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?

Why You Really Need a Budget

calculator
If you want to stop being poor you really need to start budgeting

I get fed up of reading blog posts where people say they don’t budget or they don’t need a budget. It makes me mad! You may be one of those people that finds the thought of having a budget rather boring, but it’s essential. If anyone tells you that you don’t need a budget they are lying. Not having a budget means that your bills don’t get paid on time. It also means you may have to get into debt just to be able to pay for the basics in life.

In the world of Financial Independence/Retire Early there is a focus on making it sound fun and exciting. In reality, it can be hard work. Stephen Covey said that effective people are prepared to do things that other, less effective people, aren’t. Believe me, if you want to be effective in the field of early retirement and financial independence you’ve got to put in the work. This means having a budget. To some of you will seem like common sense, but I am always amazed at how many people don’t actually have a grip on their money.

So what does a budget look like?  

How to set up a basic budget

If you want to have any chance of getting control of your finances then you need to start looking at what you are spending your money on. If you don’t know how much is in your account and you are blindly handing over your credit/debit card to buy something that you don’t really need then you are in trouble.

You could start by keeping track of your expenses over the next few months, but really you need to look at a whole year. I’d recommend pulling out your old bank statements and having a look at where your money went.

Light bulb laying on grass
If you want to keep the lights on you need to start budgeting

Predictable Expenses – monthly

Let’s start with the easy part. Look at the regular bills that you are paying each month. For me these are gas, electricity, mortgage, council tax, water, phone and broadband and TV licence. I recommend setting up a separate account to pay these out of. You can automatically transfer a set amount to that account the day after payday. With that done you won’t be at risk of having the gas cut off.

Predictable Expenses – annually

Secondly, there are some bills that you only pay once a year. For me these are:

  • Car service
  • Car tax
  • MOT
  • Vehicle recovery
  • Car insurance
  • House insurance
  • Travel insurance

I also add money for medical expenses such as opticians, dentist, my physio appointments. Finally I add money towards my holiday fund. For some of the annual bills there is the option to pay them monthly by direct debit, but often this increases the annual total.

Make a list of all your one-off annual expenses, plus anything else that you want to save towards each month. Add up how much you spend on these in a year and then divide by 12. If you are going to have a second account for your monthly expenses you can then add this amount to your post-payday transfer every month. That way, when the yearly bill comes around you’ve already got the money saved. It also prevents those expensive months, as you spread the cost over the year.

Savings

If you haven’t yet got a grip on your spending, then finding some money to put away each month may not be at the top of your list. I would hope that as you’ve gone through all of your main expenses you will have discovered where you could make some savings. Hopefully you’ll have been amazed at how much you’ve wasted on things that in retrospect you could have done without. Once you’ve worked out how much you can afford to save it’s just a matter of transferring that amount to a savings account or preferably an ISA each month.

woman doing pilates
A Pilates class – one of my weekly expenses

The remainder

What you have left is yours to spend as you see fit. I have six categories for this money. They are food, petrol, toiletries, Pilates, social and miscellaneous. As I am someone who likes budgeting I allocate a certain amount to each category, but it’s entirely up to you how you spend this. As long as you don’t go overdrawn by the end of the month then you’re doing okay.

So there we are, a simple guide to start to get a grip of your expenses. It may seem like a lot of work to start with, but once it’s in place you won’t have to worry anymore when you get to the end of the month as to whether you’ve got enough money to pay the bills.

Do you have particular problems with your budget that you are trying to tackle? Let me know in the comments section or if you’d rather keep it private send me an email via the contact form and I’ll see if I can help you.

October Spending

A label saying October and some acorns
Did you make any progress on your money goals this month?

If you’ve landed here for the first time you may wonder why I am baring all about my finances. Since I discovered the FI/RE movement and started my journey towards being more financially secure, like others in this niche, I have jumped on the bandwagon of doing a monthly review.

Even if you don’t have a blog I can’t recommend it highly enough. It is such a good way of looking at what went well and examining areas in which you could have been more frugal. It’s not only a tool for looking back, but a monthly review helps you plan for the future. I have learnt where I need to increase my allowances for next year. For example, we seem to spend money each month on bird food, so it probably deserves its own category!

