Brexit thoughts

There are so many moving parts when it comes to Brexit; how will it work, what will Germany and France to, what will the EU do, what kind of a deal do we want, what might we actually get and was it the right decision to vote leave?

To my mind everything comes down to negotiation, anything else, especially at the moment, is hot air. The referendum, in my opinion, got it wrong. It would have given us a much stronger negotiating position with 52% in favour of remaining, but apparently it’s wrong to rig these things. A 52% remain vote would have allowed us to continue to be the stroppy spoiled child in the room demanding toys and treats and kicking up a fuss. There would be future concessions, the odd rebuke, but generally we would have got what we wanted.

Any Brexiteers reading this they will say that in voting out, we have regained control – of borders, migrants, laws and sovereignty with Elgar’s greatest hits drifting in behind them. It is true to an extent, but we lose influence, which I feel will have more of an impact over the long term.

The truth is we trade a lot with the EU, like it or not. It follows the same pattern everywhere – you trade more with your neighbours than those further away and so all parties should want to agree a trade deal between the UK and the EU quickly, a drawn out painful affair would harm everyone. Some EU officials / Eurozone countries say that the UK should be punished for leaving and that we have to be punished to dissuade anyone else from doing the same. Others say how ridiculous this punishment talk is given how the EU 27 are our allies and trading partners and it would be an act of self-harm to do so… though making that argument means the UK voting to trade with the rest of the world is an equal and opposite act of self-harm among trading partners and allies.

That aside, I think, this initial deal take too much of the focus. The results of Brexit will be felt over decades rather than days and coming back to the loss of influence, it is that loss which will be more keenly felt and more demonstrative of why it’s a bad idea to leave the club.

The reason is that the EU project is a slow moving behemoth, not a one off negotiation. If the UK “wins” this negotiation it will not, and cannot, force the EU into stasis, never changing again. It will change again soon – new laws, regulations, members, directives will continue to flow from Brussels, the important point from the UK’s points of view is that we will have no influence over those future decisions. So, the EU should agree a reasonable deal quickly for two reasons. Firstly to facilitate ongoing trade and not putting an unnecessary brake on the EU’s economy, because goodness knows it doesn’t need that… no one does. Secondly, post deal they can change some things that the UK would have always vetoed and move on to demonstrate that you have to be at the table to best protect your interests.

In a Brexit debate recently David Davis stood up and said that he thought the trade talks should go more quickly than with other countries (Canada, 7yrs and counting) because of the current common regulatory regime, which all sounds good David, but let’s extrapolate a little. What happens on the next round of regulatory discussions? The UK will have at best a vastly reduced influence, at worst, no influence; we will be outside the room waiting to be told what to do. Those regulations will be brought into force and UK firms will adopt them in order to keep on trading. We could choose not to follow them (hurrah for Brexit!) but where would be the sense or logic? Maybe India is a bigger market in general, or China, but they will have their own rules – are we going to follow all of them separately? No, you follow the one which will net you the best result, which will be lowest cost to the biggest client, which at the moment, and following generally accepted trading patterns, is and will continue to be, the EU.

The same would apply to services, especially financial services which France and Germany would particularly like to make a fairly sizable land grab. The passporting which allows us to transact in the EU could be withdrawn the moment our regulations don’t meet EU ones at the potential loss of jobs, tax and the multiplier that provides. 

It’s not a zero sum game, jobs lost from London wouldn't move directly to Paris, New York would probably benefit the most, but the power of incentives is ever present and the French, German and Luxembourg leaders would be trying their best to coax as much of that work to their shores away from London and that means actively trying to worsen the UK's position. 

Before we take the holier than thou attitude Remember when Boris said he would lay out the red carpet to Parisian entrepreneurs and bankers when their 75% tax rate was about to be introduced, well it’ll be the opposite from now on.

Moves will generally be slow and steady, a bank here, a decision not to increase capacity of a factory there. Changes will take time so the power shift represents the other reason why the EU should do a quick and ‘nice’ deal now. It will show where the power really lies – not in this one off negotiation, but in all the little ones coming up over the years where the UK will lose out again and again because we’re not at the table. It will impact on manufacturing and services, but hey, at least the twenty thousand odd UK fishermen will be free from the yoke of EU tyranny…

Can you tell the truth?!

