Q4 and 2018 in Review

Quarterly return posts supplement my monthly Financial Dashboard, covering investments in detail and looking at my yearly targets. Here I track purchases and sales, document progress against my (in progress) investment strategy, and discuss re-balancing and changes over time.

So that was that, my first year properly tracking my finances, getting my head screwed on and documenting warts and all. There was the little matter of house moves, a wedding, a honeymoon, two job changes… but never mind all that jazz, how did I get on in Q4 and in relation to my yearly goals?

Q4 Returns:

net worth

  • Cash Savings Accounts £1800 (+£800)
  • Investments £0
  • Cars £3000

My net worth now sits at £~28,500, an increase of £6.5k over the course of the year and £8k since I started tracking in this spreadsheet. Including pension contributions my average saving rate was 15% (5.5% without). This is an area I want to target next year, so alongside simplifying my spreadsheets ahead of investments I will set a 2019 goal to save 25% of my earnings.
Yearly Targets:

Goal 1: Build an emergency fund

My first 2019 goal was to build an emergency fund, as per the r/UKpersonalfinance flow chart (1).


Partial success for 2018 here, as I now have £1600 set aside in a high-interest regular saver. This is equivalent to two months of my contributions to our shared expenses, or one month if I had to pay for everything alone. Foolishly (naively) I put this in an account that pays yearly interest and therefore I’m still using credit cards as my emergency fund until the account matures in a few months time. At that point I’ll shift it to a high-interest current account, using the bank account savings website (2). I mentally recover some pride that I’ve been implementing a pay-myself-first policy, with money going straight into this saver on payday. I’ve also saved a little in my Starling current account (wooo 1% interest), and I now have money in my account at the end of each month instead of being in my overdraft. MrsShrink and I are aiming to hold three months worth of our combined household expenses in our joint high-interest current accounts, and I plan to hold another three months in my accounts. This is a goal I’ll continue to work on for 2019.

Goal 2: Pay off debts

At the start of the year my short terms debts stood at £2.5k to family and £4.3k on 0% interest credit cards. By the start of Q4 this had come down to £1.25k and £4.1k respectively. When I consider the intervening house move and wedding, I’m not too frustrated by the persisting credit card debt. I’ve managed to go through two of the most expensive lifetime experiences without sinking further into the red.

We’re due to start paying down the rest of the loan to our family next month. In the meantime I’ve been paying down credit card debt, which now stands at £2.6k. I’ve closed one redundant (emergency use only, therefore empty) credit card, which actually hit my credit rating as my % usage shot up. I increased my monthly payments to £350 and plan to have my debts cleared within six months (a goal for 2019). Another partial success, which I will slightly rephrase to “Pay off short term debts”. As TI says over on Monevator, I’ve been borrowing from my future self (3).

Goal 3: Reduce superfluous outgoings

This is where I feel I’ve had the most success this year. My headline outgoings have dropped from ~£3300/month to ~£2500 for the household. At the start of the year we were paying rent on one property, a mortgage on another, utilities for both plus storage fees for some of our furniture which was in limbo.

household costs graph

The front-loaded wobble in April/ May/ June was when we moved house twice in two months (while also getting married). Think we seriously confused the local councils.

This was a big reduction in our outgoings, but to push further I need to cut other costs. I’ve already covered my gradual reduction in car spending in Decembers’ Dashboard, so what about going out, groceries and daily living expenses?

household spending

This busy graph is summary data from my Beast Budget spreadsheet. It’s actually the first time I’ve looked at it fully. On first glance it doesn’t look very positive, but I only began tracking many of these items properly (i.e. for both my account and our joint account) in April. If we take out grocery and eating out temporarily as the biggest spends we can see I’m spending a bit more on exercise, less on food at work (no more over-priced canteen lunches!) and about the same for the rest.

ancilliary costs

A target goal for most of Q4 in my Financial Dashboard has been to set a realistic budget for our household food expenses. Over the year we’ve been successful in eating out less, but we’re spending a lot more on food at home. The numbers spite the lies I tell myself.

groceries and eating out

So where is all that grocery money going? To get a clear picture I went through all my accounts for the year and totted it up.

groceries count

groceries graph

We’re fairly consistently spending ~£400 a month on food. Earlier in the year we spent about £300/ month, split between lots of £20 trips to Lidl/ Aldi, and fewer bigger (£50-80) top up shops in big supermarkets. In July we started to get an organic local veg box (pretentious? moi?) and meat box from a local butcher delivered. I had hoped this would cut our costs at the supermarkets, but it looks like we’ve continued to spend the same and this has come in on top. Frustrating! For Q1 2019 we’ll set a monthly target to spend less than £300/month on food as part of my Financial Dashboard goals.

