Today marks a significant milestone in my journey towards Financial Independence (FI). According to my calculations I have reached the halfway point of achieving this goal. This endeavour started almost exactly 7 years ago in June 2012. The purpose of this blog and my book is to document how I am striving to complete this task within 10 years.
There are many factors which have motivated me to embark on this journey. I moved to the UK from a developing country which was facing a severe economic crisis and went on to study engineering at university. This was particularly tough due to the very high international student fees, living expenses involved and having to adjust to a new culture.
Uncertainty and job security in the workforce were other major factors. Money was always scarce when I had to work all throughout my studies which was not ideal. It was therefore no surprise that when I got my first professional job I thought I had made it. I was thinking in terms of income rather than net worth. This led to an episode of lifestyle inflation in my mid to late twenties.
The Big Three – Housing, Transportation and Food
2007: £1,000 Debt
In order to get your finances on track you need to keep the big three (housing, transportation and food) under control. I did the opposite while working at that job. Moving from shared housing to my own rented flat greatly diminished my savings rate as I faced an explosion of monthly bills.
On the food front I was equally terrible; I never prepared my own work lunch, instead opting to buy costly unhealthy food every lunch break. Anything from burgers to fish & chips and kebabs. Life was good I thought.
I wasn’t done yet! As if all this was not enough I decided to embark on my next wasteful adventure: car ownership. At that time I lived in Manchester where commuting to work by bus was incredibly cheap. A bus pass which I used was something like £5 a month. I convinced myself that I needed to drive so did a lot of lessons and got my licence. Soon after I went car shopping. I barely did any research into this and quickly bought a used Peugeot 206 for £2,000 in 2009.
This car turned out to be a real lemon. It was dangerous and very expensive to keep. I remember at least three times where the car left me stranded on the motorway due to major mechanical faults. One situation was the clutch snapping during heavy snowfall and the other was parts falling from underneath the car in the dark. Such breakdowns are often accompanied by other extra costs such as repair bills, recovery and using alternative transport. As a new driver, the insurance was ridiculous at over £1,200 a year.
Recession and plugging the hole
2010: £2,000 Debt
In the height of the global recession in 2010, along with many others, I had to leave my first job as the company was facing big financial problems. Obviously this was not good but it turned out to be the greatest thing to happen to my situation. Immediately I left Manchester to go and stay with my mother as I had managed to save exactly nothing in three years due to the above. In addition, I had maxed out my £2,000 credit card. I managed to get a new job soon after though so did not need to sleep on the floor for too long.
Seeing the light
2012: 0% FI
It was as if the reset button had been pressed. Realising that my previous lifestyle was unsustainable I moved back to shared accommodation and started to keep spending under control. I also started aggressively paying all of the credit card debt. However, I still did not have a good financial education and lacked long term thinking.
The only thing I was saving for was a car. When the Peugeot finally died I bought a used BMW. This one final major mistake ensured that 5 years after starting my first job my net worth dipped back to zero. I consider this the beginning of the journey to Financial Independence as I have not made any drastic purchases since. The BMW was a nicer vehicle which i kept until it was written off in a crash in 2018. Again, after massive ownership costs (estimated £470 monthly over 6 years) there was nothing left to show for it.
2014: 5.52% FI
In 2014 I came across Financial Independence by reading a few blogs; in particular Dividend Mantra and Mr Money Mustache. I did not need any convincing at all and hopped on to the movement. I learned about Vanguard investments and the Bogleheads, reading a few investing books such as The Millionaire Next Door and listening to several podcasts along the way.
2017: 25.87% FI
Going through all of Warren Buffett’s letters to Berkshire Shareholders and watching the live stream of the meetings on Yahoo Finance was fascinating, giving me access to the mind of the greatest investor in history. By applying these principles and living frugally, my net worth has been increasing exponentially.
July 2019: 50.04% FI
Car ownership is very expensive. By only looking at the purchase price it is very easy to ignore the true cost of car ownership when making a purchase. It is more useful to look at total ownership at around £0.50 per mile. More detailed typical costs are provided by the RAC here.
I would recommend to avoid car ownership if you have access to other reliable means of transport. This is very difficult for me as I enjoy researching the latest cars, watching Top Gear and going for a Sunday drive. In future I will ensure that such a purchase is made from a position of strength and once all options have been thoroughly vetted. Going car free has boosted my savings rate by more than 10% which can drastically reduce the time to FI.
Automation and consistency are critical to building wealth. I find it very useful to budget every month by estimating upcoming expenses as accurately as possible. Once done the projected amounts can be directed to investment accounts while aiming for a 50% plus savings rate. Tracking net worth is also a good motivator (see example chart above); it gives a snapshot of where you are in relation to the goals.
It takes a long time to see big gains. During the first few years of investing seriously little or even negative progress will be experienced. It is only at this point that the effects of compounding can be noticed. Giving up early is not an option.
Take advantage of market crashes. When the stock market is down it means prices are cheap. It is best to invest as much as possible during such times. If I look back 5 or 7 years ago I am astonished at how low prices were compare to today. Keep calm and do not sell.
Don’t get too excited in the good times. As stocks hit an all time high today (The S&P 500 closed at 2,995.82 points and the DOW at 26,966.00) it is tempting to claim to be an investing genius. However, we should aim to be rational and not start investing more now when there is irrational exuberance. Focus on the long game not day to day market movements.
Keep learning and building skills. I am amazed at how much knowledge is out there. Just pick up any good book to find out. Try out many new ideas; most will fail but you will learn a lot. I have picked up a lot of skills from running this site including SEO, Analytics, Adsense, graphic design, improved writing, web design and digital product creation. I did not know most of this stuff a few years ago. it may come a time when one is FI that such skills will be useful in a new occupation where you are self employed.
Avoid keeping up with the Joneses. It is tempting to acquire flashy material possessions (cars, houses, clothes etc.) to appear successful or impress people you don’t care about. This can backfire and you will be the one left to pick up the bill. Best thing is to obtain what you actually value and is affordable to you.
The point of Financial Independence is to open up more life options, not necessarily early retirement. I look forward to covering the next half of the journey. I know that this will not take as long and the gains will be ever bigger as the snowball keeps rolling bigger and faster.