Hello and welcome back to Mortgage Advisor on FIRE. This week I discuss statistics, and explain why, and how, we need to take greater care when using them to argue a point. Also, the impact of rising interest rates on mortgage payments, and the usual financial updates.
Weekly Update
It was back to reality this week after our cruise, and I’m already counting down until my next holiday. The next few weeks have a few things to look forward to though. We have a long weekend in London coming up in August, and then in September, we are heading back to Malta for a week. Also in September, we are welcoming Oana’s Gran to our home for a couple of weeks. This lady knows how to cook and no doubt she will spoil us with some good food. She’ll also be bringing over some homemade jams for us which I can’t wait to try.
I’ve lost the weight I put on during the cruise and I’m feeling mentally sharper as I continue to taper off Mirtazapine. I’m now down to 7.5mg per day, and I’m aiming to be off the drug completely in the next two weeks.
Does anyone else still feel like the year is just getting underway, yet somehow we’re in the second half of 2023?
I had planned on doing a post about the Norway cruise, but I’ve just not had any spare time.
Statistics, Heuristics, and Critical Thinking
Here’s a statistic for you…
I’ve spent 47% of the past couple of weeks with my head in my hands whispering to myself, “No, that’s not how it works”.
It’s weird how things cluster together. Take peppers for example (strange choice, but stay with me). There are these long, pale green, peppers that are really nice. You don’t see them much in the UK. Then, on Wednesday I saw two independent articles talking about banana peppers, which are these pale green peppers. I never knew they had a specific name. I was Today Years Old etc etc…
Anyway, it just so happens that I’ve had a number of conversations with different people about statistics this week regarding everything from win percentages in football, to property repossessions, to issues relating to health. A common theme cropped up in all these conversations; most people generally don’t understand that statistics are not a truth in themselves. When we talk about statistics, we are talking about data, and data is a tool which can be wielded skillfully. It can also be misused, sometimes irresponsibly. Or, as the saying goes, you can prove anything with statistics.
Back in the early days of the Covid’19 vaccine rollout, I had a particularly frustrating conversation with someone who did not understand how to interpret data. I challenged them with an extreme statement to make a point, which I’ll repeat shortly. The statement, whilst technically true, is also absurd and unhelpful. Here it is;
“Every person who has the Covid vaccine will die.”
If you don’t understand why this statement is absurd and unhelpful, think about salmon and fish; all salmon are fish, but not all fish are salmon. I’ve not said that everyone who has the vaccine will die because of the vaccine. If that’s the way you read my statement, go back and read it again. The other key point I left out of my statement was “when”. I dare say that many people who are confronted with that statement will think I am arguing that every person who has the vaccine will die because of it, and quite soon after being vaccinated, despite me saying nothing to that effect. What I said, and what you think I said, are two different things in this example.
The person I was debating with didn’t understand the difference, and sometimes you have to leave a conversation because you’ll get nothing from arguing your point any further. It’s a self-preservation tactic. I was talking with a friend about this person, and from what I understand they’ve gone completely off the deep end, buying into all sorts of conspiracy theories. I firmly believe that a lot of it comes from a lack of critical thinking and understanding about how data can be used inappropriately.
When confronted with a statistic you should always ask yourself a few questions as a “sense check”. For example, I was talking with a friend about property repossessions. We were lamenting the general state of the economy, and interest rates increasing, and how this will probably lead to an increase in repossessions over the next few years. We then started talking about how many properties are repossessed each year, and it was surprisingly difficult to get concrete numbers.
We brainstormed a few reasons why this might be. One explanation might be different definitions of repossession. Does voluntarily handing the keys to the property back to the mortgage lender count as repossession, or are we talking only about the protracted cases where bailiffs are sent to forcibly evict people so the property can be sold? Defining your terms with any statement involving statistics is vital.
One article we looked at gave numbers for repossessions between 2015 and 2022. This brings me to an important point when considering data; why was this date range chosen? Why not 2012-2022? Why not 2014-2019? Was there something unusual about the number of properties repossessed in 2014 that would have undermined the agenda of those writing the article? I don’t know. If you present data like this, at least in a scientific setting, you should explain your methodology, including why you chose this range of dates.
I love Spurious Correlations. For those who haven’t heard the term before, here is the Wikipedia definition.
“In statistics, a spurious relationship or spurious correlation is a mathematical relationship in which two or more events or variables are associated but not causally related, due to either coincidence or the presence of a certain third, unseen factor.”I downloaded the following examples from https://www.tylervigen.com/spurious-correlations
When you are confronted with any statistic, just stop for a moment and think it through. Why was this data presented in this way? Why this date range? Why this particular statistic?
I said before that data is not a truth in itself. Data is a tool. Let me give you an example from a football debate I was having. A common statistic to compare manager performance is win percentage; i.e. what percentage of matches did they win? It doesn’t tell the whole story though, and can easily be used to further an agenda. For example;
Darren Moore: 51.2%
Carlos Carvalhal: 42.75%
Steve Bruce: 38.9%
Let’s have a look at their loss percentage statistics:
Darren Moore: 22.5%
Carlos Carvalhal: 28.2%
Steve Bruce: 16.6%
You could make an argument on the data, that Steve Bruce was a better manager because his loss percentage was so low. As is often the case with these things, it’s just not that simple.
