Why everyone should have an ISA

One thing that has always bothered me is why there are people out there who don’t have an ISA, be it cash or stocks and shares.

Whilst this has become less of a burning issue for me now that we have had the ISA allowance jump from £7,200 (when I first started saving) to £20,000 from next year, you never know what they will do in the future on this. It’s almost like not having a fridge (ok slightly extreme maybe, but…). Now I understand that some people really struggle to find any left over money for savings, but I do believe you can take almost any budget and find an area that could be trimmed back. I phrase this carefully – could. From what I have found in conversations and comments on blogs etc. a lot of people don’t want to. That’s not the same thing.

For me it is just a no brainer. It’s TAX FREE. Anything done in there means you don’t have to count it in your tax return regardless of performance (granted, you can’t take the losses on any stock sales against tax), and you can take any money from it tax free, it grows tax free, the taxman doesn’t even want to know about it (at the minute – whilst it may change, my personal view is that it’s unlikely in the near term at least). You can add money in or take it out at any time, no need to wait until you are 55 (or older).

Even if it’s only £10 a month you want to start with, shove it into something like a Vanguard LifeStrategy fund on a regular scheme. Now granted, that would buy you the equivalent of about 2p a month, at which point most people switch off (the fees take a disproportionate amount of the investment sum). Why bother for the effort of 2p a month? If you are in the position of only being able to save £10 a month, then 2p a month, going up by 2p a month will soon add up, especially with compounding. Think of it as buying yourself a pint in the future… every month… for the rest of your life… without having to do anything!

Everyone needs an emergency fund (unless your monthly passive income is so high you could buy a superyacht every month) of some sort. Whilst current cash ISAs pay an incredibly low level of interest compared to current accounts, I get why people may think it’s not worth it, but why open yourself up to that risk? If you work hard, get other income and increase your earnings you may well live to regret it in the future. Even if you put it in cash ISAs now because you can’t fill your S&S ISA – you may find in years to come you are in a position to fill the ISA, and all of a sudden also build a cash emergency fund outside of your ISA – you can then transfer your Cash ISA into your S&S ISA giving a further boost.

For me, it comes down to how willing people are to make sacrifices. I really do believe that *almost* anyone can find a spare £10, £20 or £50 a month in their budget – the question is if they are willing to make the sacrifice to get that. I hold my hands up – I know I could trim my expenses down by at least 10% of income and add that to savings, but I am not willing to – my choice, and that extra 10% will add years to my retirement date, but again, that’s my choice.

On the assumption that they do, then why not just get a direct debit setup into an S&S ISA – take a Vanguard LifeStrategy fund. If you want to be comfortable, go for the one that pays out, into the ISA, and use that to help build up further savings, or use the accumulation and watch it slowly grow. If you can squeeze say £100 a month, then you can always do both!

Yes it will take a little bit of hassle at first to set up the ISA and direct debit

In those famous words…. JFDI.

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What I have learnt from blogging so far?

So I have now been blogging for just over 3 months, what have I learnt?

Before I set up the blog, my biggest concern was having enough to write about and actually keep people wanting to come back. I knew I needed to write regularly, and so I set my public target as a minimum of 1 post per week, although I am trying to make it more like twice a week. Given the need for this volume of posts, I had decided I would start writing a bunch of posts before I even started creating the blog – if I struggled  to write enough then that would be a clear sign that maybe I shouldn’t try and start the blog. As it stands I still have a whole bunch more posts to go, and seem to get new ideas fairly regularly, so far so good!

Lesson 1: Be Prepared.

So no, I wasn’t ever a Boy Scout, I did know that I wanted to post at least once a week (my publically declared goal) in order to ensure that I had a steady flow of articles to keep people coming back to the site. As I didn’t know how much I would be able to or want to write, before even starting the blog I fired up a text editor and started writing stuff down, to see could I actually write or generate content? I knew I would have two guaranteed posts a month (Income / Expenses and Portfolio Performance) but would I find enough else to ramble about? The short answer so far seems to be yes!

