MUFF Family Financial Story
Muff tribe financially free in 7 years- who would have thought it? Here is a summary of our family and how we are reaching our financial freedom goal in such a short period of time. We did not start out to be financially free but here is the story on how we literally stumbled on the opportunity. I have included some of the blunders on the way. Always trying to keep it in perspective:)
As mentioned we learned through professional advice mistakes (mine) - some of which have been very costly - MFD (Muffs Financial Disasters). About 7 years ago my then to be wife and I took the plunge and moved in together in the most expensive city in the world at the time - London. Bright lights, amazing attractions, comfortable houses and plenty of entertainment. Not forgetting the UK's status as a major transport hub for all those exciting getaways. I had just paid off my student and car loans. I was finally looking at a positive balance sheet for the first time in 10 years. What better place for us to enjoy our income.
Each weekend we would go out for meals. Visit clubs, cinemas, and visit friends and intersperse with cheap breaks around Europe. Fortunately both my wife and I did not go for the 5* hotels and expensive resorts and rented a modest apartment in London so we managed to save a little each month. We had a joint bank account and a budget that we kept to. My wife is the sensible one and took advice from financial adviser. I on the other hand chased the 10 bagger shares for instant riches. Surprise surprise, seeing some of our (my) investments getting liquidated is not fun. Why was I was of the mindset of the 10 bagger easy money investment? In hindsight I was lured by the financial press (magazines, newsletters and the mainstream financial media). It was a hard learned lesson. Luckily it was out of the way early in my saving and investment career:) I stated to save more carefully from then on. Here is the MFD list
- The penny stock miners - total loss in the region of £5,000
- The New Technology Energy Stock £4,000
- Buying Europe just as Europe goes down the pan £3,000
- A consumer goods technology stock - wiped out £500
- Green energy bio fuel stock - worth 1/100th of the purchase price another £500
Flats in the UK are not the most spacious in the world to boot. Instead we could rent a much larger property (a house with a garden) at less than the interest payments on a mortgage of a flat. Additional benefits were not having to spend money on decorating or repair costs, building insurance or expensive conversions and additional porter and leisure fees. So renting it was, even though there was peer pressure to buy.
We started to save more aggressively. I was saving 50% of my take home pay as was the wife. £3K a month. We thought we could save a bigger deposit and wait for the property bubble to burst. In the UK this tends to happen on a regular basis due to our fascination with housing.
Along came the financial crisis of 2007 which we thought would be our entry point to the market after patiently saving and waiting to buy. What we did not figure on was the extraordinary response to cut interest rates close to 0% and quantitative easing. Property prices remained strong and do to this day.
It was at this point we started to look at the cash savings rapidly loosing purchasing power versus other currencies the £ dropped from $2 per pound to $1.5 per pound. The £ which started at 1.6 to the Euro reached parity. Very expensive for trips to the continent. How could we get a positive return?
At this point I started to search for opportunities to gain an income from our investments and a safer place to keep our cash savings. We needed a goal and a clear plan to get there. Being paid dividends each month is very satisfying. Over the course of the next few years we watched the income stream slowly grow but maintained a large chunk of savings in growth funds.
We married and bombshell number one happened - 9 months later had our first daughter. We were two professional people with no idea how to bring up a screaming baby. Why won't she stop crying or go to sleep when we want her to. Why is everything so difficult. You have no choice to learn and adapt and you do. Investing went on autopilot.
Now the 1 bed rented flat was too small for us and all of the baby stuff. We needed more space we needed a house.....should we buy? Nope! house prices are too high and the rental payments were low(ish). After searching around our rental costs increased from £850 per month for a 1-bed flat to £1200 per month for a 3-bed house. This was actually lower than our maximum budget of £1,300pcm. We had negotiated hard (and continue to). The alternative was higher interest payments on a mortgage to buy a comparable property and selling our income savings being for the deposit.
It looked empty so we "needed" some furniture and storage? After being so careful on the choice of the rental property we were careful on this as well. Expenditures were being kept in check with our clear budget which we maintained and reviewed on a regular basis.
After all of this we actually found that we were still managing to save at the same rate. You may ask how this could be? Well we cut costs on expensive mobile phone contracts those £60 per month bills dropped to £10 per month, = saving £100 per month. Restaurants were reduced from frequent to almost never and takeaways were replaced with healthier home cooked meals. All of the holidays on the plane stopped due to the challenges and logistics of a small child. Finally we received child benefit from the government. So overall we were not worse off.
Here came the next shock. Wife back to work and our local creche is £1300 per month - more than our rent!!! Yes we had access to some child care vouchers and child benefit but at best it reduced the amount by £250. We both had small pay rises but our savings rate still dropped.
