It's January, which means I've now been early retired a full year. It's a good time to look back at what's gone right and whether anything hasn't worked out as expected. In total, there are four posts in this Early Retirement Review mini series:
Today it's the turn of Money.
I've been publishing my costs each month, so it's time to add the December information and have a look back at the overall totals.
A quick recap:
Back in January 2017, we set a cash budget of £44,400 ($54,805) per year or £3,700 ($4,567) per month. To get this, we need pre tax income of £50,000 ($61,716) a year.
These figures were mostly plucked from thin air. A round number that I had in my head, not something that I carefully worked out. Anyway, the first year was mostly finding out how much it costs to live, and not so much about hitting budget numbers.
I show the figures in USD and GBP. I used exchange rates at the beginning of the year and haven't made adjustments as exchange rates move - I don't think it makes a big difference.
We don't have housing costs in the way of mortgage or rent. I'm highlighting this as it will be a big cost for some, which we don't have.
December 2017 Costs
So here are the numbers. The tables are bigger than usual as I've shown all the months. The first table is in GBP and the second table is the same information in USD, so you can just look at whichever table/currency you prefer.
Comments on December Costs
Christmas increased our costs. We bought gifts (for 19 people) and also our grocery bill skyrocketed. Our kids were back home, so we shopped for a family of 4 again, and also bought treats and more expensive foods. My routine went out of the window and we mostly shopped in the expensive supermarket which costs 20%-25% more...ouch!
We probably bought some gifts at the grocery store and included these in grocery costs instead of gifts by mistake - but I don't have figures so haven't tried to adjust.
Insurance costs are for Sally's car.
The negative cost in overseas running events in December cancels out the same cost in October. This is my (seriously expensive!) hotel for the Boston marathon. As this event is in 2018, it makes more sense to show in the 2018 costs.
On the other hand, the vacation costs in December are flights for our February 2018 ski trip. I've left them in as we had similar flights for our February 2017 ski trip, but these didn't get picked up as we paid for them in 2016 (maybe two wrongs do make a right?).
Review of the full year 2017 costs
We overspent against our budget! Our full year costs were £50,111 ($61,853) against our budget of £44,400 ($54,804). That doesn't sound good, it's 13% over budget. But I'm sure we can easily save some money in these places:
I'm fairly sure that these savings of £788 ($973) a month are realistic because:
Grocery bills - I price checked our actual bills against Sainsbury supermarket in the UK and Walmart in the US, and both showed grocery costs would be 75% of what we pay in Dubai (even less if we were to shop somewhere like Aldi).
Going out costs - I also price checked going to a restaurant (just in the UK this time) and found it could be 40% or 50% less.
Holidays/Vacations - we currently take inter-continental trips (for now, we live in Asia and our families are in Europe), but expect to replace these with short haul vacations, which will bring the costs down. We also pay quite a bit for our kids on vacations, and this will reduce as they start working.
For these reasons, I'm not depressed about the costs. Yes, they are a little more than I hoped, but I can see where they will most likely reduce once we relocate and now that the kids have moved out. There will probably be a few increases as well, but not so big.
What I've learned about money
I was an accountant before taking early retirement, so surely I shouldn't have too much to learn. Or if I do, then maybe I wasn't a very good accountant! Hmmm, let's keep that a secret.
Some things I have learned during this past year are:
Take a little bit of time to save money
I price checked my grocery shopping and by changing to a different supermarket saved 20%.
I shopped around for car insurance, removed elements of the insurance I didn't need, and saved 40% on one policy.
I looked at changing utility providers to get a better deal. In the end, I kept the same provider but saved by switching tariffs.
I reduced the mobile phone and cable TV bills by removing the services and channels I wasn't using.
I take indirect flights which cost less.
Sold my car (Sally still has hers). I quite enjoy the bus. I have the time, my Kindle and a world outside the window.
