Financial Independence – Lessons Learnt Over the Past Year

two blue chairs on the beach
You might be able to sit here every day if you achieve financial independence

It has been over a year since I discovered the financial independence/retire early movement. I have listened to so many podcasts and read hundreds of blog posts in that time. It has helped me to become familiar with many of the principles of FI/RE and for those of you new to this concept I want to introduce you to the basic tenets. This is also an opportunity for me to look back at what I have learnt over the past year and how far I have come in my FI/RE journey.

The four percent rule

Financial independence is achieved when you have saved 25x your annual spending. For example, if you could live on £10,000 a year you only need £250,000 saved. If you prefer a less frugal ‘retirement’, say on £30,000 a year, then you will need £750,000. This is based on the premise that when you stop working for money you will be able to withdraw 4% of your savings every year to live on. Despite the regular withdrawals, at a rate of only 4%, if invested wisely, your nest egg should last until you die.

Although financial independence is amazing, I arrived late to the party, so my chances of being able to save 25x my spending are about zero. Nevertheless, the principles of FI/RE have enabled me to begin to spend my money more thoughtfully and helped me learn what is important in my life.

a takeaway coffee
Not buying one of these every day can add up

Small savings can add up

This is the easy part and something that everyone can do. Unless you’re completely new to the FI/RE movement, then you will already be familiar with the usual list of things to cut out of your life e.g. cable/satellite television, gym membership, daily lattes/lunches expensive mobile phones, bottled water.

I have stopped buying so many coffees and lunches, but also cancelled some magazine subscriptions. I have also not bought any clothes in a year, having realised that I have plenty to keep me going for a while yet.

The three big wins are making savings on housing, transportation and food

These are the three areas where we all spend the majority of our money. Over the past year I have mostly been tackling our food budget. We used to do our weekly shop in Waitrose, which is one of the most expensive supermarkets in the UK. I have to admit that the quality of some of their food is better than what I now get in Tesco, but currently the savings are worth it.

woman buying bread in a market
I have worked hard on making this stress-free

Food

As well as changing where we shop I have also devoted time to meal planning and now do that once a month, along with ordering a monthly food delivery. This is one of the areas where I realised that time is more precious than money. At the beginning of 2019 I was going to two separate supermarkets each week to maximize our savings, but after a long day at work I was exhausted and found this a challenge. I was also disappointed in the quality of the fruit and veg from Lidl and we ended up wasting food as it just went straight into the compost.

Now I choose to shop only at Tesco, which is via our delivery and then weekly top ups, mainly of perishables. The delivery also means that I am not lugging heavy bags of shopping in and out of the car e.g. beer, tins, bottles of cleaning products. I feel that I have completely taken the stress out of shopping. The delivery does come with a charge of approximately £1.50, but for me it is so worth it.

white house with blue shutters
Our house is really too big for just a couple, but we don’t want to sell it

Housing

Housing is a much more difficult area as prior to discovering financial independence we spent £435,000 on a house, albeit the mortgage was only £130,000. It now stands at £73,810.70.

I don’t want to sell the house and so the only other option is to maximise our asset. This could be through AirBnB or renting out a room. The first would be my preference, but I have realise that this may be difficult when we are hosting trainee guide dogs. We love having the dogs and wouldn’t want to give this up, but I’m not sure how the organisation would feel about this. Theoretically the strangers staying in your house could steal the dog, who is worth a lot of money due to all the training hours that has been put into him/her. This eventuality seems unlikely, but it would make me anxious. I am not sure how we are going to address this and probably need to have a chat with someone from the agency.

We are then left with the option of renting out a room on a long-term basis.  At the moment I am not sure about that. Mr Simple has talked about trying to find full-time employment, which may mean staying away from home Monday to Friday. If that does happen I may consider having lodger, ideally one who is just here through the week and returns home at the weekend.

red car in a field
We need one of these, but manage with old ones

Transportation

Ideally a financially independent life is a car-free one, but if you live in a rural area as I do this is not realistic. As I’ve mentioned before I get an allowance from my employer towards the upkeep of my car as it is essential for my job. If you do need a car, then buying second hand is the way to go, which my car was when I bought it. At nine years old it is getting on a bit and costing me more money in upkeep, but it is less than buying a new car, so I am trying to keep it going.

