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TFP’s 5 Pillars of Financial Independence

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6 months into the journey and I’m finally getting comfortable. I’ve opened my first investment account, saved up a few quid, slashed my expenses to a fraction of what they were, and have become an awful lot more frugal than I used to be.

 

If I’m totally honest, when I started out I wasn’t sure if I’d be able to sustain this lifestyle. I couldn’t picture myself just not spending money on stuff I wanted, when I wanted. But after a very short amount of time it just felt right, like I’d found the missing piece of the jigsaw puzzle. I don’t question if I can reach FI anymore, the only question is how quickly can I get there.

 

Reflecting on how it’s gone to date, there are 5 pillars propping up my FI aspirations.

 

Plan

Once an objective is set, the first thing to do is put a plan in place to meet that objective. Some people plan to within an inch of their life, getting nosebleeds if they don’t update a spreadsheet with their revised net worth on an hourly basis. Others don’t plan at all, and will generally fail to reach their objective. And then there’s the rest of us who fall somewhere between the two extremes.

 

1. Savings Rate

I tracked expenses for a few months to figure out what a realistic target savings rate could be, and I’ve settled at 50% for now. I’m not religious about it, I try not to lose sleep if I’m under, and I won’t pat myself on the back if I’m over. It’s a motivational tool to keep me broadly on track.

 

As a rule of thumb, put happiness before your savings rate. But only spend on things that really make you happy.

 

2. FI Date

Based on the savings rate, using some funky spreadsheet I’ve calculated that it’ll take me 17.6 years to reach FI. Factoring in some other stuff that’s likely to happen over the coming years…

      • Salary rises
      • Bonus payments
      • Buy house
      • Kids

…I’ve given myself a wide FI window of 10-15 years.

 

3. Milestones

10-15 years is a long time to stay focused, so it’s important from a psychological perspective to break it down into smaller milestones. You can define them all up front, or if you’re like me you’ll just set the next milestone.

 

This, for me, is to achieve a net worth of £100,000. Once that’s reached, I’ll set the next one.

 

4. Known Future Expenses

I’ve noticed myself being a bit of a whinge lately when unforeseen expenses crop up. But in hindsight, they aren’t unforeseen, I just haven’t planned them in. For instance this month I took a hit on flights home for Christmas. I’ve known all year that I’ll need flights this Christmas, so I should have factored that into my planning. I didn’t.

 

As a rule of thumb, if unforeseen expenses are becoming a regular thing, you aren’t planning well enough. Map out your next 12 months, pencil in birthdays, big events, holidays etc…, give them an estimated cost, and factor it into you’re budgeting.

 

Increase Income

An obvious statement, but making more money while keeping spending static will get you to FI quicker!

 

5. Promotion

If promotion is a possibility for you based on your chosen career path, I would suggest it will most likely be the path of least resistance to increasing your income. Set a meeting with your line manager, tell them you want a promotion, and ask what you need to do to achieve it. Ask for clear and achievable objectives, and work towards those. That’s the route I took, and it recently paid off.

 

This won’t be a viable option for everyone, so maybe try and find a…

 

6. Side Hustle

All sorts of opportunities out there for people looking to take advantage of multiple income streams. Sites like Fiver and Elance enable freelancers find clients. Amazon FBA enables anyone become a seller on Amazon. Try matched betting like theFIREstarter. Online real estate can be bought and sold on sites like Empire Flippers.

 

Have a listen to Nick Loper’s excellent podcasts at Side Hustle Nation if you’re looking for some inspiration!

 

Reduce Outgoings

This has the double effect of both increasing the amount you can save, but also decreasing the amount you need to live off now, and after you retire.

 

7. Ditch TV ,Switch Providers, and Cycle

Get rid of the digital subscription, the tely is rotting your brain! I won’t pretend that I don’t watch any TV, but I’ve massively reduced the amount of time I send watching it since getting rid of Sky. Started cycling instead of taking public transport. Made some valuable tweaks to other outgoings too, like changing car insurance and mobile phone providers. You can read all about it here.

 

8. Downsize

Specifically referring to car and house. I (very seldom) drive a 2002 Toyota Avensis worth about £500 so can’t downgrade too much further there! But we’ve definitely scope to downsize from a rent perspective.

 

9. Frugality

The more frugal I become the happier I feel! Waste really bothers me now. From finding the cheapest flights (at potentially un-ideal times), to minimising grocery and clothes shopping, to having a stab at home brew, focusing on keeping the outgoings down has become an enjoyable experience. Every time I save I feel like I’m #winning!