Lesson 2: Don’t underestimate how much time is required

From all the blogs I have read I knew that this would need a reasonable amount of time to keep going (especially after starting to write stuff before I even started the blog) – and that continues to be the case. I’ve spent several hours this morning just writing up ideas, drafting posts, editing posts and generally getting things ready for the blog. I know this is now a regular commitment I need to make in order to keep the blog alive – and I need to guarantee I have the time to do it. I can’t commit to doing this during the week as my work life is so busy (including commuting time I can easily spend 12, 14 or even 16 hours a day in my work) so I need to ensure time is there.

I guess I am probably averaging between 6 and 8 hours a week on the blog, and I want to increase this to ensure I have plenty of material to post.

Lesson 3: Know why you are starting

Everyone has their own reason for starting a blog – if you are doing it for money then you shouldn’t start a blog! Why did I start? I have immensely enjoyed reading others blogs, and follow somewhere in the region of 40 (in itself fairly time consuming!). At present there seemed to be only a few in the UK, and only a couple that I knew of that were London (FirevLondon and Monevator – I think has a slight nod to London from time to time). I know just how expensive it can be in London and wanted to share my experience so that others can follow and realise that it is possible.

Granted, I could move somewhere else but I wouldn’t get the salary I do, nor the opportunities – and I don’t just mean work. Being able to pop into the British Museum or head to the Royal Albert Hall for a concert are real perks (I didn’t purchase one of the boxes that recently came on the market funnily enough!).

Lesson 4: Have thick skin!

One of the joys of being “on the internet” is that anyone can find your blog. I want to keep the conversation flowing so haven’t as yet turned on moderation in the comments and I really hope I never have to, but of course this means people can post anything they want, when they want. So far I haven’t had anything I would class as a bad comment which is good, but I am prepared because at some point I know it will inevitably happen.

Lesson 5: I’ve really enjoyed it!

I can honestly say I have really enjoyed it so far – now if that is just because I have changed my verbal diarrhoea from the pub to this online form then so be it – it is cheaper to sit at home with a bit of TV in the background, a mug of fresh coffee and my laptop. It’s pretty much free, as opposed to spending a reasonable amount of cash down the pub, so it’s also saving me money! I have no idea if people are enjoying it but I would like to think so!

What have you found about yourself since you started blogging? Or what is stopping you from starting a blog?

Why I couldn’t ever match MMM low lifestyle cost

So this post is most likely to get people labeling me as a complainypants and telling me to drink a cup of cement and harden the f**k up – or something along those lines 🙂 Well I don’t think I am the first, but I can accept some of the second! I accept that this means I won’t be able to do the magical retire in 10 years, but you know what, I can accept that. I have suffered from huge lifestyle inflation, but I also know that retiring to a shed in the wood and foraging for mushrooms to eat every day just isn’t me 🙂

There are a number of things that for me are not negotiable, and I accept that this will add on a good few years to my working life. Would I like to retire earlier, or even be financially free tomorrow? Yes I would. Am I willing to give up the things I do now to allow for it? No. So, no change then. I do want to keep an eye on my spending and see if I can shave an extra £50 or so a month out of it, but so far I don’t think that’s too realistic. I thought to share my view on things here to show that early retirement is still possible even if you choose to not go for an uber frugal lifestyle – you just have to recognise that the more you spend, the longer it will take.

So why am I so sure I couldn’t even touch the MMM / Frugal extreme lifestyle? I am not willing to make the sacrifices that some of the guys and girls out there do every day. So what are the key elements that are always batted around?

Housing Costs

The typical is buy as small a home as you can and keep it as cheap as possible and make it a doer-upper. So where to even start on this.

Buy a small home. This is bad enough in the UK, even more so in London given the costs of housing here. We moved from a 2 bedroom flat to a larger property – the 2 bedroom flat was too small for us, which sounds rubbish to most people I am sure, but to us it was cramped. I have absolutely no regrets about that, and in fact I am actually saving more money now than I did before, despite such a massive increase in my outgoings (i.e. mortgage). When we are not at work we do spend a lot of time at home, so comfort and space is important (don’t get me wrong it’s not a 10,000 square foot mansion in Kensington!). We like to entertain and have friends and family over, so again space is important and we can do that now.

I would still love to own a country estate don’t get me wrong, but that is highly unlikely 🙂 For now I will stick with where we are and continue to chip away at the mortgage.

