Plan for Early Retirement and Life Update - Part 1 The Budget

Today an excerpt from the Daily Globe on MUFF 
MUFF was recently interviewed on the FREEDOM FIGHT NIGHT show about his decision to retire early and what he was going to do with his time. I thought we should delve into the mysterious finances of the MUFF. How could he possibly hang up the gloves early and maintain that lifestyle of his?  What does this lifestyle cost? Is he dodging taxes? How can he sustain his family?
I have it all laid bare here for you today in this EXCLUSIVE from Alan Spendalot at the Daily Globe!.............
Here we are towards the end of 2012, a mere 8 months until the MTMF (MUFF Tribe Move to France). We have been on this journey for 7 years. Do we still believe we are in good shape for the move? yes!
On with part 1 of this post; MUFF is going to run through the key events of the past year:

1. The family changes we have made to help us reach our goal of early retirement as soon as possible. Discussing work options (1 person working versus  both of us working part time versus both of us working full time) considering all in- and out-goings - giving a clear idea of what was best for our finances. Key question was: do the sums add up?
2. Looking at how we are executing the early retirement and MTMF (MUFF Tribe Move to France) plans - selling stuff, living frugally, planning for the move, getting removal quotes.... 
3. Compare the MMB (MUFF Monthly Budget) versus last year's budget.
4. A quick review of the biggest expense for us: the rent (60% of outgoings) versus if we had bought a property - this has a huge impact on Early Retirement so a revisit is in order.

Part 2 of this post (which will follow shortly) is an update on the investment portfolio. MUFF will post examples of individual investments examples with the first version of PERL (Planning for Early Retirement and Life) spreadsheet planing tool.
First - Why Share the Details?
One question Mrs MUFF has asked; why share this information in so much detail? What is the purpose other than feeding peoples curiosity? Should we really share our finances on the web for EVERYONE to see? Thinking about this MUFF has often wondered what other peoples budgets are; have you? What do people want out of life? Is it similar to us or is it something we would like?
As MUFF decided to write this blog on Early Retirement and Life, our living arrangements are very pertinent to the subject matter. They need to be shared (to a point) to:

1. show how we are going to achieve Financial Freedom in 2013 see post: MUFF financial freedom in 7 years for how we have gone about it 
2. what type of lifestyle it offers
3. hopefully help the reader to understand the commitment and tradeoffs this type of lifestyle requires
4. share the outcome of the benefits and opportunities it will afford our family - we would not have had access to otherwise. 

To help to keep things in perspective Early Retirement can mean many different things. Here are some links to interesting articles related to Early Retirement for different perspectives on the subject:

• Golden Rules of Saving - A Good Day To Live
• The Welfare Paradox - A Good Day To Live
• Raising a family on under $2000 per year - MMM
• A Brief History of the ‘Stash: How we Saved from Zero to Retirement in Nine Years

So here we go some more information on the MUFF family's goal to "Retire Early" and move to France.
Feb 2012 - MUFF on Parental Leave and Mrs MUFF goes back to Work
The start of the year was a bit of a roller coaster. We had decided that MUFF would stop work when Mrs MUFF goes back to work after baby number 2 is a few months old. So MUFF took parental leave from his job to look after the kids for the remainder of time left on Mrs MUFF's maternity leave.
In the UK as a couple you are entitled up to 9 months off on statutory maternity/paternity pay and up to a year off in total (the rest unpaid). Over the duration of the leave benefits must be paid in full (pension and child care vouchers in MUFF's case).
Quick financial summary
Paternity pay of around £350 per month after tax (after child care voucher is paid) for being at home looking after the kids. Pension around £650 per month and £243 in child care vouchers. We did not have to pay the creche of £1,200 per month so balance = £350 + £243 = +£600 (+$960)
OR
Pay from Work £2,200 (+ benefits) - Car + Fuel (£400) - Child care for 2 children in Creche (approx £2,000) after child care voucher savings) balance = - £200!!! (-$320)
It was an easy decision to take time off! The question was what would we do when MUFF's daddy pay stops? What about early retirement then, how can we do it without MUFF's salary? As it turns out this was the best possible choice for us a family, which is outlined in the post Father MUFF a Financial Frugality Case Study of Bringing Up Baby for all of the details on this decision.
What really helped in making this decision (and numerous other decisions in the past) was one of the best pieces of advice I was ever given:
MUFF had talked with his old boss about a decision the boss was making but MUFF was nto quite happy with. MUFF thought it would go wrong. MUFF presented his argument poorly,  as straight out of university and MUFF had not yet learnt the key persuasive skills he needed to change his boss's opinion. MUFF's argument lacked simplicity, such as cold hard facts and alternative options to the proposed solution, as well as their effects on the supply chain (remember MUFF was a supply chain engineer). The boss ignored MUFF. After several months MUFF felt like a smug little b****** when the boss's decision went wrong. MUFF confronted his boss. The boss replied:

"MUFF, that was the best decision at the time." 