 

Invest

Can be a scary prospect at first, depositing a lump of money that you’ve slaved to earn into the lap of the Gods! The warnings about potentially getting back less than you invest don’t help either. But the reality is, if you’re in it for the long run (ie. more than 10 years), you’ll do well to find anything with a better and safer return than a well diversified index fund leaning mostly towards stocks.

 

10. ISA

If you’re eligible, open one. You can invest a certain amount each year and you won’t be taxed on the returns. No paperwork either, just open an account through one of the online platforms, deposit cash, buy a fund, and watch your stash grow.

 

11. Index Fund

This is like buying a tiny bit of every stock that the index tracks. So for instance, if your fund tracks the FTSE100, it’d be like owning a little bit of every company in the FTSE100.

 

If you’re new to investing, I have the following advise…

      1. Open an ISA.
      2. Buy units in a well-diversified, auto-rebalanced, cheap fund.
      3. Don’t wait. Start now. There’ll always be a reason not to. You don’t need to go mad, but get your money in the market and start getting a feel for how it works.

 

I opened an ISA with Charles-Stanley Direct. I buy units in the Vanguard Life Strategy 80 Acc fund. That means it’s 80% stocks, 20% bonds. It’s diversified, auto-rebalanced, and cheap.

 

12. Pension / SIPP

If your company offers a workplace pension, it’s generally going to be a good investment even if the fund charges are slightly higher than average. You won’t pay tax on anything you contribute to either a workplace pension or a SIPP.

 

13. Mortgage

Buying property, particularly in London, has proven to be an excellent investment in the recent past. Until the Brexit vote passed, I was saving for a deposit with every intention to buy. But being a ‘foreigner’, I’ll hold fire for the time being, let Theresa May decides what she wants to do with us, before committing myself to London/UK for the foreseeable future.

 

Support

I take my hat of to the FI old schoolers like Mr. Money Moustache and The Escape Artist, who couldn’t have had the amount of support available when they started their journeys that we do now. They’re obviously incredibly bright individuals who didn’t need it spelled out to them that early retirement is a very real possibility. I on the other hand would still be burning through cash had I not been lucky enough to stumble across an article about a young couple who’d retired in their 30’s.

 

14. Blogs

It was reading through FI blogs that got me started in the first place. I started off with Mr. Money Moustache, like many others before me! But was delighted to find a vibrant UK FI/Personal Finance blogging scene. Monevator, The Escape Artist, The FIRE Starter, Finance Zombie, Simple Living in Suffolk, Sex Health Money Death to name a few. If there’s others you’d recommend, please let me know in the comments!

 

Reading these gave me the idea to start my own. It’s early days, but it’s a great outlet. Not many of my friends would be interested in listening to me go on about how much I saved this week by getting the eggs at Lidl instead of Tescos! Well, you probably wouldn’t either, but you know what I mean! And if my own experiences can help someone out on their journey, that would give me a lovely warm fuzzy feeling!

 

15. Books

Generally find these through blog recommendations. ‘You’re money or your Life’ seems to be the most popular one I’ve come across.

 

16. Forums

UK Personal Finance Sub-Reddit would be my pick. MMM also has an active forum on his site.

 

17. Social Media

In particular, groups dedicated to FI. I was reading through Monevator’s weekend post a few months back and he mentioned a Facebook group dedicated to FI in London. I joined and it’s great to see that there’s a network of people in London with the shared goal. Through this group, I’ve become aware of regular…

 

18. Meet-Ups

Although I haven’t attended any yet, I plan to get to one soon! The last one seems to have been a major success, which you can read about here.

 

Brucey Bonus: Exercise!

I would describe the five predecessors as vital to achieving Financial Independence, at least for me. But a fortunate by-product of aiming for FI are the health and fitness benefits attributed to the additional exercise I’m getting.

 

It started with replacing the tube journey to work with cycling. The first week was a killer, I was slow, my lungs and legs hurt, I complained! But I stuck with it, and as the weeks went on it got easier. Now, I dread the thought of ever commuting to work on the tube again. The cycle to work is a great way to kickstart myself into the day, and the cycle home is a nice wind down, and also acts as a release valve should I have a bad day.

 

I would have always weight trained 3-4 times per week, but coupled with the cycling I was shedding weight, toning up, and looking fitter than I have in a long time! I felt well, and this became addictive. With the extra free time since (semi!) ditching the TV, I started swimming a couple of days a week in addition to the cycling and the weights. I’m having silent aspirations about competing, maybe a race, or a weight-lifting competition, or something along those lines…  I’m drinking less, and eating less rubbish, because when I do my body reacts badly.

 

This results in me looking fit and strong, and feeling energetic and happy, some more beautiful consequences of this new lifestyle!

The Fire Place

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