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/

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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Frugal Motoring – Bangernomics

A return to the Frugal Motoring series, and a window into one of my side hobbies, Bangernomics. I could write a whole separate blog on Bangernomics, many do, but mainly I confine myself to esoteric forums tucked away in little niches of the internet. The term Bangernomics was first coined in 1989 by James Ruppert, the chief and foreman of the subsequent Bangernomics cult/ movement/ belief (1, 2). A motoring journalist, James found himself returning to the UK for a few days and at a loss for transport (2). After adding up potential public transport costs, he worked out it would be cheaper to buy a banger and run it (2). The subsequent press feature, titled “Better than walking” caught the eye of the public, and the movement ran from there (2).

The general premise of Bangernomics is this:

  • Target a cheap banger car for <£1000 or <£500 (depending on the source of your opinion)
  • Do your research, read up on common problems with the car and which models/ engines to avoid or go for
  • Find a car to buy, originally and potentially through car auctions, but often these days through eBay/ Gumtree/ other online platforms
  • Inspect the car very carefully before buying
  • Look after the car with strict basic maintenance. Servicing and basic work is relatively cheap, cheaper if you DIY
  • When the car reaches a point of a potential uneconomic repair (clutch, gearbox etc) scrap it, sell on or break for parts

James Ruppert’s mantra here is “beware of the dog” (3). Avoiding hopeless sheds and going for the well-loved family cars at the bottom of their depreciation curve and with the curb appeal of steaming dog droppings. You have to be prepared to own and drive something which will make your friends’ and neighbours’ toes curl. Which is where I think the frugal, financial independence-minded community Venn diagram transects with Bangernomics. Many FIRE bloggers couldn’t give a flying monkey about keeping up with Jones’ in other respects, so why do they continue to with cars on PCP?

But I know nothing about cars, what can I do?

Happily, the Bangernomics community are really helpful in this regard. When I first started I adopted the opinion that I am of at least average intelligence, and therefore I should be able to learn how to fix and maintain a car. These are all useful skills.

James Ruppert publishes a book on how to subscribe to Bangernomics (1, 3). He also maintains a series of free buying guides, a buying checklist, and a blog for advice (1, 3). For make and model specific guidance, other Bangernomics blogs have published their own buying guides, and people share their knowledge on the Bangernomics forum, as well as the more popular Pistonheads and RetroRides (4, 5, 6, 7). YouTube is an invaluable source, as many thousands of amateurs publish how-to guides.

Not sure what to buy? There’s plenty of column inches and forum posts detailing peoples failures and successes. Some highlight their own experiences, listing successes and tips, others offer guidance on good target vehicles (2, 8, 9, 10, 11). My own experience has been tempered by a job requirement to appear respectable and not fail to turn up to work, so people don’t die. I’ve never spent more than £2k on a car, and average 12p/mile in cost over the life of my daily car for purchase price and maintenance. One memorable snotter was bought for £1k and survived 8 years and 80,000 miles of abuse. I also abuse Bangernomics a little by purchasing classics at the bottom of their depreciation curve, before they begin to appreciate as an investment.

Bangernomics, the financially independent motoring choice

A little whistle stop, but hopefully a jump-off point for many. DIY car maintenance should not be a scary thing, and by avoiding it people miss an opportunity to save. Bangernomics offers the opportunity to learn some skills, save some money and tell some good stories, as long as you can put up with some graft, the odd breakdown and minimal social respect for your new whip.

Have a great week,

The Shrink

 

Next time on Frugal Motoring – Should I buy a petrol car?

References:

  1. https://www.bangernomics.com/
  2. https://www.autocar.co.uk/car-news/used-car-buying-guides/25-years-bangernomics-how-buy-and-run-used-car-cheaply
  3. https://www.jamesruppert.com/bangernomics-bible.html
  4. http://bangernomics.tripod.com/intro.htm
  5. http://bangernomics.editboard.com/
  6. https://www.pistonheads.com/gassing/topic.asp?h=0&f=23&t=1671991
  7. http://forum.retro-rides.org/
  8. http://www.autoexpress.co.uk/car-news/98907/cheap-as-chips-how-to-buy-a-banger-and-run-it-for-peanuts
  9. http://cardealermagazine.co.uk/forum/topic/4772-bangernomics/
  10. https://forums.moneysavingexpert.com/showthread.php?t=3803929
  11. https://www.driving.co.uk/car-clinic/buying-guide-six-brilliant-used-cars-for-just-1000/

The Full English Accompaniment – Are interest-only mortgages the next PPI?

