October 2018 status: A mess

Re-reading this title, it sounds more negative than the actual reality. I’m OK overall, I am healthy, I still have a job, and I still have a plan.

But since the Q1 of this year, I’ve deviated from the plan and the purpose of this blog quite a bit. To put everything in context, and calculations will follow in the next few days, but my current net worth might be negative. And the worse part is that I’m not yet sure how that happened.

Since writing the last post on this blog, I have traveled a lot, including to 8 new countries. This, and a few messed up relationships might have played a big part in building up debt. Lessons learned!

So, a short term plan to get back on track looks like this:

  • I took a consolidation loan, to pay off my credit cards / overdrafts. Overall interest went from 24% to 8%
  • I’m cancelling credit cards, one by one (it seems like I can’t control the temptation of a large credit limit)
  • While I’ve been using Yolt to track spending, it’s useless for budgeting. I’ll switch to something else, likely YNAB. Or good ol’ Excel
  • Apart from visiting family, I am not planning to travel until all debt is fully paid off.

I’m also working on a secondary stream of income from swing trading, but this is a long (12-18 months) term plan, and won’t fix my current problems. More details to follow in the next months.

My Resume of Failures

The initial title for this post was “What’s wrong with my investment portfolio?”, but a recent post chain that caught my eye is expressing the idea of “failure” from a more holistic point of view. The history apparently started from a Princeton professor’s “CV of failures“, following up by Elon Musk, and a few personal finance bloggers #1 #2 (possibly others that I’ve missed).

While my age did not allow me to have any catastrophic failures yet, I still have three challenging steps that I have to follow, to write this list:

  1. The Oh, damn, that was bad moment: Identifying what is a failure – what had a long-term bad outcome
  2. The Oh, damn, that was me momentAccepting the fact that a conscious decision lead to that, and that I am responsible
  3. The Oh, damn, that was stupid moment: Accepting that the failure could have easily been avoided

 

And here’s everything I can think of:

  • 2009 – While building websites, I’ve planned starting up a web hosting business. Bought the equipment, arranged the location, negotiated network contracts, and … nothing happened. It stopped without reason #lazy
  • 2012 – Started an online shop with a friend. Got hung up on the fact that I put up more work than he did, and shut it down. #lazyAgain
  • 2013 – Graduating university with 1 job application. Yes, one. Through dumb luck, that application was successful and I got a job #lazyYetAgain
  • 2013 – Joined the company, went on the “graduate training” trip to New York, spent about £8000 in 2 months on entertainment and expensive food.
  • 2013 – After joining the company, I signed up to a few credit cards. And maxed them out in 2-3 months, relying on the end-of-year bonus to pay them off. That bonus turned out to be less than £1000 for new joiners. That debt lasted for another 12 months.
  • 2016 – Stayed 3 years with the company, with almost no base salary increase (specifically, 3%, 1% and 6%). Took me long to pull the plug and move on.
  • 2016 – Sat on £60.000 in my bank account, gifted by my parents to be used as a deposit towards a mortgage. They were not invested, and I did not buy any property. Lost £10.000 due to Brexit (FX swings), and had to cover that with a loan.
  • 2017 – With an average monthly post-tax income of £4000, I’ve only managed to save an average of £600/mo.
  • 2017 – Did little-to-no study on investment opportunities, so my average return for the year is (roughly) around 4%. While the S&P is up 10%, FTSE 12%, and my favorite global fund, 25%. More on my portfolio mistakes, in another post.
  • 2017 – Made some career mistakes that lead me to a very insecure position within the company. In the last 3 months I’ve been constantly wondering if I will be let go. This is what generated one of my new year resolutions, to re-evaluate my position and consider contracting, in case that reduces my stress level.
  • 2017 – Contracted a $3000 side hustle, which I did not start due to bad time management.
  • 2018 – I own about $2500 in stock from my previous employer, and quite a bit more restricted equity options from my current employer. However, I forgot the details for the brokerage account for the first one (they were on my work e-mail), and if I will leave my current position, I don’t yet have the cash to exercise the vested options (which will otherwise expire).