One possibility for us is having one car. Mr Simple wasn’t enthusiastic when I mentioned this recently, but as he is home most of the time and his car sits on the drive way, I do question whether it is really necessary. He says that he needs it when he goes away to work as travelling on public transport would limit where he is able to stay overnight. I think that it’s something we need to consider. I may look at how feasible it is for me to arrange my appointments on the days that he is usually here and to be at home when he is away so that he could take my car.

hands typing on a computer
Sell clothes on Ebay or start a blog

If you can, increase your income through side hustles

There is only so much you can do to reduce your spending unless you want to live like a monk and eat rice and beans every day. Those aggressively pursuing financial independence look to earn extra money in their spare time. You could get a second job, do surveys on line or start a blog. There are lots of ideas here on the Humble Penny website. So far I haven’t made any progress in this area.

logo for Vanguard investment platform
This is where to put your money

Put all your savings in index funds with Vanguard

All that money you save from cutting back and earn from side hustles needs to be put straight into an index fund with Vanguard. The company set up by John Bogle in 1975 seems to be the favourite of the financial independence movement, as a result of its low fees. There’s no picking individual stocks, just own a part of the total stock market, invest regularly and wait. It will go up and down, but over time will gradually increase in value until you’ve got that nest egg from which you can draw your 4%.

My money’s in a Target Retirement Fund. This is part stocks, part bonds the balance of which changes as you get nearer to the year that you have selected for your retirement. Vanguard does it all for you, so the fee it slightly higher than their other funds, but it’s still very reasonable compared to an actively managed fund.

So there we are folks, the basics of the financial independence/retire early movement and my progress so far. How’s your journey going? I would love to know. Are you just starting out or are you already retired?

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Planning for Partial Early Retirement

a pile of books, sunglasses, on a beach
Could you enjoy more of this whilst working part-time in your fifties?
Is early retirement realistic?

I started this site when I discovered the financial independence/retire early movement, which has gained in popularity in the UK over the past few years. At my age the likelihood of me being able to accrue a large enough portfolio to fund my living expenses before I reach traditional retirement age isn’t truly realistic. I’ve started too late. I am unlikely to be able to save enough money to stop work completely over the next ten years.

gold number four on a blue background
If you are going to receive a pension at 60 or 65 you can withdraw more than 4% from your portfolio
variations of fi/re

Whilst listening to an episode of the Choose FI Canada podcast about the 4% rule (i.e. you need to save 25 times your annual expenses and then can draw down 4% of that every year to live on without ever running out of money) I realised that there are many types of early retirement. They talked about lots of different ways that you can achieve financial independence. If you are nearing traditional retirement age then you should consider what your pension will provide when you get there. Unlike those in their twenties and thirties your savings don’t need to last for the rest of your life. You also don’t need to ‘retire’. You could work part time or change your job to something more rewarding, but which doesn’t pay as much.

the word money on a white background
Do you know how much money your pension is going to provide you to live on?
know your pension

I am lucky enough to have a ‘defined benefit’ pension. This means that I know exactly how much money I will receive when I retire. Nowadays most pension schemes are ‘defined contribution’. You put in a set amount, but what you will receive depends on how the market performs.

Do you know what type of pension you have? In the UK you are automatically enrolled into your company pension scheme and you should get a statement every year. Dig it out and take a look at it. How much will you have to live off once you reach traditional retirement age? Is that realistic for you or will you need to have some money in savings to live off as well? It may be that you’re lucky enough that your predicted pension will provide you with a great standard of living. If so, you won’t need a lot of savings in the bank e.g.to pay for a new car or that luxury cruise.

arched stone bridge over a river
Could you use interest on your savings to pay some of your bills for a few years?
will your Savings bridge the gap?