Despite the increased cost we’re going to persist with the local veg and meat. Restricting ourselves to one meat delivery a month means we eat a healthier more varied diet, and the meat itself is fantastic quality making it a treat to have. It comes from a family farm <50 miles away, and the animals live good lives cared for by the butcher’s father and grandfather. There’s been a massive push to highlight the impact of meat on the planet and climate change, but there is little else that would survive the hillfarms of Wales than the hardy sheep (4)! Brexit may also impact the availability of cheap meat from the continent, so I’m securing my protein supply early. Likewise cheap imported fruit and veg may be on the wane, and the quality of our locally delivered veg is fantastic. I enjoy the seasonal variety (it challenges my cooking!) and I’m hoping to grow more through the year to reduce costs and add flavour.

The local veg and meat tie into a goal for 2019; to live more sustainably. This is fairly loose (like many of my topline goals) but will include things like reducing household waste, reducing our travel footprint, cutting food mileage and waste, growing our own food and generally getting rid of all the meaningless plastic tat. I’ll keep a track and will hopefully run a “grow my own savings” spreadsheet like Jono at Real Men Sow (5).

Goal 4: Commence investing!

So this is a partial fail, and I’m not unhappy about that. 2018 has been a crap year for the markets on both sides of the pond (6, 7). Close friends inherited from family members in August and have lost 10% since. I had (again naively) planned to start investing sometime in the middle of the year, but put it off to set an investment plan, pay down my debt and get a solid emergency cash fund. I’m glad I chose to focus on my foundations before building a wobbly investment house. 2019 will be the year of investments.
2019 Goals

  • Goal 1: Build an emergency fund
  • Goal 2: Pay off short-term debts
  • Goal 3: Save 25% of my earnings
  • Goal 4: Live more sustainably
  • Goal 5: Commence investing!

The best of luck to everyone for their 2019 aspirations!

The Shrink

References:

  1. https://www.reddit.com/r/UKPersonalFinance/
  2. https://www.bankaccountsavings.co.uk/
  3. http://monevator.com/why-you-must-get-out-and-stay-out-of-debt/
  4. https://www.theguardian.com/environment/2018/dec/21/lifestyle-change-eat-less-meat-climate-change
  5. http://www.realmensow.co.uk/?page_id=175
  6. https://www.bbc.co.uk/news/business-46720637
  7. https://edition.cnn.com/2018/12/31/investing/dow-stock-market-today/index.html
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The Full English – Just who the hell does the high street cater to?

What’s piqued my interest this week?

I was having an interesting chat this week about the high street with a colleague. We were trying to work out why we would actually go into the town centre. There’s a continuous roll-call in the press of ailing high street chains, the most recent HMV, while Debenhams looks wobbly (1, 2). As an aside I’m intrigued to see where Mike Ashley is dragging all these fallen chains. Some collective Brit-megastore in China?

We came up with the following four things we would actually bother going into town for:

  • an activity – e.g. a bar, an escape room, a haircut, etc
  • inspiration for an item – e.g. Waterstones for a book, John Lewis for a gift, etc
  • items needed NOW – e.g. running around like a blue-arsed fly for a dress shirt
  • items not available online – e.g. local produce from a market, packaging-free items like the avocado-smashing millennial wanker I am

I guess that’s what brand and PR people chat about when stating people want experiences. Most home or clothing goods now gets ordered online as it’s quicker, usually cheaper and I don’t have to deal with the rigmarole of parking/ avoiding mouth-breathers. The bars in our town seem to be doing alright, and there’s restaurants and stores offering activities like VR gaming and a chance to sit-in and touch that chintzy MG Rover (Roewe) springing up left, right and centre. So are town centres becoming more experiential?

