The pros and cons of FI

I read Jim’s guest post with interest (click here) on early retirement guy after seeing comments on it on other sites. It did make quite amusing reading and I can relate to quite a few of them.

Spreadsheets and ‘Enough’ have been the thoughts on my mind on the run up to and the post jump to freedom. As mentioned by a number of FIREs, when do you jump, have you considered all the possible risks, could you survive a big down turn in the stock markets, what if the government change their policies… the list goes on.

Eventually you just have to say …GO…you can always try and get a job later. Jim has noted that when you look at it most of those who are free, they are actually working (income from their website(s), side-line hustles (writing/coaching), seasonal work).

The loneliness is definitely something I can relate to at the moment. Having quit my job and spending the last 3 months not working, I have found that when you are out and about, it is full of older retirees or shift workers or young mums! I don’t go to coffee shops as I am frugal and budgets don’t cover a daily coffee visit 🙂

I have been contacted about going to social events with ex-work colleagues but don’t want to listen to their work conversations which will mean nothing to me, I’m not in that inner-circle any more. Some will use it as an opportunity to have a go at me, saying I am a loser for dropping out of the workplace – having been made redundant twice and walking out of a job – makes me sound like I am incompetent. The work sphere I was in was quite cut-throat and competitive, working for FTSE100 companies most of the time. Everyone is always watching their back as the hatchet periodically comes out to remove people from the office.

Plus as I meander through my day I don’t have lots of interesting things to talk about with them. They are not interested in my foraging, cooking and volunteering escapades. They would expect me to be on a constant holiday, travelling and basically treating this freedom as time to travel and visit the world – again – I don’t have the money to do this. My FI income covers my expenses based on my working life phase – which didn’t include holidaying every week and travel to different countries every month.

Health – this is one area of my life that has improved from being free. My blood-pressure has gone down and that constant stress headache has gone. I am now cycling twice a week over a 16 mile circuit and walking to food shop. After listening to a Radio 4 program on strokes the other day (click here) – I can now see how being less office bound is a benefit! I can be grateful for that.

I listen to Radio 4 quite a lot while pottering around the house and have been listening to the series called ‘The New Workplace‘ . They have been looking at changes in the workplace and how the old style permanent workforce is being replaced by flexible and disposable workers. I work(ed) in IT and that has been moving to contracted workers for quite some time now. It was one thing having temporary contractors for 3 or 6 months but now employers are moving to fixed-term contracts, removing the true permanent employee. The worker is treated as a employee and paid the same as a permanent employee (may be even a % premium above a permanent role would command) – but has a fixed term. They are seen as cheaper than contractors and more flexible than true permanent employees as the employer has the ability to let them go at the end of the contract or renew them based on business needs.

I am not jaded by FIREs yet….maybe that is something that comes with time. I have more time to read them and formulate plans for either making money work harder for me or improve my frugality.

Is it a seasonal thing?

I was going to go out for a bike ride today (trying to do at least 2 rides a week as part of a fitness routine) but its raining at the moment. Instead, I thought I would catch up on some blog reading. It is the summer and quite a few bloggers have been away on holiday so postings have been quiet over the past few weeks – every one is rightly enjoying the sun and hot weather either in the UK (where it is too rare and must be enjoyed when it occurs) and abroad.

Something I have noticed when reading the blogs recently is how many of the UK FI group have their birthdays around now. There seems to be a common thread to birthday notes in the blogs over both June and July – my birthday was in June – does that say something about us – is there a natural behavioral trait in Summer born humans that means we are more likely to be targeting financial security and freedom from the work treadmill?

Has anyone else noticed this one? Maybe it is the security thing?

Maybe it has something to do with the fact that at school Summer born children are the youngest in the year stream and have to work harder to keep up with the older children? I am not sure if anyone had seen anything in educational research on this?