 

There it is! This took a while to write, but I can see why people may want to write this. It feels almost therapeutic, and it sets a benchmark for future failures :).

Happy new year! My resolutions for 2018

I think it’s the first time I am actually writing such a list of resolutions, and as cheesy as it may sound, I think writing it down very useful to keep myself accountable to some of these targets.

Money-related

  • Get rid of debt
    The absolute first priority. All of it. No exceptions. As right now I am paying £500/mo towards old credit card debt, this should free up quite a bit of capital once achieved
  • Max out my ISA allowance
    … of £20.000/year. This means saving around £1.666/month, up from the current £700-£1.000. Quite ambitious, but not impossible
  • Aim to save 50% of my monthly salary
    Currently, unless I starve, this is impossible. It’s not yet clear how can I achieve this, but it may involve moving into a smaller flat/studio, or sharing with someone. I will re-evaluate this goal towards the end of 2018.
  • Get rid of savings accounts
    I am mainly talking about my 3.5% Help to buy ISA account. To keep the tax-free status, will transfer this into my Stocks & Shares ISA.
  • Rethink peer-to-peer lending
    I have money invested across a few P2P lending accounts, but aside from only averaging 5-6% return, I also believe they are higher risk than they claim to be. Given these loans usually are for cell phones / holidays / entry-level cars, when an individual is out of money, which loan will they first default on?
  • Rethink exposure to property
    I still believe in property crowdfunding. I definitely do not believe in the current London property prices, hence why I am still renting.
  • Rethink exposure to crypto-currencies
    I believe in them as technology, and method of payment, but not necessarily as assets/commodities. A post will follow soon on this topic.

Blog-related

  • Make it pretty. The default theme is not ok
  • Make it fast. I’m planning to move it off the current host, as it has had too much downtime and is overall painfully slow
  • Make it more user-friendly. Provide subscription options (newsletter, Facebook, etc)
  • Average 1 post per week. Given one would be the monthly budget report, and one, the portfolio report, this should be very easy to achieve.

Personal life

  • As this is not necessarily a personal blog, I will only include thoughts that reflect directly into finances
  • Stop spending money on useless stuff. Blog post to follow on this topic
  • Evaluate current job, and consider contracting
  • Evaluate current side hustle, however this is likely to stay
  • Start another side-hustle. Still no clue what this would be
  • Gym every day. Makes a huge difference in productivity

What is my retirement goal?

Since I’ve started reading financial independence blogs, I’ve had this question on my mind: if I were to retire early, what is my retirement goal? What is the amount of money that I need to have in order to live comfortably.

There are many factors that come into play while calculating this number, and I don’t yet know some of them. The ones I can think of:

  • What is my required monthly income?
  • Which is the target tax level?
  • The kind of retirement portfolio am I planning to build: Dividend-based? High-growth stocks? High-growth ETFs?
  • What is the annual income from my portfolio?

What is my required income?

This is highly correlated to 1) the location I am planning to retire in, and 2) the lifestyle I am aiming for.
As I’m 27, and retirement is potentially far away. I could always think of a “I’ll move to Thailand and live in a bungalow” scenario, however I prefer a pragmatic approach.

Right now I am living in London, which is one of the most expensive cities in the world. I know for a fact that I would not retire in the United Kingdom, as I love sunny warm weather, and … yes.
Also, on my current lifestyle, while I do not go out much, I live alone in a reasonably new and big flat, and I like to travel a lot.
If I were to retire in my current situation, a superficial calculation tells me I need about £3.000/month, after tax. At the current income tax levels, this translates to around £50.000 per year, before tax.

Which is my target tax level?

