The Full English Accompaniment – Switching energy suppliers

What’s piqued my interest this week?
The Shrink household is currently switching energy suppliers. If you’re here, then you’re probably smart enough to already be doing the same on a regular basis. I’m not going to go into how much you can save, MoneySavingExpert does it much better (1). On moving into casa-del-Shrink we had a number of problems with the existing supplier, particularly surrounding pre-existing debt on the pre-payment meters. We switched to British Gas. Big mistake, as we continued to have problems paying off the previous tenants debts, and found out how bad British Gas complaints procedure is. Cue hours of interminable hold music, patronising ‘we’re listening letters’ and complaints being closed unresolved (2, 3). The actual staff we spoke to were helpful, but appeared constrained by a draconian “computer says no” system. We weren’t the only ones having problems with British Gas this year, who’ve been fined £2.65m for overcharging customers (4). When they put their prices up in August we voted with our feet and left to avoid exit fees (5).
We’ve gone back to Bulb, one of the smaller energy companies outside of the ‘Big Six’ who buy from entirely renewable energy sources and who we’ve had excellent service from before. We considered using the MSE Credit Club, but I get a little tin-foil-hat about giving out my personal info willy-nilly (6). In the same way we avoided Flipper, an app touted on Moneybox which automatically switches you onto your cheapest supplier (7). Sadly we’ve been told we’ll also be having an immediate price rise (8, 9), which takes Bulb out of the MoneySavingExpert’s cheapest list. The government via Ofgen recently implemented a cap on energy prices to protect vulnerable customers (10, 11). But despite this it looks like most peoples energy prices will go up, with suppliers citing increased wholesale prices (12, 13, 14). Time to break out the coal braziers and pile up the logs, we’ve got a long winter ahead!
Have a great week,
The Shrink
Side Orders

Other News

Opinion/ blogs:

What I’m reading:

Smarter Investing by Tim Hale – essential reading

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor. This is turning out to be real heavy-going so has been ignored a bit.

Enchiridion by Epictetus – Bedside reading for a bad day

 

References:

  1. https://www.moneysavingexpert.com/utilities/you-switch-gas-electricity/
  2. https://www.telegraph.co.uk/bills-and-utilities/gas-electric/british-gas-make-customer-services-listen-complaint/
  3. https://www.thesun.co.uk/money/7154739/british-gas-customers-waiting-38-minutes/
  4. https://www.theguardian.com/business/2018/aug/29/british-gas-pays-out-265m-pounds-for-overcharging
  5. https://www.bbc.co.uk/news/business-45111743
  6. https://www.moneysavingexpert.com/cheapenergyclub
  7. https://flipper.community/
  8. https://www.moneysavingexpert.com/news/2018/09/bulb-price-rise/
  9. https://www.thisismoney.co.uk/money/bills/article-6155853/Bulb-customers-hit-price-hike-energy-providers-raise-prices-time-year.html
  10. https://www.theguardian.com/business/2018/aug/20/rise-in-power-bills-expected-despite-government-cap
  11. https://www.telegraph.co.uk/bills-and-utilities/gas-electric/does-ofgems-price-cap-mean-dont-need-switch-energy-supplier/
  12. https://www.bbc.co.uk/news/business-45095030
  13. https://www.bbc.co.uk/news/business-45297336
  14. https://www.independent.co.uk/news/business/news/sse-energy-price-cap-ofgem-gas-electricity-bills-share-price-profit-warning-a8533856.html
  15. https://www.theguardian.com/business/2018/sep/14/archbishop-of-canterbury-to-lead-wonga-rescue-effort-payday-loans
  16. https://www.bbc.co.uk/news/business-45516678
  17. https://www.theguardian.com/business/2018/sep/15/low-prices-no-frills-can-tesco-defeat-lidl-and-aldi
  18. https://www.bbc.co.uk/news/business-45371502
  19. https://www.hl.co.uk/investment-services/active-savings?clickid=27kUVE08pSocXyqW5fRnFzyIUkg2h0UQPV2z1s0&iradid=82616&theSource=AFSKI&utm_campaign=AFSKI_IMPR1&ir=1
  20. https://www.thisismoney.co.uk/money/saving/article-6159671/Barclays-launch-new-fixed-rate-savings-account-aimed-retirees.html
  21. https://www.thisismoney.co.uk/money/diyinvesting/article-6155463/Dont-invest-cheap-trackers-Hold-mix-active-passive-funds.html
  22. https://theescapeartist.me/2018/09/05/this-is-an-emergency-part-2-dealing-with-time-wasters
  23. https://theescapeartist.me/2018/09/12/live-local-think-global/
  24. https://youngfiguy.com/social-media-is-poison/
  25. http://monevator.com/commercial-property-what-can-we-expect-from-this-asset-class/
  26. http://monevator.com/weekend-reading-download-a-free-e-version-of-ray-dalios-new-big-debt-crisis-survival-handbook/
  27. http://www.msziyou.com/patriarchy-ever-pervasive/
  28. http://www.retirementinvestingtoday.com/2018/09/the-wealthsimple-experiment.html
  29. https://www.ukvalueinvestor.com/2018/09/guide-to-dividend-investing-for-beginners.html/
  30. http://diyinvestoruk.blogspot.com/2018/09/help-to-save-scheme-launched.html
  31. http://diyinvestoruk.blogspot.com/2018/09/uk-v-global-investment-returns.html
  32. http://diyinvestoruk.blogspot.com/2018/09/mid-wynd-full-year-results.html
  33. https://gentlemansfamilyfinances.wordpress.com/2018/09/11/help-to-save/
  34. https://gentlemansfamilyfinances.wordpress.com/2018/09/10/airbnb-and-me-part-1/
  35. https://gentlemansfamilyfinances.wordpress.com/2018/09/11/house-hacking-airbnb-part2/
  36. https://abnormalreturns.com/2018/09/13/you-do-you-passive-investing-edition/
  37. https://quittingteachingblog.wordpress.com/2018/08/21/in-defence-of-private-landlords/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Musing On… Motivation: Are you running from or running to?