What’s piqued my interest this week?

This week the BoE raised the base rate to it’s highest level in nine years, 0.75% (1). All the newspaper business sections went into meltdown and a slew of commentators popped up to foretell doom. My opinion of the whole thing largely follows Monevator’s, this is still historically very very low (2). Rather than repeat Monevator, this week I’ll focus on something else that caught my eye.

A couple of weeks back I posted a link to a BBC article about a couple who didn’t understand their interest-only mortgage, had some bad life circumstances, and subsequently were trying to complain to the regulator about their bank so they didn’t have to leave the home they hadn’t made repayments on (3). This prompted YFG into a rant on people who want something for nothing, definitely worth a read (4). Some scraping script must have clocked me viewing these stories, as I was directed to a company which claimed ‘you could be owed thousands if your interest-only mortgage was mis-sold’ (5). From their website (5):

• 1.9 Million people have been led into an interest only mortgage

• Lenders and brokers may have mis-sold mortgages to thousands of customers

• Many of the people affected by this have no idea they could be due compensation

• Nearly 2 Million have been left repaying a mortgage that was inappropriate and unaffordable

• Interest only mortgages holders are being refunded thousands of pounds

Well dear readers, bricks were shat. I had to go and wash my head in a bucket with a bit of casual screaming thrown in to calm down. If you are making the biggest purchase of your life, how do you sign onto something that you know is ‘unaffordable’? Are people seriously not reading the small print? I completely get the something for nothing types who signed up to IO-mortgages expecting their house value to go up, and the added equity to provide them with something for the next re-mortgage. I understand it but don’t agree with it. But how do you sign up to an IO-mortgage when you can’t afford to also put something by in another investment vehicle, or where you don’t expect to move at the end.

Hey look, here’s another couple who are losing “their home” because they can’t remortgage what was an IO-mortgage (6). Concerns from the FCA that people have not put money away or planned for the end of their IO-mortgage have been a recurring theme in the press (6, 7). Depending on your source somewhere between 1.6 and 1.9 million people currently have IO-mortgages, and the FCA expects 600,000 to expire in 2020 (7, 8). As some people clock onto the fact they may suddenly lose their home, the claim sharks have started to circle.

Just a few months ago, the concerns around IO-mortgages seemed to have led to a decrease in their number. Or perhaps their utility was lost as house prices slowed. Either way, the number of IO-mortgages was falling, with one source reporting they had halved (6, 8). This appears to have now reversed. Thirty-three lenders now offer IO-mortgage products, a modest increase of eight in the last couple of years, but nowhere near the 73 of 2008 (9). It is likely these products are only available in specialist circumstances (10)

The argument from the claims people is that in some cases the mortgage products were mis-sold; bad advice was given by brokers/ lenders suggesting that IO-mortgages would be the most affordable (11, 12). Which? even offers a template letter for complaints rather than going through a claims company (12). The Financial Ombudsmen, much more helpfully, actually gives case studies of when and where mis-selling occured, and when it’s your own damn fault (13). The Financial Ombudsmen Service has broadly upheld one-in-five complaints, around 300-400/year (11). The fear is that as more IO-mortgages mature, customers who are not prepared will turn to claims of mis-selling for compensation (11). Two reasons why this infuriates me:

  1. If you’re the sort of person who doesn’t read the T&Cs on the biggest purchase of your life, doesn’t understand the product, and doesn’t make any effort to save or prepare for an end point, why is it someone else’s fault?
  2. The average shortfall on IO-mortgages is estimated to be >£70k (6). A few thousand compensation is not going to bail you out of the sordid hole of your own making.

And with that, I’m off for a lie-down.

