I thought I’d do a more personal take on financial independence.
I want to show that you don’t need to be on £100k+, or have any inheritance (quite the opposite), or live with your parents to get there.
This guide will focus on practical tips and clear description of some of the products you can use to help you save money.
If you have any questions or ideas feel free to comment below!
Warning: this is quite long because it’s a blow by blow of my own savings journey. I think I would have found these details helpful as a new starter.
Anyway! Here’s where I started from around 8 months ago:
- Had a few hundred pounds (less than £1k) tucked away in a standard savings account
- No inherited wealth or assets or anything like that
- Renting privately
- Only a very rough understanding of what my money was going on, too scared to look at my statements
Since then I’ve got to the stage where I’m saving over a thousand pounds a month, and have a positive relationship with money.
Based on my experience I’ve identified four stages to getting money mindful:
- Stage one – don’t look back in anger: turning a new leaf by tracking spending
- Stage two – be more squirrel: start tucking money away regularly
- Stage three – piling up: build a portfolio of savings and investments
- Stage four – designing your future: align investments to life goals
Stage one – don’t look back in anger
For me this was the hardest step of all. I had several false starts as I tried to do miserable things like looking back at monthly bank statements, which would inevitably lead to me giving up and hiding away from it all.
In the end, I took the decision to forget about all of my previous spending.
The trick is to lower the emotional/psychological burden for yourself as much as possible.
So my best advice is to make a new start.
How can you do this? Get Monzo or a similarly easy to access current account.
I found Monzo a bit of a game changer because I got a small notification every time money went out.
(Here’s my referral link if you fancy using it – we’ll both get a £5 reward)
There are a bunch of apps that will promise you pretty graphs etc. but personally I find these a bit much. It’s just another thing to look at, and you have to keep them updated.
Once you have oversight of your daily spending you can start unpicking it.
Start easy by looking at your direct debits and standing orders in your bank account. Do you need them?
Once you’re feeling confident, look at your bills. There have been some massive improvements to consumer rights that make switching energy and broadband suppliers easier than before. Finding the best deal on these is the easiest way to win yourself about £80 a month with zero sacrifice on your part.
Services like Martin Lewis’ Money Saving Expert are incredible for this.
From here my best advice is to keep an eye on your expenses.
Every time you see a recurring payment pop up, question it. And maybe once a month take a look at all your spending for that month. What’s adding up? You don’t need a complicated spreadsheet for this, it should be fairly obvious from a two minute scan.
By the end of this stage I:
- Had set up a Monzo account so I had proper visibility of my spending
- Started cutting regular expenses
- Was thinking about the real value of each purchase
Stage two – be more squirrel
Once you’re starting to feel in control of your spending you want to think about setting up your first savings account (if you don’t already have one).
I didn’t bother with anything complicated like an ISA at this stage.
The point is to build your savings habit and to get that warm glow about how much you’re racking up. That feeling is what makes all of this sustainable.
So, there are these beautiful accounts called ‘Regular savers’. They give you 5% interest over the year, with a set amount you can put in to them every month. I actually have two of these: HSBC (up to £250 per month) and First Direct (£300).
To get access to these you will probably need to set up a new current account. This is an opportunity!
Loads of banks now give you cash rewards for switching to them. First Direct and HSBC both gave me over £150 to set up accounts with them, AND I got access to their 5% regular saver.
That’s a fantastic return on investment.
Keep your admin burden low and start off by setting up one new current account in order to gain access to the linked regular saver.
Just watch out for the minimum number of direct debits and the amount they expect to see flow into your account every month in order to qualify.
Personally, I found M&S Bank’s rules overly prohibitive on this front, for example. HSBC was doable for me, because I chose to use them as my monthly salary account.
First Direct was the lowest barrier of entry because they didn’t require me to set up direct debits with them. I’m not sure if this is still the case, but it’s worth a look.
By the end of this stage I had:
- Switched to a new account for a cash bribe
- Set up a 5% regular saver in association with this account
- Repeated the above when I saw the HSBC offer
- Funnelled in around £550 a month into these savings accounts using a start of the month standing order
Stage three – piling up
At this point in my journey I was getting well into the personal finance stuff.