What motivates your financial choices?

Reading a variety of FI and finance writers, it has occurred that those who blog are a rag-tag bunch. You have to be a bit different to move away from the credit-to-the-eyeballs herd. The reasons to go down the various financial paths, and then write about it are even more nebulous. A scientific mind led to attempts to discern some patterns among the noise. One such pattern is the writers motivation, and where the drive to save/ live frugally/ be financially independent arises.

Running from

For some, it seems the drive to be frugal is innate, inherited, learnt behaviours from early childhood. LittleMissFire talks about it as leaving the ‘shop floor mentality’, the mindset of a household living week-to-week, month-to-month, without financial planning (1). The crux of her post about the ‘shop floor mentality’ is the drive to better oneself, and leave behind the stress, envy, anguish and heartache of poverty (1). Understanding financial planning and making frugal life choices are just a short psychological hop from FI, and there seems a lot of overlap between frugal living and so-called ‘lean-FI’.

This drive to leave behind an unpleasant situation also appears prevalent on the FI forums I frequent, but here it’s less about a memory or experience of struggling for money, and more miserable working environments. For example (2):

And an example reply (2):

Small talk, alarm clocks, office politics, performance reviews, managers talking about you behind your back, tracking metrics, spreadsheets, deadlines, cubicles, dress code, meetings, daily existential crises, passive aggressiveness, emails with manager cc’d, scrum meetings, being taken advantage of, erosion of self esteem, etc. Etc.

I assume it was among those so miserable in their work that the term “Fuck You Money” arose (3). You’ve built up enough cash to say “Fuck You” to that miserable environment and walk away… but what then? How do you adapt your austere lifestyle out of work, with it’s focus on minimising all outgoings, to your new-found freedom (4):

Running towards

I sort of class myself amongst the running towards school-of-thought. I enjoy my job, to the extent that I am happy to go into work every day to perform it (especially after a slight change into a less front-facing role). I would probably keep doing it to some extent even if I wasn’t paid, because it is my ‘ikagai’ – a Japanese word whose closest translation is ‘the reason for which you get up in the morning’ (5, 6). Despite this I think the world is full of wonder, and I could spend whole other lifetimes doing different things. There are too many things to do and not enough time to experience them all whilst also working to support myself. FI, as The Frugal Cottage puts it, “gives you the option of spending your limited time however you want” (7, 8).

Just enjoying the run

This seems to be the final stage in FI nirvana fulfillment. Some suggest that by it’s nature, being frugal has a sort of contrarian cool (9). An echo of the counter-culture in a rejection of consumerism (10)More hippy than hipster I hope. Some bloggers, like TEA, enjoy the journey to FI and beyond because they developed an enjoyment of “the process of wealth building” (11) TEA writes about learning to enjoy these things by using conditional rewards; a big juicy carrot for the FI stick, training your brain to associate putting the financial graft in for a reward (11). Or writers like FIREvLondon, who enjoy the writing about their process, discussing ideas, commenting on experiences (12). This is a far better path to happiness, where any goal you set or any target you make can bring you fulfillment. Enjoying the process of blogging, the sharing of knowledge and community.

Why does it matter?

Understanding your motivation is inherently tied to your ability to complete the goals you set yourself for financial independence and frugal living. If your goal is off from what you truly want you’ll lack motivation, and if you’re motivated for only a specific purpose you may find yourself unfulfilled and lost when you reach that goal, or unable to reach it altogether. As I’m setting my goals, I’ve been noticing many are around things I’d do after being FI. I risk that there will always be one more goal or target. It’s time to think about my enjoyment of the pursuit, and I would urge others to ask, why do I want FI?