Well let’s not forget that the concept of a High Street or shopping centre is pretty modern  in civilisation terms. Prior to the 17th century you had taverns, inns and pubs, and a town market a few times a week, but otherwise you had to go to a specific place to seek out a vendor for your chosen items. Leather workers near tanneries etc. The 17th and 18th centuries saw the true growth of the High Street as a destination to be seen to be shopping (3). The money and riches of the empire fuelled the golden age in the 19th century (4). The start of the downturn came with out-of-town shopping. Prices have been driven down, and quality is now following. Online shopping has undoubtedly taken the wind from the High Street’s sails, but I think it’s overblown. Mail order was around before online shopping. Online is more convenient and offers greater choice than any bricks-and-mortar retailer could, but catalogues have long-offered variety when the High Street couldn’t.

I look forward to a smaller city centre full of things to do, and smaller shops selling local produce not cheap garms for tuppence from Bangladesh. I spoke to MrsShrink about this, and she massively disagrees. She loves shopping, or more specifically she loves rifling through sale-racks looking for discounted items trying to find things her life is incomplete without. So maybe there’s life in the old dog yet.

Have a great week,

The Shrink

Side Orders

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading (now affiliate links):

Tombland – C.J. Sansom – I love the Shardlake series, detective novels set in the Tudor period with a crippled lead character. Beautifully written.

Starting with Chickens – Kate Thear – A hint to a goal for 2019

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. https://www.theguardian.com/business/2018/dec/28/hmv-on-brink-second-collapse-administration
  2. https://www.theguardian.com/business/2019/jan/10/debenhams-chairman-ousted-by-mike-ashley
  3. https://en.wikipedia.org/wiki/High_Street
  4. https://www.bbc.co.uk/news/magazine-11345819
  5. https://www.bbc.co.uk/news/uk-politics-parliaments-46810616
  6. https://edition.cnn.com/2019/01/07/investing/brexit-banks-moving-assets/index.html
  7. https://www.theguardian.com/business/2019/jan/07/diesel-brexit-uk-car-sales-smmt
  8. https://www.bbc.co.uk/news/business-46774053
  9. https://www.theguardian.com/environment/2019/jan/07/brexit-end-boom-in-farmland-prices-forecasts-say
  10. https://www.bbc.co.uk/news/health-46784582
  11. https://www.theguardian.com/society/2019/jan/07/nhs-chiefs-tell-theresa-may-time-to-curb-privatisation-automatic-tendering-care-contract
  12. https://www.bbc.co.uk/news/business-46780279
  13. https://www.theguardian.com/commentisfree/2019/jan/04/cheap-rail-fares-benefit-rich-muddled-thinking-fairness-error
  14. https://www.thisismoney.co.uk/money/diyinvesting/article-6560697/These-experts-claim-make-DIY-investors-like-rich-trust-them.html
  15. https://monevator.com/the-slow-and-steady-passive-portfolio-update-q4-2018/
  16. https://youngfiguy.com/the-economics-of-divorce/
  17. https://theescapeartist.me/2019/01/10/the-3-elements-of-high-performance-story-strategy-state/
  18. https://www.msziyou.com/net-worth-updates-december-2018/
  19. http://www.thefinancezombie.com/2019/01/projections.html
  20. https://www.ukvalueinvestor.com/2019/01/2018-performance-review.html/
  21. https://simplelivingsomerset.wordpress.com/2019/01/11/unitising-my-portfolio-shows-i-sucked-last-year/
  22. https://3652daysblog.wordpress.com/2019/01/11/its-a-tracker/
  23. https://littlemissfire.com/december-income-and-expenses-report-2018-2/
  24. https://gentlemansfamilyfinances.wordpress.com/2019/01/11/fire-ice-the-cost-of-family-holidays/
  25. http://earlyretirementinuk.blogspot.com/2019/01/2018-fire-and-achievements.html
  26. http://thecannycontractor.com/passive-income-report-quarter-4-2018/
  27. https://thehumblepenny.com/100-things-that-made-my-year-2018
  28. https://thesavingninja.com/2018-reviewed/
  29. https://forkmycrumble.com/december-2018-status-update/
  30. https://obviousinvestor.com/wolfe-wave-tlt-bond-etf-weekly-target-hit/
  31. https://indeedably.com/almost-exactly-wrong/
  32. https://indeedably.com/grand-design/
  33. https://www.homesandproperty.co.uk/home-garden/gardening/when-to-plant-a-fruit-tree-and-which-variety-to-choose-for-the-best-results-a127061.html
  34. https://lovelygreens.com/year-round-kitchen-garden-ideas/

Full English Accompaniment – It’s ok to not be ok

What’s piqued my interest this week?

