So here I am, surveying the financial wreckage after a wedding and a honeymoon. I had been dreading and looking forward to totalling up the total wedding costs in equal measure.
For someone seeking Financial Independence it sure feels like an abhorrent amount of money was sucked out from Mr Zombie Limited.
Seeing the total cost in plain Calibri font in Excel is a painful affirmation of the cost of a wedding, even if we came in at under the national average (or is the average here?). I’m not going to disclose the total cost of our wedding, but it was enough to make my crusty undead eyes emit a picolitre of moisture.
To any auditors of the financial statements, the wedding and honeymoon costs will be clearly marked up as ‘one off extraordinary items’.
“Hey, ignore those chunky costs, don’t worry, be happy. From here on out it will be clear sailing towards the serene islands of financial independence. I promise.
Yours in earnest,
Mr Zombie, CEO”
That’s rarely the case though. As Ermine pointed out so eloquently, the journey is far from a linear one.
Life is not some model in Excel, add a few assumptions, hit F9 and watch the projected wealth streak forth in a near linear fashion to a pre determined goal. Any financial models we build are just (extremely) simplified versions of reality, designed to help us plan at a very high level.
The beautiful chaos of life inevitably has its way with you and your finances. As you batter down one road of possibility, one probability out of an infinite number of choices, so your wealth follows.
You can make choices that positively influence your wealth, but trying to maintain complete control is too tiring. And possibly negative, many of the paths will lead in broadly the same direction anyway.
With that in mind, there are some things that are worth preparing for. A journey as long and treacherous as the one towards Financial Independence is sure to be peppered with beasts.
“Here be monsters” would be a good warning to anyone preparing to start the quest, a warning that should be included in the “Guide to FI” pamphlet as you start the journey.
Some of the monsters are ones that we can expect, or choose, to meet. So we should really do some training and be prepared for the upcoming battles. “Spectacular achievement is always preceded by unspectacular preparation” and all that.
The first is the Beast of Purchasing a House. You build up a nice chunk of savings only to ‘lose’ it all to a deposit on a house. It can feel like a step backwards, to apparently lose all that wealth.
It’s not lost really, rather it has been transferred from cash savings into bricks and mortar. It’s a question of asset class and the loss of liquidity, really.
To buy or not to buy, is a simple yet horribly complicated question. Either, you are paying rent (and bowing to the whimsical powers of inflation and landlords) or paying a mortgage and upkeep (and bowing to the powers of interest rates and market values).
Buy a house and once it is paid off you are rent free for life, with only upkeep costs to pay. Don’t buy a house and you need extra funds stashed away to provide enough return to cover your rental costs.
Many hopelessly underestimate the costs of owning a house, money spent on repairs/upgrades and the time cost of doing any DIY work yourself. Statements like I bought my house for X and sold it for Y and so made (Y – X) profit are so very misleading.
A property on my street costs about £250k. Drop that on a house and you could live rent free for the rest of your days. But you’d need to have a fund to pay for upkeep, say 1% of the house value a year. Let’s say you cover this using the 4% rule, that’s £2,500 / 0.04 = £62,500. £62,500 that you would need to hold and invest to theoretically cover your upkeep costs.
Or you could use the £250k and the £62,500 to cover renting a property. At 4% this would cover a monthly rent of £1,042. Zoopla estimates the rent of a property on my street at around £850 – £1,000. Fairly similar, if you have the capital.
Either way you need a place to live. The Finance Zombie believes that much of the difference between buying and renting would come out in the wash in the long run, sadly there’s no way of knowing with any certainty which is the right choice upfront.
Perhaps the Beast of Purchasing a House is a false one, as we all need a roof over our heads.
The second beast is the cost of a wedding. A one-off (hopefully) shock to your financial system. If you wanted to be cheesy you might say it is the cost of investing in you and your partner’s future together. But Mr Zombie isn’t the sentimental type.
The wedding day is one to be treasured, that’s for sure, but that doesn’t mean you have to lose your shit in a sea of emotion and a flurry of financial fuck-ups.
Therefore, pass me the Spotlight of Reason and let’s look at this under the cold hard light of rationality.
A wedding is a hefty one-off cost. A one-off cost that is going to be a drain on your growing savings.
So what can you do? Plan and save. Remember that it is going to be an expensive day that you will do once, so there’s not learning from it for the next time round (again, hopefully). So do your learning up front.
