theFIREstarter

Today, as the title topic suggests, we will be trying to answer that age old question, is it possible to live on £10k a year in the UK?

To be honest, I really would hope that anyone reading this will instantly be screaming “£10,000 per year will buy me a life of luxury that 99% of the Worlds population will never ever get the chance to even think of having! Why oh why, TFS, are you even asking such a ridiculous question and wasting all of our precious blog reading time!?”

However from observations of most of the middle class creatures in this country I fear that most would think that this level of yearly spending would equal a life of poverty and despair, and even worse now people on benefits are starting to moan about their hard done by life – living on a pitance such as the equivalent of a £70,000 before tax per year job. *

So anyway, the short answer is yes, I think it definitely is possible, depending on where you live: Londoners may well be politely denied entry to the 10k club, unless you live in a complete hovel or somehow blag free accommodation. Those outside of the South East should be able to do it relatively easily. I may be generalising but in my experience of living outside of the South East for a few years almost everything was cheaper, not just accommodation but other precious commodities such as fuel, food, and obviously not forgetting beer.

So I guess the next question is am I achieving this level of spending yet? I’m somewhat frustrated to say, the answer is no, but it is something I’m shooting for in my pursuit of FIRE. To illustrate that is possible and how I’m on my way towards that £10,000 target, here is a spiffing spreadsheet of my example budgets. There are four columns:

1. A typical months spending before I was thinking about retiring early

2. A typical months spending since I “saw the light” and have been trying to cut back.**

3. An optimal months spending to hit £10k

4. An example post-FIRE budget

The Four Budgets Of The Apocalypse

There are a few interesting points to note here:

• In terms of mandatory outgoings, I was running a pretty tight ship in the first place (some more extreme frugalists may disagree with that though!), so the majority of spending is on going out and entertainment, which you can roughly translate to getting pissed in my case. Yes, I like a good night on the tiles as much as the next man, but with FIRE as an imminent goal, this HAS to be the category that can be most easily cut down on. And so it will be. There are some other cuts in other areas as well which I will talk about in further posts, most of them fairly small but if you add them up it comes to a nice chunk saved. So far I’ve already cut out £231 per month, or £2,772 per year of regular outgoings, not including any of the bottom section of social and other spending, with more to come once I sort out the Gas and Electricity bills. So you can see there is almost always going to be scope for everyone to cut costs, with very little or no sacrifices in those areas.

• To hit my target of £10K I’ve cut back slightly on the Gas/Electric bills which should be easy to do, and I’m also down to a pretty measley £80 a month on food (although I think this is still doable whilst eating well and healthy – we’ll see how that goes!). But the main two cuts are on my two social activites of “Going out” and golf. I figure £40 a month should buy me two rounds at semi decent courses which is not too much more than I play now anyway. £100 a month on going out and social stuff will be tough but there is a lot of mileage in just inviting friends over instead and doing things that way. Where I might fall down here is when social obligations play a factor, for example someone wants a night out in London for their Birthday. Again… we’ll see how that goes!

• Next up is the “After FI” column, and I note the fact that many report that their spending actually decreases once they retire from the workplace anyway. This is due to combination of having more time to spend on productive endeavours that can save you more money (e.g. growing vegetables, insourcing more home repair, car maintenance, etc.) and I think the tendency to spend less as you get older anyway. In five years time I will, quite obviously, be older, so I am guessing I won’t have the desire to be down the pub quite so often, and will have substantially more Stag do’s, weddings, and other expensive social obligations to manage.

• The final thing I will note is that once I am truly at FI, I shouldn’t have a mortgage to pay for, I realise this will require more savings, or you can count it as an investment if you want, but ultimately, that is the goal. So with the accommodation puzzle solved,  we can glide in under the 10k barrier with consummate ease. Until that point, I need to cut out some more stuff to hit the mark.

I think the key thing to take away from this for any readers thinking about starting down this path, is that I was probably living on a much tighter budget than most of my peers in the first place, and I still had plenty of room to manoeuvre down the spending ladder… again I will stress with literally no downgrade in lifestyle. In a way this seems unbelievable, but with a few careful purchasing considerations, some slight financial engineering, and a fresh perspective it is easily achievable. Don’t fret, some cold hard facts on how you might achieve this yourself are coming up in future posts.***

At this point it is probably wise to ask yourself a few important questions:

Do you really need a 3 or 4 bedroom house, with huge garden?

Do you really need a brand spanking new or nearly new car every 3-4 years?

Do you really need to eat out at expensive restaurants or get some fat and sugar laden takeaway 2 or 3 times a week?

Do you really need all of those new designer clothes, handbags and shoes? The ones that are made in the same factories as the ones that cost about a fiver?

If so are all of those things listed above more important to you than having the time to live your life in the way you really want to, not in the way the system has brought you up, to work (unnecessarily) for 40 years?

If the answer to any of the above is yes, and you are happy working to pay for them till you are 65 or maybe even 70 or beyond the way things in this country are going, then this blog is not for you my friend, and I hereby give you permission to stop reading right now and go and buy the latest shiney shiney thing on Amazon ((Yes that was an affiliate link… well I may as well try to make a few quid out of any consumer mugs that happen upon the blog 😉 ))

If the answer is a firm and unresounding NO then please join me, sign up to the RSS feed, via email, or twitter ((I’m refusing to open a facebook account for now!)), as we journey through the murkey depths of personal economic, environmental, and ethical values in the UK waters and emerge smelling of an all natural, organically grown English Rose.

