Irish real estate – the end of the affair?

For a while now I have been very focused on real estate as my ticket to financial independence in the foreseeable future. I had become convinced that within a reasonable space of time I could replace my job-based income with rental income from 2-3 properties.

In addition to many hours of searching through Ireland’s main real estate websites (www.daft.ie and www.myhome.ie), I have visited a number of properties over the past number of months. I decided to focus my search on the cities of Dublin and Limerick. Limerick has the benefit of being significantly cheaper than Dublin, and also seems to have a thriving rental market. I felt that by acquiring a couple of less expensive properties in Limerick rather than possibly one more expensive one in Dublin, I would be diversifying to some degree, and also taking on debt more incrementally, thereby allowing myself scope to learn as I go, without the pressure of all of my investment being tied up in one more expensive property. I have now done a couple of day trips to Limerick where on each occasion I viewed a number of properties. I was particularly impressed with what I saw on my most recent trip, so I sat down to crunch the numbers in earnest, and what I found has left me extremely disappointed and wondering where to go next.

The numbers:

First of all, what did I find? Well, an apartment costing € 90 k and with annual rental potential of € 12 k after expenses and taxes has a cash flow potential of… € 256. I have included my workings for anyone who (like me) has to see this to believe it. From a gross yield of 13%, (and an even more impressive gross return on 37% on my own initial investment of € 32 k to a net of 0.79%! This breaks down as follows:

From an income of € 12,000 I would have expenses of € 8,826. Of these expenses, only     € 6,389 are deductible for tax purposes. (Mortgage principal and local property tax are not tax deductible expenses. Life insurance/ mortgage protection I was unsure of and for this reason I have considered it to be non-deductible). So € 12,000 – € 6,389 in deductible expenses leaves profit of € 5,612 which is taxable at 52% (40% income tax, 8% USC and 4% PRSI). € 5,612 * .52 = € 2,918. So, gross income of € 12,000 – expenses € 8,826 – taxes € 2,918 = € 256. I have included a full breakdown below for anyone who is interested in delving further into this.

The major expenses are the mortgage (€ 4,334), the compulsory property management fee to the company that manages the apartment development (€ 2,000), followed by an additional 8% of rental income (€ 960) to that same company to manage the letting, which is optional but worth consideration since I live a 3 hour bus journey away, and so am not immediately on hand! My calculations are based on me doing my own taxes. If I were to hire an accountant, or indeed if any one unanticipated thing were to happen, it would easily put me into negative cash flow territory. This is based on a € 32,400 investment of my own funds. One thing to consider to increase cash flow is to 1) buy a house which eliminates the property management fee and 2) manage it myself. These 2 actions would increase cash flow by almost € 3,000 annually in this case. It is worth noting though that it is not often that houses become available for € 90 K!

The alternatives:

So, continuing for now with the rational analysis, what type of cash flow could I expect from a € 32,400 investment elsewhere? Well, again I refer to Mrs Money Hacker’s overview of available investment options in Ireland. I see that according to this analysis, the 2 highest-yielding investments are Peer to peer lending followed by our old friend the stock market.

Low and behold, € 32 k pumped into P2P based on expected gross returns of 12% and net returns of 5.8% would produce positive cash flow of € 1,866. For anyone who is more comfortable with investing in the stock market instead, the same € 32 K would generate  € 1,230 after a year (assuming returns of 7.9% gross/ 3.8% net). I say may of course, because we don’t know and there is no guarantee!

The feelings:

Emotionally, I suppose it is like realising that someone you were once in love with is not going to be in your life in the way that you had once hoped for! It is immense, and assimilating this is a process which begins with a feeling of utter devastation, followed hopefully at some stage by shock, anger, rejection and ultimately acceptance. I appreciate that this is rather a dramatic comparison, but the devastation is real. I had been happily pottering in and out to my job every day, comfortable in the knowledge that I had some kind of a plan which appeared to be viable, on a high level at least. This belief carried me forward and kept me positive, all on the understanding that I was working towards a greater goal which would make work optional for me in the not too distant future. Even my lunch breaks seem that bit emptier now that I am no longer spending them making inquiries with sales agents and property management companies! Where do I go from here?

The aftermath:

Eventually, as with the end of any great love, we have to pull ourselves out of our slump. All in all, I enjoyed the research despite the fact that the findings were not what I had hoped for or expected. The numbers don’t lie, so, in line with my research findings I need to funnel any funds available for investment as follows 1) maximise pension contributions 2) some combination of p2p & stock market/ ETF depending on my risk appetite. Another thing that has emerged for me from this process is that I need to focus on the income side of the equation from existing sources i.e. job…

The career:

To the extent that I have focused on income over the past few years it has been on the non-job based income sources. Personal finance blogs often emphasise the virtue of focusing on growing your income from your career. Indeed the ability to grow and develop income-earning capacity is considered by some to be our biggest asset. So why have I not focused on it more over the past few years?

With good reason. My first preference would have been to give myself the security of feeling I could replace it with other income sources. For the past few years I have chosen to maintain my existing job as opposed to moving for a bigger job with more money. I have chosen my mental and physical wellbeing by choosing the security of the known over taking risks by leveraging up. This attitude suited me when I had the feeling that my great “high level 2 and a half house” plan would kick in in the foreseeable future to replace the need for a job. Now things have changed and I need to rethink this.

Why have I been so bearish in my career these past few years though? I went through a redundancy in 2012. This was during the time that the press here was painting a doomsday scenario for all things financial services. I had started my Masters, and wanted to continue and for this reason chose not to emigrate again. Against this backdrop I took the first job I was offered because I felt I had to. This turned out to be a very negative experience. While I eventually got out of the job the impact of the experience was long-lasting in terms its effects on my self-confidence. As a result I did what I could to protect myself and was very careful about what jobs I went for in future. I think this explains my bearishness!

Anyway, if I am not going to be quitting the workforce anytime soon I suppose the next logical step is to start looking at increasing my job-based income, starting with no longer ignoring recruiters who contact me on LinkedIn. The good news that I have to report is the fact my home extension will be completed this year, and the rental income from renting out a part of my new and expanded home will cover my mortgage when complete. This means that I can consider taking on a bit more risk in my career, including risk of failure (at a more senior role), or risk of not always having work, (i.e. contracting).

In conclusion:

A decent friend in times of loss and heartbreak will always encourage us to focus on the positives. Gradually, as the week end progressed I began to pull myself out of my slump, and I started weighing up the positives.

All is not lost. Great progress has been made. The extension, once complete, will allow me to earn rent free income to cover my mortgage. This is approximately 50% of my expenses. The impact should see my savings rate soar. The findings of my exploration into property investing is that I will be better off putting the additional income into p2p, the stock market, or a combination of both, as opposed to attempting to acquire an additional rental property at the moment.

The second finding is that I now feel that it is time to look at the income side of the equation in terms of my job-based income. I foresee that this will begin with small steps like logging on to LinkedIn occasionally, and responding to recruiters who reach out to me. Maybe even considering some volunteer-type activity that might give me the edge at some point.

For anyone who may be wondering, I absolutely remain committed to the pursuit of financial independence. So, life goes on with its’ ups and downs and occasional disappointments! Stay positive people – this in itself is an asset!

The calculation backing up the numbers (for anyone who needs to see it to believe it)!

borrowed amount  €             63,000
house purchase price  €             90,000
downpayment (30%)  €             27,000
stamp duty (1%)  €                  900
legal fees (1%)  €                  900
valuation  €                  150
engineer  €                  450
furniture + renovation  €               3,000
initial investment  €             32,400
INCOME
rental income (monthly)  €               1,000
rental income (annual  €             12,000
EXPENSES
mortgage interest (3.95%)  €                  207
mortgage principle  €                  154
total mortgage  €                  361
total annual mortgage  €               4,335
PRTB  €                    90
Insurance  €                  350
Life/mortgage protection insurance  €                  192
repairs  €                  500
depreciation
LPT  €                  400
accounting
refuse
management fees  €               2,000
property manager  €                  960
Total expenses  €               8,826
cashflow/loss  €               3,174
increase in equity  €               1,846
Total annual equity  €               5,020
TAX
income  €             12,000
100% mortgage interest  €              2,489
mortgage insurance  €                  350
repairs  €                  500
accounting  €                     –
depreciations  €                     –
management fees  €               2,000
property manager  €                  960
PRTB  €                    90
Total profit for tax purposes  €               5,612
tax at 52%  €               2,918
Annual earnings on paper  €               2,694
% for initial investment  €                      0
annual take home excl capital  €                  256
annual yield excluding capital 0.79%

 

Investment property # 2?

Here I consider the case for property as an investment for me in light of my own goals. I take a look at the pros and cons of property as an investment type, and then delve deeper into my decision-making parameters, look at how to calculate my return on investment, and to compare investment properties. I also try to play devil’s advocate (on myself) and to consider an alternative approach to meeting my needs!

I was recently chatting with a friend who is already financially independent. I expressed some impatience with working in the traditional sense, and was talking about how I had been hearing about people saving a great deal on taxes through working as contractors, by setting up their own companies, as opposed to working as an employee. My friend’s response was to suggest that I acquire some “cheap rental property” to back me up if going this route. This friend had bought rental property following the collapse of the property market here, and as a result had quit his job and was sitting pretty! He referred me to a particular apartment development in Limerick (our third largest city) as a starting point – one of the locations where he had acquired “said cheap property” a few years ago. He also pointed out to me that once I was no longer working as an employee in the traditional sense I would find it a big challenge to try to get a mortgage.

This sent me off on a research spiral, and within about a week of this conversation I had taken the day off work and was travelling to Limerick to check out a number of properties being sold by the banks. I quickly realised that I had jumped in at the deep end, and that I would need to do some preliminary research in order to be able to assess the viability of property as an investment, and even whether this was the best investment type for my goals. Furthermore, that if I did go this route, I would need some mechanism by which to decide between rental properties. I had stopped monitoring the property market when I bought my primary residence a few years ago, and had not paid it much attention since…

Which investment type is best?

First of all, what, if any, other investment options are available, and which of these best suit my needs, and fit with my goals? What are my goals? Well, my latest goal (as expressed to my friend in the conversation I referred to above), is not necessarily to not work, but to work on assignments and projects that I find interesting, or rewarding, to solve problems while developing myself along the way. This immediately is more achievable than complete “never having to work again” financial independence. For me it means having my basic expenses covered.

My goal:

So, I would like my investments to generate sufficient cash flow to cover my basic expenses, giving me the option to step away from full time employment. The other point is that I had been working for quite a number of years already by the time I discovered financial independence, and as a result, I am currently feeling IMPATIENT about the journey, so would like to generate this cash flow ASAP!