It just seems to stick out as a common theme. I used to have a boss whose birthday was 10 days before mine and he became disillusioned by work when he was passed over for a promotion so left ‘to become a day-trader’. Basically he decided he had “Enough” to give up the day job and go and do something else with his time – freedom from the workplace – playing golf. Last time I saw him which was some years ago now, he was happy and content and actually looked much healthier than he did when he was working – to give you an idea – the team endearingly called him ‘Mr Burns’ as he was stooped and looked like he had the pressures of the world on his shoulders. Not so after he had escaped the workplace.

Right, the rain seems to have stopped – so off to try and get a ride in.

Thoughtful reflection

Having all this free time actually gives you time to think about what you have achieved and the new goals and challenges ahead of you.

Fear had held me back from doing things in the past and its like standing at the cliff edge looking down at the water below and fighting those fears and jumping. The water is deep and supporting and plenty of others have jumped before without issue. It is just that psychological aspect, the voices in your head telling you it will or will not be OK. You try to fight it and take that deep breath.

Well, I made the jump and quit my job. It has been nearly two months now, I was fearful for so long and I wasn’t sure how I would react as I am such a workaholic. Agents are calling trying to convince me to join the rat race again and take a contract job in London. I don’t really want a 2 hour commute on a packed hot train, standing for most of the journey. I have declined so far and have been spending my time working on those job around the house I should have done ages ago and put off. I have had a few fear days when I have wondered if I have done the right thing and what will happen in the months ahead.

With the 7/7 anniversary today, 10 years on…wow..it doesn’t seem that long ago. Thinking of those whose lives have been affected by this event. At the time, I was working for an employer that quite often send me to London for meetings. To reach those meetings, I would travel and use the tube trains and stations involved. Travelling along those lines and through the stations after the event was unnerving and others were wary of anyone with a rucksack on.

Moving on to happier thoughts – With this good weather I am actually spending more time tending my garden and appreciating nature too. I have been watching the robin in the garden feeding its offspring which have now fledged. I have started to relax and my headaches and tensions have eased. The voices of fear are starting to diminish and I am starting to relax and find some kind of structure to my day.

I have not been watching my investments too closely at the moment, with all this Greek/Euro crisis, the markets are erratic and my investments are rising and falling. After spending so much time trying to save money and increase my Honey Pot, it is now strange and unnerving to see it now start to deplete. The dividend income I receive fluctuates wildly each month and I need to stay calm and not worry about it. Over the year it will be OK and as I see how my expenses reduce I can then start to really see how much money I need. I am in a much better position than some and I need to be grateful and happy.

My family know I have given up my job but they don’t understand the FI bit and so as far as they are concerned, I am just taking time out and enjoying the summer and will look for a new job in a few months. It is nice to have the choice as my siblings have to work and cannot escape the prison due to financial commitments – although they are starting to work on it. We didn’t have a great childhood and this background has been the foundation to my goal to have the ability to choose and live life differently. It was those core beliefs that made me look at FI seriously. Looking back, I have achieved a lot: good education, good jobs which have enabled me to: own a house & car, save, purchase investments, reduce debt to zero. I have achieved these through working hard/long hours in stressful jobs with above average pay and good bonuses.

One thing I have noticed since stopping work is that I have no friends. As I have spent so much time working – I was a workaholic –  my only friends were transient work colleagues and I am noticing that other than going to see my boyfriend and meeting up with my family, I have no real communication with people day-to-day. I live on my own and that has its pros and cons.

Where I live there is a mix of working and retired neighbours. The retired neighbours are true pensioners of 65+, I see them occasionally to say hello. The working ones, I see go out to work at their set commuting times, funny, as I was normally one of the first out and last back due to my working hours so it is interesting to see others going out to work each day. I have been using the daytime to go out walking and cycling in the local area and its been great. Hopefully over time I will met more people in the area and start making local friends.

My new goals and challenges are to make new friends and meet people and also look at activities to fill my day which gives me a more fulfilling and rewarding feeling than the ones from the past. I need to find some side-hustles that actually earn me some money and give me that fulfillment I have been missing for the past few years. I also need to look at the ‘trust’ aspect of my character. I was brought up to ‘trust no-one’ and to be independent. My parents view was that no-one will help you and it is up to you to go out there and survive. Don’t expect anyone – even my parents – to help me if I am in trouble. I need to look at this and learn how to share and be more open with people and more trusting. It has been a useful motivator for FI but I need some social life now.