Have a great weekend,

The Shrink

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

An exam textbook (le sigh)

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. https://www.moneysavingexpert.com/news/banking/2018/08/bank-of-england-base-rate-decision
  2. http://monevator.com/r-star-trend-interest-rate/
  3. https://www.bbc.co.uk/news/business-44851363
  4. https://youngfiguy.com/palms-up-or-palms-down-person
  5. https://www.mortgage-claim.co.uk/landingpage/twitter/variant2/
  6. https://www.theguardian.com/money/2018/may/02/elderly-couple-face-losing-home-as-interest-only-loan-crisis-bites
  7. https://www.theguardian.com/money/2018/mar/19/interest-only-mortgages-payment-shortfall-remortgage-lenders
  8. https://www.ukfinance.org.uk/number-of-interest-only-mortgages-halves-in-six-years/
  9. https://www.mortgagestrategy.co.uk/rise-in-number-of-lenders-offering-interest-only-mortgage-options/
  10. https://www.telegraph.co.uk/personal-banking/mortgages/time-comeback-mortgage-lenders-return-interest-only/
  11. http://www.mortgagesolutions.co.uk/news/2018/04/03/interest-mortgages-next-mis-selling-scandal-legal-tech-firm-claims-analysis/
  12. https://www.which.co.uk/consumer-rights/advice/i-think-ive-been-mis-sold-my-mortgage-what-can-i-do
  13. http://www.financial-ombudsman.org.uk/publications/technical_notes/interest-only-mortgage-case-studies.html
  14. http://www.thisismoney.co.uk/money/markets/article-6010545/Travis-Perkins-warns-year-profits-DIY-chain-Wickes-falters-amid-tough-trading-conditions.html
  15. http://www.bbc.co.uk/news/business-45050213
  16. https://www.thetimes.co.uk/article/why-it-pays-to-be-king-of-the-castle-in-scotland-gv66nl7wm
  17. https://www.moneywise.co.uk/news/2018-08-01/exit-amateur-landlords-could-boost-private-pension-pots-28bn
  18. https://www.moneywise.co.uk/news/2018-07-31/men-splashing-the-cash-engagement-rings
  19. http://monevator.com/how-to-open-an-online-broker-account/
  20. https://youngfiguy.com/last-chance-u-and-financial-independence
  21. http://quietlysaving.co.uk/2018/08/01/july-2018-plus-other-updates/
  22. http://www.msziyou.com/net-worth-updates-july/
  23. http://www.msziyou.com/intergenerational-unfairness-part-1/
  24. http://thefireeng.com/fudging-numbers/
  25. https://quittingteachingblog.wordpress.com/

The Financial Dashboard – July 2018

In an effort to streamline the Financial Dashboard, I’m cutting some waffle.

The goals for July were:

  • Rein in spending on the automotive hobby by setting a budget – Epic epic fail
  • Sell five items from my hoard – carried over – Fail
  • Reduce daily living (groceries and lunch out) and entertainment expenses to budget – Fail
  • Eat out a maximum of once a week – Success
  • Repair or purchase a new bike – Fail

Checking the assets and liabilities:

July 2018 Assets

July 2018 Liabilities

These are taken from my mega Excel Beast Budget spreadsheet. I need to develop some pretty graphs to show changes over time. In short, my net worth grew by ~£600 (~3%). My savings rate including my mortgage was 14.7%, 2% without. I saved £200 in my 5% interest Santander saver, and paid off some of my mortgage… and that’s about it. My finances are still recovering from moving house and changing jobs, so hopefully will improve. I’m lucky in that my NHS pension is a DB pension rather than a DC, but it’s been watered down by progressive governments, and is pretty complex to calculate.

Goals:

Goal achieved: We only ate out around once a week this month, and a couple of those were lighter lunches rather than dinners out. We’ve had lots of friends over for meals (the grocery spend shows that!). We enjoy eating out, but we’re going to be more sensible from now on.

Goal failed: Rein in spending on the automotive hobby by setting a budget. Frankly I blew this one out of the water. I spent £450 getting a local garage to go through a list of niggles on my daily car which have been low down the priorities list while we moved house. I didn’t use a main dealer, but a decent local independent. In hindsight some of these jobs I could have done myself to save money, but I simply haven’t had the time. I also spent £90 on train tickets for a work conference later in the year. This month I’ll actually have a crack at this. I’ve set a goal of only spending £300/month. Given that currently £120 goes on fuel, and another £160 on tax and storage, my schedule of preventative maintenance needs to become a lot more DIY! One to keep chipping at.

Goal failed: Sell five items from my hoard. It’s all still in boxes, gradually being unpacked. Another aim for this month.

