Your Home – Asset or Liability?

Last month I listened to Paula Pant interview Chris Hogan, the author of ‘Everyday Millionaires’. According to the measurements used in that study, it may well be that we are on our way to being millionaires, but I am not sure whether I agree with the definition of millionaire, as they took into account the value of their houses.

Three years ago we moved from a small terraced house to a four bedroomed detached property. Mr Simple had sold his own property – a modern starter home – before he moved in with me for a while. We wanted a house with a large garden, as we love growing our own vegetables, so in many ways we bought the house for the garden rather than the size of the building.

At that point in my life I had not discovered the FI/RE movement. The reason for the move was not only to have a bigger garden, but also to move nearer to Mr Simple’s place of work. I transferred to another office within the same organisation. The house we live in is about equidistant between our two places of work. In that way one would say that the move was in line with the FI/RE principle of reducing your transportation costs, as each of us had a twenty-minute journey to work. Now I say ‘had’, as Mr Simple has been made redundant since we moved house and my office has been shut due to efforts on the part of my employer to reduce overheads. Fortunately, I am able to work at home a lot, but when I do have to go to the office it is an hour’s drive away.

Not only is it in this study that the value of a property is considered an asset, but many FI/RE blogs post monthly net worth updates which include the value of their house minus any outstanding mortgage balance that they owe. The question that I have is whether the value of your house should be considered in your net worth calculations. According to Robert Kiyosaki of Rich Dad Poor Dad  when calculating your net worth you should not include your home.

We have about £370,000 equity in our home, but that money is not accessible to us, as we don’t plan to sell it and even if we did we would still need somewhere to live. We could buy a smaller property and therefore invest some of the money, but not all of it. 

Robert Kyosaki not only believes that you should not consider your house an asset, but in fact it could be considered as a liability. A house has to be maintained, there is decorating to do, it needs cleaning and you have to pay to heat it and light it, as well as other bills such as council tax. The bigger the house the higher the bills, so even though some would say that a large house means a higher net worth, in fact it could be stated that the greater the value of your house the bigger a liability it is.

Now that we have this house and I have got the FI/RE bug I plan to consider how to turn it into an asset. At present there is a considerable amount of decorating to be done, which Mr Simple has turned his hand to now that he doesn’t have full-time employment. Ideas that come readily to mind are AirBnB, renting out a room to a lodger, hosting overseas students and renting out the driveway for parking as we live near an airport. I need to do some research on each of these and plan to share my findings with you over the next couple of months.

Do you see your house as an asset or a liability? Have your turned your house into an asset? I know that Gentlemans Family Finances has delved into the world of AirBnB. Have you tried this or any other ways of making your house pay? I’d love for you to share your experiences.

If I lost everything

In response to Saving Ninja’s challenge, ‘If I Lost Everything’:

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If I woke up tomorrow and didn’t have anything because a cybercriminal had stolen all my money and assets, my other half wouldn’t be surprised as he meticulously shreds everything with his name and address on it and nags me about identity theft. I am rather more blasé.

Although my family live three hours away I know that there are local people who would let me bed down with them for a while. Three and a half years ago we moved to our current house in a village in Wales. Shortly after that one of our neighbours started a women’s group. This started as a monthly get together in the local pub for any women who live in the village and wanted to come. It has though developed way beyond that. We help each other out. Whether it is feeding cats, watering plants or putting on lunch for the village OAPs. It is a lovely feeling that there are people nearby who will always help you out, particularly when your family don’t live on the doorstep.

As well as my neighbours there are also friends, in particular ones from work. A group of us all worked together for several years in an office that has closed, but despite us now working in different places we all still keep in touch, albeit mainly virtually. Each Christmas we have a night out with the whole team, as though the office still exists. I know that anyone of them would give me a bed for the night.

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I am lucky that the only debt that I have is the mortgage and that isn’t excessive. I suppose though if I didn’t have anything, I would have the mortgage, but not the house. Fortunately I have a fairly well-paid job with an organisation which has a non-redundancy policy, so even if I had nothing else I would have my job and be able to start saving again as I earn. One of the difficulties is that I need my car to do my job, but I have a good credit rating so I expect I could get a loan to buy an old banger which would do me for a while until I could afford something better.