In summary, always think about the information you are being presented with. Ask yourself a few simple questions; Why is this information being presented in this way? Why was this range chosen?
The human brain is built for speed of processing, and not accuracy. I’ve talked about cognitive heuristics before, and part of the reason (I suspect), why people are bad with data, is that we try to quickly make sense of the data rather than taking a breath and looking at things critically. I read a quote today, which I’m going to change slightly. The quote was, “If you don’t understand money, life is hard. If you understand money, life is easy.” (Kristy Shen, Quit Like a Millionaire). My version, “If you understand data, life is simple. If you don’t understand data, life is complex.”
Ok, one final word on data, numbers etc before I move on. In a recent episode of the Skeptics’ Guide to the Universe podcast, they were talking about temperature. As part of the discussion, someone mentioned that 20 degrees C was twice as hot as 10 degrees C (exact numbers might have been different but it was one number that was double the other). The thing is, 20 degrees C is not twice as hot as 10 degrees C. The Celsius scale doesn’t work this way. So, what temperature is twice as hot as 10 degrees C? The answer is around 293 degrees C (yes, two-hundred and ninety-three). For more information on this, refer to the Kelvin scale of temperature.
So, what lesson can be learned from this? Consider the data you are given, and consider the language that is being used. What do we mean by temperature, heat, and so on? Asking yourself a few questions when presented with data can be invaluable.
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2023 Goals
Click here to see my 2023 progress (opens a new tab).
What Am I Doing?
TV: Black Mirror (Season Six) (Netflix).
Audiobook: Essentialism by Greg McKeown.
Financial Update
Assets
Premium Bonds: £10,250.00 (no change).
Stocks and Shares ISA: £57,074.21 (-£1,542.62).
Fuck It Fund: £4,666.91 (+£11.62).
Pensions: £59,705.70 (-£457.02).
Residential Property Value: £229,653.00 (+£3,568.00).
BTL Property Value: £148,195.00 (+£2,302.00).
Total Assets: £509,544.82 (+£3,881.98).
Debts
Credit Card: £0.00 (no change).
Loans: £0.00 (no change).
Residential Mortgage: £176,781.05 (-£476.99).
BTL Mortgage: £104,973.47 (-£12.86).
Total Debts: £281,754.52 (-£489.85).
Total Wealth: £227,790.30 (+£4,371.83).
Investment Income in 2023: £4,273.83 (target £8,500).
In a surprising turn of events, the index valuations for this quarter suggested an increase in our property values. I was not expecting this, and was actually bracing myself for a 3%-5% decrease. Ultimately, it doesn’t matter too much until we come to sell our properties or refinance. One small positive from this increase is that it means we may be able to look at interest only sooner than expected. Our lender has a maximum LTV for interest-only of 75%. We’re not quite there yet, but we’re much closer now than we would have been had property values dropped.
Mortgage rates continue to be a source of worry for many people. Many of my friends and family are coming to the end of their deals over the next few months, and most people are looking at substantial increases in their payments. I think most people realised that rates would not stay as low as they have been forever, but the scale and speed of the increases has been a kick in the nuts for many people. On our residential mortgage the bulk of our debt is on a rate of 0.81%. That is ending in January. Assuming rates at that time are in line with current deals, we’re looking at around 5%. That’s a massive increase. We are fortunate enough to be able to absorb that increase, but it eats into what we can invest. It feels, lately, like every month that goes by sees something else go up in price that pushes my FIRE timetable further back. It could be much worse. I know people who are wondering whether it’s worth moving home anymore, as well as people who have said they were looking to start a family but with their mortgages increasing by hundreds of pounds a month, they just can’t afford to do it anymore.
The last few years have been rough for many countries but it just seems like the UK can’t get its act together because of their inept Tory government; a government that is gaslighting the British public over the causes of our economic woes. A young couple looking to buy their first home now are faced with needing huge deposits and then high rates, and high payments, on their mortgages. Under this government don’t assume it can’t get any worse. You should actively plan for it getting worse.
With everything getting more expensive, and my finances being squeezed from all sides, I’m having to think long and hard about my FIRE plans. My initial plan, way back in 2019, was to use BTL property as the main source of retirement income. However, this total clusterfuck of a government has put the nail in the coffin of that plan for the foreseeable future.
The stock market has been largely stagnant for some time as well. Despite accumulating more units in funds and stocks, the overall value remains flat. Unexpected expenses, and the cost of living getting more expensive by the month, also means there is less money to invest which is slowing my progress. At the start of this project, pre-Covid, pre-Russian invasion of Ukraine, pre-Truss/Kwarteng, it was possible that I could achieve FIRE within 4-6 years. Now, it still seems like it could be another five years away at best, and that’s not even full FIRE, but more likely Lean FIRE.
I don’t know for how much longer my current life situation is sustainable. I’m autistic, battling with my mental health, and every single day feels like a chore. So, I have to wonder what other options are there. There has to be more than this.
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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Keep your chin up – you are controlling what you can and slowly working towards making a better future for yourself. Remember the little things that make you happy