This week as I was thumping up and down the motorway on my lengthy daily commutes I couldn’t help but take some glimpses of the current and potential future life that this journey to Early Financial Independence is providing. There are of course negatives but the positives really did override my thoughts. Let me share a few random musings.
On the spending front I've also realised that Living Well Below My Means is now just an autopilot activity. I no longer crave stuff and get zero satisfaction from consumerism. I do still track spending religiously just in case I need to correct course but I no longer have any sort of budget and certainly don’t have a £0 one.
These two mind sets currently allow me to save 54% of gross earnings. Sure it’s not at my target of 55% but do you know what – I really am starting to not care anymore.
One active element with my investment portfolio is of course my High Yield Portfolio (HYP). Trailing dividend yield is a healthy 5.0% when compared to the FTSE100 at 3.5%. Capital Gain since inception is also a healthy 38% vs 31% for the FTSE100. Over the shorter term it’s not so rosy with Capital Gain year to date at 3.5% vs 6.0% for the FTSE100. So this non passive piece is not quite on autopilot but the strategy is well defined and I'm still happy with the results. The question I'm starting to ask myself though is can I really be bothered with it. I'm going to watch it for a year or two more but if results do start to converge toward the index I may just go passive.
Regular readers will know that I despise investment expenses but at 0.3% they’re not shocking compared to some. Even these now seem to be progressing downwards again as my SIPP transfer now seems to be finally rumbling along nicely with Hargreaves Lansdown advising me this week that the request qualifies for an electronic transfer and it should take about 10 days.
What started it off was reading the excellent short book The Quest of the Simple Life
by William James Dawson which is available for free at the Amazon link. Here is a book published in 1907 about a person aged 35 living in London who looks up and:
The story could have been written by many FIRE Personal Finance Bloggers today. It did however encourage a few new thoughts to enter my mind. The main one is that my family and I are currently parked in the South East of England much like Dawson. We know that if we stay in this part of the world and buy somebody’s over pricedhouse pension that we are a long way off FIRE. Even if we do that somewhere else in the UK FIRE will be delayed more than we would like. It’s one of a few reasons we’re looking to The Mediterranean. The thought for the day is could we buy some land well away from the South East, build a small (our needs are few) near Passive House and live happily ever after here in the UK. Housing wise it’s still going to be more expensive than The Med but the UK is a near Tax Haven for Early Retiree’s and Pensioners compared to Italy and Malta which most certainly aren’t which might just balance out. Additionally, having a project to 100% focus on when first FIRE’d might just reduce the risk of One More Year (OMY) syndrome.
Queuing of A-Team music - time for some more research me thinks...
As always DYOR.
Saving Hard
In a post back in March I shared a little about my personal life which included my ‘9 to 5’. Today is my 397th post on Retirement Investing Today and that post is right up there when it came to Comments at 51 to date. Some of them pointed to a punishing work life which prompted me to look around at my colleagues and I do agree that I work much harder than most but this is a little by design as I always want to stay in the top 10% of my peer group. The rub is that what seems a negative to some is now just normal and on autopilot to me plus on the whole my health and wellbeing is as good as it has ever been. The positive though is that this approach allows things like earnings increases of 44% in a year and I can already see a door potentially opening that may allow another step change in earnings. So while I admit to being tired come Friday night I also think my colleagues probably are as well. The difference is that I have an extra chunk of cash which I can save to power me towards Financial Independence Retire Early (FIRE) which means I’ll be done in the not too distant future and they’ll retire when the government lets them.On the spending front I've also realised that Living Well Below My Means is now just an autopilot activity. I no longer crave stuff and get zero satisfaction from consumerism. I do still track spending religiously just in case I need to correct course but I no longer have any sort of budget and certainly don’t have a £0 one.
These two mind sets currently allow me to save 54% of gross earnings. Sure it’s not at my target of 55% but do you know what – I really am starting to not care anymore.
Click to enlarge, Gross Savings Rate
Investing Wisely
My investment portfolio which is largely just a set of diversified tracker funds is running pretty close to plan through nothing more than passive portfolio rebalancing and to the end of April 2015 has grown by a Real (after inflation) Compound Annual Growth Rate after expenses of 4% since inception. It’s also now pretty close to being an autopilot activity.