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In terms of food I know that I could live on beans and lentils for months. Having been a vegetarian for twenty years, now lapsed as I eat fish, I can make cheap and tasty meals. We love curry and so a few veg, spices, lentils and rice would keep us going. My other half, who is a meat eater would protest, but he would have to put up with it.

Even though they live in England, I also have family. I think that some of us take it for granted that if the worst happens we can always go back to Mum and Dad. In my job I meet people who don’t have any family, or at least not any that they would want to live with. Although for me that would mean leaving my current job I expect I could get another one where they live and go back to sleeping in my old room until things improve. Having jumped on the bandwagon of those responding to this challenge I have found it a useful exercise and it has helped me realise that no matter how bad life could be there will always be a way to sort things out. Even if it means some significant changes I wouldn’t be sleeping under a bridge in a cardboard box!

Killing myself for FI

Two days this week have ended with me having a headache and I think that it may be because I am starving myself in order to save money. My other half is away working this week and so in a bid to save money I thought that I wouldn’t cook any meals for myself, but live on leftovers and food out of the freezer from Monday to Thursday. For my evening meals this hasn’t been too bad, but I haven’t been great with lunches. I did manage to make some roasted veg which I had with tinned fish on a couple of days, although the plate looked a bit empty. Yesterday evening I realised that the roasted veg had run out and I wasn’t going to be home at lunch time today to cook anything fresh – usually I do sweet potatoes, avocado, tinned fish and salad – I can just shove the sweet potatoes in the oven and continue working until they’re done.

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A smoothie is something that I occasionally have for breakfast (made with berries, nuts, seeds and avocado to fill me up) when I don’t have much time in the morning. As I didn’t have anything to make lunch and didn’t want to fork out any money I planned to have a smoothing for lunch and therefore I couldn’t have one for breakfast as well.  I therefore decided that it would be a good idea to get up half an hour earlier in order to make a decent breakfast for myself which meant getting out of bed at 6am! I really like the idea of getting up early. My ideal world involves having as many hours before work as I have after work, rather than the morning being a short mad dash and the evening stretching out before me with the temptation of wasting it watching TV as I’m too tired to do anything else. I do manage a leisurely morning on some days when I am working at home and only have to go into my home office at 9am and switch on the computer rather than commute for an hour. Then I manage to fit in reading, a decent breakfast and sometimes a 20-minute jog on the treadmill.

I have been thinking of trying to change my routine and get up earlier. I felt inspired this week when I listened to Ruth Soukup on the ‘Do It Scared’ podcast interviewing Hal Elrod, author of The Miracle Morning. I agree that it feels good to have extra time in the morning and today getting up at 6am today was only half an hour earlier than my usual time, but I’m not sure that I am cut out for it, particularly in these dark mornings. By the time that I was driving home I had a thumping headache and was starving. Despite the headache I had planned to do the shopping and in particular I am making a concerted effort to always buy my petrol from Tesco as it is cheap and I get loads of Clubcard points. By the way, I realised the other day that I have earnt some passive income, well not sure that it strictly adheres to the principles, but after doing most of my spending via my Tesco credit card in January I earnt £15 in vouchers, which came off of last week’s shopping. It felt really good as I haven’t quite got the hang of earning extra money on top of my wages, but this did feel like something for nothing.

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Anyway, I digress, back to the shopping. We live about a half hour drive from Tesco and so I always try to do the shopping on the way back from work as I am passing anyway. Since I am working from home tomorrow that meant that I couldn’t just leave it, but had to struggle round Tesco with a thumping headache to save using extra petrol, and time, by going tomorrow. Now that I am home and have had a decent meal I feel fine, but I think that I really need to make more of an effort to go easy on myself. It’s just that at 49 I get depressed reading all those blogs by people who discovered FIRE in their twenties and retired by the time that they were thirty. I am madly trying to catch up! The trouble is that I might be dead before I manage to save enough to give up work! I hope your day was better than mine or if it wasn’t good at least you managed to save some money without starving yourself!

The Budget

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So before I review my monthly spending I thought that I would let you know my monthly budget. This reflects the changes that I have made since discovering FIRE e.g. cutting food costs, beauty treatment costs and increasing savings.

