Mrs YFG: why financial independence is not retirement

Mrs YFG here. Mr YFG allows me to post now and again (how kind of him).

Mrs Frugalwoods was featured in the Guardian recently. Being an avid fan, I read her article (nothing new to me as a dedicated follower). I don’t know what possessed me to then scroll down to read the comments, but I did. And promptly got offended on her behalf and closed the article. Most of the comments were of the vicious jealousy type – well it’s alright for her, she had the income to begin with. Nobody else is fortunate enough to do this (completely missing the point that reaching FI is about your saving-expenses rate, your actual income is mostly irrelevant). Many of the commentators sniped that she wrote a book and still earned a little money- that’s not retirement, that’s mis-selling. They missed the title of the book and the point : financial independence is not retirement.

Retirement, to me, is a complete step away from the workforce – not working in any paid capacity. This is not what I want from my life, and yet it is the general consensus in society that you stop it all at 65 and get to enjoy your life then. Working (exchanging my skills and time), whether paid or not, makes me happy and helps others at the same time – I love to help other people. Retirement for me would quickly lead to depression – not because it’s awful, but because of the way my mind works. I need to be needed. I think Mr YFG is wired very differently. He can easily occupy himself with fleets of fancy for days (or even weeks) – and doesn’t tend to mind if people don’t agree or seem interested in what he’s doing or the same things as him – all that matters is if he’s interested in it. I think we both like to do things that help other people. However, its clear that ‘retirement’ and FI are very different for both of us. When it comes down to it, FI is a very personal journey specific to your beliefs.

FI, getting to a point where I have enough saved to live off passive income for the rest of my life, is a state of mind. Reaching FI does not mean I go “fuck this shit” and quit my job and never look back. It means that I can, for the first time, make choices based on what I want, not constrained by the need to maintain a certain level of income. If I choose to work, I have flexibility to choose a job which fulfils what I’m looking for. Whether this is a job in the legal sector is irrelevant. Where I don’t choose to work, I can volunteer my time for others (which is the most important thing for me).

In an ideal world, I would work part-time whilst providing a much needed babysitting, pet sitting, baking, mothering and counselling service for my friends and family. I would be a part-time fairy godmother. The part-time work would enable me to maintain my link to some emergency funds (if it all goes tits-up) and I could reduce the cost burden on others by helping them out with my time for free. For Mr YFG, I think FI means him doing less stuff that annoys and frustrates him (which includes working for other people or doing what other people say) and him doing more stuff that he likes (learning about things, and sharing what he learns with others). Whilst I couldn’t bear the thought of never working again, I think Mr YFG could live without working. In that sense, I doubt I’ll ever fit “society’s” definition of retirement. But that’s fine, because its my personal journey.

Some of the comments on Mrs Frugalwoods article seemed to reek of jealousy. Susan Cain, in her book Quiet, writes aptly on envy: “Pay attention to what you envy. Jealousy is an ugly emotion, but it tells the truth. You mostly envy those who have what you desire.” I have no doubt that many of the commentators would like to live a life like the Frugalwoods, but for whatever reason can’t or assume they can’t. Many comments under the article quickly jump to: “well that’s good for them, but not what I want – so this is all rubbish”. I think that’s a shame, because we can learn a lot from other people and the stories of their journeys – regardless of whether we want that journey for ourselves.

Separating the two concepts of FI and retirement can be difficult. I think in part because the mainstream media doesn’t have a concept of FI – you either work or you don’t. But understanding that the two are both very different and very personal is the key to understanding what you actually want in life.

Learning to DIO – do it ourselves

Having money, or at least earning money, sometimes makes people pay for things they could do themselves but they just don’t want to. They are not just paying for things they are physically (or otherwise) unable to do.

Our friends and colleagues (able-bodied, intelligent people) have cleaners, nannies, gardeners and private laundry services. They get their food delivered, packaged and ready to be cooked (or already cooked) delivered to their door each evening. Generally speaking, they always have somebody they can call if “something goes wrong“.

They do not need any of these things – they would just prefer to spend money than take the other route: doing it themselves. That is fine if they value that trade, but we try to do things ourselves and expend a bit of effort to save the money. What’s more, by doing it ourselves we learn and gain valuable experience in getting things done.