How did October go for you moneywise? For me it was a more expensive month than usual. Some of my regular spending was less, but there were some unexpected expenses. Let’s see how it went…

Income

My only source of income is my monthly salary. Last month I received a backdated pay rise, but in October it returned to the usual amount which is £2726.17.

Household Bills

We are plodding on with our quest to reduce the mortgage. The standard monthly payment was £520.18 and then we made an overpayment of £591. This leaves the balance on the mortgage standing at £74,354.86. As we overpay every month by over £500 our monthly payment decreases the next month and Mr Simple then usually increases the overpayment amount. Instead of decreasing the term of our mortgage Mr Simple suggests that we should aim to get the monthly payments down to a very low amount where we hardly notice that we’re paying it and then just let the mortgage run to term. What’s your view on this?

Gas and electricity was £95.35. This is our usual direct debit. We are £191.44 in credit and I am hoping that will be enough to carry us over the winter so that our monthly payments don’t increase next year.

We paid the standard amounts on these bills which we can’t change:

  • Council Tax £258.00
  • Water £40.50
  • TV Licence £12.83

Okay, actually we could reduce the water bill, which is metered, and it is lower than last year when we spent a lot of the hot summer watering the new lawn that we had had laid.

This is going to cost us nearly £30 a month from November

Our internet and phone bill was £27.85. We are currently with John Lewis who are putting up our bill by £2 per month. As usual they are offering a £20 a month deal for new customers, but loyal ones like us will be paying almost £10 more than that. At the moment we are paying for free evening and weekend calls, when in fact we rarely use the landline. Mr Simple is going to see if we can drop that and hopefully get the price down. John Lewis’s service is provided by Plusnet so we may change our package to them if we can’t reduce the monthly payments.

Any suggestions for broadband and phone providers? We were with TalkTalk at our previous home and they were completely useless so we certainly won’t be returning to them even if they are cheap.

Savings and interest

My savings are a grand total of £36,227.74. My Vanguard stocks and shares ISA made a loss and stands at £9,072.69.  As usual I saved £185.00 to Vanguard and £250.00 to Nationwide. My savings account with the Nationwide matures in November and so I will get some interest, but the rate will decrease. I plan to close the account and move the money to my ISA.

Interest on my Marcus account, which I am using for stoozing, was a grand total of £8.43. Part of me wonders whether this stoozing is worth the bother as I am not making a fortune, but I suppose it is free money and I’ll keep going for the time being. I am getting to the limit on my Tesco credit card so I may not be able to use it much longer without either getting the limit increased or paying off each month what I spend. Even with the latter arrangement I would be able to keep £10,000 in my savings account, which is giving me 1.75% and over the next 8 months (until my 0% interest rate runs out) I would make about £100 to add to the interest I have already made.

General spending

Food £114.39 – under budget by £25.61. We ate a lot of food out of the freezer; mainly meals that I cooked over the past few months and froze. I also bought some dried fruit and nuts which I purchase online.

Petrol £109.57 – under budget this month. Yet again I had a week off so did fewer miles.

Pilates £24.00 – managed to get to three sessions this month. It’s good to get back to a regular class.  

Toiletries £13.90 – this was two extra large bottles of lysine tablets which I am using to try to prevent the cold sore virus in my ear erupting. It was on special offer at the health food shop and so I splashed out. Otherwise it was a very cheap month.

Watching a film in the village hall cost me £9.50

Social £55.40 – this included a ticket for the village cinema, plus a very frugal £2 spent on the raffle and snacks. The price of the ticket, which was £7.50, included a very large glass of red wine, which I would happily forego if I could pay less for the ticket, but it doesn’t appear to be an option. I paid the balance on two Christmas meals, which put my spending over the budgeted amount of £50, but fortunately not by much.  

Miscellaneous £181.97– I massively overspent in this category. It was mainly due to purchasing a blind and lampshade for the spare bedroom (although we did get them at 40% off in the sale) and buying a new handbag. I have a very old canvas bag that I bought from Next donkeys years ago and have been looking for something similar for a long time. Mr Simple calls it ‘the grand sac’ – a reference to the fact that I use it a lot when we are on holiday in France each year. Unfortunately it is very torn at the front and so I decided that I needed a new one. Canvas bags don’t seem that popular, but when we were away in Somerset I found a great shop in Dunster selling lots of canvas bags and they had one in just the size that I wanted. It was £32.99, which in the world of handbags, isn’t a lot.  