Click to enlarge, Performance of £10,000 within RIT Portfolio and Benchmark vs Inflation
One active element with my investment portfolio is of course my High Yield Portfolio (HYP). Trailing dividend yield is a healthy 5.0% when compared to the FTSE100 at 3.5%. Capital Gain since inception is also a healthy 38% vs 31% for the FTSE100. Over the shorter term it’s not so rosy with Capital Gain year to date at 3.5% vs 6.0% for the FTSE100. So this non passive piece is not quite on autopilot but the strategy is well defined and I'm still happy with the results. The question I'm starting to ask myself though is can I really be bothered with it. I'm going to watch it for a year or two more but if results do start to converge toward the index I may just go passive.
Regular readers will know that I despise investment expenses but at 0.3% they’re not shocking compared to some. Even these now seem to be progressing downwards again as my SIPP transfer now seems to be finally rumbling along nicely with Hargreaves Lansdown advising me this week that the request qualifies for an electronic transfer and it should take about 10 days.
Retire Early
My savings and investments combined continue to march me towards FIRE and this is where my thoughts, all of them positive, have really been in the past weeks with some alternative thinking.
Click to enlarge, RIT’s Path Trodden to Financial Independence
What started it off was reading the excellent short book The Quest of the Simple Life
by William James Dawson which is available for free at the Amazon link. Here is a book published in 1907 about a person aged 35 living in London who looks up and:- sees two people living stereotypical lives and wonders if there is something else. The first was the person who was just on the tread mill following the herd – “The pendulum of his innocuous existence swung between the office and his home with a uniform monotony. Yet not only was he contended with his life, but I believe that he regarded it as entirely successful. ... As for making any question of whether he was getting the best or most out of life, Arrowsmith was as incapable as a kitten.” The second was the person that many of the herd look up to – “He rose rapidly, speculated largely and successfully for himself, became a partner, and was rich at thirty. ... The man seemed so satisfied with everything about his life that it was a kind of joy to meet him. The sourness of my own discontent was dissolved in the alembic of his joviality”. For most of the herd it ends here as they wish for that life but Dawson then observes – “When he sat silent for a moment, strange things were written on his face. Haggard lines ran across the brow; the hollows underneath the eyes grew deep; and one could see that black care sat upon his shoulders.”;
- which when combined with some other details gives him an aha moment – “The obvious answer is that the best things of life are not to be bought with money...” and additionally when it comes to that money – “...the larger proportion of this sum goes in what is called ‘keeping up appearances. ... the real needs of life were few.’;
- which prompted him to run some maths – “...I arranged the items of my expenditure under two heads, viz. the expenditure that was inevitable, and the expenditure that was evitable...” where he concluded - “...I knew where I was cheated.”;
- with the end result of living well below his means, investments spinning off some cash, some additional cash from side hustles, a small break when made redundant, an “Escape to the Country” where he renovates an old small home and a near final statement – “The chief discovery which I have made is that man may lead a perfectly honourable, sufficing, and even joyous existence upon a very small income. Money plays a part in human existence much less important than we suppose. The best boon that money can bestow on us is independence.”
The story could have been written by many FIRE Personal Finance Bloggers today. It did however encourage a few new thoughts to enter my mind. The main one is that my family and I are currently parked in the South East of England much like Dawson. We know that if we stay in this part of the world and buy somebody’s over priced
Queuing of A-Team music - time for some more research me thinks...
As always DYOR.
You can get cheap land up in the high lands. If willing and capable you can chuck up a good quality Passiv Haus for < £50 k. http://www.barnhaus.org/
ReplyDeleteThanks for the link. I hope he succeeds at that. Of course the problem is the land cost on top but if you're creative that might be able to be managed also.
DeleteAh, wisdom approaches! I suggest you look at places close to university towns, characterful places where there's a good chance of intelligent company, rather than some beautiful spot in the wilds. The wilds might look great when you are living a metropolitan working life, but once used to the view, and the novelty of your project wears off, you and your partner will go bats with boredom. I've seen it happen to friends.
ReplyDeleteI hear you. I would like some space around me but aren't thinking the wilds, maybe a plot <0.33 acres. Any suggested areas that you would recommend I start DYOR'ing in? Spent a couple of hours on Rightmove yesterday looking at Norfolk, Hereford, Shropshire and Powys but found nothing to get excited about.
DeleteAhh, Hereford. One of the UK's best kept secrets. You'll hate it ;-)
DeleteThere's cheap land to be had in all sorts of places, the countryside near East Midlands airport is beautiful and very cheap to buy. It's also close enough to any amenities you might need too. I couldn't recommend a Passivhaus enough. You'd love the fact that in essence the house looks after itself. Your house will be FIRE'd!