I will continue to reflect on my life and what I want to achieve in the future to give me the happiness that should be part of the FI experience.

….Time to go and enjoy the sun while it shines…

First week out of the Office

Well, the saying – “how did I ever have time to work” – springs to mind.

This week I have been sorting out my BTL, painting and sorting some of the issues before the new tenant moves in. Had a tree surgeon round to quote for work on a tree at my BTL – I didnt know but the tree is under a TPO – so I have to get council approval before I can do any work on the tree. Its quite damaged from the strong winds the other week and needs attention to tidy it up and make it more presentable as the tree is in an open space at the front of the property, the neighbour has complained –  under the deeds, I am responsible for it. 😦

With all this sunny weather I have caught up on all those odd-jobs I should have done on my own house too. Plenty more to do too.

At the moment, I am living off my salary from last month and I am getting everything sorted so that I can have a few months off before considering any new work – whatever that is?

I have already started to get calls & emails from recruitment agents – I guess some have heard I have left and they will probably be trying to fill the gap I have created after my escape, so they are trying to find out what I am doing too, extra commission! These will be contract jobs based on the agents who have called; looking at the permanent roles going, the salaries are dropping all the time. I have seen a reasonably interesting perm job – about a 45 minute commute and its paying 20% less than my last job!

Unless I take a contract role, it looks like I have no choice but to take a drop in pay if I went back to doing my last profession. If I want to earn equal or more than my last role as a permanent employee, I would have to apply for the next level up the ladder – not a role that excites me. The job market is favouring the employer. There must be plenty of competition around for these roles – supply and demand at play.

Being out of the Office and away from The Man for a while may do me some good. I just need to keep an eye on my spending and look at ways of earning some cash. When you look at most other FI escapees they havent really escaped, they have other income streams on the go and are looking at ways of making them fit into their new working profile. At the moment, I have income from investments and my BTL, something else is required and I need to look at options to supplement this income.

In the short-term, I am going to enjoy the good weather and get my bicycle into working order and get out there and cycle and enjoy the summer and the freedom. Improving my health and getting some outdoor air will be great. I am already feeling the difference from being in the Office cell. My eyes are already feeling better and the DIY and walking I am doing will help to get me fit. My headaches and general ‘stress’ signs have already disappeared.

I am looking at a few online courses to see if there is something of interest to open my mind up and get those creative thoughts flowing again and wake up from the stupor I have been in for the past few years – or even decades – lol.

When to pull the trigger? ….NOW…

I have started another working week feeling like I need to resign. I am getting what I think are panic attacks – tightness in the chest, headaches and neck muscle issues. I take a few painkiller and soldier on through the day as soon as 5pm ticks over I join the rest of the office crowd running for the door – I’m not joking there either! As soon as I think of leaving this feeling goes away – my body is trying to tell me something!

So – after starting the week and the feeling continue to grow – I decided that was it!  I pulled the trigger today. I quit my job, I am now waiting to see whether I have to work my notice or not – its only 1 weeks notice so by next Friday at the latest I will be free.

I am planning on having a few months off and then considering what to do. I dont have any side hustles at the moment, I am 92% towards my FI target so with some canny budgeting I am sure I could make it through for a while. I can’t see me being a full-time retiree yet unless I become completely unemployable or health really goes downhill.

I am wondering whether to do some contracting work later in the year to top up the honey pot every so often but at the moment my mindset is so lacking confidence. I am not sure I could fight my way out of a paperbag….says something about my state of mind.

A total break is required, I should stop worrying and take time out. That’s what the honey pot is for, to give me some freedom from the office treadmill and some thinking time so I can decide what to do next…

Time to start looking for a new adventure…

Lifestyle Inflation and the FI-o-Meter

Read TEA’s post on achieving Fi and just had to re-post – Love his blog !!  The problem of lifestyle inflation is just so apparent in society. I was amused by the interview where the interviewers who were obviously on wonderfully high salaries couldnt retire.

