I can smell the sea - 2017 Q1 Review

I couldn’t have asked for a better start to 2017.  From a Mediterranean home research perspective we spent some time on the Costa del Sol exploring from just east of Marbella through to Gibraltar.  We viewed possible homes, walked/ran on the beach, soaked up some sunshine and also took a few days to put some charge back in the batteries in readiness for the final push from FI to FIRE.

All I can say about this part of Spain is that I could very happily grow old in this part of the world.  The final fight between this part of Spain and Cyprus really is on but to be honest I expect I’ll be very happy in either location.  I just feel so fortunate that this is now possible and is really about to happen.

Click to enlarge, The view from one of the properties within our budget

On the financial side of things the world is also good with savings and investment returns putting more icing on the cake by adding another £75,800 to my wealth.  Let’s look at this in a little more detail.

SAVE HARD

I unapologetically continue to define Saving Hard differently than most personal finance bloggers.  For me it’s Gross Earnings (ie before taxes, a crucial difference) plus Employer 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 Employer 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.  I finished the quarter with a reasonably healthy Savings Rate of 52.2% against a plan of 55.0%.

Click to enlarge, RIT Savings Rate

Saving Hard score: Conceeded Pass.  I can’t give myself a pass as I’ve missed the target but when I’ve saved £51,800 (admittedly including a very healthy bonus) and only spent £6,500 I’m also not going to beat myself up about it too much.

Keep calm and carry on

Over a lifetime of investing we’re going to see a lot of things happen.  The more obvious events will likely be the continual bull and bear markets that have occurred in the past and I wouldn’t bet on not occurring in the future.  Filter the noise by correcting for the continual devaluation of money via inflation then plot on a log chart and they’re clear to see for both the US and the UK.

Click to enlarge, Monthly real S&P500 price

Click to enlarge, Monthly real FTSE100 price

I’m not old enough to have invested through all the FTSE100 cycles shown and I’m certainly not old enough to have invested through all the S&P 500 (or it’s predecessors) cycles that are visible.  Instead I started investing seriously in late 2007 so my early days saw the global financial crisis but I’ve then been able to ride that bull wave.  Today that bull wave has resulted in valuations such as the Price Earnings Ratio (P/E) or even the Cyclically Adjusted Price Earnings Ratio (CAPE) looking high compared to history.  The P/E for the S&P 500 is 26.3 against a long run average of 16.0 and the CAPE is 28.7 against a long run average of 16.7.  The FTSE 100 is in a slightly different state, albeit measured against a data set with a different duration.  It’s P/E today is a silly 30.7 against a long run average of 17.2 while the CAPE is 15.2 against a long run average of 18.0.

Rebuilding my credit score

When we left my credit report story I had a credit score of 618 out of 710 and what I thought was a store card that had just gone into early arrears, which wasn’t even mine, but which I had disputed with noddle.co.uk.  This is how it played out.

Click to enlarge, My credit score and credit rating in September 2016

In October 2016 I received a letter from noddle stating:

“Further to our previous correspondence about case reference , we can confirm that Shop Direct Finance Company Ltd has not supplied a response to the dispute raised on your behalf.  Callcredit [this is noddle] is unable to amend an entry without the permission of the organisation responsible for supplying it and as a result, we cannot assist you further with this dispute.  We would advise you to contact Shop Direct Finance Company Ltd [the store card] directly in order to discuss this matter...”

While I was waiting for that response those early arrears became sustained arrears resulting in my credit rating falling from 618 to 572 out of 710.

Click to enlarge, My credit score in October 2016

So just who is this Shop Direct Finance Company Ltd?  Well it turns out they own very.co.uk, littlewoods.com and a few others.  They also have a dedicated identity theft team.  The first question I’m asking myself after finding this detail is if you need a dedicated identity theft team maybe as a company you need to improve your security...  Just in case it ever happens to a reader the phone number to contact the identity theft team is 0800 0151 290.

2016 In Review, Back to Plan A

My self assessment tax bill has been paid and the final dividend laggards have paid up meaning I can now financially close out 2016.  This will hopefully be the third last quarterly summary after which the format will switch from an accrual of wealth format to one focused on wealth preservation as I start to drawdown in FIRE.

