May Progress

After my last post, I have had another check on progress and updated my accounts. I am still saving 60% of my income but it isn’t making much of a dent on my net worth, this still remains flat.

When I first started off on this path, the growth was rapid and a lot of that was down to making changes to behaviour and spending that meant that I made quite big impacts on my net worth. These have now tailed off.

I hit a wall 2 years ago when I was made redundant for the second time. I took the first (and only job) offered so I could retain an income stream. Everyone else was getting a job and it would have looked bad if I hadn’t had something when we all ended our redundancy notice. It was a bad mistake, the place didn’t fit and I suffered it for 6 months to see if it would change but it didn’t so I just left. I had no job but felt better than sitting in a horrid work environment. I decided to have an ‘FI holiday’ and took 6 months off (3 months off as FI + 3 months actively job-seeking) before I was back in employment.

My net worth did drop a bit during my ‘FI holiday’ as I used my funds to live.  (Well, my dividends were used as income! I did not use any capital). When I eventually found a job and starting earning again, my fund had lost some value but now was the time to grow it again.

Over the past year I have seen that my net worth has fluctuated. After the drop, I expected it to pick up but the external factors of Brexit and economic instability mean that my fund has not grown at the same rate that it once did. My dividend yields have dropped this year. Dividends within my ISA and SIPP are automatically re-invested but I am not making the same gains as I once was.

I am investing into my ISA, SIPP & pensions to use tax free allowances on a monthly basis and then any surplus into cash savings. I am considering pumping all the surplus cash into my SIPP and pensions but it means I cannot access this until I am 55.

My SIPP is currently recording a loss. I had opened the account by transferring two very small company pension funds (less than £2.5k each) into this account to consolidate them, then did a bulk buy to get the money back into the market, just as their prices dropped. I can see that the account is still in the red but this loss is reducing each week so it should move into profit by the end of the year. I am now topping up this SIPP account. While I have an income I will push money into saving hard.

The path seems to be faltering but I will try to continue to aim for the line. It seems so close and yet so far away too.

I am looking at side hustles and other income stream opportunities so I can move away from working for ‘The Man’ and working for myself with the support of an FI fund.

I am looking at any options so if anyone has any suggestions let me know…

 

 

Pensions -the new tax target

Well, all I keep hearing at the moment is the talk on the government tweaking of the Pension taxation. Now, if the tax reclaim limits are going to change to a flat rate value then that will be annoying.

In previous years I have been a high rate taxpayer so have been able to claim back additional tax for my pension contributions on my tax return.  This year due to my ‘freedom session’ I have not triggered the higher rate tax threshold so will be treated as a basic taxpayer. Now if the government change the rates quickly, i.e. in the tax year 2016/2017. Then I will not be able to push some lump sums into my pension before it disappears as I should qualify as a higher rate taxpayer in the next tax year. That will be an annoy twist to my ‘freedom session’.

I have also stopped looking at the share/fund prices as the values are dropping. Once I get my first pay cheque I can look to invest in some cheaper shares and funds, while I await that I will hang on and see if the prices continue to drop, meanwhile I continue to drip feed monthly payments into my fund NISA.  I am trying to increase my dividend share portfolio and getting a good price for additional shares is my plan this year.

It will be interesting to see how this year runs. According to TEA’s FI-o-meter  I should be FI within a year. It feels like the OMY syndrome but my falling net worth means that the threshold just keeping ticking along from ” I’m there ” to ” Oh, not quite there yet ” to ” still… Oh, not quite there yet “.

My idea behind my FI fund is to enable me to be free from “having to work”, I can then work because I want to rather than because I need to. I can then look at working just for the fun of it. Yes, working for fun! What a comment…radical thinking there. It normally is only quoted by the idle rich. I am not rich by any means, just looking for independence from the work treadmill.

 

 

 

New BBC programme – Right on the Money

I thought I would watch the new program on money management. Its about time TV started looking at finances and saving rather than having loads of daytime TV that is full of spending – property make-overs, holidays, inspirational living etc….

I took the test on their website to test your money personality – surprise, surprise I come out as a secure saver which contains the following comment :

Independence Seeker : Money means freedom….they use it to escape the daily grind – through weekends away, expensive hobbies or even breaking free from paid employment. Seekers must not forget about future events such as retirement and unforeseen life events.