Cleaning and laundry

Luckily, the YFGs don’t mind cleaning their house. Mrs YFG likes doing certain things and I like doing other things, and we are perfectly happy to put in the effort to clean our own home. To be fair, we couldn’t probably afford to pay someone enough to clean our house as often, or as thoroughly, as we do.

We of course do our own laundry, except for the two items we dry-clean per year (we deliberately try not to buy dry-clean items). Me not wearing suits helps immensely with this – I appreciate that a job that requires suits often requires those suits to be dry-cleaner.

We are amazed at how many of our colleagues would pay for cleaners, gardeners, nannies and laundry services. Often, they’d be working half of their day just to pay for the army of paid helpers doing things easily within their grasp.

DIY

One of the things I vowed to do when we bought our house is if there was a problem I’d try to work it out and fix it first (provided it was both safe and somewhat within my abilities to do). Not only has this saved us thousands of pounds in tradesmen costs it’s meant that we’ve often got things sorted out much more quickly.

There’s another benefit beyond just money – that is over the years I’ve learnt to do much more “DIY”. When we first moved in I could barely hold a screwdriver. Since then, I’ve repainted the whole house, re-hung most of the doors, re-felted the shed roof, wired in new sockets and light fittings, landscaped the garden and replaced old waste pipes. It wasn’t all fun and games, lots did go wrong and there were many swear words (and no doubt there will many more). But generally speaking its given me a lot of confidence and ability to sort things out before they become a problem. That doesn’t mean we haven’t had skilled tradesmen in – for our dodgy boiler, for a partial re-wire, and fixing out leaking roof – and I’m becoming more aware of my circle of competence.

One thing I’ve found when getting skilled tradesmen in is that the good ones love to talk about their job. If we have works done, I usually watch them (and often times help where I can, usually lifting heavy things). Most of the time they will enjoy answering questions and telling me what they are doing and why. I’ve learned a great deal about how electrics work, how boilers work etc.

Knowledge and experience

This leads me onto the second part of Do It Ourselves – not only do you save money, but you learn how the world works. I was quite disappointed to read one of Financial Samurai’s latest pieces about why “middle class” American’s need $300k to live a “middle class lifestyle” (I once thorough enjoyed Financial Samurai’s pieces, but must confess they no longer do it for me). From that piece (and the associated comments) as well as what I have learned through my American friends is that the US seems to be the land of ultimate convenience. There’s almost nothing in these “middle class” societies that you could want or need that you can’t buy or get through cheap labour.

Whilst that doesn’t necessarily mean I think everyone should be doing their own electrics and plumbing – I think that by not even doing the basics of human survival yourself you lose touch with the real world. By that I mean, you lose the ability to work out problems, you lose your natural instincts towards self-sufficiency and perhaps most importantly of all you lose the ability to emphasise with anybody else but your own small bubble of peers. By working things out for yourself you learn to appreciate how hard people other than yourselves work and the wealth of knowledge and experience they have. Having dug out and laid a small garden path, I now much more appreciate how hard landscapers work!

Wilful ignorance

I don’t like to delve too much in to politics, but the thing that worries me most about people like Trump getting elected is that, using him as an example, he has never had to “do anything” in his life. I doubt he’s ever done much physical labour, tried to fix his cars or ever clean his own home. You might, and quite rightly say, why does not being able to change a light-bulb make you unqualified for being president? My response is that it is the wilful ignorance underlying that inability – not caring about how things work and why – that is the issue.

Closer to home, we’ve seen the gutting of the public sector (I am by no means a “big government” type so bear with me). Many government departments and councils have limited to zero architectural expertise (in the 50s London alone had some 1,500 council architects). I bet even fewer have specialist economics or valuation staff (I know, because various government were major clients of my old firms). Why would they? They can always pay for some contractor to do it. But willingly losing all that knowledge has limited our ability to work out whether something is a good deal or not. I have no doubts that the tragedy at Grenfell or the calamities in our rail system are because the people appraising the underlying contracts and service agreements have little expertise in spotting issues that only an expert would see.