Speaking of “stepping away from full time employment”, when I was last looking for work a few years ago, I was contacted on occasion by recruiters acting on behalf of companies who wanted to hire me on a contract basis. At the time I declined to explore these options in greater detail, because as far as I was concerned at the time, this did not provide me with the security which I was looking for. The recruiters had pointed out to me in each case what my net salary would be if I worked as an independent contractor (self-employed route), versus taking the same job as an employee. The self-employed salary was higher because of the differing tax treatment. Some of the recruiters even offered to take care of the company setup for me. At the time I did not pay this option much attention because I had been brought up to seek a “permanent and pensionable” job, and I felt that if I took a contract I would need to be constantly looking for work, while having none of the security provided by the “permanent” job. Recently it occurred to me that, once I perceive myself to be sufficiently secure, I can afford to work in this way, and get paid more to do the same type of work. I would only feel comfortable doing this however if I have some other form of additional income supporting me! This is effectively also what my friend was recommending in the conversation we had. With this in mind, I explored the available investment options.

Investment options:

Now that I know what my goal is – Next up, what are the investment options currently available to me? I found the following guide very useful as a summary of the investment options available in Ireland currently, along with expected returns and tax treatment -> https://mrsmoneyhacker.com/investment-options-in-ireland/. Looking at this list, I see that I am already planning on maximising the more tax-efficient of these investment options (i.e. pension plan and rent-a-room scheme). Other than these options, it does seem that all of the investment options attract income tax, USC + PRSI, albeit these are payable every 8 years on stocks versus every year on rental income.

Cash flow is king (for me)!

As someone who has become impatient, the ability to generate sufficient cash flow to cover my basic expenses as soon as possible is key for me. Investment property does seem to fit the bill here. As far as I have been able to establish, none of the options could generate as much cash flow relative to the amount invested. This is due to the fact that the real estate investment is leveraged. I would be investing 30% of the property purchase price, but will get the rental return on the full 100%. Effectively I will be able to generate the necessary cash flow with a smaller amount of equity invested than if investing in the stock market. In other words, real estate investing appears to be the quickest way to achieve my goal of generating sufficient cash flow to replace my job-based income.

Let’s be honest, for those of us whom are not in the high-earning tech jobs it would take a long time to amass a million Euro portfolio, or indeed even half of that. However, generating sufficient cash flow to replace the salary may be able to be achieved more quickly through real estate investing. Again, Mrs Money Hacker has demonstrated this aptly in her post on how to retire with only €200,000 in investments! https://mrsmoneyhacker.com/how-to-retire-with-less-than-200000e-in-investments/ Mrs Money Hacker demonstrates that, through investing in real estate, it is possible to generate the same amount of cash flow with € 200,000 invested as with €500,000 in the stock market! This is the main allure for me. (Another way to possibly achieve a similar cash flow might be to invest through a property fund which is leveraged. I have not come across such a fund which is open to retail investors, but am open to hearing about this if readers have any further input on this).

Pros and Cons of real estate investing:          

Despite its’ powerful cash flow generating possibilities, it is important to also consider the risks. Let’s look at the pros and cons of this as an eligible investment option for me. Let’s start with the negatives, as some Irish people are known to do! Typically, I find that in Ireland people have a habit of jumping in to immediately to tell you about the absolute worst case scenario when you speak about doing something new. For example if you tell friends that you have signed up to do some online dating, you will immediately be told about someone whose body was found in the woods, apparently because she signed up to an online dating site. Likewise if you tell friends and family that you are thinking about buying an investment property, you will immediately be told stories about nightmare tenants, and referred to a British TV series of the same name. I find this unhelpful, so have attempted to weed out the hype, and have included instead here the main considerations which I see.

Cons:

  • Tax: I investigated whether I could purchase a property through a pension, as a way of being able to avoid taxes on the rental income for the moment. This is unfortunately not an option for me currently, since any property investment which I would be looking to make would exceed the annual allowable pension contribution for me (based on my age and job-based income). As such, I am looking at 52% tax on profits for the time being (40% income tax, 4% pay related social insurance (PRSI), and 8% Universal Social Charge (USC, an additional tax created to assist with paying for the government’s decision to borrow the money to “bail out” the banks during the financial crisis). (I believe there may be the potential to restructure this in the future, by setting up my own company, and earning income as a contractor as opposed to an employee, as outlined earlier in this post, but at the moment I choose to continue to be an employee, until such time as I have safely replaced my job-based income with income from other sources). While the tax is a big deterrent, as far as I can see, other investment types are taxed similarly (albeit, taxes on gains are payable every 8 years on stock market investments, rather than every year on rental income).The main point for me about the tax is that this is the tax I would be paying on other investment types as well, or on any additional income earned through employment.
  • Illiquid investment: This is a deterrent of course in a situation where I may need money, but may not be able to sell immediately, and indeed may have to sell when house prices are low. I note this, but my plan would be to buy and hold. It is probably worth noting that I intend to continue to invest in my work place pension additionally, and that I will have income from pensions coming to me down the line as I “come of age” to claim these (age 50 and 60 respectively, or later if I wish). Additionally, I intend to continue to keep a certain amount of cash to cover emergencies, and will probably explore peer to peer investing to keep some cash flow coming in from other sources, and remember also, I do see myself continuing to work for the time being, so I would hope that I would not be in a position when I needed to sell at an inopportune time due to having other sources of income and cash on hand!
  • Not passive: Property investing is not completely passive. This is true, but there are ways to make it so. For example, the Irish state offers a number of different options to landlords, in which scenarios the state would take on the property and related responsibilities to varying degrees. Here are a number of options offered by Dublin City Council: https://www.dublincity.ie/sites/default/files/content/HousingAndCommunity/Homeowner/LandlordLeaflet.pdf Some councils even offer loans to landlords to assist with the renovation of properties. Another option is to pay a property manager. (One I recently spoke with charges 8% of the rental income to manage the property). I currently manage investment property 1 myself, and quite enjoy this, and find it low maintenance (although maybe I have been lucky)! I also rent-a-room in my primary residence, and manage this myself (typically a more informal arrangement, but one which would give me some idea of my aptitude for interacting with lodgers and solving house-related problems as they arise)!
  • Lack of Diversification: In my case, I am already very exposed to the Irish property market, though my primary residence and investment property 1. This is mitigated to some degree through my pension investments (which are increasing every year), and through my job based income currently. Not only am I very exposed to the Irish property market, but would also have a big chunk invested in 1 property (versus investing via a property fund for example where I could then be diversified across many). If I was heavily reliant on the rental income from 1 property and that tenant stopped paying, that could leave me in a difficult position. This is a significant concern given my current plans. Perhaps buying a cheaper property, or a property which includes 2 or more units may be a way to reduce this risk, or renting a property to a number of individuals under some kind of co-living arrangement (something which I have not yet looked into).
  • Costs: There is quite a finite list of items which are tax deductible. (From 2019 mortgage interest is 100% deductible, which is good news). Worth noting that all investment in refurbishment prior to the renting of the property is not tax deductible. Important to factor in vacancy periods in between tenancies. A tenant may also stop paying, may damage the property, and it may take a long time to evict them, in which case the landlord will not have income coming in and may incur additional costs.
  • Interest rate risk: An increase in interest rates could have a big impact on costs. I recently spoke with someone who suggested that I should stress test myself against interest rates of 6, 7 and 8% to ensure that I can cover such an increase in my mortgage repayment amount if necessary.
  • Nightmare tenant: Someone who doesn’t pay the rent for months or years (as above). Mitigated to some extent by vetting the tenant. Could also be mitigated by having the State as the tenant where the State will pay on time and restore the property as needed, and will cover any vacancy periods.
  • Increasing regulation: This comes with increased costs, and additional risks for landlords as tenants’ rights are strengthened.

Pros:

  • Cash flow: Again, the biggest incentive for me is the ability through real estate to generate sufficient cash flow to replace job based income more quickly than any other investment type that I am aware of.
  • Return on investment: Investment mortgages require a 30% down payment. I realised I am in a strong position currently to demonstrate good savings ability to any bank, having had a structured savings plan for the past 2 and a half years or so, and having amassed a decent amount of cash savings to cover the deposit. For the right price and with the right rental potential, I see this potentially as a good return on my investment, despite taxes.
  • Strong rental demand: House prices have stabilised in Ireland recently while rental demand remains strong. The housing crisis continues. I recently spoke with a work colleague who is paying € 2,000 per month to rent a one bedroom apartment in a Dublin suburb. Due to the lack of building for the best part of 10 years after “the crisis”, there is insufficient housing to meet demand. The state also stopped building for that period, and as a result is paying private landlords for places to rent for those on its’ housing list (see options above). Having the state as a tenant can provide a lucrative and reliable income, and indeed can support a mortgage application (whereby banks will take into consideration when making their decision whether to approve the mortgage application).
  • Equity: in addition to cash flow, as the mortgage gets paid down, the equity in the property increases. In the long term, the value of the property may hopefully increase, though this is certainly not guaranteed! Buying a property with good transport links to a city, airport, etc. is always a good recommendation.

Conclusion:

For me personally, taking into consideration my own goals (to generate the cash flow to replace my basic expenses asap) and current situation (deposit saved, some experience of being a landlord, not fazed by the potential work, lack of liquidity, etc.), this is an investment option which I am considering. The next thing I need to do is to define some parameters for consideration, and develop a mechanism for being able to compare and vet potential investment properties.

The options:

Key factors for me are 1) the rental potential and 2) the constraints.  The rental potential of course is the amount of rental income that the property could earn. The constraints are the rental restrictions imposed in rent pressure zones in Ireland. Under this legislation, the rent can only be increased by 4% per annum of the amount it was rented for previously within these areas. This means that if the prior owner was renting below the market rates, the new owner needs to maintain the rent at that level. The only way around this is to leave the property empty for 2 years to be able to rent it at current market rates, or to undertake “substantial refurbishment” of the property.

I began by looking at properties in Dublin and in Limerick. Both cities are now within the demarcated “Rent pressure zones”, so all of the above applies. Our capital city Dublin has a lot more properties available, and they are generally much more expensive. Limerick, our third largest city, has seen very strong growth in its rental market and, like Dublin, demand exceeds supply.

For me, the yield is the biggest consideration. In order to be able to estimate the yields, I borrowed a spreadsheet devised by Mrs Money hacker and customised it to my needs. In order to estimate rental yields I am using a combination of publicly available information https://www.daft.ie/report/2019-Q3-rental-daftreport.pdf daft and myhome websites, and conversations with real estate agents in both locations. Based on this I can plug in my expected rental income and expenses, and come up with a gross and a net yield. In absolute terms better rent can be generated in Dublin. However, this also requires a bigger investment usually, so this is why the yield calculation is important. It might be worth considering a number of smaller investments as opposed to one bigger one as a means of diversifying and spreading the risk!

