Building Rich Relationships

Developing good relationships can help you on your path to a rich life

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Do you remember Tom Corley’s ‘Rich Habits’? I introduced you to him back in March. He did a study looking at the differences between rich and poor people and has summarised his findings in this book.

So far we have looked at the following habits:

Number Ten – being master of your emotions. I advised that in order to do this you may want to try meditation, which I have found to be helpful in enabling me to remain calm and take the problems that life throws at me in my stride.

Number Four– exercising and eating healthily – if you are a regular reader of ‘A Simple Life’ you will know that this is one of the things that I try to promote. Tom Corley found that this is also a priority for the rich people in his study.

Number One – how to assess your habits and turn poor habits into rich habits. I should really have started with this one. I listened to Tom Corley being interviewed on the Afford Anything podcast again today, just to remind myself of some of the things that he is saying. He talked about the importance of becoming aware of your habits. He said that many of us have bad habits, but we don’t realise it. Before we make any changes we need to spend time assessing our habits and then think how we can change our bad habits into good habits.

Number Two – defining dreams and creating goals around those dreams – this is basic goal setting. Taking a long term goal and breaking it down into daily habits in order to achieve that goal.

Number Three – investing in yourself- increasing your skills and knowledge – this is what you are doing now by reading this blog, as well as other activities such as reading and listening to podcasts.

In a bid to try to bring some order to these posts, today we are going to look at habit number five – ‘I will seek to build strong relationships with other success-minded people’.

We tend to seek out those who share our habits

Tom Corley believes that rich relationships help lift you up in life, whereas toxic relationships drag you down. Unfortunately, we seek out others who share our habits. Therefore a quick way to try to change our habits is to spend time with those who already have the good habits which we’d like to adopt. By spending time with that group of people they will influence and support you to adopt better habits through the process of peer pressure.

Networking can help you on the road to success, but you have to put in the time and work. You have to be prepared to do things for others even when there is nothing in it for you. You have to make the effort to remember people’s names, learn what is important to them and nurture your relationships. Tom Corley suggests doing this in a very structured and planned way by keeping notes on each of your contacts and reviewing them before you meet up. In some ways this feels quite calculated, but he says that unless you have a very good memory you are not going to remember all of the important things about someone.  

Reading this I was reminded of the advice of Stephen Covey in his ‘The Seven Habits of Highly Effective People’. He talks about the emotional bank account. Like a financial bank account we make deposits into a relationship and build up a reserve from which we can make withdrawals when we need to. How do you make deposits in your emotional bank account? By being courteous, kind, honest and keeping commitments that you make to people.

This all sounds like good ideas to me, but I am not sure where to find all of these like-minded individuals. The only place that I am truly successful with this is in the blogging world, which is not quite the same as having friends who you can meet up with for lunch. I would therefore welcome any suggestions that you have. Are there people in your circle of friends whose habits you aspire to adopt? How would you go about building your relationship with them? I would love to hear your ideas. And don’t forget, if you want to learn more from Tom Corley then check out his book.

Partial Early Retirement

It may be Friday, but this one isn’t frugal as I think I’ve exhausted all my ideas for the moment. I may try to write one once a month, but we’ll see. Instead, it’s time to take stock.

Could I really achieve financial independence and retire early?

Is FI/RE realistic for me?

Although I talk about FI/RE on this site, in terms of my situation, this isn’t truly realistic at my stage of life. I’ve started too late and unless I am going to put a lot of time and effort into a side hustle, then I am unlikely to have enough money to stop work completely over the next ten years.

I started thinking about this the other day whilst listening to Chrissy’s new podcast. Although it is a Canadian-focused venture I thought that I would check it out. There have only been a few episodes so far, but the most recent one was about the 4% rule or as the presenters concluded, the 4% ‘assumption’. What was interesting for me was they talked about lots of different ways people could achieve financial independence and that when looking at how much money you need, you should consider what your pension would provide when you reach traditional retirement age. Therefore, you don’t always need to make your money last for the rest of your life. You also don’t need to ‘retire’, but could work part time or change your job to something more rewarding, but which doesn’t pay as much.