If you had have offered me 2016 on the 01st January 2016 I just wouldn’t have believed you.  When both savings and investment returns are summed I’ve increased my wealth by £263,000.  Quite a staggering number and a result which enabled me to both become a millionaire and to become financially independent (FI).

2016 was also of course the year of the Brexit vote which has resulted in Sterling weakening against many currencies.  Measured in Euro’s, which I need for my Plan A, it’s a more subdued EUR134,000 increase however I’m certainly not going to turn it down.

Given that I’m also now emotionally ready to FIRE I’m going to change the structure of these quarterly reviews a little to start to focus on what’s important to me going into FIRE.

Let’s look at the gory details.

SAVE HARD

I unapologetically continue to define Saving Hard 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.  I finished the quarter with an uninspiring Savings Rate of 44.9% against a plan of 55.0%.  Don’t worry it wasn’t a Christmas blow out but the result of PAYE tax on my earnings (as always) combined with the added bonus of a self assessment tax bill.  Over the year my physical spending remained well in control with spending being only 8% of Gross Earnings plus Employee Pension Contributions.

Click to enlarge, RIT Savings Rate

Saving Hard score: Conceeded Pass.  I can’t give myself a pass as I’ve missed the target but given my savings rate is 92% under the traditional financial bloggers measure, which even trumps (no pun intended given yesterdays ceremony) Jacob of Early Retirement Extreme’s 75%, I’m not going to beat myself up about it.

I’ve written and published that book

Over my 9-year journey to financial independence (FI) I’ve had a number of readers of both this blog and the fora that I frequent ask me if I’d write a book.  If the truth be told I was reticent while on my journey as I thought I would be a hypocrite for writing about how to achieve something that I actually hadn’t done myself.  That all changed in July 2016 when I achieved my financial independence goal with being a hypocrite switching to feeling empowered and ‘qualified’ to tell the story.

I also thought that I was too busy to write the book but in hindsight that was just the victim coming out in me.  Like anything in life both achievement and success is all about unrelenting prioritisation in my experience.  Without that you just don’t have a chance.  So with a focus on just work and the book (thanks go out publically to a very understanding and supportive family who’ve had to put up with it and me) I’ve been able to get it written over the past months and it’s now published.

I’ve called the book - From Zero to Financial Independence in less than 10 Years: Tools and techniques to escape the rat race quickly.  It’s currently only available on Amazon but is available in both ebook and paperback formats giving some choice.

So why write it?  A few reasons:

• I’ve found my FI journey an incredible experience both financially and spiritually.  I’ve also learnt so much, including a lot about myself, most of which will serve me well for life.  This includes a switch to focusing on quality of life rather than the far more common standard of living.  At age 44 I am also now in a position that is incredibly liberating and empowering.  I would just love others to be able to at least see what’s possible and hope the book might spread that message further than this blog.  If they then choose to stay on their current course I’m more than ok as at least they saw an alternate option and made a choice.  The book has only been live a few days and this goal is looking good so far.  It is already ranked number 4 in their retirement planning category, number 11 in their ebook personal finance category and number 24 in their ebook finance category.
• I wanted to provide the book that readers asked for.
• An unexpected reason was that I actually found the whole process incredibly cathartic.  For years I have been learning and had tonnes of information swirling in my thoughts.  By sitting down and putting pen to paper it allowed all that to be organised and filed forever freeing my thoughts for more.

9 months into 2016 – The plans they are a-changin’

With the back of 2016 now largely broken this year is fast shaping up as one of the most memorable of my FIRE journey thus far.  Personal finance wise it’s been great.  My wealth passed 7 figures, I became financially independent (FI) and the rate of change in my wealth has been like nothing I’ve ever seen before or could have imagined when I started on this journey.  To put that last point into perspective by the end of quarter 1 I had added £55,000 to my wealth, by the half year mark that had become £142,000 and by the end of quarter 3 it had become an almost unbelievable £220,000.

