for that month, keeping an archive folder of all previous months versions. I highly recommend tracking all your expenses like I have above. I added a little monthly split chart too (see below). This is our actual expenditure. Which, you might think is oversharing. But I want to be completely transparent with my readers so they can draw comparisons to their own circumstances and see that I’m not some secret millionaire. I’m completely average and you’re situation is likely very similar. Therefore, if I can achieve an early, abundant retirement, so can you!
I’ll add my spreadsheet as a download at some point in the future, once I’m happy with it, in case you want to use it. It’s not the most complex form in the world but I think that’s what makes it work better than most others I have downloaded and tried out. It’s centred around visuals that help you to see your life in facts and figures. It took me a fair few hours to get it to this point. So, I will charge a very fair price based on the time and energy I put into creating it. This will go towards the running and maintenance of my blog. So, if you feel like you’ll get value out of it, and I am very confident you will! Please do purchase it when it’s released. If not, I’m sure you can build your own if you dedicate the time to it.
The next question I needed to ask myself was:
‘If this is how much we’re spending now, what will our retirement expenses look like?’
The next tab (below) and the next thing I needed to work out, was our estimated expenses in retirement. This is almost identical to the previous tab. The difference being that I’ve removed any payments we won’t have at that stage, i.e. mortgage, petrol (I’m sure we’ll be driving electric by then) etc. but I’ve increased the amounts for certain payments based on inflation and the fact that we’ll have a lot more spare time to fill with things like lunching and travel. As the months and years go by, and we approach retirement, I’ll update this so it’s as realistic as possible so I can adjust, up or down, the amount of time we need to work for to cover the updated expenses.
Noteworthy point: I’ve not accounted for the state pension in my retirement income. And unless you’re less than 10 years from retirement, you shouldn’t count on there being a state pension either. It’ll be the biggest crime against our generation if they take it away. But I wouldn’t put it past them not to at least make it means tested. The way I look at it is, if we get it, great! We’re £100’s better off every month! If not, well we planned accordingly and have accounted for the lifestyle we want so we’re no worse-off.
So that’s more or less what our expenses are going to look like. The final question then:
‘How much do we need to save to fund this lifestyle?’
To know how much you need saved to retire, you need to know your ‘FI number’ or ‘Stash goal’. The spreadsheet works this all out once all your expenses are loaded in. It does this by essentially multiplying your yearly expenses to account for tax and NI, dividing by the number of people saving for retirement (assumes 2, formula can easily be changed if you’re going it alone), and multiplying by 25. This is what is commonly referred to in the FI community as your ‘Perpetual money-making machine’. Because once this number is reached, you can safely withdraw 4% of this amount each year, which, by magic, is equivalent to your yearly expenses and will mean you never run out of money. Sounds ridiculous, I know. But it’s true. Your money will inevitably be invested in a SIPP or ISA or, in my case, a split of the two and will therefore be invested in the stock market, in low-cost index funds, ETF’s etc. The return for these funds, on average is 7-9% per year. Therefore, market returns will outpace your 4% withdrawal, meaning you never run out of money. Look up the trinity study on Google if you fancy a more in depth, scientific analysis of this theory. But the numbers don’t lie. Thousands of people are currently living their best retirement life thanks to this simple maths and I plan on joining them! Will you be joining them too?
What does this maths look like for me?
Based on my spreadsheet, our current estimated yearly expenses are £36,442.96.
Multiply this by 1.25 to give you a rough idea of what you need pre-tax = £45,553.70
Divide this by 2 as our expenses will be shared between my wife and I = £22,776.85
Multiply this by 25 to give me my FI number, what I need saved to retire = £569,421.25
Easy, right? Now I just needed a plan to hit that number. Seems really daunting, I’ll admit. But in my next post you’ll see why this is achievable and how I’m planning to get there.
There are a bunch of other tabs in my spreadsheet: savings, House LTV and Assets, Debt and Net Worth. All these are critical to becoming financially savvy, reaching FI and really knowing your situation. More about these in a future post.
I’ve pushed the big, red button..”
So, that’s it. That’s how I figured out my ‘Path to FIRE’. Of course, there’s more detail about how I’m making my savings work for me and how I’m adapting my lifestyle to enable a higher than average savings rate which I will cover in the next post. But fear not! It’s really, really simple. It’s a flexible, adaptable plan that affords me an early retirement and by design, more time to spend with my family and to do the things I love doing. I’ve pushed the big, red button to initiate my early retirement. You should do the same. There’s nothing to lose and so much to gain!
In my next post, I’ll be diving deeper into how to make your money work for you with minimal maintenance – a ‘set and forget’ plan to make you richer and allow you to achieve your retirement goals. I’ll also do my best to explain the power of compound interest, the importance of taking advantage of this sooner rather than later, debt prioritisation and many other strategies that are helping me and will hopefully help you to achieve your financial goals.
Subscribe below to receive my latest posts direct to your inbox. To get in touch, reach out to me via Twitter or Facebook using the links at the top of the post. And check out my list of resources; all the books, blogs and podcasts that have fast-tracked my journey to FI.
Hi! This is it. My first post! Allow me to introduce myself first and then I’ll dive into why I decided to start this blog.