References:

  1. https://littlemissfireblog.wordpress.com/2018/03/24/do-you-have-the-shopfloor-money-mentality/
  2. https://www.reddit.com/r/financialindependence/comments/8ogyp8/people_who_are_trying_to_reach_fi_because_they/
  3. https://theescapeartist.me/2018/07/24/the-art-of-wealth-preservation/
  4. https://www.reddit.com/r/financialindependence/comments/94kmku/first_day_of_retirement_at_40_yo
  5. https://www.telegraph.co.uk/health-fitness/mind/finding-ikigai-japanese-secret-health-happiness/
  6. http://monevator.com/weekend-reading-what-is-your-reason-for-being/
  7. http://www.thefrugalcottage.com/everyone-early-retirement/
  8. http://thefirestarter.co.uk/early-retirement-in-5-years-in-the-uk-is-it-possible/
  9. https://www.psychologytoday.com/gb/blog/the-eclectic-professor/201102/the-psychology-thrift-why-not-frugal-cool
  10. http://thefirestarter.co.uk/about-me/
  11. https://theescapeartist.me/2018/02/13/get-rich-with-the-process/
  12. https://firevlondon.com/about/

 

 

The Full English Accompaniment – On Brexit, social psychology and market timing

What’s piqued my interest this week?
I’ve been reading Tim Hales Smarter Investing over the last couple of weeks, which appears considered essential reading by most FI/ passive investment sources (1). It has prompted me to write down a philosophy and a draft set of goals for my investment plans. One of the cautions is against market timing, because it’s very statistically difficult to be good at it, incorporating not a small amount of luck. Much better to go Bogle, and buy then hold a low cost tracker (2). So far, so sold.
There’s another section of the book which documents how one of the most important, most overlooked parts to a portfolio decision is target country allocation. This is where I’m currently stuck, as Brexit presents a big hit of unknown outcomes, and is turning my market timing milk sour. Oh look, another r/UKPersonalFinance post triggered me (I’ll cut out all the Reddit relevant-only bits)…

Everyone, put on your tin-foil hats and join me on a journey considering a Brexit scenario…

I’ve personally suspected that Brexit is being pushed along despite it outwardly, appearing to be in no-one’s interests perhaps as a textbook example of Naomi Klein’s ‘Disaster Capitalism’ but maybe just as a way for massive money to be made from the lurches in exchange rate and FTSE etc.

So one outcome I suspect is that the pound will stay relatively weak to the EUR/USD etc, keeping the FTSE reasonably high, until we suddenly hit a point where it gets revealed we’ll basically stay in the EU (or EEA), perhaps after a 2nd referendum, so…

If the timeline of this is the next 6 months, how will the politicians and their chums be looking to maximise the person financial benefit to themselves? Assuming a, say, 15% increase in the value of the pound, and 10% drop in the FTSE 100, would they be looking to sell most investments, have cash and then be ready to re-invest after the correction?

What would you do in this scenario if you had this inside information? (3)

This is a little tinfoil hat brigade, although the murmuring the Nigel Farage shorted the value of the £ when he found out the result of Brexit before it was officially released could provide some evidence (4). An ex-investment banker wouldn’t call up his mates still in the industry with privy information would he? The main issue I have with the above is that it appears to go against the political wind and public opinion polls. The Conservatives and Labour are both loath to go back on the stated plan to exit (would be seen as weak?), and YouGov’s last poll in July found that a fraction greater percentage thought Brexit was the wrong decision than didn’t (5). Opinion polls may be a pretty poor judge, but they’re not so bad as to miss half the nation suddenly decided they do want to stay in the EU, after all (6).
Brexit therefore represents a challenge to the efficient market hypothesis (7). Pre-Brexit vote, a commentator in Forbes discussed how the referendum would represent an excellent testbed for efficient markets (8). It truly did, as the unexpected (to the city) voter decision was integrated into share prices in a number of hours. The fact that the referendum result was unexpected and therefore prompted such a dramatic shift in the markets challenges the efficient market hypothesis, and specifically what makes it efficient. The efficiency relies upon the sum of all the traders individual access to information. To bring it round to psychological terms, it is a form of social Gestalt theory, where the individual chaotic pieces of information/ action contributes to a total pattern (9, 10). Market traders were unaware of the depth of feeling in favour of Brexit prior to the vote (those pesky polls again), and were suddenly exposed to it and integrated it into the markets on referendum day.
But why were market traders so unaware? I wonder that the possibility of a Leave vote did not comply with the collective conscience of market traders and ‘the city’ and therefore was not appropriately considered by the markets (11). To go back to Durkheim’s original use of collective consciousness (very separate from Jungian collective unconsciousness), it is the ‘general feeling’ towards a position, experienced and perceived by the individuals in the collective (11). A shared unconscious understanding of social norms. In the city, it was a social norm to be pro-EU. In the general populace, not so much. Therefore the true risk of a Leave vote to the markets was a Rumsfeldian ‘unknown unknown’. To be pro-Leave in London pre-Brexit went against social norms, it didn’t fit with the social reality constructed in that environment, even if it did fit with the social norms and social reality of the wider UK (12).
Which brings me to my market timing and allocation conundrum. The market is efficient when it is integrating information which makes sense within it’s system; IPOs, sales data, quarterly returns etc. It appears less efficient at integrating popular opinion and behaviour. The market is vulnerable to collective psychological effects (herd behaviour etc), and changes in the market are made by people. The people who change the market (traders etc) operate in a different social world (‘social reality’) to the general populace, by nature of their social interactions. Yours is visible in day-to-day life in your twitter or social media sphere, which may differ from general public opinion. The markets will therefore be generally running on the market traders social reality, whilst the rest of us live in a slightly different social reality. Politicians span the divide, but take their lauded mandate from the general populace’s social reality. The difference comes to the fore when the market has to integrate decisions which are made by the wider populace that didn’t fit with it’s reality, e.g. Brexit. The reddit comment quoted above appears to sit well within the market reality bubble; we’ll stay in the EU in the end, it’s all a sideshow. My concern is that the general populace appears fairly relaxed about a ‘No-deal’ Brexit. Knowing that we’re a few short months out of formal Brexit, do I choose allocations based on that worry which insulate against this outcome. Does even thinking about this represent market-timing, and I should just bung my cash ‘somewhere’ and sit it out. Your opinion welcome here…
Have a great week,

