How to get your home to pay for itself (while still living in it)!

Like most people in the financial independence community, I am always on the lookout for ways to turbo charge my journey to financial independence! I’ve been tracking my expenses since the beginning of 2017, and I am keenly aware that my mortgage on my home is by far my largest expense. I illustrated various ways to keep housing costs low in another blog post. [link here]. Most of these ideas involve alternatives to getting saddled with a big mortgage in the first place. I had my mortgage before I discovered the FI movement, and there are certainly good reasons why this made sense for me at the time. So, in my case, I have been thinking outside of the box in trying to create an income stream to cover the mortgage. I was thinking along the lines of – How can I get my home to pay for itself?  

The idea

 

It all started when, in April 2019, an ad appeared on my Facebook feed for a little modular housing unit which I could buy and which would be transported and lifted with a crane over my house and into my back garden. It looked very cute, and it incorporated a shower room and mini kitchen, and was being advertised as a fully self-contained housing unit which could potentially be placed in the garden and rented out. It wasn’t long before I followed up on my initial inquiry by putting my passport in my pocket and jumping on a bus for the 4 hour bus journey to Northern Ireland to go and see it in person and meet the people who had created it! This 5 * 3 m unit was coming in at about € 17 K including transport, crane, cost of the base, connection to services, etc. So, for € 17 K, I could have a little house in my back garden earning some rental income for me!   

Here’s the post along with accompanying phtotos: MODULAR STEEL FRAMED POD self-contained comes complete with fitted kitchen, shower, toilet, hand basin, living/bedroom, lights, sockets, water heater, very well insulated (for all year use), double glazed, internal measurements 5mx3m. Now taking orders for 2019 delivery extra room can be added or total custom build . 

I did some research and quickly realised that a separate unit being used as a dwelling would require planning permission. I also realised that it at 15 m2 it was very compact and that I might struggle to get anyone to stay for any length of time. 

However, it had set my mind working, and the next thing I started to explore was the idea of converting my existing garden shed into a habitable dwelling. While it was a bit bigger, I believe planning permission would again have been required to convert the usage to be that of a habitable dwelling. A few buidlers took a look at it for me, and were quick to let me know that converting something that was built as a shed in 1972 to a dwelling of 2019 standards would be challenging. Most declined to take up this challenge, but instead offered to quote me to build an extension to my home, which is the next thing I explored!  

Selecting a builder  

In June 2019 or thereabouts I started meeting with builders. I contacted 14 builders, met with 10 in total. Some of these were referred to me by neighbours or friends from my walking group, or from the local financial independence community. Another had placed an ad in my local free newspaper, and others I found myself through my own research! It was not particularly difficult to get builders to come out to the house and assess the work that needed to be done, but it was much more difficult to get a detailed quote from several of them. I needed to make 42 follow up calls, send 34 text messages and 12 WhatsApp messages to generate 3 quotes! A number of builders ruled themselves out of my vetting process at this stage due to not being able to provide detailed quotes. 

Determined to get 3 concrete, comparable quotes, I had to start thinking outside the box! In the case of one old-school builder, I wrote out the quote myself as we did the walkthrough, and got him to confirm on the numbers. In the case of another, he gave me a high-level quote in a WhatsApp message, and I asked a few follow-on questions to complete the picture. (This guy wanted to charge me € 100 for the more detailed quote, so as an alternative I just asked him a number of questions to get enough information together to be able to make a comparison). The third was able to give me 2 detailed written quotes based on 2 differing sizes, and was able to address my follow-on queries in a prompt and transparent manner. She was also able to direct me to her website, to which I was given members’ access with some additional information which included customer testimonials and phone numbers. I phoned and had a chat with one previous client. I was also invited out to the site to see one of ongoing projects, and I got to have a good look around the work in progress in the company of the builder. Not surprisingly, this company ended up getting the job!   

This builder included the designs as part of her offering, and I made my initial payment to her in December 2019 to initiate the design process. We went through a couple of iterations of the design, including a number of meetings. Then Covid-19 happened. I postponed the start date, fearing that the building trade could be shut down at any moment. We finally started at the end of August 2020, and completed January 2021.  

 The Construction Process  

I had engaged with the owner of the company, who had a building crew onsite doing the work. When planning originally took place, the assumption was that I would be out in work every day. However, due to Covid-19, I was (and still am), working from home, and as a result, I was aware of all of the comings and goings of the builders. The crew that initially started the job would typically arrive at 9 am, and then depart again at 9:30 am for breakfast for one hour. Returning around 10:30 am, they would then work until about 12:30, following which they would then take another hour for lunch. Rarely did they work past about 4:30pm, on Fridays it was typically 3pm. I soon got fed up of this when I saw how little progress was being made.  

I raised this with the owner, and we agreed to meet every Friday to discuss progress for the past week and agree targets for the next, and to make the staged payments based on completion of those particular targets, as opposed to making fixed weekly payments. Having initially been given a timeline of 2 months (“3 to be safe”), I realised that 6 weeks in we were only at the stage of the concrete pour for the foundation, I knew I needed to speak up! The initial contractor tended to come with very detailed, fantastical stories and excuses for why he hadn’t got things done.  

Eventually, the owner of the company and the initial contractor parted ways. The fact that she couldn’t rely on him to live up to his word in terms of deliverables was leaving her in a difficult position with clients, since she was promising things that were not getting delivered. At this point I was very nervous. A part of me wondered whether the initial contractor should be left to finish the job. However, a business decision had been made, and a second crew had been drafted in to pick up the work. At this point all of the ground work had been done, and I was told that progress would be very visible as the walls went up fast. This was true. The new crew came from the northern part of Ireland, and was very focused on getting their work done so that they could get off early on Fridays to beat the traffic and get home for the week end. There was definitely a sense of this crew working to targets.  

Another challenge which emerged towards the end of the project in December or so was the electrician. While the company had a plumber on the payroll, the electrician was not an employee, and had many other commitments, so never seemed to turn up when he said he would. This delayed completion, and was an issue. 

I made the point that I was losing money every month that the project ran over time, due to losing out on the income which I would have been making. (Let’s be honest, I could have invested the money elsewhere – like in a property which was already ready to go – and my money would already have been making a return for me).  

I had already sourced all of the appliances at the stage where the kitchen was being built. I spent the Christmas period sourcing all of the furnishings and everything that would be needed to make the place rent ready. I ordered most things from IKEA (even cycling up there over the Christmas to put in my order when their website became overwhelmed in the pre-Christmas period).   

The Snag 

There were a few bits and pieces to be tidied up in the aftermath. In addition to the standard build, I had said at the beginning of the project that there were a few other items which I wanted to get done while the builders were in, and we agreed to incorporate an additional amount in the pot to cover these items. The builder and I had a final negotiation over whether or not this amount should be incorporated into our calculation for the final payment, and, if so, what would be covered by it. In the end she was willing to let it go, and I was willing to acknowledge that they additional items had come up which they had taken care of for me without additional charges, so I agreed to add this final payment to the pot, and she agreed to have the guys build all of my IKEA furniture that I had bought! This was a win-win, as it would have taken me a long time to do with my novice ways, while the builders had it all done within a day.   

My final touches were getting a bed delivered and some blinds fitted, and a new side gate outside my house. (Entrance to the apartment is through my garden which in turn is accessed via gate at the side of my house). As part of the building works, I had had my old garden shed demolished and a new smaller one built across the back garden wall to free up more space in my compact back garden. The old shed had previously housed the washing machine and a sink, and the builders had closed off the old water pipes under the garden. One of these must have sprung a leak, because I ended up with a big swampy pool in the middle of the garden which only became apparent after the building work had finished. Luckily, the builder took responsibility and sent someone round to dig up the garden and identify the leaking pipe and seal it off.  

Finding a tenant 

Because the apartment is basically an extension to the back of my house, finding the right tenant felt like a very important part of the process. It felt very personal – this person would be living in a part of my home. I advertised initially on Facebook Marketplace in early February 2021, which is free, reasoning that if I found someone through this route, I would not need to spend the € 75 fee for advertising on Daft, which is Ireland’s biggest property website. My vision was to rent it to an individual tenant (as opposed to a couple) due to the compact size of the space. However, what I quickly found was that my ad was attracting lots of couples. I also found that Facebook marketplace, while very good for selling household items (or indeed even a car), was quite a laborious way to find a tenant, and it also does not have such broad demographic coverage. There is a 1 click button on there which generates a message to the advertiser saying “Is this still available?”, I had a lot of these standard inquiries, and in total I sent 115 responses.  

After a couple of weeks on Facebook, I decided to give myself the best opportunity to find the best tenant, and paid the advertising fee, and placed an ad on Daft. I subsequently dropped the price slightly to attract an individual tenant, and I got serious about setting up standard draft responses with a couple of screening questions. I sent 217 emails in total. My ideal tenant (in my mind) was someone who can easily afford to pay the rent from their job-based income, a working person, ideally an individual, without pets, partners or kids in tow. A number of people were savvy to this, and initially stated that they were searching for themselves, only revealing during the viewing that they were looking for themselves and a partner. I had one guy who after the viewing revealed that he had a dog, who brought me a box of chocolates and proceeded to bombard me with pictures of his dog chilling with cats, and even kids. He even brought the dog to meet me!  

After about 3 weeks I found that I had more than sufficient interest. In the end I did end up renting to a gentleman who is renting it for himself and his wife. He is currently working here, and his wife is expected to join him soon. I verified employment and landlord references, we swapped photos of our IDs, and I put together a basic contract. All is well so far and now the income stream is up and running!  