However, this is not what is making things memorable.  That’s coming from me slowly realising that because my FIRE strategy makes me an outlier it also makes me vulnerable and exposed rather than invincible.  This was nicely demonstrated by the Brexit vote.  As a ‘young’ retiree looking to head to The Mediterranean within a year I’m sure it doesn’t take a genius to guess that I voted Remain in the Brexit referendum.  If everyone else had have been on my trajectory that would have been the result.  Instead my demographic had no influence, as the numbers of people looking to FIRE to The Med are probably not much more than one, so democracy took over and we ended up with Leave for many other reasons.  So far that result has resulted in pound devaluation (which on its own I could have coped with) but also discussions of Hard Brexit which has turned my plans from 95% The Med to 50%.  I’m a minority affected by politics and populism and because I’m not part of a significant demographic my vote just won’t make a difference.  What if the next populist democratic step is to start taxing capital and providing relief to the indebted...  We’re almost there via interest rates anyway but what if it becomes an overt policy...

Checking my credit report (and it’s not great news)

From the fortunate position I currently find myself it’s unlikely I’ll ever need or want to take on any form of debt ever again.  That said I’m also a plan for the worst just in case kind of guy. Incidentally, the end result of which is usually a nice upside surprise but you just never know.

So with this in mind I decided to finally, having never checked it previously, check in on my credit report and score.  I used noddle.co.uk as its ‘free for life’ but there are a few of them out there including Experian and Equifax who offer free 30 day trials.  Just don’t forget to unsubscribe with those or you could be paying up to £14.99 per month for every month you forget.  Not an insignificant amount.

If I’m being honest I was expecting a nice credit worthiness upside and the actual result surprised me somewhat.  So let’s look at what they have on me:

• Personal Information.  They have my date of birth and history of addresses.
• Financial Account Information.  They have my American Express Platinum Cashback credit card which shows a long and perfect history of repayment as I direct debit full payment every month.  They show my current account but have no record of my cash savings accounts.  Unfortunately they also show a store card with a missed payment of £4 which is not even mine.  I’ve disputed that which they say can take 28 days to resolve.  So checking my credit report has already been of value.
• Short Term Loans.  I positively get “YOU HAVE NO OPEN SHORT TERM LOAN ACCOUNTS ON YOUR REPORT.”
• Electoral Roll.  I’m showed as being registered and the details are correct.
• Public Information.  I positively get “YOU HAVE NO BANKRUPTCIES OR INSOLVENCIES RECORDED ON YOUR REPORT” and “YOU HAVE NO JUDGEMENTS RECORDED ON YOUR REPORT.”
• CIFAS (the UK’s Fraud Prevention Service).  I positively get “THERE ARE NO CIFAS WARNINGS REGISTERED AT YOUR ADDRESS(ES).”  

The more likely scenario

My financial independence and early retirement (FIRE) planning has been a pretty negative affair so far, with me always trying to focus on the worst case what if scenarios.  I’ve done this as I wanted to have a high confidence that work in the future really would be optional and based on a want to do it and not a need to do it.  With me now over the financial independence line it’s time for me to switch from glass half empty mode to one where the glass is half full.  I’m going to try and answer the question - based on historical data (which of course is not a predictor of the future) what is the more likely outcome for my wealth?  This then enables me to think about what could happen to my spending if I so choose.

I’ve used the cFIREsim tool many times in the past and I’m going to use it again for this analysis.  The negative of it is that it is US based which means if history repeats it will likely be a bit bullish.  The positive is that its data set goes back to 1871 meaning plenty of data points including plenty of bear/bull market cycles but also that it allows you to output data in real inflation adjusted terms which is important as I want to always think of wealth in terms of what can it buy in today’s pounds.

So let’s plug in the data.  Firstly, my financial independence day wealth of £799,000, planned spending of £19,973 (2.5% of wealth),  40 year FIRE period assumption and assumed annual investment expenses of 0.27%.

Now let’s plug in my FIRE financial strategy with one exception.  CFIREsim doesn’t allow you to input REIT’s so I’ll just split my allocation here 50% to Equities and 50% to Bonds.  So that’s 60% Equities, 29% Bonds, 5% Gold and 6% Cash (assuming 0% return on the cash).