Price of everything, value of nothing

My main occupation during my career was valuing things. My job was often to work out whether investments were a good deal or not. Much of that boiled down to understanding how businesses worked, what made them succeed and how people think. It was about looking past the price and understand intrinsic value. I think achieving FI for many people is so difficult because we have a society that readily “pays the price” via conspicuous consumption but willingly makes finding the true value of things difficult. Mr Ermine at (now) Simple Living in Somerset wrote a post about batteries that has stuck with me ever since (you’ll have to trust me on this one). In the post he describes how Poundland touts those cheap £1 massive zinc-chloride battery packs – but he knows through his life experience that these are “old tech” batteries that are rubbish. The slightly more expensive alkaline batteries last multiple times longer and are far less likely to damage your electrical goods. Yet every-time he (and I) go into Poundland I see customers gleefully grab the cheap crappy batteries even though they are getting ripped off. All they can see is price, they can’t see the value.

This leads me back to Do It Ourselves. When you outsource your whole life to other people you lose so much value – both in the short-term, through letting your paycheck slip through your fingers, and in the long-term, by losing the ability to get things done and learn valuable skills. The price may seem small, with unskilled labour “cheap”, but the cost is so high. I think a huge part of reaching FI is realising the value in self-sufficiency – that being waited on is both damaging to your wallet and you as a human.

All the best

Young FI Guy

Why we don’t own a car

One of the key reasons that we are on their way to financial independence is because we don’t own a car. That’s because cars are ridiculously expensive. After tax, insurance, maintenance, fuel and parking we are talking thousands of pounds a year. And that’s before you even think about paying for the car itself.

The real reason we buy cars

I’m sorry to say this, but there is usually one reason anybody buys a car (I’m not talking about vans or work vehicles here) and that is because we are impatient. We buy a car because we can’t be bothered to walk or bike, or because we want to save time compared to public transport. It’s entirely possible for most people to walk or bike several miles to work, it’s just that we value our time more than the exercise!

But we don’t consider the rest of our time this valuable…

We (as a society) waste huge amounts of time on the internet and social media. On average we spend hours each day watching TV. Why are we so precious with our time when it comes to travel but not with stalking our ex on Facebook? It’s because we’ve got in a bad habit. Mr Money Mustache calls it the Clown Car Habit – we feel it’s so necessary to be able to hop in a car and ‘do stuff’ that we forget whether that stuff is worth doing. We see thousands of people each weekend trapped in their cars in horrific traffic – wasting away their precious weekend hours in abject misery.

And it’s completely unnecessary

Let’s be very clear- we are urban city-dwellers who live in the commuter belt and rely on our public transport season tickets, and local taxis, to get us anywhere we want to go within London. We are blessed with a public transport system that is good enough that we don’t require a car to commute to our jobs or to visit our friends. But even in rural areas (where Mr and Mrs YFG are both originally from) it’s not unusual to see lovely ol’ boys on their bikes or to have a community of great taxi drivers.

We do sometimes need to transport bulky items, pets, people, or go into the countryside or simply go for dinner. Instead of hopping in our car, we book a taxi or hail a black cab. We moved house without a car, there are plenty of people who can offer you a car service and the business is booming. Not to mention, most of our friends and family haven’t kicked the Clown Car Habit and seem eager to have an excuse to use their expensive asset.

But it’s expensive to pay for taxis!

It would cost us £200 per month (£2,400pa) to lease a car that would do what we needed it to. We then need to insure it (£800pa), pay UK road tax (£200pa) congestion charge, parking charges and servicing. We would have to pay for petrol (£1,000pa) plus any repairs or maintenance (£100+ pa).

We cannot use the car for commuting. It’s not about cost- there is simply nowhere to park it at our office in Central London. Because of this we would have to pay for public transport to commute regardless of whether we had a car as well: A season ticket for Mrs YFG is £2,400pa.

Compare the additional cost of a car to the £1,000 we spend annually on taxis, and you can see which way the numbers favour.

Mrs YFG commutes to and from work five days a week for an hour each way and we have no plans to waste our precious evening time driving anywhere. We would only use the car on a weekend or if I had the urge to go anywhere in the day (I don’t).

We have no driveway so we could not guarantee we could park the damn thing if we did drive it anywhere.

  • Big shop/bulky items? Everything is delivered now, with a smile (if you order from Ocado).
  • All the shops we need are within walking distance or provide a delivery service.
  • No children, no need for car seats or space to carry their shit.

Plus there are perks

Number 1, it’s a biggie. We drink as much as we want and travel home in comfort – no designated drivers, no morning after to get the car.

