The terrible twos! – Fear and loathing two years in to the journey to Financial Independence!

Recently Word press informed me that it had been 2 years since I set up this blog! It all began with the incidental discovery of an interview with Jeremy Jacobson, better known through his blog Go Curry Cracker. Jeremy and his wife managed to retire in their 30s after 10 years of frugal living and investing over 70% of their income, and now travel the world. Having finally managed to purchase my own home after many ups and downs, I recognise now that I was on some level looking for my next goal to work towards. Stumbling on Jeremy’s story was a joyous discovery for me because I had never realised that this was even a possible goal for ordinary people. I quickly discovered a number of other similar stories and realised that there was even a movement of people who had set themselves the goal of financial independence. This was exciting news, and I began to look for a local community of people in Ireland striving for similar. In an effort to find the community, I set up this blog.

About a year in, I began tracking my expenses in earnest, created an en-suite shower room in one of my bedrooms, and rented a room in my house out. At one point, I even had two rooms rented out. In the same period, I also managed to finally get a job (after 10 months of being unemployed). I joined a gym, started cooking my own food, and eliminated buying lunch out every day, instead bringing my lunch with me to work. Things were looking great, and I had the real feeling of being in control. My expenses were being closely tracked. I expanded my tracking to additionally include a savings rate and to monitor the balances in my various bank accounts and also pension savings accounts. Inspired by many of the blogs I follow, I began to question expenses as they arose. When I was invited to a friend’s hen night recently, I declined to spend €125 to share a room in a hotel, and instead booked myself into a nearby Airbnb for €39. When locally-resident family members expressed a desire to meet up, I would invite everyone around to my house and either cook or order in a bunch of pizzas from my favourite local pizzeria, and buy drink and desserts from the local supermarket, and have a nice relaxing night at my place rather than the pricier restaurant option.

Recently though, around year 2 I suddenly find myself questioning things. Am I alienating myself further from the people in my life by the type of actions I have described? Is it too much isolation? Is it healthy for a person to isolate themselves too much from the mainstream? Is the tracking becoming too much, and by this I mean, can there be such a thing as too much awareness of costs? Do we sometimes need to just let ourselves live in the moment? I am now one year into my “new” job. Conscious that I have very little by way of pension savings to show for the number of years that I have worked, I have taken the notion of “paying myself first” very much to heart, and had not been considering taking a holiday for the foreseeable future, at least until I work out my budget for home renovations and pension contributions for this year. However, I have recently begun to question whether this approach is healthy. Is this a step too far? What are the implications of me not taking a break for all this time? I fear I may have hit “the terrible twos”, self-doubt and angst appear to have crept in underneath my veneer of control and accomplishment.

I went through a volatile couple of weeks where I began to question many of the decisions I have made in recent years, (not least my decision to return to Ireland after a number of years of working abroad), my connection (or the possible lack thereof) to those around me, and many other things. Where does the pursuit of financial independence fit into all this? Does it serve to alienate me further from those around me? Can I sustain the intensity of my focus on this, given that I have a considerable journey left to travel along the path? How am I doing in the here and now? None of these are new questions for me in my life. My recent anxieties revolve around whether I am placing too much pressure on myself.

Then I decided to check my financials. One year exactly into my “new job”, I compared a snap shot of my current position to what it was one year ago. My savings in various pension accounts are up 30%! Approximately 90% of this increase was due to additional contributions. In even better news, my cash reserves have increased by 120%! Yes, more than doubled! In total, I managed to retain just over 40% of all of my net income earned over the past year! Not bad! So this is what a year of financial consciousness can achieve!

After a couple of weeks, my anxieties abated. Seeing my progress in numbers certainly helped. I can only conclude that all people must experience doubts about their past and present choices, and moments of crisis on any journey.

The conclusion I reached is that I will not be walking away from the pursuit of FI any time soon! In just one year of eschewing rampant consumerism I managed to retain 40% of my net income. I did not deprive myself during this year – in fact, I probably took better care of myself in this year than in any other year of my working life! I visited the gym 2-3 times most weeks, cooked my own food, and generally drank less alcohol and more water! The main difference was that I tended to plan things better – like my meals. I kept a bag of muesli in work for my breakfast and prepared my lunch a day in advance. I realised that I had more than enough (too much in fact) clothing, so did not do any clothes shopping.

In general I realised without necessarily taking things to extremes, just getting a couple of things right can make a huge difference over time, and does not necessarily involve self-deprivation! Here are 2 examples of things that do not require a lot of work or to set up, and can make a huge difference down the line without depriving us too much in the here and now:

  1. Workplace pension contributions: In Ireland, a person under 30 may contribute 15% of their gross income to a pension with tax relief at their highest rate of tax, a person in their 30s can contribute 20%, and a person in their 40s can contribute 25%, and so on. The higher rate of tax in Ireland is 40%. At this rate, €100 pension investment will cost only €60. This is a way of both reducing our overall tax, and investing at the same time. A surprising number of people whom I have spoken with at work do not avail of this – meaning that not only do they not invest some or all of % which they are allowed to invest tax free. They don’t even invest the minimum 6% required under our company’s pension plan to ensure the company contribution of 5%! Most companies operate similar pension plans, which require some minimum investment by the employee to secure an investment by the employer. As an absolute minimum, I would suggest that every employee should try to take advantage of this benefit.
  2. Mortgage Overpayment: When the fixed term on my mortgage expired in February of this year, I investigated the available rates, and discovered that I could fix in a lower rate for the next 5 years. The lower rate resulted in about €100 saving per month. As a result, by adding an additional €200 to the original amount which I had been paying, I am effectively overpaying by €300 per month. The result? If I continue to overpay at this rate, it will reduce the term of the mortgage by 7 years AND reduce the interest payable by €20,000! I was able to work all of this out very simply on an overpayment calculator which is publicly available on the bank’s website. If at any stage I can no longer afford the overpayment, I can stop this at any time without penalty. To put it in perspective, €200 is probably the equivalent to 2 nights out for many in Dublin!

It is not necessary to cut out all consumption, and to limit restrain ourselves beyond what we are comfortable with. Making a small overpayment on a mortgage and taking advantage of tax free workplace pension investing are just 2 things that don’t require a lot of time to set up, and which can have a massive impact both now and down the line. Arguably, these are actionable items for most working people.

Personally, I am happy to cut out trips to trips to expensive beauticians, fancy restaurants and overpriced hotels which I do not value, and instead to seek alternatives through the power of AIRBNB and Groupon deals when necessary! After my deliberations of the past few weeks, I have now booked 2 weeks off work over the Christmas period, and will most likely be jetting away on a holiday! By then it will have been over 2 years since my last holiday, and I will be looking forward to it!