Part 42

Hello and welcome back to Mortgage Advisor on F.I.R.E.  This week is a soft-reboot of sorts for the blog, as it moves from Now We Live to the new site at davidscothern.com.  I will be looking at the differences between Lean FIRE and Fat Fire, as well as introducing a new section to the blog.

Quote of the Week

As part of the soft-reboot I am introducing a new section where I post a quote I find amusing, motivating or just interesting.  This week, my quote comes from the Stoics and the Spanish-born, Roman-raised Seneca.

I think this quote sums up the Stoic philosophy quite nicely.  Stoicism is built on reason, and not succumbing to emotions, pain or suffering.  It’s about accepting that bad things happen, and that life is often outside our control.  The key is to choose how to respond accordingly.  As such, “it does not matter what you bear, but how you bear it.”

This quote also ties in with a quote I posted a few weeks ago from Viktor Frankl,  “Between stimulus and response there is a space. In that space is our power to choose our response. In our response lies our growth and our freedom.”

We can’t control everything that happens to us.  Sometimes bad things happen.  Sometimes awful and horrific things happen.  We can’t always control what we have to endure.  All we can control is how we endure, how we respond and how we move on.

Weekly Update

I started the week with a slight hangover following drinks with a friend on Sunday evening.  Then, it was back into the daily grind of work and study.  My exam is on Tuesday and I’m not feeling highly confident.  There are some parts of the unit that I’m comfortable with, but there are a lot of formulas I have to remember for different calculations, such as money-weighted rate of return, time-weighted rate of return, Alpha and Beta values, Sharpe ratios and so on.  I’ve just spent almost an hour trying to calculate an Alpha value, following the instructions in the textbook and I’m coming out with an answer that differs from the answer at the back of the book.  However, the book is riddled with errors so I don’t really know what to believe.  

I’ve been enjoying moving my website from the old site, to the new one at davidscothern.com.  I’m using a new hosting service and it’s much easier to edit and update.  The old provider had an awful interface and I think it’s part of the reason Now We Live failed as a project.  

I had envisaged NWL to be a site that discussed all things art, literature, culture and sport.  For a time, I had a number of contributors but because the interface was so difficult to work with, the contributions stopped coming in and the site started to look tired.  I tried a couple of times to reboot it, but in all honesty for the last couple of years my heart just wasn’t in it.  My focus has been on this blog, but I never felt like NWL was the right home for it.  This blog needs a dedicated home and I’m hopeful that this new site and provider will let it grow further.

I’m thinking that whilst I will stick to the weekly schedule, there may be times I want to post a smaller blog to compliment the main posts.  One thing that frustrated me about NWL, and the host I was using, was the difficulty of posting in the moment.  The mobile app was pretty much unusable but my experience with WordPress so far has been pretty good.  

Health Update

Current Weight: 114.3 (up 0.1kg from last update).

Current Body Fat: 37.3% (up 0.8% from last update).

BMI: 34.5 (no change from last update).

Weekly Goal: lose 0.75kg.

Ultimate Goal: 90kg.

Weekly Steps: 27,067.

A stable week, which has to be a good thing considering everything I have going on at the moment.  Assuming I pass my exam on Tuesday, I will be rejoining the gym across the road which has now reopened following their closure due to Covid-19.  I can’t tell you how much I’m looking forward to doing some proper exercise again.  More than anything else, it helps with my mental health.  It’s impossible to be stressed when you’ve been lifting for an hour.  

I will have to adapt my training though.  The last year or two has been awful from an injury perspective with one joint after another failing me.  I need to take greater care in not pushing myself too far, too quickly.  

Financial Update

Premium Bonds: £20,350 (no change from last update).

Stocks and Shares ISA: £12,465.45 (up £184.89 from last update).

Fuck It Fund: £0.00 (no change from last update).

Property Value: £187,554 (no change from last update).

Total Assets: £220,369.45 (up £184.89 from last update).

Credit Card: £0.00 (no change from last update).

Residential Mortgage: £143,171.61 (no change from last update). 

Total Debts: £143,171.61 (down £1,694.90 from last update).

Total Wealth Figure: £77,197.84 (up £184.89 from last update). 

Investment Income in 2020: £86.36 (no change from last update) (target £2,000).