Number 2, driving involves other people. Other people are rubbish drivers. We can watch in the back of the car as White Van Man causes chaos on the roads.

Number 3, if you ain’t driving you can do other things, like having more time to stalk your ex on Facebook.

So, you say, after being a miserable bugger, can’t you admit there are benefits to car ownership?

Possible benefits

All the above applies if you don’t need a car for work. And I mean need. I’m talking professional drivers, delivery men, or people who need vans. I can understand that in these circumstances you need a vehicle – especially vans which have the added benefit of being a mobile storage unit. If my future self-employment involved driving or required me to drive then sure, I could probably see the point of having our own car. But until then we’re going to avoid the unnecessary cost of a car.

The Trap of the Firm

If you’ve ever seen The Firm, a classic movie starring Tom Cruise, you’ll know where I am going with this. Tom plays a bright, young, bushy tailed lawyer dropped into a prestigious law firm where life seems sweet – until he realises that he is trapped and The Firm isn’t all what it seems…

Mrs YFG and I both, for many years of our lives, were absorbed into our respective Firms – legal and accounting. Whilst training in a profession and securing a job in a competitive industry is a big achievement, the reasons for doing so often don’t appreciate how much you give up of yourself in return.

The Firm finds you when you are young at university. At 18 or 19, you’re lured by the bright shiny offices and the promise of luxurious salaries and the badge of honour. You carry a shoulder bag or rucksack with the name of the Firm on- you have been chosen. As a penniless student you’re desperate to secure any kind of income for when you graduate – the numbers look fabulous.

You graduate, with your contract safely signed. You know you’re going to the Firm, you’ll be taken care of. As long as you give your time, your energy and your effort to the Firm. The Firm owns you, but they’ll make it worth your while – you’re in the family now.

If you work hard enough (according to arbitrary rules of the Firm), you get rewarded. The Firm shows you how many hours you are charging to clients and urges you to beat targets of billable hours, beat your personal best. More billed hours means more pay, and more pay means you can reward yourself with Things for working so hard for the Firm. Maybe you can buy beautiful clothes and have a beautiful house and a beautiful wedding thanks to your salary from the Firm.

You never have to leave the Firm’s office. The office has a gym, beds, an in-house doctor and beautician, a gift shop, restaurant, dry cleaner, chauffeur service. Everything is taken care of. Organise your house insurance and your mortgage with the help of the Firm, keep it in the family. The Firm will even start on the young’uns from when they first walk – they will arrange your childcare at their free creche. Your kid is part of the family now.

For years, Mrs YFG has been indoctrinated into the Firm. She feels a need to deserve or earn her salary – the Firm looked after her, now she has to demonstrate her loyalty. She feels guilt if she doesn’t work as many hours as her colleagues who must think poorly of her for slacking. Their soldiers associates are out earning and hustling, she’s gotta step it up. She sees the hours as normal, everyone does it. It’s just a part of life and the bargain she struck for her pay. She can’t complain.

Granted, it’s a choice and not a choice that everyone can, or wants to, make. But neither of us truly considered what we wanted before we signed up ten years ago. We mentally and physically exhausted ourselves working under the assumption this is just what society expects of us. We don’t want to waste the advantages we have had, instead we want to maximise them- stay at the Firm because we want to (not because we are afraid to leave).

You come to realise that it ain’t all its cracked up to be, and your priorities at work change. The unyielding loyalty to the Firm dies and you now plan for a better future – outside the confines of the office. But even if you continue to work hard, and perform at the highest level, the Firm knows and will treat you like a spurned lover (usually through the soul-crushing annual review process). It knows it can no longer play on your insecurities to keep you in line. And it’s clear that the loyalty was only ever one way. On reaching FI I could see the machinations all around me in the white-collar world – and that I didn’t want to be part of that game. Perhaps it’s just me, but I will never be comfortable being forced to justify my existence every 12 months. In FI everything has flipped around – that world has to justify itself to me and my precious time.

 

All the best,

Young FI Guy

Pensions & ISAs – the basics

I was recently asked on the the excellent Monevator website what my thoughts are on pensions and saving for the future. I hope this post can give you a rough guide to how pensions and ISAs work in the UK and give you a rule of thumb about how to start using them to achieve your financial aims! I’ve included ISAs as I think you can’t understand one without the other.