Again, this is highly-dependent on location, and of the type of investment. This can take into account:

  • the citizenships I may have at the time of the retirement
  • whether my investments are wrapped in a tax-free account, such as an ISA
  • whether my non-tax-free investments have a “UK reporting status” or not (meaning, do they require Capital Gains tax, or Income tax)
  • or if my investments are held under a company, or under my own name

For now, I’ll go with the worst case scenario, which is UK income tax – treating all my potential income as a salary.

What kind of retirement portfolio am I building?

This is an even tougher question. Half of the bloggers I am following are going for real estate – traditional “buy and rent”. The other half seems to like dividends a lot.

As my parents have been involved in real estate, and property is part of their retirement portfolio, I can immediately see the issues that come with that. As a landlord, while you are enjoying a 3-4% yield in London, 5-6% in the UK-outside-London, or 6-7% in other cities in Europe, you are still supposed to invest in the property, carry out repairs, pay lettings agents, and chase tenants for late rents. Neither of these prospects sounds appealing to me.

A dividend portfolio sounds a bit more hands-off, however the yield is usually lower – 3-4% on a safe investment. This yield can only go up towards 10% in one of two ways: risky stocks, or leveraged portfolio (details at the bottom of this article).

Alternatively, a mix of high-growth funds/ETFs and a less risky dividend portfolio can provide both income and piece of mind. I am intentionally vague, as I almost know that my opinion expressed in the current post will change very soon, as I start better planning my investments.

What is the annual income from my portfolio?

This is the 4th but the most important question on the list. As I do not know how long I will live for, planning to “eat” from the portfolio for a number of years is not a good plan. Instead, I should design the portfolio to generate passive income at a rate which gives me a comfortable life.

The most popular rule I have read about is the “Safe withdrawal rate”. It is mentioned on pretty much every other FIRE-related blog, and suggests 4% as the magic number. What this means is that my required annual income should be 4% of the portfolio size. This also means, in an ideal world, that the portfolio will generate at least 4% per year, to sustain my lifestyle.

With the £50.000 yearly income target that we’ve set, multiplying it by 25 will yield £1.250.000.

This means, I need a portfolio of £1.250.000 in order to retire and life safely off passive income. Oh, my!

As I currently aim to save about £1.000 every month, this means:

  • If my investments grow by 20% yearly, I can retire in 16 years, by the age of 43
  • If they grow by 15% yearly, I can retire in 19 years, by 46
  • Or if they grow by 10% yearly, I can retire in 25 years, by 52

This is quite hard to read, write, and digest. But I guess it’s also motivating, and showing that it is possible. Next, need to find a way to either 1) save more money, 2) invest better or 3) both.

I’ll try to add a progress tracker to the sidebar of this blog, as a nice reminder every time I visit it.

Leveraged portfolio: I am looking at a ETN instrument issued by UBS, which seems to be paying between 10 and 15% in dividends, per year. As I suspected, this instrument is leveraged, and highly volatile, so carries a degree of risk. If you are interested, you can read about it here

Credit score(s) and credit report(s) in the UK

Apologies for the lack of introduction, but as this article will be a bit long, I’ll jump straight into the main topic. For some of you, the topic of “credit score” or “credit report” may be very familiar. Others may know little-to-nothing about it.

So I’m going to write a few ideas around the credit scoring industry in the United Kingdom, and explain how and why am I interested in following this topic.

This article comes as a result of a number of things:

  • There are tons of credit-score and credit-reports related articles focused on the US consumer
  • I could find some articles in the UK media, but somewhat too generic and useless beyond the basics
  • There are few personal opinions that I could find, related to credit scoring and credit reporting in the UK

CRAs (Credit Reference Agencies) in the UK

There are 3 main CRAs in the UK: Experian, Equifax, and CallCredit. All of them do a very similar job: getting data from banks/lenders/local councils and reporting it in a standardized way.

The common misconception around what might be doing is that they report a score around your credit. They do not – they only report the data!

Why should you care about them?