On having a good think about it, what a wise, philosophical answer. A great bit of advice:

1. You cannot win every time but have a go anyway.
2. Do not linger on bad outcomes, move on and learn from them. Wisdom is a wonderful thing and has to be earned and this was part of MUFF's real life education.

So the decision to resign was a doddle! It was (and still is) the best decision for the family.
August 2012 MUFF resigns - Early Retirement next steps
Parental leave came to an end. MUFF then took the decision to resign from a cushy professional salary. No more salary, paternity pay, pension contributions (13 years accrued already ~ £84K) and child care vouchers. Income, budget and savings rate were all considered in the decision that I should resign. We are officially a one-income family and Mrs MUFF works full time (huffing and puffing about it lots, mind you).
Now MUFF is dedicating more time to costs savings, investing and planning our move to France. Let's have a look at the 2013 PLAN for HOUSEHOLD BUDGET and INVESTMENTS in more detail - please read on:
Next part of the plan was to start on the following tasks

1. Look at further cost savings \ opportunities (covered off in the same linked post above: Father MUFF a Financial Frugality Case Study of Bringing Up Baby.
    
1. We have started home delivery shopping a bit more as it is easier to bulk buy bargains.
    
2. We have been using money off codes coupons and vouchers on all clothes purchases for the kids (no second hand clothes just yet...hardcore extreme frugality could be in the works for the future as well as do it yourself patches and darning the socks:) mind you Mrs MUFF often indulges in repair and sewing needle work - just a shame she does not know what's she is doing, but at least the socks are darned).
   It is always a good idea when shopping on line to google money off voucher for the company you are buying from. We have been surprised with the discounts we have picked up.
    
3. We have curtailed our book buying habit considerably by using the library and rediscovering books that we had forgotten we had.
    
4. We avoid using the car at all costs. MUFF is quite pleased with this one. There have been at least 8 weeks since February (not including leaving the car at the airport car park when we flew to France) when the car has not been used for a full 7-day period.
    
2. De-clutter and sell as much stuff as possible (our small terraced house was feeling a lot smaller and narrower due to all of the stuff we continue to accumulate. Mrs MUFF likes watching TV programmes about de-cluttering your home and got lots of ideas from there. MUFF only asks for consumables as gifts and presents now, unfortunately the kids don't!
    
1. We recently rented a table at a children's sale for £12 and Mrs MUFF managed to sell a lot of very large items (baby bath, child safety gates (we had too many), baby rucksack, baby slings, baby sleeping bags, baby clothes, bulky toys). We raised £120. Note here most of this was bought originally new at significant cost to the extended family. We have not been able to persuade the grand-parents to scale back their purchases entirely but they have made considerable progress and the kids almost exclusively get wooden toys as gifts now, which is a big achievement for the tribe :)
    
2. A few more books sold on Amazon. We would like to sell DVDs as well but doing so online is not cost effective so we are looking at other alternatives and will probably end up giving them to charity.
    
3. A couple of trips to the charity shop - more decluttering
    
4. Clothes recycling (MUFF's old business shirts and business shoes, and some good quality winter jumpers that were just collecting dust)
    
5. General recycling - boxes, old computer, old radio, glass jars, old microwave oven, vases, magazines, newspapers, old bills (several years worth)....
    
6. A few benefits of this
    
1. £120 invested with a 19% return = £1 per month for life
    
2. Less clutter - we can now use the space under our staircase and store the vacuum cleaner there.
    
3. More free storage space for bulk buy items to reduce grocery bills or just left empty - ah the feeling of space when cupboards are empty!
    
4. Space!
    
3. Increase the amount invested in dividend paying stocks instead of growth only stocks we started with dividends of £100 per month and are now up to £600 per month.
    
4. Write this blog. MUFF wanted to start a couple of years ago but due to the new baby arrivals and  work commitments (such as the charity work) could not do it justice. Now MUFF has stopped work, he has kid commitments instead and a blog- what is worse? Just kidding.
    
5. Move to France. The complexity of moving countries is more arduous with France as it has so much red tape. 
    
1. We had to identify a place we wanted to live. We have been traveling across France for several years. After quite a bit of deliberation we have decided on the south west of France, good food, weather, access to the Atlantic and the Mediterranean, Spain, Airports and good schools \ universities.
    
2. We had our second scouting trip to the area and found a reasonable sized town that had good transport links, decent shops and bars, good schools and beautiful countryside.
    
3. We visited the local schools, both non religious and religious state funded schools.
    
4. We are are now approaching removal companies for the best quotes and estate agents for a rental property. We want to rent a place first to make sure we live enough time in the town of our dreams to make sure we are happy with our choice.
    
5. "Early Retirement" in France still requires a contribution to society through some work, charitable or community based. So we will have to (and want to) work a bit. The question for us is how can our skills be used productively without falling in the trap of living the same way as we used when we both worked full time in London. Fortunately we will be under no pressure to go back to our old work habits if we don't want to and will not require a significant salary so possibilities are abound.

