Hello and welcome back to Mortgage Advisor on FIRE. This week I discuss a strategy for free money. Also, some thoughts on Coast FIRE, and more Lego sets ordered and built.
Weekly Update
It’s that time of the week again when I’m prepping for surgery on Monday. I have been trying to get a date sorted on the private route but the earliest I could be seen would be April, and I’m in increasing levels of discomfort, so I’m just going to have to bite the bullet and have the operation on Monday.
I’m still apprehensive about another spinal injection, but I might just need to suck it up and do it. This kidney stone issue has been hanging over my head since 2019 and it needs sorting as soon as possible.
We had some more Lego delivered this week, which we’ve assembled. Pictured below are sets #10313 and #10280. We’ve also ordered some more sets that should come next week. One of them, The Great Wave (#31208) has been out of stock for a while. I received an email on Friday evening stating it was back in stock, and within a few minutes I’d ordered it. I’ve just checked now (8am Saturday) and it’s out of stock again. It’s a very popular set, it seems.
Another set I’ve ordered is The A-Frame Cabin (#21338). I would love a house like this eventually, preferably in a small village in the Norwegian fjords.
Free Money
Do you want free money? I’m guessing you do. Who wouldn’t? Well, the other day I was thinking about investing and I had a light bulb moment. I’ve investigated, and it seems like my idea is fine and does not break any rules or regulations. There are three factors you need to be aware of initially:
1 – Income that is generated from investments held in a stocks and shares ISA is tax-free.
2 – As a basic rate tax-payer, I receive a 25% tax rebate on investments made to my SIPP.
3 – The tax rebate is payable so long as my investments in the SIPP are covered by my earned income (I checked this point with my ISA and SIPP provider).
Some of you will have already worked out the strategy I’m referring to, but if you haven’t I will explain with an example.
Let’s say you have investments in your ISA and you receive £100 income. You can take that income out of your ISA and not pay any tax on it. You can then invest that money into your SIPP, and your SIPP provider will claim the 25% rebate, turning your £100 into £125.
It’s important to remember that money held in a SIPP is not as readily accessible as that held in an ISA, so this approach is not suitable for everyone. Also, once money is taken out of an ISA it cannot always be reinvested in the same tax year, as you are subject to the £20,000 annual subscription limit. Also, there are limits on what you can invest in a SIPP and still receive the tax benefits. My provider explained that if you are earning £20,000p/a, you cannot invest more than that into your SIPP and claim tax relief, as all investments have to be covered by an earned income that at least matches your SIPP contributions. I.e. if you invest £30,000 into your SIPP in a tax year, your earned income has to be at least £30,000 for that tax year.
I can’t stress the point enough that this approach may not be suitable for everyone, and if you pay tax at a different rate it may impact the benefits available, and the laws that apply. Before following any investment strategy you must complete your research and seek advice tailored to your circumstances.
This strategy demonstrates something that I’ve often said in this blog; money is a game, and if you know the rules you will be much more successful. The problem is that when I try to explain this strategy or explain how passive investing works, people seem interested but then just go back to making the same financial mistakes they’ve always made. The most common question I’m asked when people find out about my finances and plans, is how can I afford it? The answer is pretty simple, but not many people like hearing it; no kids, no cars. Almost everyone I know in my age bracket has kids and cars, and I’m not judging anyone who chooses to start a family. There are two factors at play; planning and prioritising. Children are expensive, but rather than waiting until they have a solid financial base, many people have kids and use credit cards and loans to pay for them. I find the habits of people, and their cars, to be more frustrating. So many people I know will spend a huge sum each month financing a new(ish) car. They’ll keep it for a couple of years, and then trade it in for something else that costs “just a little bit more”. It’s like replacing your perfectly decent iPhone with a brand-new model every few months. It’s financial madness.
