Hello and welcome back to Mortgage Advisor on FIRE. A look at budgeting, and how to make money work for you. Also, how the new generation of banks are putting the older institutions to shame.
Quote of the Week
As usual, when I talk about budgeting, I try to make it clear that my opinions will not be suitable for everyone. Although efficient budgeting is the key to financial freedom, budgeting alone cannot make £100 cover £150 of essential expenses. Sometimes there’s just no more cloth to cut. If you find yourself in this situation, then you need expert advice about managing financial difficulty. A budget deficit does not go away on its own.
At the heart of many households’ financial struggles is poor budgeting. People generally are bad at estimating their spending, and I don’t see any point in trying to get a handle on your spending by monitoring it going forward without first looking at historic spending. The very act of thinking about what you are spending will mean that, for a time, you may be more responsible with your money. Without a full understanding of where your money is usually spent though, it’s all too easy to slip into bad habits again. The priority has to be to look at how you normally spend when you are not consciously thinking about your budget.
I will talk later about the issues with some traditional banks but one great feature of many newer banks is that they allow you to split your balance into different pots. My current account has a feature where you can have a separate balance from which direct debits are paid. It’s all part of one account, but it means that you can put to one side the cash you need to pay your mortgage, phone bill and other utilities. Anything left over is for spending. You can even create multiple pots so that you have your grocery budget for the month held separately.
The main difference between the wealthy and those who are just keeping their head above water is that wealth creates wealth. Once you hit critical mass with wealth, your money creates enough extra money that you can spend what you like without eating into the underlying capital. Those who don’t have this level of wealth have to use their cash to pay for everyday life and don’t have enough to start building a base of assets that will generate more cash. Ultimately, currency is a tool and money, and wealth, is a game. Once you learn the rules, and learn how to wield currency effectively you can start making money work for you. Eventually, you get to a point where the creation of wealth becomes automatic and inevitable.
There are several important steps to consider when looking at how to make money work for you.
Step 1: look back over your spending habits. Read through your bank statements and credit card statements for the past few months. The further you look back, the better.
Step 2: create a budget detailing all essential spending, all spending that’s not essential but helpful (i.e. a basic TV package over a premium package), and then all luxury spending.
Step 3: is there a surplus or deficit?
Deficit: if you have a deficit when accounting for just essential spending then you need expert help. If you need to cut back on other types of spending to create a surplus, then that’s a sacrifice that has to be made. Once you have eliminated the deficit you should, hopefully, have a surplus.
Surplus: with any financial surplus the priority has to be clearing expensive debt. Once cleared, this should free up more money.
Step 4: invest in income-generating assets. This is a complex step and one where you need to educate yourself. The general idea is that you assign surplus cash to purchase assets that generate more income. You use the monthly surplus and the income generated from assets to buy even more assets. As time progresses, the compounding effect of rolling up the income each month will increase the income generated.
Step 5: Financial Freedom.
The above steps are not easy but they are, for the most part, simple enough that most people could at least get to Step 4 before needing professional/expert help. There are many free resources out there for people that need help with the first few steps, such as The Money Charity, StepChange and Money Helper.
This week seemed to drag as it was my last week before going on holiday from work. I was also working my late week, where I work Monday through Thursday until 8pm. It’s a long week and normally gives me headaches. However, this week saw a mini-migraine which fortunately came and went within a couple of hours. One thing I will not miss when I FIRE is the almost constant physical discomfort I have from sitting at a desk for 8-10 hours a day. Don’t get me wrong, I have all the support I need from my employer. The fact is that injuries and my susceptibility mean that I’ll always be in some form of discomfort with any desk-based job.
I paid a visit to our BTL on Friday morning where our contractors are working on repairing the damage from our last tenant. The situation has been hindered by the awful weather we’ve had, and the strong winds caused some damage to the conservatory. There’s a lot that has gone wrong with this property. Some of it was avoidable, but much of it was not. We signed on with an agent who was then bought by another company. Overnight the standards dropped. We then faced months of trying to extricate ourselves from the agreement with the agent. Our tenant was a nightmare but never missed a payment of rent. When a tenant is paying rent and the agent does not inform you of any issues, there is not much that can be done. We’ve learned our lessons from this though, and will take that education forward to future properties.
We viewed a property on Saturday across the river from where we live. It’s a nice apartment with a balcony overlooking the river. From our apartment, we can see the other balcony. If my Dad moves in I’m thinking of installing a pulley system like in the Robin Hood cartoon across the river. It would be amazing, but maybe a little impractical.
The storms hitting the UK this week have been a little unsettling. I have vivid memories of the floods of 2007 where much of Sheffield city centre was underwater. There have been some close calls since but fortunately, the rivers have not burst their banks to that extent.
A Brief Interlude
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2022 Goals – to be achieved by 31/12/2022
1 – Reduce weight to 90kg. (Current weight 124.0kg).
