Now that I have a blog, I thought it would be a good idea not just to document finance-related stuff but also to share things that I read on the Internet that I find useful, get my attention, make me reflect, etc. Anything that I feel like it’s worth sharing really.
I initially wondered what name I could use for this. Then I thought to myself…I am a big collector of quotes, and so far I kept them all scattered around Google Docs documents, Google Keep notes, etc. Now that I have a blog, why not collect them all here and share them with the world?
So here we are. Welcome to the best quotes of the month collection – the first-ever edition!
The plan is to collect quotes that wowed me, that got stuck in my head, etc – then throw a couple of thoughts on them, and post here. Of course, each quote will have a link to its source, so you can go and read the rest of the content. This should be a fun game. And hopefully you, my dear reader, will find it something to take back home and think about.
So let’s begin!
Body size in biology is like leverage in investing: it accentuates the gains but amplifies the losses.
While reading through this months’ Banker on FIRE’s greatest hits, I landed on this blog post by Collaborative Fund. It’s an interesting one as it makes an analogy between the world of biology and the world of finance. The sentence above stuck in my head.
So far in my life, I have not yet made use of leverage. For example, I have not yet taken any short positions in any company, or started a new mortgage to buy a property to rent (would that still be considered leverage?).
This sentence reminded me of the book I have read last month, more money than God, by Sebastian Mallaby, where he makes a very good, in-depth historical analysis on hedge funds, how they came to be, how they evolved, etc. The use (and misuse) of leverage is a recurring topic found in that book (but also in the world of finance). If you are into finance, I would recommend you read it.
As discussed in Collaborative Fund’s blog post, leverage is a double-edged sword, just like the size. Being an elephant is cool and all. Elephants are huge. They can charge the hell out of everything (except this guy). But their size means they’re slower compared to smaller animals. They are also very visible. They can’t hide that easily.
The same goes for highly leveraged positions. They can result in huge gains, but can you get out of a huge position as quickly as you would with a more modest one?
The same forces that cause things to be great or terrible also plant the seeds to push them the other way
After reading the post mentioned above, I went on a reading streak on their blog and I found another good one. I could not ignore the quote above.
I started thinking about the above a lot. The blog post talks about two individuals who handled money in different ways. I don’t want to spoil you. Go and give it a read if you like.
But I believe the above is a gem in that it’s true that there are often forces pulling in opposite directions in everything we see and do in life. For example, take many FIRE-seekers like me out there. How many diligently save, invest but at the same time often feel a sense of deprivation? On one hand, there’s the force that pulls in the direction of delayed satisfaction, on the other hand, there’s that force that pulls in the direction of “here and now”. This might create tension.
But I believe when there is tension, there is an underlying genuine desire to go in one direction rather than another. In that case, one ought to surrender to that genuine desire. Why? Because you won’t regret it afterwards. You won’t feel that sense of deprivation (or regret, if you splurged on something you really did not feel like you really wanted to).
Of course, it’s not always simple. And life can be complicated. But I think you get the gist.
Were was I? Yes. Best quotes of the month...
Guess where I took the next quote? Yep, that’s right. Collaborative Fund. I found gold on this website.
Another great quote:
The only thing harder than gaining a competitive edge is not losing that advantage when you have one. That’s as true for careers and investment strategies as it is for business.
I think the above quote will resonate more with those who run a business. There are endless possibilities today, and this is awesome. But is just as easy to create something very similar, and get a slice from the same pie.
Reflecting on my career and where I am today, I wonder what’s my competitive edge. I don’t think I have the answer to this question yet. I’m not sure I will ever have one. However, I am pretty confident about my abilities, and about determining what works to what’s shit across various aspects of a software product.
Speaking about capabilities and careers, take a look at this quote:
Is a 54 year work career a cause to celebrate? Is that a success…or complete failure?
What’s the fuzz about this quote, you ask? Nothing is amazing about this quote. Though it’s a call to reflection. It makes me think. It stuck in my head really hard. And by doing so, it made its way to this post.
I am not sure how I feel about the thought of working for 54 years. I am even less sure about how I feel about working for 54 years in the same place.
Now, before you jump to conclusions, it’s OK to work for 54 years or more. It’s also OK to work for 54 years or more in the same place. It just does not compute for me.
I discussed this with Mrs Comet as well. She’s actually one of those who do not give a damn about working. She likes what she does. She could go on doing that forever. And that’s fine.
But for me? Not so much. However, given I only recently started saving and investing with FIRE in mind, I cannot ignore the fact I might work for a while. I am aiming at being able to retire by 40. Yes, that’s a challenge!
