I’ve written and published that book

Over my 9-year journey to financial independence (FI) I’ve had a number of readers of both this blog and the fora that I frequent ask me if I’d write a book.  If the truth be told I was reticent while on my journey as I thought I would be a hypocrite for writing about how to achieve something that I actually hadn’t done myself.  That all changed in July 2016 when I achieved my financial independence goal with being a hypocrite switching to feeling empowered and ‘qualified’ to tell the story.

I also thought that I was too busy to write the book but in hindsight that was just the victim coming out in me.  Like anything in life both achievement and success is all about unrelenting prioritisation in my experience.  Without that you just don’t have a chance.  So with a focus on just work and the book (thanks go out publically to a very understanding and supportive family who’ve had to put up with it and me) I’ve been able to get it written over the past months and it’s now published.

I’ve called the book - From Zero to Financial Independence in less than 10 Years: Tools and techniques to escape the rat race quickly.  It’s currently only available on Amazon but is available in both ebook and paperback formats giving some choice.

So why write it?  A few reasons:

• I’ve found my FI journey an incredible experience both financially and spiritually.  I’ve also learnt so much, including a lot about myself, most of which will serve me well for life.  This includes a switch to focusing on quality of life rather than the far more common standard of living.  At age 44 I am also now in a position that is incredibly liberating and empowering.  I would just love others to be able to at least see what’s possible and hope the book might spread that message further than this blog.  If they then choose to stay on their current course I’m more than ok as at least they saw an alternate option and made a choice.  The book has only been live a few days and this goal is looking good so far.  It is already ranked number 4 in their retirement planning category, number 11 in their ebook personal finance category and number 24 in their ebook finance category.
• I wanted to provide the book that readers asked for.
• An unexpected reason was that I actually found the whole process incredibly cathartic.  For years I have been learning and had tonnes of information swirling in my thoughts.  By sitting down and putting pen to paper it allowed all that to be organised and filed forever freeing my thoughts for more.

Pushing pensions to the limit

I continue to find pension wrappers are a powerful tool for building FIRE wealth quickly.  Let me demonstrate with a couple of quick examples:

• Over my FIRE journey I am fortunate to have found ways to earn more which means that I am today a 45% additional rate tax payer.  On top of that I also have to pay 2% employee national insurance on the last of my earnings.  This means that if I earn £10 and I don’t salary sacrifice it into a pension wrapper I only end up with £5.30 to invest.
• My employer allows pension salary sacrifice, has a contribution match up to a certain percentage and also gives me 10% of the 13.8% employer National Insurance that they save when I contribute to the company pension.  So under these conditions if I put that same £10 into the company pension I actually end up with £21 to invest.  That’s nearly 4 times more.
• Even if I continue to contribute to the pension wrapper once the employer match is over its still favourable.  In that instance I still end up with £11 going into the pension which is more than 2 times the savings outside of the pension.

The wise among you will now being saying ‘but pensions are just a tax deferral scheme’ and that’s certainly true but let’s look at how that will play out in FIRE.  The UK in my view can almost be considered a tax haven for those with enough wealth that work is not required.  To demonstrate let’s take £20,000 from that pension pot every year.  The 25% pension tax free lump sum effectively gives one £5,000 tax free.  Then one also gets a 0% tax rate from the £11,000 Personal Allowance leaving just £4,000 subject to 20% Basic Rate tax.  That works out to be an effective rate of tax on the £20,000 of just 4.0%.

Move to the Mediterranean and it could be even more favourable.  Cyprus, for example, gives a choice of how pensions can be taxed.  The first is 0% tax until you earn EUR19,500 with the next band being 20%.  In this example our £20,000 (assumed to be EUR22,460) sees an effective tax rate of just 2.6%!  The other method favours high pension sums as the income is taxed at the flat rate of 5% on amounts over EUR3,420.  In this example one’s effective tax rate would be 4.2% so one would pick the former in this example.

Where’s the snowball – why you’d better save if you want to FIRE

You don’t have to travel far into most personal finance sites before you find the obligatory compound interest post.  Even I did one back in 2012 where I was so bold as to call it The Miracle of Compound Interest.