It is surprising what an impact lifestyle inflation has. People do not realise it creeps up on them. They circulate with friends and family that expect status indicators that they have stepped up the ladder. The trappings of success – bigger house, expensive objects and holidays, etc…

I was once in that mode. I was living with an ex-partner and we had good jobs, bought a large house in a ‘well-to-do’ area and seemed to ‘have it all’. Our families were proud of us, my ex-partner’s family more hung up on ‘keeping up with the Jones’ that mine was.

His family didnt like me to start as my family lived in a small, humble home and that rubbed right from the start. But with my good job and status, my family history was wiped out and I was accepted even put on a pedestal and ‘shown off’ to the rest of the family. I had a good job, company car, etc..etc…travelling abroad for work… ticking all the boxes. (Their relatives were accountants and company owners and his family were desperate to show that their children were doing just as well)
My expenses increased, my partner started working as a contractor (although not really earning his keep – had more time not working than working!) – anyhow.

I did try to kerb my spending and did save a bit more than 10% and we snowballed our mortgage down to near nothing. We split after some good years together and he went on to buy a big house and continue the status trip with a new partner.

I downsized to a smaller house, cut expenses and started to increase my saving – I didnt realise how much I was spending on lifestyle inflation aspects until I honestly looked at my life. I started filling my NISAs and savings. Before I knew it I had snowballed my little mortgage away – wow – I could now direct that mortgage payment to savings & investments.
I have learnt that money does not buy you happiness. I am more content now that I was when I was with my ex. I have money in the bank and my FI honey pot is growing nicely.

According to the FI-o-meter I am either 2 years away  (using very low growth figures) – or THERE! If I am conservative with my spending an expense needs – I could escape. Hurray!!!!!!!!

More January expenses

When it rains it pours

That’s the saying and it holds true for me this month so far.

Comments from co-workers at work suggesting our managers are bullies and deaf which is something that really annoys me about working and gives me that added incentive to gain FI status. It was this type of culture I didn’t want to end up working under. Ah well, I will stick it out at the moment, I’m only on one weeks notice so anything can happen. I have money in the bank due to my FI plans so it is not a disaster if I lose my job. I was talking to a new starter at work last week – a contractor – comparing career backgrounds and he suggested I go contracting. I would get work easily.

I have expenses on my car this month. The fog light is broken, a stone some time over Christmas. I have a quote and the car is booked in to be fixed. I should really get the windscreen done too. It has a chip, it’s not bad so I am waiting as long as possible until I get it repaired (through car insurance) as I have already had a few more stones kick up and hit it so would rather not end up on a monthly repair cycle due to this winter season.

My car will need its first MOT this year so motor costs will be a regular expense throughout this year. At least I am not commuting 2,500+ miles per month which was the situation last year so the servicing interval will extend.

My shower is playing up in my own house now, so I may have to find someone to fix this. Plumbers in the UK are so unreliable, I haven’t found a good one yet in my local area.

I have been filling in MoneyStepper’s 2015 challenge sheet and although I do have these expenses, I am still running at a 41% savings rate for Jan. Again, the dividend income I have received this month has helped to offset costs. Any money left at the end of the month I will look to invest in another share purchase. Which shares? I don’t know at the moment. I could increase my current holdings or spread my exposure by buying into another sector.

While I am still working, I am trying to increase payments into my pension while I am allowed to. Once I give up work, I am limited to £3,600 gross.

You can receive 20% tax relief even if you don’t pay tax. The maximum you can contribute is £3,600 gross – a payment of £2,880 to which the taxman adds £720. This is the case even for people who don’t pay tax, such as children and non-earning spouses.

While I can receive the extra 20% tax relief to my pension contributions and get another 20% from being a high rate tax payer through my tax return, it seems like a good way to save as normal savings accounts are paying out so poorly and there doesn’t look like there is any immediate end to this poor return.