 


 

When I was 16, nobody explained the concept of a pension or an ISA (or income tax, for God’s sake – yet we teach kids about Oxbow Lakes???). The second step in sensible financial planning is understanding these concepts.

Wait! What’s the first step?

Before we start on pensions and ISAs you have to understand your first step. The first step is:

Have a financial and life aim

By that, you need to ask yourself: What do I want to achieve in life? Why do I want to achieve this? Where do I have to get to financially to achieve this?

An example:

John wants to have two children with his wife and have a stable, permanent home for him and his family to live in. He wants this because he wants to give a stable upbringing to his children.

 

Without being Captain Obvious, John’s going to need a lot of money to do this. He’s going to have to save up money to put down a deposit for his house. He also has to be able to access that money. But he might not need to access any savings for a number of years. He will also need to have a stream of income when he and his wife have kids. And he will likely need to have some level of savings for one-off expenses relating to raising his children.

This also helps us address the four key factors in saving and investment. These are:

Risk tolerence, Time-horizon, access and affordability

Risk can be defined in a huge number of ways and the financial services industry has devoted sagas to what risk means. But broadly speaking, what matters is Risk tolerence – what risks are you willing to take to meet you financial aims.

Time-horizon – this is the time you have over which to meet your financial aims. Generally speaking, the longer away you are from your aim, the easier it is for you to swallow risks.

Access – this is whether you may or may not need to access your savings and investments. Generally speaking, the higher the likelihood you will need to dip into your savings pot, the lower your risk tolerence will be (to avoid making potentially large losses).

Affordability – this is whether you can actually afford to make the savings and investments you plan (i.e. what you are able to sacrifice spending today to be able to spend tomorrow). You won’t be able to afford to save everything – so you need to start prioritising how and what to save and invest.

As you can see these four concepts are interlinked.

The Second Step: Pensions and ISAs

Pensions

If you’re faced with your first “real” job, the offer of a pension may seem daunting. In the UK, the vast majority of workers over age 21 will be offered a contributory pension arrangement (where your employer pays into a pot of money which is invested until you retire). These are called Defined Contribution (DC) schemes or in old language, Money Purchase schemes. Generally you have to wait until you’re 55 to take this money – however the Government is currently thinking about increasing this age, and it has done in the past. Until then you can’t get your hands on the money and do what you want with it. At the moment you can take the entire amount in cash thanks to the now famous Pension Flexibilities (that thing the media keeps saying about pensioners spending their money on Lamborghinis). But when you take the money out, you get taxed on it.

The first question for a millennial is then : why wait till age 55? Why not just keep the money I would have otherwise put into a pension and enjoy it now? Because of three things: employer contributions, government reliefs and compound returns.

The first benefit is if your employer contributes to your pension (i.e. you pay in 5% and they match your contributions) then you’re getting free money. Literally free money. If you don’t pay in that 5% you aren’t going to get the money in lieu- it’s a quid pro quo deal. Not paying in means you’re losing out on money from your boss.

The second benefit is that the government effectively gives you back any tax you’ve paid on your salary if you put it into a pension. There are some caps on how much relief you can get, these are (in basic terms, the allowances are very complicated and the exact allowance you may have will depend on a large number of circumstances):

  • The Annual Allowance – which means you only get tax relief on the first £40,000 you put into your pension. This gets reduced down to £10,000 for very high earners by something called the Tapered Annual Allowance (which I won’t expand on for now as it’s painfully complicated).
  • The Lifetime Allowance – which means you only get to keep your relief if, when you come to take money out of your pension, the total of all your pension pots is below £1,030,000 (for 18/19). If you go above this, then HMRC will charge you a hefty penalty tax.

The Government also give another sweetener for those willing to put into a pension, that is when you take out the money you usually get to take 25% of it tax-free!

The third benefit is that as your money is left in a pension for a very long time you start to get “compound returns”. That is, returns on returns. Over 20/30/40/50 years, the compounding effect can become enormous. This is sometimes called a “snowball effect” – as a snowball rolls down a snowy mountain side it picks up more and more snow and gets rapidly bigger. A pension’s biggest weakness – that your money is trapped for a long time – is also its biggest strength. By not being able to touch your money you can’t prevent your snowball from becoming an avalanche.