Expenses from bills account – expected annual/regular expenses

Physio session £64.00

Staycation and weekend away £217.46. Most of this was for the hotel and the evening meals.

Car battery – £80.87 – you may remember that my car broke down and it was the battery that was the problem.

Invested £125 on blogging – lots of studying to do over the winter

The blog – £124.63 – I have never spent money on blogging courses before, but I was persuaded to buy the Genius Blogger’s Toolkit. This is a package of about 100 courses. It must be worth thousands of pounds. I have downloaded a couple of the courses and started working my way through it. Mr Simple (who doesn’t know about the blog) is disparaging about blogging as a career, but there is so much more to it than there seems at first glance.

The first course that I started suggested moving from WordPress.com to WordPress.org, which means managing the site yourself. The good thing about this is that you can start adding plugins, a lot of which are free. With WordPress.com you have to be on their business package which is about £200 a year to get plugins. The downside of the move was that I needed to move my hosting to another providers. I chose Siteground as it is adequate for what I need and was a reasonable price.

So there you have it. Any observations? Where could I have saved more money? What do you think about our mortgage tactics? Should we reduce the term instead of the monthly payments?

The Pleasures of Autumn

We can enjoy the beautiful colours of autumn now

It’s the 1st of November. I always used to tell myself that I didn’t like autumn and winter, but I have realised that there are many aspects of this time of year that I do enjoy.

Beautiful scenery

At the end of last week we went to Somerset for a few days in order to see the autumn colours. Unfortunately as the weather has been fairly mild the trees hadn’t changed colour as much as we would have liked. It was a little disappointing, but then today I realised we have beautiful places on our doorstep, one of which I pass through on the way to work several times a week. It is a small wooded area and this morning the colours were absolutely beautiful.

Opening your eyes to the beauty around you is a simple and free pleasure. Even if you live in an urban environment I expect there are some trees about. As a child I used to walk to school in the London suburb where we lived and the journey in autumn was often taken up kicking the piles of leaves that had fallen off of the plane tress.

Let podcasts keep you company on the dark drives home

New ideas

As well as the looking at the beautiful scenery I was also enjoying listening to Ryan Holiday talking about stoicism. It’s something new I’ve discovered whilst listening to the Afford Anything podcast. His work, which is a modern interpretation of ancient philosophers, is really interesting. At the moment I have only just scratched the surface, but am looking forward to learning more.

You can listen to him here being interviewed by Paula Pant.

On these dark nights there can be little to look at, so keep yourself company with one of the many podcasts there are. Only today a colleague was complaining about long journeys that she has had to make recently and I suggested several podcasts that she could listen to. Make your commute something to look forward to as you lose yourself in the infinite world of podcasts.

chestnut in spiky casing
Sweet chestnuts can be roasted in the oven

Simple Pleasures

Whilst we were away last week Mr Simple collected sweet chestnuts. He was amazed that there were so many on the ground. Maybe due to the mild weather they hadn’t all been eaten by the squirrels. He has been roasting them this evening. We probably don’t do enough of this. Autumn is the time when the hedgerows are laden with blackberries. We didn’t go picking them as we still have a couple of boxes in the freezer from last year. The season is now over, but it’s something to look forward to for next year.

Although the weather is pretty miserable, one of the joys of this time of year is snuggling up on the sofa in front of the wood burner. Like most people we have central heating, but there is something lovely about a naked flame. I look forward to weekend evenings with Mr Simple watching a bit of TV whilst sitting cosily in front of the fire. All of the wood comes from trees that we have had cut down in the garden so it feels like we’re getting it for free.

Be grateful

So, as we go into the weekend I hope that you’re finding something to enjoy. Even if it’s just being grateful that you’re inside warm and dry as the rain lashes against the windows outside.

Everyday Ideas for Saving Time and Money

In this modern and hectic world everyone seems to be so busy, but there are easy ways to save time, along with making some financial savings as well. This is particularly important if like me you are interested in the financial independence/retire early movement. Making small savings every day can help you to increase your savings and having more time might just help you find a few hours each week to work on a side hustle. Therefore, here are some ideas how you can save time and money every single day.

Do less washing – you won’t be smelly – I promise!