This is an interesting blog and prompts a few immediate thoughts – the principal ones being, that’s a lot of money to have and still be working. Surely most people would have their feet up at that level of wealth? But hey, the question is being asked by the boss, and it’s a hypothetical, so it’s understandable that they would smile, tug the forelock and say yes sir, of course I’d still be here bright and early tomorrow morning! On the other hand it may highlight how much of a disparity there is between how much you need to actually stop working and the perils of lifestyle inflation.

That aside, it shows how people want to work in creative and interesting roles doing things they love, even when money isn’t an issue, which is at the heart of FI. It makes me happy that some employers must be getting it right in attracting the right people to the right jobs and keeping them engaged and interested. However, every job surely has to entail the boring bits, the admin has to get done otherwise the systems don’t work and no one has a clue what’s going on. I also heard that research showed entirely free thinking work was very draining and having some repetitive tasks to tick off the list gives us little dopamine hits, so an ideal job has a balance of both elements.

But if I didn’t have to slog through the boring admin and was liberated to spend more time being creative and apply higher thinking to situations, would I give up on FIRE, buy myself some sleek glasses and black turtle neck and stay in the workforce until 70years old?

It’s a no from me. A job still means sitting in an office for hours per day, commuting, suffering train delays, tube strikes and eating plastic wrapped sandwiches. It’s because of those reasons that I am pushing for, and will continue to push for FI.

I wonder what the reaction would be if the answer to the initial question was; work half as many hours? Saying it would make you more productive for being better rested and coming in seeking stimulation and challenge rather remaining stressed through overwork…

Would such a statement only demonstrate that you are not a good worker bee? If you couldn’t possibly say such a thing without severely limiting your career for such failure of loyalty, are you in the right job? If you can’t escape such a job, but it’s paying the bills nicely, then surely the answer is to put yourself in the position where you can look your boss squarely in the eye and tell them the truth (which isn’t the same as shouting obscenities and flouncing out the door) without fear. It means having an ‘F’ you pot if necessary and passive income.

Newsflash

https://www.bloomberg.com/features/2016-early-retirement/

People who are sensible about money are... sensible about money!

Generation FI

The church of FIRE is a broad one. Adherents believe that it’s a good thing that everyone, no matter what age, has a little spare cash to weather unplanned periods of unemployment or meet unforeseen expenses.

When you delve a bit further into this particular area of personal finance it seems that the majority of people are in or around their 30’s… this is obvious in some respects, we are earning quite well, a rung or two up the ladder from graduate in charge of tea and coffee duties, but also facing the prospect of another thirty plus years in an office. Faced with this we are thinking, acting and doing when it comes to escaping this reality more than other generations either side of us.

I don’t think it’s any coincidence really. Generation FI, newly coined patent pending, are sandwiched between Generation X – supposedly cynical but hard working in a more varied careers and creative and Generation Y, the millennials – supposedly lazy, “snowflake” hipsters who think they will never own a home and consider spending money on experiences as more important than buying things and will never have what their parents had asset wise.

If you take the best of these two you have Generation FI! A little cynical (hate The Man etc) but hard working and creative enough to seek and find the way out of the rat race to allow us to have more fulfilling experiences in the future, released from the yoke of enforced employment. We’re able to look beyond all the marketing noise to not covet things too much, but understand how money, assets, investments and compound interest work for us and that having it gives you precious options.

I am lucky to be born in a stable, capitalist, democratic economy, able to take advantage of the benefits of virtually universally available technology driving down costs but perhaps we hit a bit of a sweet spot in generational timing and traits to make us better suited to going for it?!

Keeping myself honest

I have a little confession to make, which makes me feel a little foolish. After grandly saying how I’ve been holding up my little corner of the FI world by saving hard I then re-visited my savings rate and my heart sank a little as I saw it was at less than 40%. I'm not proper hardcore like some out there, but I do try and hit some reasonable numbers and to my mind 40% is my benchmark for a good level - room to really screw down on costs if needed, but a lot higher than the average.

