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?

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.

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.