October 2012 Finances Review and Reflection on Key Decisions
At the start of the year our investments were doing well and our spending was under control. We have been tracking our progress monthly using the using the financial planning tool (MERP - MUFF Early Retirement Planner). Now here in October 2012 it is time for an update of the finances (budget) and the investment returns. How are they doing and are we on track for early retirement in mid 2013?
Spending per month this year (% of total spend) (last year spending in brackets) - convert to dollars x by 1.6

Expense This Year Cost % of Total Last Year Cost Last Year % of Total

Rent £1,260 60% £1,200 34%

Gas and Electric £118 6% £90 3%

Train £80 4% £70 2%

Food at work for Mrs MUFF £22 1% £100 3%

Car Maintenance and Fuel £80 4% £330 9%

Food £312 15% £390 11%

Local Council Tax £113 5% £113 3%

Water £31 1% £31 1%

BBC TV license £12 1% £12 0%

Fixed phone line internet and mobiles £23 1% £50 1%

Clothes and exceptions £40 2% £50 1%

Child Care £0 0% £1,100 31%

Total £2,091 £3,536

* Creche cost of £1,100 per month included savings from child care vouchers (approx £200)
**we receive government child allowance until January of -£89 (1st child) + -£59 (second child) = -£148 (was -£89 last year)
All in all we are very happy with the monthly budget of £2,000 ($3,200). One item stands out like a sore thumb though the RENT at £1,260 ($2,016) it is 60% of outgoings!!!!! 

Review in detail - Was Renting in London a Good Decision?
London is a damn expensive place to live but it is worthwhile noting some of the benefits of a big city at the same time.

1. Excellent transport (less fuel for the car)
2. Lots of competition (such as food shopping, petrol, barbers, clothes and media (telecommunications and internet deals)
3. Community run second hand sales

The negative point is the cost of housing. It is astronomical by any standards. We have rented all these years at significant cost; estimate average of £1K per month for 7 years ~ 84K!. A lot of money....
Renting has some significant benefits in our opinion though (see renting versus buying for an analysis). We did not have to pay

1. stamp duty to the government (would have been around £10K)
2. or a deposit of around 20% on a £440K property (~ £88K) 
3. Mortgage repayment would have been 4.75% repayment term of 25 years  ( this equates total cost of the home would have been ...) x£ per month in mortgage repayment.
4. Furnishing costs we would have needed to buy wardrobes (2K), dressers (1K), rugs & carpets (2.5K), insulation (£300), White goods (3K) a new boiler (2K) and decorate \ paint (1K). The house needed part of the roof had to be replaced (3K) and the windows all need care and attention (1K)

Estimated initial cost = £111K
Ongoing cost (mortgage £2,007 (4.75% over 25 years) and extra insurance \ maintenance £80) = £2,087
Rent is £1,250 per month much less than the £2,087 cost of ownership. We did not have the initial costs of £111K which when invested with a 7% return gives $7.77K. We could save the difference between the rent and the mortgage cost so and additional £800 pounds per month.
So with an initial £111K and £800 a month at a 7% return how long until we would have the full purchase cost of 466K? 12 years assuming no change in the house price (they can actually go down) and an exact 7% return each year.
As we believe house prices are at historically high ratio to average salaries. Renting wins for us.
Having a go....
Our little tribe is well on the way to Early Retirement through good old saving and frugal spending habits. You could delve into your finances to see what could be achieved today. Why not create your own budgeting spreadsheet to track and review your expenses? there are probably little gems of savings you can make quickly. Perhaps then open a brokerage account with a self trading website  and feed any of the "saved expenditure" into it to buy a couple of dividend earning stocks and watch the dividends roll in. Perhaps this could be your first steps on the road to early retirement, a hobby or a way to get a little bit of extra income.
In the western world we are extremely fortunate that we have the opportunity to obtain high paid employment through hard work and dedication.We generally are able to pay for the necessities of life and have a little bit of money left over for a treat or a holiday....but what if we all invested a little more each month? Would the investment in our companies help those companies grow? Would that  create more jobs and benefit the community you live in? At the same time would the extra income give us a bit of extra time to spend on family, friends, community and the pursuit of happiness.... This Early Retirement stuff is easy isn't it?
Peace, Prosperity and Happiness,
Oh, do you know the muffin man
The muffin man, the muffin man,
Oh, do you know the muffin man,
Who lives in Drury Lane?
MUFF
Next up in Part 2 - a look at the MUFF Tribe investment portfolio and introduction to the first version of PERL
PERL (Planning for Early Retirement and Life) progress update

• Yahoo money does not pick up latest prices for funds correctly. This has been fixed in the spreadsheet by picking up the last weekly close number from the fund history data on Yahoo. 
• Conditional  formatting has been improved to highlight PEG, Dividend, Payout and Moving averages that could be highlighting an issue or opportunity.
• Structure is being held to the PLAN DO CHECK ACT, MASLOW and Short, Medium, Long Term Planning process.
• Life goal setting has been added 
• Intention is to issue PERL with a list of some of current investment stocks and funds as example information in next post.

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