I didn’t really have a preferred measure before, but that needed to change. Looking through Zombie and FIRE Starter’s posts on it I decided to take me post tax, take home, salary and to sum half of what my employer puts into my pension, as well as my contributions to that and my other pension, ISA, mortgage over-payment and whatever’s left that goes into the long term savings pot each month. I did not count money going into emergency funds etc and I didn’t include tax relief on pension payments, which I could do, but this distorts the picture too much.

When I adopted this I realised I was down on where I thought was – so much for walking the walk…

To seek to remedy this and shine the spot-light of truth into the mirror of self-analysis I have started tracking my net worth, I know, climb down on earlier post, this is going well isn’t it! The aim of doing this is to accurately gauge, warts and all, the value of cash and investments (excluding pensions as I have no access to them currently for FI purposes and it keeps the admin down).

The important thing is that I should not be able to fool myself, it’s the same accounts summed each month, what is the change, what is the explanation. The number should be increasing, though I take into account market moves as I have invested more over the last couple of years and a good employment report here, or a presidential candidate stumbling there, can make a material difference in a short space of time. But if the markets are quiet and my totals aren’t increasing, then I’m fooling myself somewhere.

An example of how I’ve been doing this recently is that my significant other and I have done some work to our house. Hopefully improving the value, but it’s been expensive and the additional costs not included in the general budget are sapping my savings rate each month. Those costs will come to an end, but I’ve allowed myself to fudge my own accounting which flatters the true state of play and if that carries on into the future it will have a larger impact. The focus for the next few months is to get back on track, increase savings and investments and use the above to keep me honest, because no one else is going to and all it does is delay when I can walk off into the sunset, a bona fide, FIRE’y hero!

Good point

Good article; http://abnormalreturns.com/2016/07/14/a-rational-response-to-a-seemingly-irrational-world/

The more I read and experience the more I feel it's your mindset which is so crucial in actually succeeding in reaching the goals you set yourself. That is perfectly easily accepted in relation to sport, the will to win, the focus and drive, but in investing even more so because so much, in fact, pretty much 99.99% (as an individual investor) is out of your control.

"Everyone has a plan until they get punched in the mouth" M. Tyson. The market will punch you in the mouth most years, how are you going to handle it?

EU vote

The longer this "leaving the EU thing" goes on for and the more events that transpire, the less likely I think is to happen in the way most people think, ie, someone triggers article 50 and two years later, off we go.

I don't go in for conspiracy theories, but the way the Tory leadership election and Labour coup have progressed you'd begin to wonder. Here is my guess on what happens next, just for fun!

- Theresa May (TM) becomes PM
- XYZ becomes Labour leader, who knows / cares at this stage, they're happily imploding by themselves.
- TM has no mandate but starts "tough" negotiations with EU.
- Some time passes
- TM gets "best" deal she can from EU, which will be better than the one Cameron got. It won't realise the free having and eating of cake of full access to single market whilst having total control over freedom of movement of people. The UK will still pay some millions of pounds into EU budget every month still.
- TM says it's a good deal, it isn't full EU departure but she feels the mood of the public has changed since June 2016. She needs a mandate to sign up to it, but rather having another referendum she calls a slightly early general election, because apparently parliament would need to vote to trigger Article 50, so is the logical choice to seek the will of the people to proceed.
- Then I hedge my bets, either the Tories win a fresh majority and sign up to the deal agreed, or the Tories are the largest party, but without an overall majority, and enter into a supply and confidence arrangement with Lib Dems (who are never going into Government again after last time). This assumes we don't leave because the price for Lib Dem support will be not triggering Art 50 because they will campaign on a pro EU ticket. I think this is quite likely given the way they were booted out by the Tories last time and the present wafer thin Tory majority - more voter remorse.

The deal:
The main reasons people voted to leave were immigration, paying into the EU and then the inability to trade more widely with the world (whether correctly presented or not).
1) Paying into the EU; this will be reduced by a token amount, maybe 85% ish of current totals. Contributions will be made to facilitate access to the single market on low / no tariffs.
2) Immigration; "tough" new guidelines will be agreed to allow us to stop anyone we like, aside from students, those with jobs, those with families living here, those EU nationals already living here, those who want to move here to start a business etc, all good positive reasons. But the theory will remain that we can bring up the drawbridge if we want to, but most people get in anyway.
3) Trade; probably still get access to the single market with some concessions (banks / financial services probably) on the back of the above and with a foot and a half out of the door we can negotiate our own deals with third party countries whilst making those deals in line with EU rules or with due consideration to them.