As a second option, there are Personal Pension Plans (called PPPs) and SIPPs (Self-invested pension plans). These work much like a workplace scheme, except you put money in from your after tax-earnings. HMRC then automatically add 20% to whatever you put in (you have to claim the extra 20% if you are a higher rate tax payer via self-assessment or by application). You then select your investment option from a list of available investments – which are typically much broader than for workplace pensions, particularly so for SIPPs.

But there is a big problem with pensions. That is, because your money is locked in, you are at the mercy of the rules the government comes up with. You would think that, as the government wants people to save, it would try to keep the rules as consistent and as simple as possible. Unfortunately, that is not the case. Politicians have continually meddled with pensions and its clear they will continue to do so. When I speak to people, my general guidance on this is:

Think up your rough retirement date. Say its 20 years away. Between now and then there will be at least 4 governments. Now imagine the worst possible government (for your financial aims) that you could get during that time (or Donald Trump…). If you put your money into a pension, you are completely at the whim of that government. Could you live with that arrangement?

 

Usually this scares people a bit. And at this point it is should be clear pensions can’t be the only answer. That’s where ISAs come in.

 

ISAs

An ISA (Individual Savings Account) can either be a cash ISA (an account which earns interest at a set rate) or a stocks and shares ISA (you put your money into pooled investments linked to the market). You can only invest a certain amount into any ISA/s in one year – capped at £20,000 in 18/19. The earlier you open an ISA the longer you have to build up your snowball. You can also take your money in and out whenever you want subject to the cap – however, most places now offer “Flexi-ISAs” which allow you to take money out and put it back in and not lose part of your allowance. With an ISA you don’t get tax relief on money you put in. But, money you make in an ISA is tax-free – both income and gains. In effect, its like a ghost to HMRC.

HMRC don’t like ghosts and so George Osborne came up with a bastard-child of ISAs and pensions called a Lifetime ISA or a LISA (primarily because the treasury gets to hold on to tax money for longer if you put it in a LISA). You can only put £4,000 a year into a LISA (and that counts as part of the £20,000 above). But the government gives you a generous 25% bonus on the money you put in i.e. for every £100 you put in the government gives you £25. In addition you won’t be taxed when you are able to take money out of a LISA. But the government aren’t (always) in the business of giving out free money. There’s a catch – and it’s a big one. You can’t touch the money until you are either 60 (yes, that’s older than for other pensions) or to buy your first home (and in true government fashion, there is a huge small print on what homes can actually count, so you have to be very careful if this is what you are planning). Strictly speaking you can take your money out of a LISA, but there is a huge penalty for doing so and it would be extremely inadvisable to do so. One final catch is if you are over 40, you can’t open one. Sorry – you’re out of luck.

With all that out of the way, let me present the YoungFIGuy Pension and ISA Super Table! (it’s not that super, don’t get your hopes up). Please note, and I have to say this, I’m not an FCA authorised financial adviser. The table below is a rough guide/rule of thumb for information purposes only and should not be considered financial advice. The table may contain incorrect information or mistakes. You should do your own research or speak to an authorised financial advisor or financial planner before making any and every investment decision. If you make an investment or decision on the basis of any information you do it at your own risk.

I have spare money and want to save and invest for my future what do I do? Note: this is rough guide – what is best for you will depend on your exact circumstances – I would always recommend seeking the advice of a personal finance professional
      Pros Cons
1 If you are employed, contribute to your workplace pension up to the amount that maxes the free money from your employer If you are not an employee go to 2 – FREE MONEY

– Generous tax reliefs

– You can’t meddle by taking money out

– Your money will be tied up until at least 55 – check access requirements

– The pension investment options can be expensive

– There are usually limited investment options

2 If you do not own or have never owned your own home and you plan to do so, max out your LISA.

(Subject to the type of home you are buying qualifying for the scheme)

If you own or owned a home, or the home you’d like doesn’t qualify go to 3 – Very Generous tax relief

– You’ll get access to your money before any pension

– Lots of investment options: from low risk to high risk

– Some homes and some situations mean you won’t qualify to withdraw to buy a home, then you can’t withdraw until at least 60 – check access requirements

– You are at risk the government changes the rules on you

– Not as widely available as pensions and ISAs

3 Max out the rest of your ISA allowance   – All income and gains are tax-free

– You can access your money whenever you want (and put it back in with a Flexi-ISA)

