It’s a Tracker!

Who dare not give, and ev’n refuse to lend
To their poor kindred, or a wanting friend.

I remortgaged in October. It’s a tracker. Factoring in the expected BoE interest rate rises over the coming two years, it’s very obvious that I’ve gone for the most expensive of the four options I looked at. And no, I’m not addled.

Since the beginning of October 2018, when I signed on the dotted line, the number and likelihood of BoE rate hikes have been revised down ūüėÄ , albeit I suspect not enough to materially alter the numbers in my mortgage comparison spreadsheet. Because: Brexit uncertainty is grinding the economy to a halt.

Here’s the rest of my thinking:

  1. Assuming the Parliament does not pass Mrs May’s deal, and assuming a two-year time horizon:
    • If there’s a No Deal Brexit, I’m betting on a recession. The BoE will dare not raise the rates. Tracker = good call.
    • Even if it does dare, it won’t be by much. The pound will crash in the short term, so the global stock markets will be expensive for a British investor to buy into, and the best use for my money will be to overpay the mortgage. That’s when unlimited overpayments on my tracker will come in handy. Tracker = good call.
    • If there’s a second referendum and No Brexit, the rates will probably rise, albeit the BoE is likely to proceed with caution. But the pound will rally, which will make me very happy, as the global markets will be cheap again for any Earned O’the Mighty Pound. Hence any pain from my mortgage will be mitigated by a share-buying opportunity, plus the general happiness of their not being a Brexit. Tracker = bad call, but I don’t care.
    • If there’s a delay in Article 50, while the Tories sort out their shit, the most likely outcome is that the pound rallies a bit, but rates don’t rise until there’s clarity. Tracker = good call.
    • If there’s a Corbyn government and a delay in Article 50, my pension allowance and ISA allowance are likely to be slashed and taxes increased. The pound will probably stay about the same or fall a little, and there’s likely to be a further slowdown in the economy, if not a recession. Because: more uncertainty and the expectation of the same shit charade we’ve all been watching for two years now. So: (1) With less ISA and Pension allowance and higher taxes I’d have even more incentive to overpay the mortgage, and (2) I recon the BoE would probably put any rate increases on hold. Tracker = good call.
  2. Assuming the Parliament passes Mrs May’s deal (unlikely):
    • The pound will rally (How much? Nobody knows), which will put a lid on inflation and somewhat mitigate the need for the BoE to raise interest rates. Also, the current Brexit-induced stockpiles of inventory will have to be used up/ sold down, so the GDP numbers won’t be splendid (again, the BoE won’t be in a rush to raise interest rates immediately).
    • Eventually the rates will increase, and, assuming I make no overpayments, I’ll lose out on a tracker vs the best-buy two-year fix I could have had. However, I’ll be renting out my digs shortly, so some of the interest will be tax deductible, and that will take some bite out of any (eventual) movements in interest rates. Tracker = not great, but not a disaster, either.

It appears to me that there’s more on the upside than on the downside here. What do you think?

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Stocktake: Q4 2018

No “New Year / New Me” here. I’ll be the same honest asshole at 12:01 that I was at 11:59.

Happy New Year, folks. Albeit if the old year was in any way different from the new, would we still require a massive piss-up to mark the occasion?

What’s new?

Virtually everything, or at least that’s what it feels like. The times they are a-changin’. It’s mostly personal, but also work, albeit that is also kinda personal, in a way.

I’ve provisionally consented to live in sin with my other half. Meaning: Ho’s Keep is going to go on the rentals market shortly. So technically, Ho&Co are going into the BTL, at what appears to be a rather bad time for that sort of thing. But anyway… move over,¬†Fergus and Judith.

Savings rate: 60%

The actual year to date average is 62%. Pass.

4q18-savings-rate

I managed to pull my shit together in November and undo some of the damage I had inflicted on my finances in summer.

Property wealth: overpay mortgage by £20k

Didn’t happen. Barely managed ¬£8.4k, so it’s a fail, I’m afraid.

Pension wealth: use up all available allowance

Done. The total wealth distribution is coming closer to where I want to be, albeit my Freedom Fund requires some work. Evidently.

4q18-pension

Progress towards The Day is nothing to write home about (and hence the writing is relegated to the blogosphere ūüėČ ).

4q18-progress

Total net worth is up (good)…

4q18-total

… in spite of the fookin’ markets, which have taken a bite out of my savings (bad). Check this out:4q18-saving-hard.png

Ya, ya, I know, cheap shares, a buying opportunity, ya seen nothing yet young’un. I know. I’ve been waiting for this. And yet, it fookin’ hurts’ ok? I’ve been saving and hoping, and it’s fucked up, and I don’t like it.