Cheers 🙂

TFS.x

p.s. I would love to hear if anyone thinks £10k is far too big (or small!) to live on in the comments section, and if anyone is smashing below that barrier, let us know any tips and tricks on how you are doing this?!

*Yes, I realise that Daily Fail articles are mainly written to get a rise out of people, but in my experience there are many people like this in the real World, albeit slightly less annoyingly selfish and stupid. Back ↑

**Please note I am cohabiting with my future wife so this obviously helps with splitting the mortgage and other bills etc. However if you are single then I would heartily recommend house sharing with 3 or 4 other people, this generally works out even cheaper than sharing with a spouse or partner, and is usually a flipping good laugh to boot! Back ↑

 ***To give you a taste of things to come, and to show I am not just talking hot air, some topics for some future posts:

• Creating a budget / tracking your spending
• Cutting your food shopping bill in half
• Financial engineering part 1, with Cashback credit cards
• Financial engineering part 2, Bank accounts that pay and reducing monthly bills
• Starting up your investment accounts

For some readers this may be treading over old ground, but I feel they are necessary to providing a solid grounding to the principals of the blog, and will hopefully provide a resource for any future new readers that are new to the subjects at hand. Back ↑

So I guess the question on everybody’s lips is can you retire early in the UK, in 5 years or less, and if so how?

Short Answer – Yes, and here is a rough outline of a plan:

Part I:

• Live well below your means
• Save aggresively (50%+ of net income)
• Invest the savings in passive income producing stocks, bonds and property

Part II

• Side Hustles: Develop alternative passive income streams

Ok now for the long answer, and a few caveats. I’m not a snake oil salesman selling a pipe dream, and this is going to require some determination and hard work!

As stated in my first post, my now public goal is to retire from my office drone job in five years or less, and in the UK of all places. Yes, while all around me are indignant over the credit crunch, doing their nut over the double dip recession, and complaining about cuts the government are making, I’m planning to build up enough wealth to fund passive income enough to live on. To those unfamiliar with how this works let’s briefly go over the maths (sorry US chums, yes it is “maths” and not “math”):
£££ Money needed to retire on = Yearly expenses divided by 0.04
Therefore lets say my yearly expenses are £10,000 – I need roughly £250,000 invested in income producing assets (stocks, property, as mentioned above) to be confident to leave my sunlight stricken cubicle that is supposedly a suitable environment for a human being to spend the best part of their available daylight hours in.
Now £250,000 in 5 years is a big ask. Unless you are on a 6 figure salary already (which I am most definitely not) it is a humoungous, gargantuan, impossibly out of reach goal, and even I am not audatious enough to dispute this.
Here is where part II of the plan kicks in, creating alternative passive income streams, otherwise known as Side Hustles. There are a multitude of ways to do this online nowadays, some can be very nearly truly passive, where a small amount of upfront work generates an ongoing and relatively stable income, while others may need a small amount of work from time to time to keep things going. There is also a third type, which really just amounts to working from home, although the obvious benefit here is that you get to choose how much work you do and when you do it! This leads me neatly onto my first, and in fact only caveat: the definition of retirement for the purposes of this blog:

Retirement to me simply means being able to quit my corporate office worker job, you know, quit working for “the man”. The day I can feel comfortable enough to hand in my notice without another regular job planned – what is know as having “fuck you money” for hopefully obvious reasons – will be when I have “Retired” from the corporate treadmill and therefore retired for the purposes of the challenge on this blog. When I reach that goal I have plenty of stuff planned to do – no chance of getting bored here – but there are a multitude of things you may want to do once you’ve hit your target savings plus passive/side hustle income goals:

• Slow Travel The World knowing you have a nest egg to fall back on
• Spend more time with friends and family
• Work part time and enjoy the extra free time to pursue other non income producing interests
• Volunteer work for charity
• Go and live in another country for a period of time
• Get really good at a sport or musical instrument, or any other skill that interests you but you never had the time

Finally I thought it would be interesting to see how the “Part II” of the plan can affect the amount needed to save up and with various amounts, so I created a spreadsheet. You will come to know quickly that I love a good spreadsheet!

How passive income and yearly expenses affect time to early retirement

This vividly demonstrates we can seriously reduce the investment pot needed, and therefore drastically shorten our time to quitting the day job, by a combination reducing our yearly expenses and increasing passive income; the target combination is brightly highlighted by the bright green row. Let’s face it… the “top up income” doesn’t even have to be passive, just do something productive that you’ve always wanted to do and it’s bound to produce a bit of income! And if that fails you can always get a part time job, or just work for 6 months of the year. In any of these situations you have oodles more free time to do what you want, and that measures up as a clear win by the TFS yardstick.

So I say start living your life the way you want to as soon as possible, the freedom you will gain from even a relatively small amount of investment income will be immeasurable! I’m not waiting around building up a half million pound retirement fund, only to be too old to enjoy it, I value my time far more than money and am bailing out of the time and soul sucking corporate work world pronto.

Won’t you join me?

Next post spoiler: Is £10,000 or less enough to live on in our complicated, modern World?