So, I am now at the point where I am spending a large amount of time looking at the available options on the daft and myhome websites, and am considering my options. I am plugging these options in to the spreadsheet to get an approximation of what sort of a return my investment can make in each case. I have started a spreadsheet including a number of potential options in both locations. Once the estate agents re-open after the Christmas period, I will be able to continue my research by picking up some of these conversations and narrowing down the list!

Concluding Comments:

I think it is worth noting at this stage that there is always an alternative approach. My own character is such that I really like to see progress in life. I could delve further into the root of my recent impatience with the working world. Is it perhaps due to a perceived lack of progress, and, if so, does an alternative solution perhaps lie in exploring new work opportunities? I like to keep an open mind to this possibility. An interesting new opportunity may serve to meet some of these needs while also serving me on the path of financial independence (by providing perhaps more experience, more money, or ideally both). All of these things are not necessarily mutually exclusive. Additionally, I am giving some consideration to exploring carefully-chosen volunteer opportunities which may give me additional experience which will benefit me in future without the uncertainty of a job change now.

Furthermore, I will be coming much closer to having my basic expenses covered once my home extension is completed next year – see my previous post on this  here: https://wordpress.com/post/financialindependenceireland.wordpress.com/389

Perhaps this may be sufficient to allow me the necessary flexibility and freedom of choice that I have been seeking. In this case perhaps incremental investments in the stock market and in peer to peer may suit me nicely without the hassle (and risks) of property investing.

Another way for me to approach this is to continue with my current research and with monitoring the property market, but to hold off on making an investment until my work on my primary residence has been completed and fully paid for, and this room is rented out and earning an income.

This is just one alternative that occurred to me as I was writing this. I am open to hearing about other options from readers who may be considering similar (or different) possibilities! I also hope that some of the research that I have done on this so far may be of use to others.

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September Update! The path to 50% financial independence!

So here we are! Hurtling through September, 3 quarters of the year almost gone by in the blink of an eye. Before I know it I will be at my work Christmas party contemplating what I have achieved over the past year!

So how are things going? Value of pension investments is up 30% since this time last year, savings are also up 27%. Savings rate is 37% on average this year so far. Savings represent about 20 months’ worth of living expenses. All positive! Most of this cash has been earmarked for an ambitious home extension project.

The ambitious development plan

The objectives of the development project are twofold – Firstly, to develop an additional income stream by constructing an extension to my primary residence in the form of a self-contained apartment unit. Ideally I would like to use this to pay down my mortgage. It stands out quite strongly in my expense analysis as the most significant expense item, representing an average of 47% of my monthly expenses (including the related mandatory insurance policies). So I feel focusing on having this covered through passive income will have the most profound impact. Ultimately this could go a long way towards me having much greater choice in terms of when, how and where I choose to work, and moves me more towards the position of choosing work projects that interest me or that I find rewarding. I could see my way to possibly working part time to cover my remaining expenses! Or I could continue as I am and ramp up my level of savings and investments. 50% financially independent! The second objective is as a contingency for if I lose my job in the next downturn – I could live in the apartment and rent out the main house. It gives me options.

What next with the extra income?

The next step I have decided is to open a couple of accounts with P2P lenders. To date my workplace pension and my cash reserves have been the beneficiaries of my savings, and I intend to continue to funnel a decent amount into the workplace pension (which makes sense from a tax perspective for as long as I remain an employee), and to maintain about a year’s worth of expenses in case. As I scale things up however I need to think about where to divert the additional expected income and P2P was was the conclusion I came to. (I am currently locked into a fixed rate mortgage at an advantageous rate for the next couple of years which does not allow me to ramp up payments so this is not an option for the moment). Since I am currently exposed to the Irish property market (though my primary residence and my investment property) and to the stock market (through various occupational pensions from current and prior employers), diversifying seemed like a good idea. Plus I have had people trying to turn me on to crowd lending/ P2P for some time now. Guess what? I haven’t been ignoring you all. I have been quietly reading up on this for the past few months now and am readying myself to dip my toe in the water! I plan to follow all the advice, diversifying across loan types, across platforms, and originators and sticking with the loans which are either collateralised or guaranteed. It will realistically be next year before the income starts flowing in, so I plan to start opening accounts over the next few months and let’s see what happens!

Back to existing income streams

The income stream from my job is stable as is the job at present. I have maintained my conviction to manage my time tightly and not to devote any more than strictly necessary to the job. I work focused and endeavour to practice ruthless time management! I flirt occasionally with the idea of changing job to boost income but following a quick look at PWC’s income calculator and seeing what a small net impact a significantly higher gross salary has I decided to remain where I am for the moment. Perhaps setting up a company and working through this as a contractor is something I might consider in the future if it makes sense, ie. if the tax advantage for doing the same work greatly outweighs the financial benefit of climbing the corporate hierarchy as an employee! This is something I will look into at some point in the future.

I put in place a long overdue increase to the rent on my investment property late last year to bring the rent up to current market rates. Also in the budget is some necessary upgrading to be undertaken there between this year and next. This stable and increased rental income on the surface appears to be what has allowed me to comfortably maintain the 37% savings rate.

Renting a room in my private residence has provided a welcome, though patchy additional income stream. Over the past year I have had about a 50% occupancy rate. This has been due in part to delays on my part in organising to advertise and rent out the room after each lodger left. I’ve been doing this for a couple of years now and I have not had any 1 lodger for longer than 6 months. My first left Ireland after 6 months. My second was not long out of college and moved into a shared apartment with a college acquaintance. My current lodger moved in in June of this year while the previous one left at the end of Feb. Since I was travelling quite a bit with work myself during the first half of the year I wasn’t around to organise the rental, and, to be honest I enjoyed having the place to myself for a while. My feeling is that having a separate apartment with private facilities to rent out would provide a more stable income stream than renting a room within my home.

Social, health and wellbeing

Socially I feel I have made some progress in improving my situation through involvement with select Meet Up groups. There is definitely scope for further improvement in this area. I haven’t really got my head around the protocols for making a success of online dating yet and am considering throwing some money at this by subscribing to a paid site which may take some of the work out of it for me. Gradually I am learning to flex my social muscles again and long may this progress continue!

I have also been maintaining a good balance where exercise and nutrition are concerned. I prepare most of my meals, with varying degrees of prep. involved, and continue to get a regular exercise through a mixture of walking and visiting the gym.

Travel

I mentioned that I did quite a bit of travel this year – I had a few international trips with work, and tagged on a holiday for myself on each occasion. I also attended Financial Independence Week Europe this year again – in Budapest this time. Other than this I have taken the decision to forego further travel for this year with the exception of a possible short city break within Europe over the Christmas period. For the second part of this year my focus has been on my plans here. While I love to travel I also can see that this can also be a form of escapism, and also another form of consumerism. If we can design our lives the way we want them at home perhaps we have less need for an escape?

In Conclusion

So all in all I feel that when I am sitting in that work Christmas party in a couple of months’ time I will be able to let my hair down and enjoy myself with the comfort of knowing that there has been clear progress this year! Existing habits have been maintained, and there are plans in place for potential game-changing activity with the potential to project me to 50% financial independence. Not a bad year at all, and one where I seem to have developed some kind of a framework for putting plans into action. The possibilities are endless once you believe and just start doing!

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MeetUp this Thursday in Dublin! ☺

Dear All,

A number of people have contacted me to ask me if I know of any MeetUps taking place. Here is one happening in Dublin on Thursday evening! This seems to be gaining momentum recently here, with even the mainstream media taking an interest! ☺. A good attendance is expected, as well as a mixture of newbies and a handful of individuals who have been following this stuff quietly for some time. Make sure to accept in advance to let the host know if you wish to attend! See you there!

Financial Independence Ireland meetup

Thursday, Sep 12, 2019, 7:00 PM

124 Members Attending

Check out this Meetup →

Social Independence and the downside risk of keeping up with the Moustachians!

Where are you on the journey?

I have heard this question asked so many times in the financial independence community.

I initially interpreted this question to mean financially, where are you, i.e. how many years, days, hours do you anticipate you may need to work before you jack it in forever?

This is of course one aspect of the question. I realised though that there is another dimension to this, as important as the above, and perhaps even more important.

I have realised that that arrival at the destination should involve social as well as financial readiness. As such this post will not involve a numerically heavy analysis of my net worth or my expense breakdown, but rather addresses the softer aspects of readiness for a life beyond the workplace, something which I feel receives insufficient consideration in this community.

Social Independence

The journey to Social Independence – Let’s compare it with the parallel journey to financial independence that we are all on. To get to a state of financial independence we spend less than we earn and invest the difference consistently until that investment generates sufficient cash flow to cover our expenses, and we’re done! Simple! What about the social/personal journey? Are we all consistently investing in our personal lives so that these will blossom to the point where they can support all of our social and emotional needs – social independence?

The people I have met, interacted with, or whose blogs I follow broadly fall into 2 categories. The first category have either a partner and/ or a family and lead personal lives that are rich and full and which should support them when they reach financial independence. Anyone who reads the Millenial Revolution or Go Curry Cracker blogs will know what I am talking about. Closer to home, Mr and Mrs W from What Life Could be would be another example. Wonderful. What about the second category I mentioned?

The second category is represented by the single followers of the movement. Now these guys are in a more challenging position in my view. They did not snag their life partner in college and now find themselves trying to keep up with the Moustachians in terms of achieving as high a savings rate. This group however does not have their life partner at home to keep them entertained while they watch their savings grow. Herein lies the conundrum – investing involves money as we all know (unless we are referring to time investment of course). They want to get to FI as soon as possible. I mean that’s the goal, isn’t it? Blogs and Facebook groups implore them to find a partner who shares their financial goals, and there seems to be an endless parade of suggestions for free or cheap dating ideas. Tricky! How do they balance their goal of achieving FI as soon as possible with their social and emotional needs if they are made to feel a failure if they spend any money!?

I have met some excellent people in this community who have faced just this conundrum. The trend here as far as I can see has been to favour investing financially over investing socially. On the plus side, these guys (and they do tend to be guys) have put their financial goals centre stage and achieved emancipation from the corporate world decades earlier than society expects, but is there a downside risk?

Investing in personal relationships

When you get there, if you have not invested consistently in your personal life, are you setting yourself up for a lifetime of loneliness? Is failing to invest in your personal life while on the path to FI a risky strategy? Is keeping up with the Mustachians is as dangerous as keeping up with the Joneses? I have come to believe that it is.