Onto the next quote…
Work that is well-paid yet meaningless, adding little value and helping no one. A familiar, yet uncomfortable, truth for much of the financial services and technology worlds.
This is getting depressing, isn’t it? Go with the flow, reader. Come along with me. The above is taken from Indeedably, another blog I discovered via Banker on FIRE.
This sentence resonated a lot for me. It’s what I felt in the last year after I joined BigFinCorp. I am not sure whether this is because I am going through an anticipated early mid-life crisis (I’m currently 34, is that even possible?), or whether it’s due to a complete lack of excitement for working at BigFinCorp. But this is real.
I mean…OK, I write software. OK, I can architect and build an entire platform, make it scalable, reliable, and secure (to the best of my abilities). What then? What for?
I think this is about the sense of purpose in what I do. In life. I don’t know.
This blog, for example, gives me some sense of purpose. There are various reasons why I decided to blog. One is to keep track of and hold myself accountable for my journey to FIRE. Another one is for me to crystallise my thoughts. As I write, my brain is in high activity mode. And then there is the goal of sharing stuff with the wider world.
I hope to be able to give something. My hope is for someone, at some point, to find stuff that I write here somewhat useful.
Monetise the blog? Maybe one day. That’s currently not in scope.
So yeah, after nearly 1500 words and a bunch of quotes found around the web, I’m going to close this first-ever edition of the best quotes of the month. Hope you enjoyed it. I definitely enjoyed reading the stuff mentioned above!
As part of my first series of posts, before showing what my investments look like (nothing exciting, I promise), I thought it would be a good idea to talk about how I manage my investments and money in general.
By “how I manage my investments and money” I mean things like, for example:
What to do in the event the markets crash
What to do should my life circumstances change
What to do if tomorrow I wake up and no longer remember what my money is there for and why
I have never been that bad at managing money. In general, I always believed in the importance of saving, to have a stash one can go back to in case of an emergency. Before moving to the UK though, I have always struggled, for a reason or another, to save enough and see that savings pot grow. But that’s probably the topic for a future post.
When I discovered the existence of the FIRE movement, among the various things that I learned is the importance to have a plan. I think it’s important to have a plan most of the time for most of the things in life except maybe while on holiday exploring (depending on where you are in the world, of course), but that’s a personal preference. And I have digressed again, have I not? 😅
The plan. I discovered that many people in the FIRE community produce, follow and keep faith in the so-called Investor Policy Statement.
But what is an Investor Policy Statement? Let’s try and find out.
What’s an Investor Policy Statement?
It’s essentially a document where goals and objectives are defined. But it’s not just a bullet list of things you want to happen in the future. That would be boring. We have enough bullet lists in our lives already.
It’s a document that should also describe howyou intend to see these things happen in the future. And ideally should also contain possible “plan Bs”, and possibly even “plan Cs”, if plans A or B don’t go as…well… planned.
Yes, of course, things can change. Things can happen. Life is life, and we never know for sure what will happen to us or those around us.
The name “Investor Policy Statement” has a very formal outlook, but it can be amended if necessary. I mean, it’s a document created by ourselves for ourselves. It’s not a binding contract with a third party or something that you have to maybe pay a penalty in case you find yourself breaching it.
Have I changed it? Yep. Twice already since I first created it back in August 2020. Although I must say one time it was due to a typo 😅
Ok so now with a brief but hopefully useful definition of IPS out of the way, I’m going to roll my IPS out below.
My Investor Policy Statement
As I said above, I created my first IPS in August 2020. That was the same month I discovered the existence of the FIRE movement and binge-read posts by Mr RIP and others in the space.
I took inspiration from these guys and gals’ IPSs and looked at my financial and life situation and in the end, I came up with mine. It’s an ambitious plan. And as you will see it’s heavily and aggressively focused on growth. Gotta push to become financially independent and be able to retire early!
So here it is.
At this time of writing, I have only 3 objectives. Why “only” in italic? You’ll see.
#1 Retire at the age of 40
This is the first one on the list and is a very clear goal. I want to retire at the age of 40. I am currently 34 years old. That means I have 6 years left to achieve this goal.
This is a very, very ambitious goal.
I am all in for S.M.A.R.T goals. This one, however (and as you will see, the next), really pushes the “A” (Achievable) to the limits. Probably over the limits 😀
I already made a quick-and-dirty calculation for when I might get to a place where I have x25/x30 of yearly expenses in the First Financial Update post, and I’m off the marks for 10 years! This is obviously depressing news. But I have to try.