I do like cheap shares, though ūüėČ .

Financial wealth: Emergency Fund & Freedom Fund

The goal was to top up the Emergency Fund, which I have finally managed to achieve. ūüėÄ It’s a pass, people, it’s a fookin’ pass!

Continue with regular savings into the S&S ISA. Pass.

Tax: pay no more than £25k of income tax in 2017/18 tax year

A complete and utter fail.

Where Is the Snowball?

It’s lovely outside. Unseasonably warm for mid-October and sunny. 700,000 people in London are marching against Brexit. I’m in bed with a nasty cold, my new love interest is in France having fun without me, and I’m in a crabby mood. If you started reading this post today looking for some cheer, you needn’t read any further. Honestly.

As for the rest of you…. read on.

When one finds oneself spending a day in bed because of two zillion common cold virus particles lodged rent free in one’s respiratory tract, the usual pastime is to mess about with net worth spreadsheets, with a view of drawing some new cool graphs. So that’s what I’ve been doing today.

The results are, frankly, discouraging.

No snowball

I thought it would be nice to see where I’m at in my FI journey. Y’know, escaping the camp, breaking free, telling The Man to engage in sexual self-gratification, aka gaining financial independence and retiring. Below are two of the graphs I made. The first shows how I’m tracking in each category of wealth that I need to accumulate before I pull the plug on work. It doesn’t look too bad, right? I’m a bit behind with my FIRE Fund, but Pension and Mortgage Repayment are approaching the midway milestone, ya?

Then I thought I’d do one of those total progress graphs I’ve seen on other people’s blogs, and … what the fuck, I’m not even halfway there??!!

What bullshit is this? This can’t be right.

But I’ve looked at the numbers, and it is right. Ok, so far I’ve only spent 3.5 years actively trying to become financially independent through a combination of saving and investing, I did plan for the whole process to take me about 10 years in total – hence the 3652 days – but somehow I thought I’d be way ahead of the plan at this point. And here’s why being 40% there is not good enough: because I didn’t start at zero! I only gained 25% – a quarter of the way! – in 3.5 years, which implies that, all things being equal, I’m more than 8 years away from my goal.

A young Apollo, golden-haired,
Stands dreaming on the verge of strife.
Magnificently unprepared
For the long littleness of life.

Although Brooke didn’t have the FI crowd in mind when he wrote this, it fits us perfectly. The road to financial freedom is – by far – not a victory march, but a long wearing trudge up a seemingly never-ending hill.

And there is no snowball, ok? Produce evidence, you say? My pleasure:

3q18-investing-saving

We’ve all seen calculations that demonstrate how in a regular investment scenario where returns are re-invested, each year income from investments contributes an increasing proportion of portfolio growth.¬†Well, let’s just say this hasn’t been my experience. My total net worth is growing because I’m chucking everything I have at it. The markets… not so much.

If you’re investing steadily for 25 years into a market that’s producing a fairly constant return, it might work – on the average. But real markets don’t produce constant returns, market bull runs last longer than bear slumps, and if I wait 25 years for the markets to do their magic, then I’ll be retiring at 65! That’s not what I’d call early.

Fookin’ taxes

I should’ve mentioned at the start: one of the reasons for my crabby mood is that I paid my tax today. Could’ve waited until January. Really, I should’ve waited until January, but I hate owing money. It puts me on edge – must be one of the shit money “values” I got from my financially illiterate upbringing.

We all have unconscious value-based money beliefs, and they’re like herpes: once you’ve got them, it’s for life[1]. Logically, I know very well that it’s stupid to not take the opportunity to borrow from the Tax Man interest-free for 4 months whilst paying interest on the mortgage, but the little crappy part of my reptilian brain that’s been infused with shitty financial dogmas by my mother (no, I don’t want to talk about that right now) immediately starts nagging me about it being dishonourable, immoral even, to not pay a debt as soon as may be.

And I’m like, “Are you fucking serious? It’s the fucking HMRC we’re talking about! They’ve been borrowing interest-free from me for years. And remember that one time when I owed them money because they forgot to tell me to do the SA tax return when my income hit the threshold? They made me pay interest on the tax I owed, even though the entire mess was due to their oversight, and they tried to fine me, made me go through a stupid appeals process before waiving the fine sans an apology!” And my reptilian brain is like, “You should always pay your debts.” Then I start to lose it: “Who do you think I am, you dipshit, a fucking Lannister?”