 

The Shrink

 

Side Orders

Other News

Opinion/ blogs:

What I’m reading:

Smarter Investing by Tim Hale – essential reading

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor. This is turning out to be real heavy-going.

Enchiridion by Epictetus – Bedside reading for a bad day

 

References:

  1. https://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Financial/dp/0273785370/
  2. https://www.bogleheads.org/wiki/Getting_started
  3. http://www.reddit.com/r/UKPersonalFinance/comments/9cnsqj/the_potential_effect_of_a_massive_shift_in
  4. https://www.theguardian.com/politics/2018/jun/25/nigel-farage-denies-shorting-value-of-sterling-on-night-of-brexit-vote
  5. https://yougov.co.uk/news/2018/06/23/eu-referendum-two-years/
  6. https://www.nature.com/articles/s41562-018-0330-7
  7. https://www.investopedia.com/terms/e/efficientmarkethypothesis.asp
  8. https://www.forbes.com/sites/timworstall/2016/02/22/brexit-uk-financial-markets-and-the-efficient-markets-hypothesis/#31ab82161667
  9. https://www.britannica.com/science/Gestalt-psychology
  10. https://en.wikipedia.org/wiki/Gestalt_psychology
  11. https://en.wikipedia.org/wiki/Collective_consciousness
  12. https://en.wikipedia.org/wiki/Social_reality
  13. https://www.thisismoney.co.uk/money/pensions/article-6130445/Will-council-force-sell-house-cover-dads-care-bills.html
  14. https://www.thisismoney.co.uk/money/cars/article-6138267/A-1979-Lada-Niva-estimated-sell-75-000-goes-just-4K.html
  15. https://www.theguardian.com/money/2018/sep/07/house-prices-rose-at-fastest-rate-in-almost-year-says-halifax-august-north-south
  16. https://www.theguardian.com/uk-news/2018/sep/05/thinktank-calls-for-major-overhaul-of-britains-economy
  17. https://www.thisismoney.co.uk/property/article-6106049/A-downstairs-family-bathroom-lowers-property-value-6.html
  18. https://www.thisismoney.co.uk/money/news/article-6080099/Are-Monzo-Revolut-Starling-Transferwise-safe-bank-with.html
  19. http://monevator.com/10-things-you-can-do-today-to-reset-your-life/
  20. http://monevator.com/weekend-reading-what-is-your-reason-for-being/
  21. http://thefirestarter.co.uk/my-5-years-are-up-how-did-i-do/
  22. http://thefirestarter.co.uk/august-income-expenses-report-a-bit-of-an-odd-one/
  23. https://thefireeng.com/net-worth-update-august-2018/
  24. http://www.msziyou.com/yes-i-am-rich-now/
  25. http://www.msziyou.com/net-worth-updates-august-2018/
  26. http://www.mrmoneymustache.com/2018/09/05/what-really-goes-on-at-mmm-headquarters/
  27. http://theirrelevantinvestor.com/2018/09/04/gold-what-is-it-good-for/
  28. https://www.ukvalueinvestor.com/2018/09/sold-senior-plc-after-recent-share-price-gains.html/

The Financial Dashboard – August 2018 – returning to normality

The goals for August were:

  • Rein in spending on the automotive hobby by setting a budget – success
  • Sell five items from my hoard – fail
  • Reduce daily living (groceries and lunch out) and entertainment expenses to budget – fail
  • Use my Starling account to track monthly outgoings – success
  • Repair or purchase a new bike – fail
  • Special goal – rework my net worth and savings graphs to cover results simply

Checking the assets and liabilities:

August 2018 Assets

August 2018 Liabilities

These are taken from my Beast Budget spreadsheet. I’m working on pretty graphs to spice things up. My net worth grew by a paltry £180 (0.9%). My savings rate including my mortgage was 15.09% (not including my DB pension). This is close to my best recorded, and probably my best once all the house purchase/ sale shenanigans are taken into account. I saved £200 in my 5% interest Santander saver and paid off £500 of a credit card. My net worth didn’t grow due to spending around £1.5k from our joint account on building work for our house.

Goals:

Goal achieved: Rein in spending on the automotive hobby by setting a budget

I set myself a pretty stern budget of £300 for my automotive hobby earlier in the year, which I’ve repeatedly failed to meet. I spend £50/month on tax direct debits, and another £120/month on a storage unit which is currently full of engines, tools and furniture from our house move. I managed to only spend £280 this month, £50 on tracking for my daily driver and £60 on fuel. I’ve started to walk to work, and have only filled up the car once because of this. I need to start putting money aside for predictable expenses such as maintenance, rather than taking it on the chin each time.

