Category Archives: Travel Tips

Going car free – The real cost of motoring

The real cost of car ownership is one of the trickiest expenses to determine. Unlike predictable expenses such as public transport, renting a place to live or food costs, it is impossible to accurately estimate the true cost of motoring. This can be a problem for financial independence planning because you need to be reasonably certain of what your expenses are. Previously, I tried to ignore this paradigm but the relentless rules of simple arithmetic will always come out on top.

This post is timely as I will be going into a period of being car free. This is involuntary as I had no intention of getting rid of my car until the reality of car ownership hit me with a bang. While driving from work a few weeks ago, I was involved in an incident with another vehicle at a mini-roundabout. This resulted in my car getting written off and getting sent off to the scrap heap for just £100. I was shocked at how quickly things can change; I purchased the car (a 2007 BMW 118d) 6.5 years ago for £9,500 which has virtually gone down the drain in an instant. The car’s value had depreciated substantially since so it would not be worth much anyway.

Options

This situation presents me with several options.

Option A: Normally I would attempt to immediately reinstate my previous position by getting a like for like replacement vehicle. Obviously, this is not as simple as it seems as it would mean acquiring a used 12 year old similar model with over 100,000 miles on the clock. This is very unwise due to the amount of potential problems with such a car. At least I knew what work had been done on my previous car.

Option B: Alternatively, I could follow a similar approach to how I purchased the previous car by looking for a 4 or 5 year old used vehicle. This would have a huge impact on my finances as the cost would be way in excess of my emergency fund. The shortfall could be made by borrowing extra funds which I would not do.  Alternatively, I could dip into my investments or other savings. This is unwise; a classic case of swapping assets (investments) for liabilities (car ownership and purchase), therefore would leave me a lot poorer in the long run.

Option C: This is really hard to take personally; car ownership is often associated with status and a sense of freedom, but going car free has to be a consideration. A few weeks ago this option was unimaginable but after doing an in-depth analysis of what it entirely cost me to run my previous car this is not such a crazy option. I had to ask myself of what my real needs of transport are and unreluctantly concluded that for me, car ownership had been a nice to have, a very costly one at that. Here is why.

The true cost of car ownership

Over this 6 year period, owning and running the car cost me a total of nearly £30,000 (US$40,000), which is around £4,500 (US$5,900) a year or £370 (US$480) monthly. Costs equated to 44 pence per mile over an average of 10,000 miles a year which could be used to calculate a reasonable estimate of a journey’s true cost. This is an astonishing amount as I had considered the car, from an era when diesels where still being promoted by the government, to be well made, fuel efficient and cheap to tax.

I listed all the line items of everything I remember spending on the car to reveal the harsh reality. Here is the result:

BMW 118d: Total Cost (£) Of Ownership 2012-2018

ProportionItem6.5 YearsYearlyMonthly
33.87%Purchase+supagard(depreciation)9,7501,500125
32.75%Fuel. 10k/y, 42mpg, 52L, 134p/L1,450121
10.16%Insurance45038
0.68%Road tax303
1.02%Breakdown cover454
1.13%MOT test504
2.26%Brakes – £300 / 30,000 miles1008
2.64%Tyres – £350 / 30,000 miles11710
0.90%Brake fluid service – £80 / 2 yrs403
2.26%Oil service & filters1008
6.95%Timing chain (N47) & clutch repair2,00030826
1.39%Oil filter housing  – after oil leak400625
0.69%Parking brake snap repair200313
2.26%Parking & tickets & tolls1008
1.04%Audio: head unit+tweeters300464
Overall Cost incl. depreciation28,7834,428369
Running costs (cash flow)19,0332,928244

*The above list seems very long but it is the truth of the minimum spend on the vehicle. The figures would be higher or lower for other vehicles and usage. If I had bought it new, costs would have been north of £500 a month which could easily be more than rental/ mortgage costs.

What next

Such figures don’t lie and I would ignore them at my own peril. Another possible option is to purchase an electric vehicle (EV) which has substantially lower running costs due to a simple design (electric motors have less than 20 moving parts) and does not emit harmful emissions.