The numbers  

I have included a nice spreadsheet excerpt here to demonstrate the potential yield on this if earning the rental income under the rent-a-room scheme. € 14,000 is the maximum rent which can be earned every year tax-free. Standard build cost is € 65,000 + VAT at 13.5%. I have listed extras relating to the apartment build, and cost of appliances, furniture, blinds etc. On this basis, the maximum potential yield on investment is 18%. The initial investment would then be fully covered through rental income in 6 years. Cash flow is also strong at € 14,000 max. (I have shown the maximum tax-free rental income which is allowable under the rent-a-room scheme. If additional income were to be earned, income taxes would apply to 100% of the rental income, and not just the excess over the € 14,000). I have been transparent in showing my costs. However, I have excluded costs relating to the construction of the shed, which was a pre-agreed, fixed amount, and indeed any extras which did not relate directly to the construction of the apartment, and therefore is not part of the investment made to set up the income stream).

Also worth noting that this is a 25m2 extension in a back garden, so, on that basis, rent could be a lot less, and will also depend on the location, access to amenities etc. It’s worth researching rental prices in your area and running some initial estimates prior to undertaking anything! It’s also worth noting that the rent-a-room scheme might be discontinued by a future government, so it’s probably worth also running the calculations based on taxable income! 

The Aftermath 

There is a really nice sense of satisfaction in seeing the build through to completion. Being able to roll up my sleeves and get physical, whether it was in clearing out my old shed before it was knocked in the early stage of the process, or furnishing the apartment, staging, cleaning and photographing it when it was finished, though to wheelbarrowing all of the spare top soil from my front garden to the back, and tidying up the front garden in the post-construction process, gave me a great sense of satisfaction that I just don’t experience working in the services sector.  

There is something very empowering to my mind about being able to get up and do things and make changes. The whole project was something that started out as an idea in my head, initially inspired by the Facebook ad at the beginning of this post. It grew from there to the meeting with 10 builders, doing the due diligence and eventually selecting one, through many meetings to discuss design, delays due to Covid and due to issues between the company owner and her contractor, through to people not turning up when they should.  

There were other positive unexpected events that I should mention as well. I had budgeted for a small shed (not included in the costings above). This ended up being insulated the same as the apartment, so that the apartment can in future be extended to be a 2 bed if I wish. The part where the apartment joins the main house was developed to be a laundry room, so now I no longer need to go in and out to the shed to do my washing. 

Conclusion 

Concluding thoughts are overwhelmingly positive on this. I found myself thinking that I have achieved more for myself this past year by undertaking this project than I have in the past 10 years of working various jobs! (Although it is probably worth pointing out that I would not have been able to do this at all without the savings I had amassed while working those jobs)!

I learnt a whole lot from the project. There were ups and downs along the way, primarily that it took much longer than initially projected – more like 6 months than the 3 initially projected. If I were to undertake another project with a builder in future, I might look to instill some kind of penalty clauses for late delivery! The fact that I was paying on a week-by-week basis and having those weekly meetings to assess progress really helped. It also really helped that I was working from home the entire time, and “living like a boss” in many ways, in terms of being able to run my own schedule, and take time out of my day to have these meetings. Importantly, the project did stay on budget. The aftercare has also been good, such as resolving the pipe that was leaking out underground, which was promptly addressed and repaired several months after the build had been completed.  

I have accomplished my goal of setting up an additional income stream, so that my home is effectively covering its’ costs!  I have also created a contingency for myself. Should I lose my job, I have the option to move in to the garden annex and rent out the main house. I also have the option in future to expand the extension into a 2 bed apartment, or indeed just to enjoy the extra large house myself! Now that I am in the post construction phase with the new income stream up-and-running, the next question becomes, “What will I do with this additional financial stability?”.That will be the subject of my next post!   

2020 – The year in review!

2020 – The year in review!

In this post, I will take a look back at 2020, starting with at all of the usual financial metrics, and moving on to a general commentary on the year that was, and my thoughts for the future as we enter what is hopefully the end stage of the war against this pandemic and begin to look forward to what life might look like in the future.

Market Value of Investments + 29%

Here, I refer to my investments in various pension plans. Each of these plans came about as a result of a job which I have held at some stage. I have a pension plan with my current employer, to which I have been contributing the maximum allowable tax-free amount based on my age and job-based income since 2017. I also have 3 other “pension pots” which I accumulated through previous jobs. The balance in each of these pots is a combination of 1) my contributions 2) my employers’ contributions and 3) growth in market value through performance. These are known as defined contribution pension plans. The investments which I have made through these plans are a combination of equity funds and bond funds.

I began recording the balance on each of these at the end of each month during 2017. At the end of each year, I then compared the values with those of the prior year. Overall, the total value of all of my pension pots increased by 29% in 2020. All 4 pots increased in value in 2020, as follows:

2020 growth rate in market value of pension pots

2020 market value increase in %
Pension Pot 1 -previous job13%
Pension Pot 2 – previous job9%
Pension Pot 3 – previous job7%
Pension Pot 4 – current job68%
Total Pensions growth29%

Pots 1 through 3 are from previous jobs as I mentioned, and therefore no contributions were made to these in 2020. As such, the increase in market value of these is purely due to performance. The increase in pot 4’s market value is a combination of performance and contributions. The majority of the increase in market value came from contributions. The performance was about 14%. This was a pretty good performance. I made the bulk of my investment during the February/March time period while the markets were down 20%, so buying in low certainly helped with the overall 14% on pot 4! Pot 1 increased by 13%, all of which was due to performance. This seems impressive, given the year that we have had!

The pension pots have grown steadily since I began tracking them in 2017, as you can see below. Pension pot 4 is accessible from age 50. The others are not accessible until 60/ 65 years of age. I am not yet of an age where I can begin drawing any of these down. However, to contextualise this, hypothetically, if, for some reason, I could access all 4 pots currently at a withdrawal rate of 3.5%, I would be able to cover about 15% of my typical annual living expenses indefinitely with the income from these pension plans. In 2017 I would have been able to cover about 6%. So, at some stage in the future, this will be a nest egg available to me. I also have the ability to transfer pots 1 through 3 to pot 4, to ensure that all is available to me from age 50. I am looking at the performance of each, and will consider whether to make any transfers.

Year-on year growth in market value of pension pots

 2017201820192020
Pension Pot 1 –growthNo comparator – 1st year of tracking!0.53%19.15%13.34%
Pension Pot 2 –growthNo comparator – 1st year of tracking!-2.43%13.24%9.42%
Pension Pot 2 –growthn/aNo comparator – 1st year!13.31%7.42%
Pension Pot 4 –growthn/aNo comparator – 1st year!167.59%67.94%
Total Pensions growth 42.73%42.28%29.33%
% of annual living expenses covered at 3.5% withdrawal rate6%8%11%15%

It is nice to see the values of these pots steadily growing. As you can see here, that hypothetical amount of my expenses which could be covered indefinitely based on withdrawing at a rate of 3.5% was 6% in 2017, and is now 15% at the end of 2020, (if I were able to draw it down).

Thoughts, and 2021 Plans

When I saw the values of all of my pension funds plummeting in February/ March 2020, I took the view that the stock market would rise again in the longer term, and so I decided to invest as much as I could at that point in time. I knew that I had a certain amount that I can invest in my pension per year on a tax-free basis, and I decided to put most of my contribution in at this point in time.

I am aware that many in the Irish FIRE community have chosen to ignore the pensions route due to the fact that this money is unavailable until a later age, so will not bridge the gap for someone wanting to retire in their 30s or 40s. This is true for me too of course. However, I find the tax advantage of contributing to a pension too big to ignore, so am committed to making this one part of my strategy, for as long as I remain an employee, and I intend to maximise my allowable contributions again this year.

Cash in Banks – 56%

As planned, a large chunk of the cash I had been accumulating was used to invest in a construction project which, all going well should have the ability to now generate an income stream for me for as long as I own it!

Again, to contextualise this, I now have 9 months’ expenses available in cash, down from 19 months’ at the end of 2019. I am happy enough with this. I have 3 income streams presently, and I soon will add a 4th, so I am becoming more diversified and less reliant on any one income stream. As such, I am happy enough now having a smaller cash reserve.

Thoughts, and 2021 Plans

I considered whether to postpone the building work since my job was looking a little unstable in 2020. However, I decided that precisely BECAUSE my job might be unstable was all the more reason to push ahead with construction to build this additional income stream. To give myself extra comfort I did some calculations and put a contingency plan in place – 1) if I lost my job, I would start teaching English online to bridge the gap in covering my expenses. 2) If I really needed to earn some further income, I also had the option of renting my third bedroom in my home to cover it. 3) I still had cash reserves and 2 other income streams.

This approach paid off. I didn’t lose my job, and now the construction project is fully paid up, and the apartment unit almost ready to be put on the market, at which point it should start earning income and increasing the cash reserves again. As I write this at the end of January, I am now giving it a final clean up, and getting ready to stage, photograph and advertise it, and have this exciting new income stream up and running by the end of Q1 2021! 

Income + 5%

I currently have 3 income streams, which break down as follows:

Income Streams

  1. Rent-a-room – 13% of total income

I earned rent-a-room income throughout the year. My lodger’s work contract was due to end in June 2020. However, she and her employer decided to extend it for another year, so currently she is expected to be here until June 2021. She’s a great lodger, and I’m happy to have her here for as long as she wishes! Based on what I am seeing in the market, I feel that I am earning a very decent rate for renting this en-suite room in my home, so I have no plans to raise the rent on this.

  • Rental property – 22% of total income

As above, the tenants remained in the property and continued to pay rent throughout the year, as they have for number of years now. I will be doing a rent review in Q1 2021 with a view to possibly increasing the rent by 4%.

  • Job-based income – 65% of total income

The company took the opportunity of the pandemic to reduce staff wages for 6 months of 2020. I say “took the opportunity” because I couldn’t help but notice that dividends continued to be paid to shareholders during the period. Coupled with the fact that I see no opportunities to grow salary through career progression within this company, I am taking a look at the jobs market to see what opportunities there may be in the market for me! My goal here would be to explore the job market with a view to making a move to increase job-based income by 20 -30%. I plan to write a separate post on this at some stage!

