Saturday 16 January 2016

2015, Saved by Saving

Looking back on 2015 and I have to conclude that it was a good year for building wealth at a rapid rate.  All in I was able to increase net worth by 14% or £105,000!  That said in terms of the different ways I am using to build wealth it was unfortunately also a very binary year which is demonstrated nicely by the chart below:

RIT Year on Year Change in Wealth (Saving Hard + Investing Wisely)
Click to enlarge, RIT Year on Year Change in Wealth (Saving Hard + Investing Wisely)

Let’s look at the year in a bit more detail.  Before passing judgment on anything below it is also worth noting that the below represents everything that I have financially.  There is no Defined Benefit Pension waiting in the wings, no future inheritance and certainly no bank of mum and dad waiting in case it all goes pete tong.

As always we’ll focus on and score the three areas that I believe are essential to get over the Financial Independence line - Save Hard, Invest Wisely and Retire Early.


I define Saving Hard a little differently than most personal finance bloggers.  For me it’s Gross Earnings (ie before taxes, a crucial difference) plus Employee Pension Contributions minus Spending minus Taxes.  Earn more and one is winning.  Spend less or pay less taxes and you’re also winning.  Savings Rate is then Saving Hard divided by Gross Earnings plus Employee Pension Contributions.  To make it a little more conservative Taxes include any taxes on investments but Earnings include no investment returns.  This encourages me to continually look for the most tax efficient investment methods.

2015 was a brilliant year for increasing earnings thanks to a healthy bonus early in the year along with a good salary increase.  In total earnings were up 54%!  Of course this doesn’t come for free with my company taking a very large pound of flesh in return.  I do not expect and am not planning on something similar in 2016 particularly as the year starts with a dire bonus.  As far as building wealth goes it’s also not quite as good as it sounds as HMRC now takes the lion’s share however that said I am also certainly not complaining.

I’m now 8 and a bit years into my FIRE (financially independent retired early) journey and I can smell victory.  I think this is now further helping me to live well below my means in addition to the spending method I developed a long time ago.

Spending for 2015 averaged £2,034.  This is all the family running costs as well as my discretionary spending.  My better half self funds their discretionary spending.  Sounds like a lot until further analysis shows that 58% of it was associated with living in one of the most expensive cities in the world which helps the family unit maximise savings which is the crucial piece and 11% was associated with work itself (fuel mainly).  Neither of those costs are expected to be there in FIRE (of course there will be others) and so if I net those off that flippant spending turns into a more modest £615 per month.

Retirement Investing Today 2015 YTD Average Monthly Spending
Click to enlarge, Retirement Investing Today 2015 YTD Average Monthly Spending

Combining Earnings, Spending and Taxes together results in an average Savings Rate for the year of 53% against a plan of 55%.  Close but no cigar although it is 39% more than I managed to save last year when measured in pounds.  That said I also am now at the point where I’m not sure where else I can reduce without it starting to affect the lifestyle we want to live so 2015 could actually be the year I hit peak savings.

RIT Savings Rate
Click to enlarge, RIT Savings Rate

Saving Hard score: Conceded Pass.  While not achieving a plan of 55% in pound terms I’m still a long way above 2014.  Savings also contributed 13.1% to my total net wealth increase of 14%.  Savings also continues to make the biggest contribution towards my wealth accumulation with 68% coming from savings and only 32% coming from investments.  This continues to be the biggest surprise of my FIRE journey thus far as when I started out I really thought it was all about the magic of compound interest.


Investment return for 2015 (03 January 15 to 02 January 16) was a paltry 0.9%.  In 7 out of 8 years savings continue to make a greater contribution to my wealth than investments.

My investing strategy continues largely in line with that developed at the start of my DIY journey except for 3 tweaks (mentioned a few times previously) that are now necessary given my relative closeness to Financial Independence.

The first is to increase cash and cash like holdings (NS&I Index Linked Savings Certificates predominantly) to give the option of a family home purchase and to ‘ensure’ I can live off dividends alone in FIRE.  This is proceeding well with these holdings increasing from £192,000 at the end of quarter 3 to £203,000 (EUR266,000) today.  Some more work to do with our dream Mediterranean home expected to cost EUR350,000.

The second has been to increase total wealth less cash dividends to 3% with that number coming from a decision to drawdown at 2.5% after expenses which then leaves a little for reinvestment to ‘safeguard’ the living off dividends idea.  This is now well in control with an improvement from 3.4% at quarter 3 to 3.7% today.