Since moving to the UK, I went through 3 stages in relation to my credit report:

  • Curious.
    Student, interested about my credit report. Nothing of significance happening there.
  • Careless.
    Started working full time, did not have time for this topic.
  • Paranoid.
    Randomly checked my credit report, to find out that someone else opened a bank account in my name.

As you can probably guess, I am now monitoring all 3 CRAs on a regular basis.

How to check your credit report?

I am using 4 different services to check my credit reports – will list them below, so you can pick your options.

CreditExpert – this is a interface for Experian data. They offer a limited free service, and a £15/mo premium service which shows full report information.
The premium service updates the report every morning.

ClearScore – this is an interface for Equifax data. The entire service offering is free, and personally I find the interface to be the friendliest of all websites I’ve tried.
The credit report data is refreshed once a month.

Noddle – this is an interface for CallCredit data. The entire service offering is free. I’m not a huge fan of the design, but as long as it’s showing correct data, it’s not the end of the world.
The credit report data is refreshed once a month.

CheckMyFile – this is a wrapper around all 3 CRAs mentioned above (+ 1 extra), and costs £15/mo. It makes it much easier to spot differences between what different CRAs report, and helps me in fixing them.
The credit report data is refreshed once a month.

And… how can you use this to your advantage?

Since this is a personal finance blog, there are a few ways to “game the system”, and make sure the data is in your advantage.

The whole exercise is just about impersonation – try to put yourself in a lender’s shoes, and set the expectations right. A few examples below; and please bear in mind that this is just my own experience and interpretation, and by no way an official guide:

  • Telecoms and most commercial companies: They use this for identity checks, so as long as you are on the electoral roll, and have some bills tied to your name & address, they will be happy.
  • Banks: They make money from selling various services and products to current account holders. Just make sure you’re on the electoral roll, and have no bankruptcies.
  • Most credit cards: Most of them make money from the merchant fees – they need people using the credit cards. They also make money from interest – so depending on the company, holding debt may or may not be a good thing.
  • Charge card lenders (American Express-like): As they do not lend with interest, most of their income comes from higher-than-average merchant fees. They love big spenders. They like you if you pay your entire credit card balance every month.
  • Mortgage lenders: They make money if you pay a stable amount over a long period of time. So they’d like to see you having done that in the past as well – make sure you have history of paying your debt.
    This is probably the most important item of this list, as a 1% less interest on a mortgage is likely going to matter a lot!

This list can go on and on, but I hope you get the gist for now.

A few unwritten tips

I’ll list a few tips that I could not find anywhere else, and have proven problematic for me in the past.

  1. Use the exact same name everywhere. This is valid especially if you have more than one first or last names. CRAs are very bad at matching “Jon Smith”, “Jonathan Smith” and “Jonathan David Smith”
  2. Use the exact same address everywhere. Currently, Experian has records on me with over 100 different variations of my addresses. This has caused failed identity checks before.
  3. Try to have less than 3 addresses for 3 years. There are companies which reject people which have changed addressed over 2 times in 3 years (Vodafone UK is the first example I can think of).

I hope this guide has provided some useful tips.

If you have any questions about credit reports, or suggestions on this topic, feel free to write them in the comments section!

November 2017 – my 1st monthly summary

I’m aware that I’ve recently posted a mid-month update, but despite the short time span, I’ll try to make this end-of-November post relevant and comprehensive.

Some background info

I’ll start with a bit of background information. I’m building my monthly report and adding the numbers while writing this post, so at the time of writing this paragraph, I don’t know what it will look like. I won’t expect November to be a spectacular month for my finances, and will explain why here.

I used to split my fixed costs (rent, utilities, groceries, etc) until this month, when my ex-girlfriend moved out. We are both on the rental contract, but as the separation was mutually agreed, I’ve decided that I will handle the costs until the contract’s expiration date.

Other than the above, Black Friday and Cyber Monday were not good news for my credit cards either.

What should this post contain?

