141R | Translating FI For The UK

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The UK Path to FI
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David Sawyer comes back on to discuss the UK path to FI, and Jonathan makes a big personal announcement.

Life Updates

Jonathan and his wife welcomed a beautiful baby girl, Rees, into the world this month. She’s 7 pounds and 14 oz of joy!

Brad and his family just returned from a 20 day trip to Maui. Brad was able to connect to members of the ChooseFI Maui group through a meetup. Plus, he was invited to do a StrongFirst kettlebell workout inspired by Pavel Tsatsouline episode on the Tim Ferriss podcast with members of the group.

That’s one of the cool things about travel, you just never know what experiences are coming.

While on the island, Brad joined Ellen Fisher’s YouTube channel for an episode about how to become financially free. You can check out that episode here.

Takeaways From David Sawyer

The reactions from this week’s episode seem to be in two camps. Either you already understood why you need to work on your technical skills or you couldn’t see how technology could help you take control of your life. If you are in the second camp, then you might feel trapped in your current lifestyle and stuck with high levels of stress because you know that something could easily go wrong.

David’s book, RESET: How to Restart Your Life and Get F.U. Money: The Unconventional Early Retirement Plan for Midlife Careerist Who Want to be Happyoffers a road map to gaining these digital skills. You become much more valuable when you have more skills. When you learn new skills, you will also gain confidence.

When you walk around with this level of confidence that simply no one else has in life, people respect you. And it has to come from this place of knowing yourself and knowing that you do have skills, you are adding value, and frankly, they are lucky to have you.

On top of that, if you have been walking through the steps to FI, then you’ll have even more confidence. You’ll know that you have the ability to walk away from this job without your life falling apart.

Ultimately, any road to self discovery, any road to growth starts with you being willing to ask a question.

It never hurts to ask the questions.

Listen to the full episode with David here.

Skills To Get Started

If you aren’t sure where to start but you want to improve your technology skills, then start here.

  • Learn Microsoft Excel: Learn to use formulas and present data in an efficient manner.
  • Get a Gmail account: With a Gmail account, you’ll have access to free services that will come in handy.
  • Set up a Google calendar: A Google calendar is a great way to easily share your availability with others in a seamless way.
  • Use Google Drive: You can share files and collaborate with others.
  • TodoistAn efficient way to keep track of all life tasks.
  • Lastpass Full Disclosure: We earn a commission if you click this link at no additional cost to you. : A more effective and secure way to store your passwords than a notebook.

Start learning with these skills. Even if you cannot see how they will help you down the road, talent stacking should never be underestimated.

The UK Path To FI

David came on the show to outline his translation of the US path to FI.

In contrast to the US, UK investors should focus more on all world funds because the UK only represents 6% of the world market. The fund he most highly recommends is the Vanguard Life Strategy 100 until you retire. At retirement, you can switch to the Vanguard Life Strategy 80 fund. The life strategy funds have an overweighting of the UK market to guard against currency risks.

Overall, he recommends a core portfolio of six focused funds with the following break down.

  • 25% UK
  • 45% US
  • 13% European (excluding the UK)
  • 7% Japan
  • 7% emerging markets
  • 3% Pacific (excluding Japan)

If you want to further develop your portfolio, then you could also add a world small-cap fund at 5% and a world value fund at 5%. With this, you would decrease your other percentage allocations accordingly.

Roadmap

The second half of David’s book, RESETis set up to be a roadmap for UK FI. It makes the case for index investing with a 10 point investing plan aimed at people that don’t know where to get started.

David recommends Vanguard and Fidelity accounts in the UK. However, you can only currently invest in ISAs (Individual Savings Accounts) in Vanguard. Vanguard does not offer the ability to invest in SIPPs (Self-Invested Personal Pension) yet, so you’ll have to go with Fidelity for SIPPs for now. Vanguard is planning to offer SIPPS soon, so when they do it is a good idea to make the switch.