The additional knock on effect is that the insurance to cover me (illness, income protection etc.) has also shot up due to the increased mortgage – but I wouldn’t want to leave our home. As I chip away at the mortgage, and my savings increase I will in the future be able to drop this insurance. So yes, I suspect I could slash my monthly outgoing on this section by 50%, but I wouldn’t want to as I wouldn’t be happy, and I do like being happy 🙂

So if you want the space, why not buy a really rundown doer-upper? Simple – I hate DIY and I am not good at it. Yes I could probably start learning YouTube clips and practice (and pay someone to come in and fix it when I make it go wrong), but honestly, that isn’t me. I’ve tried some and each time I think it will be a good idea I regret it. Really regret it.

Bills

Ok, I do keep an eye on the bills, although they are still relatively high compared to other FI’ers out there. Hands up, I don’t hustle through to find the cheapest energy rate (we haven’t changed in over 3 years), because the savings would be so minimal based on our current bills. Our Gas and Electricity bills are pretty low, and so the hassle of switching for me is not worth it for saving £10 a year. Yes, I could add that £10 into my savings, but in the scheme of things, I would rather have the hour or so back. Then you see news of some of the more minor providers going bust, I don’t worry about that. I could probably cut my mobile bill, but on a recent holiday I realised why I paid a slight premium (ok, it’s still only about £20 a month). Out of 5 mobiles, only my personal mobile worked with any consistency – others on different networks had trouble.

Groceries

I will look with interest to see how much the food for home has cost over the year, but I know of many others who live and eat far cheaper. I tend to buy in bulk (especially from farms when I can) so food tends to fluctuate, at the minute the freezers are fairly full after a recent top up, but otherwise we are generally reasonably cost efficient. Could we do it for a lot less? I suspect yes we could – I could give up meat (HAHAHAHAHA yeah right!). We do need to cut down on the amount we eat and that’s something we have been working on to a degree so that will also reduce the bill somewhat, but I suspect we are close to a level we are happy with. Even still at least it is not a huge obscene monthly bill.

Alcohol at home

Ok so a lot of the talk in the FI community is around home brew and limited alcohol intake. I know I could save an absolute fortune if I reduced the amount of alcohol I drank, and used home brew instead. Next year I do want to cut down the amount we spend on alcohol, however there is no way I will cut it out.

I tried home brew once. It didn’t work. It *really* didn’t work. It was so bad I poured it away. I also now don’t really have anywhere to put it so that’s another reason I probably wouldn’t get around to it. I do get a lot of pleasure from the wine we drink, so again that’s something I wouldn’t cut back. Could I save substantially more if I cut out booze? Yes. I would also be an incredibly miserable bastard 🙂

On the plus side I have tried to reduce the whisky and brandy we drink, so save the good bottles for a less frequent occasion, and now stick to more standards if we have already had a drink before.

By timing the offers that come up I can get some pretty good wine at a very reasonable price, but it does mean every so often I get hit with a large bill.

Eating Out

So within this I include the cost of buying my daily lunch. I don’t always buy the £3 meal deal (when I make my own lunch), but it’s definitely far more often than not, but does go part way to explain why this is higher than it may normally be. I don’t go out for meals that often, I think maybe a couple of times a month on average, so I do tend to enjoy it when I go out.

Why don’t I make every lunch meal at home? There are a couple of factors. Right now I have no fridge or microwave etc. at work, so have to take things in to work in a mini freezer bag which limits me generally to just sandwiches and pasta or rice salads (let me know any other suggestions if you have them!). I also calculated how much it cost me to make them – ignoring my time. I actually found making my own sandwiches was more expensive – albeit a lot nicer! Now I grant you my sandwiches have been legendary in size (they tend to be a four finger depth) as I need it to keep me going, so there tends to be a huge chunk of meat (expensive), some cheese, salad, chutney etc. in there.

In addition I get the supermarket reward points, and my credit card reward points at the same time! Every so often I will also get meetings over lunch where lunch is provided, so I get a free lunch then – but often I won’t know when that is so I may get it put in the diary the same day, so I get my homemade food for dinner!

I’m always happy to hear suggestions from others on this so please do let me know what you do for homemade lunches especially with no access to a fridge or microwave.

Alcohol Out

Ok so this tends to be quite a large spend, and I accept this – one reason I have tried to reduce just how much I go out. I have found I can blow through money like you wouldn’t believe by the time you have a few pints, maybe some wine and add in a bite to eat – it can soon add up. Again, I could drink tap water, but I do love the social environment and interacting and meeting new people, and here in the UK, what better place than the pub (or maybe a great little port bar?).