Unlike typical FI/RE, partial early retirement allows you to use your savings to pay a part of your day to day living expenses. For example, in five years’ time I am hoping to have saved £71,000. This is nothing compared to the portfolios that those thirty-somethings need to accrue to live on, but it may be enough to pay some of my expenses so that I can work part time. If we apply the 4% ‘assumption’ i.e. draw 4% every year, that would be £2840 per year. Then divide this by 12 and we get £236. This would go quite a way to paying my half of the bills e.g. gas and electricity

Would like to reduce your working hours or move to a more rewarding job? How much money would you need to have saved to meet the shortfall between your currently salary and what you will receive once you’ve made that change? It may be that your living expenses will be less in the future. For example, you may be working hard to pay off your mortgage now, but decide once it reaches a certain level just to make the minimum monthly payment rather than overpaying.

the number seven on an orange background
Maybe you could draw down more money and reduce your nest egg over time
Could you draw down More than 4%?

The figure of 4% is chosen as it is believed that at that rate, the capital will last and still increase in value for many years to come. When you are you are approaching traditional retirement age, you don’t need to worry about this. It doesn’t matter if you reduce your savings pot a bit, as long as what you have left, along with your pension, will be enough to provide you with a comfortable life in the future.

make some extra money

Under this plan it seems very likely that I could work part time from aged 55, but ideally I would like to have paid off the mortgage by this point. If you want to reduce the daily living expenses that your savings’ interest will have to cover you will need to think about ways of earning more money. Those of us who have discovered FI/RE late in life may have certain advantages which enable us to do this. For example, one possibility is to do Airbnb or rent out a room. You can earn £7,500 a year doing this before having to pay any tax.

Are you aiming for complete financial independence or are you just hoping to work a little less in the future? I would love to know your plans for the future.

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Saving Ninja Thought Experiment #6

Thought Experiments are a bi-monthly event set by Saving Ninja. Anyone can take part and you will see the others who have contributed listed at the end of this post.

Here’s the question for this month:

A different opinion is somewhat frowned upon in our clique-based society, but some of the greatest minds of all time were outliers. They weren’t scared to go against the grain and stand up for what they believed in. So, for this Thought Experiment, I’d like you to reveal yourself: What opinion do you have that most of your peers do not share?

Just not my thing.

When I was a teenager and in my early twenties I followed the crowd in respect of alcohol consumption – out on a Saturday night and spent Sunday recovering, sometimes with my head down the toilet.

But that was a phase, a period of my life that I was passing through. The trouble is that most of the people I know have been stuck in this phase for the past thirty years. The ‘group think’ is that in order to enjoy yourself you have to get very drunk when you go out, spend the next day on the sofa telling your kids that ‘mummy isn’t well’ and then laughing and joking about all the stupid things you did when you were drunk with your friends/colleagues, etc. on Monday morning.

The day after!

Sorry, I know that I sound like a grumpy old woman, but I just cannot see the attraction anymore. It’s a waste of money and a waste of a day if you have to spend 24 hours recovering. I think my colleagues are used to me bowing out of social events if they are going to involve a lot of alcohol and have no expectation that I will attend. At our annual Christmas party I will have a couple of glasses of wine and that’s it. And I’m happy with that. But people think that you can’t be having a good time if you aren’t drinking. I would say, if you need to have a drink to enjoy something, then you probably aren’t having fun.

My theory is that people struggle to challenge peer pressure to conform to the unwritten rules of society. If you want to achieve financial independence (FI) and perhaps retire early (RE) you’ve got to learn not to follow the crowd. You’ve got to be prepared to say no, be different and be proud of it. If you’re constantly worried about keeping up with the Joneses and doing things you don’t want to do for fear of upsetting others, then you’ve got a few lessons to learn before you are going to be equipped to face those challenges that you will most definitely meet along the way.

That’s what being part of the FI/RE community can help with. Reading all those blogs can give you ideas e.g. check out Radical Fire who publishes lots of great posts every week and realise that you’re not doing this on your own. There are others out there treading the same difficult path, challenging the norm and saying no to choices which don’t fit with their goals.

I would urge you to think about each of the choices that you make in life. Are you doing this because others expect it of you or is it because you truly enjoy it? Does it get you closer to where you want to be? This takes strength and faith in what you are doing, but it is achievable.

