Part 11

Introduction

Hello and welcome back to Mortgage Advisor on F.I.R.E.  We are now in the first full week of 2020 and it is still so bizarre to think we are in 2020.  In some ways it feels as though not much has changed in the world since 2000, which as a child I always thought was so futuristic, but we now have extremely powerful computers that fit inside our pocket with access to the history and entirety of human knowledge.  We have wearable tech such as watches and VR headsets.  Yet, despite decades of awareness we are still destroying our planet.  The fires in Australia are heart breaking and although the situation is more complex than Climate Change = fires, the fires are a stark reminder of how fragile our planet is.  For all the despair, I have some hope that technology will be our saviour.  Turning most road vehicles to electric with an increase in nuclear and green energy is the way forward.  It’s going to be a generational project and a race against time to see if the technology can integrate itself before we reach a critical tipping point in the planet’s ability to heal itself.

​This week I will be discussing another story I read in The Guardian about how to manage debt in the new year.  I will also discuss a concern regarding my upcoming purchase of BTL property with my business partner.  First, however, I will update you on my week and look at a significant improvement in my finances from last week. 

Weekly Update

I did something this week which some readers may see as controversial.  I placed a bet, but it’s not like any bet I’ve placed before.  It’s a bet on myself.  There is a company out there called Healthy Wage which allows you to bet on your own ability to lose weight.  You must have your weight verified through a video recording process and then you choose how much you want to lose and over what period, and Healthy Wage offer you odds.  I thought about whether this was something I was comfortable with, as someone who has had issues with gambling in the past, but as I thought through it, I realised that this type of wager has a fundamental difference to betting on football.  With a bet on the football, I have no control over the outcome.  It is a gamble in the truest sense of the word.  With this bet on my weight loss, I am totally responsible for the outcome.  It is completely on me.  There is no luck involved, just determination and effort.  I need to lose weight as the last couple of years have hit me hard.  In 2017 I completed a stationary bike ride for charity and by the end of that challenge I weighed in just under 95kg.  When I placed my bet with Healthy Wage, I was 119kg.  My aim is to lose 30kg in seven months; roughly a kilo a week.  If I succeed, I more than double my money.

To help me lose weight I am trying intermittent fasting and time restricted eating.  With intermittent fasting there will be days where I drastically reduce my calorie consumption and, on all days, I will adhere to time restricted eating.  With TRE you limit calorie consumption to a set window of time each day.  You can choose to do 12/12 where you eat within a twelve-hour window and fast for twelve hours, or 8/16 where you eat within an eight-hour window and fast for sixteen hours.  I am employing a 10/14 split.  I eat within a ten-hour window and fast for fourteen hours.  My fourteen hours start with my last snack of the day at approximately 10pm and ends at 12pm the following day.  When fasting you can drink as much water, or black tea/coffee as you want.  I’m finding it easy so far and, in a week, have dropped 3kg.  From what I’ve read this is quite normal for the first week or so.

Financial Update

Premium Bonds: £11,500 (up £1,575 from last week).

Stocks and Shares ISA: £7,745.46 (up £292.86 from last week).

Credit Card Debt: £1.10 (up £1.10 from last week).

Loan Debt: £3,800.49 (no change from last week).

F**k It Fund: £1,161.85 (up £10 from last week).

​Total Wealth Figure: £193,908.31 (total assets including residence valued at £173,501 by my lender) minus £138,080.70 (total debt including residential mortgage) equals £55,827.61 (up £2,297.68 from last week).

I received £1,800 that I was owed this week which allowed me to significantly increase my deposit fund held in my Premium Bonds.  The rest of the £1,800 helped to cover a couple of expenses that cropped up, but I’m in a good position to hit the amount needed to complete the purchase of our first BTL. 

Financial News

​Another story in The Guardian caught my eye this week.  The story is titled: New year money: how to regain control of your cash.

This story is another example of banal reporting when it comes to money.  I could have predicted the content with a high degree of accuracy before reading it. There is the initial set of statistics reporting how many people are in debt following reckless Christmas spending, a link to debt charities followed by advice about how to get out of debt. 

The article has four pieces of advice:

  1. Cut your credit card costs
  2. Get a better overdraft deal
  3. Consider consolidating your debts
  4. Think about switching to a better current account

There are some obvious issues here.  There are two types of people that get into debt.  The first type of person is one that literally does not have enough money to cover their basic living expenses.  Each month, their debt increases until something gives.  This article does nothing to help them. 

The second type of person is bad at managing their money and often spends excessively using all their money and then some, which results in them getting in debt.  There may be the liberal use of the phrase “it’s only money” to support their spending habits.  This article does nothing to help them. 

This type of article is like having an article about how to lock your stable door after the horse has left.  If you are in debt, it is because you have spent more than you earn.  I’m not making a value judgement here; my definition is just a statement of fact.  Rather than telling people how to manage their debt, we need to be telling people how to avoid debt. 

In this country people do not generally like to talk about money.  It is seen as impolite to ask how much someone earns or whether they are in debt.  If we really want to tackle the debt crisis, then we need to talk about money more openly.  We also need to stop telling people how to rearrange the deck chairs on the Titanic, and teach them how to make ships that don’t sink in the first place. 

The problem with telling people how to spend money is that much of the advice is boring.  Read any article about financial planning and budgeting and you can guarantee that the article will contain one of the two following tips: ditch your morning Starbucks and/or take your own lunch to work.  For many people, having a lunch they buy at work may be the only time they get to have their food made for them.  For many people, their morning Starbucks is the only thing that keeps them going at work.  For many people who are struggling financially, these little treats are the highlight of their day. 