And no, I’m not going to suddenly live by eating bread, rice and water for the next 6 years. I intend to keep enjoying the things I feel are worth enjoying. That’s another reason why I say this goal is very challenging.
By strategy to get there so far is:
1) increase the salary as much as I can 2) save as much as I can (whilst not depriving myself of things that I love), and aggressively invest 3) find alternative sources of passive income
For point n. 1), I can say I am on track. I am very lucky in that I already earn a six-figure salary. But despite BigFinCorp’s recent generous bonus, I am aware there are places out there that beat what they give out both in terms of salary and bonuses.
For point n. 2), I would say I just got started in terms of saving as much as I can. I joined BigFinCorp last year shortly after the COVID pandemic struck. And right after the excitement to hit the six-figure salary mark, me and Mrs Comet had to do some major housing works, which amounted to something like >£50k. That’s a lot of money. That’s almost 3 times the amount one can put in an ISA in a financial year. The all-to-common tirade about owning vs renting comes to mind and for a good reason. But I value the peace of mind that comes with owning vs the possibility – however small – of being kicked out at any given moment.
Yes, sorry. I got carried away again. Were was I? Ah, yes. Saving as much as I can and invest aggressively.
This is an ongoing effort and it will continue to be. I’m going to cover the investing part shortly. But for now, I can say that all pensions are “tuned” to be on the aggressive side. And – spoiler alert – my investment stocks/bonds split is currently 80/20.
For point 3), I would say that I am not putting in too much of an effort right now. And the reason is, I’m focusing more on point 1). It might seem like a lame excuse. It probably is. But the way I think about it is: once point 1) is sorted, I no longer have to think about it and so I should be free to direct my focus elsewhere.
I do have a few ideas in mind. As a software engineer, there’s never a shortage of ideas for The Next Big Thing™.
The thing is, The Next Big Thing™ might as well be a dead end. Alternatively, other options could be selling code artefacts (such as WordPress plugins) or selling knowledge about certain subjects (in the form of ebooks, for example).
So yes, point 3) is a tricky one.
Objective Current Status: 🟠
Now onto objective number #2…
#2 Have an annual income from my investments of at least £10,000
Hahaha! Well, that’s off to a good start.
How I could come up with this ridiculous goal, I really don’t know 😅 – but it’s there and unless a significant life event occurs or6 months have passed since the last IPS review, this goal is going to stay.
I really shot for the moon there. I don’t think I was thinking clearly at the time. Sorting out how much my investments have fared so far is something I have to do. So far I’m only keeping track of their value at the end of the month, coupled with a super simple growth percentage vs the previous month.
I think I need a new spreadsheet…
Anyway, that’s a very ambitious goal and – as I find myself thinking and writing about this – not a realistic one, either. Let’s see what happens at the next IPS review, which is going to happen in September.
Objective Current Status: 🟠
#3 Retire when FU number is achieved (25x/30x of yearly expenses)
This might sound like a dumb goal to set, but it’s actually a good reminder for me. Between here and the day I will get to 25x/30x of yearly expenses many things might change. It could be that in a couple of years things will change in such a way for me to not require 25x/30x. Or maybe not.
Now that I look at it, I think what I meant by “FU number” was “RE number”. The FU number is really a number you feel comfortable with having that allows you to pull a FU and walk away from the current job, knowing that you’ll be OK for a while.
I’m going to play the “but I was a beginner at the time” card here.
I still am a beginner. Being a beginner is a good place to be. It means there’s a lot to learn!
There’s not much I can add to this goal. It’s fairly clear. It has the same level of ambitiousness as the previous goals. And the same level of craziness.
Objective Current Status: 🟠
The things highlighted in this section for a distilled form of actions that I currently take to keep myself disciplined when it comes to managing my money. If all else fails, this is the place I will refer to, to help me “guide” through the ups and downs of the markets, and life in general.
Follow the buy and hold strategy (unless a significant life event occurs)
No market timing in all circumstances
Keep the large majority of investments in stocks (>70%)
Keep costs as low as possible
Drip-feed monthly to investments (see “Allocation Strategy” for more info on how this is executed)
Invest in index funds and avoid actively managed funds
Occasionally pick individual stocks
A lot could be said about the above. Let’s start from the first one.
As part of #1, I decided to follow the buy and hold strategy mostly because I am not yet interested in things such as active trading. My current focus now is on throwing as much money as I can into my investment and hopefully see them grow.