The couples they featured are using ‘retail spending’ as their hobby and to provide ‘happiness’. They are bitten by the consumer bug and can’t see that they are impulse buying, they have houses full of stuff they don’t really need or use. They are collecting things just to ‘feel’ good about themselves – the emotional crutch. What is shocking is that some are actually starting the month on the verge of an overdraft as soon as their salary is paid in – ouch!

It is difficult for some to stop the impulse when they are bombarded with all the consumer marketing to ‘spend, spend, spend’ and ‘live now’ mantras. I know people who work all week then spend the whole weekend out shopping spending money on things they don’t really need, they do it just to have something to do with their free time.

I know its a struggle, the status anxiety/jealousy kicks in.

An example from my own life:

My friend has currently moved house (bigger & better) and is spending money on doing it up; new kitchen, all the rooms redecorated, new wood-burner stove (something I would like – and have mentioned to her in the past – but for frugal reasons..lol), new furniture and is now getting the garden re-landscaped. She just loves showing me around and telling me about all the changes being made. Oh…and just bought a new car (just happens to be the same make/model as mine but younger)! Its like they have won the lottery. Some of this money has come from her husband recently retiring and getting a large lump sum payment and some an inheritance she received last year. The rest will be from a brilliant annual bonus (she hasn’t said but I bet they got a great bonus this year given company results) and company share saves.

She has a well paid job – working at one of my ex-employers – which is where I first met her. I use to have a well-paid job there too so know the benefits. I could feel jealous of all this (I think I am – my green-eyed monster is active) : she has a job she enjoys, a lovely husband, a new house, new car and just come back from a great holiday abroad.

She does have her own status issues, I am not sure how long I will remain her friend as I am a frugal FI seeker who isn’t spending money on theatre/house/clothes/holidays and currently not working. She may dump me soon as I just don’t have the aspiration status that she wants to surround herself with. I was talking to her about getting a dog and spending some time out during my ‘work-free’ period, it would do my health good and relax me….well, what has she done? She has bought a dog – a puppy that her husband is now going to be looking after.

I shouldn’t view this as a kick at me but it does feel like one. She is the only friend I have left and now I feel that she isn’t the sort of person I should have around me.

With these kinds of environments. it does make it hard to escape the social pressures. I know that for me, my FI decisions are actually restricting my social circles and I will lose out in the short term – but hopefully I can gain some new true friends who are more suited to my new way of life – once I work out what that new life looks like.

February – Update

I have reviewed my finances for Feb and found that I have a savings rate of 56% for the month. I have pushed money into my NISA and pension this month.

My net worth has increased to 8% YTD which is good going, this is all down to my investment ‘honey pot’ growing well over the past month. Some nice increases in value and a few dividends received. Next month I will look to invest these dividends into some more shares to widen my diversity.

I am still waiting for all the paperwork to come through so I can login and see what my new pension pot looks like.

Feeling good

Well, I have processed the final ISA top-up into a Global Index ETF in this year’s account. I have now maxed out my allowance for this year (given the monthly payments left to make 🙂 ) that means that I have a reasonably high savings rate this month given my other expenses, so feeling chuffed!

I have added some extra money into my pension (taking advantage of the high rate tax relief while I can) and now need to look at paying off some of my BTL mortgage. If that is worthwhile?

It would be good if I could squeeze some extra cash out of that each month when I give up my job and become reliant on my rental and investments for income. While I am working, I am trying to snowball the money into FI pots to work for me long-term.

I cannot gain access to one of my pension pots for another 8 years. Its not enough to pay off the BTL but would make a good dent in it. The other two are old skool accounts, one being a company defined benefit scheme – not many of those around now – and I cannot access this until I am 65.

UK Pension – What are you planning to receive?

I have been reading about the changes to the UK state pension today given all the news coverage on the UK media.

Have any of the other UK based FI bloggers though about what you will do when you do give up working?

If you are going to stop working in your 30s or early 40s – have you looked at the forecast for your UK state pension?

Are you planning/expecting to receive a UK state pension when you reach the relevant state retirement age or are you planning to put money into a private pension fund and use your FI funds to provide you an income instead?

If you are banking on receiving the new flat rate UK state pension when you reach state retirement then you need to look at how many qualifying years you have accumulated.