So what should a single person on the path to FI do to safeguard against reaching the finish line and turning around and realising they have no one to share it with? I believe regular and consistent investment in personal goals is the way to go. Above all, acknowledging to ourselves that THIS WILL COST MONEY!

I can think of a few people whom I know who have very full personal lives. Many interests, a broad circle of friends. These are the type of people who are always doing or planning something interesting. I feel that when or if they reach retirement, these individuals will have very full lives, just as they do today.

This is not accidental. These type of people make time for their friends, make themselves available when friends are going through difficult times, or to help prepare for job interviews or college assignments. Without fail. In summary, they consistently invest in their personal relationships.

My own situation

I went through a situation a number of months ago which caused me to reflect carefully on my own approach. The situation was that, due to a change in holiday plans I ended up being off work and hanging out at home for a period of a couple of weeks where the original plan had been to travel abroad and visit friends. I quickly realised how few friends and how little of a social infrastructure I had around me in the place I call home. Why was that?  Well I realised that I did not have much of an infrastructure to begin with. Having spent big chunks of my life living in different parts of the world, I quickly realised that I had very few friends at home – most of my good friends are scattered throughout the world. Of course in my case, this means that the need to invest in this area was even more pressing. So first of all why had I not done so since my return to Ireland a number of years ago?

To use Maslow’s hierarchy of needs as a framework, when struggling to meet my basic needs for shelter and security, my social needs took a lesser priority. Another related point was the impact which my sense of insecurity over employment and financial matters had on my self-confidence. Just when I needed to be reaching out, I was retreating into myself, and feeling more and more alone. I was just trying to survive. To a certain extent I also did not know where to begin. I found it difficult to build friendships with colleagues who were struggling with their own issues regarding job insecurity. I spent a lot of time both working and socialising with course mates during the time while I was studying for my Masters, but I found that theses friendships turned into a one a year booze up for the first few years after we finished, to nothing at all in more recent years.

Lessons Learnt

To go back to the period I referred to where I ended up on staycation with no idea what to do with myself, I realised I wanted more people around me. Or at least some people. At a very minimum a network sufficient for me to be able to throw out a few WhatsApp messages to organise a lunch or a few drinks! Having experienced that holiday at home made me realise this very clearly. Having visualised my goal clearly, I began to wonder how to approach this, not really having an existing network to leverage off.

The best answer I could come up with (short of harassing people on the street and asking them to be my friends, which I quickly concluded may have had the opposite effect), was to harness the awesome power of the internet. Thank goodness for it. Without it I would genuinely be at a loss! I started rifling through the MeetUp groups happening in my neighbourhood, and even forced myself to sign up to a dating website. I had to start trying to change my attitude too – to becoming more open and sociable like I used to be before life wore me down and made me wary.

So how’s it going? Well, it is a work in progress. Most importantly, the will is there. I realised that I do not want to live a socially small life, either now or once I reach financial independence. I had always been a sociable person. Having now had a couple of years of stability on the work and financial front, (or to put this in a different way – having embraced this movement, and taken control over my financial life), my earlier self-confidence is gradually beginning to return. Technology has been the most powerful enabler, and I genuinely do not know how I would go about this in its absence. I find that when you simply start saying yes to things (nutrition talk at the local credit union? Sure. Opening of an envelope? Well, you get my drift!), and then follow though by actually attending, things get easier in this area.

For example, I joined a walking group, where I met a seasoned property investor whom I realised had an interesting story to tell. My many questions during the walks led me to be invited to another evening specifically for questions and answers on property investing.

I have struggled with my own barriers too, specifically regarding online dating. In fact, I actually had a nightmare about it where I woke up believing I had fallen victim to human trafficking! So, I have learnt to move with what is more comfortable for me personally which is things like the MeetUp up groups. Remember, consistent regular investments, not big bang!

Note to anyone trying to make progress on this path. It is very daunting at first. The key difference to pursuit of financial independence is that in financial independence we depend fully on ourselves, so have a greater sense of control. Financial independence is a worthy but selfish pursuit, which requires a great deal of self-reliance, and is often embraced by individuals who tend to be highly self-reliant not only in terms of their finances but also in personal terms in my opinion.

Just like with financial independence, social independence is greatly assisted by being able to visualise what you want it to look like when you get there. In my case, I would like a fuller social network of people around me here. In addition to my good friends who are in other countries and this online community that I am a part of and value greatly, I want a good network here on the ground.

What I am doing on the personal front is the same thing I am doing on the financial front. Continuing to invest consistently over time, and hoping the result will be a strong network at home as well as abroad and online.

As we are all aware, what gets measured gets managed. I kept my goals in this area quite unstructured, but committed to myself to try to do 1 thing each fortnight (with the execption of times when I am travelling for work or personal reasons)

Conclusion

I would like to emphasise at this point that this is very personal to my situation and in no way is intended to be a manifesto for living! My intention was to address the challenges faced by single people in particular on the path to financial independence, to balance the social needs which most of us have with our commitment to the pursuit of financial independence. I believe we should design our social networks intentionally around our own high level goals, just as we are already doing with our finances. A full social life is not incompatible with the pursuit of financial independence, and most importantly of all, singles in pursuit of FI compare themselves at their peril with their non-single counterparts in the community. Can a plant grow without water? Even a cactus needs some occasionally!

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Bloggers on FIRE – my interview!

I was interviewed for the European Financial Independence hub website https://firehub.eu/ as part of the Bloggers on FIRE series. In the interview I talk a bit more about my early childhood experiences as well as the the sequence of events in more recent years that I believe led me towards establishing financial independence a goal for myself! This is more personal than my other posts to date, and I debated with myself for some time over whether to publish it here! In the end I decided in favour of sharing this part of my story since it provides some context!
Here is the interview as it appeared on FIREhub.eu
Bloggers on FIRE Featured Image Financial Independence Ireland exp

Bloggers on FIRE – Financial Independence Ireland

In our Bloggers on FIRE series, we interview European FI bloggers to find out what makes them tick. Our aim is to build up a “who’s who” directory for the European FI blogging world. We hope you enjoy the series and discover some new blogs to follow. You can find a full list of our Bloggers on FIRE interviews here.

Bloggers on FIRE Profile Card Financial Independence Ireland exp

Please briefly introduce yourself to FIREhub.eu readers

I am an Irish woman of undisclosed age (sorry folks, I am a bit secretive about my age). I blog at Financial Independence Ireland. I am currently single with no kids. I work in financial services in Dublin. My roots are in a close-knit family in the heart of rural Ireland of the 1980s, but my life’s path changed the day that my parents decided to take a leap of faith and leave that life behind forever, taking their young family to a new life in Germany.

They eventually returned to live in our capital city at the beginning of the Celtic Tiger era of the 90s. Too young still to legally live independently of a parent or guardian I reluctantly returned with my family. However, having lived such a different life for a number of years, I did not see myself staying here long term, and I informed my parents that I would be leaving again once I finished school.

This is exactly what I did, leaving again at age 18 to move to the UK for university. At this stage, I have lived in a number of different countries in my life. I consider myself to be a global citizen, most comfortable in the company of other global citizens!

What’s your backstory?

Without wanting to be melodramatic, I realised a number of years ago that I could not rely on anyone but myself. Not family, not the man I was in a relationship with, not the company that I had worked for for a number of years.

I returned to Ireland after having lived abroad for a number of years. I transferred back through the company I had been working with overseas, but subsequently went through a redundancy. I had returned to Ireland as part of a couple, expecting the guy I had been in a relationship with to follow me. The relationship did not survive the move, and I found myself renting a large luxurious apartment by myself.

My Mother had died a number of years previously, and my Father helpfully informed me that he would rather not have me move back into the family home since apparently I did not get on with the woman he was dating. I had returned to Ireland with a warm and fuzzy feeling of nostalgia for my childhood roots, thinking that I would get my own home here and start the next chapter of my life surrounded with support structures which I subsequently realised existed only in my memory.

It was a pretty dramatic realisation, and I felt myself very alone as I struggled with job insecurity and without the circle of friends that I had enjoyed while living abroad. I battled on, eventually achieving both my masters and purchasing my own home. As a goal oriented person, I found myself wondering, what next? I stumbled across an article about a couple who had retired in their 30s and all the rest is history…

Why do you want to reach Financial Independence?

It is about security and freedom of choice for me, and not having to compromise. Even if you love your job right now and cannot foresee any reason why you would not want to do it indefinitely, you are only one restructure, one redundancy or one change of manager away from all of that being shattered in my experience. I think that most people truly have no idea of how precarious our status as employees really is. Whoever said that “change is the new normal” was not joking!

I experienced this first hand, and remember finding myself in a situation which was making me very unhappy and anxious, and wishing that there was some alternative to putting one foot in front of the other and forcing myself in there every day.

Imagine in the midst of all of this one day discovering that financial independence not only existed, but was possible for ordinary people doing middle class jobs! Jim Collins writing on “F U” money spoke to me personally in that situation!

I want to reach financial independence in order to provide myself with freedom of choice. I think that we all have the same needs, which are pretty much as Maslow has described them in his hierarchy. FI should allow our basic needs (food, security, shelter. etc.) to be met, which should allow us to then focus on our higher order needs (kinship, self-actualisation etc.). If we get stuck at the level of constantly struggling to have those basic needs met, we risk never achieving our full potential and meeting those higher order needs.

My values are probably quite humble. I am not looking to travel the world in my yacht sipping champagne. Basic security and healthcare for myself and those closest to me will suffice! Freedom from financial worry. The ability to choose to say no.

How much is your “enough“?

This is a difficult one. A million is the nice round number that is bandied about often in the FI community. Currently my annual expenses would require a portfolio of this size, but, bearing in mind that about 60% of that expense is mortgages, I would argue that much less will be needed once the mortgages are paid off. With a couple of paid off properties generating cash flow, a couple of hundred thousand may be enough to support my basic expenses.

I think an important point for people on the path to FI to be aware of is that other factors come into play as well, notably how flexible we are willing to be. For example, if I were to throw geographic arbitrage into the mix, maybe I could quit my job now.

If anything I feel that I have deflated my lifestyle in in recent years. I don’t need a sports car, (or indeed any car), a holiday home (isn’t that why they invented Airbnb?), or even €100 nights out. In fact, when a guy tells me he has a sports car, I think “fair enough if it makes you happy (but do you know how many additional years you will have to work to pay for it, or what that money could make for you if invested instead?)”

Where are you on the road to Financial Independence?