Point #1 is directly related to point #2. As I am not actively trading, there can’t be attempts at market timing (unless of course, the portfolio managers who manage the funds I am investing in do it – but I would not be able to do much about that!). Actually, as things currently stand, I could still try to time the market. Moving money from one fund to another would still count as trying to time the market. But hey, #2 is there for a reason. So that’s not going to happen (unless a significant life event occurs – more on this below).
There are tons of books out there that talk about why trying to time the market is a bad idea. It is sort of possible, but I believe is a mixture of luck and dark magic. Do not try this at home unless you know what you are doing.
My current stocks/bonds split is 80/20. Given how ambitious my goals are, given my age, etc, I often think about changing this to be 90/10. Then I tell myself that it’s OK for now, and move on. When I first drafted my IPS I was not yet sure on how the split would look like. I was only sure I would allocate the majority of my money to stocks, hence why point #3 has “>70%”.
Point #4 is obvious, but it better be there anyway. It might seem obvious, but that’s another of those “reminders”. It’s not only a goal but part of the strategy. In the end, the less I spend on fees, the more I can invest. HOWEVER, due to the fact I’m working for BigFinCorp at the moment, I can only use certain brokers, and Hargreaves Lansdown (HL) is known for not being the cheapest broker in the UK.
Why Hargreaves Lansdown? I’m glad you asked. That’s because BigFinCorp.
The subject of BigFinCorp and the [money-related] repercussions it had when I joined is a whole story in itself. The topic of another post at some point in the future.
Try to keep fees as low as possible folks. That’s not to say that all investments which come with higher-than-the-lowest fees are a bad idea. There might be a good reason and potential ROI. Always do your own research and due diligence before investing.
Point #5 is one of the most important ones. It’s one of those things everyone should do. Even if it means putting £10 a month (yes, really). As George S. Clason wrote in his book:
A part of all I earn is mine to keep.
George S. Clason, The Richest Man In Babylon
A very wise advice indeed. This is something everyone should do and from an early age, too.
Points #6 and #7 go into a bit more detail in stating what my invested money should go. As much as I would want to, I don’t currently invest in ETF and/or pick individual stocks. That’s again due to BigFinCorp.
Technically I could, but it’s too much of a hassle due to compliance requirements a BigFinCorp employee has to meet. For now, I deliberately decide not to do it. Maybe I’ll change in the future.
On point #7 specifically, trading stocks while on HL could get pretty expensive pretty quickly. Another option could be to use Interactive Brokers (IB), but at this stage, given the amount of money I invest (~£1000k/mo), it would not make much sense, I guess. So I’ll pass on that, for now.
This section of the IPS is short and concise. It’s here to put some rules around when and how often the IPS should be reviewed, what should be reviewed, etc. It reads as follows.
This Investor Policy Statement (IPS) is to be reviewed every 6 months OR after a significant life event occurs.
Major asset allocation changes are to be done every 5 years OR after a significant life event occurs. By “major asset allocation changes” here I mean changing the percentage of asset allocation (i.e. going from 80/20 stocks/bonds to 60/40 stocks/bonds).
Examples of “significant life event” are:
Having a child
Selling/Buying a house
FIRE is achieved (!!!)
You can see this is fairly precise. I thought reviewing every 6 months would be a reasonable interval. I know some people do it every year, or even every 3 months. 6 months works for me. It’s enough to “let things simmer” if you see what I mean…
As stated above, making major changes to the way I allocate the resources is a different story. 5 years might seem like a long time. And it probably is. I mean, it’s 5 years after all 😄 – but when it comes to investing for the long term, I believe is pointless to make major moves in a short timeframe. It could actually harm your long-term goals, portfolio, or ROI.
In a way, that could actually err on the side of trading. Trading is not investing. They are two different things. Yes, the goal is for both to make money, to increase wealth, etc. But they play different games, with different rules.
So yeah, 5 years, unless a significant life event occurs.
Ok, now we start to get into the nitty-gritty of it. Please note this section has nothing to do with cash reserves or the emergency fund. See the “Cash Reserves/Emergency Fund” section below for that.
My current assets allocation is as follows…
High level assets allocation:
Detailed assets allocation:
Of the 80% of stocks allocation, split as follows:
30% US (20% Large Cap, 10% Small Cap)
30% UK/EU (20% Large Cap, 10% Small Cap)
5% Emerging Markets
Of the 20% bonds allocation, split as follows:
10% Govt bonds (5% Eurozone, 5% US)
10% Corporate bonds (5% Eurozone, 5% US)
Looks complicated? Maybe 😆 Overly diversified? Perhaps. Or perhaps not.