In brief Compound Interest, sometimes also called the snowball effect, is at its most basic just interest on interest.  A trivial example.  Let’s say you have £1 and can get an investment return of 10% per annum (those were the days).  Choose that option and after a year you’d have £1.10 which is your £1 plus ‘interest’ of £0.10.  If you reinvest that for another year you’d have £1.21 which is your £1, last years interest of £0.10, this years interest of £0.10 on your £1 but also £0.01 which is interest on your £0.10 interest from last year.  Interest on interest...

So that’s the lovely theory but as someone who is now Financially Independent and so has been there, done that, got the t-shirt, what’s my view on it.  I’d now say care is needed.  Let me demonstrate with three simple examples.  Let’s go back in time to the end of 2007 where I’m going to give each of our punters seed capital of £50,000, I’m going to assume a real (after inflation) return of 4.1% (what I’ve achieved on my portfolio of trackers after expenses) and I’m going to assume their each looking for wealth of £800,000 (which is not far off what I thought I needed back then although inflation since has ensured I now need 2 commas) before packing in the day job.  From here their journeys will vary:

• TheRIT will crack on with working hard, focus on quality of life and so annually squirrel away £58,728 per annum (which is the average annual savings I’ve achieved since I’ve been on my FIRE journey, equating to a post tax Savings Rate of 82.4%) earning a real return of 4.1% per annum (my actual real annualised return thus far).  I know that will include inflation adjusted savings but please give me a little slack here as it’s not important to the point I’m trying to make today so won’t bother with inflation adjusting.
• MrAverage will also crack on with working hard but instead focuses on standard of living.  This means he can only save 5.1% of post tax earnings which has been deliberately chosen as it’s the current UK household saving ratio according to the ONS.  Like TheRIT, MrAverage achieves a real return of 4.1%.
• MissInvestingSuperstar follows in the footsteps of MrAverage but boy does she know her stuff when it comes to picking winners.  So much so that every year that she invests she manages double the return of the others and so achieves a real 8.2% per annum.  Ask yourself how many people actually achieve that and would you be prepared to back yourself to achieve that with severe disappointment many years hence if you don’t?

Click to enlarge, My after tax Savings Rate over the long term has been 82.4% 

Herefordshire or bust?

In recent times some focus in the RIT household has now switched from A Place in the Sun to what about Herefordshire?  As with any of our crazy ideas our approach is always plenty of desk research and then boots on the ground.  All I can say is that Herefordshire is everything we remember from previous visits.  An absolutely beautiful part of the world but then again at this time of year in the UK, with the leaves yellow to red and starting to fall, ugly parts are probably the exception so some care is needed.

Click to enlarge, Kingsland, Herefordshire (source)

Of course our trips have not been all about roaming around country paths, lanes and villages  although we’ve done some of that.  They’ve also initially focused on looking at the possibility of building a modest warm home.  Don’t get me wrong, we love an old historic grade II listed home like the next man or woman, but as a FIRE’ee we don’t very much like the energy performance or maintenance costs that go with them.

9 months into 2016 – The plans they are a-changin’

With the back of 2016 now largely broken this year is fast shaping up as one of the most memorable of my FIRE journey thus far.  Personal finance wise it’s been great.  My wealth passed 7 figures, I became financially independent (FI) and the rate of change in my wealth has been like nothing I’ve ever seen before or could have imagined when I started on this journey.  To put that last point into perspective by the end of quarter 1 I had added £55,000 to my wealth, by the half year mark that had become £142,000 and by the end of quarter 3 it had become an almost unbelievable £220,000.

However, this is not what is making things memorable.  That’s coming from me slowly realising that because my FIRE strategy makes me an outlier it also makes me vulnerable and exposed rather than invincible.  This was nicely demonstrated by the Brexit vote.  As a ‘young’ retiree looking to head to The Mediterranean within a year I’m sure it doesn’t take a genius to guess that I voted Remain in the Brexit referendum.  If everyone else had have been on my trajectory that would have been the result.  Instead my demographic had no influence, as the numbers of people looking to FIRE to The Med are probably not much more than one, so democracy took over and we ended up with Leave for many other reasons.  So far that result has resulted in pound devaluation (which on its own I could have coped with) but also discussions of Hard Brexit which has turned my plans from 95% The Med to 50%.  I’m a minority affected by politics and populism and because I’m not part of a significant demographic my vote just won’t make a difference.  What if the next populist democratic step is to start taxing capital and providing relief to the indebted...  We’re almost there via interest rates anyway but what if it becomes an overt policy...