Goal failed: Repair or purchase a new bike. I’ve decided it’s going to be cheaper to buy a ‘skip bike’ than to repair either my old road bike or downhill MTB. I went to a local charity run place but they didn’t have one to fit me, so I’m going back this month to have another look at new stock (they’re only open Saturday mornings).

Goal failed: Reduce daily living and entertainment expenses to budget. I’m calling this a fail. My daily living expenses included some substantial one-off work costs, but otherwise were under my intended £50 budget. My entertainment expenses were £55, less than my £100 budget. However I’ve never thought to include expenses from my joint account, and really I should, so I’m going to rethink my budget and the way I show my expenses. MrsShrink and I spent £630 on daily living costs last month, £70 on takeaways(!) and £500 on food(!!). We spent £56 on eating out from the joint (entertainment).

Budgets:

  • Daily living and entertainment – budget £50 from my account for daily living and £100 from my own for entertainment. Spent £114 from my own on daily living, £630 from joint on daily living, £56 from my own on entertainment, £56 from the joint on entertainment. Future budget will be £75/week food, plus £75/week entertainment, for £600 combined/month. This will include all eating out, cinema etc. I’ll see how realistic and manageable this aim is.
  • Transport – budget £300, spent £803. Last month £695.
  • Health – budget £10, spent £8.80. Last month £8.80. Going to stop putting this on here as it’s dull.
  • Holiday – budget £100, spent £0. Last month £150. I’ll start using a Starling pot to build a kitty.
  • Subscriptions – budget £100, spent £105. Last month £114. Had to pay a professional subscription this month. I’m going to stop including this, as there’s little more I want to reduce currently.
  • Personal – budget £50, spent £21.50. Last month £44. I really need to start updating my wardrobe.
  • Loans/ Credit – budget £200, spent £575. Last month £250. Paid back a big lump of credit card. Not a bad thing.
  • Misc – budget £50, spent £100. Last month £946. This is anything I can’t list in the rest of my budget system. I spent £100 on an important course this month. Much better than previous months.

Goals for next month:

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

What’s coming this month:

  • Frugal Motoring – Bangernomics
  • Musing on… Motivating factors for financial investments
  • Plus the usual Full English Accompaniments and other drivel…

Happy August everyone!

The Shrink

The Full English Accompaniment – A nation of preppers?

What’s piqued my interest this week?

This week that bulwark of British strength Theresa May advised us all we should start prepping for a “no-deal” Brexit, just as the Government had by stockpiling food and medication. We should “take comfort” in the Government’s actions (1). “It’s right to prepare for all eventualities” (2). Unfortunately the actual understanding of how they’re going to do this is lacking (3). Currently the EU supplies 31% of the UK’s food, and Brexit will have huge implications across the supply chain (4, 5).

This led to lots of media outlets running pieces on ‘what to stockpile’. The Guardian recommended olive oil, pasta, pepper, rice, spices (6)The BBC warned of the threat to our sandwiches (7). Heavens! Anything but the sandwiches! Even The New Scientist got in on the act (8). Plenty of organisations are piling on the warning bandwagon. The UK dairy industry has warned that butter, yoghurt and cheese will be occaisional luxuries (9).

My solution to this problem is to gradually move my consumption to more local suppliers. Coming from a farming family I’ve always tried to support UK growers. For at least the past few years I’ve only bought UK grown seasonal veg, and cooked based on what is in season. Very middle class yes, but healthier, more varied, and often cheaper. This year I’ve tried to take this further, using a local butcher and market garden co-operative (feel free to roll your eyes) delivery. It appears I’m not alone. We all saw Blue Planet 2, the anti-plastic movement gains traction, and people are finding ways of reducing their packaging usage. One of these ways is going back to the local milkman with his bottles. Milkmen are seeing a surge in demand throughout the country (10). Fresh local milk served in retro glass bottles delivered by an electric van does sound pretty ‘now’. Expansion has not been without it’s problems for the national Milk&More, but these appear to be teething problems (11). The traditional local trader milkmen are doing better (12). We’ve come full circle with convenient deliveries from local producers. Everything old is new again.