Overall, my income managed to increase by 5%. While job-based income dropped by 3%, rental income remained flat. The overall increase in income is driven by my rent-a-room income, which was 50% up on 2019, simply because I had a vacancy for a number of in 2019, after 1 lodger moved out and the before the next moved in. As I mentioned though, the same lodger has been with me now since July 2019, and throughout 2020 to date.

Expenses – 5%

Total annual expenses decreased by 5% since last year. Average monthly expenses also decreased by 5%. (Note, I have excluded one off property development expenses from my calculations from both years). This due to a combination of not having been able to travel or take holidays, and not incurring the expenses of travel to work, nor the occasional bit of socialising that I used to do pre-pandemic.

Savings rate –> 50%

Income increased by 5%, while expenses decreased by 5%, pushing me into a 50% savings rate! This compares with a 42% savings rate last year. (Again, I have excluded property development expenses here).

Plans for 2021:

One of my first steps after I first became interested in financial independence was to begin tracking my expenses. This of course led to a heightened awareness of my spending, and to me becoming more frugal. Having an awareness of expenses is essential, and great in many ways, and I intend to continue tracking expenses, questioning spending and seeking out value. Now that I have a system in place, this takes relatively little time to keep up to date at this stage. However, in 2021 I will be focusing a lot on the income side of the equation.

Investigate increasing rent on rental property

My rental property is in a “rent pressure zone”, which means that I may only raise the rent by 4% every 2 years, if I can prove that the amount I am increasing it to is within the market rents for the area. I will be looking into this, and increasing the rent, if appropriate.

Explore growing job-based income!

As you can see above, job-based income represents 64% of all of my income. As such, I am conscious of the need not to overlook this income stream when assessing my progress year-on-year!

In 2021, I have set myself the goal of investigating whether I can grow my job-based income: If I discover that I can earn an additional 20% by moving to a similar job elsewhere, I will likely do so. If I have an opportunity to take up a progressive opportunity paying 30% more, all the better. Perhaps the outcome of the research will be that I am not successful in getting a job offer with a higher salary elsewhere, in which case I will stay where I am for now, and I will be comfortable in the knowledge that I am doing the best I can right now! In the meantime, despite the fact that I don’t see any formal path for progression opening up for me within the company where I am currently working, I continue to take opportunities to take on interesting tasks which will broaden my horizons and allow me to (hopefully) demonstrate to potential future employers that I am operating at a high level and have gained a lot of useful experience. I feel that this is worthy of a whole blog post in itself, so will leave it at that for now, and possibly dedicate a blog post to it later on!

New – Set up Income Stream 4

I intend to launch my new build apartment on to the rental market and create a fourth income stream!  We are down to snagging at this point, and I am doing some final cleaning up out there in the coming days, with a view to presenting it all nicely, photographing it and put up a few ads, with a view to getting it rented out by the end of February. This has been an interesting project from which I have learnt a lot, and it probably also warrants its’ own blog post!

All in all

Based on the financial metrics which I have outlined above, it has been a good year. I continued to maximise my allowable tax free pension contributions, and built an apartment which will generate an additional income stream for me. Income managed to increase slightly, while expenses decreased slightly. I hit an impressive 50% savings rate, mainly due to the inability to take holidays or spend money socialising or travelling to work! So good a solid year in financial terms.

On a personal level, I have been working from home since March 2020, almost a year now! Saving 10 hours per week through not commuting, and possibly another 3-4 through not having to dress up for work has been great in some ways. I didn’t know myself in terms of the time I had available in the evenings! I actually started getting enough sleep, and had to cut down on the amount of coffee I was drinking as a result! Going to the gym was no longer safe, so I started walking in the evenings with a neighbour. To fill some of the extra time I started an online course which was being offered for free for the duration of the pandemic.

Everyone’s situation is different in this pandemic. I am a single person, which meant that when the shutters came down in the lockdown, I was isolating alone. Meet ups and other social activities became no-go activities as restrictions increased. Although I have a lodger living in my home, she has always tended to keep herself to herself and tends to spend most of her time in her room. I have 2 little cats who been my main company throughout this period, and they have had to deal with constant cuddles and attention from me throughout the day!

I found Christmas very tough. My close family members decided that spending time in each other’s houses over the Christmas period was too risky (and of course they were right). I had built up a lot of annual leave over the holidays and ended up spending it deep inside my own world! My lodger had returned to her family for Christmas. My construction project was almost finished, but in any case the builders clocked off a number of weeks over the Christmas period, as is customary here, leaving me to my own devices, and devoid of human company for the most part during this period.

All this time alone in my head has provided for much deep thinking and introspection. I returned to Ireland a number of years ago with a kind of a misty-eyed nostalgia for my childhood roots. The reality was that family members have built their own lives in the company of their chosen partners. I didn’t have many friends here to begin with, having spent significant periods of my life living in different countries, and I never seemed to manage to build that network around me here, in the way that I had been able to while living abroad. 

I explored the possibility of taking advantage of the fact that I am already working remotely from home, and raised with my employer the possibility of working overseas for a number of months during the pandemic in a warm climate where I have a number of friends, and where some friends were willing to let me a studio apartment on a little resort for about € 400 per month. My employer did not wish to entertain this, and my request was promptly declined. I now find myself listening to digital nomad podcasts (check out travel like a boss), and am wondering whether there is some way that I can do some kind of online work to make enough money to be location independent, and live somewhere which has a thriving ex-pat community and where I could have the opportunity to build a decent social network around me, while simultaneously being able to take advantage of a lower cost of living.

It definitely feels like the world is changing. In 2020, I got a taste of what it is like to work extremely independently (sometimes not hearing from anyone in work for days on end), and balancing work deliverables with a construction project that was taking place in my back garden for more than half of the year. I was able to schedule meetings with my builder to discuss the project within my workday, as opposed to rushing out of the office door at 5:30pm and hoping that I would be able to get home in time for a 7pm meeting! This gave me a taste of what it might be like to be my own boss! I have also seen what it is to not be exhausted on a Friday night from the effort of dragging myself in and out to the city for 5 days. I have experienced in a sense how disconnected I seem to be from life here in many ways. Perhaps this is partially just the long-term effects of the isolation due to the pandemic. I find myself very open to some kind of a more location-independent lifestyle. In any case, I decided to explore a job-move in 2021.

Most importantly of all, thanks to the stance taken by the Irish government since March 2020, I have been able to work from the safety of my home, which has allowed me to remain healthy. I have been lucky enough to have been working in the type of job that can be done remotely, and I was also lucky enough to be able to maintain my job and to progress with my goals during the year of the great pandemic.

As those isolated Christmas weeks of 2020 drew to a close, I went back to work, and was glad to be busy again. My builders came back to work too, and finished their job leaving me with a nice apartment ready to be rented out, and I busied myself with buying the final fixtures and furnishings.

A number of vaccines have now been approved and are being deployed, and we will soon be able to heave a big sigh of relief once our more vulnerable members of society have been vaccinated. In time, this will come to the rest of us too, and we will gradually be able to return to some version of what we once considered to be normality. Stay safe all, and take heart that we are in the end stage now!

A dummy’s guide to preparing and filing a simple tax return!

This is a basic overview of my approach to preparing and filing my tax return. I have broken the process down into simple, methodical steps. While I am doing this in Ireland, I believe the general approach may be relevant also to other jurisdictions. I want to demystify the process of filing a tax return for anyone who, like me, may have hesitated in taking this on themselves! 

Background – Why?

I have a requirement to file a tax return because I have a rental property which generates income. Last year I decided to begin filing my tax own returns. I had previously been paying a tax accountant to do this for me (cost: € 307). I decided to take this on myself after receiving in August last year a final demand for payment of overdue taxes for 2017 of € 800 from our revenue service! I promptly raised the matter with my tax accountant, and paid the outstanding balance. The issue had been caused my tax accountant putting through a tax reclaim for value added tax on some building work that I had had done in 2017. It transpired that she had incorrectly tried to reclaim this in 2017’s taxes, while it should have been reclaimed 50% against 2018’s taxes and the remaining 50% against 2019’s taxes.

The revenue service had been corresponding with the tax accountant, with only the final demand being sent to me. According to the tax accountant, she had not been receiving the correspondence due to having moved offices. So, while I had been paying someone else to give myself peace of mind that my tax affairs were in order, I was left 1) sorting out her error myself, and 2) getting hit with a € 800 tax bill at short notice! And in case those 2 reasons were not enough, the tax accountant then proceeded to inform me that her fees would be increasing by over 50% to € 484 due to “employees wage rise and rents of premises rising massively in the last few years”.

So, at this point I decided to consider alternatives. My options were to either 1) source an alternative provider at a better price or 2) to prepare and file my own tax return.  I remembered the words of Jim Collins that “no one will take better care of your money than you will”. So I picked up the phone and called our revenue service for some guidance. I spoke with a practical woman who suggested to me that, in her view: “If you can add and subtract, then you can do your own taxes”. Mine is a simple enough tax return – I have rental income from one rental property, as well as some rent-a-room income to declare. I also use the tax return to reclaim tax on additional voluntary contributions which I make to my pension plan, and to reclaim tax on medical expenses incurred during the year.

I decided to give it a go! After all, even while paying a tax accountant, I still had the responsibility of digging out my all receipts, and providing her with a breakdown of my income and my expenses. So, I completed and filed my 2018 tax return myself, and I am currently preparing my 2019 tax return. I decided to document my process step-by-step in case it might be of some help to others!

In order to prepare my 2019 income tax return, I need to gather information in relation to the following areas: 1) rental income and expenses relating to my rental property 2) rent-a-room income 3) total pension AVCs, 4) any medical expenses and 5) anything else.

Step 1:  Income – what income did you earn that you need to declare?

  1. 1 Rental Income

Taxes on my job-based income are deducted by my employer at source. So, in my case, I need to declare any income earned outside of the “pay-as-you-earn system”, so my rental income. My first step is to download all bank statements for the period in question. Vince over at http://ignitemyfire.ie/ had a good tip which was to open a bank account specifically for your rental property transactions, and to ensure to put everything through it. This is a great idea, because you can then see all relevant transactions at a glance, as opposed to having to comb through all of your transactions for the year on all of your accounts to pick out the transactions relevant to your rental property, which is what I am doing! Go through these statements month by month and log all income in a spreadsheet. Keep it nice and methodical!