I am lucky enough to have a defined benefit pension

My pension

One of the benefits of working for the public sector is that I have a ‘defined benefit’ pension i.e. I know exactly how much money I will receive when I retire. Nowadays most pension schemes are ‘defined contribution’, so that you put in a set amount, but what you will receive depends on how the market performs.

Although my pension scheme is a good one, I didn’t have a full-time job until I was 32. You might say that I had my period of ‘early retirement’ in my twenties. Whilst others were getting married and having kids, I was living in a shared house, working part-time, volunteering and travelling. Mr Simple refers to it as my time as ‘a bum’. Although life was easy and I didn’t have any responsibilities, neither did I have much money. When I got my full-time job, after going to college for three years, my salary tripled overnight. I then started on the traditional route of buying a car and three years later a house. That wasn’t too far from being paid off when Mr Simple and I moved in together and bought a larger house, with a bigger mortgage.

A lot of my salary goes towards the house

Current expenses

As you may have seen from my spending reviews I am currently paying off the mortgage by making twice the actual payment each month, as well as saving some money into an ISA and another high interest savings account. I am also paying all of the bills, as Mr Simple’s money is going on the renovations to the house. If we didn’t have any work to do to the house, and Mr Simple and I were sharing the costs, then my savings would increase dramatically. But, there we are. We chose this house and I love it, but it comes at a price.

I am sure that many of you would say that I should stop overpaying the mortgage and invest the money, as with such low interest rates, financially this makes sense. I completely agree with you, but there is just something psychologically comforting about owning the house outright. So, whatever anyone thinks, that’s what I want to do and each of us has to make our own choices.

At the current overpayment rate we will pay off the mortgage in seven years and three months. By that time I will be 57. I would really like to pay it off in five years’ time, but to do that I would need to find an extra £20,000.

Savings

Leaving that to one side for the moment, if we now look at my savings. I currently have approximately £34,000. In the FI/RE world that is nothing, but compared to a lot of the population it isn’t bad. If I keep saving at my current rate, even at an interest rate of 4% I will have £71,000 in five years’ time. I give it that low interest rate as although I have some in a stocks and shares ISA, which is currently making 10%, some of my money is in a cash ISA, locked away until November 2021 and it is only earning 1.75%.

In five years’ time all my money would be in investments and hopefully earning more than 4%. When I consider that £71,000 and apply the 4% ‘assumption’ i.e. draw 4% every year, I would get £2840 per year. £2840 divided by 12 is £236. At the moment I am paying all of the monthly bills, but in five years’ time, Mr Simple should be contributing his half again as all of the DIY will be done. If we don’t count the mortgage, this £236 per month would go quite a way to paying my half of the bills i.e. gas, electricity, water, council tax, etc.

I spend two-fifths of my wages on the mortgage

How my salary is divided

At the moment I think of my wages in fifths. Two-fifths go towards the mortgage, one fifth towards the bills, one fifth is saved and I live on the other fifth. If I could:

  • pay off the mortgage somehow = 2/5ths  gone
  • Mr Simple starts paying his half of the bills and my investments pay my part of the bills = another 5th gone

I could continue saving and would only have to work two-fifths of the time that I do now i.e. two days a week instead of five.

I hope that you’re keeping up.

This may need replacing soon

A potential problem

One large potential spanner in the works is having to buy a new car over the next five years. Now, when I say ‘new’, I obviously mean ‘new to me’. My car is nine years old and has recently started using more oil than it should do. The garage can’t find out what is wrong with it and in order to do a more thorough investigation they tell me that it would cost £3000, which is probably more than the car is worth. The temporary solution is to check the oil each month and fill it up if it is low. I am also driving around with a bottle of oil in the boot.