Have a great weekend,

The Shrink

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

Eric by Terry Pratchett – light relief

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. https://www.telegraph.co.uk/politics/2018/07/25/plans-stockpile-food-blood-medicine-case-no-deal-brexit-sensible/
  2. https://www.bbc.co.uk/news/av/uk-politics-44972582/brexit-is-uk-planning-to-stockpile-food
  3. https://www.theguardian.com/commentisfree/2018/jul/26/stockpile-food-no-deal-brexit-dream-on
  4. https://www.independent.co.uk/news/uk/politics/brexit-latest-food-supplies-shortage-warning-policy-failure-supermarkets-imports-eu-a7844751.html
  5. http://www.sussex.ac.uk/spru/newsandevents/2017/publications/food-brexit
  6. https://www.theguardian.com/politics/shortcuts/2018/jul/12/a-no-deal-brexit-survival-guide-what-food-to-stockpile
  7. https://www.bbc.co.uk/news/business-44960293
  8. https://www.newscientist.com/article/2175259-the-scientific-guide-to-stockpiling-food-for-a-no-deal-brexit/
  9. https://www.independent.co.uk/news/business/news/brexit-dairy-products-butter-milk-cheese-industry-warning-lse-study-a8452501.html
  10. https://www.theguardian.com/lifeandstyle/2018/feb/07/return-milkround-plastic-problem-glass-bottle-deliveries
  11. https://www.theguardian.com/money/2018/apr/02/milk-and-more-grocery-delivery-delays
  12. http://www.itv.com/news/wales/2018-05-02/milk-bottle-sales-booming-as-consumers-turn-their-backs-on-plastic/
  13. http://www.bbc.co.uk/news/business-44926442
  14. https://www.bbc.co.uk/news/business-44950610
  15. https://www.bbc.co.uk/news/business-44202542
  16. https://www.telegraph.co.uk/personal-banking/savings/basic-savings-rate-would-reward-loyal-customers-banks-wont-take/
  17. https://www.telegraph.co.uk/personal-banking/mortgages/concern-thousands-mortgage-borrowers-fall-immediate-financial/
  18. https://www.telegraph.co.uk/investing/bonds/new-retail-bond-fund-pays-45pc-year/
  19. https://www.theguardian.com/money/2018/jul/25/uk-pensioners-income-growth-outstrips-wage-rises-ons-estimates
  20. https://www.bbc.co.uk/news/business-44732847
  21. https://www.theguardian.com/business/2018/jul/28/uk-interest-rates-finally-rise-bank-of-england
  22. https://www.bbc.co.uk/news/uk-44943672
  23. https://www.theguardian.com/money/2018/jul/26/household-debt-in-uk-worse-than-at-any-time-on-record
  24. https://www.bbc.co.uk/news/business-44926447
  25. http://monevator.com/find-the-best-online-broker/
  26. http://www.thefrugalcottage.com/what-would-you-do-if-you-won-the-lottery-giveaway/
  27. http://www.thefrugalcottage.com/life-update-20/
  28. http://www.msziyou.com/identifying-as-xennial/
  29. https://theescapeartist.me/2018/07/24/the-art-of-wealth-preservation/
  30. http://www.retirementinvestingtoday.com/2018/07/sobering-retirement-income-drawdown.html
  31. https://www.ukvalueinvestor.com/2018/07/measuring-investment-performance.html/
  32. http://monevator.com/death-to-the-lifetime-isa/
  33. https://youngfiguy.com/why-the-lifetime-isa-is-not-a-simple-to-understand-product
  34. https://youngfiguy.com/palms-up-or-palms-down-person

 

Musing on… Long-term care costs and financial savings

This post has been mulled over for a long time, trying to discern and distil a direction. It began (as these trains of thought often do) with an idle r/financialindependence post. If you’re not familiar with that, it’s a subreddit for FI-types, predominantly populated by Yanks (Reddit being a sort of forum-cum-meta-aggregator of internet waffle). In this post a group of our ex-colonial cousins were discussing long-term costs (1):

So far, so not our problem. The UK may have significantly higher tax rates (ignoring ISAs etc), but it pays for (in theory) the NHS and social care, the cradle-to-grave support system for when times are bad. The NHS and social care system are what makes FIRE and any sort of fuck-you to working possible in the UK. Check out the video and post TEA and Rhik Samadder did on the matter (2).