We are probably all closer than we think! I would have said “very early stages”. However, a “back of an envelope” calculation this week told me that, if I proceed with my current plan to construct a self-contained unit for rent in my garden and rent a room in my home, and continue to rent out my rental property, these activities could cover most of my expenses.

This leaves some food for thought. I will need to properly rework these calculations, but this may mean that most of my job related income can be funnelled into investments and paying off mortgage debt for a couple of years, and that may suffice to meet my basic needs.

What do you want to do with your life once you reach Financial Independence?

This is the big question. I note advice from those of you who are already there to consider this question in more depth, and I agree it deserves consideration. I am at a stage currently where I have become a bit caught up in the minutiae of day-to-day life in the corporate hierarchy, and on some days, it is difficult to think beyond strategies to emancipate myself from this.

I recently met a man who is FI. He quit his job after building a property portfolio. His advice to me was to remember my social life and needs. Now that he is FI, I get the impression with him that he wishes he had someone to share it with. He explained to me that he turned down a number of social invitations from friends during his accumulation phase, preferring to funnel the €100 that the night out would have cost him towards mortgage repayments. He told me that he regrets that now, and advised me not to neglect this side of my life. He told me that he regrets now not having someone to travel with, etc.

The reality is I have a lot of mental energy, which I will probably need to harness. I think it is likely that I will continue to be active in some form or another, but the honest answer is I don’t have a full picture of this yet. I know that I am very bad with unstructured free time. That’s when I tend to get too much inside my own head. There are a lot of known unknowns, such as whether I will be single or with a partner, whether I will have a family, etc.

What is your strategy for reaching Financial Independence?

Workplace pension combined with rental property. I invest in my workplace pension as a preference over having a taxable investment account at the moment because of the tax saving for doing so. I have one rental property, as well as my own home which I also see an income-generating asset. I have on occasion rented one or two rooms in my own home.

I may consider reallocating a portion of my cash to peer-to-peer lending soon. If I opt to change jobs to earn more money, I may have a need to look beyond this to invest my surplus income. At that stage I may consider additionally opening a taxable investment account with a broker.

What will be your financial strategy after reaching FI?

At present I imagine it will be a combination of real estate and SWR from pensions. This would be the strategy for having basic expenses met. Beyond that I would be very surprised if I did not end up earning money in some other capacity, doing something that interests me and which hopefully adds value to society. I would be the first to admit that I don’t have all the answers, and that my involvement in this community has more to do with trying to learn from others than imparting wisdom myself!

What was your biggest financial mistake?

Not investing in workplace pension, and cashing out of workplace pensions from several jobs. Not saving a reasonable portion of my salary from the beginning. With a little bit of conscious living I could have saved some of my salary while also maintaining a good social life.

Really not living consciously at all. Having no understanding of money. Not taking time out to think about what I want from my life, this job, these friendships, this relationship… Not having an emergency fund. Not making a life and financial plan and reviewing and adjusting it from time to time.

Not having counselling when my mother died. This is financial, because it was a blocking point for me in terms of investing in a pension – I thought, “Why would I invest in this? It will be a loss if I die before I reach the age where I can cash it in”.

What advice you would give to your younger self?

Maximise pension contributions and DO NOT cash them in when you leave your job. Live more consciously. Read Mr. Money Mustache. Work 17 years, invest 50% and then be done! Make your own plan and do not feel the need to follow the crowd. Get parents to open an investment account for you when you were 13 and got your first paper round!

Think outside the box in terms of career and self-development. Who is to say that running a property portfolio is not just as valid a pursuit as going in and out to an office every day?!

Align yourself to people from whom you can learn and try not to spend time only with hedonistic people who haven’t really worked out yet what they want from life!

What’s your wildest dream?

The pursuit of FI is a selfish activity primarily. Once we get there, what would be great would be if we could harness our skills for non-selfish activity. Do good for others, #FIforimpact!

If FI means no compromise, imagine the impact that a whole community of financially independent uncompromising people together or individually could have in the world! We could push the environmental agenda for one, bring financial teachings into primary school for another.

What impact would bringing “the shockingly simple math” to primary school children have on our society in future? Imagine if they left school with this in mind as a blueprint. The knowledge that they can work a certain amount, and then check out and be free to use the rest of their lives pursuing whatever they like. How powerful would having this knowledge right from the beginning be!

What’s your favourite just-for-fun activity that brings you joy?

Reading biographies. For some reason this has been a fun activity for me from my teens onwards. Before we had internet I used to have to get books from the library or buy them. Now we have a host of TV and internet documentaries, and Wikipedia to back it all up. For some reason I have always loved reading about other peoples’ lives. We all write our own story, so it is nice to take some inspiration from other peoples’ lives along the way!

 

The interview was originally published under the following link:

https://firehub.eu/bloggers-on-fire-financial-independence-ireland/

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The story of my journey from financial blindness to intentional living: Lessons learnt and simple high-level steps to put your financial house in order!

This post focuses on the high level, and its’ the target audience is anyone who wants to maintain a fairly normal life while at the same time taking some smart steps to put their financial house in order and secure their future, without necessarily going to extremes.

It seems that for most people, the pursuit of financial independence as a goal appears to have been triggered by an event or a sequence of events in their lives. In this post, I briefly describe the sequence of events in my life which led me to this point, the lessons I learnt, and simple steps that I believe most people can take that do not involve too much sacrifice.

The back story

I lived and worked abroad for a number of years. I had a very nice life – a job that I was very happy with, a relationship, plus a couple of close friends, as well as a number of acquaintances and social contacts. The weather was warm all year round, I lived on a nice resort and had my rent paid by my employer. Life was good!

Like many ex-pats however, I decided to return home after a number of years of living the dream. Like so many Irish overseas there was always a part of me that felt nostalgic for my roots.

Tough Times

Anyway, when I did come home my life changed in all kinds of ways. While I had managed a transfer through my company to one of its’ Irish offices, the job to which I had transferred ultimately ended in redundancy. My relationship did not survive the move. I missed my friends, and didn’t really know where to start with building up a circle of friends in a city where everyone seemed to have their friends since primary school already, and where any social engagement seemed to require weeks of back and forth text messaging to finalise. As an ex-pat it had seemed so easy by comparison, with a collection of other ex-pats already available and keen to add me to their ranks! I started a Masters’ programme and rented what I considered to be a fabulous apartment (expecting to be sharing it with other half). When both the job and the relationship came to an end I suddenly found myself feeling very alone and wondering how I was going to manage.

I eventually found another job. Although the interview process had raised a couple of red flags for me, I ignored them and took the job anyway because it was the first offer I got, and the economy was in a downturn so I felt that I needed to accept it. As I have alluded to in a previous post I had briefly considered during this period whether I could buy a duplex in cash in order to live rent free and finish my Masters in peace before considering my next move jobwise. (More on this here: https://wordpress.com/post/financialindependenceireland.wordpress.com/231).In hindsight I feel that this was an excellent instinct, which unbeknownst to me would have been applauded within the FIRE community. However, it would be another few years before I would discover this community. At the time I pushed forward and took the job and didn’t buy the duplex in cash!

The new job turned out to be quite a negative experience. On a practical level I wanted to complete the Masters before starting to look for a new job. In doing so I tied myself to an unpleasant situation.

The turning point

I finally completed my Masters and found another job with significantly better pay and a nicer atmosphere. Around the same time I finally bought my home, and got myself a 29 year mortgage which I gladly committed to.

Some further volatility followed since the job with the significantly better pay that I had found was a contract, which, following a couple of extensions, eventually ran its’ course. It was around about this time that my health started to suffer. My health was not something that I had prioritised during my working life. I didn’t do regular exercise, nor did I prepare healthy food at home on a regular basis.

Unsurprisingly, this eventually took its’ toll on my health. After a number of medical tests I was privileged to given the feedback that I could restore my health through exercise and healthier eating.

Taking Control

This is when I began to make changes. Since my job contract had run its’ course, I was now unemployed, and free to manage my own schedule. I began by walking in the park near my house every day. Eventually I joined a local gym on a special offer monthly membership which I eventually made into an annual membership.

I started to eat muesli for breakfast, drink apple cider vinegar every day and cook my own food at least some of the time.

I considered employment opportunities very carefully and opted in favour of a good work- life balance over more money.  As I began to track and understand my money I carefully assessed the impact of working hours and taxes and realised that I could easily boost my income by renting a room in my home on the tax free “rent a room” scheme.

By the time I started my new job I had already embedded the routines of health and financial management. Even better, since by necessity (during all of the months of not working) I had become frugal, I made sure not to inflate my lifestyle back up again. Before I started my job I worked out how much I planned to save on a monthly basis, and set up a standing order to have this amount moved automatically to a savings account. I joined the company pension plan on week one and set up an automated deduction from my salary for the amount that would secure the company match. (I would later go on to add additional voluntary contributions to this to further reduce my taxes and invest for retirement, as documented here: https://wordpress.com/post/financialindependenceireland.wordpress.com/304 ).

Lessons learnt

While some things (such as a redundancy at work or a relationship running its’ course) may be inevitable or beyond our control, we can insulate ourselves to some extent against the consequences. In my case, I took the first job offer that I got because I felt I had to. At the same time, I was renting a large, 2 bedroom apartment by myself, had a car in the basement which I was paying insurance and tax for (about € 1,400 per year), and was not really using, continued to pay for my own health insurance, despite the fact that my new job had this included as a benefit (probably about another € 1,200 per year). I could have eased my own financial burdens greatly by simply taking a step back and looking at my situation, sharing my apartment by sub-letting a room, making the phone call to cancel the duplicate insurance policy and selling the car which I was not using anyway.

A redundancy could have been an opportunity to potentially take some time out to reflect, and maybe to have started a new chapter or to have retired completely from the type of work that I had been doing. Had I been living more intentionally, saving and living more frugally throughout my working life to that point, these could have been options. At the time however, I was not aware of any of these things, and all I knew was that I needed to get a job to keep earning money.

Intentional living

My own financial blindness contributed greatly to the anxieties which I felt in this period.

Taking control of these various aspects of my life has given me great peace of mind, and a sense of comfort and control over my life which I lacked during the volatile period described above. I see others around me who are living like I was, without any real awareness. It is understandable that not everyone wants to start tracking every penny they spend, or to become frugal beyond what they are comfortable with. With this in mind, here are a couple of high level steps that can be taken that do not necessarily involve going to live in a motor home in your company’s car park to save on rent!