Name: Financially Savvy Dad (remaining anonymous so the information I share with you doesn’t affect my career – employers can get funny about hiring people who intend to retire early 🤷♂️)
Age: 29 (rapidly approaching 30)
Location: England (this is important! I’ll get onto why a bit later)
Job: Research & Development
Other: New Dad, Husband and aspiring retail investor.
Pretty average, right? I love my family, like my job and get by alright. I’m not rich, I earn not much more than the national average, ~£40k at present, and I’m relatively unremarkable in the grand scheme of things. However, in the last few months I’ve become both financially savvy, and a Dad. Hence the catchy blog name. So, what’s this all about? Well, in a nutshell, it’s about recording my journey to achieving financial independence and retiring early. I’m not here to brag. I’m here to hopefully help you, yes you, achieve Financial Independence (FI) with me. By sharing the things I’ve learned that have enabled me to refer to myself as a Financially Savvy Dad, I hope to empower others to take action, so you too can become a financially savvy person, and hopefully get a grip of your finances, secure that rainy day fund you’ve always known you should have, get out of debt and, ultimately, retire (much) earlier than your 60’s (or whatever the ridiculous state pension age is by the time we get there).
“..you don’t have to work if you don’t want to.”
‘WTF is FI?’, you ask. Well, anyone that’s heard of the FI, or FIRE (Financial Independence Retire Early) movement knows that it is essentially about living intentionally; applying common sense, investment strategy, frugality and the odd life hack to your finances and life choices. Earning more, spending less, investing the difference and enjoying the ride along that way so you don’t have to work until you’re nearly dead only to experience an unenjoyable, limited retirement because you were dependent on your state pension or lousy employer pension scheme alone. The aim is to achieve a stash of cash (A.K.A. your FI number) that you start to draw down on to cover your living expenses ahead of your state pension age so that you don’t have to work if you don’t want to. I emphasise this because, as David Sawyer points out in his brilliant book, Reset it’s about having the freedom to choose. He calls it ‘F.U. Money’, having a stash you can retire early on so when your employer asks you to do something you don’t want to do when you’re at FI, you can reply ‘fuck you’ (or, being British, politely decline) because you don’t need that job. You’re there because you choose to be. It’s about putting the power in your hands.
‘Well, WTF is my FI number?’. I have a spreadsheet that I used to calculate mine, which I’ll be sharing in a few posts time. But essentially, it’s your yearly expenses in retirement, multiplied by 25. This is the stash you’ll need. If you’re reading this, you probably have no idea what your expenses are now, let alone in retirement. Fear not! Subscribe to my blog and all your questions will be answered! But say your yearly expenses are £25,000. This multiplied by 25 = £625,000. This might seem an impossible amount of money to save at this point, but stay with me. You won’t regret it. The next step is, simply to work out how to save that stash ASAP by implementing the techniques I will be sharing with you. Once you’ve saved your stash, you’re at FI. Congratulations. Simple as that. Look out for my next post for more details.
“But hey! That’s just how it is right?”
I started this blog for two distinct reasons:
1) The personal reason: My wife recently gave birth to our beautiful daughter, and this somewhat re-prioritised my whole life in an instant. I was, all-of-a-sudden, very aware that I wanted to be more in control of our finances so I had absolute certainty that we were secure, and that I could support us, no matter what! I also wanted to be more in control of my free time and choose when I could retire so I could be there for my family and spend as much valuable time with them as possible while I’m still healthy. Needless to say, the prospect of working until I was 70 did not fit with this Utopian dream. But hey! That’s just how it is right? Our generation are screwed. And we basically have to work until we’re 70 and beyond before we can retire on a crappy pension, if at all, right? Wrong! As I soon found out…
By pure coincidence, when decorating our daughters nursery, a few months before she was born, I came across a podcast called ‘Choose FI’. This was an extremely apt moment for me when I look back on it, as I’d never listened to a single podcast before in my life and found this one completely by chance. What I learned in the following two-day binge from the hosts of this show and it’s various, inspiring guests has and will change the course of my life and my families lives, forever. No exaggeration. I needed to share this with as many people as possible! I had to start this blog!
2) The other reason: two common themes occurred to me when listening to these podcasts and scouring the various blogs and books that they referenced:
a) Most of these people were from the US, and
b) Most of them had already achieved FI.
Don’t get me wrong, I’ve learnt a ton from these people and I urge you to go and listen to Choose FI at your earliest convenience! As you will also learn invaluable lessons. However, I felt there was a gap in the form of someone who had just started their journey to FI, who was from the UK, who could share their journey, as it happens and provide an account of all their successes and failures (hopefully more of the former than the latter 🤞). A live case study. People like David Sawyer and the blogger, Monevator have gone a long way to filling the UK-based-FI gap, and reading their material has equipped me with the knowledge and confidence I needed to start my own journey. But I’m pretty sure they’re both at FI and already reaping the benefits. I, on the other hand, am not.
What I hope to achieve by writing this blog is to inspire others to start their own journey to FI by showing that it is possible to retire much, much sooner than you think. That it’s never too late to take control of your finances and secure a less stressful, money-worry free future for you and your family. No matter what your income is, how busy you are or your current financial situation. I will share the tools, techniques, life hacks, investment strategies (not as scary as it sounds, I promise!) and frugal wins that will help me achieve FI and retire early. Then you can take what works, apply it to your own life and take back control!
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