But the reptilian part of my brain just carries on, “You should pay your debts. You know it.” And then I just can’t cope with it anymore, and think, fuck it, if paying ¬£400 a few months earlier than I have to buys me some peace, then it’s a good investment. And then I pay it.

As you might’ve guessed, I’m not one for stoozing, either ūüėČ .

 

Notes:

  1. Somehow, weirdly, at this point I feel compelled to clarify that I do not have herpes. ūüôā

Stocktake: Q3 2018

And now she leads the Trojan chief along The lofty walls, amidst the busy throng; Displays her Tyrian wealth, and rising town, Which love, without his labour, makes his own.

What’s new?

This has been The Quarter of Paying for Expensive Holidays. I’ve had a look at the past few years’ savings and expenditure record… there’s a pattern emerging.

I start out the year with the best of intentions and a bit of a spending hangover from Christmas. Ski trip costs usually hit the first quarter, but frugal living in all other areas kind of balances it all out. Q2 is the best – I book flights for summer holidays (with Avios) and pay deposits for summer holidays where required (not a lot), and that’s about it.

And then I reach Q3 and fall off the wagon. This year has been especially bad. I’m not buying any stuff, but I have managed to more than compensate for that by spending on consumables and experiences – restaurants, booze and travel.¬†Oh well.

In other news, I’ve met someone new. I probably should be knocking on wood as I type this, but anyway, I think hope this one could be it.

Savings rate: 60%

The actual year to date average is 61%. Pass.

Property wealth: overpay mortgage by £20k

Not going to happen. Fail.

Pension wealth: use up all available allowance

On track.

Financial wealth: Emergency Fund & Freedom Fund

The goal was to top up the Emergency Fund to £30k. Done.

Continue¬†with regular savings into the S&S ISA. Also done… So it’s a pass.

Tax: pay no more than £25k of income tax in 2017/18 tax year

Fail.

First Rule of FI Club

You do not talk about FI club.

It is a truth universally acknowledged that a man with a plan to retire early needs to keep his mouth shut, especially at the office. Seriously. Don’t ever tell your coworkers: most will disbelieve you anyway, or think you naive, or in need of a refresher in basic algebra. If anyone takes you seriously, there’s a good chance they’ll envy you. Envy breeds resentment.

Nor should you try to educate anyone at work about passive investing and such.¬†I once made that mistake. The outcome was a lot of hilarity at my expense, following which, for what felt like an age, the guy whom I had tried to enlighten kept asking me how much money I’d lost each time the papers reported a dip in FTSE 100.¬†Because: the only investment one should aspire to is a buy-to-let, or, failing that, winnings from a National Lottery syndicate. It is Known.

Thou shalt never tell your boss

At least not until the day you are ready to quit.

Once The Day comes, assuming you can’t engineer your redundancy, then by all means, tell away. But if you can arrange to be made redundant, I’d say it’s best to keep quiet so as not to compromise your negotiating position.

Whichever way you choose to handle your exit, until that moment you ought to zip it. A failure to do so will have consequences:

  1. Being passed over for promotion. Because: the Firm is interested in promoting people who are interested in staying with the Firm until they die. Of old age.
  2. Smaller bonuses because of some bullshit excuse and/or difficult to measure criteria. Because: the Firm is interested in rewarding people who are interested in staying with the Firm until they die of old age.
  3. Resentment and envy from colleagues. Because: you’re not one of them.
  4. All crappy and/or politically difficult jobs nobody wants to do will land in your in-tray. Because: you’re not interest in staying with the Firm until you die of old age.

But what about friends?

I don’t mean the couple who have just bought a ¬£3.9m home in Belsize Park and are now spending another hundred grand or so gutting it out, whose most recent money complaint was about the cost of their au pair’s business class flight on a family holiday[1]. That’s beyond help. They will work till they’re old – first for the house, the au pair, the au pair’s business class air travel, their two cars that they must have in London – yes, two, and in London – then school fees, uni fees…. Accumulating enough wealth to support that sort of lifestyle is a tall order.

I mean other friends, ones with normal jobs, normal salaries and no nannies, who may not think of an early retirement as a possibility, and yet both need and deserve a choice of not having to work for money… if there be gods above and gods be just, y’know.

Should I evangelise?

It’s a tougher call than may appear. Ranting about how much our jobs suck is one thing. Sharing an action plan that could potentially change that set-up is an entirely different proposition.