Simple steps that can have a big impact

Looking at the expenses side of the equation, the following areas typically have the biggest impact:

  •  1) Housing: This is the biggest expense for most people that I know (accounting for 63% on average of my monthly expenses in 2018). Are you living somewhere that is bigger than you need? If so, can you rent some of it out or move somewhere less expensive? Remember, you can earn up to € 14,000 tax free annually for renting a room in Ireland!
  • 2) Transportation: Do you have a car sitting in your parking garage or driveway that you don’t use? If so, selling it should be no hardship and is an instant saving of a couple of thousand per year. If you need a car infrequently, you can rent one when needed through GoCar. In Dublin, I have found that I really don’t need a car, and that I can get an annual bus ticket (a “TaxSaver ticket”) which is deducted pre-tax from my annual salary.
  • 3) Food: This one covers any number of things from going out to lunch and buying take-away coffees every day when in work, to dining out frequently. I used to dine out very frequently just because I couldn’t be bothered to shop or cook. On reflection, this type of activity was pretty wasteful and simply resulted from laziness on my part!

The items discussed above relate to the management of expenses. On the income side there are also a few things we can look at:

  • 1) Increase job-based income: Job-hopping: as far as I can see this seems to be the primary way to increase job-based income and progress in a corporate career. For those who can negotiate raises in their existing companies, this is also an excellent way to go, since job-hopping to a different company also comes with uncertainty.
  • 2) Develop other income sources: The main ones that I have come up with recently are property-related. I have a rental property and in addition I sometimes rent a room in my primary residence. I am also exploring getting planning permission for a new build, and possibly putting a self-contained unit in my back garden to rent out.
  • 3) Invest in Pension Plan: If you work in a job which offers a pension plan as part of its’ benefit package, this is a part of your compensation. As a minimum, it makes sense to sign up to this and contribute the minimum amount that secures the maximum employer contribution. Employers who do not offer a company pension plan in Ireland are obliged to open a Personal Retirement Savings Account for any employee who requests it, so make sure to do so! This tends to grow in the background without any conscious effort, while at the same time reducing taxes and building an income stream for later!

Conclusions

Getting your financial house in order does not necessarily require extreme action. Just a little bit of awareness can already have a big impact!

In my own case, there were some obvious steps which I could have taken which would have reduced my expenses by thousands of Euro annually – sharing my large apartment, selling a car which I was not using, and cancelling my health insurance policy as soon as I secured a job which was providing this for me. None of these required any deep analysis, and in hindsight were very obvious. The third item simply required a 5 minute investment of my time in making a phone call or sending an email and would have saved me € 1,200! Although selling the car may have involved some effort, cancelling my car insurance and tax while I was not using it would have probably required another 5 minutes of my time for a € 1,400 cost saving!

On the income side, as the economy takes off in Ireland once again, the employment options have broadened for many people. This should allow for people to increase their incomes by availing of new opportunities. I have also spoken about developing incomes from other sources. While my focus has been on the real estate side, there are many other options depending on your skill set. The website side hustle nation is a great place to go to get ideas (https://www.sidehustlenation.com/ ).

Contributing to a workplace pension, even for a small amount, is an excellent move for most, and can really build up over time without having too much of an impact on take-home pay, since tax relief is given on this. Again, the initial investment is the time it takes to fill in a few forms, and to authorise the employer to deduct a certain amount from your salary.

In a nutshell

In all, a small shift in mindset can have profound implications over time. I went from a position of financial blindness to acute awareness, and found that, once I learnt to think even just a little outside the box, I am getting new ideas all the time, and constantly learning from others through numerous blogs and podcasts, and through having met some smart and enterprising people, both in Ireland and elsewhere in Europe.

Having initially focused on managing my expenses, I have now shifted my focus to increasing my income. I think that getting a handle of our expenses, and keeping an eye on these is necessary. Once we have a method in place for doing so however, this becomes easy to do and doesn’t take much time or effort. This then allows us focus on income. Currently, I am focusing on increasing my income through non job-related sources. In the future I foresee that I will again re-focus on the job-related income source, which will potentially have a significant impact in allowing me to invest and also to pay down mortgage debt quicker as I increase my income.

Through sharing this part of my story, I hope to have demonstrated that pursuing financial independence does not necessarily need to involve extreme action or frugality. We can pick our own point along the spectrum in line with our own comfort zones, and can make great improvements to our situations by targeting a few high-level items which do not require a major investment of our time.

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2018 – the year in review!

I thought it might be nice to take some time out of the enforced sentimentality of the Christmas season to take a look back at 2018!

The end of the year is a great time to look back and to take stock on the year’s achievements, and to put some goals in place for the New Year! My personal view is that there is potentially nothing more futile than realising that you have worked for a year of your life and have nothing to show for it. This is one of the reasons why I feel that it is very important to track a few key metrics and to establish goals in advance.

On the whole it has been a positive and stable year. I worked throughout 2018 in the same permanent job, and this continues to be a positive experience. My investment property continued to be fully occupied throughout by the same long term tenants generating a stable cash flow. I continued to rent a room in my primary residence for 9 months of the year which generated a nice bit of extra income and allowed me to share my utilities bills with my tenant.

I continued to track my income and expenses throughout the year, and additionally began to track the values of my various pension investments on a monthly basis. I had automated my savings activities on beginning the new job in 2017, and this automation also continued. These activities and behaviours have now become habits and require very little time or thought. I took some additional positive steps in 2018 which I describe below.

This was also the year when I finally began to meet some of the financial independence community. I attended a conference for Financial Independence Week Europe in Romania in June which was like a city break with a focus – great fun in addition to being very informative!  I have also now attended 3 meet-ups here in Dublin, where I was delighted to connect with a network of like-minded people.

So without further ado, let’s take a look at some of those key metrics that I have been tracking. What progress did I make in 2018?

  1. I maximised 2017 pension contributions:

Although this might seem like it should be a 2017 goal, in Ireland we have until the end of October of the following year to top up our pension contributions. This coincides with the deadline for filing tax returns and declaring any income which is earned outside of the employee “pay as you go” system. Since I have rental income to declare, I decided a couple of years ago that, rather than forking out for additional taxes, I would instead try to keep some money aside to make an additional voluntary contribution to my pension at the same time as I file my tax return.

This achieves a number of things – it allows me to put money aside tax free which will then be allowed to grow tax free. Even better, if I manage the amounts correctly, it also allows me to pay no additional tax on the rental income. While tax is payable on profit earned on an investment property, tax is refundable on pension contributions. So, by making a sufficient additional voluntary contribution to my pension, it all nets out and I don’t pay any additional tax.

2018 achievement -> this year (for 2017), I made an additional voluntary contribution to my pension, paid no additional tax on the rental income and even got a bit of a tax refund. Another way of looking at this is that I invested the equivalent amount of the rental profit into my pension plan, allowing me to pay no tax on this.

2019 goal -> this is something that I intend to continue doing in 2019 and beyond, particularly while I remain an employee with the ability to avail of income tax relief for investing in a pension plan. Each year I will review my finances and take a decision on how much I can afford to siphon away to the pension, while also attempting to retain sufficient cash on hand to meet any unexpected events and opportunities. The goal would be to at least contribute sufficiently to avoid paying any additional tax on the rental income.

  1. I arranged to overpay my mortgage:

In Ireland we have the option to choose a fixed or a variable rate mortgage. If we choose a fixed rate, this is typically for a fixed period of time. In my case I chose a fixed rate of 3.6% for the first two years of my mortgage. This period expired during 2018.

2018 achievement -> In 2018 I opted for a 5 year fixed rate of 2.8%. At the same time I put in place an overpayment of about € 300 per month. If I keep this in place for the duration of the mortgage, this will save me € 20 k in interest and wipe 8 years off the mortgage. I can also cancel the overpayment at any time with no penalty. The only downside to having locked myself in for 5 years is that I will not be able to increase this overpayment without penalty during this period if I found myself with additional money to spare.

2019 goal -> the overpayment is automatically deducted along with my mortgage payment each month. I intend to leave this in place for 2019.

  1. Increased rent on investment property and budgeted and planned for major renovation works:

I have an investment property which has been rented out to the same tenants for a considerable period of time. I had always imagined that, during the natural course of events, they would eventually move out, and I would take the opportunity at that stage to renovate the property. However, they have remained in the house, and I decided that the time had come to take action and complete the necessary renovation works to bring the property up to modern standards.

I have budgeted for the work, and I have a builder earmarked to begin work in February of 2019. Currently we are finalising the quote and agreeing on all the little details, so that there will be no surprises once the work begins!

2018 achievement -> In the meantime, I have increased rent to the market rate. As those familiar with the Irish situation will know, this is allowable currently outside of so called “rent pressure zones” in Ireland. As a rookie landlord who had been charging well below the market rate for several years now, on a rental property located outside of Ireland’s current designated rent pressure zones, I was very conscious of the need to take action before said rent pressure zones are extended in Ireland. Once they are, landlords will only be allowed to increase rent by 4% every 2 years. In anticipation of the extension of the rent pressure zones, I did my research and increased rent to market rates, and this will now remain the rent for the next 2 years, by which time I expect that rent pressure zones will be in place, and I will only be allowed to increase by 4% every  years. 2019 Goal -> Renovation is earmarked to begin in February, and is expected to take a couple of months. The builders will work around the tenants, who will remain in the house, so I do not anticipate a gap in rental income. I believe that the key is to agree the costs with the builder up front, and to be firm about the maximum that I wish to spend while focusing on a few key areas.

  1. Savings Rate/ Emergency Fund/ Pension:

2018 achievement ->

  • Savings rate this year was 37%, as predicted at the end of last year given my current salary, as well as income from my rental property and renting 1 room in my primary residence. Rental income from the rental property increased at the end of 2018, so this will increase 2019 income. Income from the rent a room is expected to remain as is.
  • Pension: The value of my pension fund investments increased by just under 10% in the 9 months from March 2018 (when I first began to track this) to December 2018. As many readers know the stock market has fallen over the course of the last few months of the year. The value is up mainly due to the additional voluntary contribution I made in October.
  • Emergency Fund: This has increased by 40% since the end of 2017, and currently could cover 16 months of living expenses. However, renovation works will deplete this to 6 months. (This was another reason why I was content to delay the renovation for a number of months more, to bolster my savings)

2019 Goal ->

  • Savings rate: I have given myself another year in my current job despite having being contacted throughout the year with opportunities paying up to 45% more than my current role. Further detail on my decision making will be discussed in my next post. On this basis I anticipate that my savings rate may be around the same for 2019.
  • Pension: I intend to continue to contribute 6% of my salary from my job on a monthly basis, and have my employer contribute 5%. As noted above, I will then make an additional voluntary contribution in October, of an amount to be determined.
  • Emergency Fund: Renovation works will deplete this to 6 months. The intention would be to build it back up to be 12 months again.