Top tip -> Open a fee free bank account with EBS, N26 Bank or KBC (note, free with KBC only if you lodge a minimum of € 2,000 per month), and use this for all your rental income transactions. There is really no reason not to do this when you can open a free account. If I had to choose one I would choose EBS, since you have the benefit of the branch network (which you don’t have with N26), and you don’t have to worry about lodging any minimum amount to keep it free (as you do with KBC).

This is the income I earn from renting out a room within my own home. Currently, you are allowed to earn € 14,000 per year tax free from renting a room in your own home. (Note, if you exceed the € 14,000, you will have to pay tax on every Euro, not just the excess above € 14,000). Revenue asks that if you are a person who needs to file a tax return for another purpose, that you tick a box and enter the amount of income you earned.

1.2 Rent-a-Room Income

To work out my income from renting a room, I follow the same approach as for 1.1 above.

Step 2:  Expenses

  • Rental property expenses

For rental income, tax is calculated based on the profit I made, not my income. Profit is determined by subtracting my expenses from my income, so next I need to work out what my expenses were. Similar to step 1, I begin by going through all of my bank statements again to identify any expenses relating to the rental property, and plugging all of these into my spreadsheet. See top tip above to simplify this task. Since I am still new to this, I approach this by logging all expenses relating to the rental property into an excel spreadsheet, and then going through those expenses at a later stage to check which are deductible and which are not, and removing anything which is not.

I then go through my box of receipts to make sure I have receipts for all of these expenses, and store them all together. Working out what is eligible versus what is not is for the most part straightforward thanks to the power of the internet, not least the Revenue’s own website, and free helpful tips provided online by various accountancy firms. I have included at the bottom of this post links to a number of resources which I found helpful. When in doubt, I suggest giving revenue themselves a call. I have found that they provide a good service and are very helpful.

  • Rent-a-room expenses

Not Applicable – this is non-taxable if less thank € 14,000.

Step 3: Other

  • Pension – Additional Voluntary Contributions

Tax relief on pension contributions is given at your highest rate of tax. 6% of my salary is deducted from my pay each month by my employer, before income tax is taken, and contributed to my workplace pension. I can make additional voluntary contributions, and the maximum amount of these is a factor of my job-based income and my age. I make additional contributions myself throughout the year, and am entitled to claim back income tax on these. In my case I have been maximising my allowable tax-free pension contributions for the past number of years. So, the task here is to work out what is the maximum additional amount that I can contribute, to make sure to top up my contributions to this maximum amount, and to declare this in my tax return so that the tax refund due to me can be taken into consideration in my tax return.

In the past, in Ireland, every employee received a document around the beginning of each year from their employer – called a P60, which is basically a statement of job income and deductions for the prior year. This year the P60 was replaced by another document called an Employee Income Summary which is available online to us on the Revenue’s website. I needed to call the Revenue to identify which of the figures I needed to use to calculate my maximum allowable pension contribution. After that, it was easy to calculate how much additional capacity I had left in order to maximise it. This would be the maximum allowable percentage of my salary based on my age minus the 6% that had already been contributed through my salary as well as all of the additional voluntary contributions made during the year. I had a small shortfall this time round, so was able to log on to my pension scheme and make it up by making a final additional contribution.

Top tip here would be to ensure that you have online access to your pension plan and can extract your transactions and make additional voluntary contributions online!

  • Medical

Tax relief on medical and health expenses is given at the standard tax rate of 20%.You can go back 4 years when claiming tax back on medical expenses. I have found that the best way to make sure I have not missed any is to pay for all medical expenses using my bank card. In this way, I know that I have a full record, and then all I need to do is make sure that I have receipts for each of those expenses.

I follow my process of going through my bank statements and logging all of my medical expenses in my excel spreadsheet, and then going through my shoebox of receipts, and making a note in the spreadsheet beside each one that I have the receipt for. For any where I no longer have the receipt, it is simply a matter of calling the doctor’s surgery or the pharmacy, as the case may be. I have had no problems getting them to generate the receipt of all of my tax reclaimable expenses and emailing them to me. Note, while receipts are not submitted to the Revenue as part of the tax filing,  Revenue advises that all receipts be retained for 4 years at least, in case of a Revenue audit.

  • Other

The only other item I have to reclaim as part of this filing is the remaining 50% of the VAT I paid on some building work I had done back in 2017. (For more on this item, see above).

Step 4: Filing the return

For people like me who have some income outside of their salary, as well as business owners who need to pay and file taxes, Revenue Online Services is where we need to be registered. This is done by contacting Revenue and getting registered with the website www.ros.ie They will issue an electronic certificate which you need to install on your laptop, and a password (via post) to get you in.

Revenue Online Services is actually quite an intuitive website in my view. You have a full record of all of revenue’s correspondence with you. The best part about it is, at the click of a button you can choose to create a pre-populated tax return which already includes all of your job based income and taxes, as well as the details of the rental income and expenses, pension contributions, health expenses, etc. which you entered last year. Not only that, but at the top of each screen is a “help button” which you can click which explains what is required. The Revenue’s general website also includes videos on “how to prepare and file a tax return” (see links below). For additional support, we can call dedicated “business and self-assessed” helpline. Once you have created the return, you can literally click through the screens one by one. You can save your updates, log out, and return it later.

When doing this last year for the first time, I opened the prior year’s tax return on my laptop, and flicked between it and the online tax return, using it as a guide, and reverse-engineering the numbers that the tax accountant had used the year before to double check my approach along the way. This year I cross referenced to last year. Any time I was uncertain, I used Google to try to find an answer, and, if I couldn’t find it, made a note to myself to call Revenue the following day to clarify.

The key is to allow sufficient time to complete the process, and to have patience and be willing to watch a few videos and read a few instructions to learn along the way. I do it in little chunks, a little bit every evening over the course of a week or so, leaving myself as task for the following day (to call some chemists and doctors to get my receipt emailed over to me, or to call Revenue to ask a specific question, for example). This has given me further insight into my money. It seems like a natural next step for anyone who has already been tracking their expenses.

Once you have clicked into all of the screens that are relevant to you, and have entered all of the relevant data you progress on through the tax return and get to the bit where you see revenue’s full computation of your income (incorporating your job based income which they already had on record, along with the rental income which you have entered, all of your tax already paid, your tax credits, along with deductions for your medical expenses, pension tax relief and allowable rental expenses. The end result will be a number, which is either the amount that you need to pay to Revenue, or the amount that Revenue needs to pay you. You can copy over the figures and sign and submit if you are in agreement. If you have an additional tax liability due (as opposed to a refund), you can then arrange to make payment with revenue online or by phone. If you have a tax liability due, you will also be asked to make a preliminary payment of taxes for the following year.

My experiences with tax accountants

Prior to the 2018 tax year, I used an accountant to prepare and file my annual tax return. When I was first looking for a tax accountant a number of years ago, I reached out to family for referrals, and used a friend of my brother’s for the first year. If I remember correctly, he charged me about € 400, and didn’t even tell me that I could reduce my tax liability by topping up my pension contributions. That year I paid over 50% in tax on my rental profit! I didn’t realise at the time that I had the option of investing an amount roughly equivalent to my rental profit into my pension instead of paying 50% of this to the tax man. It wasn’t until a couple of years later, when I began reading up on this stuff, that I started topping up my pension contributions and moving to a position of maximising these and getting a net tax refund each year!

I then started using a franchise called https://www.taxassist.ie/accountants/dublin/ because they were less expensive at € 307, and also because they were on my bus route to work, so I knew that I could easily get there if I ever need to visit in person. By then I had been reading up in the library and was aware of the fact that I could increase pension contributions to reduce my tax liability. I liked this accountant, although I do recall her suggesting that I keep my rental rates low to reduce my tax liability, which in hindsight is “unusual”… I was beginning to be exposed to the financial independence movement at this point, and I would soon go on to increase the rent to market rates, and also to increase the contribution I was making to my pension to offset additional tax.

This accountant in any case moved on to bigger things, and referred me on to another accountant with whom she was sharing her co-working space and who did it for a few years at the same fee, but who has now raised has now raised the fee to € 484 (as discussed above).

This was my experience. I believe that there are probably better priced options available for anyone looking for someone to prepare and file a simple tax return, for example www.paylesstax.ie who are offering packages from € 120 upwards.

Conclusion

While a tax accountant can no doubt add value for someone with a more complex situation, mine is a pretty simple tax return, as I hope to have demonstrated! I appreciate however that even for those who have a relatively simple tax return, some may prefer to outsource the task. At a potential cost of € 120 and up with www.paylesstax.ie it does not need to break the bank either!

With all of the online and in-person supports available, doing this myself makes good sense for me personally at the moment, as it adds to my understanding of my money, not to mention saves me some money for completing a task which I was partially competing anyway. (After all, it was me that had to gather all the receipts and actually pull together my income and expense details for the tax accountant). It was kind of an empowering next step up the hierarchy towards financial self-actualisation!! I have proven to myself (and hopefully to a few others) that you don’t need to be an accountant to file your own taxes!!!

The accountants I used in the past did the job I asked them to do in preparing and filing my tax return, and allowed me to meet all of my requirements for tax compliance at a time in my life when I was dealing with a lot of other stuff. My experience however is that for a couple of hundred bucks a year tax accountants in Ireland will do the basic mechanics of plugging the numbers in and filing the return! Do not expect an advice service! It kind of reminds me of that time in the 90s when Naomi Campbell said that she “doesn’t get out of bed for less than £ 20,000”. I think in the same way a tax accountant in this high cost of living country a couple of hundred bucks you will get the very basics, and indeed as you will have read, my most recent accountant cited the increased cost of rents and wages as the reason behind the 50% increase in her fees! Whether or not you choose to use a tax accountant, it is worth being aware of a few basics in terms of the deductibles available, the main one being the pension.