I don’t want my friends to envy me. Because: envy breeds resentment. I also don’t want them to treat me differently because they think¬†I’m rich. I know that most wouldn’t, but what if some do?¬†So far I’ve managed to restrain myself, but at times it feels like I’m leading a double life. Like I’m being dishonest.

My solution to date has been to direct those who (I think) might be helped to the Monevator site, with some lame explanation like “Hey, I’ve recently started reading this ¬†guy’s blog about personal finance, and he seems to know what he’s talking about. I think there are some good posts about retirement planning / investing / personal finance / etc.” It’s a lie, but somehow that feels less dishonest than saying nothing.

And what if my investment strategy is wrong?

And what if I’m wrong about this entire passive investing lark? What if the folks who yammer on from under their tin foil hats about how indexing will end in tears are right? If I end up eating beans on toast throughout my golden years, that would be bad. Leading my friends to the same outcome would be worse.

Of course it’s a limiting belief. Civilisation was built on humans sharing their findings, ideas and suppositions. Ok, so some of them were shit, such as asbestos, or blaming the plague on cats and witches, but then again, some others have been quite awesome, like, y’know, crop rotation and antibiotics.

Relationships

I am reasonably competent at handling money, but I’m terrible at talking about it. It’s something that wasn’t done in my family. I don’t remember my parents ever explicitly saying that talking about money was vulgar, however, the implication was somehow there, and I grew up believing exactly that.

Whenever anyone asks me about my finances, I cringe.

It doesn’t help my love life that Londoners as a group are such a pragmatic bunch. I’ve been asked if I owned or rented my place on the very first date. Really? Honestly, sweetness, I’m sat here deciding if I want another drink before I make up my mind on whether or not I’d like to see you for a second date. At this point, the question as to who holds title deeds to my abode is entirely irrelevant.

I’ve never been in a relationship for any reason to do with money. Nor would I ever want to be in a relationship with anyone who likes me for any reason to do with money.¬†I’m not a hopeless romantic. In financial terms, shacking up with a gold digger is an ineffective hedge.

The dirty little secret about high paying City jobs is the expiration date. Forget discrimination ¬†based on race or social class. The worst discrimination is against people in late 40s looking for a job. The assumption is that by that age you should’ve made your money already. And if you haven’t, then you must be shit.

If you’re with someone for whom your wealth or income is a significant factor, well then what happens if it all goes? And it could go. Wealth is transient.¬†The going joke in the City during the financial crisis was that the crisis was worse than divorce. Because: you lose half of your net worth, and you still have a wife.¬†To paraphrase dear old Marilyn, he’s your guy when stock are high, but beware when they start to descend.

What to do?

I don’t know.

 

Notes:

  1. I still don’t get it why they didn’t just put her and the kids in the economy. She should be happy she’s being taken to the Galapagos for free, and the kids are too young to properly remember.

Stocktake: Q2 2018

On this the hero fix’d an oak in sight, The mark to guide the mariners aright. To bear with this, the seamen stretch their oars; Then round the rock they steer, and seek the former shores.

What’s new?

Another year, another failed relationship.

Thank the gods I’m better at managing my finances than I am at managing my personal life, otherwise it would be a complete effing disaster.

Savings rate: 60%

The actual year to date average is 69%. Pass.

Property wealth: overpay mortgage by £20k

Only managed ¬£5k so far. It’ll take a minor miracle to get to ¬£20k by the end of the year.

Pension wealth: use up all available allowance

I’ve used up all allowance for the 2017/18 tax year. Next year shouldn’t be a problem, if anything, I’ll just clear out my emergency fund again.

Financial wealth: Emergency Fund & Freedom Fund

The Emergency Fund is coming along nicely, for a change, and should be full by the end of the year.

Continue with regular savings into the S&S ISA. Pass.

Tax: pay no more than £25k of income tax in 2017/18 tax year

Nope. Not a chance.

I know I’ll owe the Tax Man money come January, so I haven’t even started filling in the SA tax return. I have a rough idea what I’ll owe, am planning on having the cash to pay it ūüėČ , but that’s about it for the time being.

Let’s Stop Pissing off Millennials with the Latte Factor

coffee

We need to talk about the Latte Factor. That annoyingly undead theory, bordering on ritualistic superstition, that keeps cropping up in money sections of the mainstream press and personal finance blogosphere alike, for no apparent reason save to piss off a generation of young people.