With the changes to the pension rules, these could become drawdown accounts rather than buying an annuity. I have a [now very rare] final salary pension from a previous employer which will not pay out until I am 65. This will give me approx £12k per year – although what this is really worth when I get there is another thing – probably only the equivalent of £6k now! I have another 20 years before I will find out 🙂

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….

My goals review for 2015

Mmm….

Have been spending some time think about this as I have set personal goals last year which have been reasonably successful. Those based on exercise and travel have not done so well, maybe because I havent had that much free time to invest in this and my focus has ended up on saving and finding a job after the turmoil of the past 8 months of the year.

I have been reading a few blogs, the one that has really taken my interest over the new year period has been MoneyStepper, (thanks Weenie!) this site has been quite interesting reading and the 2015 challenge spreadsheet is something I have downloaded and I am filling in. I have not entered the challenge but will fill this in offline and track my progress through the year. Doing this has made me thing about my financial goals for this year. Based on the information entered for Jan so far, I am running on a 60% savings rate – which is really good and one I want to keep up throughout the year.

My goals this year will include – increasing my net worth and increasing/maintaining a minimum of 60% savings rate.

I changed my investment strategy from active to passive funds during the last year and as a consequence I have seen my income gains (dividends reinvestment) drop as the passive funds are trackers so with the bad market conditions I have actually lost money over the months in which I have been investing. I have been tracking my passive income as well as my savings rate and this has increased nicely this year. Under my passive income tracking, my move on the ISA front has meant that my ISA income has dropped so combined with the poor cash performance, my ISA passive income has dropped a whopping -65%!

I do wonder if any of these trackers will pick up this year as the outlook for the UK index still sounds grim. If this is the case then I will not see any capital growth in the index prices and will continue to only see gains from my active dividend/income funds. The NISA passive income will continue to take a hit and I have been concentrating on this as an ultimate income source so I could give up working full-time. The moment all my NISA income is being re-invested but I can request that this is changed to a payout so I would then get an income stream from my NISA holdings.

My non-NISA dividend income has grown really well over the past year as I have been purchasing income shares and the corresponding dividends have been reinvested when they have reached a sizable re-investment value to make the investment costs worthy.

A lot of these non-ISA shares are from sharesaves when I worked for an old employer. I hold quite a lot of shares from this employer and they have done really well this year, even issuing special dividends.

My non-ISA dividend income has increase 145% between 2013 and 2014 – That can’t continue?

My cash savings has dropped 20% between 2013 and 2014 – which shows that money needs to be placed somewhere else to have any chance of keeping any pace with inflation.

Well I will work on drawing up some more goals and post a summary for the year ahead.

Net Worth – ouch !!

I shouldn’t look – but I have.

My net worth is going down at the moment, since I ‘re-shuffled’ my portfolio to index trackers in my NISA, I have only seen my net worth and the NISA total drop for the past 3 months.

I should be grateful that I can continue to invest and must take the view – my next monthly buys will be at the cheaper price. Just keep looking long-term and in a few years time the indexes will have bounced back and all these units I am picking up at cheap prices will have grown.

My managed funds are still making a profit – even after charges – so the trackers are not looking good and I need to stop looking at the value erosion that’s going on at the moment.

The good news is that my pension transfer has happened, my old work pension has been moved to my personal pension. I have at least secured my transfer value.

I have noticed too, that there has been press coverage on this very subject and that the government want to change to rules so that companies cannot force people to close their pension when they have only worked for a company for < 2 years. They have realised that this will result in people losing out on fund growth.

If people didn’t take such big transfer fees out of the process it would help. In my case the value of the transfer was 30% less than the pot value! The actuary adjustment is a ridiculous value – where do they dream up these fees from?

Well, at least I have broken my ties with that fund and can only wonder what the pension will be like at my new company. Although I am not sure if they are following the rules – I thought that under auto-enrollment you had to join a pension from day 1? At my new job – I have to wait 3 months before I can join.

Off to do something else and stop looking at my net worth 🙂