Conclusions:

This year has been all about embedding an infrastructure designed around good financial habits. Now that the infrastructure is in place, I anticipate that maintaining it will not require much additional effort or time. In general I believe that consistently maintaining these habits is the bedrock for building financial independence. While I do have some ideas on how to fast track my way to FI (to be discussed as I explore them in 2019), I intend to maintain this infrastructure consistently.

I finally feel as though I have the basics in place, and have visibility on, and control over, my financial situation. Imagine where I would be now if I had begun tracking, monitoring and thinking about all of this stuff when I first graduated from my undergraduate degree and got my first full-time job! In an ideal world of course, this thought process and discussion would have begun in primary school, but perhaps that is something that we will see (or implement) in the next generation! I would urge anyone regardless of your personal goals to take stock of your finances. Once you have oversight on these, the maintenance becomes easy and the stress of the unknown is removed. While there is always more that can be done, a basic high-level excel analysis is sufficient to give a good idea of your financial position. Start basic, and you can develop this as you wish down the line.

In my next post I will discuss why I have shunned opportunities throughout 2018 to earn up to 45% more than I do in my current job, and what I intend to focus on in 2019!

Happy Christmas everyone! I hope that your 2018 was positive, and and all the best with your 2019 goals!

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The simple path to wealth – Irish-style!

The simple path to wealth – Irish-style!This post looks at Irish attitudes to investing, and sets out 3 simple steps anyone can take to automate their finances and secure their future that don’t require complex research and analysis, or sacrificing today for tomorrow.

One Sunday recently my Dad dropped by my house to say hello. When he arrived I was just checking through my tax return and preparing feedback for an email to my accountant. I felt very pleased to be able to give my Dad the good news that, for the first time in my working life I had maximised my allowable pension contribution for 2017, at the same time capturing a nice tax refund in the process. I expected his reaction to be at least vaguely positive. If I had to describe his reaction in one word however, it would be…disdainful.

He proceeded to make a comment about one of my siblings to the effect that he “Really makes the most of his time and leads a very full life“. His subsequent comment involved something to the effect of: “It’s important not to sacrifice today for tomorrow”. I was a little surprised, and, I must admit, a little hurt. Surely the fact that I have only been contributing to a pension (investing) for a third of my entire working career to date, and the fact that I am now focused on taking very reasonable steps to boost the pension coffers is a positive (and indeed necessary) step. My Dad proceeded to express regret that investing was necessary and that he felt the state should take care of people in retirement, or they should have a workplace pension. This is consistent with his socialist views to which I also subscribe to the extent that I believe that there is a base line below which no one should be allowed to fall. I made the point that, given the ageing population in Ireland it is questionable whether the state pension will be able to support my generation in our later years. In addition – it is currently € 243 per week, so it seems sensible that people may plan to supplement this.

Is the inference that I should be out there living in the moment, and worrying about the consequences later? Didn’t I life that type of life for far too long already? I do not feel like I am sacrificing today for tomorrow. At least, no more than anyone else who is location-dependent due to work. I feel that in fact I am simply making conscious decisions and choices and following through on these.

Maintaining a hearty disregard for saving and investing seems to be quite common in Ireland, as is living in the moment, and feeling that we should show generosity and spend freely. I can only imagine that it holds people back on many levels. Typical Irish traits would be to want to buy a round of drinks, or to fight to be the one to pay the bill when meeting a friend for lunch. I can even remember hearing about young Irish men who had gone to Britain to work and whose pride would not allow them to return until they could afford to buy a drink for everyone in their village. Being “tight” or “stingy” is considered one of the worst things to be. I had also been infected with this attitude and was privately disdainful of others who did not appear to be spending “generously”.

Needless to say I now hold a very different view on this. Perhaps this line of thinking could have been where my Dad was coming from, or perhaps he just doesn’t agree with my choices, which I must just accept. On the other hand, why would a parent hold up one child as an example in this manner when the second has done nothing but make some mildly sensible choices after many years of financial blindness? I wasn’t looking for a medal, but I could have done without the disdain. Let’s look at some of these points more closely:

The sibling comparison – Single versus couple:

It goes without saying that a technically detailed comparison is not possible without having the full financial picture for both parties, so I will stick with what is known to me.

Mortgages: I got my mortgage on my own while my brother and his wife got theirs together. We both bought our houses around the same time, and both make similar monthly repayments. By this I mean, my monthly repayment is similar to theirs, ie. I have to find the same amount of money every month as they do between them.

Even without bringing any other factors into the equation, this already has a significant impact on our situations. It means that I have ultimately to be more careful in making provision for the unexpected, since I only have myself to rely on. It means I do need to make choices between going on frequent trips and stashing aside some money to cover the unexpected. Prior to getting my current job I was unemployed for 9 months. During this time my savings funded my mortgage and the majority of my expenses. This is the second time I have been without employment in recent years. As such, I have personally experienced the need to rely on my emergency fund on 2 occasions in recent years for a period exceeding 6 months on each occasion.

As such, I feel it is quite natural that I have been focused on building my savings back up again since my return to the workforce. When you are part of a couple, and living together, you can (hopefully) rely on each other – when one of you loses your job, the other hopefully doesn’t. As such, the case for an emergency fund is all the more important for the single person.

The bottom line is that as a single person mortgage and related expenses represent over 50% of all of my expenses. Granted, I have been able to offset some of this expense by renting a room out in my home and splitting my bills with my lodger. Nevertheless, I have found that it is a simply matter of making choices based on priorities. At the moment I personally feel that building some financial security gives me greater peace of mind than shopping, eating out or taking frequent trips would give me. I did all of the latter for quite a long time, with no regard for where I was going in my life. I’m all about conscious living these days!

Sacrificing today for tomorrow?

I think that this statement is worth considering further, from a couple of perspectives:

Over the past 2 years I have been 1) working less 2) eating better than in the past, and  working out 2-3 times every week (which I never did in the past). I have a nice home, a job that I actually enjoy. I still manage to get a couple of trips in every year and treat friends and family, and on top of all that am saving and investing at a rate I never was before. It is hard to see the sacrifice there. My social life could do with being a bit fuller, but that is in fact unrelated to my savings and investing choices.

I think it is more a matter of perspective. My Dad may feel I am depriving myself because he hears me saying things about how I haven’t been clothes shopping in a year, or I bring my lunch to work every day. Perhaps he thinks that I am depriving myself of going out at night or buying lunch or more holidays.

It’s hard to understand because I feel that I have greatly improved my quality of life over the past few years since discovering the FI community and living more consciously and planning things out better. Perhaps looking from the outside in it may appear that I am overly focused on investing for the future, and on monitoring expenses, to the detriment of my life now.  Tracking ones expenses is yet another un-Irish activity which may be construed as some kind of extreme action I suppose.

Conclusions:

Priorities, personal circumstances, and taking a sensible approach to personal finance:

It’s all about priorities. While one person may be very happy to continue to work indefinitely, another may wish to give themselves the option to work less, or not at all. My own view would be that, circumstances beyond our control (such as a health related issue) may render us unable to work at any time, so it makes sense to have some kind of contingency. Assuming that you believe you will live beyond age 50, it makes sense to put some money in to a workplace pension, for the tax break alone if for no other reason.

It’s also about personal circumstance. All else being equal, a single person with a mortgage will need to devote a larger percentage of their disposable income to it than a couple who share the same size mortgage. Houses come with all kinds of unexpected expenses. Just last week end, I spent € 240 on plumbers and was additionally made aware of a structural repair to my home which may cost a couple of thousand Euro. Having money saved to cover these very real expenses when they arise is important, and the result is that you don’t experience panic or anxiety when a trades person comes to your house and announces that you can expect this expense at some time in the near future as happened to me just last week end.

The simple path to wealth -3 simple steps you can take today to automate your finances and secure your financial future that do not require sacrificing today for tomorrow:

To take a Jim Collins-like approach to keeping it simple, I appreciate that not everyone wants to spend all of their free time reading blogs about how to make meals for a dollar, or indeed writing such blogs. Not everyone sets themselves the goal of early retirement or financial independence, and indeed, to those outside of the community some of the stories and experiences emanating from within the community seem extreme. Most people (myself included) prefer not to go to extremes, or to sacrifice their today for their tomorrow.

However, assuming that most people do not work for the state and expect a defined benefit pension plan at the a set period of stable employment, the following seem to me to be sensible, moderate actions to take for peace of mind if nothing else:

1. Invest in your workplace pension – My company will pay 5% of my salary into their pension plan, but only if I pay 6%. With tax relief, paying in 6% actually only costs me between 3.6% and 4.8%, depending on which bracket I am in. Effectively, this means that 11% of my salary is invested in various pension funds to grow tax free, and has cost me a maximum of 4.8%. Of course, depending on your age group you can top this up further with tax free contributions up to the following percentage of your salary dependent on your age:

  • under 30: 15%
  • Age 30-39: 20%
  • Age 40-49: 25%
  • Age 50-54: 30%
  • Age 55-59: 35%
  • Age 60 or over: 40%.

I have seen a lot of discussion and analysis on various brokerage funds, which ETFs to invest in, and the tax treatment thereof. In the interest of keeping it simple, I am happy to use the workplace pension as opposed to opening an account with a broker where I need to track my own trades and organise to pay my own taxes. There is no need for any of this with a company pension plan, and remember, if you are in the 40% tax bracket, every € 60 invested will buy you € 100 worth of pension assets. Finally, if your company does not offer a pension plan, you can ask them to set up a PRSA (Personalised Retirement Savings Account). Employers are required to do this by law in Ireland, so make sure to ask for it!

2. Overpay your mortgage – Banks in Ireland are now offering longer mortgage terms in anticipation of later retirement ages in future. I am almost 3 years in to a 29 year mortgage. Overpaying it by a couple of hundred Euro per month (the cost of a couple of nights out in Dublin) wipes 7 years off that mortgage term and reduces the overall interest I need to pay over the life of the mortgage by € 20 000. It has never been easier to get this information thanks to the mortgage overpayment calculators that the banks themselves are making available on their websites. The overpayment I am making can be cancelled at any point in time with no penalty to me. This is a very worthwhile “investment” for anyone with a spare couple of hundred Euro left in the budget, since can save you much more in the long term, and of course get you debt free sooner!