In my own case, as I developed my knowledge and built my confidence on financial matters, I have enjoyed the challenge of getting on top of my tax return, and found it empowering that I have added a new skill to my tool box! For the moment, I am comfortable that my tax affairs are in good hands – mine!

**Note, if you file your taxes online with www.ros.ie the pay and file deadline for 2019 tax filings has been extended to December 10th

Here are some links to resources that I found helpful:                             

https://www.revenue.ie/en/online-services/services/common/file-an-income-tax-return.aspxhttps://www.revenue.ie/en/self-assessment-and-self-employment/index.aspx

https://www.revenue.ie/en/self-assessment-and-self-employment/filing-your-tax-return/key-steps-in-filing-your-tax-return.aspx

https://www.taxback.com/blog/irish-landlord-expenses

https://www.taxreturnplus.ie/tax-return-guides/20-questions-rental-tax-returns/

https://www.revenue.ie/en/property/rental-income/irish-rental-income/what-expenses-are-allowed.aspx

https://www.taxback.com/blog/self-employed-expenses-ireland

https://www.revenue.ie/en/employing-people/employee-expenses/travel-and-subsistence/civil-service-rates.aspx

https://www.taxreturnplus.ie/tax-return-guides/expenses-claim-rental-income-tax-return/

My (virtual) presentation to the Irish Financial Independence MeetUp Group – What I’ve learned 4 years in, why managing housing costs is key for me, and radical alternatives to getting saddled with a big mortgage!

This is a lengthy post which covers a lot of ground! Starting with a snapshot of my life before and after I discovered financial independence. I share some of my favourite resources, as well as some metrics showing my own progress over the past 4 years, along with a few projections showing, to the nearest Euro, how close I am to financial independence given a number of different scenarios! I talk about plans for my next steps, and list a couple of things that have worked well for me, and things that haven’t, along with a few other points to consider for anyone on the path to financial independence!

I have added to the presentation my conclusions that, (in my case at least), managing housing costs is the key to all of this. I consider a number of game-changing alternatives to getting saddled with a big mortgage, and come to the conclusion that keeping an open mind, “thinking outside of the box”, and sometimes going against our current societal norms open us up to a whole range of alternatives!

Who am I?

An Irish woman who stumbled on Financial Independence at a crossroads in my life while in my 30s. Having read everything the library had about saving and investing, and all of the US content on the internet, I set up a blog to try to find the Irish FI community in early 2016.

My life before…

I believe that the events which triggered my pursuit of financial independence are rooted in the period following my return to Ireland a number of years ago. I went through uncertainty in my life across a number of fronts- redundancy and end of a relationship in 2012, difficulty reconnecting and making new friends, and a 40% rent increase in 2014. At the same time, I had started a masters part-time, which tied me to Ireland…The impact of all of this was a feeling of a loss of control across all areas of life…

Craving Stability

I gradually began to build some stability. I got a new job, completed my masters (2014) and used the redundancy lump sum payment which I received as a deposit to secure a mortgage on my own home (2016).  At some point during this period I stumbled across an article on the internet about a couple who retired in their 30s to travel the world – it might have been this one:

https://www.forbes.com/sites/laurashin/2015/03/30/how-this-couple-retired-in-their-30s-to-travel-the-world/

Discovering the FIRE movement

After coming across this article, I spent the week end and a lot of time after that reading about this thing they called financial independence/ early retirement. The following are some of my favourite resources:

  • 2 blogs by couples who retired in their 30s, and now travel the world:

https://www.gocurrycracker.com/

https://www.millennial-revolution.com/

  • A book by Jim Collins which simplifies rather than complicates investing:

https://jlcollinsnh.com/2016/06/18/the-simple-path-to-wealth-is-now-published/

  • A blog about a couple with fairly average incomes and 3 kids who achieved FI:

https://rootofgood.com/

Podcasts:

https://financial-independence.eu/

https://affordanything.com/podcast/

My situation then

I was in my 30s with very little to show in terms of savings or investments, considering that I had held various part-time jobs from age 13, and had been working full-time from age 22. The following is a snapshot of my financial situation at the time:

  • Had “cashed in” pension plans from early on in my career.
  • My bank balance did not change much year on year, which meant that I was basically spending what I earned!
  • I spent a lot on travel and experiences while living abroad. Did not budget or save in any structured way, had no real awareness of this, and no idea of the benefits of doing so
  • “Accidental landlord” with one property, purchased in my mid-20s, and rented out well below “market rent”
  • My own home, bought in 2016 with 29 year mortgage
  • No debt (other than 2 mortgages), modest amount of savings
  • Began contributing to pension since my return to Ireland (note, effectively no pension contributions for all of the years that I had been working prior to this)

Taking control of my life and finances

The great news is that it all of this is changeable! Here are some of the things I did to address this:

  • Began tracking expenses in 2017, added to this bank balances and market value of pension investments in 2018
  • Hired some builders to turn a toilet in my home into an en-suite, and rented out this new en-suite bedroom (2017)
  • Increased rent on investment property to market rates (late 2018)
  • Maximised pension contributions (2017 onwards)
  • Began to overpay mortgage on my home (2018 onwards)
  • Joined a gym and a walking group, made a point of leaving work on time, eating a healthy breakfast, drinking more water & cooking (2017 onwards).
  • Went to the Financial Independence Week Europe conference in 2018 & 2019 to connect and learn from like-minded people & attended the first Irish Financial Independence MeetUp in Dublin!

Some statistics:

Income breakdown July 2020

Below are a few extracts from the things which I track. Firstly, a breakdown of my 3 current income streams. At present 35% of my net income comes from sources other than my salary!

Income Breakdown

Expense Breakdown July 2020

A breakdown of expenses. The key takeaway for me from tracking my expenses for the past number of years is that finding a way to cover my mortgage and related expenses will have the biggest impact in terms of moving me to financial independence!

Expense Breakdown

Savings Rate

Below is my annual savings rate for the past 4 years. I was unemployed when I began tracking my expenses, and at the same time making major capital expenditures by remodelling my bathroom and adding an en-suite to my home. This began to pay off when I rented out the en-suite room. This, as well as getting a job, and increasing the rent on my investment property to market rates drove my savings rate up. I expect this to plummet throughout the rest of 2020 as I make regular payments to the builders for an apartment unit which I am building attached to my home, and to begin to rise again once the building work is paid for and the new apartment unit rented out!

  • 2017: -33% : Unemployed for first half of year, paid for new bathroom and en-suite in home, rented room in home from beginning of Q4, rental property occupied throughout
  • 2018: +35% : Gainfully employed throughout the year (and to date), and earning rent-a-room income for most of the year, and rental income from investment property
  • 2019: +40% : Full year of increased rent on rental property led to the increased savings rate!
  • 2020: +22% : Bathroom remodel for rental property paid for in this time & initial payment to builder for extension on home

Pension investments and Cash Reserves

These are the other metrics which I track – cash reserves and market value of pensions. Both of these have been increasing in value nicely over the past few years while I have been tracking them. By the time I got my current job, I had been tracking my expenses for about 6 months, and had a good understanding of these. So, I was able to decide upfront how much I could afford to save monthly and set up a standing order the same month I began my new job to automatically move this amount to savings every month, which is still in place today. I have been maximising my allowable pension contributions since 2017, and as a result, the pension pot has been growing nicely. My pensions are accessible at various ages from 50 on:

  • 2018: Cash reserves = 13 months’ expenses
  • 2019: Market value of pension investments +18%; Cash Reserves + 32%: = 18 months’ expenses
  • 2020: Market value of pension investments +53%: Cash Reserves + 11% (new bathroom in investment property and initial payment to builder for extension on home paid for out of cash reserves this year) = 18 months’ expenses at this stage!
  • 2020: Current cash reserves will be used to pay for extension on home, and will be mainly depleted!

My approach – Keep it simple!

Tracking my income, expenses, savings and the market value of my pension investments requires very little time or effort on a monthly basis at this stage. With all of this in place, and, inspired by Jim Collins’ book, The Simple Path to Wealth, my approach has been to focus on getting a few high level things right consistently over time, such as:

  • Maximising pension contributions
  • Building cash reserves and saving for major renovation projects, including the construction of an apartment unit attached to my home for the purpose of renting out to earn additional income
  • Overpay mortgage
  • Consider ways to increase income

How FI am I?

I couldn’t do a presentation on this topic without attempting to answer this most obvious question. Having experienced a pay cut at work since the onset of the pandemic, I decided that I should prepare for the possibility of a redundancy. I did some basic modelling to understand the impact of a job loss. The other variable I had was the fact that I had been planning the construction of an apartment unit attached to my home which I intend to rent out. I had postponed this since the onset of the pandemic, but, I am very pleased to report that building has now started, and it is expected to be complete in a couple of months.

The following projections look at a couple of scenarios. 1) What if I lost my job tomorrow, before the apartment is ready to rent out? 2) What if I lose my job after the apartment has been built and rented out? 3) What if I don’t lose my job and 4) What if I get a better job? These projections assume that my rental property continues to be rented out and that my lodger also stays with me (the “rent-a-room” income stream). My projections also assume that I will receive unemployment assistance from the state in the form of jobseekers benefit of € 800 approximately per month if I lose my job.

Scenario 1 -> Job loss in current situation – need additional € 383 per month to cover expenses: Contingency-> Rent out 3rd bedroom in home to cover this. Teach English online for additional income if needed to cover large ad-hoc expenses! Scenario 2 -> Job loss when apartment construction is complete & apartment rented out -> All expenses are covered/ No further contingency needed & 16% savings rate!
Scenario 3 -> No job loss when apartment construction is complete & apartment rented out -> All expenses are covered/ No further contingency needed & 51% savings rate! Scenario 4 -> Any additional income beyond this, either from a job change or other income source further increases savings rate > 51% and all the rest is poetry! J

Just doing these basic projections gave me great comfort. The result was that I stopped worrying about a potential redundancy and started pushing ahead with my apartment construction!