These savings took some time, but not too much, to arrange, and mostly were one off items, so I don't have to do it every month. I should have made time for this when I was working, but I didn't. It was a mistake to miss out on this free money for all those years.
Having less money helps you appreciate value
I'm not talking about poverty here, which can never be dressed up to be a good thing. What I'm thinking about is that when I was working, we had more disposable income than we do now.
Surely that's a good thing. But I now think it meant I spent money without enough thought or care and, because of that, I didn't value what I bought.
Now my budget is less I'm more careful about what I buy. Do I need it, will I really use it, is it what I really want or would I rather wait until I find the perfect thing? I enjoy this thought process. I now buy less, but value what I buy much more.
People have different ideas about value
People's perception of value is not always the same. What I really mean is my idea of value is not always the same as Sally's.
For example, I think our going out costs are way too high, but Sally doesn't. I also think our coffee shop/casual dining cost is too high, but I'm more comfortable with this as I feel I get value from it.
It's not that one of us is right and one of is wrong (although Sally's normally quite clear that I'm wrong!), it's just different points of view. We need to be flexible and understanding of each others views, which isn't always easy when money is involved - especially as really I'm right😂
Procrastination is a bad thing
We sold a house three years ago. We used some of the sale cash to invest in rental properties, but a big chunk just sat in our bank account.
I wanted to invest in the markets, thought valuations were too high, so did nothing. I realised this, made a firm decision on what to do, got scared because the markets were now even higher, and did nothing again.
What an idiot! I was going to look at the graphs to see how much growth I missed, but that would be depressing, so I scrapped that idea. Well over 30% though for sure. I think I might cry!
I procrastinated. Let's hope I've learned my lesson. Doing nothing, or holding cash is OK, as long as it's the planned action. I procrastinated and did nothing because I was scared. That's not OK.
A little bit about our investments & income
Investments
66% of our net worth is invested in property, I guess that's high by normal standards. 52% in rental property and 14% in an apartment that we are buying in the French Alps.
The apartment in the French Alps only completes later this year. We plan to stay in it for a short period, and then decide whether to make it a permanent home or make it a rental property. Because it's small (like, really really tiny), I suspect we'll rent it out to holiday makers, but reserve it for when we want to use it.
32% of our net worth is in ETF's, stocks and bonds. We've made money, but only about 4.6% based on the year end invested figure. That's poor compared to the market. There are some mitigating factors: I wasn't invested for the whole year and I don't have return figures for all investments yet - adjusting for these would probably push the figure to 6%-7%. Still not great given the market performance, I think because we have some high fees (I'm a slow learner on this), a leaning towards some cautious investments, and simply we probably haven't had the best investments for the year (although hindsight is a wonderful thing).
Income
From our rental properties - £51,384 ($63,400). This is great news because it covers our living costs without needing income from other places. Plus, some of our properties only came on line during the second half of the year, so this will probably be at or over £60,000 ($74,000) next year. I like this income as it's quite secure - it doesn't depend on stock markets doing well (people need somewhere to live in good and bad times), and the income also increases with inflation.
From our investments - we got growth of £47,605 ($58,737). We could have withdrawn this as income for our living expenses, but we didn't need to. It's therefore been reinvested.
My earnings - I earned £9,641 ($11,902) in April. Yes, I've retired early, but when I left my job, there was one item that I said I would go back to do. This was a one off, and won't repeat this year.
Sally's earnings - Sally has chosen to continue working (until July 2018, when she is taking a year off). I won't disclose her earnings as they're personal to her (and it was my decision to blog).
In summary:
We paid for all our living costs from the income from our rental properties. I'm super happy about that.
We made money from our investments (albeit not as much as we probably should have). We could have withdrawn this as income, but we didn't need to, so it's been reinvested. That's a great place to be.
Between Sally's and my earning, we paid the college costs for our kids. This is better than our plan which was to pay it from savings.
I started my full time early retirement on 1 January 2017, and one of the major aims for the first year was to see if we could afford it. It's great to be able to sign off from this post with a resounding YES