Yes, I’m heavily focused on “the West”, leaving only 15% of my total allocations to go to non-US, non-UK/European areas/markets of the world. Why is that? “To play it safe” – and remember I am still a beginner, a newb. So this could all be a huge mistake. But as I keep on learning about the markets and the finance world in general, I hope to get to a place where my decisions have been based on well-founded-enough reasons.
OK Comet but…WHERE’S THE CRYPTO??
I kinda saw that coming. And my answer to that is:
I might talk about where I stand when it comes to cryptos in a future post. I make no promises.
Next up is my allocation strategy…
My allocation strategy is a bit weird, but I found it works for now. Also, please note that by “allocation” here I mean where the money goes across the board. Not just how it splits in between stocks and bonds. This includes allocating to LISAs (if any), moving in and out of savings accounts, and of course, allocating to the Stocks & Shares ISA.
Now that you have a bit of an introduction to it, here’s how it looks:
If a LISA is in place, contribute to this first until the yearly limit is reached (£4000 a year up to the age of 50), so that the government bonus is taken advantage of (max £1000 per year).
Contribute a minimum of £100 to all pension pots available every month. When the yearly allowance is reached, stop contributing and invest the money directly.
Keep an eye out for current/savings accounts paying high interests.
Monthly contributions should go to S&S ISAs until the yearly allowance is reached (currently £20,000), and then go to brokerage accounts after that (i.e. Interactive Brokers)
Monthly contributions should go to the riskier investments first, then go to other asset types. For example, if the asset allocation is 80% stocks, 20% bonds, then invest in stocks first, then the rest goes to bonds.
I try to max my LISA contribution out as soon as possible. In fact, one day after the start of the 2021 financial year I put £4000 straight into my LISA. The sooner I get a bonus (and the sooner the interests start to be calculated), the better.
Point #2 is an interesting one. Some people advise to close pension pots from previous companies and consolidate them all into one. Maybe they’re right. From a money-management standpoint, it would definitely make sense as it would simplify things by a lot.
The reason I have not done this was pure curiosity and a probably ill-fated, unnecessary over-diversification strategy at the pension provider/pot level. I am curious to see how each different pension pot performs over time. So that’s why I still have them.
I don’t have much to say about #3 and #4. Except for #4, I have not yet had the pleasure to max out my yearly ISA contributions. So far this year I contributed £7100 (£4000 LISA + £3100 S&S ISA). Maybe this is the year I will start to hit this milestone 😀
The last point, #5, is fairly obvious: put the money where there’s the most potential to get a better ROI. Of course, it’s my point of view. It could well be that in a given time period, bonds would be the asset giving back a better ROI. Who knows.
There is one thing that you might have noticed is not in my allocation strategy: maxing out my employer pension contributions. Currently, BigFinCorp contributes to my work pension pot, but I do not. I do “contribute a minimum of £100 to all pension pots” I left open from previous companies. But every month, I don’t currently pay a penny to my current employer’s pension provider.
I know, that’s probably a rookie mistake. The rationale behind this at the moment is: I don’t know whether I would need cash at the ready. So I decided to take it in and throw it at the S&S ISA. Yes, I have the emergency fund if I need cash, but still…
Hmmm. Writing this down here is making me think more and more. I might actually change course here and start contributing out of my yearly salary. That would come with the added benefit of reducing my NI contributions (by not much, but still). And the pension contributions would be all pre-tax.
I think there will be updates on these topics very soon. I knew I was right in not putting this stuff on the IPS as it could have changed at any time 😉
My rebalancing strategy is not that complicated. I currently stand by two simple rules:
When rebalancing due to excess reserves, sell the excess and use the proceeds to rebalance
Trigger a rebalance when any kind of allocation “drifts” by 10% of the allocation amount with respect to the other kinds of allocations
Super easy, right?
Too easy? Maybe.
I have not had any episodes of rebalancing since I started investing. I am not sure whether this is a good or bad thing. I suspect this is mostly due to the fact my investments portfolio is tiny. At this time of writing, it’s in the region of £20k.
The day I will do my first ever rebalance I will make a blog post. I promise 😀
Cash Reserves / Emergency Fund
After 3000 words, we are getting to the end of this!
This is the last section of my IPS and is focused on cash reserves and the emergency fund definitions/policies. It goes as follows…
The Emergency Fund should contain 5 months worth of net salary and must live in current/savings accounts which allow easy and immediate withdrawal if/when necessary.
In the event of the Emergency Fund being withdrawn from (i.e. unexpected works in the house, personal/family emergencies, etc), the fund should receive 15% of the amount that can generally be saved monthly.