This goal is a marker of the change in my own mindset, as previously I viewed my £120 storage as a justified expense. It now feels like a waste of £1440 a year which could be better saved. I’ve also been paying others to do work I could do myself, as I lacked the time. My hobby car has been sat for months barely used, waiting on some fettling. I’ve now changed jobs, have some more freedom, and so one of my goals for next month is to get my home garage set up and do a piece of automotive DIY. Reducing my monthly fixed liabilities, and doing more work myself will hopefully make this a more frugal (dare I say profitable one day?) hobby.

Goal failed: Sell five items from my hoard

Items were listed on a specialist forum, then on eBay, with some interest but no sales. I’ll be re-listing and also putting some furniture on Gumtree. Fingers crossed some buyers next month.

Goal failed: Repair or purchase a new bike

The shop I’ve found still hasn’t got the right one for me. Next month.

Goal failed: Reduce daily living and entertainment expenses to budget. 

A further failure. We spent £607 on ‘daily living’ and £160 on entertainment. Almost all of our groceries and going out expenses are now going through our joint account, and not my account. I spent £14 on food out and £20 on sport. What did it all go on? We spent £81 on tickets for a concert in December, £27 at restaurants and £35 on trips out with friends. We had no takeaways! We made some minor house purchases, but most of our costs were on groceries, as we had lots of friends over and bought nice food rather than going out. I’m therefore going to change this goal a bit to: Establish weekly and monthly joint account grocery expenses. I’ve trimmed expenses from my accounts as much as I can, and need to work out where all the rest is going.

Goal achieved: Use my Starling account to track monthly outgoings

Not to sound like a fanboi, but I’m really enjoying using my Starling account. I’ve used it for everyday expenses and outgoing over the last month, and plan to move all payments which aren’t automated onto it. Each month I’ll transfer enough to cover my budgeted expenses, and the rest can automatically transfer to savings.

Budgets:

  • Daily living and entertainment – Under review as above.
  • Transport – budget £300, spent £279, last month £803.
  • Holiday – £100/ /£35.22/ £0 We’re paying lots out at the moment for our honeymoon which will show up next month and make a big dent in our joint account balance. Need to build holiday funds in future.
  • Personal – £50/ £93.32/ £21.53. Upgrading/ updating work clothes and supporting a Youtuber I follow by buying their merch.
  • Loans/ Credit – £200/ £500/ £575. Overpaying a bit.
  • Misc – £50/ £0/ £97.50. No unexpected expenses, big woop!

Goals for next month:

  • Do a piece of automotive DIY
  • Establish weekly and monthly joint account grocery expenses
  • Sell five items from my hoard
  • Repair or purchase a new bike
  • Finish reading Tim Hale’s Smarter Investing

What’s coming this month:

  • Musing on… Motivating factors for financial investments
  • Frugal Motoring – Should I buy a petrol car?
  • A draft investment policy
  • Some sort of post about property renovation
  • Plus the usual Full English Accompaniments and other drivel…

Happy September everyone,

The Shrink

The Full English Accompaniment – Diversification is sustainability stupid

Dear Readers,

A bit of a late Full English Accompaniment this week, as I’m working so typing away at posts in between seeing patients. MrsShrink and I have been for a holiday, a break from IT and a pause for reflection. I’ve finally been reading Tim Hale’s Smarter Investing (1), and this has prompted me to make some changes to my blogging process. One of the key points in the early chapters of the book is to turn down the volume; that most media reports, opinions and news about the market are confusing senseless noise and to make smarter investments you need to tune out the static. In a conscious effort to decrease my own contribution to that noise I’m going to reduce the quantity of my posts, and aim to  maintain a high quality. This means that the Full English will become an as-and-when type affair, for thoughts that aren’t significant enough to warrant a full Musing on… post. I’ll still aggregate other posts I’m reading each time, and other categories will continue at their current frequency. For now…

What’s piqued my interest this week?

Part of our recent holiday was spent in an AirBnB on a rural farm. Coming from a country background I was to be found discussing the owners business strategy and farming approach. Their (relatively) small acreage struggled under intensive farming methods to produce a profitable crop; the soil would need continuous improvement for arable, the setting meant high winds were common with minimal cover and they lacked the scale required to make cattle or similar sustainable. To make ends meet they had diversified. The farm now had a small sheep herd, a deer herd and a small number of hardy cattle. The owners had also converted farm buildings to cottages and flats for AirBnB, and worked a part time job for the local government. For many small farmers this is the only way to survive. Big farms in areas of poor fertility also struggle to find profits, as this fantastic comment piece in the Guardian outlines (2). As consumers, diversification of our food intake is healthier too. In agriculture, just as in finance, diversification brings sustainable profits.
Have a great week,

 

The Shrink

 

Side OrdersOther News

Opinion/ blogs:

What I’m reading:

Smarter Investing by Tim Hale – essential reading

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor. This is turning out to be real heavy-going.

