The Monevator blog post last weekend had an offhand comment that caught my attention:
“Even the leanest pursuer of financial freedom wouldn’t consider £10,000 to be a sustainable income these days. I’m not sure it impressed me much as a kid, either, although I’d now respect it as suggesting Darcy boasted a pot of at least £250,000 (presuming he had a flexible withdrawal rate in play).”
The post is a review of an article about a type of bond called a Consol (I’d never heard of these, thanks Monevator).
Talking about olden days money is fun isn’t it?
Ten grand! How quaint! And how many shillings did you spend on pottage this month?
The thing is a yearly income of 10k is a little bit higher than I’m aiming for with my own FIRE figures.
When I read the Monevator piece it got me wondering. What have I got wrong? I’m not an economist or a finance specialist, and I don’t live in a tent in the woods (that would be the ‘leanest pursuer of financial freedom’ I guess).
So I thought that it was time to hand over my fag packet and cringe while you interpret the calculation on its back…
For context, my current situation is that I’m a private renter sharing a flat with one other person (my girlfriend).
I live in the south east of England, which is a fairly high cost of living area.
I don’t have any kids or caring commitments, so that obviously makes things simpler and it’s lucky for me that my life is so straightforward.
At the bottom of this post I’ve written out spending details for the last three months.
I’ll have a much clearer idea of my spending levels after a year, but based on a three month average I’m set to spend less than £8,200.
That excludes charity except occasional small giving, so let’s round it up to £9,000.
I think having a £1,000 buffer is pretty good. Is that likely to change in the future though?
Only three possible challenges to the 10k allowance spring to mind. Here is where the error must be, if you spot it please let me know…
Currently I’m a private renter. In the future I would like to be a homeowner, and I’d expect to be a good way through paying my mortgage by the time I hit FIRE.
In theory that should actually be cheaper than renting, assuming I don’t overstretch and buy a house that is beyond my means.
So while I understand that owning a home can come with unexpected costs, I would assume that is balanced out by the fact that I can have a small enough mortgage to make it cheaper than or the same price as renting.
I would probably move to somewhere a bit less pricey than south east England too. Maybe Yorkshire…
(there would be ways to build more income here, like renting a room out, but I’d rather plan for purely passive income so that I have the flexibility to do what’s best)
The three months of spending that I’ve tracked so far don’t include holidays.
That’s a red flag in the beach right there. But I don’t think it’s as bad as it seems.
Even before all the FIRE stuff I was never one for big expensive holidays. I’d rather spend that money over a few weeks, socialising with friends and lounging on local beaches.
I can definitely imagine myself going on one proper holiday every couple of years. Probably somewhere in Europe. So that’s maybe £250 a year to add to the cost?
This is one that I don’t understand very well, to be honest.
Is it much riskier to become seriously ill as a non-worker in the UK, and if so how do you mitigate it? Would the £1k or so a year buffer be enough, combined with home ownership and the optionals in the budget (see below)?
What does it mean if I’ve got it right?
The thing is, if my plans are basically right, then that’s quite exciting.
I think being able to save up £250,000 is an immense privilege. It’s clearly out of reach of most people in the world. But it is also pretty well within reach of a lot of people in wealthy countries like the UK.
I know a few people I’ve spoken to about this in the real world who this could definitely apply to, and who are pretty interested in how they can spend less time working and lower their carbon footprint.
What I spent in April to May 2019
- Social and eating out: £95.15
- Bills (rent, electricity, council tax, internet): £497.67
- Groceries: £52.66
- Mobile: £6
- Personal luxuries: £33
- Household items: £6.62
What I spent in May to June 2019
- Social and eating out: £57.78
- Bills: £475.50
- Groceries: £61.19
- Mobile: £6
- Personal luxuries: £1.99
- Household items: £11.37
- Charity: £7.61
What I spent in June to July 2019
- Social and eating out: £159.34
- Bills: £472.92
- Groceries: £64.60
- Mobile: £6
- Personal luxuries: £8.13
- Household items: £11.83
- Charity: £4.67
Average total across the three months: £680.01
If I take that average and multiply it by 12 then I get £8,160.12.
Just taking the most expensive month (July) and multiplying it by 12, I still only get £8,729.88 per year.
You’ll notice that the amount for charity each month is vanishingly small, even though I’ve recently been waffling on about charity.
The main reason for this is that I’ve not decided who to give to. If I haven’t decided by 2020 then I might give a lump sum to GiveDirectly.
In between now and then I try to assuage my guilt by giving away relatively valuable items to charity shops, and getting all my clothes from them too.
Side note on tracking expenses
I can’t really be bothered keeping a detailed budget anymore.
I do find tracking my spending and investments fun, but there’s a bit of a ‘argh crap i’ve left it too long’ psychological barrier to doing it.
The thing I’ve realised is that the easy bit is tracking the spending.
There’s no quibbling with spending. You’ve either used the money up forever, or you haven’t.
Whereas fiddling around with how to account for different types of savings, and cash transfers between accounts, and repayment of debt from family members… it’s just too much.
It really sucks the joy out of the spreadsheet.
So from now on I’m going to track spending only. It’s not like I don’t check on the investments very often anyway…