In my case, I have only accumulated 24 years so far and the new minimum to qualify for the full entitlement is 30yrs – so I need to contribute for another 6yrs to gain access to the ‘full’ entitlement of £150 per week full payment under this new scheme.

As I want to be FI before 6yrs is up, I will need to look at how I can reach the 30yr mark. As I will not have a job, I will not be paying any PAYE and therefore no National Insurance. I would be classed as ‘unemployed not claiming benefits‘ under HMRC rules.

To make sure I cover this additional 6 yr period, I need to pay voluntary NI contributions which are currently a flat rate of £13.90 per week [2015 published figure from HMRC site].

So if I factor in an annual or quarterly payment of this value to the HMRC, I will qualify for the full fixed UK state pension.

NOTE: when I become FI, I wil be considered ‘unemployed not claiming benefits‘ this also means that I will be restricted by the HMRC on what I can pay into a private pension. The HMRC like to cap the contributions that you can make and still get tax relief, you can contribute more but you will not get the tax relief. So while I am on the payroll – I will be making a few strategic pension contributions while I can to gain my tax relief.

I will be adding the voluntary NI contributions to my post FI expenses sheet so that I can make sure I have enough of an FI fund to cover this. Yes, I may actually work at different points between now and state retirement – just for the fun of it!! (Wow…that sounds good…working for fun rather than blind necessity) Any work which qualifies for NI payments will be a bonus to the contributing years.

What are your expectations when you reach true state retirement age?

Please leave a reply, it would be great to see how others are approaching this aspect of pension planning.

The beginning of Jan 2015

Well, I have received my first dividends for the new year, so I now have £1,300 to re-invest into some more shares. I will need to start looking at which shares look like the best option in terms of share price v dividend yield. I am concentrating on dividend shares and building my passive income to eventually equal my expenses to enable me to give up full-time work. I have NISAs, pensions and other savings but getting an income out of dividends and my rental will give me a baseline with everything else being an ‘extra’.

I have also heard that I will be receiving another special dividend in Feb for one of my share holdings so I will be getting another £1,000 that month too. So good news to start the year, I should be getting a small dividend payment from Glaxo this month, I did increase my holdings in Glaxo when the share price was down in Nov/Dec but they don’t qualify for this dividend.

A bumper 2 months of dividends to start the year, my dividend income will drop considerably after that 😦

The down side is that I have some unexpected expenses this month – my car – I have a cracked windscreen and broken fog light – fallout from the winter conditions we have just experienced in the UK. I need a car to commute to work so no ability to cycle and cut down my cuts. The only positive part of all this is that I am not commuting long distances as I was in Jan 2014, I don’t have a fuel card any more either but with the drop in fuel prices and the much reduced commuting distance I do feel like this is a positive rather than a negative aspect to the car. I will try and get a good price for the repairs and soldier on.

I have booked my summer holiday too (accommodation that is) – not very financially savvy as its a holiday in the UK – and based on costs I could get an all-inclusive holiday abroad for that price. This just goes to show how expensive UK holidays are. Having the holiday booked gives me a goal to look forward too later in the year.

My only big debt is my BTL mortgage and I am pondering paying down some of the capital on that (as I have cash that is earning nothing in savings accounts) so that over the next few years the income yield begins to grow so that as I near the crossover point with passive income, my rental income will increase and I will drop into a lower tax band and gain a bit from this too. Timing will be important so I need to start researching this and determine the best way to paydown this mortgage. The rental income currently confortably supports the mortgage payments. I cannot predict the future so I have no idea when I will have a void period on this BTL so need to account for this in my budgets. The current agreement is up for renewal in May so will have to wait and see if the tenant wants to renew or move on.

I am trying to include a minimal pension contribution into my expenses for passive income calculations as non-workers can contribute a minimum annual amount which will help to bolster my pension investment until I reach the relevant pension access age. MMM has a free app which calculates when you will reach FI, based on this I could reach FI in less than 5 years which means I still have another 4+ years before I can touch the first of my pension pots. That one will not really give me much income, current projections are forecasting an ANNUAL pension of £800 which really will not be much to live off, although the changes announced by the chancellor may mean that I am better off taking lump sums out. I have excluded this pension from the free app calculations. I have tried to be conservative with the numbers too as the app is based on US figures and UK is obviously a very different investment environment.

Off to research….