Over the Christmas and New Year break I’ve been reading lots of blogs from across the pond and around the world. I don’t usually talk mental health on this blog. As part of a strict work-life balance the closest I get is usually philosophy. A post by Liz, Mrs Frugalwood, prompted me to break that rule (1). I’ve particularly enjoyed the tales from the Frugalwoods, whose ‘homestead’ dream sits nicely with my own smallholding aspirations. In her post, Liz talks articulately and openly about the experience, the feelings, of postpartum depression.

“My friend Melanie Lockert recently told me that “depression lies to you.” It tells you that you’re worthless, it tells you that you’re hopeless and stupid. But this isn’t true. You can be pulled out of this heavy fog. Please allow yourself to be helped.” (1)

Other UK finance bloggers have also eloquently related their experiences of mental illness; Mr and Mrs Young FI Guy, Little Miss Fire, Wephway at Deliberate Living UK and Sonia at MFTMG to name a few (2, 3, 4, 5, 6). I’m sure there are others, and I’m sure there are those who choose not to share. Mental illness is hidden in plain sight. Every week, one in six adults experiences mental health problems (7). One in five adults has considered suicide (7). Mental illness is the biggest cause for lost productivity globally, anxiety and depression alone accounting for $1 trillion lost annually (8). For stigma to remain around something so common is crazy.

I hope the stigma is improving, certainly since I’ve been practising more people from all walks of life present to see us rather than suffering in silence. For some people there’s a reason, a trigger. Life is full of bumps in the road, stresses and unexpected turns of events which can throw the wheel off your cart. Everybody deals with things in different ways, and what could be a major issue for one person could be a casual shrug for another. We’re all wired differently. Some people’s moods vary more (9). For other people there is no identifiable trigger or cause. It just is. Mental illness is an illness. You don’t need a reason to get appendicitis, it’s just crap luck.

It stands to reason that the rates of mental illness should be no different in the financial blogging community. I’ve privately wondered if they’re actually higher. Financial independence and diligent saving takes order, structure and self-control. It requires attention to detail and extensive planning. When something throws an unexpected spanner in the works, e.g. MMM’s ongoing divorce, it can put a lot of stress on not only your financial system but your mental system too (10). You can’t plan for everything.

Have a great week,

The Shrink

N.B. Apologies for the late post. I’ve spent the weekend away, bumped into Mr and MrsYFG, and discovered that we’ve known each other several years through a mutual friend. Small world.

Side Orders

Other News

Opinion/ blogs:

  • I really enjoyed this video from The Plain Bagel on the Grossman Stiglitz Paradox

The kitchen garden:

What I’m reading (now affiliate links):

Rivers of London – Ben Aaronovitch – This was an absolute corker that I read in a fortnight. First time in ages I’ve stayed awake to one am reading. Looks like another series to get into.