Half 1 2016 – What a ride

July has been a month I will never forget.  Firstly, I joined the 2 comma club and then soon after joined the ranks of the financially independent (FI).  In all the excitement what I didn’t do was run my regular quarterly update on my year to date performance.  I’m going to belatedly do that today as I do want a record of my quarterly performance put down on paper (or pixels)

The first quarter of the year started well but the second half was one of the wildest financial rides I think I’ve ever been on.  To put it in pounds, shillings and pence by the end of quarter 1 I had added £55,000 to my wealth but by the half year mark that had leapt to £142,000.  That is more than my savings and investments have produced in any full prior year of my FIRE journey.

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

With strong contributions from both saving and investing let’s look at the detail.

SAVE HARD

I continue to define Saving Hard 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.

Click to enlarge, Where my earnings goes

That difference is significant and I think best shown graphically.  Measured my way and my Savings Rate since the start of 2013 has been 52.2% but at the same time I only actually spend 11.7% of my earnings.  If I measure it like most in the FIRE community, which substitutes Gross Earnings with Net Earnings, my Savings Rate jumps to 81.7%!

That’s it. I’m calling it. It’s my Financial Independence day!

“Financial independence is generally used to describe the state of having sufficient personal wealth to live, without having to work actively for basic necessities. For financially independent people, their assets generate income that is greater than their expenses.” 

Source

3,186 days ago I started on a journey to early Retirement which at the time I defined as work becoming optional.  Only later did I discover that the more appropriate terminology for what I was chasing was FIRE – financially independent and retired early.  Every week since that journey started I’ve sat down and updated my financial position and progress to FIRE.  Today this stared back at me:

Click to enlarge, Path trodden towards financial independence

Yes you’re reading that right.  Today at age 43 I’m officially stating that I am financially independent (FI).  You’d think we’d be out celebrating but in the RIT household this week (and in the run up in recent weeks) there has been calm as I’ve actually been umming and ahing about whether I can actually call myself FI.  The main reason for this is that over the years I’ve diligently planned for just about every financial situation that I can think of however what in hindsight I’ve actually glossed over is the risk of politicians just blatantly changing the rules.  In the past few weeks we’ve seen some of this appear via the Brexit vote which for somebody who intends to emigrate to an EU country as soon as they FIRE has brought real risk.

One of these is the risk that my State Pension might not be triple locked or at least increased with inflation.  Now in my financial planning I’ve never assumed I’d be entitled but I’d always planned on continuing to pay in voluntarily as my insurance policy against financial Armageddon.  Now that insurance policy might be almost worthless as we all know the damage that inflation can inflict.  A second is the risk that at State Pension age I won’t be entitled to the same public healthcare as a local in my new adopted EU country courtesy of UK PLC.  This might mean private healthcare into our dotage but what if we do fall into poor health and our chosen private provider decides we’re no longer profitable enough for them.

At the other end of the scale we’ve seen the government of one of my potential homes, Cyprus, reduce Immovable Property Tax (IPT), which is the equivalent of Council Tax, by 75% in 2016 with a plan to then subsequently abolish it in 2017.  This is a country with so much debt that the Troika stepped in to bail them out only a few short years ago and now they’re cutting taxes by 75% or more.  Sure it plays into my hands for now but it’s not much good if it leads to bust and closed cash points later.

So in light of all of this what right do I actually have to call myself financially independent?  Below is my justification.

2 Commas = £1,000,000

Today, as I have done pretty much every Saturday morning since October 2007, I again sat down and updated my wealth and progress to FIRE (financially independent retired early).  This morning was however a little different as when I usually look at the wealth column of my spreadsheet after entering the data I see 6 figures and a single comma.  Today, for the first time, I saw a second comma indicating that my wealth had passed the £1,000,000 mark.

Click to enlarge, Wealth spreadsheet snapshot

This number means I am now 98.9% of the way to FIRE.

Click to enlarge, RIT path trodden to Financial Independence

I think I can, I think I can, I think I can FIRE in 6 months

Life is really busy.  No, that’s not right, let me try again.  Work is consuming me.  I’m pressured, stressed, exhausted and for the first time in my life that I can remember have so much workload that I’m failing to achieve what I’m setting out to do.  If I was a normal 43 year old working away to my current State Pension Age of 67 then I really would have to be doing something about it as it is just not sustainable long term.  Looking at my progress to Financial Independence tracker is however going to make me do something else instead.