I have reduced the amount generally, although it is still important from a work and career approach for networking so I can’t always avoid going out, and I would say that roughly 50% of my meet ups are work related in some way or shape, but that is an investment in myself and my career.

Could I slash this budget? Yes. Am I willing to? Not completely, although it is definitely down over the last 12 – 18 months.

Transport & Cars

Living closer to where I work is not really that realistic (the apartments within a short walk are in the millions for a two bed one!), so I accept that there will be some commute, especially as my work location can change frequently.

In theory I could cycle into work (I say in theory – this is for another post!), but in reality I commute on public transport. It ought to be cheaper to buy a season ticket for the year but given the nature of my work this may not actually be the best, so I usually by a month travel card (if I am not going on holiday or there are multiple bank holidays) otherwise its pay as you go, and walking! I think the cost side of the public transport in that sense is pretty well optimised (other than cycling / jogging).

Yes, I could ditch public transport and start cycling in, but where I am at the minute that isn’t going to happen.

I do now own a (second hand) car after over 10 years without in London. Now it’s time to build up the no claims bonus. More recently we utilised Zip Car which was great, and a lot cheaper than owning a car, or we would hire one if we needed it for more than a few hours. Given the circumstances, we do now have a car although it doesn’t get used that much it is convenient to have from time to time.

I could sell the car as financially this would make sense, however for personal reasons this isn’t an option.

Holidays

So technically, is a holiday a necessity? No, in the scheme of things required to live it isn’t. For me though, FI is not just about “hitting the number”, but also how you get there. I would far rather take a few more years and explore places whilst I am physically able to (never underestimate how much hard work some holidays can be – even for a 40 year old, so I am glad I did some when I was in my 20’s and 30’s).

I love to switch off, explore new places and sites, as well as some more physical holidays, but of course these come at a cost.

Yes, I could not go on holiday for the next 5 years and really smash my savings rate but I would be such a grumpy bum it wouldn’t be worth talking to me! I try and tailor them down a little bit and certainly a lot less frequently than before but I would never take a year without a holiday.

“Other”

So this is the bucket catch all of things, anything that basically doesn’t fit in one of the above categories. Over the years I will be keeping an eye on it, and see if there are any trends (for example taxi’s I put under other) that should mean I need to break this out into more detail but for now, no.

Conclusion

Yes, there are plenty of places where I could optimise my costs and save a bit extra, but as it is I am as happy as I can be with the journey to get there. I could half all of the costs above I am sure, and knock a couple of years maybe off my retirement date, but the thing with FIRE is that it is a very personal journey – I am not willing to make the trade.

So, are you going as frugal as possible or are you taking the longer road?

What do you do for your lunches – any suggestions and recipes I should try?

January 2017 ISA Changes

So, January was a fairly active month on the ISA front. It is more trading than I have done in a long time but this was in part triggered by an off from my provider (TD Direct) to allow stock purchases at £1 (including trackers).

Stock Sale – HGM

HGM has done me proud at last, the patience was well rewarded, although it has been one heck of a roller coaster run – it has done me well and provided a great return to the portfolio. I sold out in two tranches, one at £1.45 and a larger tranche at £1.67. This was a significant profit and was forming a huge part of my portfolio so it helps with my diversification. Some of the funds were redeployed (see below), some of it is still sitting in cash in the ISA ready to be put to work at the right opportunity. As I watch the price continue to tick up, do I regret it? Naturally a little as I have “lost” a huge amount more profit however the plus side is it has removed the volatility in the portfolio. If I hadn’t sold it would now be worth around 20% of the entire portfolio – not good for a single AIM stock!

ETF Purchase – VHYL

So as part of my work to increase the tracker funds in my portfolio I purchased further shares in the Vanguard High Yield. I will continue to add more and more to this until it makes up about 1/3 of my portfolio, although this will be a drag on the overall performance I believe (or it may save me only the future will show!).

It’s quite funny really – I didn’t even look at the price of it when I bought, I just bought. I hardly check the price now either (other than on my updates) as I know I don’t need to worry, the only way it will go wrong is if the entire world stock markets collapse to nothing in which case the value of my ISA is likely to be the least of my worries!