– Lots of investment options: from low risk to high risk

– The total tax relief is not as good as for a LISA or a pension

– You are in control, you have to have the discipline to not take money out on a whim

4 If your company offers “salary sacrifice” and they give you any national insurance savings they make by paying money straight into your pension, then contribute as much up to the Annual Allowance (AA) If your employer doesn’t offer salary sacrifice got to 5, if you’ve maxed your AA go to 7 – You get an added bonus from saving NI contributions

– Generous tax reliefs

– You can’t meddle by taking money out

As under 1
5 If the annual costs for investments in the company pension scheme are less than 0.5% then contribute as much up to the Annual Allowance If the costs are above 0.5% you can generally speaking invest for less in a private pension or SIPP – Generous tax reliefs

– You can’t meddle by taking money out

As under 1
6 Invest into a private pension or a SIPP up to the Annual Allowance if you’ve maxed your AA go to 7 – Generous tax reliefs

– You can’t meddle by taking money out

– Lots of investment options: from low risk to high risk

– Your money will be tied up until at least 55 – check access requirements

– The pension investment options can be expensive

7 Well done, you’ve saved a bollock-ton of money! At this point there are a number of tax-efficient and non-tax-efficient options available, you should speak to an Independent Financial Advisor about which ones might work best for you

 

If you have any thoughts, suggestions or questions, please feel free to leave a comment!

All the best,

YFG

Why we don’t want children

Mrs YFG and I don’t have, and don’t want, children. We are unusual among our peers as a married young couple without a plan to create small humans.

We had assumed when we were dating, blindly, that we were going to have children as that’s “what you did“. We didn’t have the “conversation” until we married and people started dropping hints (some less subtle than others). After seeing our friends have children and, frankly, seeing their lives, it wasn’t something we wanted for ourselves. We’ve experienced our own childhoods, and spent enough time with enough children to understand the difficulties – financial and otherwise – in raising them. Also, to be fair, children don’t get a choice in whether they enter the world or not. The choice is made for them, for good or bad reasons. We prefer to help the people already here.

And this is where we receive the following remarks…

Oh but you would make such good parents!

Yes we would, probably. We would also make good landlords or teachers, but we don’t want to do that. Arguably, the most important part of being a parent is wanting to be one, which we don’t.

Surely you want to leave your imprint on the world?

Some people would like to continue their family to remember them, which is a nice notion. This isn’t something that inspires us. Mrs YFG and I want to leave our own positive imprint on the world, we don’t need children to do that.

What if you change your mind? You might want children later on

We might well do. And at that point we can reassess and there are plenty of children already existing in the world who need a home – through adoption or fostering. Time will tell.

But as a woman Mrs YFG won’t fulfill her motherly destiny if she doesn’t have a child?

As Mrs YFG would say: “F*** off“.

Who will look after you in retirement and old age?

The plan is not to depend on anyone else to care for me – the purpose of my birth was not to care for my parents. It’s an incredible responsibility to give to somebody who has no say in the matter, and we don’t feel that sense of duty to our own parents. We love our parents, but neither them nor us would want to be destined to care for the other. We plan to pay for our, and our families’, care later in life and hopefully care for each other. We’re not banking on anyone else.

Do you hate children?

On the contrary, we love children – we just enjoy being able to give them back (especially when toilet trouble happens). We have multiple godchildren and friends’ children and we love them all. Our childfree existence provides babysitting, personal shopping and entertainment services. We give good gifts and can provide a source of pocket money in future.

Won’t it make you jealous seeing other people enjoying their babies and children?

No. Other people are jealous of our lie-ins, weekend brunches and our clean, sharp, flammable objects in our house. We have a beautiful, clean home. We get to do what we want when we want: cooking and reading and generally hanging out. We make decisions which will objectively improve our life. Having a child (or a dog) for that matter will not improve our life right now.

What is your life’s purpose if not to have children?

To be happy human beings, and enjoy our limited time on Earth, preferably helping others throughout our life. If we couldn’t have children at all, this choice would be made for us. Some people don’t get the choice and we are grateful we have the choice.