Enchiridion by Epictetus – Bedside reading for a bad day

 

References:

  1. https://www.amazon.co.uk/Smarter-Investing-Simpler-Decisions-Financial/dp/0273785370/
  2. https://www.theguardian.com/commentisfree/2018/aug/25/veganism-intensively-farmed-meat-dairy-soya-maize
  3. https://www.telegraph.co.uk/business/2018/08/18/interest-rise-leaves-first-time-buyers-facing-extra-mortgage/
  4. https://www.theguardian.com/money/2018/aug/20/no-deal-brexit-personal-finance-what-does-it-mean
  5. https://www.newsweek.com/donald-trump-says-windmills-are-bird-killers-he-tries-revive-coal-industry-1079910
  6. https://www.bbc.co.uk/news/business-45244761
  7. https://www.theguardian.com/environment/2018/aug/23/europe-to-ban-halogen-lightbulbs
  8. https://www.independent.co.uk/environment/scotland-floating-turbine-tidal-power-record-sr2000-scotrenewables-ofgem-a8503221.html
  9. https://www.theguardian.com/society/2018/aug/19/governments-care-isa-plan-dismissed-by-sarah-wollaston-tory-health-committee-chair
  10. https://www.bbc.co.uk/news/health-45354846
  11. https://www.fool.co.uk/investing/2018/08/20/a-ftse-100-dividend-stock-that-should-pay-you-for-the-rest-of-your-life/
  12. https://www.physicianonfire.com/early-retirement-doesnt-suck/
  13. http://awealthofcommonsense.com/2018/08/a-short-history-of-emerging-market-corrections-bear-markets/
  14. http://awealthofcommonsense.com/2018/08/buying-emerging-markets-after-a-disaster/
  15. http://www.thisismoney.co.uk/money/investing/article-6078749/Top-income-investments-trusts-revealed-British-American-tops-table.html
  16. http://www.thisismoney.co.uk/news/article-6092439/Half-Britains-bank-branches-closed-five-years.html
  17. https://theescapeartist.me/2015/03/02/the-aggregation-of-marginal-gains/
  18. https://theescapeartist.me/2018/08/28/to-defeat-your-enemy-you-must-first-know-your-enemy-part-2/
  19. https://www.ukvalueinvestor.com/2018/08/ted-baker-dividend-growth-stock.html/
  20. https://www.ukvalueinvestor.com/2018/08/sage-dividend-growth-stock.html/
  21. https://deliberatelivinguk.wordpress.com/2018/08/29/why-you-should-calculate-imputed-rent/
  22. https://youngfiguy.com/when-cash-was-king/
  23. https://youngfiguy.com/insolvency-and-carillion/
  24. https://youngfiguy.com/was-carillion-like-a-ponzi-scheme/
  25. http://quietlysaving.co.uk/2018/09/02/august-2018-plus-other-updates/
  26. http://monevator.com/weekend-reading-automatic-for-the-people/
  27. https://firevlondon.com/2018/08/20/overdiversity/
  28. https://firevlondon.com/2018/08/13/recalibrating-my-portfolio/

 

 

 

 

 

 

 

 

 

The Full English Accompaniment – The neuroscience of a frugal mindset

What’s piqued my interest this week?

In a throwaway conversation this week MrsShrink said something which I’ve subsequently been ruminating on. In running our household I do most of the shopping, but MrsShrink does the toiletries. She remarked that she actively enjoyed going to browse in Savers, Home Bargains etc, as she enjoyed spending money she knows she has to. She’s learnt to be frugal, to penny-pinch, and spending is a treat. She gets a hit out of buying things most of us wouldn’t think twice about because to her it’s a forbidden joy.

Attitudes and behaviour towards money are learnt in childhood by observing your parents. On a structural level, the dopaminergic mesolimbic ‘reward’ pathway develops through your childhood and adolescence (1). This is the time when your brain is most sensitive to it’s reward system, and is setting down the pathways for a lifetimes use (2). The way I explain behavioural modelling to patients is to think of it as a parallel to learning your first language. As a toddler you observe your parents using sounds as language, try it out, see what works, gradually accumulating your understanding without consciously being aware of the process. Other behavioural processes also follow this unconscious accumulation process, including financial attitude. If you model your child’s behaviour at this time (consciously and unconsciously) you lay down the pathways for a lifetime of reward processing.

Hundreds of websites and blogs have signed onto this, offering to teach us the ways we can consciously train our children to be better financially. This doesn’t have to be as intense as paying your child through an investment account, or making them buy fractional shares in Netflix as some would recommend (3). The piggy bank, pocket money, weekend job development path will work just fine (4). I clearly remember learning the value of money calculating how many penny sweets I could buy with my 50p pocket money. The pre-frontal and frontal cortex projections of these pathways continue to develop into your teens and early 20s, forming your conscious awareness of pleasurable responses as you grow into adulthood.

The unconscious processes are far harder to model, alter or change. These are the deep cortex projections close to the archaic midbrain structures, projections which develop during early childhood through modelling. These are learnt through observation of those around you. This is why teaching your child to be a spendthrift can only go so far if your own approach is spending all you have to keep up with the Joneses. This is also why, in my opinion, people such as Little Miss Fire struggle with her Shop Floor Mentality (5). If you have grown up in an environment of thrift as a necessity of poverty the rewards from saving, investing and watching wealth grow are not hard-wired in your cortex. There is no unconscious drive for these goals. The Stanford Marshmallow experiment on delayed gratification is a case in point example, and potentially a way of teaching your child the benefits of patience (6).