National, personal cover

As we celebrate the NHS’ 70th birthday, it’s worth reflecting on where this all came from. Before the birth of the NHS all doctors services were private in the UK. If you needed something, you went to your local doctor, hoped they had been trained adequately, paid your money, got your treatment, hoped it worked. There were no guidelines. There was no standardisation. This worked fine for the wealthy, who could afford the best, but for the poor would die from an inability to pay the doctor. You can find plenty of stories from that time, but if you read one, I recommend the recollections of the wonderful Harry Leslie Smith (3). He remembers a doctors visit costing half-a-weeks wages, which they sadly did not have (3). This private price has scaled with inflation. A 15 minute private GP consultation will set you back £70 (4). As a profession we remain a rare commodity, and on an open market our hourly rate is such. The NHS affords the government a position of power and collective contractual employment which, despite press vilification, means we still come relatively cheap.

In the days before the NHS, workers would club together to pay for ‘self-help’ organisations, to provide medical care for one another. Beginning in the late 1800s, the Tredegar Workmen’s Medical Aid Society was one such successful organisation (5):

By the 1920s, the society employed the services of five doctors, one surgeon, two pharmacists, a physiotherapist, a dentist, and a district nurse. For an extra sum each week, members could also benefit from hospital treatment.

During the inter-war depression, the society continued to provide services to unemployed people, even though they could no longer afford to pay a subscription. By the mid-1940s, the society was providing medical care for 22,800 of the town’s 24,000 inhabitants.

Aneurin Bevan, who was born in Tredegar, took the Workmen’s Medical Aid Society as his inspiration for the NHS, saying: “All I am doing is extending to the entire population of Britain the benefits we had in Tredegar for a generation or more. We are going to ‘Tredegarise’ you.” (5)

The fragmentation of the NHS, gradual privatisation and reduction in care available deserves a separate post. For now, with a sense of perspective, we can look across the pond and be smug about our NHS (6). Cradle to grave cover, in our most frail years, maternity and care home. Isn’t it marvellous. Except… have you ever been in an NHS care home? And how much do you think that care home costs?

Who wants to live forever?

Time and again bloggers discuss their financial plans, how they’re 50 now, and they see themselves having 30 more good years. They fall into a common trap, recent research shows 8/10 of those over 50 underestimate their life expectancy (7). Most people guess they’ll live to 82-ish, whereas the data says more like 88 for men, and 90 for women*. We have got much better at keeping people alive for longer. Those aren’t necessarily going to be good years though, and so people trot out those bleak jokes; “oh just roll me off a cliff at 80”; “I’ll just head off to Switzerland”; “I’ll just pop my clogs then”. Except those are all to varying degrees illegal/ unethical. We doctors can’t just settle you off in a dignified way when you decide you’re not much use or aren’t enjoying things anymore. How do you decide when that is? Death is so very final. As a culture we have developed a fear of discussing or even considering our own mortality.

(*N.B. You can’t actually use ONS life expectancy at birth figures for this. Infancy through to teenage years (and early adulthood for young men) still have higher mortality. Once you pass your mid-20s your life expectancy actually statistically increases to accommodate for this.)

So for our friends the FIRE-savers, that’s an extra half decade of savings to account for. Suddenly retiring at 55 with a 4% SWR estimating a 30 year retirement isn’t quite enough (8). Life expectancy has increased in the 20 years since the Trinity study was published (9). A 45 year-old sitting down now and estimating for a 4% withdrawal starting at age 55 may well have a good 40 years ahead of them. It’s not just the %withdrawal that’s a variable in this calculation, it’s the duration too. For some really interesting drawdown calculations, check out RIT’s recent post (10).

The final splurge

How much do you think your living costs will be too? The common practice appears to be to take roughly your current living expenses, and times that out for the number of years you need. Some people estimate less, as they figure their homes will be paid off. An interesting piece of research by investment firm Schroders casts doubt on that. It found that savers underestimated their living costs in retirement by 15% (11). Only half of people surveyed had enough to live on comfortably (11).

Coming back to people facing their own mortality, and a decline into frailty, did you include the care home fees in that cost? The answer to the previous question is that the average care home price per year in the UK is £29,270 for a residential home, £39,300 for a nursing home (12). That’s average too, as with everything the South is more expensive, and we all like to imagine ourselves in our twilight years in a beautiful peaceful home, and not being roughly manhandled by someone on minimum-wage with no dignity or care, before being hauled up on a CQC newspaper expose (13). If you want to see what it’s like in your area, the UK Care Guide has a number cruncher and area analysis (14). You can decide to stay in your own home, but there the costs can mount up too. 24 hour care can be more than £150,000/year (13). And again for perspective, your life expectancy from a diagnosis of dementia in your 60s – 6.7 years, in your 90s – 1.9 years (15).