We looked at other options to boost income and cut costs. Book and DVD purchases were reduced to minimum - we had a very good local library. We started to sell the books and DVDs that we no longer wanted to keep and invested the money for dividend income (every £ helps).
We re-negotiated our telephone land line costs and mobile phone contracts. Heating was only used when required and heating the house up only when we were at home. All major electrical items were switched off at the plug when not in use. Surprisingly with these changes and the modest increase in dividends and salary we still managed to save £3K per month.
So around that time in 2007 we really started - as most new parents do - to consider longer term planning. I pulled together all our savings and investments into a combined spreadsheet. We had all sorts of savings accounts. What was striking was how much we had saved over the 3 years from 2004. We were also getting a decent dividend income (£200 per month) without really taking it that seriously.
I started looking on the web for more investing ideas and stumbled across a few key websites. Firstly I subscribed to a newsletter based on commodities energy and infrastructure. With China booming I invested in several of the stocks it recommended. At the same time I stumbled on to the website Early Retirement Extreme. Jacob's outline on how to be financially free and able to choose what we wanted to do really resonated with us.
Instead of being tied to a 9-5 job to pay the bills could we get paid from our savings and work when we wanted? We were working towards the "early retirement" idea without realizing it. Our goal at the time was to "Save as much money as possible to buy a property outright and have some extra income". We did not consider the ability to stop work completely if we so desired or take a significant pay cut to work in an area of interest to us.
Now the goal was to "Save as much as possible to buy a property outright and have enough passive income to work as we desired while not wasting money". I worked out a five year plan to get from where we were to where we want to be.
Then another surprise baby two on the way...... How could we ever consider early retirement and now the massive increase in costs of 2 infants in nursery - £2,600 per month. Here we actually worked out a good plan.
1. My wife had 6 months maternity leave full pay providing she went back after this period. We would reduce the number of hours of nursery to 2 days a week in this period. = £1K Extra saving per month.
2. I would take over from my wife and look after both children full time. The parental leave from work was 6 months with some of it paid.
3. At the end of the parental pay I would stop working until we reached our goal in 2013.
As a result over the 12 month period we actually eliminated child care costs and saved more per month. Amazingly this and the increasing dividend payments have offset the loss of my income. My children have what I consider a better situation where they get to grow up in a well supported parental environment.......
It is perplexing that my professional salary does not cover the childcare costs so I have had to forsake my employment. In a time when productive people need to be helping the economy and paying taxes I am at home. Having resigned from my work to look after my two kids am I depriving a childminder of a chance to make a living. Strange world we live in. A strange policy \ setup in the UK.
Conclusion
It took 5 years out of University to pay off all of the debt I had accumulated. A few years into our relationship my wife and I started adopting a rigorous saving routine. We cut any excessive unnecessary expenditures. In doing this we saved on average £3K per month since 2007 = savings in the region of £252K. With a compounded return each year of around 8-10% which grew this number substantially.
We managed to do this in an excessively expensive city and a country with high taxation rates while starting a family. Yes our income is substantially above average but so is the cost of living in London. We were fortunate to be pushed into saving and investing by our circumstances.
What I want to convey was the the lack of initial knowledge \ guidance on the workings of finance we had. We had an inkling that saving was good and getting into debt was bad but really what did that mean?
Savings are productive to society and freedom for the individual. Debt used to "consume today, throw away tomorrow" has no long term benefit for the borrower, only to the lender. No permanent wealth generation is borne from this arrangement.
On a personal level one might consider:
a) an expensive car that takes 10 years to pay off and at 1.5 times the initial cost and after 10 years is scrapped,
compared to:
b) a cheap car that still gets you from A to B safely with the rest invested and paying you an income over the next ten years to buy a new car for free.
Society is setup for us to take on debt so we have to keep on going back to the trough and keep on the treadmill for some fancy paint or an extra room for guests.....
As a family we could have been more "extreme" - sell the car move to a two bed flat in a very cheap area and save a lot more each month. My wife stopped me right there. We are still in our 3-bed house with garden and managing to follow our plan.
At the time we knew no better and I am glad of the journey we went on and continue to follow. We are looking forward to using our hard found financial independence to work on projects or jobs that we consider are beneficial to the community - not just the bottom line.
We believe our equity will be there or thereabouts in 2013. Early "retirement" will be one of many goals to be the best citizens we can be.
I sincerely hope the debates on sites like ERE, Mr Money Mustache in the US and A Good Day to Live in Europe (they are the trailblazers and entertaining too boot!) help counter some of the consumerist norms that can cause so much anguish that causes so many people to get in over their heads in debt. Hopefully these people will be the business owners of the future.
Peace, Prosperity and Happiness,
MUFF
NEXT UP SAVE A LOT!
* The idea of financial independence can be played around with in the financial planning spreadsheet.
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