Downsides for the UK will be that we either have no influence in the EU institutions, or a proportionately reduced level of influence with no / a token few MEP's and only maybe a seat at extraordinary debates, or those which *should* be above politics - war / economic sanctions, climate change, intelligence gathering and sharing, crime / extradition deals etc.

This should allow the EU institutions to threaten enough stick to other Eurozone countries thinking about leaving; leave, but you still have to pay, accept freedom of movement of people, you get no decision making abilities and it's infinitely more complicated if you're in the Eurozone, so don't even think it, mate. Whether that will make any difference to Italy's failing banks who knows, those events may overtake all else.

At the end of the day a huge amount of distress and upheaval is created for marginal (but arguably beneficial) changes to our relationship with the EU and as always, it'll be the lawyers who win!

As an aside, in a bid to be positive rather than cynical, I do think it is to our remarkable general credit that a Muslim can be elected London Mayor and a female can be installed as PM with hardly any fallout. Yes TM doesn't have a mandate, but neither did Gordon Brown when he became PM in 2007. Well done us.

I see risks

Risk is a word bandied about a lot and, much like it’s cousin, investing, is one which is often used misleadingly or incorrectly. Risk has many different forms – market risk, inflation risk, liquidity risk etc etc, but actually these are more volatility risks, if you excuse the mixing of terms. When it comes to personal measure of risk I think that one of the better ways of thinking about it is the following:

Risk is a two stage affair – initially, the chance of the event happening, then secondly, the impact that event has, and it’s a consideration of those two which helps properly guide you in making decisions.

So, take two games. First one involves throwing a dice, you call a number and throw the dice. The terms are; you win £1,000 for choosing a number which doesn’t land face up; so you call 3, roll the dice and if it comes up 1, you get a grand, but if you say 3 and roll a 3, you lose £1,000. Now whilst research tells us we feel losses twice as hard as we feel gains, the odds are surely worth having a go, if not several turns at it.

Change the game and make it Russian Roulette - make a successful call a win of £250k, a life-changing amount of money, but calling the number that comes up results in a fundamentally prejudicial life altering outcome. I can’t imagine many people, beyond Derren Brown, would play that game, the chance is the same as the first game, but the potential negative outcome holds a much worse outcome.

So to risk in investing. Equity exposure “normally” give the greatest returns, but carries proportionately greater risks. Spending 100% of your salary means any drop in income will lead you into (probably further into) debt and therefore losing your job has a dramatic and material impact – it’s not life threatening, but as one homelessness charity found in a study; most people are only three missed paychecks away from living on the streets. To offset this, we should seek multiple income streams which is diverse enough to see us through a dip or eradication of one and is a well-trodden path to FI.

I have one job (no side work) and various investments building up in various ways underpinned by a solid emergency fund. The fact that I have a good emergency fund allows me to put more money into my ISA and pension. The fact that I seek to limit my expenditure means I have money left over to buy more shares directly and if I were to be put on notice of redundancy I could save a few more thousand pretty quickly.

Taken as a whole, therefore, my equity allocation is probably at a level which would describe me as financially aggressive… but that doesn’t really reflect my, albeit self, perception. Zoom out and consider everything together and the picture changes. Going back to the two stage risk analysis the negative monetary events which could occur are matched or off-set:

Source of Risk	Negative event	Risk of event happening	Impact on me
High equity exposure	Market downturn / crash	Medium to high. Drawdowns happen, we’ve had a few since last summer already and are a fact of life with the markets being driven by emotional humans.	Low as I’m buying for the long term and am in no way reliant on that capital value or income day to day and £ cost averaging helps me in this accumulation phase
Employment risk	Redundancy	Low. Company and economy linked. I think the company risk of bankruptcy is low. On the macro scale, the company could be laid low by larger market forces tied to a recession, but it did okay in the last one, so considered low. My personal chance of being redundant is relatively low, but shouldn’t take that for granted!	Low in the short term, higher out to 12months. But generally I would hope I am employable within that time frame, so considered a low risk. Further mitigated by increasing ISA balance from regular investment which could be tapped for income if required.
Higher cash balance	Inflation	Low in the short term: I’m getting close to 0% interest, though inflation is close to zero too. But inflation is tricky and my personal rate may be higher than official stats, and surely in the long term the risk is medium to high.	Low because I have a higher equity exposure which should provide returns in excess of inflation and because I have other income sources which can top up these levels if needed.