At some point I fear that the problem will get worse and eventually I will have to buy a new car. Currently a second hand Toyota Yaris, which is what I have at the moment, is between £7000-£10000. The cost would have to come out of my savings. Best case scenario, that would take my savings down to £63,000, which wouldn’t be quite enough to cover my monthly bills, but would cover a lot.

More than 4%?

There is also the question of whether I could, in five years’ time, withdraw more than 4%, because that figure is chosen as it is believed that at that rate, the capital will last and still increase in value for many years to come. I though, don’t need this to last for 30 years, I just need it to last until I get my pension. My current pension age is 67, but I could retire earlier, say at 60, although my ‘defined benefit’ would be less. It is too far in the future for the pension company to tell me how much I would get if I wanted to draw on it early. They will only say how much I will get at the standard age. It is though a possibility that I could draw 5% from the £63,000 and that would definitely cover my half of the bills.

It therefore seems very likely that I could work part time from aged 55, but I just need to find £20,000 to pay off the mortgage. One possibility is to do AirBnB, which Mr Simple and I have discussed, but at the moment we’d have to pay guests to stay here rather than the other way around. It is a real possibility for the future, although I am not sure how much it would bring in. We could rent out a room and you can earn £7,500 a year doing this before having to pay any tax. Having a lodger for three years would cover the shortfall in the mortgage payments, but on a practical level I would rather have occasional guests than a full time one.

Mr Simple thinks that we should just stop overpaying at that point and just pay the £200 a month that we would owe, shared equally, for the rest of the period. That would certainly be a lot more doable than the £1000 that I am currently paying.

Sorry, that was long. I don’t usually write so much, but this has been a good opportunity to try to set down what exactly I am aiming for, which until now I haven’t been sure about. It will probably change as time goes on, but at least for now I have a goal and can track my progress towards that. As always, I will let you know how I am getting on.

Are you aiming for FI/RE, or are you just hoping to work a little less in the future? I would love to know your thoughts on my plan as well as your ideas for the future.

How to Sleep Well

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A couple of weeks ago week I introduced to you Dr Rangan Chatterjee, a GP and author of ‘The Four Pillar Plan’. I talked about how to relax and hopefully that’s given you some good ideas. This week I want to tell you what he says about how to get a good night’s sleep.

According to him, waking up feeling refreshed is a good general barometer of overall health, but I know that many people struggle with this. He believes that waking up at the same time, give or take 30 minutes, without an alarm, is a good indicator that your body’s intrinsic biological rhythms are working well. I am lucky as this happens to me, but Mr Simple complains as he likes to sleep in. Unfortunately I feel like death warmed up when I do that. Most days I get up and go and make a cup of tea. This helps to get Mr Simple going in the morning.

Not being able to drop off within thirty minutes of trying means that there is likely to be something in your lifestyle that is un-training your body’s own natural ability to sleep. I think Mr Simple is jealous of my ability to fall asleep almost as soon as my head hits the pillow. He would say that he struggles to get to sleep, because as soon as I do so, I start snoring and he can’t get to sleep due to the noise level.

What then are Dr Chatterjee’s tips for a better night’s sleep. Firstly…

Create an environment of absolute darkness

Try to keep your bedroom completely dark and free of televisions or e-devices. One of the worst things you can do in the hour or two before bed is look at your smartphone or tablet. What goes for e-devices also goes for television. Turn it off at least 30 minutes before you go to bed. I’ve never really understood the idea of having a TV in the bedroom. Maybe it’s because I’m a bit of a bookworm and so bed is for reading and not watching TV.

Embrace morning light

Spend at least twenty minutes outside every morning. Even on the dullest days we’re still exposing ourselves to light at a higher amount outdoors than if we were inside. This is not something that I am good at. My excuse is always that if the weather was better I would do so. Also, our patio area at the back of the house is a bit tatty at the moment and not a pleasant place to sit. Once it is looking better I will have no excuse.