Click to enlarge, My path trodden towards financial independence

Today, I have wealth of £938,000.  This is also my net worth as I have £0 in debt.  With a FIRE (financially independent and retired early) target of £1,000,000 and provided Mr/Mrs Market behaves him/herself I should be able to close that gap in 6 months according to my Excel spreadsheet.  That is not far away and now requires me to do some things over the coming months.

1. Pick an early retirement date

Into the melting pot for this decision goes:

• the weather.  Not much point moving in the middle of winter.
• tax efficiency.  As I’ll have the opportunity to work for only part of the year it seems to make sense to earn enough in a tax year to take me up to the start of the 40% higher rate income tax rate to maximise my FIRE wealth for a given work effort.
• work projects.  I do have some longer term projects at work that I would like to finish.  I know I don’t have to but for me at least I feel it is the right thing to do both for myself and those who work around me.
• assured shorthold tenancy (AST).  As a renter I have a tenancy period that I need to comply with.  There is no point paying rent on a flat that is empty.  

Working through each of these in turn and it looks like I’ll actually resign in late winter/early spring 2017 with a plan to be in The Med in late spring/early summer 2017.  So at this stage it looks like I will be overshooting what is physically possible financially and I’m ok with that.  I’ll only be 44 years of age after all.  It’s not like I’m planning to do One More Year (OMY) or anything like that...

2. Ensure my portfolio is right for distribution and not accumulation

When I built my investment strategy it was all about the accumulation of wealth.  That book is now fast coming to a close and I’m about to start a new book called Starting out in the Retirement Distribution phase.  My investment portfolio today looks like this:

Q1 2016 – Rocket boosters lit and then stayed lit

Quarter 1 has been what can only be described as one where the rocket boosters fired and subsequently propelled my personal finances forward at a rapid rate of knots.  I passed the one year to FIRE (financially independent retired early) mark during the quarter and then finished the quarter with wealth addition of some £55,000!  To put that into perspective that is more than half of what I achieved through the whole of last year.  Positively both my Saving Hard and Investing Wisely approaches made strong contributions:

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

SAVE HARD

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.

Even with a large portion of my bonus going to those better able to spend it, including HMRC, I was still able to save some £31,000.  This was possible by once again keeping spending nicely in control.  In fact my personal rate of inflation (ex taxes) compared to Q1 2015 was actually -7%.  An interesting dynamic has developed here.  With FIRE being so close my better half and I seem to have just sub-consciously battened down the hatches as we can see the finish line which is then self-fulfilling.

Combining Earnings, Spending and Taxes together results in an average Savings Rate of 48% for quarter 1 against a plan of 55%.  Sounds like a pretty poor effort until I also mention HMRC took 47%, including some back taxes, with us living off the remainder.

Click to enlarge, RIT Savings Rate

Saving Hard score: Conceded Pass.  I yet again missed my savings plan of 55% but against a back drop of back taxes I’ll take it.  Savings were also still able to add 3.6% to my wealth, which is not to be sniffed at, even at this late stage of my journey.  Savings also continues to make the biggest contribution towards my wealth accumulation with 67% now having come from savings and only 33% from investments.  Compound interest is still not really firing on all 4 cylinders.

INVEST WISELY

Investment return for Q1 2016 (02 January 16 to 02 April 16) was a healthy 2.8%.  In 7 out of the last 8 years savings has made a greater contribution to my wealth than investments.  That theme has continued into quarter 1 with my investments contributing £24,000.

Good-bye Amlin, thanks for your contribution

Amlin was added to my High Yield Portfolio (HYP) back in August 2014.  At the time I purchased 963 shares at a price of £4.4986 paying £34 in stamp duty and trading fees for a total investment of £4,366.

When the mainstream media get excited about stock market rises and falls they always seem to conveniently omit mentioning those lovely things called dividends.  From purchase Amlin provided me with £485 of those, they were growing dividends year on year and I was a very happy camper.