However, EV  purchase costs are still high, even on the used market. Despite the high initial purchase cost, I have calculated that there would be huge savings over the same 6 year period by purchasing an electric one. For example, an EV bought for £14,000 would cost a total of £20,000 to run over 6 years compared to nearly £30,000 for a petrol or diesel car purchased for £10,000.

For now I will go car free for a while as I actually do not need one. Commuting to work would be by a 20 minute train ride plus less than half an hour’s walk. Other trips would be by train, tram, taxi, coach or bus. This is not a problem in London. For inaccessible locations or other uses I will use rental cars or vans when needed. I estimate that these alternatives combined will cost me a quarter when compared to car ownership and the proceeds will be invested or put towards an EV.

I expect that this will also boost my savings rate by over 6%, alleviate the stress of having a metal box sat on the driveway, avoid aimless trips, parking, roundabouts, traffic lights, schools, fines, endless maintenance, break ins, road rage, scratches and prevent me from sitting in or battling rush hour traffic while risking a crash.

I have already saved an unexpected initial £50 by cancelling my breakdown cover; this will be promptly invested into Vanguard index funds. The benefits are substantial as I have not even gone into the impact of opportunity cost, where the above costs would be invested wisely. If car travel is really needed I will consider going electric in future.

It is incredible how such the seemingly innocuous decision of whether to drive or not can have far reaching consequences on your personal finances and possibly on when (potentially years) or if you will achieve financial independence.

*The AA has a useful guide about car running costs here.

What do you think? Are these costs realistic for you? What are the pros and cons of owning a car?

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Heatwave – How to avoid blowing your budget in summer

Studies show that people spend a lot more money during the summer months than in the other times of the year. This is understandable as the days are longer and weather better, which leads to more fun activities to do being available. However, if the spending is not kept in check this can easily wreck your budget and derail any plans for financial independence.

This year’s summer has been impressive so far across the world, with temperature regularly topping 30 degrees Celsius in the UK with not a drop of rain in sight for weeks. Here are a few top tips to keep your finances on track.

Track expenses and stick to a budget

To achieve financial independence it is crucial to know how much you spend in an average month, which enables you to get an accurate picture of your annual expenses for determining how much net worth you need. There are many tools for tracking expenses like YNAB or Mint for US residents but I prefer to use spreadsheets as these can be tailored to produce specific outputs/ calculations.

Once you know the expenses you can create a budget for forecasting future expenditure. This can include an allocation for known unknowns which are expenses which occur every year but are not regular. These are not bills but for things such as holidays, car maintenance, repairs and presents. They should not be swept under the carpet or they will cause havoc to finances if you do not have an emergency fund. Staying within the budget should be done to avoid compromising other objectives.

Personally I do not set aside a specific amount for these monthly. Instead, I aim to invest as much as possible every month to ensure the cash is working as hard as possible and then directly spend on the expense as soon as it comes up. This ensures that there is a minimum amount of cash lying idle at all times. When an urgent unexpected expense comes this can be quickly dealt with by deploying and emergency fund which should be rarely used.

Plan for the future

According to Benjamin Franklin “Failing to plan is planning to fail”. This is entirely true when dealing with summer expenses. Advance bookings for holiday flights, trains, parking, car hire, foreign currency, accommodation usually saves a lot of money. Researching a destination thoroughly before you land also helps to avoid falling into tourist traps which are common as highest expenditure is ofter during the first 24 hours of a holiday.

I avoid package holidays where you can be ripped off along with other gullible tourists but plan things individually which provides more control and less cost. It is also important to get good travel insurance. Cheapest is not always the best here so it is crucial to read the terms and conditions.

There are also several activities which can be done for free or without spending much. I suggest having a few weekends like this in a month and then actually spending accordingly on what you value when the time comes. According to Noddle, the credit service report provider, British people typically overspend by £154 a month during summer. Overspending typically kicks off in April/May and just ramps up all the way until the end of the year, with may using credit and dipping into hard earned savings as a form of funding.

UK household net lending. Source: The Independent

The scale of the problem is illustrated by the chart above and ONS statistics showing that household spending is now more than income for the first time since 1988. This is through a combination of reducing savings levels and taking on more debt where summer spending can be a big factor.