Cars are money pits. The average commute to work in the UK is 27 minutes (thank you google). Assuming that the average person uses their car for four hours per day (I think this is probably a huge overestimation) then, for this example we can say that the average car is not in use for roughly 84% of the time. Some estimates suggest cars are not in use for 95% of the time. Why would anyone spend hundreds of pounds every month on something that is hardly used, when there is a much cheaper alternative? Why would someone break the bank to pay for an Audi, for example, when a Dacia has the same number of wheels and performs the same tasks? I understand that many people need a car, but the blunt truth is that many people spend more money than needed on a brand, and then complain they have no money.
If you want to build wealth, the processes involved are not complicated, but they will require a fundamental rethink of everything you think you know about money.
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2023 Goals
Click here to see my 2023 progress (opens a new tab).
I’m going to have to cancel my distance challenge for 2023. My health problems are getting in the way. I might revisit it at a later date.
What Am I Doing?
TV: Three Body
Audiobook: The Last Kingdom: Book 1 of The Last Kingdom series.
I’ve listened to some excellent audiobooks over the past week. The End of Men by Christina Sweeney-Baird was excellent. It’s a story of a plague that sweeps the world killing only men. The style reminded me of World War Z (the fantastic book, and not the film) with the story following a wide cast of characters around the world. I also finished a French book, The Anomaly by Herve le Teller, which suffered from a great premise, an excellent start and middle, and a somewhat disappointing end.
We have also started watching the Chinese adaptation of Three Body, based on the Three Body Problem series by Cixin Liu. Regular readers of my blog will be familiar with this series, as I’ve mentioned it several times. We are six episodes in and thoroughly enjoying it. The first season is over thirty episodes long, which is unusual when compared to many US and UK shows. There is a US version in the works for Netflix but I’m not holding out much hope. So much of the story is rooted in Chinese society and culture, and the Netflix adaptation seems to be ignoring that. If you want to watch the Chinese version, the series is free to watch on YouTube, but just be prepared for lots of adverts.
Financial Update
Assets
Premium Bonds: £38,000.00 (no change).
Stocks and Shares ISA: £70,641.45 (-£144.85).
Fuck It Fund: £50.00 (no change).
Pensions: £58,570.44 (-£745.12).
Residential Property Value: £228,006.00 (no change).
Total Assets: £395,267.89 (-£889.97).
Debts
Credit Card: £0.00 (no change).
Loans: £9,800.00 (-£100.00).
Residential Mortgage: £179,161.80 (no change).
Total Debts: £188,961.80 (-£100.00).
Total Wealth: £206,306.09 (-£789.97).
Investment Income in 2023: £310.46 (target £8,500).
No major changes this week, just the usual fluctuations in the stock market. Later this month I should have a better idea of what dividends will be forthcoming in the first half of 2023.
Coast FIRE
I was doing some number crunching after talking with a friend who is also following a FIRE plan, and I was pleasantly surprised by what I found. The first point relates to Coast FIRE, which is where you have a pot of money saved and you are happy to just let compounding gains increase the size of that pot until retirement with little, or no, extra investments being made. So, as a quick calculation, if I lumped my pensions, ISA, and Premium Bonds into a single pot and assumed a mid-range growth rate of 4.5%, by the time I could draw my state pension, the overall investment pot could be worth £588,000. Assuming a 4% withdrawal rate, it would provide an annual income of around £23,500. Not bad, especially as this calculation assumes no further contributions are made to these investment pots from my income.
Assuming that I continue to contribute to my investments for a further decade, and then let my investments coast, the numbers are even better with the final pot totalling just under £900,000. Compound growth is so powerful.
Disclaimer
The views and opinions in this blog are my own, and do not represent the views or opinions of my employer, nor should they be considered advice.
If you want personalised financial advice, seek an appropriate professional. If you are in financial difficulty, seek advice via the resources below:
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Mortgage Advisor on FIRE. 
I considered this strategy in the past but didn’t like the idea of withdrawing from my ISA.
Now that I’m some years closer to drawdown, it’s something I may look at again – I just need to balance things out so that I’m paying as little (or no tax) as possible.
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