A pretty uneventful week financially.  Some minor gains in my ISA but everything else is just stable.  This is always the case in the week before payday, as my monthly investments are done, and all my bills are paid.  So, until I get paid it’s like I’m coasting.

Post-BTL Uncertainty

I can’t decide how to approach my investments once I have completed my first BTL.  Part of me thinks I should just carry on as I have in the past, with a hybrid approach of investing in stocks, funds, and Premium Bonds which double as my BTL deposit fund.  However, it’s a slow process.  There are certain stocks that I’m convinced will increase in value rapidly once we are past Covid.  However, no-one can predict when we will be past Covid.  Will it be six-months, a year, five years? Who knows.  I’m happy to adopt an aggressive approach to investing, so it would make sense to pile money into stocks and wait for the recovery.  The thing is, I want my return now.  Despite the current downturn, long-term historic data shows that stocks generally outperform cash.  Premium Bonds, not counting the monthly prizes, are basically cash.  There is the small chance of a big win with Premium Bonds, but I keep thinking that if I had £10,000 in Premium Bonds and then the stocks I had my eye on rose back to pre-Covid levels, I could have cashed out for £25,000-£30,000.  

Although stocks do generally outperform cash in the longer term, I think a fair few investors may be liquidating their holdings in cash as the market stagnates and, in all likelihood, suffers more losses in the coming months.  I have quite a pessimistic outlook on the economy over the next few months, which looks something like this:

August to November: Relative stability as the furlough scheme gradually winds down and people return to work.

December: Signs of recovery on the high street as people indulge in comfort spending post-Covid lockdown.  People spend money they don’t have trying to cheer themselves up after an awful 2020.  Retailers retain staff and even hire new staff on seasonal contracts to see them through Christmas and the New Year.

January to February: Retailers begin huge online sales to clear backlogs of stock not bought over Christmas.  As the sales drop off, many retailers begin letting staff go.  

February to March: Unemployment soars as thousands of people are left unemployed as retailers cut job numbers.  Many large businesses are focusing on consolidating stocks into centralised warehouses supplying online sales.  Spending on the high street falls as more people are unemployed.  As we approach the end of the financial year, businesses look for ways to cut costs by closing physical stores and letting even more staff go.

February to April: As post-Christmas credit card bills land, those who have lost jobs and income struggle to keep up with their debts.  More defaults and IVAs are registered.  People struggle to pay their mortgages, and there is a fire sale in the property market.  House prices plummet as properties are snapped up by investors in a wave of wealth consolidation.  

My advice to pretty much everyone this year is to ignore your initial thoughts about a big blowout this Christmas.  Save your cash, and protect your finances against what is coming.

Lean FIRE and Fat FIRE

Within the FIRE movement there are a number of different subtypes.  Two of the common ones are Lean FIRE and Fat FIRE.  

Lean FIRE is when you have enough passive income to meet your basic expenses; the things you need to survive, so things like housing, food and utility bills.  In this situation anything you earn from a job is spending money.  So, you could technically retire in a Lean FIRE state but there is no room for error and nothing to fall back on.

Fat FIRE is where you have enough passive income for a comfortable life with sufficient funds for spending and emergencies.  This is what I’ve been aiming for.  

I’ve been looking again at my Lean and Fat FIRE numbers, in light of what’s been going on in my life over recent months.  My Lean FIRE number is £800 per month, whilst my Fat FIRE number is more like £1,800 per month.  So far, I’ve averaged around £10 per month passive income.  It’s not as bad as it looks though.  Covid has just washed away much of the passive income I would normally expect to have received.  Were it not for Covid, my stocks would have returned around £1,000 this year.  Covid also played a part in delaying my BTL purchase, which would have returned at least £100 per month.  2020 is an anomaly.  I’m hopeful that in 2021 I can achieve a better return than the one I targeted for this year.  Even if it is a better return, in order to achieve Lean FIRE I need to have £9,600 in passive income for the year.  So, still a way to go.  

Final Notes

Thank you for reading this week, and I hope you have a great week ahead.  If you are following FIRE or would like to know more about it, please get in touch via Twitter (https://twitter.com/NowWeLive01) or leave a comment on this post.  

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