2 Years of Financial Independence

It was easy to get carried away by our dream of financial independence but what about reality? What are the cold hard numbers? Are we any the wiser and have we made a good decision?
Today I am giving you the actual living cost numbers and lifestyle trade offs for your consideration of a Financial Independence Seeking Happiness lifestyle.

• A look at our current budget (and comparison to national statistics)
• Future cost reductions
• What do our investments look like after the house purchase.
• Lovin’ the new lifestyle 
• Is it possible for you - a crude calculation and links to financial timeline planning tool?

Expenditure

As some readers are interested in living costs in France. I thought I would outline our hopefully-settled-and-no-surprises FIRE costs here.

1. We have been spending too much on food. My waistline is a tell-tale sign. It is mainly due to a few parties all summer long (erg every other day) and little indulgences (542 vs budget of 480)
2. We have more money in the budget for Entertainment than we had initially budgeted for (163 vs budget of 200). Continuous saving can be a means to an end but saving for saving's sake is not fun. This year we will use the savings for entertainment.
3. Holiday was below budget (202 vs budget of 300) even though we had 5 good trips to the mountains and to Paris.
4. We used extra fuel (Petrol for clearing the garden and chainsaw work), electricity and water (had to fill the fosse septique for the first time, 5,000 litres of water) when renovating the house.
5. Clothing has been low as we are currently fully kitted out....for a few months as the kids grow!
6. We are liable for part of our healthcare costs (averages 34 euros per month including minor surgery, a couple of hospital consultations and numerous visits to the GP).In order to have access to the health system in France it is not just good enough to pay your taxes (aren’t there a lot!). You have to contribute to the system through a job as well otherwise you just have to pay for private cover.

We like “working” a bit. Mrs C is lecturing at the moment. I am looking at options to generate an income as well so we both contribute to the system.

What is not included and National Statistics?

We could take out top up health cover for major medical issues which would require a long stay in hospital. Instead of this we are putting aside 100 Euros per month into an emergency health fund. (see the comment above that we are spending on average 34 Euros per month including visits to the hospital at the moment)

• House maintenance costs – as we are still renovating - we don’t really include these yet….. estimate 50-100 Euros per month
• No life insurance – we save and invest in different ways
• Saving for a new car would need to be about 100 Euros a month
• Saving for the kids higher education - 100 Euros each per month

Looking at these numbers we can be confident that our underlying costs are around 1,600 Euros per month (~£1,200, ~$1800).

This can be compared to the average monthly expenditure in the UK of £2,336 (3,200 Euros). Source Telegraph and ONS (Office of national Statistics).

Notable differences are Transport £330pm (452 Euros versus our cost of 175 Euros per month) Housing and Fuel £321pm (440 Euros versus our cost of 198 Euros)

A couple of other categories that stand out from the ONS £187 on hotels and restaurants per month and £302 on Recreation and culture. (670 Euros per month versus our cost of  353 Euros).

Just these four areas (Transport, housing, hotels and recreation) the total UK average per month is £1,140 versus our outgoing of £530 a huge difference.

These numbers from the ONS are averages. We know the South East of England is much more expensive than other areas. To this point a comparison of any average can be misleading. The average household has only 2.3 persons in the UK. What about a family with kids which will most likely be the composition of an early financial independence seeker?

The best I have is basic living costs for a couple with two children (deemed essential) from this guardian article and are £1,914 pcm (2,622 Euros)

 Further Cost Reductions

1. We purchase some seasoned wood each year. I am adding to this with wood from the property. The wood heating will cost considerably less than fuel, electricity or gas heating. The log gassification boiler we have installed is super-efficient and takes all types of seasoned wood.
2. We should be using less electricity. The solar panels and the wood boiler are replacing the electric water heating we had last year.
3. We will now reduce our use of the car. We had to travel around a lot to get items for the house renovation. The compact Eco Diesel sips fuel.
4. Homemade tomato chutney is replacing tomato sauce (it’s a start ;). We have loads of homemade jam, soup and compote from the fruit trees.
5. We have had a small vegetable patch but will have a very large one next year as we will have the time to plant and maintain one
6. We have connected the natural spring to the vegetable patch to avoid using metered mains water.

 
NONE of these cost reductions are arduous and many are beneficial to our health.So Is our income sufficient and has adequate safety to pay for the new cat?