Pensions is a funny one as a good chunk of my regular monthly saving total goes into it, but I wouldn’t be able to access it if I needed to in the short term and the above is about covering unexpected events impacting income suddenly. Whilst pensions don’t really fit in the sudden category, however, the tax benefits and company match make it a no brainer not to take full advantage.

If you combine two risks together – market crash and redundancy, then that obviously makes for a more difficult outcome, but hey, that’s why we’re in this FI game in the first place!

If I can add more lines in the future then that’s all good, a buy to let would be great (assuming Osborne doesn’t just outright ban them). Assuming you have enough equity it should be its own, self-financing, little business; income covers outgoings and retained cash to cover larger expenses. If there is a recession you should be insulated when letting it (potentially lower income in the short term, but higher demand as people can’t afford to buy their own places), and if you lose your job then it shouldn’t matter hugely in the short term, ie until you seek to refinance it.

When I’ve done those ‘attitude to risk’ surveys I come out pretty middle of the road, not terribly adventurous, but because I have a reasonable hold over my emotions when investing, and have the above safety nets built in, for me personally (standard caveat about how I am not a financial advisor and you should seek your own advice / make your own mistakes) I am happy with a higher, more “aggressive”, equity exposure level for my particular set of circumstances.

Would you make FI accessible to all?

Rejected by the Swiss. Interesting. What would the outcomes be like? Something like this could cause a massive immigration pull to the country but do you generate a second class citizen who doesn’t qualify, would such discrimination be enforceable? The belief that such a basic income would lead to a generation / nation of feckless loafers rather than one liberated from the shackles of enforced employment to forge new industries and innovate free from the risk of failure leading to penury and no social stigma for a universal benefit.

Would it be universal? There would be massive tax and spend implications, standard arguments of “loss of talent”, marginal income and taxation levels (there’s going to be a “sweet spot” where you pay a massive marginal tax rate as you lose the basic income but still aren’t earning huge amounts. The requirement for a large increase in administration to deal with it, generating a higher tax bill again to load onto those who choose to work still (and then keep a smaller share of what they earn).

One article I’ve read on this raised the positive thought that it means people can spend their time much more how they want, rather than to the highest possible earning capacity, but the negative side was a load of people who would misallocate capital in the form of pointless exercises – think Sinclair C5’s everywhere, destroying capital and the productive capacity of the economy, and by extension, causing the resources from which a basic income was drawn – the tax base – to be permanently eroded, also, what would be the point of education or higher learning generally?

However, people currently not enjoying their jobs are misallocating their energy and skills and the economy is missing out as a result. Lots of university degrees are handed out pointlessly already and this results in the same lower levels of productivity and potentially poorer mental health, further diminishing potential output.

What would be the government’s desired outcomes? More discretionary spending on goods and services in the economy, exacerbating the disposable society? Freeing people to pursue their dreams? Saving money on organising the welfare state? Or at worst a politically motivated move to outflank an opponent, a good reason to see such a policy fail to deliver positive outcomes and what a bad government gives at one point, they can take away at another when times are hard.

I think better education, flexibility and access to opportunities would be a better focus. Apparently societies which are more individualistic are happier as you feel more liberated to pursue what makes you happy rather than sticking to a broader societal expectation. Therefore to equip people to do that better would, I think, generate better long term returns for individuals and the wider economy – though I would add a mandatory course on finance to ensure people knew the basics, so would be in less need of excessive or extended amounts of state aid!

Things I’ve done since getting FIRE’y

As I move slowly up the lower foothills of financial independence I look back and realise I have come some way in the last couple of years. So if any other people stumble on this blog looking for answers to how to start moving in the same direction, hopefully the below will help.

-       Increased my savings rate – duh.