In 2015 I received £21,600 (EUR28,220) which is now more than I believe I’ll need to fund the lifestyle we’d like to live on the Mediterranean but not quite enough to give a little extra for reinvestment.  That said it’s yet another milestone that indicates that FIRE is rapidly closing in.

RIT Annual Dividends
Click to enlarge, RIT Annual Dividends

The third has been to now begin further diversifying my portfolio as I’ve reached a critical amount of wealth.  This has kicked off with an increased weighting to FTSE250 companies.

For completion my current asset allocations are:

RIT Asset Allocations
Click to enlarge, RIT Asset Allocations

I continue to invest as tax efficiently as possible with my tax efficient holdings now consisting of:
  • 44.3% held within SIPP's
  • 12.7% held within the no longer available NS&I Index Linked Savings Certificates (ILSC’s)
  • 9.9% held within a Stocks and Shares ISA.  

Tax efficiency score: Conceeded Pass.  At quarter 3 I was sitting on 67.6% of total wealth tax efficiently invested.  This is now at 67.0%.  You might say that’s a fail but at this stage in my journey I don’t think it’s prudent to invest into some of the more exciting methods of minimising taxes, I’ve maximised ISA contributions and I think my pension in pound terms is now getting towards the upper end of where I want it.  More on my pension thoughts to come in a subsequent post.

Investment expenses also continue to be treated like the enemy.  In 2014 I took these from 0.36% to 0.31% and then by midyear 2015 I’d further reduced these to 0.27% by finally being able to transfer my live company defined contribution (DC) pension into a SIPP.  At year end they remain at 0.27%.

Minimise expenses score: Conceeded Pass.  No further improvement but with work contributions continuing to be made into an expensive DC pension and expenses now not exactly onerous I’m nearly ok with it for now...

If I’m Investing Wisely I should be able to at least match a benchmark.  My benchmarks are continually challenged by readers but at least for now my Benchmark here remains a simple UK Equity and Bond Portfolio aligned in percentage terms with the building blocks of my own portfolio which is then rebalanced once every year.  Today that benchmark allocation is 67% UK Equities and 33% UK Bonds. The 2 indices I use to replicate that benchmark are the FTSE 100 Total Return (Capital & Income) Index which in the year returned -1.1% and the iBoxx® Sterling Liquid Corporate Long-Dated Bond Total Return (Capital & Income) Index which has returned -0.3%.  The total return of my benchmark is therefore -0.8%.  In comparison my 0.9% return results in a benchmark beat.  Interestingly, if I was to split the UK Equities portion 50% to the FTSE100 and 50% to the FTSE250 that benchmark would leap to 3.3% resulting in under performance on my behalf!

Investment return score: Conceeded Pass.  An original benchmark, which is full of global big oil, big diggers and big pharma, beat but poor performance against a benchmark containing a significant portion of what many might say is more representative of the real UK economy.  It is worth adding that my benchmark doesn’t carry any investment costs where my portfolio sees expenses including fund and wrapper expenses, investment spreads, trading commissions, withholding tax on some investments and deducted at source tax on savings interest.

In the scheme of a lifetime of investing the year 2015 is insignificant.  I’m all about time in the market and not timing the market so as always let’s zoom out and look at my performance since I started down this DIY road.  This looks good compared to my benchmark with the chart below tracking the performance of my portfolio against my Benchmark and inflation (RPI).  Note that the chart assumes a starting sum of £10,000 which is not my portfolio balance at that time but is instead simply a nominal chosen sum to demonstrate performance.

RIT Portfolio Performance vs Benchmark vs Inflation
Click to enlarge, RIT Portfolio Performance vs Benchmark vs Inflation

Since the end of 2007 the benchmark continues to beat inflation with Inflation growing at a Compound Annual Growth Rate (CAGR) of 2.7% compared with the benchmark at 4.1%.  In contrast my portfolio has increased at a CAGR of 5.7%.  In real inflation adjusted terms that’s therefore now 3.0%.  My whole investment strategy since 2007 has been to generate a long term Real Return of 4% and so I remain well behind plan albeit above the 2.5% I intend to drawdown in FIRE so not all bad news.

Long term investment return score: Fail.  Ahead of long run benchmark but well behind plan.