How about a picnic instead?

So next time your friends suggest a night out, how about thinking twice before accepting the invitation? Perhaps think of a cheaper alternative – a movie night at home, a dinner party where everyone brings one course or a picnic with food for sharing. You and your friends might just enjoy themselves more and won’t have the spend the next day recovering. You’ll also have saved a few pounds as well.

Other Participants

Please have a look at them all and tell them what you think:

Saving Ninja

Indeedably

Caveman @ Ditch the Cave

Mr A Way to Less

Miss A Way to Less

Merely Curious

Marc @ Finance Your Fire

Money for the Modern Girl

Ninja Thought Experiment #5

Life is good. You finally did it! You pulled the plug on your day job after reaching financial independence. You never have to work for money ever again. But, you’re bored. You need something to do… You need a project! You grab a piece of paper and a pen and start thinking. Now that you’re financially free, what projects do you want to complete? However ambitious, however small, you now have the time to pursue anything that you like, what will you accomplish?

I started writing this post some time ago and then I happened to be watching Mr Money Mustache’s new YouTube channel and in episode four he said the following:

When you are retired you are the same person, it’s just that the work part goes away. The question is what are you filling your days with now, outside of work i.e. what are you doing on the weekend? If you can get a good weekend package then that is just going to expand to be your full-time life when you retire. He went on to say, you should plan your post-retirement life around these five factors:

  • Outdoors
  • Social
  • Physical
  • Generous
  • Challenge

As I cannot dispute that MMM knows what he is talking about when it comes to early retirement I thought that thinking about each of these points would be a good way to answer this challenge.

So here we go…

Spend more time in the garden

Outdoors

At home I would have more time for the garden. As I write we are only just developing our garden. By the time we retire it will hopefully have matured. Not working would give me more time to grow vegetables all year round. I would love to be able to open it for the National Gardens Scheme. Several houses in the village do this and I would like to be able to join them at some point.

I have recently considered selling some produce from the garden. A couple of years ago we had loads of courgettes, just too many to eat, and I put them in a box outside the house with a notice telling passers by to help themselves. I expect I could have made some money selling them. Mr Simple makes jam, as we have fruit bushes in the garden, so maybe he could do a bit more of that. Eventually we could have a permanent stall outside the house. It wouldn’t make a fortune, but it would be fun.

Social

I belong to a couple of social groups in the village where I live. Quite a few of the members are retired and go out together on weekdays. Obviously I can rarely go along as I am in work. I would therefore be able to be a much more active member of these groups.

My main social interaction is though, sadly to say, on line. Probably because I find that I have a lot more in common with people whose blogs I read than I do with some of my friends. Sad, I know, but the truth. At the moment I struggle to find enough time in the day to post on Twitter, so I would have more time for this and other social media.

Physical

The joys of hiking

You’ll hopefully remember from my staycation posts that Mr Simple and I enjoy walking. In fact, we met through a young ramblers group. We used to go walking every Sunday. Since we have moved house weekends have been taken up with chores and DIY. If we didn’t have to work we would have time again for walking. We also have bicycles, which spend most of the time in the garage. We live in a rural area with lots of lanes to explore and so cycling would definitely be on the agenda.

Generous

Before I had a full-time job, which wasn’t until my early thirties, I used to spend a lot of my spare time volunteering for an international charity. My current job involves helping people, but it’s more about decision-making than hands-on helping. I think that once I don’t have to work for money I would want to do more direct helping work. I know that there are lots of charities and I am sure that I could find something to do, maybe just once a week or once a fortnight.

More time for reading self-help books

Challenge

I would probably need some mental stimulation, as currently the main way that I get that is via work, but also through reading all those great FIRE blogs and self-help books. Over the past few years I have learnt some French and Italian. Many classes are held in the day time and so weren’t available to me. My French evening class involved not getting home one night a week until 10pm, which for someone who is a morning person I found really difficult. It was also hard to maintain concentration after a day’s work. A daytime class would still enable me to get home at a reasonable hour. I would also have plenty of time for homework and to meet up with classmates to practise what we had learnt.