The first thing I did after I initially stumbled across MMM and the early retirement brigade was to increase my work pension contribution. It’s a classic tale, one told over and over again, it’s relevant, important and simple – and like the best stories can be copied easily and make a big difference.

My company doubles what I put in to the pension scheme up to 10%. So when I put in 5%, they put in 10%, I’m saving 15% without even trying. The silly bit was I was only claiming about 6% of my free money initially because I definitely couldn’t afford to put in more… then I read MMM, took the metaphorical punch, increased my saving rate and… the world did not end. Lessons here, as always: pay yourself first, and, you can afford to increase your contributions and you won’t even notice the lower salary after a few months.

-       Dropped my general monthly expenditure

I’ve monitored what I’ve spent for some time and thought I was doing okay, but monitoring and recording wasn’t enough. It was almost like I was taking notes for someone else as all I did was tot up the numbers in a spreadsheet. Like with most things it’s the action you take which matters.  Again, post MMM, I have cut out expenses like new phones every couple of years, lunches out every day and memberships of randomly visited gyms. Don’t just budget and then pat yourself on the back like I was doing, actually cut some fat, it’s there, but you need to change your mentality, not just update the spreadsheet.

-       Stopped updating my phone software

Slightly more obscure, as it doesn’t save any money up front, but it’s a mentality issue again. I find the planned obsolescence slows if you don’t update regularly. I used to update whenever the latest software was released, and by doing that, I became more tightly entwined with the phone upgrade cycle leading to spending money I didn’t need to. Cutting out the prompt upgrades has saved time, as I no longer faff about waiting for it to complete, and money as the current phone is a pretty old one, but still working fine and on a cheaper tariff than the new phone contract, so double win!

Further to this, I feel the big tech companies used to make our lives better and did, dramatically, with the functions available on a smartphone. But now I think that as the “big” changes on each new handset become more incremental it’s less about making a great interface and making it work really well and more about making it more and more complicated (yes I may be getting too old for all these new-fangled gizmos!) so you are forced to openly or inadvertently, spend more. For example, did you automatically sign up to Apple music and then forget to cancel the subscription? Are now paying for it each month? Do you remember signing up for it or did the benevolent Apple corp. just deal with those annoying details for you? Did the system settings adjust so that you have all of a sudden filled up your memory so you *have* to spend money on a cloud based subscription? If so, you can, of course, have access to all the music and photos etc you want, you just need a bigger data deal to go with it, please sign here, just a few more pounds a month…

-       Started cycling

Stronger, fitter and lowering expenses is a triple win on this front.

-       Less news

I used to want to be up to date, but I’m less inclined now. Maybe a more conscious desire not to put myself in front of so much advertising and wanting to watch less TV generally and trying to do more worthwhile things. Maybe it’s all just getting a bit rubbish (old man alert, again). I wonder if I wanted to be bang up to date because I wanted to be busy and important and have shiny things, which is good and right according to mass marketing, but not what we’re after here thank you very much. I use Twitter to manage the noise and avoid reading papers which seem to be increasingly redundant. Article content and value seems to be in a race to the bottom, it’s increasingly click-bait which doesn’t do you any favours.

-       Proper emergency fund

Again, standard fare, but so important. I made a bit of a push to get the cash balance up to 6months of house expenses and six months of spending money. Having got there I’ve pulled back on the throttle, there’s still some cash going into that account each month, but not so much. As I result I’m up to between seven and eight months cover (by that I mean mortgage, bills, council tax and food shopping, not take home salary). Now I’m over six months part of me wants to stop these contributions and focus on putting that cash to work, but the conservative in me wants to get closer to 10months, which isn’t too much more.

On the personal spending front, ie bus fare to get to an interview the odd night out or home maintenance job, I’m leaving this at six months. If I get the bullet from work I can switch my personal shares to pay me, not to reinvest, and that should stretch that savings pot out to that 9-10month mark and means the cash sitting there is kept to a minimum on this front too. I would expect I could eke this out for longer as so many of my expenses are related to being in the office – who knows, if I were to be made redundant I could take a month or two off and not worry about it!

-       Reduced cash balances

I was clearly more risk averse than I thought. I used to hold higher cash balances than I do now and I am less afraid to put money to work than I was. Considering the above I could be said to still hold too much, but it’s a marathon not a race and that balance is going down whilst the ISA’s go up, so it’s heading in the right direction.