Combined Saving Hard and Investing Wisely should eventually give Early Financial Independence and the option of Retiring Early.  When I started this site in November 2009 I stated that my aim was to retire (which at the time I defined as work becoming optional) in less than 7 years.  I am now 6 and a bit years into that journey and assuming I can continue to save at expected rates while achieving a real return of 4% I forecast that financial independence will arrive in about 16 months at current valuations.  If it happens I will have missed my target however it will still mean FIRE in less than 10 years from when I went DIY in 2007.  If I was offered that in 2007 I think I would have certainly taken it.

Savings and investment return have allowed total wealth to increase 14% in 2015.  Wealth is now at £828,000 against a target of a little over £1 million.  That said an important milestone has now been hit.  Current spending is now at 2.5% of total wealth against a target of 2.5%.  I have reached the minimum level to call myself FINANCALLY INDEPENDENT based on my current lifestyle!  Yet another milestone hit demonstrating the FIRE nears.

RIT Withdrawal Rate
Click to enlarge, RIT Withdrawal Rate

I’m not getting to excited though and am going to push on towards the £1 million which will give us the Mediterranean lifestyle we desire with some contingency for exchange rate movements and vastly increased discretionary spending if we so desire.

My journey to FIRE now looks like this:

RIT Path Trodden Towards Financial Independence
Click to enlarge, RIT Path Trodden Towards Financial Independence

Retiring early score: Conceded Pass.  Off target for 7 years from blog start up but less than 10 years from going DIY.  In 2015 I’ve accrued a further 14% of the wealth I need for FIRE.

How was your 2015?  Are you happy with your achievements?

As always please do your own research.

A quick footnote.  A few weeks ago I posted an update of my experience with peer 2 lending via RateSetter.  In that post I mentioned a referral scheme where if you’d firstly done your own research and then subsequently signed up as a new lender you (and I) would both receive £50.  I know a few readers have done this already but I’ve just received some further information from RateSetter.  Sign up via this link directly and lend £1,000 and you’ll now receive £100 (I’ll still receive £50) after investing for a year.  That’s now the equivalent of a first year bonus of up to 10% which isn't to be sniffed at.  Of course your capital is at risk with peer-to-peer lending so please make sure you do your own research first.


  1. Interesting story to read. It is great to see that people can hit FIRE goals. I look forward to the day you publish that post.
    I do like the detailed charts. They underpin well the math and goals behind your journey.

    1. Thanks for the wishes ambertreeleaves. I too am looking forward to that day. I just hope I have the courage to go to full FIRE once my full FI (rather than that based on current spending) wealth figure is reached.

  2. Well done on achieving FI!

    I like your method of calculating savings rate - on that basis I'm at 59%. Although my earnings are not in the same league as yours, I do have a defined benefit pension, and last year my employer contribution was equivalent to 20% of pensionable salary which is a big boost to the savings rate.

    1. Many congratulations on that 59% figure. Truly impressive!

      Look after that DB pension. A scarce and valuable thing in the modern day.

  3. great post, thanks for sharing. I'd be cautious with regards to rate setter, this 10% return offer to gain more customers in order to keep the pyramid scheme going??? just saying.....

    1. Thanks for reinforcing the need for caution when lending with P2P. You are of course right. I believe I've reinforced the need to do your own research on every P2P post I've ever made. It’s still a new form of investing, few of the companies have ever been through a serious recession and of course your capital is always at risk.

      That said I've done my own research and as part of a balanced portfolio of investments I'm personally happy to invest. So far it’s working out ok. I now have £44,000 invested and have so far earned an annualised 4.7% since May 2014.

      As always I’d value other readers thoughts on this topic.

  4. Hi I love your blog, awesome find great work. I am new to this and following in your footsteps from 2007 so I would like to ask you about recording your finances, excel obviously but can you refer me to any templates you used? or do you have any you can share? many thanks I look forward to following your journey and starting mine in 2016

    1. Hi Anon

      I don't use any pre-prepared templates. A couple of reasons for this:
      - By building them yourself you gather the data that you need for what you are trying to achieve;
      - You also know exactly how all the assumptions and analysis builds up meaning you will understand what is going on

      If I was starting out again I'd start with:
      - The first priority is to start tracking your spending and I mean every penny. It all keeps coming back to how much you spend and by doing this you'll start thinking about what you really value. You'll also need this data to help determine your FIRE number.
      - I'd also track earnings and tax paid. That will help you with savings rate which is maybe not essential but it will help you understand if you are pushing yourself.
      - Establish a cadence (I do it weekly) where you record the units, price, exchange rate and value of every investment. This will help you with total value, asset allocation analysis plus if you're making big contributions it's an incredible motivator.
      - Record every deposit, buy, sell and dividend. That will help you if you ever have to worry about CGT but it will also help you calculate the performance of your portfolio.