The cause of my new found confidence was that I knew where my money was, and how much I had.
That knowledge let me think about a FI goal for myself, based on roughly how much I was spending.
I never studied finances or economics or anything (those subjects are for capitalist stooges, surely…) but what I did do was have a look around the Mr Money Mustache forum. I’ve found so much great advice on there and there is a sub-thread for the UK where you can ask questions. Get on this if you want high quality tips for free.
Using this and Money Saving Expert I was able to teach myself the basics.
First of all, I opened a Lifetime ISA (LISA) and set it up to put £300 a month into it.
Wtf is a LISA?
It’s a savings account that the government will put 25% extra in to every year, as long as you use it to pay for a new house or for retirement. You can put a max of £4,000 in a year, meaning you can earn £1k annually from the 25% government bonus with it. Really this is easy money and you should definitely do it.
They’re better than Help to Buy ISAs, which you can’t put as much money into (therefore lowering the amount you get from a 25% bonus) and which seem to be harder to use when you come to buy a house, oddly.
There are two types of LISA. Cash and stocks and shares. My choice was a stocks and shares LISA via the brokers known as Hargreaves Lansdown. It was very easy to set up, and I put my investment into Vanguard FTSE All Global Cap Index.
This step is important in terms of long term growth of your savings, but I’m really not a financial expert. If you’re interested I’d recommend having a look at this blog on the subject of FIRE and investing.
If you aren’t ready for the stock market investment step then fair play – go for a cash LISA. This guarantees that your investment won’t drop in value, and you’ll still get the 25% government bonus paid annually. Check out this regularly updated list of the best LISAs from Money Saving Expert (MSE).
Next up I opened a Stocks and Shares ISA (S&S ISA).
Yes that’s another ISA. You can also open this with Hargreaves Lansdown, or go with someone else. To find a reputable platform with cheapest fees check this MSE list.
Taking the S&S ISA along with the LISA mentioned in the previous step you can save up to £20,000 a year in these two accounts combined. So you could, for example, set it up so that you contribute £16,000 a year into the S&S ISA and then the maximum £4,000 into your LISA.
However, I’m putting much less into my S&S ISA. That’s because I want to buy a house, so I don’t want all my eggs in the stocks and shares basket for the time being.
Instead I put a smaller amount into my S&S ISA while running two further savings accounts:
- another 5% regular saver as mentioned above
- an easy access 1.5% saver (I use Marcus by Goldman Sachs, but here’s a list of options for standard savers)
When one of my savings accounts gets full up, I pop all of that money into a Fixed Term Bond for one year (details of these in the above link). Mine is Kent Reliance at 2.31% but their rate has dropped since.
By the end of this stage I had:
- A Lifetime ISA – whether you go for cash or stocks and shares it doesn’t matter, get one for the free money
- A S&S ISA – to start my long term investment journey
- An easy access saver for additional month to month savings
- A fixed term bond opened for a one year period
Where I’m at now
I’m kind of transitioning into stage four (below). To help make all of this a bit more real life, here’s a link to an edited version of my monthly expenses spreadsheet. It’s super simple but inputting it a couple of times a month keeps me really mindful of what I’m spending.
Stage four – saving for a preferable future
I haven’t got here yet, but I thought I’d end on my general plan based on life goals.
I want to swap my high levels of cash saving (in the regular and easy access savers) into investments.
Ideally this would be a mix of ethical investments, probably via a socially responsible index fund combined with specific ethical investment companies like Abundance.
These are the long-haul investment plans that will give me financial independence.
The other main plank will likely be a house. I want to treat my future home as an investment. Not in terms of its exchange value – gonna sit out that rat race – but through increasing its use value.
That means investing in energy efficiency and renewable energy generation, growing vegetables, using the space to experiment with making stuff, and opening up for a lodger.
Sorry for the long post, but hopefully this can be a bit of a walkthrough/reference guide for newbies like me?
Stay tuned for next time, when I’ll be returning to the main theme of this blog: money and politics!