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.