3. Build up an Emergency fund – There have been many blog posts out there on the appropriate amount to keep in an emergency fund. From my own experience to date, I would say 1 years’ worth of expenses is a good rule of thumb. Maybe others feel comfortable with more, or with less. An emergency fund can cover living expenses in the event of a job loss for example, or can simply cover household emergencies as they arise. Just last week end a plumber came to my home and advised me that I can expect to make a structural repair that he expects will cost me € 1,000 – € 1,500. This is exactly the type of thing that an emergency fund is designed to cover in my opinion. My recommendation would be to set up an automated monthly contribution. When you own an apartment in an apartment block in Dublin, typically part of your annual management fee goes into a sinking fund to cover precisely these types of emergencies. When you own your own house (not in a development), it is up to you how you manage this. Enter the emergency fund.

That’s it! 3 simple things that you you can dial up or dial down depending on your circumstances. Automation on these 3 items is preferable. You don’t need to have any particular skill or knowledge to do these 3 things, and you can go a long way towards securing your financial future by putting these things in place, and then simply leaving them in place and getting on with your life!

The title for this post, as well as some of the ideas referenced here were inspired by a book by Jim Collins called this Simple Path to Wealth. The book is written in a straightforward and entertaining way. I have included a link below to the book on Amazon. (In the interest of transparency, please be aware that I will make a commission if you purchase this or other items on Amazon after clicking through this link):

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How to travel without it costing the earth: Holidaying in Hungary

Should I even be spending money on travel when I am trying to save for financial independence?

For the past two years or so I have been very much prioritising building financial stability over travelling. I was of the view that I have been extremely fortunate in my life so far to have had so many opportunities to experience life in different parts of the world. However, for most of my working life I have lacked financial awareness, and as a result I have had relatively little to show for the number of years I have worked. For the past 2 years or so since my financial awakening, I have been prioritising getting my financial act together over travelling for travel’s sake, possibly on some level attempting to overcompensate for the years of financial blindness.

Then, in June I took a few days out to go to Financial Independence Week Europe in Timișoara, Romania. This experience changed my view on this somewhat. I noticed how refreshed I was on my return, how having had the opportunity to see a place that was new to me, (even if only for a few days) was refreshing and inspiring. Furthermore, meeting and hanging out with a group of like-minded people for a few days was a very positive experience. Finally, I noticed that it had not cost me very much at all! For more on the expense breakdown for this particular trip, see this blog post. https://financialindependenceireland.wordpress.com/2018/07/15/financial-independence-week-europe

So, when the opportunity to spend a few days in Hungary hanging out with some of the friends that I made at Financial Independence Week Europe arose, I grabbed it with both hands. I knew that travelling anywhere in August was likely to be more expensive than at other times of the year, what with it being the school holidays across Europe. However, having realised that our need for friendship and a sense of connection is also important – (Mazlow would not have put it on his hierarchy of needs otherwise) – I went ahead and made my arrangements.

The trip

I flew direct to Budapest. Due to a shortage of Hungarian forints in Ireland I had not had the opportunity to acquire any before I left. On arrival at the airport I used my Visa Debit card to pay the cost of the airport bus in to Budapest. Doing so allowed me to avoid the airport exchange rate of Huf 253 per Euro, and instead to get about Huf 318 per Euro by exchanging in the city. I then booked my Metro and train ticket to Lake Balaton. The infrastructure is fantastic, not too expensive and easy to navigate.

Lake Balaton:

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Lake Balaton

On arrival at my hotel there was some confusion with my host maintaining that he had received a message from booking.com telling him that I had cancelled my booking. We soon sorted it out though as he had a room available for me in any case.

I arrived a day before my friends, and spent the day exploring the resort, walking the waterfront, and generally getting oriented. The lake was a popular destination for tourism behind the iron curtain, as well as being a popular spot for formerly West German tourists. Even now, I could hear a lot of German being spoken, along with what appeared to be a number of different Slavic languages.

By the time my friends arrived I was very familiar with the area and was easily able to find my way to join them at the beach. Other than a ferry trip across the lake followed by a gentle hike one of the days, the time was spent pretty much chilling on the beach, swimming, chatting and playing with the kids in the lake. Evenings for me were filled with going back to my hotel for my dinner (which, along with my breakfast was included in the cost of €55 per night). After dinner I would swing by the supermarket for some beverages or snacks, and take a leisurely stroll down to my friends’ apartment to hang out.

After 5 days spent on the lake relaxing, it was back to Budapest via train for 2 nights/ days. I had booked a studio in a fairly central location through booking.com. Subsequent to receiving confirmation, I got a message from the owner saying that the apartment was unavailable. While in Hungary I raised this with booking.com, who recommended an alternative at twice the price and agreed to pay the difference. This was a good start.

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Interior Courtyard in the building where I stayed in Budapest

Budapest:

I always try to avail of a free walking tour when I visit a city, and, after dropping my bags off at my apartment, I immediately departed again to join a Communist walking tour. Having first visited Hungary prior to the fall of Communism, I was keen to see what had changed and what remained. In a nutshell there was very little evidence remaining of Hungary’s 40 years under communism. The tour guide was probably too young to remember it first hand, but told some amusing anecdotes. There was a nuclear bunker which was declassified in 2002, and reference was made to an underground hospital/ bunker which I would like to have explored further had I had more time.

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Communist Walking Tour: Entrance to the underground nuclear bunker which was declassified in 2002.

Continuing with the same theme, I visited the House of Terror Museum which is housed in a building which was both the home of the state police under communism and also to the Nazi leadership in World War II. Unsurprisingly, this ominous building had a heavy story to tell, and I emerged after 3 hours emotionally and physically drained. For this tour, it is worth spending the additional money to get the audio guide which talks through each of the rooms. Hungary’s story during this time period (end of World War II to 1990) is told by means of Soviet-era propaganda films from the time period as well as interviews with individuals who lived through the 2 regimes. This would be of interest to anyone who is interested in learning about life in a Communist state. Most of the statues from the Communist period were gathered up and put together in a park known as Memento Park, which I unfortunately did not have time to visit.

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Entrance to House of Terror Museum: Documenting Hungary’s history under Naziism and Communism

An evening at one of the thermal underwater pools seemed to be the best way to wind down and mull over the many peoples’ stories that I had heard in the Terror Museum. Széchenyi was the spa recommended to me. Once again, the seamless transport system in the form of the Metro made it easy for me. I arrived at about 7:30 pm and stayed until they closed at 10 pm. This consists of many pools of different temperatures, as well as a few regular swimming pools, including a pool within a pool where you are propelled around and around in a circle, which was great fun!

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Caption on a segment of the Berlin Wall on display outside the House of Terror museum

This is what my expenses looked like for a week in Hungary:

Expense Breakdown

Flights

€ 547.82
Hotel Lake 5 nights, incl. breakfast & dinner € 282.50
Apartment Budapest: 2 nights € 70.00
Bus + Train + Taxi € 52.87
Food + grocery + gifts € 74.84
Entry fees / tourist attractions € 35.85
 Total Cost €1,063.88

Having analysed my expenses for this trip, I was surprised to find that it cost as much as it did. Looking at things another way though, I see the flights alone accounted for 51% of all costs, and flights and accommodation together represented 85% of all costs. Actual spending for the week excluding the flights and accommodation was just under €164, easily the cost of a night out in Dublin!

Hungary was good value for money, with a beer costing about a € 1 in the supermarket. A corn on the cob on the beach cost about €3. As you can see, this level of accommodation, food and transport costs makes Budapest an excellent choice for a city break for anyone travelling from Ireland. The infrastructure and the rich availability of things to see and do make it an excellent spot. The price of this trip could have been optimised further by 1) booking flights in advance and 2) either making sure to travel home on a day when there are direct flights to Dublin to avoid additional costs.

Conclusions

In general, things were more affordable in Hungary than they tend to be in Ireland. It seems that it is possible to practice some geographic arbitrage without leaving Europe!

Rather than just avoiding taking any holidays until I get my financial act together, there is no reason why I should not take planned trips where it is possible to do so without majorly impacting saving and investment goals. In fact, travel brings inspiration, and life could otherwise get a little dull!

When travelling, just like when staying at home, I have found that it is possible to proactively manage costs by just a little bit of forward planning. To use the example of my trip to Hungary, during my 2 day whistle-stop tour of Budapest where I was travelling alone, I saw limited value in taking myself out for dinner. In fact, given that I was travelling alone, I was more than happy to return to my modern, fully-equipped studio apartment to have a beer and a bite to eat in the evenings, watch some cable TV or browse the internet using the Wi-Fi where I could relax and feel secure after a long day of walking around the city. I discovered that I can get enjoyment without spending money all the time. I was quite happy to pick up a few groceries when passing an Aldi, and a pizza slice on my way home from the spa. At the same time I was more than happy to pay entry fees for attractions that are important to me.

Having the opportunity to hang out with some new friends in a beautiful lakeside resort in Hungary is something I was delighted that I did. These type of get togethers of like-minded friends are where ideas are hatched and inspiration is born! From this trip, a potential volunteering opportunity arose for me for next year, as well as a number of potential presentation ideas for future financial independence conferences…Watch this space!

Final Thoughts

The trip was a great combination of chilling with friends and exploring a city. I would recommend Budapest to anyone looking for an affordable city break, but suggest flying on days when direct flights are available if going with Ryanair from Dublin to avoid potential additional costs. On this occasion I found the best accommodation options for me on Booking.com. Airbnb also had plenty of options. I would recommend changing money in one of the kiosks in Budapest rather than Ireland, since these places were offering better rates than the Irish banks. Booking an apartment is a great way to go, since there are supermarkets all around in Budapest – (CBA is the local supermarket chain I used a lot). I think 3 or 4 days in Budapest would be preferable to the 2 I spent, particularly for anyone who has not been before, to take tome of the pressure off the travel itinerary and allow sufficient time to do more (like spending a full day in the thermal spa for only slightly more than it cost for the evening, or taking time to see the statues in Memento Park, or explore the nuclear bunker that was used as a hospital in WWII).

Great for healthy travellers who are open to doing a lot of walking. The height of summer may not be the best time to go for a city break, since walking around can be extra tiring in the heat. Also worth checking whether accommodation has air conditioning, and, if not, mosquito nets on windows, to avoid getting bitten at night when leaving windows open.

Budapest is a great city, easy to navigate and foot and by public transport. I found that the information being provided by Google maps was spot on for both Budapest and Lake Balaton. The lake is quite a nice train journey from Budapest (1.5 hrs.), and is basically a nice, holiday resort setup. I was happy with what I paid for accommodation in both places – my hotel in Balaton was € 55 and included both lunch and dinner, while the studio in Budapest was € 35 per night, in a very central location. Since I booked at short notice, my flights were more expensive.

I am considering returning at some stage next year, and will definitely book well in advance to secure a flight deal. I plan to spend at least a few days, and will definitely spend a full day in the thermal baths and and also take a trip to Memento Park next time.

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