These top tips, along with good discipline can help to ensure staying within a prescribed budget and avoiding short term lifestyle creep which can lead to long term financial impacts.

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How to buy and run a car – the frugal way

buying used car bmw E30Saving money on buying and running a car can be a very important step to ensure financial freedom and bolstering your net worth. In the UK it has been on the news recently that car finance deals have soared to record levels.

Motorists have spent £3.6 Billion on car finance deals in March 2017 alone! That is a 13% increase when compared to March 2016. This is not surprising considering the number of new cars visible on the streets.

I find this quite shocking as I think that buying a brand new car is overrated and not necessary. A lot of people enjoy the smell of new cars and taking the plastics of the seats but it is the marketers, salespeople, banks and manufacturers that go smiling all the way to the bank.How to buy a car and save money

Do your research 

The first step to take before purchasing a car is to do as much research as possible. Find out what the value of the vehicle is expected to be at a certain age, mileage and condition. A number of free car valuation resources are available online for example the Autotrader tool. Also investigate any common faults which the car model has experienced in the past. Reviews and common faults for most car models are available on Honest John’s website.

If something keeps on cropping up as a major fault, that should be a red flag. However, in some instances you may want to factor in the cost of the potential fault when buying the car or negotiating a price if you are really after that particular model. It is better than getting a nasty shock in future.

Buy used and avoid leases

According to the Millionaire Next Door book, more than a third of real millionaires tend to buy used cars. Of those that buy new cars, the majority buy their cars outright and do not lease. New cars lose their value by thousands of pounds the moment they are driven of the forecourt. Car finance companies take advantage of consumers’ needs for instant gratification and unwillingness to save upfront by offering car finance products such as Personal Purchase Contract (PCP) or Hire Purchase (HP) at high interest rates.

With these so called deals, the buyer “rents” the vehicle for a high monthly fee over several years. Although there may be no initial payment, many strict rules of use are applied for example the driver may be penalised if they exceed a certain annual mileage. This is not my idea of owning a car.

After the period of payments options available to the driver are to own the car by paying a very large “balloon” payment on the heavily depreciated vehicle, leave with nothing or continue on the payment treadmill by leasing another new car.

The following table shows a comparison of costs for buying a Ford Fiesta 1.25 Zetec petrol using HP, PCP or simply buying a 4 year old used one.

 Hire PurchasePersonal Purchase Contract4 Year Old Used
Cost of car (new)£14,839£14,839 £14,839
Deposit£500£500 None
Monthly Payments 36 x £325.57 37 x £423.06 None
Annual mileage limits9,000 (6p a mile surcharge) No limit None
Balloon payment£4,293 None None
Cost of buying car outright £16,513 £16,173 £6,000

Clearly the third option is best for those willing to save money as the car would have lost 60% of its value but be still in good condition. It is difficult and unreasonable to pay about £400 a month for a depreciating liability that you do not actually own. Save upfront and make the purchase with cash.

Most cars lose value over time. You do not want to be the one to take the biggest hit! Even if the older car has problems, these would be rectified for relatively low cost. A thorough inspection prior to purchase of the used one is critical.

classic carA great tip is to source the car from the manufacturer’s approved used vehicles as these will have all necessary checks carried out and a reasonable warranty.

Another benefit of buying used is that you will be able to acquire a more prestigious better engineered vehicle which would otherwise be unaffordable when new. I used this strategy to purchase a fuel efficient BMW which has had a few faults in more than 5 years of ownership.

How to keep running costs low:

Keep up the maintenance

“Prevention is better than cure”. It is vital to maintain the vehicle regularly to prevent  any major problems occurring. Ensure that the oil is changed every year or at most within 10,000 miles. Oil is the lifeblood of the car which ensures that all the mechanical moving parts are well lubricated.

Other fluids to keep an eye on include brake fluid, coolant, power steering fluid and screenwash. Also change other service parts which are expected to wear out such as the timing belt, filters, brake pads and clutch.