I also compartmentalise different accounts, which is apparently a standard psychological failing! (http://www.psyfitec.com/2014/07/m-is-for-mental-accounting.html ) However, here comes the excuse, I aim to have nothing in my current account by the end of each month, with all sums allocated elsewhere so if there’s a car repair / MOT it comes from the car account with contributions based on expected standard expenses and repairs over a five year period. If the car then has a more fundamental problem, in comes the emergency fund, otherwise the emergency fund becomes a more everyday account, when really it should just sit there and hopefully not get touched. As I write this I feel it’s sounding silly, but it works for me at the moment! I have reduced the amount of cash I hold generally and there’s probably room to reduce it further, so a work in progress!

Where I have made the most progress in this regard was against some money I inherited. It was enough to want to deal with it properly, but not enough to warrant putting with an IFA. So it just sat there doing not very much. I don’t think there was a crunch moment, but I just let go, stopped ring-fencing it in my mind and just invested it. There was no spiritual retribution so I presume my dear departed are happy with the decision too.

-       Give to charity

When you drop your expenses you realise you do have money to give to charity. You can tell the chuggers to do one and give money directly to the causes close to your heart and claw back a little of your black capitalist soul for the light side of the force!

No doubt there are other more subtle changes, but those are the main ones. The main take away from all the above waffle is: if you’re looking to make changes to your day to day life style, change is hard and unsettling. Doubly so when you see nice safe cash leaving your account and going to one where the balance changes every day and not always in an upward direction! Trebly so when you’re ramping up your savings rate from a steady 5-10% to a much more hardcore level. The good news is having done it, the world doesn’t end, the sky doesn’t fall, in fact your stress levels should fall as your short term security from the emergency fund builds and you start earning more FIREy stripes.

Preaching to the converted.

But worth a read still:
http://theirrelevantinvestor.com/2016/05/19/how-to-stack-the-odds-in-your-favor/

April irritation

Okay, MMM, enough is enough, well done for saving enough to retire in your 30’s, a tip of the hat for creating a website that rakes in cash for you. You will always have my thanks for opening my eyes to FIRE, but please, please stop the April Fool’s posts. They’re not funny, and I find them more than a little crass. I know you’re in a wonderful financial position, but to use that to make a joke is pretty poor taste really, especially when most people reading will be aspiring to achieve what you have.

Doom, you should know better, don’t make a habit of it.

What I want to know about senior politicians finances.

Gosh hasn’t there been a lot of good oxygen wasted over Cameron senior and junior’s finances! The organ grinder inside the Westminster bubble continues to make the monkeys dance for their supper!

According to the BBC Cameron’s tax payments have increased only once since he became Prime Minister, from tax year ending 2011 and tax year ending 2012 his total taxable income rose from £157k to £200k – this coincides with his Mother giving him £200k. The rest of it seems pretty tame, apparently he sold all his shares on becoming PM so there wouldn’t be any conflicts of interest, which is all jolly good, oh and he owns a house worth £2m in Notting Hill.

Looking at this through a FIRE’y lens the question I would like to ask is “how much do you keep?” Why hasn’t his tax bill been increasing – what exactly does he spend his money on? Downing St is free, the work of being a MP / PM is covered through expenses and I think he’s kept pretty busy generally in his current role, so not much free time to indulge expensive hobbies. In fact what could he spend his money on? Watches, suits, rare stamps? Maybe he gives it all to his wife and children… that would be a bigger political question… but as he has to appear whiter than white on these issues I can’t see that being the case – where does the cash go?

The PM earns just over £143k, equating to c£6k pcm (assuming 13% pension contribution, post normal taxes and no student loans!), I would think he spends virtually nothing, but say he somehow spends half, that’s £36k a year post tax to be saved.

Coming back full circle we know he owns no shares, so all he’s getting is bank interest, which we all know is paltry – if he gets a preferential “Eton old boys” special rate of 3% he’s paying just over £400 in tax each year on that. So he’s actually a victim of the Bank of England’s financial repression and the restrictions and intense scrutiny of being PM. Taking into account inflation and the report that he is also, apparently, thinking of sending one of his children to public school he’s going to be in a much worse financial position having been PM that if he’d kept his head down in the private sector. I know, I know, poor little Dave, however will he cope?!