      Once you have those in place then you're away. You have plenty of time (years) to then add all the other analysis you'll ever require to suit your needs.

  5. Happy 2016. It would be nice to see some posts this year reflecting on thoughts on extracting oneself from a job with a company that clearly values you highly. I've seen well considered exits take 12+ months, and others walk away rapidly with, justifiably, little feeling of loyalty or indebtedness.

    1. Happy New Year to you also. This is something I am yet to give much thought to. I had always thought that about 6 months out I'd start giving this some more serious thought. Given my current wealth there is plenty Mr Market can throw in front of me between now and that 6 months.

      That said, I am sure the physiological / emotional elements will start to rise to the surface as I approach so I'm sure it will become a big discussion topic.

  6. Hi RIT, meticulous as ever. I do greatly admire your dogged pursuit of FIRE although personally it's not something I have ever really gotten into.

    After being made redundant from my first two jobs I decided that work was something I had to do for myself, not for "The Man". So I have always tried to work at things I enjoy and if I'm not enjoying it, it's time to try something else.

    Of course financially this is not necessarily the best approach, but in the long run we're all dead anyway and I've found it interesting and varied so far.

    I may change my tune if I end up as a "meet and greet" person at the entrance to Tesco when I'm 90, but then again I might enjoy that too.

    I just hope you find something productive to do with all that brainpower once you're financially independent.


    1. Hi John

      If you're going to do something you might as well do it well :-)

      On a more serious note for me FIRE has always been about work becoming optional. I also do not expect to spend my FIRE life with a margarita in hand, in a hammock on an abandoned beach. That would turn my brain to mush.

      How do I think it will play out:
      - Find the country and location that we want to call home.
      - Decompress including a step change in my fitness level and if it's not the UK immerse myself in the language. If it's the UK then I'd like to build a modest family home.
      - At that point I hope to better understand who I really am. I hope that will tell me what I want to do next. It might be work which pays but it could also be work that doesn't. That is the beauty of FIRE.


    2. Excellent reply RIT. I hope it all works out better than you could possibly have imagined.

  7. RIT,

    In your portfolio asset allocation calculations , are you considering Nat. Savings ILSC's as : cash , cash-like or as bonds. In todays post you are considering them as a cash-like holding , but I think I remember that you have considered them as bonds - or bond substitutes - in the past . They are more like fixed-term bonds than cash - as there are penalties if you cash them in when you want - rather than on a 3 or 5 year anniversary. Are you prepared to cash them in " early " to fund a house purchase ? Someone like you is going to find it hard to miss out on an interest payment that you may feel " entitled to " - but one alternative would be to increase your borrowing ( mortgage )- and another option would be to cash in some of your other investments . How realistic are you being in thinking that you are going to be able to purchase a house without the need for borrowing ?

    1. Hi stringvest

      In my asset allocation I show them as bonds which is aligned with your thoughts. I call them cash-like as they will not suffer the vagaries of Mr Market. You are quite correct that I will be penalised if I cash them in before time. I understand the penalty is 90 days interest and the index-linking for that investment year. The interest on my current certificates is now derisory and RPI is currently 1%. I'm prepared to take that loss vs cashing in as they mature now and then participating in Mr Market halving equities which pushes FIRE out a few years to name just one scenario.

      How realistic am I being in intending to buy without borrowing? Here's my thinking:
      1. Today I have £203k or EUR266k
      2. Maximise ISA contributions and continue with healthy pension contributions (just formulating latest pension thoughts based on some research which I'll hopefully post this weekend) from my day job.
      3. Save remaining earnings from 2 in savings account/s.
      4. Don't bank on any return from savings account or ILSC's as now derisory. Bank on return from P2P.
      5. Don't reinvest dividends from non-ISA/non-Pension investments. Instead redirect to savings account/s.
      6. 'Hopefully' a half decent bonus from my next 12 months performance

      Merge all of that and at FIRE I could be somewhere near £303k or EUR396k. Stay in the UK and I'm short - that's probably going to cost me £350k + up to £7,500 stamp duty + buying costs. Move to Malta and we're close - estimated home cost of EUR400k + EUR22k or so buying costs. Move to Spain and we're laughing - estimated home cost of EUR350k + EUR33k or so buying costs.

