2019 End-of-Year Status

This is my first status update describing our progress towards financial independence in 2019. It is also my first public post on this blog, and the first time I’ve tried to summarize our financial situation in a text format. The main motivation for doing this is to slowly build up a summary prose account of our journey that is comprehensible in a way that figures in a spreadsheet never can be.

I intend to post with more information about our situation, goals, etc. at some point. Of course, this background context would have made perfect sense as the first post. But I think there’s value in jumping in with the meat of it, especially since we have just passed the end of 2019 and the numbers are in.

This first post will use an update skeleton created by the author of retirementinvestingtoday.com (which is a large part of what inspired me to start this). This skeleton breaks each post into three parts: save hard, invest wisely and retire early. The figures have been taken from a comprehensive spreadsheet we’ve maintained all year.

Save Hard

Over the calendar year, we added £48,660 to our investments, including pension contributions. This was primarily generated from our day jobs, but a significant £10,000 chunk was a gift from relatives. This gift is a one-off and so we must be careful to not extrapolate using this anomaly.

I am very happy with this figure. The gross savings rate was 42%, calculated as the above newly invested amount divided by household total compensation (including employer pension contributions). The main driver for this high rate was earning more: I increased my compensation through negotiation and received a sizeable bonus.

Another driver of the rate was spending less. Mrs Fireman and I are naturally frugal spenders and this year was no exception. We went on a few low-cost holidays at sensible times and avoided large purchases. There is certainly room to look at further optimizing expenses, but alas there is no extravagence to be easily curtailed.

I improved the spreadsheet half-way through the year and the previous figures are not directly comparable…

One category that looks high on our expenses sheet is accommodation: we spend an average of £1400 per month on housing costs, including rent, bills, council tax and furniture. Cutting this down could have a large impact in the long-term, but changes here depend on many other factors, including my estimation of the local property market. So for now this expense is expected to stay reasonably constant for the foreseeable future.

Save hard score: Pass. We are doing well, with possible scope to improve next year.

Invest Wisely

The way my finance spreadsheet is currently set up does not allow me to easily calculate investment returns through e.g. unitization or the internal rate of return. This is because I track the balances of all accounts at the end of every month, but not new deposits. This means that the true returns and new money is mingled together. I hope to improve the system to track this in 2020.

There has been a slow shift towards equities throughout the year to end with an asset allocation:

  • 51% equities (with UK bias)
  • 18% fixed income
  • 28% cash equivalent
  • 3% other (e.g. RateSetter)

I have not yet determined the ideal allocation for our circumstances, so there has been no formal rebalancing process. This is another next action to take at some point, but to be honest I have been putting this off: my reason tells me we should be aiming for somewhere up to 80% equities, but my intuition after looking at recent market valuations makes me very wary of going that far. I accept that we cannot hope to time the market, but it is more difficult to back up that belief with cold, hard cash (or rather, shares).

Our investments are tax-optimized in the following way:

  • 74% ISA wrappers (we actually hold nearly every possible ISA sub-type)
  • 20% pension wrappers
  • 7% accounts subject to tax

We maxed out our ISA allowances this year and so had to add money to taxable accounts. It is not clear whether it would be better to increase pension contributions to avoid this situation — one reason against this is the minimum age restriction of 55 years on withdrawals (we are nowhere close to this and may need access to the capital/returns sooner).

Tax efficiency score: Pass. A high 94% of our net worth is in tax-free wrappers.

We do not yet have high enough amounts with investment platforms to warrant switching to ETFs/a flat-fee structure, but we have still ended the year on a respectable TER (total expense ratio) of 0.28%. This is perfectly acceptable to me for the moment.

Minimize expenses score: Pass

Retire Early

I have no intention of actually retiring early (the RI part of FIRE) in the traditional sense. Rather, I’m in this for financial independence (the FI part). This means no longer needing to labour for others in order to fund a lifestyle of consumerism, but instead being free to pursue things like my own business, meaningful work and other projects.

But these both start on the same day, when we wake up one morning and our investment accounts have breached some limit that we have calculated is enough to sustain us.

Unfortunately, I have not spent a lot of time calculating this with any precision. If I look at the popular table here and plug in a very approximate “net savings rate” of 65% (I do not precisely calculate the rate based on net income, as the tool requires), then we end up with a timeline of 10.5 years. Of course, that table is based on a safe withdrawal rate (SWR) of 4%, which I am convinced is dangerously high (I would feel much more comfortable with something around 3.2%).

One blocker to tracking this is that I think it’s important to incorporate projected future changes into the number instead of simply extrapolating from a savings rate (although that method is powerfully motivating). An example of a possible future change is how long Mrs Fireman continues to work for — something like long-term maternity leave could really affect the forecast.

I hope that, given the above approximate figure of 10.5 years, when I get around to actually working this out and tracking it within our spreadsheet it comes out to something under 12. Time will tell.

Retire early score: Fail. This is the good bit and I am not tracking it properly.

That’s it for the status update — I intend to settle into a routine of doing this every quarter or half-year. I may also post other insights or developments if I think they’re interesting! Feedback is much appreciated.


So, what happened with your finances in 2019?

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