Which is where I bring things full circle. Many rich people are innately frugal; look at Warren Buffett (7, 8). These winners derive their pleasure from the process not the outcome. MrsShrink is innately frugal as she was brought up in an environment where frugality was a necessity. She observed her mother being able to afford the things they wanted by saving wherever possible. I secretly suspect she is much more likely to become FI than I because of this innate drive, but will be hampered by her mistrust of investment vehicles. She has no desire and gains no pleasure from making non-frugal choices. Consciously training thought processes to be the same way is far harder.

Have a great week,

The Shrink

N.B. There won’t be a Full English Accompaniment next week as I’m on holiday AFK.

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

An exam textbook

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. Walker et al. Adolescence and Reward: Making Sense of Neural and Behavioral Changes Amid the Chaos. The Journal of Neuroscience (2017)
  2. Galvan, A. Adolescent Development of the Reward System. Frontiers In Human Neuroscience (2010)
  3. https://www.marketwatch.com/story/how-to-teach-your-kids-to-be-better-with-money-than-you-are-2017-07-26
  4. https://www.independent.co.uk/money/spend-save/how-to-teach-money-children-kids-personal-finance-tips-guidelines-property-a7789381.html
  5. https://littlemissfireblog.wordpress.com/2018/03/24/do-you-have-the-shopfloor-money-mentality/
  6. https://en.wikipedia.org/wiki/Stanford_marshmallow_experiment
  7. https://www.psychologytoday.com/gb/blog/how-do-life/201503/why-many-rich-people-are-frugal
  8. http://time.com/money/4861261/billionaires-spending-habits-frugal/
  9. https://www.bbc.co.uk/news/business-45194019
  10. https://www.bbc.co.uk/news/business-45201155
  11. https://www.theguardian.com/technology/2018/aug/17/elon-musk-says-past-year-has-been-excruciating-and-worst-is-yet-to-come
  12. https://www.bbc.co.uk/news/business-45216551
  13. https://www.bbc.co.uk/news/world-asia-45199034
  14. http://www.thisismoney.co.uk/news/article-6064685/Fears-grow-house-prices-fall-fastest-rate-financial-crisis.html
  15. https://www.ig.com/uk/shares-news/mining-in-the-uk-and-ireland-is-well-and-truly-alive-180815
  16. http://thefirestarter.co.uk/can-we-afford-an-electric-vehicle-lets-run-the-numbers/
  17. https://www.bbc.co.uk/news/business-44953607
  18. https://www.ukvalueinvestor.com/2018/08/ted-baker-dividend-growth-stock.html/
  19. https://www.ig.com/uk/commodities-news/is-investment-in-renewable-energy-drying-up-180809
  20. https://www.etf.com/sections/index-investor-corner/swedroe-determining-esgs-nature
  21. https://firevlondon.com/2018/08/13/recalibrating-my-portfolio/
  22. https://firevlondon.com/2018/08/09/july-2018-the-trade-news-sweetens/
  23. https://simplelivingsomerset.wordpress.com/2018/08/13/there-be-a-rumbling-and-a-sound-of-clucking-chickens-in-the-air/
  24. http://eaglesfeartoperch.blogspot.com/2018/08/garden-gate-repair-and-new-fence.html
  25. http://monevator.com/weekend-reading-funny-money/
  26. http://monevator.com/taking-more-risk-does-not-guarantee-more-reward/
  27. https://deliberatelivinguk.wordpress.com/2018/08/13/savings-rate-revisited/
  28. http://quietlysaving.co.uk/2018/08/12/phone-free-day/
  29. https://www.mrmoneymustache.com/2018/07/25/the-twenty-dollar-swim/
  30. https://www.theatlantic.com/magazine/archive/2018/09/cognitive-bias/565775/

The Full English Accompaniment – Are regular savings accounts dead in the water?

What’s piqued my interest this week?

After last weeks relative quiet from FIRE bloggers (if not the BoE), this week the Side Orders section has a bountiful glut. Many of the topics I considered covering this week have been covered by others including Monevator’s weekend reading post around the bull market (1), linked to the irrelevant investor’s post on the same topic (2), and Monevator’s post covering Fidelity’s US market 0% fee tracking fund (3).

Monevator mentioned the focus of this post in his weekend reading only in passing; that outgoing Monetary Policy Committee member Ian McCafferty predicted interest rates will stay below 5% for the next 20 years, and wages will increase by 4% (4). I take all opinions with a pinch of salt, especially when they concern future predictions. We’ll assume that this is a man with a finger on the nation’s economic pulse, and leave aside how he’s actually made this prediction, which could just be a big fat whopping guess. What this ‘prediction’ does is stick a massive pin in the savings account whoopee cushion.