Next Steps

In this community we are all about planning and intentional living! As such, I have set out what I will be focusing on next. In the immediate future, this involves completing construction of the apartment and getting it rented out. Interestingly, this then leads to the wonderful “first world problem” of working out how to best invest the additional income which will be generated by this!

  • Rent out the apartment unit when complete
  • Focus on building up cash reserves again to 1 year’s expenses at least
  • Continue to maximise pension contributions for as long as I remain an employee
  • Grow job based income: a recent look into the jobs market indicates that I can increase my job-based income by 20-30% approx. through a job move. (For me this has a more significant impact than side hustles such as completing surveys or being a mystery shopper!)
  • Try to find safe ways to keep fit and have some social interaction during Covid-19
  • Consider other investment opportunities for the additional income. So far I have looked into peer-to-peer lending, opening an account with deGiro to invest in the stock market, and real estate opportunities including buying a house for €1 in Italy in order to rent it out on Airbnb! I may also consider developing my existing investment property in the future to spit it into 2 apartments, or extend it into 1 larger home. I welcome any suggestions on other investment opportunities (in the comments below)

Do…

These are a few of the things that have worked well for me in terms of helping me progress towards financial independence:

  • Do 1 thing (however small) every day to get closer to your goals
  • Track progress month to month
  • Use this tracking to understand what is driving your savings rate, and focus your energies on the things that can have the biggest impact on increasing this
  • Focus on the income as well as the expenses side of the equation
  • Think smart & focus on the big picture
  • Be grateful and see everything as an opportunity
  • Enjoy other peoples’ stories and implementing relevant learning to help you
  • Try to keep thinking outside the box.
  • In a world where you can be anything you want to be – be kind!

Don’t…

…and here are a few things that I have found are not helpful in progressing me towards this goal:

  • Compare yourself with unrealistic role models, in my case bloggers who have been earning 6 figure salaries since the beginning of their careers with partners in the same position…
  • Become a penny pincher!
  • Sacrifice today for tomorrow
  • Beat yourself up because you are not Mr Money Moustache, i.e., you didn’t “do everything right” always and retire in your 30s
  • Judge others because they live a more consumerist lifestyle and don’t share your passion for FI
  • Talk about this stuff unless you get a clear indication that someone wants to hear about it!

Other Considerations / Discussion points:

A couple of other points to consider in connection with the pursuit of financial independence, with the most important (in my opinion) being for each of us to understand why we are doing this. Understanding our why may present alternative solutions, i.e. a more enjoyable/ sustainable job. Also important to consider what you want to do with it when you achieve it, along with a few other points which I think are worth considering:

  • Financial Independence will not solve all of your problems!!!
  • The maths are the easy part! Why do you want this freedom and what do you intend to do with it when you have it?
  • Alternatives to financial independence? Sustainable and enjoyable job?
  • Quality of life now is also very important, particularly for those of us who are not teckkies who have been earning high incomes from the outset, and who therefore may need to be working for a considerable time!
  • Single person-specific challenges: Both now and after FI.
  • Can the financial independence community be a force for good in the world? (See FI for Impact Facebook group

In conclusion

Housing costs key for me!

I was very pleased to realise that I am much closer to financial independence than I thought. (It’s worth mentioning again that in this analysis I made the assumption that if I lose my job I will receive  assistance from the state in the form of jobseekers benefit). The more I think about this stuff, the more I realise that, in my case at least, the key to much of this is keeping housing costs down. I plan to do this by building an apartment unit which I will rent out. Essentially, my plan is that the rental income from this, along with the income from the room within my home that I am already renting out, will cover my mortgage, and essentially my housing costs. This is a game changer for me!

Lifestyle when housing costs are not an issue:

This evening my Dad delivered some delicious home-made bread to my home. As we spoke on the doorstep, out of the blue he reminded me of a job that I once held on a factory production line (a summer job when I was 20). He said to me: “You loved that job, didn’t you?” “Everyone should get to do a job that they love!” Well, the benefit of keeping housing costs low is that I could do it again, without having to worry about the fact that it wouldn’t cover my mortgage!

Interestingly, the majority of the people who worked on that production line were amongst the most carefree colleagues that I have come across in any job. Most lived in social housing, so housing costs were not a worry for them. When customer orders ran dry at the factory, and they were temporarily laid off, they also did not worry. The letter from the factory notifying of the lay-off could be brought to the social welfare office to activate unemployment benefit. Some of my colleagues even decided to take the summer in County Clare, (in the Southwest of Ireland), and got some friends to hook them up with similar production line jobs there. Another was a cool surfer who fit his job around his lifestyle. Looks a lot like financial independence, doesn’t it?

Alternative ways to keep housing costs down:

In my case, I had already purchased a home in Dublin by the time I discovered financial independence (and I’m not saying I regret it. I am however saying that it did not sit comfortably with me that my mortgage on my home represented such a high proportion of my income). I had followed the well-trodden path. As a result, my solution now for keeping houses costs down is to build the apartment unit linked to the house, rent it out, and have this income stream cover the mortgage on the house.

I now realise that there are many alternatives to getting a big mortgage like I did. You just have an open mind to them. The UK-based tv series “How to live mortgage free,(available on Netflix), is a good one to watch to get some ideas of these alternatives. I read on the internet about people in Ireland putting a mobile home or even a modular home in their parents’ garden, people living on barges, etc. There is also a scheme in Ireland where people can apply to rent a room in an older person’s home for a low rate in return for doing some basic housework. Yet another option is to become a property guardian. (Yes, this is possible! Even in Dublin, and even now there are properties available. Check out Camelot, a Dutch company which has been operating in Ireland for the past number of years. https://ie.cameloteurope.com/rooms .I briefly considered whether to rent out my house and do his myself, but decided against it because I have 2 kitties who are very settled here). That’s not even getting into all of the websites for people looking for someone to mind their home or their pets while they go on holiday!

Open mind is key!

Who is to say you absolutely have to live in Ireland even? I have come across people who, when they were unable to get a job in Ireland, took up positions teaching English in the Gulf states, as part of which their accommodation is included in the deal. My rent was also mainly paid by my employer when I lived abroad. The possibilities are endless, but only if we open our minds to them!

Looking back to my summer job on the factory production line, I can’t help but wonder whether my parents at the time may have been a little concerned that I had taken such a liking to it that I might not have wanted to return to college at the end of the summer. Would that really have been such a bad thing though? If there is one thing that I have learnt, it is that there is no one right way to do anything.

In Ireland, it seems to me that we have too many lawyers and too many accountants, and not enough tradespeople. I believe much of this is parents encouraging their children down these paths. Anyone who has ever tried to hire a builder or a skilled tradesperson will know that they are in short supply (not enough apprentices entering the trades since the housing market collapsed a number of years ago, many others emigrated to find work abroad or became taxi drivers). I continue to have a strong belief in education, and I would advocate strongly against anyone dropping out of school early, but, following the completion of secondary education, there are an endless number of paths that can be taken!

In a nutshell!

So, in summary, I am saying, we have many options available to us, if we open our minds to them! In my case, in just a few short years, I have propelled myself to being quite close to financial independence.

As a single person.

One a regular salary.

Living in one of the most expensive spots on the planet! (Aka Dublin, Ireland).

Need I say more?

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My (virtual) presentation to the Irish Financial Independence MeetUp Group – What I’ve learned 4 years in, why managing housing costs is key for me, and radical alternatives to getting saddled with a big mortgage!

Turning fear into opportunity during the Covid-19 pandemic!

This is a hugely challenging time for everyone who is living through it. No doubt in the future books will be written, films will be made, and future generations will want to know what it was like to be alive during this time. With the benefit of hindsight, perhaps we may not remember as acutely the sense of danger which permeated all aspects of our daily lives in this period.

I recently watched a former astronaut being interviewed on TV. He said that in space there is a constant sense of danger. When asked why, he said that, if you sit quietly in a space shuttle you can hear meteorites bumping into the shuttle. Any one of those has the potential to break a hole in the space shuttle. Instead of becoming paralysed by fear, he focused on all of the actions that he could take if or when that situation were to occur. He pointed out that danger and fear do not have to be the same. Just because there is danger all around, does not mean that we have to succumb to fear. He likened this to his current approach in managing life in the pandemic. Your home is the space shuttle, and we have a set of rules to follow, he said. I really liked his approach to focusing on what we can do, and there really is a lot that we can do.

I wanted to touch on what I am experiencing across various areas of life currently, and specifically the steps that I am taking to try to channel some of the anxiety into positive action just as this astronaut did. I then look at the threats and the opportunities presented by the current situation, and touch on the opportunities which I was able to avail of during the last downturn, and consider my position then versus now. I include links to various resources which I am using, in the hope that they may be of benefit to others

Work

Let’s be honest, since over 60% of my net income is currently generated by my job, it is important to keep this running smoothly. Working remotely comes with its’ challenges, and a lot of patience is required at times. In the first few weeks of working from home I found that everyone I dealt with was very anxious. I decided just be very amenable in my approach, and not to add my own anxieties to the mix. I have also been quite flexible at times, in the interest of keeping things moving and maintaining positive relationships with colleagues and clients.

My company has implemented mandatory pay cuts. I am conscious of the uncertainty implied by this, and have resolved to quietly start looking at the market with a view to putting in a few job applications to try to gauge what alternative opportunities may be available. Other than LinkedIn (the world’s largest recruitment website), I mainly used the Irish Jobs website the last time I was looking for work. A LinkedIn profile is well worth having. Even during the pandemic, I have had about 3 recruiters reach out to me about potential opportunities. I was advised by one company with whom I made a tentative inquiry that they will be proceeding with their recruitment processes despite the pandemic, and will look to do interviews by video conference. It is encouraging to know that not everything has ground to a halt and it is still possible to progress applications during this period. To use the astronaut’s analogy, rather than worrying about a potential job loss, my goal is to channel that anxiety into affirmative action!