So, I am not sure whether I have answered Saving Ninja’s question, as technically none of these are projects. They are though things with which I like to fill my time, or with which I would like to fill more of my time if I didn’t have to work for money. They are I suppose ‘a simple life’, which is what I want my life to be.

How do you fill your weekends?

What did you used to do before you started that well-paid, but stressful job, before you bought that big house which needs lots of cleaning and decorating, or before you had kids?

What would you fill your time with if your whole life was just one long weekend?

Other thoughts:

Saving Ninja

Cashflow Cop

Ditch the Cave

Merely Curious

A Way to Less

in-deed-a-bly

Gentleman’s Family Finances

Marc @ Finance Your Fire

Dr Fire

The Fire Shrink

Young FI Guy

Advantages of the Public Sector

I have just finished ‘Financial Freedom’ by Grant Sabatier. Like many other financial independence bloggers he recommends ‘hacking your 9-5’. Often this involves asking your boss for a rise. If, like me, you work in the public sector, this is not an option. The only way of getting more money is to apply for another position, doing something different. Alternatively, you could move to another organisation or leave the public sector altogether. Neither of those are options that I want to consider, so I’m probably going to be where I am until I retire.

This post is therefore about what I see as the benefits of my job and how I can make the most of them. If you also work in the public sector I hope that it may give you some ideas about how to take advantage of your 9-5 benefits on your way to FIRE.  

Remote working makes the commute a distant memory

Working at home

This is not possible every day as my responsibilities involve visiting people and attending meetings, but very often, if I am just sitting at a computer, then it is at home. Working at home equals no commute. In the morning I therefore have plenty of time for reading, exercise, meditation and breakfast – all of the things that I like to do before starting my work day. If I get up at 6am, which I have been doing recently, despite Mr Simple’s complaining, then I have three whole hours to myself before I have to start work – a luxury.

Many jobs could be done at home, but often it is the mindset of the organisation that prevents this. Strangely it seems that being seen sitting at one’s desk is regarded as a measure that one is being productive, whereas in my experience trying to get work done in a busy office is a challenge. I tick off more of my to-do list at home, even if I take breaks occasionally to hang up the washing or answer the door when a parcel is delivered.

I believe that it is always worth asking the question. The worst that can happen is that they say no. Even working at home one day a week can give you some extra precious hours. Then it’s up to you how you spend them – exercising, reading a good book or working on your side hustle.

Car allowance

I feel frustration when I hear time and again the suggestion that in order to get to FI quicker you need to move nearer work and get rid of your car. Even if I moved to within a mile of my office I would still need a car as my job involves visiting members of the public. The necessity of having a car is reflected in the receipt of a monthly allowance and a good mileage rate. I don’t ringfence this allowance for sole allocation to car costs, but if I did, over several years it would make up the large part of a new (well new to me) vehicle.

Pension

I have a defined benefit pension which I can take from aged 55. Due to having not had a full-time job until I was 32 my pension pot isn’t enormous, but DB pensions seem to be few and far between, so I need to count myself very lucky. My employer also contributes much more to my pension than I do.

Take advantage of being able to plan your own diary

Managing my diary myself

A lot of the time I get to choose what I do on what days. I plan my supermarket shopping day when I pass through the nearest fair-sized town. This means that I don’t make a special journey in order to do the shopping. Sometimes I do the shopping over my lunch hour if I have time between visits. This means that I am not battling the rest of the population at the checkout at 6pm.

Generous annual leave

I have been amazed to read American FI blogs stating that in the US workers only get two weeks of annual leave as I get six. It’s so many that I don’t always get around to taking them all, particularly as we are trying to save money on holidays. An idea came to me when thinking about how best to use my allowance and I thought that maybe I could book the occasional day off to work on a side hustle or my blog or any other way that I can think of to make money. So if you get plenty of annual leave how could you use some of those days to help you get closer to your goals?

Hopefully that’s given you some ideas to chew over if you also work in the public sector.

I’m sure that there are plenty of others so please feel free to comment and let me know what they are.

I would love to hear your ideas.