This week has also seen the fallout of the BoE base rate rise. Whilst 28% of mortgage rates have risen, only one in ten banks have increased the interest rates on their savings accounts (5). The biggest boost came from smaller building societies, particularly Beverley and Monmouthshire Building Society (5). Moneysavingexpert’s page of best easy access savings accounts is currently also topped by building societies, Coventry Building Society and Birmingham Midshires, offering 1.4% variable and 1.35% variable respectively (6). Fixing for one-year with Atom or Investec with get you 2.05%, steadily increasing out to 2.68% for five years fixed with Charter Savings Bank (6). These barely beat inflation. If interest rates are unlikely to rise to historic norms in the next 10 years, the pressure comes on to invest either in equities or other vehicles, from P2P or fine wine.

The rise of high interest current accounts also threatens mainstream savings accounts. Nationwide and TSB are both offering 5% interest on their current accounts (up to £2.5k and £1.5k respectively), while Tesco Bank offers 3% (up to £3k) (7). The Bank Account Savings website allows you to calculate your best rate of return for minimum moving about, and combined with switching cash offers and perks, can kick savings accounts into touch (8). There will always remain an argument for larger cash sums to be held for liquidity (using the £85k FSCS guarantee). But for now high street savings aren’t competitive for returns and don’t beat inflation.

Have a great week,

The Shrink

 

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

An exam textbook

Religio Medici by Sir Thomas Browne – the theological and psychological reflections of a C17th doctor

Enchiridion by Epictetus – Bedside reading for a bad day

 

References:

  1. http://monevator.com/weekend-reading-are-we-there-yet/
  2. http://theirrelevantinvestor.com/2018/08/05/the-longest-bull-market-of-all-time/
  3. http://monevator.com/average-active-funds-have-no-answer-to-their-weightless-index-tracking-rivals/
  4. https://www.theguardian.com/business/2018/aug/09/interest-rates-will-stay-low-for-20-years-bank-of-england-expert
  5. http://www.thisismoney.co.uk/money/saving/article-6046445/Disappointing-news-savers-warned-not-benefit-rate-rise.html
  6. https://www.moneysavingexpert.com/savings/savings-accounts-best-interest/
  7. https://www.moneysavingexpert.com/banking/compare-best-bank-accounts/
  8. https://www.bankaccountsavings.co.uk/calculator
  9. https://www.moneyobserver.com/news/charles-stanley-hikes-fees-investors
  10. https://www.cnbc.com/2018/08/01/fidelity-one-ups-vanguard-first-company-to-offer-no-fee-index-fund.html
  11. https://www.bbc.co.uk/news/technology-45113283
  12. http://www.thisismoney.co.uk/money/news/article-6039729/Royal-Mint-says-millions-old-1-coins-languishing-homes-British-households.html
  13. https://www.parliament.uk/business/committees/committees-a-z/commons-select/work-and-pensions-committee/news-parliament-2017/pension-costs-17-19/
  14. https://www.theguardian.com/business/2018/aug/10/british-manufacturing-in-recession-despite-faster-uk-gdp-growth
  15. https://www.theguardian.com/business/2018/aug/10/house-of-fraser-calls-in-administrators-as-rescue-talks-fail
  16. https://transform.iema.net/article/thousands-uk-churches-switch-renewables
  17. https://transform.iema.net/article/insurance-firms-failing-report-climate-change-risks
  18. https://www.bbc.co.uk/news/business-45113867
  19. https://www.bbc.co.uk/news/business-45119606
  20. https://www.bbc.co.uk/news/business-45113862
  21. https://www.bbc.co.uk/news/business-45118393
  22. https://www.bbc.co.uk/news/science-environment-45084144
  23. https://www.bbc.co.uk/news/technology-45097046
  24. https://www.businessinsider.com/lego-go-eco-friendly-with-blocks-made-from-sugarcane-2018-8/?r=AU&IR=T
  25. https://www.ukvalueinvestor.com/2018/08/how-to-manage-a-portfolio-of-shares.html/
  26. https://youngfiguy.com/pension-costs-and-transparency-inquiry
  27. https://youngfiguy.com/mrs-yfg-our-ideal-life
  28. https://youngfiguy.com/deciding-drawdown-and-annuities
  29. https://www.mrmoneymustache.com/2018/07/25/the-twenty-dollar-swim/
  30. http://fiukmoney.co.uk/july-18-net-worth-and-monthly-update/
  31. https://deliberatelivinguk.wordpress.com/2018/08/06/july-2018-review/
  32. https://3652daysblog.wordpress.com/2018/08/03/first-rule-of-fi-club/
  33. https://theescapeartist.me/2018/08/06/your-part-in-the-revolution-is-to-pay-it-forward/
  34. https://theescapeartist.me/2018/07/31/the-inestimable-advantages-of-child-labour/
  35. http://awealthofcommonsense.com/2018/08/the-layers-of-the-brain/
  36. https://www.bbc.co.uk/news/business-45112072
  37. http://thecannycontractor.com/crowdinvesting-become-an-angel-investor-with-minimum-outlay/
  38. http://thecannycontractor.com/passive-income-quarter-2-2018/
  39. http://thecannycontractor.com/dating-and-fire-your-love-or-your-life/
  40. https://thefemalemoneydoctor.com/warren-buffett/
  41. https://tuppennysfireplace.com/cut-your-budget-expert-tips/
  42. https://tuppennysfireplace.com/benefits-of-having-an-allotment/