Initial Emergency Fund amount
Emergency Fund amount after withdrawal
Monthly savings amount
Monthly savings amount allocated to Emergency Fund
Calculation: 15% of 3,000 = 450
Contrary to “popular wisdom” where it’s commonly said one should keep 6 months worth of salary for rainy days, I keep just five. From time to time I actually mull on the idea to lower that to four. Me and Mrs Comet both work full time. So, all in all, in the event something should happen to me, she could cover for me. And vice versa.
So I “take advantage” on this and allow myself to just keep 5 months as emergency fund instead of 6.
The most important bit in this section, though, is the emergency fund recovery strategy. As you can see, my strategy is to keep on investing whilst getting the emergency fund back into good shape. This is crucial for me to not feel like being “stationary”. This strategy gives me a sense of “movement” (in the sense that I keep on contributing to the growth of my investments/NW/etc).
Well, technically it has gone live since yesterday evening, but I configured a few things such as emails, blog settings, analytics, etc first. This morning I just double-checked a bunch of stuff and… boom! Here I am, logged into my productionenvironment (as generally defined in my field), ready to create however many posts/pages/contents.
It’s a strange feeling. It’s not the first time that I go live on the Internet for all to see with something. I actually had a couple of non-anonymous attempts at blogging before. But these were solely focused on software engineering. I say attempts because, at some point, I ended up being either bored, or I left it to drift away or got distracted (something that happened a lot in the last decade or so), or I simply caved in and abandoned it because all of a sudden I thought it was pointless.
This time it feels a bit different. Reading the blogs of Mr RIP, livingafi, and others, left me with a feeling of inspiration that is difficult to describe.
I like the concept of getting it all out there (anonymously, or otherwise) and use it as a motivator to push myself, to move forward, to get closer and closer to financial independence, to get to a point where one could decide to not work for money anymore. That’s a dream (one of the many). I know, it’s a journey. For some, is a veeery long one. For others, not so much.
If you read my first financial update post, you know I’m sort of just getting started. If I compare myself to the likes of other FIRE-practitioners (or should I say, FIRE-pursuers?), I’m way, way behind.
But I am working towards pushing my income to the moon (or as some Redditors on WallStreetBets would say, to the moon! 😀). I also have a few passive income-generating ideas. And I actually have a “full-blown” SaaS project in the pipeline (distractions, distractions). For those not working in the field, “SaaS” means Software-as-a-Service. Think of it like, I don’t know, Netflix…where you pay a subscription fee for watching stuff.
Where was I? Ah yes. This blog.
I don’t think I’m going to talk about software/platform engineering stuff. Or at least I don’t plan to for now. I did consider naming it “Chronicles of Money, Engineering and Time” at the beginning. Given I am a software engineer, I thought it could be useful to share tips & tricks or ways in which I do things. In fact, if you look closer, the logo even contains “engineering elements” such as the cogs and the tiny windows with “</>” in it 😄
But then I thought…why would anyone be interested in reading about this stuff?
I mean, there are already tons of resources out there. Some great, some less great (IMO). So I ditched the idea and changed the meaning of “E” from Engineering to Economics. Because in the end, that’s what I’m going to talk about here: money stuff and economics stuff.
Maybe one day I will create posts focused on software engineering stuff. Or maybe not. Who knows.
For now, the focus is going to be on documenting my journey to FIRE. On that note, I should probably start by describing what my investments look like. I already talked about my current net worth. But I made no mention of things like the Investor Policy Statement, or where I currently invest my money.
I hope you had a good weekend. Here in the UK, it has been a fairly sunny one. I, my partner (which shall be named Mrs Comet from now on), and our doggo (which I am yet to find a suitable nickname…Comet Dog maybe?), went for a long walk in a big park near where we live.
It’s a beautiful park. We go to this park fairly often. It reminds me of places where I come from, in south Italy, where there are mountains, woods, but also the countryside, hills and grasslands. I feel particularly happy when there’s that smell of wet earth (which was the case this time). My mind immediately summons images of childhood and happy moments. Very refreshing.
Wait what? Ah yes, my first financial update! Sorry, sometimes I follow my train of thoughts and I digress 😅
OK. Welcome to my first financial update! This is my very first post about personal finance. It could be messy, it could be not. It could be boring, it could be not. Who knows!
Sit back, relax and enjoy your reading.
Spoiler alert: no, I’m not a millionaire, yet!
Net Worth, Assets, Liabilities – what are they?
Before I dive into my net worth (NW) and how I calculate it, let me first define NW, assets, and liabilities. Most of you will already know what these terms mean. But for those of you who don’t, here it is.