Have a cup of tea outside in the morning

Tips to help you embrace morning light:

Have your morning tea or coffee in the garden or next to a window

Don’t get your newspaper delivered; collect it on foot.  My frugal streak would say not to buy a paper at all, but just go for a walk. My grandfather used to go to the local shop every morning to buy his paper. Whenever we stayed with my grandparents we would go out with him to the shop in the morning.

If you must drive in the morning, leave the car a ten-minute walk away from your destination.

If you shop in the morning park as far as possible from the supermarket entrance.

Get off the bus half a mile from your destination and walk the remaining distance.

Consider getting a dog and taking it for a walk every morning. This is lovely on a summer’s morning, but I’m writing this on a particularly wet day in July and the thought of having to take a dog out in that is not something that I would look forward to. I do know though that when we looked after a friend’s dog for a week last August I went out twice a day no matter what the weather.

Try to take a morning break and go for a short walk outside. This obviously depends on where you work. Some offices are not in particularly good locations for walking, but if yours is, try to spend a few minutes outside.

Create a bedtime routine

No matter how late you go to bed, no matter if the next day is a Monday or a Sunday, always get up at the same time. If you did stay up late the night before and are still feeling tired in the morning, it is worth trying to catch up a with a nap later on in the day.

Dr Chatterjee’s ideal night time routine

Make sure that all vigorous exercise is done by 6.30pm.

By 8.30pm turn off your computer and mobile phone.

Watch a bit of TV, but make sure it’s relaxing and do some light stretching at the same time. I watched the film ‘Everest’ a few months ago; a true story about a climbing accident and couldn’t sleep as a result of thinking about the trip leader who had to say goodbye to his pregnant wife as he was going to die on the mountain.

Alternatively, sit and listen to relaxing music or do some deep breathing in silence.

Drinks should be non-caffeinated.

Go to bed around 9.30pm. Mr Simple thinks that this is super early, but it’s when I think about going upstairs. It takes time to brush my teeth, wash my face and then I have half an hour or so to read, so lights out is not until after 10pm.

Have the bedroom window open a little. Central heating can make the bedroom too warm. It is better to have a cool bedroom and snuggle under a duvet.

Read next to a dim light until ready to fall asleep. I have a sunrise/sunset lamp which I absolutely love, mainly for the mornings as it gradually increases the amount of light in the room over 30 minutes. It is so long since I was woken by the alarm in a pitch black room and had to tell Mr Simple to cover his eyes as I switched on the bedside lamp and blinded us both. I have also used it at night when Mr Simple is away as I can go to sleep next to a dim light rather than in darkness, worrying about who might be breaking in to murder me.

Manage your commotion

Minimise any activity that will raise emotional tension before bed. Make it a cast-iron rule that you do not discuss emotive subjects in the evenings or crack into a new work task.

Tips to manage your commotion

Don’t watch the news, a thriller or any similar commotion-causing programme before bed.

Don’t discuss financial or stressful family matters

Make it a rule not to check work emails in the ninety minutes before bed. In an ideal world I would say don’t check work emails after 5pm.

Focus on relaxing exercise in the evening such as yoga or light stretching.

Meditation before bed can help you quieten your mind.

Educate your family and friends about your evening routine.

Make an entry into a gratitude journal before bed.

Enjoy your caffeine before noon

Ensure that any caffeine you do choose to consume is taken before lunchtime. When I started taking a flask of coffee with me to the office in order to save money, as there was usually some left in the afternoon, I was drinking it and had several sleepless nights as a result.

Tips to reduce your caffeine intake

Drink non-caffeinated herbal tea to get you past your 3pm slump.

Avoid decaffeinated coffee as many brands still contain trace amounts.

Drink sparkling water in place of your caffeinated beverage. Not sure I agree – just drink tap water -it’s cheaper.

Reduce your sugar intake. This will actually give you more energy and reduce the likelihood of craving a caffeine pick-me-up in the afternoon.

Drink camomile tea in the evening. This can be a great caffeine-replacement as well as promoting relaxation before sleep.