Grocery Shopping

I have found that getting into a routine with this is key. I now have an open order with Tesco online at any given point in time. As things occur to me throughout the day or evening, I simply open up my order on my laptop to add to it. Waiting times for a Tesco delivery slot can be long (several weeks) at present. Tesco delivery slots have different prices, depending on the time, starting at € 3. I have chosen evening deliveries (6pm – 8pm) which cost € 3. I also downloaded the Buymie app to order from Lidl which was also a good service. The Lidl service is an outsourced one, so the shopper is not a Lidl employee. (It’s part of the gig economy). Charges are 15% on top of store prices to pay for the shopper + whatever you want to tip, starting at 5%. This worked very well also, with the shopper even calling me while in the store to discuss replacement items.

Within my family we are also sharing our delivery slots, so, we let each other know when we have an imminent slot scheduled, in case any other family member wants anything. Outside of this, I have had 2 loaves of bread kindly given to me by a neighbour which was lovely! I also went to my local store twice, taking precautions (wearing a scarf covering my nose and mouth, gloves, hat, etc., and trying not to linger too long or get too close to anyone, and using a debit card to tap and pay). I tend to leave all non-perishable items in the back room untouched for 3 days if I can, and also spray down kitchen surfaces after unpacking. Using a delivery system is working well for me, and, since I don’t have a car, I may well continue with this system after the pandemic.

Exercise

Evening walks around in the neighbourhood most evenings, plus I have now also taken to running up and down the stairs 5 times a couple of times daily on work days. Add to this a little bit of a painting and decorating project I have set for myself to be completed at week-ends! Lots of people are talking about the Joe Wicks online workout which I haven’t used yet, but to which I will include a link below.

Self-development

There are a number of courses currently being offered for free for the duration of the pandemic. I have included links below. Personally, I have started one of these courses from ecollege. I am studying this entirely remotely, and will be able to do a proctored exam when I am ready, from the comfort and safety of my own home! The particular course I am doing is something I had intended to do in the past, and now that it is being offered for free, it’s a win-win. After that I will probably attend some short online courses offered by some of the UK universities relating to job application and interview skills, (see links below) to refresh my skills in this area. Again, I am trying to channel my energy into productive use towards things which will benefit me now and in the future!

Entertainment

I have found that the need for distraction is strong. I have limited my news consumption to watching the main evening news from the Irish state broadcaster. I found that during the initial phase of this pandemic, I was regularly very upset by seeing things like army convoys transporting coffins in Italy, or mass graves being dug outside New York. Now I find that sometimes I have to focus on the news to absorb the details, and am no longer busting into tears on a regular basis. I believe that this must be what it is like to be living through a war. The mind protects itself by blanking out the details to some degree in order to avoid a breakdown.

I have been watching documentaries on everything from British royals to famous gangsters at nights to get me to sleep. Anything for a bit of escapism! I have also continued to consume a lot of financial independence blogs and podcasts, because I continue to find a lot of this material inspiring. The community is growing in Ireland. Below are some links to a few Irish resources.

Social

This one is a challenge for obvious reasons. Zoom has been useful. I have regular family zoom calls and even attended a zoom call with a few acquaintances to discuss what we expect to see happen with the Irish property market. I also caught up with a friend whom I met at FIWE 2018.

For anyone who is single and may be interested in this, there is now a FIRE dating app, details below.

Investing

I have continued investing through my workplace pension. I had budgeted to invest my maximum tax free allowable amount for 2019, and am doing this through investing small amounts on a weekly basis. Since we don’t know what the market is going to do, I prefer to average this in on a weekly basis during this period when the market is volatile.

My big construction project has not yet started. Projects like this are not yet allowed to recommence as far as I know. In any case I am now temped to delay this for the time being in favour of holding more cash due to concerns over job security. I have also begun to have some reservations about losing a chunk of my already very small garden. A garden has been a nice thing to have during the pandemic. Although if this pandemic is indeed a once in a century event, perhaps I should not worry!

Managing Threats

Health: Danger does not need to equate to fear. There is a lot we can do. For the first time in about 2 months I had to take a bus this week to bring my cat to the vet. He had been in a fight and had a wound that had become severely infected, so to not bring him to the vet at this stage could have been a dangerous course of action. The vet collected the cat from me in the street and I waited outside while she treated him. When I returned home, I threw all my clothes straight into the washing machine and myself straight into the shower. I had remained gloved and with my face covered with a scarf and hat at all times, and had not come too close to anyone. The bus has social distancing in place, and the bus driver even shouted at an older couple to move when it looked like they were going to sit too close to me. By adopting these behaviours when we do need to go out we are taking huge steps towards protecting ourselves, and are greatly reducing our risk of catching the virus, or indeed of spreading it.

Financial: The fear of course extends beyond fear for our health to fear for our economic survival. Again, there are things we can do, like looking at the jobs market online, dusting down our cvs, maybe refreshing our interview or job application skills, or indeed adding an additional certification to our repertoire, all doable for free thanks to the range of resources being made during the pandemic. We can think about what else we can do to earn some income if we needed to. I for instance have another room that I can rent out if I wanted to generate some additional income. I will be entitled to unemployment benefit also if I were to lose my job. Based on my April expenses, simply receiving unemployment benefit on top of my current rental income would be sufficient to cover my monthly expenses. Since expenses were low in April, I calculated my average monthly expenses over the past 12 months, adjusted to exclude travel and renovation expenses, and established that I would need to earn just under € 200 per month in addition to my current rental income and unemployment benefit to cover my expenses. This is without renting out the third bedroom in my home and without constructing the extension to my home. This fact alone gives me great comfort, and having done this quick assessment, I am now a lot less worried about losing my job. In addition, I have marketable skills, and history has demonstrated my employability following previous crises. It won’t be the end of the world if I lose my job.

Embracing Opportunities

So, having dealt with the fear, what now about opportunities? We know that equities markets are down about 20% this year. I am hearing from numerous sources that Irish property may also fall between 20 and 25% in some areas over 6 months, while rents are also likely to fall due to affordability issues.  So what opportunities does this present? Well, for starters, the opportunity to buy into the stock market at a 20% discount from its’ recent high. Having previously done due diligence on real estate investing in Ireland I had decided to hold off. However, my view on this may change if prices did drop significantly. Like stock market investing, I see property as a long-term game, so some level of rent deflation in the current market would not deter me if I managed to buy a good price. If the last recession is anything to go by, builders and tradesmen also become more amenable and cheaper.

Past Experience

What opportunities did I avail of in the last recession? I wrote in a previous post about how during the last recession I opted not to use my redundancy money to buy a property in cash in a dodgy area which just a few years later became a crime scene for a murder. I did not mention that in fact I subsequently used that money instead as a deposit on a home in a safe and nice suburb of Dublin where I live today, which I would not have been able to afford at current market prices, and which I also would not have had the deposit for if it were not for that redundancy money! So, out of a period of great instability came an opportunity to create some stability for myself. That was a turning point in my life. I stepped out of an unregulated rental market where my rent had increased 40% the prior year, and was due to increase by another 18% just as I moved out! Not only that, I had acquired an asset which available to me both as a home and as an income-generating asset simultaneously.

My financial position going into this recession bears absolutely no resemblance to the last. I now have multiple income streams, strong cash reserves, and financial awareness that I lacked the last time round.

In Conclusion

While there is danger all around us, there is a lot we can control, and we do not need to succumb to fear. We can learn how to go out in the world as necessary while keeping our risk of catching or transmitting the virus to a minimum. We can assess our current financial situation to understand the impact of a potential job loss on our bottom line (It may not be as great as we may have feared). We can take the opportunity of being housebound to develop ourselves, and to give some thought to what opportunities might be available to us as a result of the downturn. Hopefully the thoughts and resources included here may be of use to some. If anyone would like to add any other resources which could be useful during the pandemic, or indeed to highlight other potential opportunities arising, please do do so by commenting below!

Stay safe and stay positive all! This too will pass.

Resources:

Employment Search:

www.linkedin.com

https://www.irishjobs.ie/

Grocery Delivery:

https://www.tesco.ie/groceries/

https://www.lidl.ie/online-grocery-delivery

Exercise:

https://www.youtube.com/watch?v=tXOZS3AKKOw

Self-development:

https://covid19.shanehastings.eu/giveback/

www.ecollege.ie

Financial Independence (Irish resources):

http://ignitemyfire.ie/

https://anirishinvestorsguide.wordpress.com/

https://mrsmoneyhacker.com/

https://www.firepodcast.ie/

FIRE Dating:

https://firehub.eu/tag/firedating/

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Lockdown Diaries

1 week ago:

As I write this, the whole world (except Antarctica) is in the midst of battling the Covid-19 virus. Scenarios depicted years ago in films such as Outbreak and the Rise of the Planet of the Apes are playing out across the world. 4 weeks ago seems like a different time in the distant past.

We all exist in a state of acute anxiety. Many have lost their lives, many others have lost their jobs. I am privileged that, as of the time of writing, I remain (to the best of my knowledge) healthy, and able to continue to earn an income through the power of being able to work from home. I feel very thankful for both of these things but my anxiety levels remain high to extremely high.

2 months ago:

I had become aware of a mysterious SARS-like outbreak in China in January. As the weeks went on, the unsettled feeling I had began to increase. I started to wear a scarf in the office as well as outside, and kept at least one glove on hand for use when opening the multiple doors I had to pass through to get from my desk to the toilets in work, or indeed to the canteen. People looked at my strangely, some sarcastically asking whether I was feeling the cold. I kept myself-to-myself, not engaging too much in this type of banter, and continued to try to protect myself as much as possible. I had a bad feeling about this.