To me it’s an interesting thought exercise as it demonstrates how pathetic interest rates are, how seven years of 0.5% interest rates has caused so much pain for older people without the benefit of a decent financial education relying on more limited savings. At the same time these rates are “artificially” impacting assessments for investments being at such historic lows. We’re then pushed to hunt for yield, particularly shares, post dividend and SDLT tax rates changes – potentially building a bubbly problem for the future.

Finally just think about the level to which we hold our public officials – that they can’t invest in anything, that they have to be seen to be so far beyond reproach that they damage their financial health in doing so. This leads to perverse and underhand reactions like Duck Pond man and mucky moat guy. Yes, they should be focussing on public service, not self-enrichment, but I also agree with the argument that MP’s should have wider experience and shouldn’t just be party drones. Imagine the monster that would be created if you put together all the elements of a perfect politician from the media responses and party political focus groups, even Frankenstein would say things have gone too far. If that means a combination of greater disclosure and allowing them to own some shares and know what’s it’s like to be impacted by the decisions they are making instead of relying on statistics of the population, then it’s probably worth letting them buy a few index funds – it might even lighten the load on the tax payer stumping up for their pensions…

But what about the bus?

You know, the one which about to hit you, so is the main reason for being spendy and ‘living for the moment’? Sounds silly, but it is a concept with merits.

Firstly, if you were to shuffle off this mortal coil and have to reconcile your actions how would you stack up? Are you a useful member of society or a bit of a recluse because you’re trying to save every penny? This isn’t necessarily a money thing, just a general question – what are you giving up for this long term goal and is the trade worth it? Are you happy with you as a person?

Life is for living and in pursuing FI you want to maximise the amount of time you control, so what happens if you do nothing but work for ten or fifteen years before quitting the rat race? Would you be able to transition easily? You may think it would be straight forward – you hate the office and The Man and there’s lots on the To Do list, but ticking the outstanding items off that list – visiting relatives and making more time for friends, great – but limited. Sort out your sock drawer, fix the leaking tap and mow the lawn – you can do those bits in a few days.

You would definitely want and need the decompression time but what then. What if you don’t like working in a charity shop? Perhaps you are not actually that good at art and that novel just doesn’t quite make its way onto the page. Do you have hobbies or have you shelved them for the sake of increasing your savings rate? What if it turns out you love horse-riding or you get the travel bug, but your FIRE budget doesn’t support more expensive pursuits – do you go back to the office again? Do you switch job to work in a stable or start your own travel company to allow you do what you love?

The point is whilst I completely buy into FIRE and want that control, I’m willing to sacrifice the timing for the sake of enjoying myself now and figuring out what really flicks my switch. Don’t worry I haven’t been plugged back into the Matrix! I am not saying I have to have five luxury holidays a year and life simply isn’t worth living without a fast red car, but if I had bought that winning lottery ticket what would I do? I feel I would struggle for a purpose or sense of meaning, and most of us need that in our lives.

I hope that having started this journey I can save a lot, but also prepare for the transition by trying things now. Yes, that will cost money and push back my quitting date, but if you find the right interest or, as yet untapped, skill, you can enjoy discovering it and honing it whilst working and then, when the time comes, you move smoothly from desk jockey one day to coach, volunteer, museum guide, whatever, the next. If you find that passion sooner it makes the intervening period much more enjoyable.

I remember watching a Steve Jobs speech at some graduation ceremony and the abiding message was about not settling for the status quo if you don’t like it – change something, do something. Choosing FIRE is a big step and is “easy” if you follow the rules, but that leaves a significant period of time being badly deployed capital, not performing to your highest function and spending a lot of time unhappy and clockwatching.

As I sit here today, if I did get that lottery ticket I probably wouldn’t quit work straight away. That is good, because I enjoy my job and that’s a positive thing! It’s bad because I am pursuing FIRE, because I want my time under my control, and life is too short and precious to spend in an office. It’s going to take me a while to hit that number so I have time to figure out what I will do afterwards and will have fun trying stuff out in the mean time!