Smokey the cat - our chief pest controller

Investment and Income

Three Investment Portfolios

We run 3 portfolios:
PROTECT (Emergency and opportunity portfolio) – Cash related investments > emergency \ opportunity fund and money for the renovation project
HYP (High yield portfolio) – Consists of dividend paying stocks and property REITs > this pays for our living costs
We would like to maintain the capital until we are able to access our pensions. If it works out well, we will be able to help our kids out. The caveat being that they can stand on their own two feet, confidently and independently first!
We have the safety net of the PROTECT cash in case of emergencies (and a worst case scenario we can sell the house \ downsize \ rent again).
GROW (Future proofing and speculation) – Consists of our pensions. These are mainly equities UK, EU, WORLD and PRECIOUS METALS and one Final salary scheme. This portfolio is our inflation hedge.
As you can see from the pie chart this (pension) is a significant part of our portfolio. We have been prodigious savers and always maxed out our matching employer contributions (e.g. we added 7% and the employer added a maximum matching 7%). We both started investing in our personal pensions plans very early in our careers.
Due to the rising stock markets the pensions have performed very well averaging 7% per year (after fees).
A notable exception is the lack of bonds. The final salary pension, which we do not control, does hold a substantial proportion in bonds. Any shortfall is made up by the company. It is “inflation” protected meaning the pay-out amount will increase in line with inflation.
As we are close to our 40’s we have time to be aggressive (overweight stocks) before switching to bonds.

Spare income

We have some spare income each month and deploy it in the following way:

1. Save and invest part of our surplus in a Permanent Portfolio approach in tax efficient savings accounts (PEA in France). The more I learn about investing the more I believe in full diversification and rainy day funds. Sticking to just stocks and bonds I believe would be highly risky for us. There are many financial gurus warning of the drop in the business cycle so we need to prepare for it.
2. We are going to start a couple of small business which need some money to start up. This will keep the brain cells ticking over and contribute to society. The French government needs all the money it can get its hands on ;)
3. Have some more fun and interesting trips. We had great holidays this year, spending only just over 2,500 Euros. This included a trips to Paris, Strasbourg, Vulcania (a Volcano Park in the center of France), visits to the beach (grandparents), a wedding and a trip to the Pyrenees mountains.

   

   View from the Eiffel Tower, National Volcano Park and Pyrenees Mountains

4. Spend some money improving the soil quality and irrigation around the new property.

2 Years in and Lovin’ it?

Somehow we have achieved what we were looking for when we decided to ditch the day jobs.

• We have a more sustainable living arrangement (food, heat and transport)
• More Freedom and a simpler life (no landlord, no job commitments, less paperwork)
• Stability – a base with no reasons to move (e.g. job \ landlord wants us out)
• Healthier – we cook more food (some from our organic veg patch and fruit trees). We are less stressed (no one telling us what to do, no performance reviews, but still the odd nightmares about corporate life). We work outside on a daily basis. The Gers is one of the least populated regions of Europe and hence has fabulous air quality.
• Time to spend with the kids, new friends and think!
• Great holidays do not have to be expensive – we have chosen a location where holidays are literally on our doorstop (~2hrs to Atlantic or Mediterranean beaches, the Pyrenees’ mountains and large cities of Bordeaux and Toulouse.)

It has not been all plain sailing:

• Our income is not as high as expected (dividend cuts).
• Income tax is higher in France.
• We could not find a property at a good price in the local area so had to improvise and take on a renovation project.
• French Paperwork - A major advantage is that Mrs C is French. She has been amazing at cutting through the red tape and paperwork.
• We see less of of our old friends in the UK(but are making so mnay new friends here).

We can’t complain when we look at a list of Lifestyle improvements:
Was it worth it? Too right. We have never been freer and less stressed. We have learnt new skills, spent quality time as a family and learnt a lot about what makes us tick.
If it has to change in the future so be it. In the meantime we are enjoying the ride.

What about you?

We are spending around £1,200 per month ~$1800 for a family of four. This requires an invested amount of £288,000 @5% return per year. A really nice country house with land can be picked up for £150,000 in France.
A crude calculation of Financial Independence
If we take two young people with salaries of £35,000 each. In the UK ~10,000 is tax free and the rest is taxed around the 28% mark in this example.
Your family after tax income would be £56,000. It should be EASY to save 50% of this per year £28,000.
Considering NO interest, investment gains or salary increases it takes ONLY 15.5 years to accumulate the capital above.
Save 70% and the number of years drops to 11.2 years ((288,000+150,000)/39,200).
Now what if you add in investment gains, emergency funds, employer contributions to a pension, help from parent’s etc? Now financial independence really does seem like a real possibility quite quickly. Why not try some numbers out in the Financial Timeline Planning Tool?

Key Learning's and Considerations 

• You need to have a good financial buffer \ emergency cash fund
• Your income should be well above your projected living costs (20%+)
• Your income must be inflation proof
• A simpler lifestyle is much less stressful and healthy
• What we have lost (access to amenities, concerts etc.) we have gained in other areas (access to countryside, quiet).
• Changing country is a challenge and your financial situation changes dramatically (our tax free ISA’s are not recognised in France).
• Financial independence can be obtained quickly but it is a discipline and has some costs that may not be negotiable.

Further reading:
Family Financial Independence in 7 Years! Almost FI this is how we got there
Useful tool:
Financial Timeline Planner
Peace and prosperity,
Contender
* Apologies I have been offline so long - since the move we have not had reliable internet at the house. This is being posted through a mobile phone... We have been promised it will be sorted out soon - all that French paperwork takes time!