According to Wikipedia, Net Worth is defined as:
The value of all the non-financial and financial assets owned by an individual or institution minus the value of all its outstanding liabilities
Easy peasy. So based on the above definition, the mathematical formula is:
Net Worth = Assets – Liabilities
Great! Now let’s quickly figure out what assets and liabilities are.
Again, taking the definition from Wikipedia, an asset is defined as:
Any resource owned or controlled by a business or an economic entity. It is anything that can be used to produce positive economic value. Assets represent value of ownership that can be converted into cash.
Now this is a more verbose definition. An “economic entity” in this case is me (or you). A person.
The sentences “anything that can be used to produce positive economic value” and “[…] can be converted into cash.” essentially say that an asset is…money 😀 (or something that can be converted to money).
An example of an asset is a house. If you decide to sell it, it will produce positive economic value (hopefully!) and/or can be converted into cash the moment you sell it.
Another example of an asset could be a car. Some people consider it an asset. I personally don’t. But that’s mostly because I don’t intend to sell it (so I don’t intend to convert it into cash). And even if I did, I would probably “swap” that with another car.
If I did list it as an asset, I would have to keep track of its depreciation, which might be more of a hassle. So that’s why I don’t. The only time I would probably list the car as an asset is if I were paying it in monthly instalments. In this latter case, the car is an asset but also a liability (more on that below).
Did I digress, again? Yes? My apologies 😅
What was I saying? Ah, yes. Liabilities.
This time I am taking the definition of liabilities from Investopedia, which I think it’s put in more simple terms than on Wikipedia:
Liability is something a person or company owes, usually a sum of money
Essentially means debt. Every time you need to pay out money for something, such as a mortgage, or – as I mentioned above – your car monthly instalments, that’s debt. That’s money you owe to others. That’s a liability.
So now that we know what NW, assets, and liabilities are, let’s go back to my first financial update, shall we?
My Net Worth (and how I calculate it)
The way I calculate my net worth is exactly as the formula shown above:
Net Worth = Assets – Liabilities
Super simple, right?
Yes. But wait! I should probably first clarify what I put under the assets bucket. Different people put different things under the assets column. This is what I put under assets:
My primary home (this also appears under liabilities because I have a mortgage)
Savings (current accounts and any non-investment type of ISAs, such as, for example, cash and lifetime ISAs)
Investments (stocks & shares ISAs, money that goes into mutual funds, ETFs, stocks, commodities, etc)
With regards to my primary home, I should also say that I am currently guesstimating a value based on similar houses nearby that have sold at the time of purchase (which was in 2019…see that huge dip in the graph below. Ouch!) and I am dividing both the house value guesstimate and the mortgage by 2 because I share the mortgage with Mrs Comet.
So, all that factored in… *drumroll* …here’s my net worth! 👀
As I mentioned at the beginning, sadly I am not a millionaire yet. That’s work in progress!
My current NW amounts to roughly £140,000. Not bad. Nowhere near 25x/30x of yearly expenses, either (more on that below).
Now let’s move on to my income, expenses and savings rate, shall we?
Current income, expenses, and savings rate
My income has luckily increased over the year. I have been working hard, training hard but also I have been constantly looking to try to increase my monthly take-home pay. Sometimes that came in the form of promotions at work. More often than not, that came in the form of me changing company.
My income currently stands at £6k and something. I currently have no passive income. Despite me working for BigFinCorp, I get no RSUs, stocks, etc. I know people working for FAANG companies do. Lucky you!
I do get fairly good bonuses, though. This year, in fact, I received my first bonus since I started working for BigFinCorp and it was like 3x my monthly salary. A very generous bonus. And I’m not even sure that was the maximum I could get. I suspect it was not.
BUT…sadly, all of it (and more 😭) was used for a major housing work.
The “housing” expenses category is the one that is more prominent among the other categories.
You can see it very clearly from the pie chart above. The housing category wins. One of the reasons is because I pay £1k just for the mortgage. I put the council tax under this category as well. This month specifically, I also had to renew the house insurance, and so I had to say goodbye to £460. The house insurance is a requirement until I have the mortgage on the house, so there’s no escape from that. The good thing, I guess, it’s that it’s an annual cost. So it pops out only once a year, just like car insurance.
I know what you are thinking…
What the hell did you do with that £306.21 for Dog?
I’ll tell you what I did. Unfortunately, Comet Dog fell very sick at the end of March. He had an intestinal infection and had to be treated in the hospital. He was hospitalized for 3 days. His insurance covered most of the expenses (around ~£2k), so the rest is “spillovers” and medicines. Plus there’s a grooming session in there.