Laundry

Wash items less

Washing clothes is time-consuming, costs money and is bad for the environment. The first way to save time and money on laundry is to hang up your clothes after wearing them once, instead of washing them. Now I don’t mean underwear, just items like trousers, skirts and jumpers. I wear those several times before washing them. I also wear blouses and t-shirts twice. In between the first and second wear I put them on a hanger on the front of the wardrobe door. This stops them from getting creased, allows them to air and reminds me that I have already worn them once.

Use an airer

If you use a tumble dryer the cost of electricity can be astronomical. To dry our clothes we have a washing line outside, which in our lovely British weather is only useful so many months of the year. When it’s too cold or wet outside, in order to save money I use airers to dry our clothes. I don’t think that hanging clothes on radiators is a good idea. For a start, I think that it restricts the heat coming into the room and I find it’s too hot for many of the clothes and they can go a little crispy. A much better idea is to just hang them on the airer and stand it next to the radiator. It may sound a bit pedantic, but made sure each item is laying flat. I used to have a flatmate that would hang her knickers on the airer whilst they were still crumpled up. This meant that they took longer to dry and again seemed to have a ‘crispy’ feel once they were dry.

Reduce the ironing pile

As well as putting clothes in the washing machine and hanging them up to dry there is also ironing. Fortunately since Mr Simple got made redundant a couple of years ago I have saved hours of my life as I no longer have to iron his work shirts very often. He spends most of his time working from home and just shoves on a t-shirt and jogging bottoms. About once a fortnight he wears a shirt and like me, he will wear it more than once, so now it’s only one shirt a month that I have to iron.

If you do a lot of ironing, in order to save money I would suggest trying to do a large pile in one go. Heating the iron up several times a week to iron a few items will cost you more money than putting it on once and keeping it at that temperature until you’ve finished the whole pile.

Colouring your hair yourself is easier than you think

Personal care

Dye your own hair

Since discovering the financial independence/retire early movement I have significantly cut the amount of services that I purchase and even before that I wasn’t a great consumer of the beauty industry. When you get to the ripe old age of 50 (and for me long before that) grey hair is a fact of life. Some people choose to embrace this and are happy to go grey, but I just think that I would look so much older, so I choose to dye my hair. This used to involve going to the hairdressers once every six weeks and paying about £60 for a colour, cut and blow dry. I’d never really considered dying it myself, but after reading about Mrs Frugalwoods cutting her own hair I thought that I would give it a go. It is a bit messy, but it saves me so much money. A pack of ‘Nice and Easy’ Dye is just £6. I then just go for a wet cut every few months, i.e. I turn up with wet hair, the hairdresser cuts it, gives it a quick blow with the hairdryer to get out the worst of the moisture and I’m off. That only costs me £20.

Make fewer trips to the salon

So how does this save me time? When I went to the salon to have my hair dyed I would be there for about two hours. By the time they had put the dye on, left it a bit, washed my hair, cut it, dried it and then straightened it, most of the morning would be gone. My hairdresser would often ask me what I was doing later, expecting me to say that I was going out somewhere nice to show off my new haircut. In fact most of the time as soon as I got home my hair went up in a clip and I got on with some household chores or gardening. All that drying and straightening, which I can do perfectly well myself, was a complete waste of time and money. On top of the time and money spent at the salon there was the travel time and if I took the car, the cost of petrol. It’s only a mile away, but it all adds up.

As well as my hair I am now plucking my own eyebrows instead of getting them waxed and using hair removal cream on my other facial hair. Each task only takes a few minutes, saving another trek into town and yet more money.

Cleaning

Be tidy

One of the best ways to save time on cleaning is not to make a mess in the first place. When you’ve finished with something, put it away. When you pick up the junk mail on the way in the door put it straight into the recycling bin rather than leaving it on the side to pile up. Eventually you’ll have to sort through it.

Ban ornaments

I’ve never been a great fan of ornaments, but I think that if you want to save time on cleaning it’s really important to keep your environment simple. I can never understand ‘collectors’ – shelves and shelves of figurines or fancy teapots. To my mind these are just dust collectors which you have to spend hours of your life keeping clean. So, save time and money – by not buying them and therefore not having to dust them. If you really must have something, keep it simple and buy just a couple of things that will be easy to move when you need to dust that shelf.

So there we are, just a few simple ways to make life easier, giving you more time and saving you a few pennies.