The two main investment accounts break down like this. With ISAs, UK investors can invest up to 20,000 each year and take the money out at any time. With SIPPs, UK investors can invest up to 40,000 each year but you cannot take it out until retirement age. SIPPS allow investors to pull out up to 25% of that tax-free at ages 55 and 57.

Recently, the UK has undergone pension reform. Instead of being forced to place your money into an annuity, you have more control. This control is changing the game for UK retirement planning.

A Case Study

Let’s say a couple is 50 years old with 200,000 in the bank. Now that their kids are out of the house, they are managing to save 2,000 a month including government pension top ups. Their goal is to retire before age 65 by making up for lost time.

At this rate, it would take them 13 years to hit FI. FI would equal 855,000 pounds. With a safe withdrawal rate of 3.5%, that leads to 28,500 to spend in retirement each year. According to a recent study, a comfortable lifestyle in the UK costs 26,000 pounds per year.

A luxury lifestyle in the UK costs around 39,000 pounds per year. This luxury lifestyle in fat FIRE would call for 1,111,000 pounds saved.

Have your figure, it’s not the be all and end all.

With these numbers, each household will need to figure out what their FI number is.

If this couple rented a room, then they could cash in on a 7,000 tax credit. Or if they chose to flip a home, they could walk away without paying any capital gains taxes.

Resources

UK Recommended Sources

Here’s what David recommends:

Blogs

Books

Other resources

Recommended US Sources

Although things are different, there is still valuable information in US sources.

Blogs

David recommends:

Podcasts

Books

  • Rich Dad Poor Dad Full Disclosure: We earn a commission if you click this link at no additional cost to you.
  • The Simple Path to Wealth Full Disclosure: We earn a commission if you click this link at no additional cost to you.
  • The Millionaire Next Door Full Disclosure: We earn a commission if you click this link at no additional cost to you.
  • Early Retirement Extreme Full Disclosure: We earn a commission if you click this link at no additional cost to you.
  • Your Money Or Your Life Full Disclosure: We earn a commission if you click this link at no additional cost to you.

Community Feedback

Let’s hear what the community has to say!

Voicemail From Elizabeth

Elizabeth called on her 40th birthday to share how much ChooseFI has changed her family’s life. They are on track to reach FI in seven years after saving $70,000 in pre-tax dollars just this year!

The community aspect of FI has been especially important to Elizabeth. She even made friends at this year’s UK Chautauqua and wrote about her experience on JL Collin’s blog.

Great job Elizabeth!

Shout Out To Nick

Nick posted this amazing success story in the ChooseFI Facebook group:

MONDAY MOTIVATION

This is for those of you who need a little motivation to start or renew your side hustle.

A few years ago me and my wife started a side hustle, a professional organizing business. The first year was rough. We only had a few clients and just about broke even for the year.

After our second year, we were able to pay off over $20,000 in consumer debt, freeing us from credit card interest and fees.

Now, in our third year, we just recorded our biggest month ever (July 2019) in which we made $15,000 IN ONE MONTH 👊🤑🕺💃.

Side hustles, and any business for that matter, are rarely an overnight success. But, if you love what you do and are mindful of how you do it, what you can achieve will always leave you asking why you didn’t start sooner.

For those of you who are still on the fence about starting a side hustle, I ask: what is your side hustle idea and when will you start?

Great job Nick! Thanks for showing that overnight successes never really happen overnight. Hopefully this is the perfect motivation for someone doubting their side hustle game today. It is the perfect reminder to never give up on your financial or creative goals.

Local Group News

Two new local groups were formed this week. One in South Denver and one in Klamath Falls, Oregon. If you are in those areas, be sure to check them out.

Also, the LA local group is organizing a blogging mastermind group. Their first meeting is August 27th, check it out if you can.

Related Episodes:

ChooseFI has partnered with CardRatings for our coverage of credit card products. ChooseFI and CardRatings may receive a commission from card issuers.
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