The income side
Although I've posted our costs for January and February, I haven't said anything about the income side of the equation i.e. where is the money coming from to pay for what we spend, and what makes us think that the money won't expire before we do!
The reason I haven't focused on the income side is that there are many different ways that people may invest their money or savings to get an income, so our situation will quite likely be different to yours. This is less the case on the cost side, where I think there will be more similarity, i.e. we all have grocery bills, utility bills, costs for entertainment, hopefully holidays etc.
So even though it may not be entirely relevant, I thought you may still be interested in where our money comes from - I know that I would be intrigued if I were reading someone else's blog.
What I'm therefore going to cover here is:
1. How we got the money that we have
2. What do we invest that money in
3. A mini report card of whether I think I'm doing a good job with the investments
Starting with point 1, how did we get the money that we have now invested to provide us with an income? Keeping it simple, there are three main sources:
A. 75% of our lump sum comes from Sally and I having worked hard and lived sensibly which allowed us to put some savings away. To be honest, we didn't manage to save much while we were in our twenties and early thirties, but did much better in the last 10 years when Sally went back to work as the kids were older and my earning capacity was at its peak (until I quit my job at the age of 47).
B. 20% of our lump sum came from profit on selling what was our family house at the time. This actually happened twice, once in 2006 when we sold our family house in the UK (as we were working in Dubai and therefore not living in it) and again in 2015 which was the house that we had bought in Dubai and which we sold for nearly twice the amount we paid for it. While this has given us cash that we can now earn an income from, it also means that we don't now own the house that we live in and so we are having to pay rent. I'm not sure what we will do about this in the future, but I do know that if we were to buy a home, then it would probably be for a third or less of what we sold the Dubai house for.
C. The last 5% of our lump sum comes from inheritance.
In addition to this, Sally is still teaching, so we get income from her salary each month. We need this while we are living in Dubai (because it is expensive and we have extra travel costs), but I hope that we could manage without her salary if we were living in Europe for example.
Now for point 2, what do we invest the money in - it's not very complicated:
A. We like property, and have 63% of our lump sum invested (or soon to be invested) in property that we let out. Two thirds of this (7 properties) is already in our possession and tenanted, so it's providing an income for us right now. The other third is for property (4 properties in a low cost area of the UK and an apartment in the French Alps) that we are currently purchasing so the income will start to come through over the next year or so.
B. 27% of our lump sum is invested in various funds through a financial advisor. We had a bad experience with a financial advisor in the past, so we are still quite nervous about this. However, we changed to our current advisor three and a half years ago and it's going OK so far. We are fairly low risk investors, and are therefore reasonably happy to have made a little over 5% each year on our funds. We would not say no to a bit extra and probably could have got more by taking higher risks, but if I could get 5% plus each and every year, then I think that's OK.
C. The final 10% is held in cash, and we need to do something with at least some of it. Sally wants to reserve part of this to do a property renovation at some time, but we ought to put this cash to work in the interim.
To point 3, am I doing a good job with the investments? I suspect that the answer is probably that I could be doing better. However, I sleep pretty well with these investments, and that is a really important thing for me. I'm certain that the property investments are low risk, and they do give us a decent amount of income each month - I think it is close to being enough to live on if we were living in Europe or the USA (not in
London or Manhattan though!) assuming an average lifestyle. There are no doubt other investments that would get us a better return, but I would not sleep so well at night. We don't count on any value increase on our property, and I think this would probably show them as pretty good investments if we took that into account but, as we are not looking to sell them, the capital appreciation isn't so relevant. While I'm content with the 5% on the funds that we have invested through the financial advisor, I probably should be benchmarking this somehow to test how good this is, for example, how does it compare to the FTSE100 or SAP500 or a benchmark fund? - this should perhaps be a target that I set myself. Lastly, one thing I haven't done well is to make the cash work for us. Although we are now doing better on this by buying more property to add to our buy to let portfolio, it has taken us nearly two years to do that, and the cash has sat there doing nothing in the meantime, which wasn't very smart.
So, there you have it. A quick run down on where our money came from, what we are doing with it, and a mini report card on how well we are doing with our investments.