Plan the day to be what you want, not what some whelp in a glossy magazine, that is paid by the very industry, expects. Do things yourselves and try to avoid anything or anyone that is marketed as a wedding business, for they will only be a money grabbing parasite wearing a loosely fitting human suit hiding under a smokescreen of niceties.
Save for the day. Don’t lose your shit just because it is a wedding. Generally credit and loans should be used sparingly, if at all, and they certainly shouldn’t be used to fund a wedding.
The average cost of a wedding is somewhere between £20,000 and £30,000. The average UK salary was £27,600 in 2015. Absorb that for a second, then exhale through your teeth and feel sad about humanity.
It’s easy to sit back and scoff at the cost of weddings, I know, I did it. Then promptly spent more than I expected to on my wedding day. Who was I to know that it would cost more than £70?
Remember that cold hard light of rationality, it would have been useful here too. I ended up pissed off quite a few times at the cost of the wedding and in truth started to resent the day at times, as the costs mounted.
How much!? For a cocking dress!?
But that was my fault for not properly thinking, doing some research and more importantly speaking to my now wife openly about things.
Weddings are a tough one with all sorts of societal and family pressures trying to direct the event in some way. Perhaps the hardest thing is to separate your own from ones you’ve been to in the past, it’s only too easy to compare. No one wants to look ‘cheap’ do they?
The truth is, a wedding is going to be expensive (let’s say anything into 4 – figures is getting expensive) but it doesn’t have to be extortionate. Catering and venue hire are generally the biggest costs.
If I was to do it again I would go self catered, buffet style, where each guest brings a big dish of something they made. Everyone’s involved, it’s cheaper and food poison is a given. What’s not to like?
The third monster that is ready to slow your progress to Financial Independence is the Terror of Having Kids. Unlike a wedding, which is a shock-cost, having children is a slow burner, a long suckout. Let’s use that Spotlight of Reason again, and try to remove some of the emotion.
To make matters worse there is the potential for the double whammy of reduced household income (as one of you leaves work to look after the Terror) and increased expenses (kids cost money).
From where I’m standing, it looks like a minefield of potential overspending.
In a viscous tangent of life style inflation, the more money that parents have the more money they feel they need to spend on their children. I don’t have any kids myself yet, but my nephew seems as content with a new toy as he does spinning in a circle in the middle of the room with a tea towel in his hand and then saying the walls are tipping over.
The beast here isn’t really children themselves, you can spend as much or a little as you like. Like The Incredible Hulk, the beast you need to control is actually within yourself.
I suppose it’s easy to think you are selfish if you are saving excess money and not spending it on your kid, be that on consumables, activities, sports or school fees.
It’s a balancing act, obviously. Saving 70% of your income whilst your child charges about without a t-shirt to it’s name and Tesco shopping bags for nappies is getting it wrong. But so is spending 100% of your income, just because you can, on toys, clubs, expensive schools and robotics kits. Maybe the last one is allowed.
Unthinkingly spending more money on your kids doesn’t make you a better parent. There’s a more healthy middle ground in there somewhere.
Blindly following the spending of your demographic isn’t necessarily going to lead you in a great direction. Following your demographic could lead to fancy schools and an upgrade to a larger car, it’s safer in a crash, right? At least be honest and drive an 18 wheeler, that way when you crash into the family in a Ford Ka at least you’ll be ok.
You’re allowed to continue to save for your own future if you have kids. Make the mistake of talking to one of the Horde and they will convince you how expensive having a kid is. Yet, somehow, parts of the FI community aren’t finding this. Is it witch craft or a slightly contrarian approach?
Some might turn their nose up, “Stupid Mr Zombie, he doesn’t even have a kid. He is not allowed to comment.” Until (if) I have kids myself I won’t be able to comment on the exact cost of my own.
But I do know that kids in families that earn less than £100k do not perish. Those children that go to state school don’t end up gibbering and grazing on grass. Young ‘uns in push chairs that cost less than £100 don’t spontaneously burst into flame. Similarly kids who have money thrown at them don’t always turn out to be upstanding members of society.
And perhaps I am in the perfect position to comment, before my brain is riddled with hormones sending me into an over protective purchasing fever.
Who knows, it’s an emotive subject. Yet I can’t see that blindly throwing money at it is the ever going to be the best approach. Even in education, is the private option really the best?