Stock Purchase – Braemer Shipping Services (BMS)

So this has been on my watchlist for some time, and I couldn’t believe me luck when I saw the initial price, and so I bought a slug of shares at an average price (including fees and stamp duty) of £2.85. This was another great lesson in why you should not try and time the market, as what happened next? A bad set of trading results and the shares plummeted. At one point I was down about 17% in a matter of days, and a dividend cut to boot (although it will still be giving over 6% on my price). I do believe that they will recover in time, and so give it a few years and I am sure I will have another healthy profit. Even now it is slowly starting to tick back up – I am playing the long game here!

Did you buy anything other than trackers in January?

 

January 2017 Performance

So the month has ended, and so its time to take stock of the performance across my portfolios, and compare it to the usual index of choice. This enables me to see how I am doing. As I covered in my “How I measure performance” – basically I take the value of the portfolio at the end of last month, add on any contributions for the month, and that was my starting value. End value is the value at the end of the reporting period. Simples J

Portfolio	Performance	Income	Notes
Company Pension	-0.02%	0%	No income generated as all funds are in growth or reinvested
Personal Pension	1.09%	0%	No income generated as all funds are in growth or reinvested
ISA 1	-0.67%	0%	No income generated as all funds are in growth or reinvested
ISA 2	-0.61%	0%	The performance does not include the income that was paid out into my account, but is covered by the income so really need to consider both in conjunction
ISA 3	1.18%	0%	Although dividends are paid out, they remain in the ISA wrapper, and will get reinvested for growth. The performance figure includes both the Capital growth, and also income received which will get reinvested. The Income is the %age paid out by the portfolio but remains inside the wrapper to buy more goodies
ISA 4 [RP Tracker]	N/A	N/A	N/A – not yet set up
FTSE-100	-0.61%		This excludes any dividends
FTSE-250	0.39%		This excludes any dividends
FTSE-All	-0.39%		This excludes any dividends
S&P500	1.12%		This excludes any dividends
Dow Jones	0.09%		This excludes any dividends
VWRL	-0.04%		This excludes any dividends
VHYL	-0.6%		This excludes any dividends

 

So as January comes each year, it continues to be a terrible month on the dividend front. Whilst the income has still gone up significantly from last year (probably about 80%), mostly from my other half’s ISA, it is still not good. I am not about to go and buy a bunch of stocks just because they pay a dividend in January, but it does annoy me that this is always a major hit to my average income over the year! Total income paid out across the portfolios is a small statistical error sadly when compared to the total size of the portfolio. This shows the importance of understanding what income you will receive over the year and ensure that you able to cover the bad times as well as the good.

So overall not a bad month again in terms of performance – but it does remind me I need to update my portfolios page to show some of the makeup of my other portfolios. I continue to be amazed by just how fast my overall investments are going up – and it encourages me to try and invest more.

It does seem that my IFA does better with a much larger pot than a smaller value given how my pension performed compared to the ISAs and they are a pretty similar split.  I am still delighted with my performance, and there were some changes in January which helped, which I will go into in another post.

Over the year I haven’t put anywhere near as much as I should have in my actively managed ISA which means I could have added quite a lot more to my total value, but this is going to help me focus next year, especially with the Go T’ Pub ISA.

How was your January? A good performance, some good dividends or just continuing to tick along?

Notes:

Company Pension: This consists of a number of actively managed funds – I don’t have any choice of trackers etc, but I will take the matching, that will more than cover the fees, and I will just live with it.

Personal Pension: This is managed by my FA and contains Actively Managed funds. I continue to contribute each month and the contribution is included in the performance – before my FA has taken their cut (e.g. if I put in £100, and they charged me £5, so only £95 went into the account, I would still class that as £100).

ISA 1: This is also managed by my FA, but no new contributions going in (nor planned).

ISA 2: This is also managed by my FA, however it’s slightly more complicated than that. There are 3 sub portfolios within, each of which have funds added each month, but each portfolio has different levels of contribution.

ISA 3: This is the ISA I manage myself. The last contributions added to it will be this tax year, 2016 – 2017 until some of my other ISAs have grown to a similar size

ISA 4: This is the Go T’ Pub ISA that is being held for now for reference, but will start from the new tax year in 2017 – 2018