Then on the 08 September 2015 Mitsui Sumitomo Insurance Company (MSI) swooped in and made a cash offer for the company.  The rest, as they say is history, with the end result being £6,452 in cash hitting my account on the 08 February 2016.  Totting that all together and Amlin for the short period held provided me with a total return of 59%.  So while I'm sad to see Amlin go I'm not too sad...

So with cash, including some new money, burning a hole in my pocket what to buy?  Market falls have resulted in the UK Equities portion of my portfolio being underweight but not yet enough for active rebalancing so I’ll just passively rebalance for now.  My strategy to build enough dividends to live off in FIRE is also still well in control so I don’t need to add to the HYP.

Click to enlarge, My Annual Dividends

I therefore purchased £8,000 worth of Vanguard’s FTSE250 ETF Tracker, VMID, to continue my plan of further UK Equity diversification.  My UK equity split now looks like:

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:

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.

SAVE HARD

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.

Monthly Financial Decisions

Here on Retirement Investing Today I talk about a lot of different themes and learnings.  As I learn I also then update some of those themes from time to time.  This might make it sound like my financial life is complicated and full of tinkering.  It’s actually the opposite of that and actually requires very few decisions on a monthly basis.  This is partly because the themes I write about cover the complete spectrum of my past, present and future investing life and partly because 8 years into this FIRE journey I now know (I hope) what I'm doing.  Let me demonstrate using November 2015 as an example.

On the Spending front history tells me that because I'm a lightweight consumer I don’t need to budget.  So I don’t.  For any purchase I do however still mentally ask myself do I really need this, can I buy less of it and is this giving me the best value for money.  Roll that into November and it resulted in 36 purchases with the lowest purchase being £1.70 for a work lunch and the highest being £1,148 for rent.  After rent and work costs (my tracked metric as this is what will be relevant in FIRE) my spending was well in control at £430 for the month.  This reinforces yet again that I don’t need to start budgeting.

Click to enlarge, RIT November 2015 Spending

My wealth is currently spread as follows:

Click to enlarge, RIT Low Charge Investment Portfolio

My Wealth spreadsheet tells me that against plan my Equities are positioned as follows:

• International Equities are 20.4% underweight
• UK Equities are 14.6% underweight
• Emerging Markets are 10.2% underweight; and
• Australian Equities are well overweight as in hindsight this was a mistake that I now can’t correct so will just let sit and spin off dividends ‘forever’.

... and that concludes the 8th year of my FIRE journey

I wandered aimlessly in the consumerist, save 10% of your earnings for the future, let compound interest do its magic (great post on this by ermine this week), with others taking care of my financial future giving me time to spend the rest, world for some 12 years before I woke up and realised I wasn't really getting anywhere from a personal finance perspective.  Sadly, early on that even included a stint in debt for a new’ish car because “I was worth it”.

A Retirement Investing Today 9 Months Into 2015 Review

There are many variables that go into a FIRE (financially independent retired early) plan or strategy – earnings now,  what can I earn, spending during accrual,  spending during drawdown, attraction to consumerism, investment types, investment returns, investment expenses, taxes now, taxes in the future, investment landscape changes, investment product changes, government changes, how much is enough, is it really enough...  I think this is why, for me at least, I've struggled a little to understand exactly when I started on my FIRE journey because it’s not one of the situations where everything is in play on day 0.  Instead it’s a gradual process of continual learning while in parallel incorporating and changing these variables into the mindset and plan.

All of that said I am a very quantitative person and so to hold myself accountable I need a start date.  I've previously locked in October 2007 as the date meaning today’s review is not only 2015 year to date progress but also represents 8 years of my FIRE journey with 6 years of it (next month at least) having been shared on this blog.

So with that out of the way let’s get into the nitty gritty.  As always I like to reinforce that unlike some who talk the talk but don’t walk the walk what you see here is my real life shown in financial terms.  Behind every number are real life personable compromises/decisions, for example higher earnings for me have meant more body stress and less family time, and mistakes.  It’s also one way, my way, of showing how financial decisions are shaping what’s important to myself and my family – a life not burdened by the need to work for The Man but instead one able to focus 100% on what’s important to us.  Is it right or wrong?  I think it’s neither.  It’s right for us but probably not right for anyone else in its entirety but I’d like to think different elements gel with different people and maybe even help others which is one of the reasons (along with holding myself accountable) I still continue with this blog after 6 years.

