Money – such a taboo subject. Most of us hate to talk about it, but really don’t mind reading or listening to stories about other peoples money. Its what my whole business is based upon. My positive and deeply flawed relationship with money. I write about the good and the bad, the sensible decisions and choices and the not so sensible.
I am also a person who believes in balance when it comes to money. Slightly at odds with my emotional life where I feel like I am constantly looking for balance and often experience highs and lows (with Seasonal affective disorder).
I struggle with the concept of FIRE
My balanced view means that I REALLY struggle with the concept of FIRE, which stands for Financial Independence, Retire Early. I was quoted in the Guardian today talking about my views.
I interviewed Route2FI recently who explain the concept well and how he will be financially independent by the age of 36, yes 36!
To simplify it down financial independence is saving 60-70% of your monthly income to build a fund that is enough to provide you an income to be financially independent. So you need to 1) earn enough to be able to save 70% of your income 2) have cheap rent or low mortgage, low bills 3) likely not have children as they are truth be told expensive.
I think it’s a concept aimed at very small percentage of people and believe that very few people can reach financial independence until later in life. To achieve it in your 30s or 40s is redic hard.
Also during your 20’s if you are child free, live your life enjoy yourself. Talking as some one who has three children. You CANNOT do the things you can without children when you have that responsibility.
Life to me is about balance. Enjoy your life before any big responsibilities some along as you never know what is around the corner. Absolutely save money in your emergency fund, put money into investments and pensions. But also enjoy life. Live for the moment and for today.
Here are a few questions I answered for the Guardian, that didn’t make it into the newspaper.
Is FIRE realistic or do you have to be on a big salary and have no desire to have children?
FIRE is realistic, only, if you have a big salary, a low mortgage and no children or other expenses life costs.
Towards the end of my 20’s I was child free and earning around £50k including bonuses, working for Tesco as a commercial finance analyst. This was a great salary! My post tax monthly earnings were around £3000 per month. But I also had a big mortgage of around £1000 per month, living in Hertfordshire. Plus regular monthly bills, car and credit card repayments, maybe another £1,000 per month. Add in a 20s social lifestyle, eating out, nice holidays, not much was left for savings. I used to save around £200 per month. £200 FELT like a lot at the time. I was in my 20s and wanted to enjoy life, experience amazing things.
The circles I was moving in spent money, my friends did fun stuff that cost money. I bought my clothes from Ted Baker and Hobbs. Totally I can look back now with hindsight and think no you didn’t need those expensive clothes, holidays and bags. But it was my life choice. I was earning decent money and I wanted to enjoy life. I could have saved more but realistically I could maybe have saved £700/£800 per month if I really cut back and lived a frugal life.
Life Events affect your financial decisions
A life event that I also have to point out which drove many of my financial choices during my life so far is that my parents died when I was a teenager (mum at 16, dad remarried then died when I was 19), by the age of 19 I was in the middle of a maths degree at university without any financial support or security. This actually drove me to do well at university and to get a great graduate job, paying me a very good salary.
I was determined to become financially secure as soon as possible. It also drove me towards a live for the moment life, my parents died when aged 58 and 63 and didn’t get to spend any of the money they saved (I didn’t inherit any money at the time). I can safely say it drove a lot of my spending in my 20’s and desire to experience life.
But then aged 30 I had my first baby and life was filled with family costs, three children later, maternity leaves, moving to a bigger house, bigger cars and a house extension. There was certainly no space for saving much money. And no spare money for FIRE.
Now I am 42 I have a slightly different outlook, as in I am working hard to put money aside, but still at this point putting around 15% of my turnover into pensions or investments. It is what I can afford as I have three young boys and I want them to experience fun things and life experiences.
I have realigned my work, I quit the employed finance world in 2015 to set up my own business Mrs Mummypenny, a personal finance website. This has taken a few years to build but is giving me the financial freedom I desire and ultimately financial independence. I am aiming for a £500k pension fund and another £500k in investments. So far I am 5% of the way there, £50k in my pension pot. A long way to go!
Is it sensible to try and work and save hard when you are young (and maybe should be having fun) just so you can ease up later?
It is totally sensible to save more when young before too many big costs hit. But also life is for living. I was always aware that my 20’s were child free and I wanted to enjoy them having fun. Travelling the world, eating amazing food, going to concerts, the theatre and experiencing life. I knew if life was going to plan, that my 30s, 40s and 50s would be taken up bringing up my three boys so my 20’s was my time to enjoy.
Isn’t there a big danger you could end up just being stingy (and boring)?
Totally, but it is all about who you choose to socialise with. If your friends are all into frugal/free fun activities there is less pressure on you to do the same. My uni friends and work friends had fun and spent money, and this cost money. So I did the same. And don’t regret it.
The only thing I do regret however is that I opted out of my pension during my 20s, and cashed in pensions when I moved companies. This unfortunately means my £50k pension pot now is far less than it would have been if I had opted in and left money sat in pension funds.
What about financial emergencies? What if you have to return to work later – will this be easy after a long break?
A concern about financial emergencies is a point well made. Life changes are common, illness, death and divorce being a huge cause of financial problems. A long term illness, particularly if not insured is crippling in terms of cost. And death again doesn’t always mean an inheritance. And divorce means that assets have to split and money that you might once have considered jointly yours is no longer yours.
Returning to work can be a huge challenge. I know that even now, I have spent four years being self-employed, I would struggle returning to the employed world. I love my flexible life, control and choose my own hours working patterns. It would be a huge struggle to return to the ‘9to5’ (or 7am to 7pm as it used to be!)