Where’s my cradle to grave?

Too right, where’s the NHS and social care system in all of this? Broke, that’s where. Historically there were jobs that provided care and nursing homes for their retired workers as part of their payment plan (although I can’t imagine anything worse). Now the burden falls on the social care system. The boomer population is ageing, and everyone is living longer. Social care reform remains a political football as no side wants to try to tell people that their lifetime of NI contributions and tax wasn’t enough to pay for their care (16). The “squeezed middle” baby boomers (le sigh) are already paying up to £10k a year to look after their ageing parents, and this will only get worse (17).

To try and at least partially cover care home fees, the central and local Govs have created an Orwellian masterpiece of committees with opaque criteria to make decisions about who gets support and who doesn’t. It’s called NHS Continuing Healthcare when the NHS is involved, i.e. if there is ‘sufficient medical need’ (17). If you can’t qualify for that you get means tested by the local social care trust/ provider (18). AgeUK make a fair stab at explaining it on their website (19). I’ve seen people die before any decision on who will pay has been reached.

http_com.ft.imagepublish.upp-prod-eu.s3.amazonaws

The final stretch of this little essay is about the means testing that social care can use. It’s not actually free at point of care. The system used is fairly complicated in it’s own right, but the Money Advice Service has a good page breaking it down (18). Your income and capital are assessed. If you live alone, and in certain other circumstances, your home will be counted as part of your capital (18). The local authority can and will sell your home to pay for the fees, even if you don’t want them to (20. 21).

If the local authority deems you have deliberately disposed of assets, for example by gifting your child your home, to avoid paying means tested fees, it can claim them back. This quietly introduced piece of legislation is called Deprivation of Assets (22). The rules have subsequently got much tighter around gifting any asset; housing, jewellery, money, objects (23). As always, do your own research.

We can’t take it with us

To summarise, as a culture we fear death and avoid considering our own mortality or old age due to the association. This is a shame, as people are more active in their old age and living longer than ever before. We underestimate the costs and expenditure we will have in retirement. Old age will cost more than we collectively think. The last few years cost A LOT MORE. Don’t ignore your final years, embrace those calculations, and spend them in luxury if you can.

Have a morbid time!

The Shrink

References

  1. https://www.reddit.com/r/financialindependence/comments/8fyu65/do_longterm_care_costs_factor_into_your_fire_plans/
  2. https://www.millennial-revolution.com/freedom/early-retire-uk/
  3. https://www.newstatesman.com/politics/2014/10/hunger-filth-fear-and-death-remembering-life-nhs
  4. https://www.bupa.co.uk/health/bupa-on-demand/gp-services
  5. https://www.theguardian.com/healthcare-network/2018/may/22/south-wales-town-forged-nhs-points-future-tredegar
  6. https://www.reddit.com/r/financialindependence/comments/8zx7iq/health_insurance_as_a_barrier_to_fire_in_the_usa/
  7. https://www.ftadviser.com/pensions/2017/11/28/most-over-50s-underestimate-life-expectancy/
  8. https://www.madfientist.com/safe-withdrawal-rate/
  9. https://en.wikipedia.org/wiki/Trinity_study
  10. http://www.retirementinvestingtoday.com/2018/07/sobering-retirement-income-drawdown.html
  11. https://www.moneywise.co.uk/news/2018-07-03/savers-vastly-underestimate-the-cost-retirement
  12. https://www.moneyadviceservice.org.uk/en/articles/care-home-or-home-care
  13. https://bit.ly/2OiBuIN
  14. https://ukcareguide.co.uk/care-home-costs/
  15. https://www.bmj.com/content/341/bmj.c3584
  16. https://www.independent.co.uk/life-style/health-and-families/nhs-social-care-uk-reform-aneurin-bevan-health-poverty-andy-burnham-a8429571.html
  17. https://www.moneyadviceservice.org.uk/en/articles/are-you-eligible-for-nhs-continuing-care-funding
  18. https://www.moneyadviceservice.org.uk/en/articles/means-tests-for-help-with-care-costs-how-they-work
  19. https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/
  20. https://www.ft.com/content/34c336e8-3e5c-11e8-b7e0-52972418fec4
  21. https://www.telegraph.co.uk/finance/personalfinance/insurance/longtermcare/11441163/Why-you-WILL-have-to-sell-your-home-to-pay-for-care.html
  22. https://www.ageuk.org.uk/information-advice/care/paying-for-care/paying-for-a-care-home/deprivation-of-assets/
  23. https://www.which.co.uk/elderly-care/financing-care/gifting-assets-and-property/343063-what-are-the-rules-for-gifting-assets

The Full English Accompaniment – UK bloggers I follow

What’s piqued my interest this week?