ReplyDeleteCheers
Do you have or know somebody with a Passivhaus? I'm only fairly new to it but it does look like a way to help you LBYM which then means you need relatively less investment wealth to FIRE. Our thinking is that we have no interest in a McMansion nor keeping up with the Jones's so we go small and spend on efficiency - space is not an investment where efficiency can be. Just need to calculate the returns to make sure it's better than or equal to what my normal investments could bring in.
DeleteAny suggestions for East Midlands towns to be near?
Passivhaus is a very specific set of standards; not all of which are now at the leading edge of what can be delivered. The buildings are great, and there are lots opf examples out there, but it is not the only way. The Association of Environmentally Conscious Builders (www.aecb.net) can provide good information, and if you are interested in alternative approaches, ModCell (www.modcell.com) produces superinsulated homes using straw bale panels that start life with a 10 tonne carbon credit (because of the sequestered carbon).
DeleteOld_eyes
Thanks for the links and further information Old_eyes. Most useful. Out of interest have you constructed a highly energy efficient home?
DeleteNo. I live in a part 17th C stone farmhouse with various additions and extensions. You can't really retrofit that to the latest standards, so you have to take the benefits it gives. Thick stone walls are warm in winter (once you have pumped in enough heat (having a wood burning stove helps)), and cool in summer, so we change the pattern of using the rooms as the seasons change.
DeleteHowever, If I was building from new, I know that the latest designs and methods could deliver a home with space heating and cooling bills that are almost unmeasurable. You still need to plan for hot water, cooking and lighting and electronics.
Hi RIT, I have been living in West London and would dearly like to return to the East Midlands. I would be FI if I did. However the wife and kids have got used to the London lifestyle. Where you live is one of the most important aspects for early FI as MMM has discussed on many posts. If I could start all over, I would live in relatively low cost of living area, right next door to good schools and a good university. Over the years the expense and stress and costs of commuting journeys to get kids to schools and University etc cannot be overlooked. Advantage for the South East include sunnier weather & more job opportunities.
ReplyDeleteRegards, Jon
Do you think it's something you can change with time? I'm ever conscious that the grass is never greener anywhere but just a different shade of green. London has it's positives but I've now been here 15 years and I'm just about done. My better half is still more positive on London than me but discussions of Med options have been pushing on an open door. Recent outside the South East discussions have also been positive. We have time so there is no rush to do anything. I guess it's a bit like a brainstorm - get all options on the table and then pick the top 3 or so to explore further.
DeleteWe very much like the stretch of England from the New Forest, west to, say, Swanage, or a bit beyond. We have also loved Edinburgh, and East Lothian. However SNP ruffians may be making those less attractive.
ReplyDeleteIt depends on what you want to do with your time. Are you a golfing/sailing/fishing/hill-walking/wild-fowling type? Try Galloway, but with the same SNP caveat. You could live looking south over water; that way there's reflected light to lift your spirits the whole time. (I was in late middle age before I realised how much my boyhood had been illuminated by light off the sea.)
You could always try a couple of years of house-sitting as a way of assessing your possibilities.
As always thanks for the input dearieme. Just as we plan to do internationally if we decide to stay local UK before jumping in we'll be certain to rent for 6 months or so to ensure the location agrees with us.
DeleteBlackpool has cheap houses and the beach is nice
ReplyDeleteDo they still have trams and donkeys?
DeleteInspiration: only retire somewhere you can be sure of Punch and Judy shows. Or somewhere with sellers of hot nuts in winter.
DeleteLast week I went for a drink with a couple in their late 20's/mid 30s who had just bought a plot with PP in the town near me which had been lock-up garages about a third of an acre. They will self-build, so it can be done. But they had to go to a lot of auctions, and do much research because you have to do the research before bidding even though most didn't work out.
ReplyDeleteTough, but it's fantastic news that it worked out in the end. You have the same sort of discipline and grit so it could work for you.
They also came to the conclusion they wanted to live in a town not in the sticks for some of the reasons Keith described
Hi,
ReplyDeleteYou wrote .......UK is a near Tax Haven for Early Retiree’s and Pensioners compared to Italy and Malta which most certainly aren’t ......
I can't speak for Italy but in Malta someone with your frugal taste is unlikely to need more than €20k and the tax on that would only be about 6%. In addition there is no taxation on any revenue from any source which remains outside Malta. I am not sure how you define a tax haven but that looks good to me.