Tackling the debt crisis is going to take a lot of time, and it maybe a generational project, but we cannot rely on government to tackle this issue.  After all, the major banks make their money from interest charged on debt.  There are things that the average person can do to reduce their outgoings though.  Before I offer some suggestions, I must stress that I realise everyone’s circumstances are unique and I am not qualified to offer financial advice.  The following is for information only and does not constitute advice on my part.  If you are struggling with debt, then please contact StepChange or another debt charity.

The Car

Cars are expensive to buy or lease, but the cost of running a car can be just as expensive.  According to an article in The Express, the average monthly cost of a car lease agreement was £253 (February 2018).  Some additional google-fu suggests the average cost of running a car come in at £150-£200 per month.  Then, you have potential costs of parking your car at work if you don’t have a secured space.  It’s not unreasonable to suggest that the average person could easily spend £400 per month on car related expenses.  If you were to invest £400 into a stocks and shares ISA each month and achieve growth in keeping with historic trends, after 25 years your ISA would be worth £535,000.  In my city, Sheffield, a monthly bus pass costs around £60.

Even if you budget for the occasional Uber, not owning a car looks very attractive.  When people ask me why I don’t drive, I think about these figures but hold off on trying to explain as when I have in the past, the person I am talking to mentally switches off.  People don’t like to talk about money, and people think the figures sound too good to be true. 

For some people, owning a car is essential.  However, there are many such as me for whom a car would be an unnecessary burden but there seems to be a societal expectation that you should learn to drive and have a car. 

Review Your Spending

Sometimes the act of reviewing a behaviour with no judgement can prompt change.  This can happen when you record your eating habits and it can work with money.  Set aside an hour or two and go through your last three months bank statements and credit card statements and review what you are spending and where.  You could group spending into different groups such as household expenses, food shopping, eating/drinking out and so on.  Compare your expenses to your outgoings and see where you stand. 

If you want to be financially secure, you need to be spending less than you are earning.  It mind sound like simple advice but I have met many people in the course of my personal and professional life who have thought themselves secure because they are saving each month whilst refusing to acknowledge they were getting further into debt each month by subsidising their spending on credit cards. 

The Richest Man in Babylon by George S. Clason gives some very simple advice.  Clason suggests that you try to bring your spending to 70% or less than what you earn.  Of the remaining 30%, 20% should be used to repay debts.  The last 10% should be invested.  Once you pay off your debts, the 20% allocated to that could be invested as well.  This is good, simple advice. 

There will be some people who physically do not have enough money to cover their expenses.  Should you find yourself in this position I would strongly encourage you to speak with Stepchange who can offer more tailored budgeting advice.  

Planning for Death

As I have stated in previous posts my plan is to purchase properties with a business partner.  We know each other well and share the same ambitions and plans for the property and so, I am not concerned about disagreements with how we will manage the properties.  However, I have been thinking about what happens if one of us was to die before we had completed our exit strategy.

In the UK, when you buy a residential property, it will normally be owned as either Joint Tenants or Tenants in Common.  My understanding is that under Joint Tenants each owner owns 100% of the property, so that if one of the owners dies the property becomes the sole property of the surviving owner.  With Tenants in Common, each owner has a defined share of the property, typically an equal share each although it does not have to be.

Another complication is how mortgage lenders will allow a mortgage account to be administered if the property was purchased as Tenants in Common and one owner dies.  It can cause a lot of delays, stress and confusion.  The deceased will require an up to date will and it will take a long time to process the change of ownership.  Another concern with Tenants in Common, is that whilst I and my business partner are happy to do business with each other we do not necessarily want to do business with each other’s next of kin.   Also, it is not fair to expect our respective next of kin to share the same passion, drive and interest in managing property.  It would seem, therefore, that Joint Tenants would be the way forward.  The complication here is that we both want to provide for our next of kin, and although we trust each other, it is never advisable to take people at their word where potentially hundreds of thousands of pounds are at stake.  With Joint Tenants, if one of us dies, the survivor gets the property and according to what I’ve read, not even a will can overrule a Joint Tenants agreement.

I have been thinking about this issue for a while, and I think I have hit upon a solution.  I have proposed the solution to my business partner and, so long as we can get the agreement drawn up by solicitor in a legally binding way, we will proceed with this solution.
What I propose is that we purchase the properties as Joint Tenants but draw up a separate agreement that states in the event of one of our deaths, the surviving partner has X number of years to pay equity to the deceased’s next of kin.  This would be calculated as 50% of the equity at time of death, based on average market value.  For example, if we own two properties each valued at £100,000 with £50,000 debt on each, the total equity is £100,000.  The next of kin would then be entitled to £50,000.  By giving the surviving partner full control and ownership of the properties, it allows them to manage the properties without undue interference.  In addition to this, there would be a second condition that requires the surviving partner to pay the next of kin 25% of the net rent until the equity is paid back.  The other 25% would be kept by the surviving partner as a “management fee” for dealing with the properties on their own and to cover costs such as maintenance.  If the equity was not paid back within the agreed time, then interest would start being paid in addition to the 25% rent.

I am not sure that this type of agreement would be legally binding, and we will consult a solicitor first.  Assuming it can be done, it will probably cost some money to draw up the agreement, but it would be a sound investment to secure our respective financial futures. 

Final Notes

​Once again, thank you for reading.  If you have any feedback, good or bad, please leave a comment.  Also, if you spot any funny financial stories or poor financial journalism, please point it out in the comments section.  

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