As the glorious summer of Brexit discontent and trade wars continues, I’ve mainly ignored the press in favour of my new garden and unpacking.

Last week a few people commented about the extensive list of links I put up. I’ve got into the habit of reading financial blogs in my spare time at lunch. I thought therefore this week I’d make a list of those I follow. The first ten or so I check every couple of days, other I may look at fortnightly, saving up posts for a stack of reading. I favour UK bloggers, those that write informed (evidenced) guides and experiences, those that share their numbers and those that don’t preach opinions. If a blog starts giving me their own theories based only on anecdotes I quickly switch off and diagnose quackery. I’m aware others have made similar lists, but hopefully I’ll bring to light someone you’ve not read before. Without further ado:

Non-UK:

Anyone obvious I’ve missed? Get in touch.

Have a great week,

The Shrink

 

Side Orders

Other News:

Opinion/ blogs:

What I’m reading:

Eric by Terry Pratchett – light relief

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/
  2. http://quietlysaving.co.uk/
  3. http://thefirestarter.co.uk/
  4. https://firevlondon.com/
  5. https://simplelivingsomerset.wordpress.com/
  6. https://youngfiguy.com/
  7. https://youngfiguy.com/mrs-yfg-why-we-dont-fight
  8. http://thefireeng.com/
  9. http://diyinvestoruk.blogspot.com/?m=1
  10. http://diyinvestoruk.blogspot.com/2018/07/brexit-fudge.html?m=1
  11. https://www.ukvalueinvestor.com/
  12. http://financiallyfreeby40.com/
  13. http://www.thefrugalcottage.com/
  14. https://littlemissfireblog.wordpress.com/
  15. http://www.msziyou.com/
  16. http://www.msziyou.com/inflation-friend-or-foe/
  17. http://www.msziyou.com/nature-or-nurture/
  18. http://fiukmoney.co.uk/
  19. https://3652daysblog.wordpress.com/
  20. https://firethe9to5.com/
  21. https://tuppennysfireplace.com/
  22. http://www.earlyretirementguy.com/
  23. https://sexhealthmoneydeath.com/
  24. http://financialindependenceuk.com/
  25. https://makesaveinvestmoney.com/blog-page/
  26. https://theescapeartist.me/
  27. http://www.retirementinvestingtoday.com/?m=1
  28. https://www.mrmoneymustache.com/
  29. http://thecannycontractor.com/
  30. http://diversifiedfinances.com/
  31. https://www.physicianonfire.com/
  32. http://www.bbc.co.uk/news/science-environment-44841123
  33. http://www.bbc.co.uk/news/business-44838413
  34. http://www.bbc.co.uk/news/business-44840953
  35. http://www.bbc.co.uk/news/business-44891786
  36. http://www.bbc.co.uk/news/business-44893625
  37. http://www.bbc.co.uk/news/business-44882861
  38. http://www.bbc.co.uk/news/uk-england-cornwall-44879858
  39. https://www.tax.service.gov.uk/help-to-save/about-help-to-save
  40. https://www.theguardian.com/business/2018/jul/19/more-than-500-gaucho-cau-workers-lose-jobs-as-restaurant-group-collapses
  41. https://www.theguardian.com/environment/2018/jul/19/subsidies-for-new-household-solar-panels-to-end-next-year
  42. https://www.theguardian.com/money/2018/jul/19/radical-plans-to-end-huge-costs-of-buying-a-freehold-unveiled
  43. https://www.theguardian.com/money/2018/jul/12/new-build-clawback-overage-persimmon-complete-survey
  44. https://www.theguardian.com/business/2018/jul/11/pounds-unexpected-robustness-may-point-to-underlying-strength
  45. https://www.bbc.co.uk/news/44880278
  46. https://www.bbc.co.uk/news/business-44851363