      Admittedly, this does leave me a little exposed as I'd also like 3 years of minimal living costs in cash also but I have a bit of time to figure that out.

      My better half and I are both from fairly humble backgrounds. The homes I've described above would be palaces in comparison to anything we have ever lived in.

      Good point about a small mortgage. I've written about that in the post in some simple musings. Retire to the Med and I probably won't have to worry. Stay in the UK and I'm going to have to do some thinking as I'd think it unlikely a bank would loan to a 'retiree'.

    2. I don't think that you will be ineligible for a bank mortgage as a retiree. You might need to shop around a bit - but you would be in a situation with a very small loan to value and you will have other real assets to back this up - and hopefully regular and secure income to continue your lifestyle as well as service your mortgage - so your mortgage would be a very low risk as far as the bank is concerned. Some banks will agree to lend up to age 75- and may even extend this further if you end up approaching this age and just need a few years more . I would guess that an offset mortgage would suit you - but they are few and far between currently.

      I don't WANT you to end up with a mortgage - far from it - but you should not be constrained when it comes to buying a property that you like ( love ! )- and why should you not end up in a " much better " house than you were both used to - you deserve to - you are working hard enough to have " earned " the privilege.
      Reward yourselves !

      Also - you may need borrowed money to do all the work that buying a house inevitably entails - would that not be nice to get done sooner rather than delaying until you have saved up for each stage of changes you want to make ?

      With an offset - I guess you would not have to have a mortgage for that long - but it might have helped you over a hump ( a gap ) in your finances . Effectively you are a first time buyer after all.

      I realise that borrowing for you is a bit of an anathema as you are obviously much happier as a saver- but a mortgage may allow you to widen your horizons so that you end up living somewhere that you really want to live - rather than have to move somewhere just because you can afford it . Where you live is much more important than what sort of house you live in !

      As ever - good luck - and DYOR !

    3. As always thanks for the thoughts and wishes. Trust me I'm going to go for it. If 6 months out it's not looking good I'll start to poke around and make relevant mortgage enquiries. If it's not looking good I guess the worst thing is that I have to work a little longer although that is of course not preferred. I really do want to move to my next life phase at £1M. Watch this space... I have a feeling it's going to be an interesting ride. The last few years certainly have been.

  8. Nearly there RIT. I wouldn't look at the 2015 investment performance as a miss, but as a lot of stored firepower socked away for future returns. :)

    Not sure if you've discussed this before, but I am slightly concerned about currency risk now you've decided it will definitely be the Med for you. The swings in GBPEUR have been pretty big, historically, and I've seen first hand people have to go home at various times to various countries as currencies have fluctuated.

    How do you plan to address this?

    I know (think) you'll be buying locally, so that obviously takes out a big chunk of the risk. Will you be moving investments into Euros, too?

    FX can easily swing 10%, which in Euro terms might take you into early retirement now! And equally back out again.

    1. Great to hear from you TI.

      You are 100% right on the currency risk front. It is a consideration. I started to mention it publically in the past and was flamed for it from some readers. I've of course continued thinking about it behind the scenes with latest thinking:
      - I'm planning on the rate being the current rate for the home purchase but using the long run GBP:EUR rate for the ongoing expenses.
      - Investment wise I have 50% of my property portion in a European ETF.
      - I am increasing my international exposure, which includes, European Equities from 15% to 20% over the next year or so.
      - At FIRE I want to (which is the difficult as at current projections I'll need most of my cash for the home purchase) have 3 years of living expenses in cash in EUR's. That should hopefully help me when (if?) we see EUR1.08 to the £1 next.
      - My planned annual expenditure includes circa 20% of 'fun money'. If it goes horribly wrong exchange rate wise I can then finally batten down the 'fun' hatches which gives me some more contingency.

      Running some basic numbers on that suggests I could have ridden out anything we've seen so far...

    2. Why on earth would anyone flame you for it? :)

      Anyway, I knew you'd have looked into it.

      Personally I think the aim should be to try to get security over trying to anticipate directionality. As a non/low earner, that will be important. :)

  9. p.s. Sorry, I mean buying a home locally -- i.e. a property near the Med.