They generally get better results, but is that simply because of the students they attract or because of the money parents spend? I know there has been studies that show that parental involvement is one of the biggest drivers of success at school, suggesting dropping thousands on private school could be akin to just burning money. There’s far too much socio-economic going’s on for it to be a simple task to decide if private school is worth it. It’s a topic for a different post.
We need to reign that in a bit, as we’re in danger of strolling into Off-Topic Forest, and we don’t have time for that today. So having kids costs money, I think we all agree on that. Seemingly the depressingly ever correct thing to do is ignore conventional wisdom and realise they don’t have to cost that much. And they certainly won’t derail any plans for Financial Independence if you do a little bit of planning.
The fourth and final monster we shall see here today, is one I am in long term training to defeat. Like Batman spending time training with the League of Shadows, I am having my ass kicked whilst learning the ropes and spending time saving towards Financial Independence.
The monster is of course The Retirement Beast, that greedy bastard who wants all your wealth as you stop working. After battling the House Purchasing Beast, the Wedding Monster and the Terror that is having kids you arrive shattered and depleted, and still have another war to win.
As you are here reading a blog about my attempts to save enough to get Financially Independent, so that work becomes optional, you are probably thinking along the same lines yourself. Saving for ‘retirement’ has quickly become second nature for me.
Retirement is a far and distant land for many, mystical and not yet completely formed by their expectations or reality. It is almost an inevitability and still most ignore it, hoping everything will be OK or that the state will provide for them.
Along with buying a house, retirement is one of the most expensive events of your life, and somehow nearly 25% of the UK population are apparently saving nothing for it, according to Scottish Widows.
The average income those surveyed expect to retire on is nearly £25k and the average savings pot for retirement is £150k, which SW estimate would provide an annual income of £5.7k. 3.8%, if you’re interested in that kind of thing.
An additional £7k from the state pension brings us to around £13k of income a year. On average the UK population is preparing for disappointment then, nice. And expecting the state pension to be around in the same form as it is today is a huge assumption.
Many would be happy to have £150k saved for retirement, but perhaps surprised and slightly depressed by this providing an income of only £5.7k.
The trick is to get started early. Start your learning early. Start saving earlier and you can save less a month or retire earlier. And for the contrarians among us it means saving a lot more than the norm and making work optional at the earliest opportunity.
Once savings become large enough then they can support the Beast of Retirement nibbling away, keeping him well fed and yourself Financially Independent. Conversely if the savings are too small then the Beast of Retirement is too large to be supported by them, and will eventually chomp it’s way through.
Keeping the Beast of Retirement well fed, with investment returns, is the corner stone of my plan in making paid work become optional.
With the Beast of Retirement happily nibbling away at retirement savings I can begin the transition from salaried work in it’s current form to doing what I want, whatever that may be.
The thing is, to build up enough to ‘Retire Early’ means saving a heck of a lot by conventional standards. The other beasts pale into insignificance when we start assessing the cost of retiring early.
The ‘4% Rule’ might be riddled with dodgy assumptions and based on the economies of old, but it a useful yardstick for getting a feeling of just how much you need to retire. To return to the Scottish Widows example earlier, the expected annual income in retirement is £25k. Even if we take off the assumed £7k of state income, the 4% Rule would suggest a pot of £443k is needed to fund this kind of income. £150k just isn’t going to cut it, pilgrim.
We’ve got our heads down, saving hard, yet it’s still going to have a time to destination of 7 – 15 years by my calculations.
All it takes is a slight attitude and lifestyle shift, to shift the balance from a net spender to a net saver.
We had a look at moving house to something bigger fairly recently, but realised we don’t need a bigger house, our two bed terrace is cosy enough for now, thanks. We don’t need a new car every few years or to eat out at least once a week.
Perhaps the hardest thing for others to understand, or to initially adjust towards, is that Mrs Z and I choose to live in a smaller house than we could afford. We drive older and cheaper cars than we could buy. We buy clothes less often and less fancy than we can afford. Just because you can afford something, doesn’t mean it’s the better or correct choice.
Hopefully our concious choices put us in good stead to defeat all the financial monsters above, with a clear margin.
Defeating all of the monsters above is painfully easy really, just save and invest. But it is painfully hard to implement, unless we get our immediate Needs and Wants under control.
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