He’s fine now, thankfully. I am expecting to see a sharp drop in that expense category in May.
The ~£250 in bills is also unusual, the water bill had to be paid to Thames Water, our water utility provider. We don’t pay every month. It’s something like every six months. I always forget. But from time to time, it pops up. The Bills category also include my phone bill (£8 – GiffGaff, you guys are awesome ✌️) and the broadband bill.
The Healthcare category has been empty for months before, but lately, it includes my (virtual) meetings with the therapist. Life (or rather, the mind) is strange. I consider myself a lucky person. I have a house, a lovely partner, a dog, a good job…and yet, I felt down and depressed in the past year or so.
It has not been a constant feeling, but it would come and go in waves. So, a few months ago I started seeing a therapist. Hopefully, he can help me understand why this happened.
Last but not least are the Groceries and Eating Out categories. I consider myself a fairly frugal person. I don’t spend unless strictly necessary. But we do like to enjoy takeaway every once in a while.
And on the regular food that we eat, we reduced meat and fish consumption and try to maximise vegetables as much as possible. But when it comes to food, I would rather pay a small premium for good food than not. Then there are certain things which can only be found in certain supermarkets.
For example, the French Dark Sourdough. This bread, so far, can only be found at Waitrose or Ocado. It’s the closest thing that resembles the bread found in Italy. And I’m definitely not going to walk away from it! 😛
Yes, there is a wide variety of bread out there, like the famous loaf. But I’m not a big fan. Sorry my dear fellow UK co-citizens 😇 – so yes, I am willing to spend like £3.30 for bread (in south Italy it would cost half as much!).
This brings us to the end of the expenses analysis. And the result is… 🥁 🥁 🥁
50.24% savings rate – woohoo! 🥳
But it has not always been like that. Look how my saving rate fared so far this year.
The first three months of the year were the worst due to A) the expenses resulting from the housing work (January & February) and B) Comet Doggo going to the hospital (March).
But now Comet Doggo is fine and the housing work has been fully paid for. So the goal is to go back to saving as much as possible, month after month.
It’s the only way to get to FIRE early! (not counting additional sources of passive income)
That brings us to the closing remarks for this first blog post of mine (phew!)…
The road to FIRE
I only discovered the existence of FIRE last summer.
I was on holiday here in the UK (it was in between that short summer break where people could go to places despite the pandemic) and I still remembered how I got so hooked and passionate about the concept and that I literally devoured most of the blog posts by Mr RIP from Retire In Progress in the space of a week (nights, to be precise – I was walking along the beautiful cliffs of Seven Sisters during the day).
Mr RIP, if you are reading this, I want you to know you’re awesome. You and many other FIRE-seekers have changed my life. I might actually do a blog post about the FIRE-seekers I follow which have inspired me to start this journey.
But hold on. Where was I? Ah, yes. The road to FIRE.
There’s a lot of work to do if I really want to push that line on the graph up. Considering I’m almost 34 years old and with the prospects of potentially having kids in the future, I need to try to save and invest as much as I can. I most definitely need to find sources of passive income.
At the moment my full-time job at BigFinCorp is the only source of income. Despite my salary falling into the top percentile (>£100K), it’s still going to be a challenge to turbo-boost my NW to 25x/30x of my early expenses.
The 25x/30x of yearly expenses is commonly considered to be the “right” amount of money needed to retire early. It’s called “The 25x Rule“. I could start a whole new blog post about this (and I probably will), but simply put, once you have that kind of money, you’re “done”. You can retire early.
Of course, this is an oversimplification. There are many things one ought to consider: investment return rates, expenses, taxes, etc. Not to mention personal circumstances which will be different for every one of us.
In my current Investor Policy Statement, I set a goal for myself to be able to retire at the age of 40. I know you are thinking I’m crazy. I probably am.
According to the Early Retirement Calculator, based on an annual net salary of ~£72k, yearly expenses of £40k, and a savings rate of 50%, I’m going to retire in 16.6 years.
34 + 16 = 50
That’s 10 years after my current goal! But I will keep on pushing to get there earlier regardless.
By now you might be thinking that I am moaning for nothing and get agitated too much. That there are a lot of people out there whose lives are very different. Many are not so lucky to have the same salary, or to have a roof over their heads, etc.
And you would be right. Mine are good problems to have. But that does not mean I should not complain about them or try not to solve them. We are all here to do our best. Well, we shoulddo our best.
Otherwise, what’s the meaning of all this if we don’t try to do the best we can out of the situations we find ourselves in?
We should not just look at the stars. We should not just aim at them, we should shoot for them. Right?