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.

My FIRE Number

Since starting this blog at 35 years of age in 2009 I have never revealed my portfolio values or targets in £ terms.  Rightly or wrongly I've always believed that it was irrelevant to readers given we all have different earnings, investments, risk profiles, savings rates and target retirement amounts.  This has resulted in posts that always focus on the theory and how I'm applying it but that in hindsight come across as dry and impersonal.

Today I'm going to try and change that by starting to talk in real numbers rather than percentages.  My hope is that it will up the debate a little and help us all continue to learn from each other.  I just hope it doesn't kill the community that has developed over the past 5 or so years.  Given the name of this blog and my closeness to FIRE (financially independent retired early) the amount of wealth I am trying to accrue is probably the number that is currently most important to me and probably one of the most popular topics debated/discussed within personal finance blogs and forums.  So let’s start there.

As a person who does not plan on receiving a State Pension and is not going to be receiving any sort of inheritance it is a crucial number for me as to fully FIRE it needs to be enough to last my family and I for the rest of my life.  That could be 45 or more years.  The methodology to calculate it was first devised back in 2007 when I first started on my DIY FIRE journey and went like this:

• I was renting in London, as I still am today and though of London as home
• I asked myself what a good salary would be that would enable me to live well including covering rent or mortgage payments.  That number was £30,000
• As I worked towards FIRE I would increase that salary annually by inflation.  Today that salary within my Excel spreadsheet is £37,691
• I calculated what I expected my portfolio to return annually in real terms.  This number still dynamically calculates in my Excel spreadsheet every week when I update my financial position.  That number after expenses was 3.8%.  A number I later learnt wasn't so far from the (in)famous 4% Rule

Dividing that FIRE salary by the expected return enabled me to calculate my number.  Today Excel tells me my early retirement number is £1,011,034.  To avoid discussions about me being obsessive compulsive let’s do a little rounding - I will be financially independent and have the option of early retirement with wealth of one million pounds.  My journey to the million is shown in the chart below.

A Retirement Investing Today Half 1 2015 Review

On this blog I talk a lot about my own strategy and portfolio including how I'm managing and changing them as I learn.  Importantly, this is not a demonstration strategy or portfolio but instead reflects every penny I have to my name.  The journey also now represents a significant portion of my life with me now having been on this DIY Early Financial Independence (FI) path for seven and three quarter years which is nearly 20% of my life so far.  When I started in 2007 and even when I started this blog in 2009 I had no idea if I would succeed.  Today I'm far more confident that I’ll eventually get there and I also now believe that I have a level of personal finance knowledge that will enable me to self manage my portfolio to and into Early Retirement.  Even so I’m not yet going to relax.  At some point I'm also sure I’ll need to start thinking about how to set-up an autopilot portfolio (Vanguard LifeStrategy anyone?) but that’s for another day.

This strategy and portfolio is an essential enabler to how I want to live my later life – one not burdened by the need to work for The Man but instead able to focus 100% on what’s important to me which enables both location and time freedom.  Given its importance I like to stop every quarter and in line with my Plan, Do, Check, Act (PDCA) strategy do some Checking against the three key focus areas that I believe are essential to get over the Financial Independence line - Save Hard, Invest Wisely and Retire Early.

SAVE HARD

Saving Hard is defined as Gross Earnings (ie before taxes) 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 Savings 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.  It’s a different and tougher measure to most of my fellow personal finance bloggers who don’t include tax in the calculation.

Savings Rate for the quarter ends at 53.8% against a plan of 55%.  This is identical to last quarter.  While not achieving plan in pounds, shillings and pence it’s actually 56% more than I managed in Half 1 2014 thanks in part to a healthy bonus.

Click to enlarge, RIT Savings Rate

Saving Hard score: Conceded Pass.  While not achieving a plan of 55% in pound terms I’m a long way above 2014.  Savings have also added 7.6% to my net wealth in the first half of the year – a surreal amount given I’m towards the back end of my Financial Independence Retire Early (FIRE) journey.