So that’s it. How do you sleep? Could you try some of these tips to help you feel more refreshed when you wake up in the morning? Do you have any other advice for how to get a good night’s sleep? I would love to know them. If you want to find out more don’t forget to check out Dr Chatterjee’s book.

Five ways to be frugal

I thought that this week instead of just giving you examples of how I have been frugal I would provide some ideas for how you could start to think about being more frugal. About how to make it part of your everyday thinking. Here are five questions to ask yourself:

Do you really need these or is it that you just want them?

Do I need it?

The best advice I can give you before you buy anything is to question whether you need it. I wrote recently about making saving automatic, but I think that instead of having that good habit we have a tendency to spend automatically. Something is looking a bit worn and we just buy another one. We fancy something to read on the train so we buy a magazine – nowadays that can cost us £5. Before you put your hand in your pocket or wave your card at that machine, stop and think, will this really make me happier, will it really enhance my life, could I do without it and either spend the money on something I value more or save it towards one of my goals.

Can I find something else cheaper that would do the job just as well?

A few months ago, at the beginning of this frugal journey, I went to clean my glasses using the bottle of spray on my dressing table and wondered to myself whether I could find a recipe on the internet for making my own spray. How stupid did I feel later on when I read that the alternative to using spray is to clean spectacles with soap and water. In fact, I used to do this years ago and for some reason was persuaded that that instead I should spend £6 a time on a bottle of spray to do it. Now I just wash them under the tap with a bit of liquid soap, dry them on a towel and polish them with a microfibre cloth.

How can I make sure that I don’t waste anything?

One example of this is making sure that you get every last scrap out of a bottle of say a suntan lotion or a tube of cream. You may want to cut open tubes of cream and scrape out what’s left. Stand bottles of shower gel upside down so you can squeeze out the last drop. Try not to waste food. We had a few bananas going very brown on the windowsill this week. I cut them up and put them in the freezer to keep for smoothie making.

Can I make it last longer?

This means looking after things. I am not always brilliant at this. Mr Simple is much better. Earlier today he was removing all of my long hair from of the vacuum head brush. Other examples are having your car serviced regularly, which will save money in the long run. Look out for wear and tear when you clean so that any problems can be nipped in the bud before they develop into expensive bills

Learning to mend things can save you a lot of money

Can I mend it?

The other morning Mr Simple told me that the sheet had ripped. It seems that it has worn thin. I’ve had it for about 15 years so it’s probably not surprising. My first thought was not, ‘I need to buy a new sheet’, but ‘How could I mend it?’ I am not great at sewing. I did cookery at school. It was my sister who did needlework. My mum is also good at sewing, but lives 160 miles away so I’m not going to be able to get her to do it. I googled it and discovered that you can buy iron on patches for repair. I’m yet to try this, but I’m thinking about it. It is probably cheaper than a new sheet.

So there we are, my principles for frugality. It’s just about trying to change your thinking in a world where nothing is built to last and we all too easily throw something away and buy a new one.

What are your frugal rules? I’d love to know. Don’t forget to check out the other posts by Cass, Emma and Becky.

Financial Lessons from David Bach

You may remember that back in May I told you about an interview on Afford Anything with David Bach, when he introduced us to his new financial book, ‘The Latte Factor’. At the time I was hesitant about buying it, but after having some money left over at the end of that month I splashed out. So especially for Dr FIRE, who commented that he would be interested to read my thoughts, here they are….

If you can afford one of these every day, you can afford to save for your future

This post contains affiliate links for David Bach’s books. Please see here for more information about my use of affiliate links.

The Story

Through the fictional narrative in ‘The Latte Factor’ David Bach explains his simple formula for accumulating wealth slowly. The main character of the book is twenty-something Zoey, who begins to ask her herself what she is doing with her life. Although she works for a large publishing company she has never been outside of the United States. One day she sees a photograph of a boat on a beach, hanging on the wall of a coffee shop. Although she would love to buy the picture she tells her boss, Barbara, that she can’t afford it, as she isn’t good with money. Barbara advises her to speak to Henry, at the coffee shop, who ‘sees things differently’.