Starting with Chickens – Kate Thear – A hint to a goal for 2019

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. https://www.frugalwoods.com/2018/09/07/how-a-diagnosis-of-postpartum-depression-changed-my-life/
  2. https://youngfiguy.com/depression-and-working-in-finance/
  3. https://youngfiguy.com/mrs-yfg-anxiety-and-working-in-law/
  4. https://littlemissfireblog.wordpress.com/2018/11/09/your-mental-health-is-more-important-than-your-bank-balance/
  5. https://deliberatelivinguk.wordpress.com/2018/05/16/on-depression/
  6. http://www.moneyforthemoderngirl.org/counselling-and-financial-independence/
  7. https://www.mentalhealth.org.uk/publications/fundamental-facts-about-mental-health-2016
  8. https://www.who.int/mental_health/in_the_workplace/en/
  9. https://www.raptitude.com/2018/10/its-okay-to-feel-bad-for-no-reason/
  10. https://www.mrmoneymustache.com/2018/12/31/divorce/
  11. https://www.bbc.co.uk/news/business-46720637
  12. https://www.bbc.co.uk/news/business-46736964
  13. https://www.bbc.co.uk/news/business-46739805
  14. https://www.moneysavingexpert.com/news/2019/01/26-30-railcard-goes-on-sale-today/
  15. https://www.dailymail.co.uk/money/guides/article-6545361/30-clever-ways-transform-fortunes-2019.html
  16. https://www.dailymail.co.uk/money/diyinvesting/article-6545167/THE-PRUDENT-INVESTOR-tips-protect-2019-disaster-Jeremy-Corbyn-strikes.html
  17. https://www.theguardian.com/environment/2019/jan/03/uk-power-stations-electricity-output-lowest-1994-renewables-record
  18. https://www.independent.co.uk/voices/stock-market-pound-dollar-value-facebook-apple-financial-volatility-economics-a8704056.html
  19. http://www.retirementinvestingtoday.com/2019/01/2018-hyp-review.html
  20. https://youngfiguy.com/my-top-books-of-2018/
  21. http://quietlysaving.co.uk/2019/01/01/december-2018-savings-plus-roundup/
  22. http://quietlysaving.co.uk/2019/01/05/2019-goals/
  23. https://thesavingninja.com/savings-report-6-december/
  24. http://www.thefrugalcottage.com/2019-goals/
  25. http://www.next-chapter-fi.uk/spending-report-december-2018/
  26. https://indeedably.com/conflict-of-interest/
  27. https://indeedably.com/spectator-sports/
  28. https://indeedably.com/i-own/
  29. https://simplelivingsomerset.wordpress.com/2019/01/04/new-year-new-you-new-hope/
  30. https://theescapeartist.me/2019/01/03/get-rich-with-no-regrets/
  31. http://eaglesfeartoperch.blogspot.com/2019/01/investment-review-december-2018.html
  32. https://littlemissfireblog.wordpress.com/2019/01/03/ive-moved-house/
  33. https://littlemissfire.com/why-new-years-resolutions-fail-and-ours-wont/
  34. http://www.thefinancezombie.com/2019/01/its-a-wrap.html
  35. https://gentlemansfamilyfinances.wordpress.com/2019/01/04/month-end-accounts-december-2018-2/
  36. http://earlyretirementinuk.blogspot.com/2019/01/december-general-overview.html
  37. https://obviousinvestor.com/growth-portfolio-update-for-december-2018/
  38. https://firevlondon.com/2019/01/05/december-returns-and-2018-review/
  39. https://www.jackwallington.com/looking-back-on-a-year-of-vegetables-fruit-and-edible-flowers/
  40. https://sharpenyourspades.com/2019/01/02/2018-an-allotment-year-in-pictures/
  41. https://paulnelson90.wordpress.com/2018/12/30/yule-celebrations-the-wheel-of-the-year/

 

The Financial Dashboard – December 2018

The goals for December were:

  • Sell five more childhood toys. Sell five more car parts – Failure
  • Set a realistic monthly budget target for motoring – Success
  • Establish weekly and monthly joint grocery account expenses – Success
  • Finish reading Tim Hale’s Smarter Investing – Success

Checking the assets and liabilities:

Assets Dec

Dec Liabilities

These are taken from my Beast Budget spreadsheet. This month my net worth grew by £1392 (~5%), briefly hitting £30k. I’m happy with this considering it’s Christmas and so a lot of gifts, hosting and celebrating meant I spent more going out and cooking in than most months. I saved another £200 on my 5% Santander saver, £200 into a Starling 1% interest emergency fund pot, plus the usual pensions etc

Goals:.

Goal achieved:  Finish reading Tim Hale’s Smarter Investing

Done and dusted, and guiding me in the formulation of my Investment Strategy Statement.

Goal achieved: Set a realistic monthly budget target for motoring 

To do this I went back through my financial records for the whole year. In total I spent £6480.55 this year on transportation in varying guises. Of this I’m removing £179.36 which is what I’ve paid for public transport, parking and that bloody Severn crossing toll over the year. That leaves the following:

Car

The change in job in August really halved my petrol spend, but this will go back up with a further job change next month. I’m going to allocate £150/month to that, plus a further £50/month for car tax. I gave up my second garage last month, which will see me save £120/month. My insurance costs aren’t terrible as I keep one car garaged, live in a reasonable area and have 10 years of NCB. Rather than taking it on the nose I’m going to put £60 aside a month for 2019 to hold enough on hand to cover it as and when it arises.

