As I move slowly up the lower foothills of financial independence I look back and realise I have come some way in the last couple of years. So if any other people stumble on this blog looking for answers to how to start moving in the same direction, hopefully the below will help.
- Increased my savings rate – duh.
The first thing I did after I initially stumbled across MMM and the early retirement brigade was to increase my work pension contribution. It’s a classic tale, one told over and over again, it’s relevant, important and simple – and like the best stories can be copied easily and make a big difference.
My company doubles what I put in to the pension scheme up to 10%. So when I put in 5%, they put in 10%, I’m saving 15% without even trying. The silly bit was I was only claiming about 6% of my free money initially because I definitely couldn’t afford to put in more… then I read MMM, took the metaphorical punch, increased my saving rate and… the world did not end. Lessons here, as always: pay yourself first, and, you can afford to increase your contributions and you won’t even notice the lower salary after a few months.
- Dropped my general monthly expenditure
I’ve monitored what I’ve spent for some time and thought I was doing okay, but monitoring and recording wasn’t enough. It was almost like I was taking notes for someone else as all I did was tot up the numbers in a spreadsheet. Like with most things it’s the action you take which matters. Again, post MMM, I have cut out expenses like new phones every couple of years, lunches out every day and memberships of randomly visited gyms. Don’t just budget and then pat yourself on the back like I was doing, actually cut some fat, it’s there, but you need to change your mentality, not just update the spreadsheet.
- Stopped updating my phone software
Slightly more obscure, as it doesn’t save any money up front, but it’s a mentality issue again. I find the planned obsolescence slows if you don’t update regularly. I used to update whenever the latest software was released, and by doing that, I became more tightly entwined with the phone upgrade cycle leading to spending money I didn’t need to. Cutting out the prompt upgrades has saved time, as I no longer faff about waiting for it to complete, and money as the current phone is a pretty old one, but still working fine and on a cheaper tariff than the new phone contract, so double win!
Further to this, I feel the big tech companies used to make our lives better and did, dramatically, with the functions available on a smartphone. But now I think that as the “big” changes on each new handset become more incremental it’s less about making a great interface and making it work really well and more about making it more and more complicated (yes I may be getting too old for all these new-fangled gizmos!) so you are forced to openly or inadvertently, spend more. For example, did you automatically sign up to Apple music and then forget to cancel the subscription? Are now paying for it each month? Do you remember signing up for it or did the benevolent Apple corp. just deal with those annoying details for you? Did the system settings adjust so that you have all of a sudden filled up your memory so you *have* to spend money on a cloud based subscription? If so, you can, of course, have access to all the music and photos etc you want, you just need a bigger data deal to go with it, please sign here, just a few more pounds a month…
- Started cycling
Stronger, fitter and lowering expenses is a triple win on this front.
- Less news
I used to want to be up to date, but I’m less inclined now. Maybe a more conscious desire not to put myself in front of so much advertising and wanting to watch less TV generally and trying to do more worthwhile things. Maybe it’s all just getting a bit rubbish (old man alert, again). I wonder if I wanted to be bang up to date because I wanted to be busy and important and have shiny things, which is good and right according to mass marketing, but not what we’re after here thank you very much. I use Twitter to manage the noise and avoid reading papers which seem to be increasingly redundant. Article content and value seems to be in a race to the bottom, it’s increasingly click-bait which doesn’t do you any favours.
- Proper emergency fund
Again, standard fare, but so important. I made a bit of a push to get the cash balance up to 6months of house expenses and six months of spending money. Having got there I’ve pulled back on the throttle, there’s still some cash going into that account each month, but not so much. As I result I’m up to between seven and eight months cover (by that I mean mortgage, bills, council tax and food shopping, not take home salary). Now I’m over six months part of me wants to stop these contributions and focus on putting that cash to work, but the conservative in me wants to get closer to 10months, which isn’t too much more.
On the personal spending front, ie bus fare to get to an interview the odd night out or home maintenance job, I’m leaving this at six months. If I get the bullet from work I can switch my personal shares to pay me, not to reinvest, and that should stretch that savings pot out to that 9-10month mark and means the cash sitting there is kept to a minimum on this front too. I would expect I could eke this out for longer as so many of my expenses are related to being in the office – who knows, if I were to be made redundant I could take a month or two off and not worry about it!
- Reduced cash balances
I was clearly more risk averse than I thought. I used to hold higher cash balances than I do now and I am less afraid to put money to work than I was. Considering the above I could be said to still hold too much, but it’s a marathon not a race and that balance is going down whilst the ISA’s go up, so it’s heading in the right direction.
I also compartmentalise different accounts, which is apparently a standard psychological failing! (http://www.psyfitec.com/2014/07/m-is-for-mental-accounting.html ) However, here comes the excuse, I aim to have nothing in my current account by the end of each month, with all sums allocated elsewhere so if there’s a car repair / MOT it comes from the car account with contributions based on expected standard expenses and repairs over a five year period. If the car then has a more fundamental problem, in comes the emergency fund, otherwise the emergency fund becomes a more everyday account, when really it should just sit there and hopefully not get touched. As I write this I feel it’s sounding silly, but it works for me at the moment! I have reduced the amount of cash I hold generally and there’s probably room to reduce it further, so a work in progress!
Where I have made the most progress in this regard was against some money I inherited. It was enough to want to deal with it properly, but not enough to warrant putting with an IFA. So it just sat there doing not very much. I don’t think there was a crunch moment, but I just let go, stopped ring-fencing it in my mind and just invested it. There was no spiritual retribution so I presume my dear departed are happy with the decision too.
- Give to charity
When you drop your expenses you realise you do have money to give to charity. You can tell the chuggers to do one and give money directly to the causes close to your heart and claw back a little of your black capitalist soul for the light side of the force!
No doubt there are other more subtle changes, but those are the main ones. The main take away from all the above waffle is: if you’re looking to make changes to your day to day life style, change is hard and unsettling. Doubly so when you see nice safe cash leaving your account and going to one where the balance changes every day and not always in an upward direction! Trebly so when you’re ramping up your savings rate from a steady 5-10% to a much more hardcore level. The good news is having done it, the world doesn’t end, the sky doesn’t fall, in fact your stress levels should fall as your short term security from the emergency fund builds and you start earning more FIREy stripes.