2 – Complete 10 “classic” books.
- Crime and Punishment by Fyodor Dostoevsky (1866)
- Moby-Dick by Herman Melville (1851)
- Dracula by Bram Stoker (1897)
- Catch-22 by Joseph Heller (1961)
- The Iliad by Homer (8th century BC)
- The Count of Monte Cristo by Alexandre Dumas (1844)
- War and Peace by Leo Tolstoy (1867)
- A Tale of Two Cities by Charles Dickens (1859)
- Les Miserables by Victor Hugo (1862)
- Don Quixote by Miguel de Cervantes (1605)
3 – Read 10 authors I’ve not read before.
What Am I Doing?
What I’m reading: nothing.
What I’m listening to: The Count of Monte Cristo by Alexandre Dumas
What I’m watching: The Bar on Netflix
I’m still working through The Count of Monte Cristo, which is a huge book. I’m thoroughly enjoying it though. I will probably have finished it by the next blog post. I gave up on Firefall. It was badly written and quite derogatory towards autistic people. It suggested that autism was an illness and implied that attempts to “cure autism” created vampires. This is insulting and contributes to how society, in general, misunderstands autism. The last movie we watched was The Bar on Netflix. This is a Spanish film set inside a bar in Madrid. There are shots fired from somewhere and a man dies outside the bar. Those inside the bar barricade themselves inside. What follows is just absolute insanity. I can’t say much more without spoiling the film but if you like dark comedy, or enjoy the work of the Coen brothers, I think you’ll enjoy this film.
Premium Bonds: £7,095.00 (up £750.00 from last update).
Stocks and Shares ISA: £46,143.78 (down £723.42 from last update).
Fuck It Fund: £5,025.00 (up £25.00 from last update).
Crypto: £490.89 (down £16.21 from last update).
Pensions: £51,298.08 (down £529.26 from last update).
Residential Property Value: £213,900.00 (no change from last update).
Buy-to-Let Property Value: £138,030.00 (no change from last update).
Total Assets: £461,982.75 (down £493.89 from last update).
Credit Card: £0.00 (no change from last update).
Residential Mortgage: £165,264.71 (no change from last update).
Buy-to-Let Mortgage: £92,939.80 (no change from last update).
Total Debts: £258,204.51 (no change from last update).
Total Wealth: £203,778.24 (down £493.89 from last update).
Investment Income in 2022: £172.25 (target £6,000).
My assets linked to the stock market continue to take a hammering. Global instability is no doubt having an impact. Should war break out between NATO and Russia it will probably cause most stocks to crash, with weapons manufacturers bucking the trend and seeing their prices soar.
Now that my Fuck It Fund has hit £5,000, I will only put a little in that pot each month. My focus moving forward is maximising my ISA allowance for 2022/2023, and building up another deposit fund. Once the work to our BTL is complete we will either sell, and make a profit based on current market trends, or rent it out and complete a further advance to release funds in the property. Either way, we should be looking at another BTL purchase later in the year.
Next week sees the full-year results from a company I’m heavily invested in. If those results are positive I could be looking at a decent dividend payout. Any dividend payment received would be rolled back up into my ISA, but probably into a different fund. My asset allocation within the ISA is not as balanced as I’d like right now, and it will take a little time to redress that.
I’ve had two conversations this week with different people experiencing issues with Natwest. I can’t stand Natwest. I worked for them briefly many years ago and they were archaic in their approach. I also had dealings with Royal Bank of Scotland as a customer, but my relationship with them didn’t last long as they were simply incompetent.
The first person I spoke with had major issues changing their address. Having recently moved home, this person needed to change their address but it could not be done over the phone. It could be done online or in a branch. As they live a long way from the nearest branch, they decided to do it online. However, to register for an online account they needed a PIN sending in the post, which would go to their old address. The second person I heard from was having problems supplying documents to support a mortgage application. In 2022 you would think that sending documents electronically would be the norm, but so many businesses are behind the times when it comes to embracing secure email or instant messaging.
The old generation of banks have a long way to go if they want to keep up with 21st century technology. I bank with a new, online-only, bank and they are brilliant. The app is easy to use and nice to look at. The customer service is great with none of the patronising messages telling you to “go online”. If you want to speak with them on the phone, you call and they answer. No menus, no messages. Just a conversation. It’s great. I’ll never use the generation of high street banks for my current account again. I’ve said it before but it is worth repeating here; if you are a business and your phone system plays recorded messages explaining to callers how easy it is to go online, you need to rethink your approach. The very fact that people are calling means your online offering is not working, and trying to force people back down that channel is insulting.
I think the issue is that many older companies build their online offering as layers of add-ons and workarounds tacked on to their current systems, rather than creating a new system from the ground up. The new, online-only, banks had the advantage of being able to build that infrastructure from the ground up and it shows in the quality of their service and product.
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Finally, have a look at Darren Scothern’s fantastic blog at darrenscothern.com.