As the last of our savings accounts with an interest rate over 1% matures and the cost of living in the UK keeps on rising, I have been checking out our financial position. We are all a product of our past experiences in some way and for me various life lessons put me on a purposeful and cautious journey to financial independence and early retirement [FIRE]. This journey did not involve taking risks with money; secure savings, rather than investment, was our mantra as we worked towards a goal. The FIRE community is packed with people that gainfully invest their money but my own seven life lessons led me to saving in building societies, Individual Savings Accounts and other yawningly dull and dependable accounts.
Lesson One: A broken washing machine
In my early twenties I lived on my own in a rented house, only ever one pay day away from destitution. Life improved when we got married in so many ways, including financially, but still for the first three years we muddled along with below average income and nothing in the savings pot. Then the second-hand washing machine we had inherited from a relative died. Annoying at the best of times, this felt catastrophic while we still had a child in nappies. Even in the 1980s we were environmentally conscious and we used washable and reusable cloth terry squares for our baby and dried these on the line [no tumble drier]. Washing nappies by hand was tough and it was an anxious few weeks until we managed to borrow the £250 we needed to buy a new washing machine.
Not wanting to be in that situation again the washing machine savings fund came into being. We did without and built up and kept £300 in a savings account for the next twenty years or so [long after we were washing nappies] as a security blanket.
Lesson Two: Campervans are fun!
Back in 2005 we made the life-changing purchase of our first blue campervan. Nothing was ever the same again and by the following year we knew we wanted to have a campervan gap year. Saving for this went way beyond the washing machine fund; this was big!
By 2005 we were both earning UK average salaries, our mortgage was small, our son was grown and would soon be finishing university and borrowing to buy a second-hand campervan became possible. This loan was paid off when I received redundancy pay the following year and we extended the mortgage for campervan number two. I took on multiple jobs and we became extreme savers with a clear goal to have a gap year. In the first of many spreadsheets, I began tracking our spending and savings from earnings and Ebay sales as we de-cluttered.
Lesson Three: A grown-up gap year
Having squirrelled away as much money as we thought we needed, we waved farewell to England in the spring of 2009. Our year travelling in our second blue campervan was fantastic and another huge life-changing event. We returned to Salford in 2010 having learned that early retirement was the only way we could have the freedom to travel we yearned for. We came up with a plan, secured new jobs and embarked on an even bigger saving journey with steely determination and an even more elaborate spreadsheet. Our single goal was to retire as soon as we could afford to.
Lesson Four: Banks are not always secure
We have avoided the ‘big banks’ since becoming aware of their role in debt and poverty in the global south in the 1980s. Despite the fashion for demutualisation of building societies a few remain and these are where we put our money. Although the failure of Northern Rock in 2008 only affected us lightly it did result in a ramping up of my cautiousness. Building societies are not squeaky clean but we are more comfortable with their structure and ethos. From 2010 until 2017 our ever-growing savings pots were recorded on those increasingly complex spreadsheets as we sought out the best interest rates in building societies, the government savings bank NS&I and the Co-operative Bank, spreading our cash around to limit the risk. We had a long-term plan and could tie-up money for many years and this allowed us to take advantage of reasonable interest rates.
Lesson Five: The cost of living increases
To anyone who was around in the 1970s and 80s, inflation is nothing new. With almost five years of retirement behind us the savings pots are decreasing. Now that inflation in the UK is officially over 5% and rising and our money earning little interest, we are losing value big time. I like to think savers should be able to expect their savings to ‘earn’ at least as much as inflation, staying steady rather than taking steps backwards but I have had to tweak the spreadsheet and budget to reflect these losses.
Fortunately for us this loss isn’t catastrophic as we have spent under our budget for four of the five years since we finished work. We hope that this surplus, along with my ad-hoc travel writing earnings over these years [never included in the budget] have left us with enough wiggle room to cope with an increasingly uncertain future but it does depend how bad it gets.
Lesson Six: Everyone deserves a home
Investing in housing has been popular in the UK and seen as a safe way of increasing the value of your money. Once we had sufficient funds to cover our spending for the years until our pensions paid out we could have used our savings to purchase one or two houses and become landlords, using the rent as our income. Getting our own buy-to-let might have been a wise investment decision but being a landlord is not who we are. Everyone deserves a house that feels like home and yet in my working life with homeless and vulnerable people I have learnt that many people don’t have that security. The UK’s enthusiasm for housing as an investment has inflated prices, excluded first-time buyers from the housing market and skewed the type of new properties built. I am grateful for the riches I have and count my blessings that I have a home, I am not greedy for more.
We have also never maximised the profit on our housing by pushing ourselves to have a big and bigger mortgage. We purchased our first home when we married in the mid-1980s for £13,500. The purchase was completed the day before our wedding day and with the energy of youth we married in the morning and moved across the country in the afternoon, waving to our two dozen guests from a hired Luton van full of our sticks of furniture! The small terraced house was affordable [our household income was around £6,000/year], comfortable and occasionally a headache but it was never an investment.
Moving north, we stayed in our Lancashire semi-detached house for over 20 years. To ‘maximise’ our ‘investment’ we could have taken advantage of our higher incomes and moved to a more expensive property as we reached our 40s. Our home was in the cheap-end of town but we liked where we lived and the mortgage was affordable, allowing us to enjoy a good quality of life. We still benefitted from the exorbitant rise in house prices when we sold it but by not actively playing the housing-market game and staying in a ‘cheap’ house we are now locked into the lower end of the housing market.
Lesson Seven: Sell, sell, sell
In the 1980s the Conservative government sold and privatised companies that I thought I already owned. We didn’t buy any of these get-rich-quick shares for utility companies but watching the scramble for a fast buck we added company shares into the best-avoided category.
I am clearly risk averse but in the 1980s I learnt that these investments were considered a route to wealth. We have saved to secure sufficient funds to be able to walk away from the straight-jacket of nine-to-five working and travel. Although I understand that by many people’s standards we are rich, I have never aspired to be wealthy and our money is diminishing rather than growing, as we work towards leaving this world with little or nothing.
Being comfortable with your own financial decisions
I guess if you want to free yourself from the necessity of employment in your 30s and 40s, you need firstly a high income and secondly you need to invest and achieve interest rates higher than inflation. Everyone makes their own choices, based on their life experiences and my own life lessons have left me valuing my good fortune and hesitant to squander that good fortune through risky behaviour. Fairness underpins everything we do and I hope I don’t lose sight of how lucky we are to have enough money to make choices about how we spend it.