On a separate note I read your earlier post on Malta where you listed no inheritance tax. The problem is not Maltese inheritance tax but the UK one. UK inheritance tax is the one UK tax you cannot avoid simply by being a UK non-resident. To do that you need to shed you UK domicility. That is no easy matter.
That's interesting. But if you are non-resident, how does HMRC collect the loot?
DeleteDon't know, but the fact remains that your beneficiaries can be pursued through the courts (and it happens).
DeleteOh well, don't report the death.
DeleteHi Paul S
DeleteI agree Malta is very tax efficient for non Malta domiciles (which does make it attractive for me but it's not the only reason I love Malta) but I also think that I can probably achieve nearly 0% tax in the UK which is still better than what I'd be taxed in Malta. Of course the real calculation also needs to put cost of living into the calculation. On top of that as the NHS in the UK is residency based I'd be paying £0. In Malta there's a possibility to use the Malta/UK Reciprocal Health Agreement but I think for myself as a "self-employed" non-pensionable age person I'd be up for Malta Class 2 Social Security Contributions. Before taking the Malta plunge I'll definitely be getting some expert tax advice around these areas. Do you currently live in Malta? Can you shed any more light on my understanding?
Good point re UK Inheritance Tax. It's a long story but I didn't even think UK domicile as I'm fortunate to not be UK domiciled and I have a rare ruling in writing from HMRC confirming that. It's a document that is highly valued.
Cheers
RIT
Yes, I live in Malta. I am retired so I cannot comment on the SS aspect. Personally I use private medicine (very reasonable in Malta) for everyday stuff.
DeleteI envy you that HMRC ruling.....how on earth did you get them to put it in writing, I didn't think that was possible. Well done. It also, to be fair, gives you a lot of possibilities to live in UK virtually tax-free not open to most if your readers.
Cheers,
Paul S
Yes, I live in Malta. I am retired so I cannot comment on the SS aspect. I use private medicine (very reasonable in Malta) for everyday stuff.
DeleteI envy you that HMRC ruling. How on earth did you get them to put it in writing? To be fair, that gives you many avenues for living tax free in UK not open to your readers.
It was many years ago and so I don't quite remember the detailed process but it went something like:
Delete- I was filling out a tax return and was unsure of my domicile given my circumstances.
- At the time being able to claim the remittance basis of taxation was a big benefit, particularly given I intended at the time to retire to Australia, but I also wanted to do the right thing and not risk being fined.
- I therefore wrote them a letter and they sent me back a short questionnaire form which I duly completed.
- I subsequently received the confirmation letter.
My foreign earnings are now over £2,000 and so to claim the remittance basis today I'd have to pay the £30,000 'charge', which is a lot more than my combined global and UK investments are ever going to earn let alone be the taxable amount, plus I'd lose my tax free allowances (income and CGT). Still a great scheme for a billionaire but it hasn't offered me any benefits for a long time now. Unless you know something different?
Do you live on Malta or Gozo? How long have you lived there? Would value any pro's or con's you perceive? I've tried to spend time there in winter and summer while also trying to live like a local but when you're there for only a few weeks it's still very difficult to understand what it's really like.
Cheers
RIT
Hi RIT,
ReplyDeleteIt's only just struck me how linear your graph towards early retirement is. Really drives home the point you made about savings having much more of an impact if you are aiming for a short time frame.
Is the HYP portfolio and experiment and if successful you will move more into it, to generate a better income? Or something to make it more interesting? :)
I'm in the South West and there are some brilliant towns around Bristol and Bath. They won't be the cheapest, but cheaper than London (or actually in Bristol/Bath) and the area is really nice.
Mr Z
Hi Mr Z
DeleteAgreed about the linearity. It's been one of the biggest personal surprises of my particular journey. My short duration from 'nothing' to FIRE means I'm making very large annual contributions into the portfolio when compared to total portfolio value which even at this late stage is still over shadowing investment return. On top of that the short duration also means Compound Interest just isn't getting time to really work its magic.
On the HYP front. No it's definitely not an experiment or not just tinkering. It was a deliberate strategy to both further reduce investment expenses as well as increase dividend return from the portfolio. My aim is to try and achieve a dividend situation such that when I FIRE I don't ever have to sell down capital as psychologically I think I will struggle with that.
I'm also continuing to grow the HYP and trying to do it fairly quickly while also keeping total portfolio allocations to plan. To demonstrate today it has a value of a little over £61k. A year ago it was closer to £26k.
Cheers
RIT