I know what it’s all about – it’s cost saving – you exclude children so you can get to FI quicker

Well, that’s kind of obvious- children are the most expensive thing in life. But you can still piss away all your money whilst not having children; or you can have children, be frugal and reach FI. It’s a matter of personal choice.

The hidden costs of being a professional but it’s still the best thing you can do

When people think of being an accountant (me) or a lawyer (Mrs YFG) people think of the end result: the identity, the ego or the income. That social status.

What they don’t often consider is the true cost of obtaining and, crucially, maintaining, that lifestyle.

There are two things which hold many people back: sunk costs, and lifestyle creep.

Sunk costs

Training is expensive. First your university fees (in the UK these are currently £9,000 per year plus living costs). Take three years, or four, or five if you do a masters degree. In uni if you are lucky you will sign up for an internship ,or for lawyers, a training contract, which is your golden ticket to qualification as a solicitor.

If you’re not lucky, or you decide to self-fund then your vocational course will cost you between £10,000 – £20,000. That’s without a guaranteed job at the end.

If you do get a training then you will be paid to train for several years. Depending which firm you go to, the salary varies wildly.

Once you actually do the training and qualify as a solicitor, you still haven’t got the job at the end, you have to apply to stay at your firm or move elsewhere. Most accountants who start as auditors leave to find a job that isn’t soul-crushingly dull.

That’s when the real work, and the real pay, starts…

Lifestyle creep

However, more money = more things you can afford. Most of Mrs YFG’s colleagues and friends have, naturally, increased expenses in line with their income. Promotion means new house, more salary bigger car, and rewarding yourself for all that hard work. After the tax and the frills, the pay-rise has all gone. You’re no closer to freedom, you’re trapped in a hamster wheel.

And so it goes on. Kids, houses, holidays, cars, nannies, private school….lifestyle inflates to meet salary so that salary becomes essential to leading your life. You need to work to afford the nanny you pay so that you can go to work (!?!).

Mrs YFG has never understood this and so she’s always been understanding of my FI obsession. But changing lifetime habits is hard. After about five years she realised that these things didn’t make her happier, or make her job any more bearable. Buying items didn’t make her more content or satisfied with life. Rewarding herself with a bulk purchase for surviving another week of work didn’t fix the problem- it just made sure she still needed to keep working to self-medicate with things.

The hidden side of lifestyle creep

The hamster wheel means that you lose track of why you do what you do. Earning more money, or just simply working becomes the means and the end.

Mrs YFG is three years into the real work, and she’s already struggling to keep happy. She works long hours with unreasonable demands and the job is tiring. Whilst the job can be enjoyable in itself, it’s not exactly what she wants to do forever. She’s worked hard and trained for six years to get to a position where she can say she is a solicitor. That social status, the identity and the ego traps you. She’s funnelled her energy and life into one profession where she thought she could go the distance, and now has realised that she doesn’t want to finish the race.

When I started to get more senior I was starting to deal with more middle-management, politics and bureaucracy – in other words, un-fun stuff. I was spending more time doing these energy-wasting things than doing my real job. So I said screw it and left.

Over the past couple of years Mrs YFG has come to realise that what she really wants is freedom. It’s got real and she has seriously committed to the FI lifestyle after seeing how happy I have been after I left work. But now she has to effectively make up for lifestyle creep over the past five or so years.

But becoming a professional is the best thing you can do…

So I’ve said how costly being a professional is, but getting a profession is without doubt the safest way to become financially independent. That’s because getting a profession is like working your way into an exclusive club. You’ve got to spend a lot of time, money and effort to get in: through training, bending the knee to superiors and working hard (just like having to queue for a long time and weasel your way onto a guest list to get in the club). But once you are a professional, you’re almost guaranteed a minimum salary, your professional body will help you to keep up your skills (and make you more valuable in the workplace) and means you are unlikely to go without work. As an accountant, there are no shortage of jobs I get offered for great money. But I’m not just talking about office jobs. One of my best friends is a carpenter, he always has a backlog of work and continually has to turn people away because he’s so busy (whilst making a great income and doing a job he loves). Ask any builder – not a single one will say they are quiet!

… But avoid the bad costs

So becoming a professional is great if the only costs you pay are those sunk costs. Really they are an investment in yourself. But that investment can be diminished by bad costs – the lifestyle creep. You lose track of why you started doing what you were doing and you start to lose the passion for what you do.