I’ve had a lot of thinking around the contents of the monthly update. My best guess is that it will take a few iterations until I will find a format that makes sense. The candidates that I found for content sections, so far, are:

  • Expenses, grouped by category
    Living in the UK, I’m quite limited in the ways I can automatically track my spending. I have been a YNAB user until they have changed their business model to place US customers at an advantage. The only app that I could find, which automatically syncs my transaction data, is Yolt.
    I think this information is very useful to me and it can help me eliminate bad spending habits, but not very interesting for the readers of this blog.
  • Debts
    This is fairly similar to track using Yolt, as long as we are talking about rolling/credit card debt. Luckily, I don’t have a student loan, a leased car, or a mortgage.
  • Investments, grouped by account/type
    To date, I could not find a reliable way to track my investments, other than logging in the accounts once a month, and checking the numbers.
  • Investments, with a chart showing evolution over time
    This brings a similar challenge to the previous point. Still working on that…
  • Overall summary (earned X, spent Y, invested Z)
    I think this should be the ending of these posts, showing what percentage of my income I managed to save / invest, and eventually how my “net worth” looks like.

The bad news: Debts

I have recently paid off a long-term loan that I have since 2016, so in the bigger picture, my debt graph is going in the right direction. If I were to depict my debt over the last 18 months, it would look like this:

Debt evolution: Aug 2016 -> Nov 2017

Pink is long term unsecured debt, blue is credit card debt.

Other than that, I’ve got rolling debt on two credit cards:

Debt to whom?Amount owed
Credit card 1755
Credit card 24383

I’m tackling my debt with the Snowball method – getting rid of the smallest one first. Therefore, I’ve set my next statement of 755 to be paid in full, which will happen in a few weeks. This means that the next report should look much cleaner!

The good news: Savings & investments

The table below only shows minimal savings, as I’ve had my P2P investments paused for a few months. One of the P2P monthly contributions will start with the 1st of December, and will be reflected on the December report.

What?This monthCurrent balance
Total57330000
Investment (Cash savings)2005296
Investment (Funds)2502652
Investments (P2P)03342
Investments (P2P)1010
Investments (Property Crowdfunding)049
Old pension account017841
Work pension113810

I will also write another post explaining each of these accounts, how much return do they offer, and how am I planning to optimize them.

The overall picture for November

As predicted at the beginning of the post, this month offered no surprises. I know my expenses are higher-than-usual, and there is little I can change in the short term. My medium-term plan is to drive my debt down to 0 in a steady way.

As a savings ratio, this month I have saved just over 9% of my income. Pretty poor if you ask me; but this may be due to the higher-than-usual monthly income. In a normal month, I’d expect the ratio to be closer to 20%.

Happy December everyone!

Welcome! The beginning of the story

As this post replaces the pre-defined “Hello world, welcome this WordPress!“, it’s only polite that I start with the same: Welcome to this blog, and to my journey.

To kick things off, I’ll start with a bit about myself. I’m a 27 years old guy, working as a software developer in one of the most expensive cities in the world. Been working full time since I turned 23 (my first day at work was my birthday), first in a corporate environment, and now in a 20-something people tech startup.
Prior to my university graduation, I’ve been working during my holidays, and sometimes freelanced during term – this is a cultural trait that I have to thank my parents for, as they were the ones that found my first job when I was 16.

I’ve started this blog after following the topic of “Financial Independence” for over a year. Reading how someone is up $20.000 in a single month is exciting, potentially a bit science-fiction; reading how someone else is up $1000 is a bit more achievable and down to Earth, for me. However, realising I have almost no control over my finances, and that I’m not bankrupt just because I earn enough to have a good cash flow – is shocking.

I’ll use this blog to both share the experience, journey and any advice with you, but also as a tool to keep myself accountable. Seeing the income & spending habits in a regular post provides the kind of transparency that otherwise, the immature side of me keeps hiding away.

Thank you for reading, and hopefully, I’ll follow up really soon with another article that actually talks about finances.