It’s a doom-fest out there with the Autumn Statement, everyone is saying how crap life is and how much worse it’s going to get. But I see some reasons to be cheerful for the FIRE faithful.
For those who don’t know me, I’m a family man who was never a very high earner but who has managed to be careful with money and is now in a “work optional” phase of chronic financial dependency that it’s the modern human condition. My blog is well worth a read by the way.
Anyway, the UK is in the shitter right now. Simple Living in Somerset posted a great story about the Budget (and birdwatching) that deserves a read. And I suppose what I’m going to write will sound a bit like “I’m alright Jack” when it comes to the current problems that the UK is facing.
Maybe it’s a case of Rich Friends, Poor Friends but I am not going to stop feeling good about life just because everyone else is being told to be miserable.
The main problem is that our incomes will not keep up with prices and our standard of living will fall. What I mean by incomes is what money we have, after taxes and, by prices I mean everything we spend money on – mortgage interest, gas/electricity, petrol, cars, food, clothing etc…
But it’s not all doom and gloom, especially if you’ve been living beneath your means and have some financial resilience, and here’s why.
This is What We’ve Been Training For!
One reason for saving is for rainy days like these. Building up cash, savings and investments allows you a buffer to protect you from the realities of hardship that are facing lots of people.
I heard this morning at school of an SUV driving yummy mummy who is faced with a hike in her car payments, a drop down in the prestige of the make/model or the indignity of not swapping out for a new car. The hedonistic treadmill can turn a joyous yummy mummy into a saddened slummy mummy with just a few percentage point rises in APR.
ISAs, LISAs & SIPPS Weren’t Touched
The cut in the dividend allowance isn’t good news but the ISA is still there. You can squirrel away £20,000 a year for tax free savings which over time is a powerful type of wealth.
These tax free schemes don’t exist in other countries – I’ve looked into moving to Europe and our ~£200k in ISAs would be taxable there, meaning ~£10,000 a year in dividends would attract £2,500 in taxes.
Taxes Mostly Fall in Income and Not Assets
I don’t think that work should be taxed as much as money – but it’s the way the UK does it. I could stop working and sit on my nest egg and pay less in tax than the average worker living paycheck to paycheck.
It’s not that fair but that’s the rules of the game. If you are looking to build up savings to potentially retire early, this benefits you immensely. If you don’t have savings and/or depend on benefits – your situation isn’t going to get better. Benefits (including the Still Alive Allowance) are to go up by inflation, although inflation bites hardest for those on low incomes. GFF doesn’t get benefits but who wants to be dependent on hand outs? Not me.
If the Truss government tried to make an escape for freedom and were caught and sent back to the camp – the Sunak/Hunt team oversee the orderly, managed decline in the UK economy. With that, there will be just a gradual worsening of everything – but at least you can predict and depend on it. No alarms and no surprises
You Have Choices
I blowhard about moving from the UK – but I know that it’s something that I can do if I want to. I’ve got the European passport, money is mobile and I have the temperament for it and had a dry run too.
Many of our friends seem to have put everything they have into their houses (or deposits for) and it’s their primary asset. In most cases, I’d presume that their mortgage debt is larger than their net worth (less in accessible pensions and house value).
That makes a drop in house prices and a rise in interest rates a terrifying prospect because it 1) reduces their wealth 2) slows any fast getaway if they decide to move and 3) It sucks out a larger amount of their wages. For us, our mortgage debt is about 10% of net worth and the house is only worth about 25% of our net worth.
In the not-so-crazy case of financial catastrophe (like Scottish Independence), I can swallow a 20% fall in 25% of my net worth (5%) a lot easier than someone who’s net worth is £100,000 and who’s house is worth £300,000 (20% fall = 60% drop in net worth).
(There’s even the spectre of negative equity to consider!)
The Mistakes Are Made in the Boom Times
Some of the best decisions you’ll ever make will come when everyone else is facing oblivion and you hold your nerve.
Soon the dog days are going to be over and you’ll be the winner
Cushions, Insulation, Time Horizons and Peace of Mind
Don’t think of me as cruel and uncaring. It’s hard to read stories about people having it hard. But I’ve always thought that I have to look after myself and I’ve done so. I worried about money long before it was popular and now it seems that I did something right. I would hate to be in the position millions find themselves these days – so I don’t think that it’s grotesque for me to love it that I can afford to spend freely and not worry.
In any case, the gyrations in our net worth, month on month, can be five figures – am I supposed to be happy one month and miserable the next?
What I have had a plan to get to the age of 40 and not have to worry about money and be in a position to have financial resilience, freedom and independence – and that’s independence from not being able to make ends meet; independence from having more outgoings than income, independence from having to work hard to please a boss who pockets the proceeds of my labour and who gives me real terms pay cuts in my salary, all the while making me work harder and harder for a slice of the pie?
So, there’s reasons to be cheerful out there. Just don’t publicise it too much – misery loves company and the national mood is gloomy.