Household Bills

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Firstly, about £1550.00 comes out of my account into our joint account. Currently I am paying the mortgage and most of the household bills and my partner is spending the equivalent on the renovation of the house. At present this money is split as follows:

Mortgage £560.00
Mortgage overpayment £550.00
Council Tax £244.00
Water £49.00
Gas and electricity £96.00
TV licence £13.00
Broadband and line rental £26.50
Charity donation £6.00

Budgeting for annual expenses

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I then have a personal account into which I transfer £300.00 at the beginning of each month in order to save towards annual car expenses and other regular payments. The money in that account is split as follows:

Car service £20.00
Car tax £2.50
MOT £3.50
Car breakdown £5.10
Car insurance £16.00
House insurance £12.00 (this is towards half of this)
Travel insurance £7.20
Hair cuts £10.00
Eyebrow waxing £6.00
Dental check-up £1.20
Opticians check-up/new glasses £13.50
Physiotherapy appointments £96.00
Holiday fund £100.00

Saving and living

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That leaves about £815.00. I have direct debits into two savings accounts totalling £435.00, so I am down to £380 to live on for the month. This is divided as follows:

Food £140.00 (this is for my half)
Petrol £120.00
Toiletries £7.50
Professional membership £24.00
Mobile phone £10.00
Pilates classes £40.00
Miscellaneous £40.00

Now, I have some added income every month as I get paid mileage from my company for travelling. It varies from month to month, but can be from £100 to £250. This allows for some extras in this tight budget or adds to my savings at the end of the month.

I will let you know how January has gone in a couple of weeks!

Habits That I Hope Will Help Me Achieve FIRE

Began taking anything that I want to eat or drink during the day, with me

This is a common one that anybody who wants to save money can easily do. I am not one for a Starbucks everyday, but occasionally I would get myself a coffee on the way to work or stop for a sandwich if I couldn’t be bothered to make one that morning. Now I make myself a flask of coffee for the day and try to take something to eat. As it’s winter it tends to be a flask of soup, but when it gets warmer it will be salad, usually including some left over veggies from dinner the night before.

Looking at the price of petrol at every petrol station that I pass

Having done this for a while I have realised that Tesco is always the cheapest and recently it has been going down by a penny a litre every time that I visit.

Got a Tesco Credit Card

Apparently Tesco has one of the most generous points systems – one point for every £1 spent in the store, two points for every £1 spent on petrol and when buying something from another shop, you get one point for every £8 you spend. One point is approximately one penny. I have 0% interest for 20 months on the card and so I can make the minimum payments for 18 months, put all the money that I would have spent in a savings account, earn some interest and then pay off the balance next year. Hey presto, free money!

Wearing more clothes when working at home

Some days I just sit at my computer and type, other days I am out and about. When I am at home I have taken to wearing thick socks and putting a blanket over my knees so that I don’t have to put the heating on. I have been lucky in that our winter has been quite mild until now, but over the past couple of days it has dropped and I may end up having to put the heating on for an hour or so. Working at home saves me money on petrol as I would have a round trip of 70 miles, but I am not sure money wise how that equates with two hours of central heating.

Opened a stocks and shares ISA

I have had money in premium bonds for a few years. It felt a safe way to save money with the exciting possibility of becoming a millionaire. Although I think that that is more likely with premium bonds than when buying a lottery ticket, surprise surprise it didn’t happen. Occasionally I won £25, but I think I would have earnt more through interest in savings account. I therefore took the plunge and opened a stocks and shares ISA with Vanguard. Unfortunately so far I am down nearly £100, but it is very early days and all the advice that I have read says that you have to play the long game. Don’t lose your nerve when the stock market dips, but in fact invest more money, as what you buy today is cheaper than it was yesterday. When the stock market rises again, as it inevitably will, your investment will go up.

Started eating more vegetables and less fish

I was a vegetarian for a lot of years, but when I met my partner, who is a meat eater, the compromise was to start eating fish and I do actually enjoy it. The difficulty is that fish is expensive and with the meagre budget that I have set for our food shopping I can’t afford it every week. Therefore it is now an occasional treat and we are back to eating mostly veggies, which consists of a lot of Indian food as you can put almost any vegetable in a curry.

Making double the quantity of dinner and freezing it

I’ve read a lot about batch cooking – spending most of Sunday cooking and putting it all in the freezer in nice little plastic tubs. I just find the thought of spending the whole day in the kitchen unattractive so instead I try to cook double or triple the quantity for dinner and freeze the surplus. In this way I am not doing any extra cooking, but we still have meals in the freezer which we can eat if we don’t have a lot of time for cooking on a weekday evening.