Over a period of a few days Zoey makes several trips to the coffee and chats with Henry, who provides her with the financial advice of David Bach. His comments include:

If can afford the latte you can afford this photograph’ i.e. the ‘Latte Factor’.

Slowly David Bach discloses information about Henry and Barbara, who have followed his lessons. By the end of the book Zoey is on a sabbatical on a Greek island, writing travel articles for her magazine and paying regularly into her pension.

Learn David Bach’s three financial lessons

The Lessons

Henry teaches Zoey the three steps to financial freedom:

  1. Pay yourself first – save the first hour of each day’s income into a pension. He shows her how much she would save, with compound interest, over forty years. He tells her to go and enrol in her workplace pension. According to workplacepensions.gov.uk in the UK you are now automatically enrolled on to a pension scheme by your employer if you are over 22 and earn more than £10,000. You pay 5% and your employer pays 3% as a minimum. Therefore to a certain extent the government has already put this in place for you, although it may not be as much as he would recommend.
  2. Don’t budget – make it automatic. He recommends having the money paid into your pension before your wages hit your current account. He doesn’t agree with budgets, which he believes people have trouble sticking to. He says deduct your savings automatically and spend the rest however you wish.
  3. Live Rich Now – I don’t think that I am completely clear what he means by this. I think for Zoey, being young, she has plenty of years for her money to compound, so she can set up her regular payments and still have enough money to live a nice life as long as she gives up those unnecessary items such as the latte and muffin each morning. For those of us who have come to FI/RE late in life it might not be as easy to ‘Live Rich Now’. It also appears to be linked to having accounts where you save for your dreams. Once again this is automatic, saving money into an account for short term goals e.g. buying a house or a special holiday.

Barbara tells Zoey the three ‘Myths of Money’

  1. Make more money and you’ll be rich – most people think they have an income problem. They don’t. They have a spending problem.
  2. It takes money to make money – you don’t need a huge chunk of money to build wealth.
  3. Someone else will take care of you. They won’t, so you need to take care of yourself.

Some more wise words from Barbara are that the wealthy spend their money on things that truly matter to them. The ‘unwealthy’ spend money on frivolous things.

David Bach’s books are USA-focused

Who is this book for?

Almost immediately after finishing this book I bought ‘The Automatic Millionaire‘, also by David Bach, which is in effect a non-fiction version of ‘The Latte Factor’. I thought that it would give me more detail of how to put his recommendations into practice and that would have been the case  had I been an American citizen. It gives a great deal of practical advice, referencing websites and government institutions, but if you don’t live in the United States its usefulness is limited. The same is true of ‘Start Late, Finish Rich’. As someone who has ‘started late’ I thought that this might be the David Bach book for me. In some ways it was, as it gives guidance about supercharging your savings and increasing your income in order to ‘catch up’, if you are middle-aged. Unfortunately, again much of the practical advice is only relevant to an American readership.

On reflection, I therefore think that even though it is a short novel, ‘The Latte Factor’ was enough for me to understand David Bach’s financial advice and consider how I could put it into practice in my own life. For those of you who are reading this article because you are already an avid follower of the FI/RE movement, ‘The Latte Factor’ probably isn’t going to tell you anything new, but if you have a friend or young relative who is struggling with their money, it might be just the thing to make them start thinking how things could be different. For something that you can read in a couple of hours the book isn’t cheap – currently £14 for a paper copy and £8.99 for the Kindle Edition. It also isn’t really a novel about FI/RE, as he talks about retiring in your fifties or sixties. That is slightly early, but this is not a formula for saving hard for five or ten years and ‘retiring’ in your thirties.

If you are reading this and you’re American David Bach’s books will be a lot more relevant to your situation. I would recommend reading ‘The Automatic Millionaire’ if you want and plan to implement his practical advice, particularly if you are in your twenties. If, like me, you’re further on if your ‘life journey’ then try ‘Start Late, Finish Rich’.

Let me know how you get on and what you think.