Early retirement cometh neither from the east, nor from the west, nor from the south.
But rather from giving up frivolous expenditure on coffee and such.
Psalm 75: 6-7

If you want to find out the precise amount of money you’ve blown by living as a human in developed world, all you need to do is plug this formula into a spreadsheet

=FV ( [annual interest rate] √∑ 12 , [your age – 18] x 12 , [monthly spend on coffee, magazines, fags, etc.] )

and voilà! Now you know the true extent of the wastefulness you should be regretting. And for the spreadsheet-challenged there are online calculators.

The amount is always staggering, and its computation assumes no transaction costs, no minimum investment limit (£3 can be invested immediately) and a constant real rate of return.

So where are all the No Starbucks millionaires?

I am yet to meet an early retiree who’s achieved financial independence by avoiding takeaway coffee and avocado toast.

Whenever I point this out to the Latte Factor adherents, they’re quick to explain that it’s not meant to be taken literally. No-one is claiming it’s possible to retire merely by quitting Costa Coffee, you understand. It is a metaphor that admonishes us to never underestimate the importance of budgeting.

Well, if it’s a metaphor then someone should send a memo to Tim Gurner. He appears to take it literally, poor soul.

Dumb financial decisions are the province of the young

When you’re young, doing dumb shit with money is a rite a passage. You get your first job and you’re instantly transformed from a destitute student to a wage-earner with spare cash. Suddenly you can afford the cover charge at clubs, a Sunday paper, takeaway coffee, both avocado toast AND banana bread for breakfast, impulse shopping when the urge overtakes you, and best of all, you don’t have to worry too much about being able to afford it. Because: you’re earning a salary.

I don’t begrudge the millennials their avocado toast any more than I begrudge them their¬†ridiculous lack of grey hair, their freakish metabolisms and stupid flat stomachs. If they want to blow their pay on overpriced granola in Shoreditch, fuck it, it’s their prerogative.

I don’t think they’re much worse – or better – with money than the generations that came before them. They’re just young, and about as financially dumb as I was at their age. And there’s nothing wrong with spending money on processed sugary food for breakfast, really, enjoy you 20-something metabolism while it lasts. Only please recycle the packaging, you know why.

Willpower is a depletable resource

The ego depletion theory has taken a hit recently. Apparently experiments carried out on small batches of hungover Psych students tasked with solving silly computer problems in a lab don’t hold up to statistical scrutiny. Never mind. Larger studies of dieters and smokers facing real life challenges do.

Call it what you want – will depletion or mental fatigue – it’s real. Motivation goes hand in hand with reinforcement, effort requires a reward, and the latter has to be in a form of something enjoyable. Few of us are able to rejoice in Excel spreadsheets with graphs that track our net worth. Just sayin’.

Small regular expenditure adds up, but

It’s not¬†just about what you save, it’s what you do with the savings that counts.

Don’t get me wrong, quitting smoking 9 years ago was one of the best decisions I ever made. I feel better, I am fitter, and I’ll likely live longer. It has also saved me c.¬£100 per month on fags plus another ¬£100 on Starbucks skim lattes, which I liked to drink while smoking. That’s ¬£2,400 p.a., which is approximately how much two weeks’ kitesurfing in Dakhla costs.

Would I be much richer now had I not been blowing my money away for years before quitting? Unlikely. If I hadn’t spent that money on holidays and Apple gadgets, I would have spent it on Ho’s Keep. The only reason I didn’t buy more or more expensive bricks way back when was because I didn’t have the money.

And this is my main issue with the Latte Factor. It assumes that your goals and priorities have remained constant over time. Which is abject nonsense. None of us are now the same person we were at 19 or even at 29. It surely would be nice to have more money in my pension now, but I didn’t start a UK pension until I was 32. Yes, not starting a pension earlier was indeed a stupid move, but no, quitting smoking earlier would not have increased my pension savings. Because: I didn’t have a pension then.

Waste is never a good thing

Because: the planet.

But putting aside what single-use plastic bottles and styrofoam cups do to the environment,¬†I couldn’t retire on takeaway coffee savings any more than a millennial could by a house by forswearing avocado toast. I believe the correct scientific term for any such notion is bullshit.

Over time we learn and grow

Don’t get me wrong, I’m not crazy about today’s young adults. As a group, they can be both overconfident and amazingly thin-skinned. It’s a rather annoying combination of traits: the first one ensures ample supply of dumbass mockworthy pronouncements, but because of the second one, the poor sods can’t take the mocking. ūüėČ I hope they grow out of it. Not everything is a personal attack, ok?

Yet I don’t think it’s fair to call the millennials spendy merely because they’re in the process of learning how to use their paychecks and credit cards. Most of us have been there and done the same. So let’s cut them some slack.