1 month ago:

Then a global pandemic was declared. Still people made jokes about hazmat suits etc. Just over 4 weeks ago, I went to a meeting at work. By the time I left the meeting, the whole world had changed. Those who has previously looked at me strangely for wearing a glove to open doors suddenly bore a look of fear as they used their sleeves to open doors. Groups of people had gathered around the TV to listen to our government’s State of the Nation address (which would turn out to be the first of a number of these to happen in the coming weeks). Management meetings took place while we all waited to hear our fate. At this point I was contemplating just walking away for my own protection. Fortunately a decision was made that we would leave the office that evening and work from home until advised otherwise.

Over 4 weeks later, here we are. The social isolation that I had felt since my return to Ireland has now become the norm for everyone.

Investing strategy (subject to change):

Investing wise I have taken the view that, either this pandemic will wipe out the human race in its’ entirety, in which case it won’t matter how much any of us has in the stock market, or, society will recover, and the stock markets will start to rise again, in which case this is a buying opportunity. Having noticed the gradual impact of the virus on the markets (at first denial, hardly any impact, to the subsequent big drops a few weeks later as its’ global repercussions became abundantly clear), I took the decision to hold firm and to treat this as a buying opportunity. I remind myself that this is an opportunity to go back in time and buy in to the market at historical rates.

Stock market (though pension):

As a vehicle for this I use my workplace pension. I have a maximum amount which I may allocate tax free to my pension each year. As such I had already budgeted for the maximum amount which I can allocate to this for 2019. I would typically try to average out my investments throughout the year, but in reality would end up contributing the majority closer to the November 15th deadline. This year however, I have already added much of my 2019 allocation already (as at the beginning of April). Rather than adding larger amounts on a monthly basis in the run up to the tax filing deadline of November 15th, I have broken this down into smaller amounts which I have been contributing typically on a weekly basis. When I have maximised 2019’s contributions, I then have scope can then begin making my 2020 contributions. I may then open a brokerage account with de Giro to allow me to continue contributing once I have maximised my tax free contributions. Although I had previously expressed an interest in entering into peer-to-peer lending, I am feeling bearish about this in the current market environment.

The fact that I am investing through a workplace pension at the moment means that I have no ability to backtrack if I am feeling jittery, like for instance, when I got to the end of March and see that 20% had been wiped off the value of my various pension accounts. (The drop would have been more like 25% were it not for the additional contributions I had been making throughout the month).

This strategy is contingent on a few things! Keeping my job and continuing to earn rent from my tenants!

The job:

I have been able to continue to work from home. However, 3 weeks in the first signs of financial stress on the company are already apparent with an announcement this week that all staff globally will be required to take a block of mandatory leave in the coming months. Immediately, I am on heightened alert again, the experiences of the 2008 global financial crisis and their impact on my own psyche still all too apparent. This serves as a reminder that keeping the job is by no means guaranteed.

The rental income:

  1. The rental property

So far so good, although the Irish government has banned rental increases for the time being (and I had been planning on scheduling a 4% increase for later this year). More importantly, the rent on my rental property is still being paid at the moment. I had just added a beautiful bathroom last month (which now seems like a time in the distant past).

  1. The rent-a-room

My lodger is still here. Like me, she is now housebound during the workday, and at all times with the exception of small bouts or exercise near home, or to take occasional trips to the supermarket when necessary. She was due to stay with me until her contract ends in June. Before this started, she was open to doing another year, but I am not sure how the current situation will impact on her options. She remains a great lodger, very pleasant, and paying rent and bills without any prompting.

  1. The home extension

As some may know, I had been planning a home extension project to increase my rent-a-room income further. The builders were due to start a couple of weeks ago. Fortunately, I asked them if they could proceed with work elsewhere if possible (telling them that there had already been 1 confirmed case of Covid-19 at my office – this was a couple of weeks ago when we only had a few hundred cases in the whole country). Now in the meantime the Irish government has shut down all building activity. I had set aside cash for this, and am currently planning on moving this into some kind of a savings account (to keep it out of reach and separate). This will be on hold until we hear further from the Irish government.

Cash cushion:

The bottom line is if the cash which has been ring fenced for building activity is truly ring fenced, my cash cushion is then severely depleted, and this is definitely something I need to pay attention to. When the building work is completed, the idea is that additional income can be generated (although whether I would want to add anyone else to the household before a vaccine is found for Covid-19 is another matter).

The bottom line is that I need to balance my desire to buy into the market while it is in downturn with the need to build the cash cushion back up to prepare for a potential job loss situation.

Social and psychological state:

If my social life was weak before, it is practically non-existent now. The efforts I had made through attending meet-up groups etc. is now all on hold. The bottom line is if you had a partner before the lockdown, you are now self-isolating together. If you didn’t, you are self-isolating alone! It may well be that I may face a slide back down Maslow’s hierarchy of needs again, where the struggle to find work takes precedence over the higher order needs for companionship etc., just as it did for me in 2012!

I can’t help but wonder if I did enough to prepare myself for this rainy day. I face a struggle between a desire to invest in the markets and a need to build a cash cushion. I await the government announcement in a week regarding whether construction work is to remain on hold, and I even contemplate whether I want to be going ahead with the construction at all at present.

My anxieties compound as I remain in my own head most of the time. I worry about losing my job, and whether I have done enough to prepare myself for this possibility. I have moments of bullishness too where I wonder about the longer-term impact on the property market, and whether this may create opportunities. I remain committed to the idea that the stock market will go up again over time, and try to focus on buying in in reasonable and regular increments now, in the knowledge that I cannot access this for several years in any case.

My desire for contact and interaction remains strong. My personal experience of relative social isolation since my return to Ireland shows me that at least I can handle the current situation. I just need to try to balance mental and physical wellbeing in all of this.

I had been looking forward to travelling to Financial Independence Week Europe in June, but this too is now looking uncertain. Other than this the pandemic has cured me of any lingering desire I had for “travel for travel’s sake”. At the end of this I believe I will probably even be wary of using restaurant and pub toilets, let alone spending hours in regurgitated air on a plane unnecessarily. As for the practice of hand shaking, it would be my preference if this were to be banned completely in future!

Update: Easter week-end – 4 weeks in and 1 week later:

The situation has now become the norm. For now it seems we are safe and have relative stability in the midst of the unknown. Although not yet announced, it seems fairly certain that the Irish government will this week end announce the continuation of the current isolatory measures, for a month at least. So, for the time being, we are safe. The status quo will continue. We will continue to work from home. As I said last week, I am aware that I have a lot to be thankful for. I feel healthy, safe (because I am at home), and am continuing to be able to do my job and get paid for it. Having had 4 weeks of the current working from home situation, I have, for the moment at least, got into a routine with it. In the initial weeks, there was a lot of anxiety, and I could feel the stress and irritability of colleagues in every email or phone call, which in turn heightened my own anxiety.

Now, 4 weeks in, people appear to have become more adjusted to the situation, and are getting on with things. In fact, there is a case to be made for the fact that working from home allows for a more focused workday, and I for one would be very amenable to continuing with it to some extent even after the pandemic, if it becomes an option.

I have also learned to balance this with daily exercise. When walking in my local park one day, I bumped into a neighbour. We get on well and decided to walk together (but at a safe physical distance) every evening. She is very wise, and the interaction with her as well as they physical exercise helps me to feel some calm and balance at this time.

The Strategy:

Since I appear to be surviving the day-to-day, what’s the bigger strategy? Well, there seems little doubt that the economy will be down at the end of the next quarter, and that we will therefore be in an official recession.

Pension:

Investing-wise, as I mentioned above, I have taken the current situation as an opportunity to buy into the stock market at historical prices. Since I subscribe to the theory (based on historical evidence) that the markets will go up in the long run, I am therefore committed to making the most of the current downturn in terms of my investing strategy.

Real Estate:

I had scheduled to start a home extension project a couple of weeks before the lockdown. Once the government allows the construction sector to go back to work I plan to proceed with this plan. This, when complete, will allow me to generate additional tax-free income under the “rent-a-room scheme”. I hatched this plan because I was conscious that my mortgage on my primary residence is the biggest expense I have, and the thing that most ties me to a job. Constructing the extension and putting it to work effectively allows me to have the rental income from this cover the mortgage on the house.

As I sit in my small walled back garden typing this in the sunshine, I am a little sad that I will lose this place to sit, as the extension will take up a lot of the garden. However, it is a trade-off. It was also a big part of my strategy to deal with the next recession and the next potential job-loss situation. Low and behold the next recession is already upon us, so it is all the more reason to proceed with it.

Next Steps:

If I get the extension constructed, and get the additional rooms rented out before or without a job loss, this means that, for the first time ever, I will have scope to consider other forms of investment beyond maximising my pension contributions and building my cash cushion!!! I had projected that my savings rate would sky rocket to 50% (assuming no job loss and additional rooms rented out), and, I have heard that at a 50% savings rate is really where the magic starts to happen!

I had said previously that I had considered peer-to-peer lending as a way to add further diversification to my investing strategy, since I already have some real estate and am invested in the stock market through my workplace pension. I will have the option of opening a taxable brokerage account (with de Giro for example), or some peer-to-peer lending accounts, or both. The other option is some additional real estate if prices become advantageous in the downturn.

 Conclusion:

I will have a number of months to consider these great opportunities, and to see how things play out. So, for the moment the focus remains on building up the cash reserves and investing as much as I can afford to while ring fencing the funds which I had earmarked for the construction project, keeping focused and trying to make as much progress as possible on these items, given the uncertain situation and the very real possibility of a job loss in the current climate.

Maintaining physical and mental health also remain high on the agenda, so the daily walks will continue, along with a reasonably healthy diet, and I am even considering painting a few walls in the house to freshen things up and to keep myself active. (I eliminated drinking alcohol at the beginning of this crisis, and I intend to continue with this for the moment).

Happy Easter folks! Stay positive and stay safe, and my sincere thanks to anyone who reads this and is working on the front lines of this crisis to keep us all safe!

Update: The Irish government has just announced that the current Stay at Home order will be extended until May 5th at least.

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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%

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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 →