Check the tyre treads and pressures for safety and improved fuel efficiency. Use of high quality tyres by Michelin, Bridgestone or Pirelli is ideal. It is also important to not ignore any fluid or oil leaks, strange noises or movements from the car. This is usually a sign that something may go wrong and needs to be looked at before things get worse or costly.

Use specialist independent garages 

You can purchase car diagnostics tools which plug in to the car’s OBD port to try and resolve certain issues. For any work that you cannot do yourself, I recommend using local specialist independent garages for any repairs instead of the main dealers or fast fit centres. Main dealers are very expensive and not worth it if the car is no longer new.

From personal experience, fast fit centres tend to be incompetent and want to rip off customers by recommending additional unnecessary work.

Independent garages specialising in particular car makes deal with common problems all the time and have superior knowledge while offering dealer level service at much lower prices. UK drivers can also use the council run centres for their annual MOT test. They have no incentive to fail the car and can be relied on to give an honest assessment.

These are the top tips for getting the most benefits from car ownership while ensuring that is does not impact your finances significantly.

Visit Rome and save money on travel

Rome travel money saving tips

Trevi Fountain and Pantheon Rome

In this post, I will share some tips on how we have managed to save money on a trip to Rome, while still having a fun time. One of the main benefits of financial independence is that it will
be possible to travel more and visit more places for longer periods of time. In the meantime, money can be saved by travelling smartly starting from the moment the trip is booked. The savings made can be used towards other trips or for investing.

Flight booking

It is advisable to book flights as soon as the travel dates are confirmed. Start by using a flight comparison service. We used the Skyscanner website to compare the various flights available around the dates that we were planning to visit Rome. It was useful to compare prices and  flight times for a range of days in the week of travel to ensure that we got the best deal. Skyscanner makes this very easy by displaying all the options according to available airlines, schedules and costs.

Hotel Booking

We used Booking.com to find and book a a hotel for our stay in Rome. I recommend this site because it is user friendly, has a wide range of accommodation types in most locations and makes it easy to keep track of previous and existing bookings. We found an excellent boutique hotel located in a central location, close to most of the major attractions.

Rome Airport Transfer

We travelled from London Gatwick to Rome Fiumicino airport. A cheap and convenient way to travel to between Fiumicino airport and Rome city centre (Termini train station) is by using the SIT bus. This cost us €6 each for a one-way trip on the way back. The most convenient way is to use the direct Leonardo express train (€14 a person per trip).

Visit the Colosseum and Roman Forum

The Colosseum and Roman Forum

The Colosseum and Forum were the sites that I enjoyed the most on the Rome trip. Both sites are definitely worth a visit and can be accessed with one ticket which can be used over two consecutive days. We visited the Colosseum on one afternoon and then the forum on the next day. Our tickets cost €12 for a standard and €7.50 for a reduced price. This was well worth it. The best place to buy the tickets is at the ticket booths of the Colosseum. Avoid the many touts trying to sell tickets at high prices.

Visit Vatican City

We had heard some stories about very long queues for entry into the the Vatican museums. To avoid this we headed straight to the museums and arrived after 3pm. There were no queues at all at this time, and there was no waiting. On top of the time savings, we saved money by not paying any “Skip the line” fees. There will probably be long lines there at other times.

Free attractions in Rome

Fiat 500 original vs new in Rome

Here is a list of the top free attractions that we enjoyed in Rome

  • Trevi Fountain
  • Spanish Steps
  • Villa Borghese gardens
  • The Pantheon
  • Il Vittoriano
  • Numerous Church Buildings

Food

It can be tricky to find good places to eat in Rome due to the wide range of eateries and many tourist traps. We used Tripadvisor to identify some nice places. A useful tip is to find places which  have a lot of good reviews provided by locals. Another tip is to have breakfast included in the hotel booking as this can save time and money.


Shopping and Souvenirs

It may be tempting to buy souvenirs and food items in the shops scattered around the tourist streets, but we found that the best prices can be found in supermarkets. Supermarkets often stock similar food, wines and gift items at half the price or more when compare to tourist shops.

This trip was really interesting and educational. In future I will provide updates on how to enjoy visiting fantastic destinations without spending excessively.