The elephant in the room is the parts and labour costs. My reliable daily cost me £1031.16 over the year for it’s ~10,000 miles, which is MOT plus related work, a major service, a large amount of suspension work, two tyres and various other cosmetic bits. It comes out to £86/month, competitive with any PCP or lease deal before considering depreciation. On that, the old girl depreciated about £300 over the year, so call it £110/month to run about in a powerful estate. Or to look at it another way, I spend 12p/mile on parts and labour, 16p/mile on fuel. Reasonable Bangernomics but could do better.

And then there’s the Red Car. This was £1650 spent to complete a restoration which still has some minor niggles to sort. Money that has been spent for a fun hobby, but in no way recoverable on a car worth £2500 on a good day. Bugger. I’m going to continue to tinker the final issues, but plan to sell and recoup some costs before replacing with something less of a financial sinkhole. I also plan to replace the green car next year with something a bit newer to keep in my perceived sweet spot of depreciation vs reliability (for me 10-15 years).

490

With the plan to sell both cars and buy replacements in 2019 I will assign:

  • £50/month Car tax
  • £150/month Fuel
  • £60/month Insurance
  • £200/month put aside for parts, labour, MOT and replacements

If I can keep to £460/month then by the end of 2019 I’ll have saved £980 over what I’ve spent in 2018 on cars. Not vast, but an achievable goal I think, whilst also retaining a fun little hobby.

Goal achieved:  Establish weekly and monthly joint grocery account expenses

I’m going to cover this in the Q4 Quarterly Returns update, as I’ve run a lot of numbers to complete an accurate budget.

Goal failed:  Sell five more childhood toys. Sell five more car parts

Not without trying. I’ve had a fair amount of interest on eBay, Gumtree and (shudder) Facebook marketplace. Despite lots of assurances people definitely want stuff, no-one has actually turned up to take it off me. I’ll carry this over and attack it next month.

Budgets:

  • Daily living and entertainment – Budget £600(!), spent £131, last month £?
  • Transport – budget £300, spent £233.69, last month £126.12.
  • Holiday – £150, spent £209, last month £lots. Going skiing this month, so paying in advance.
  • Personal – £50/ £42.21/ £20.64
  • Loans/ Credit – £200/ £556.57/ £571.77. Paying any new additions plus £350 off my credit card every month now.
  • Misc – £50/ £20/ £16.40.

In the garden:

We ate the last of our late potatoes with our Christmas dinner, which was a real treat. The last of the winter salad veg is running to seed or bolting now, so I’ve had to cut back the lettuces etc. Still a bit of spinach beet and lambs lettuce surviving. I’ve repaired broken panes in our greenhouse and started staking out the new raised beds.

Goals for next month:

  • Sell five more childhood toys. Sell five more car parts.
  • Develop a single spreadsheet for all my financial data/ graphs etc
  • Finish my Investment Strategy Statement
  • Check our household green credentials
  • Check utilities for potential savings

What’s in the pipeline:

  • Quarterly Returns Q4 2018
  • Property Renovation Lessons Part II
  • Investment Strategy Statement – Part 4 – Funds, Accounts & Rebalancing
  • Frugal Motoring – Should I buy a Hybrid?
  • Plus the usual Full English Accompaniments and other drivel…

Happy January everyone,

The Shrink

The Full English Accompaniment – A time for reflection

What’s piqued my interest this week?

With most blogs falling silent at this time of year, it seems we all go into a state of contemplative reflection. Or maybe it’s a cumulative cheese, booze, chocolate and sprout hangover. Because of this I’ve expanded my net of blogs in the side orders section, so readers may find someone new of interest.

Many blogs, including this one, are publishing year end posts looking back on all they’ve achieved. For me that included jumping aboard the financial independence bandwagon, and starting this blog as a journal and lodestone. It’s important to reflect and remember how lucky we are. Financial independence, despite what some people say, is not for everyone (1). While some of the frugal lessons run both ways, having an emergency fund in the bank is a dream for many. A study this year by the Social Metrics Commission found 4.5 million children in the UK are living in poverty (2). The number of people relying on food banks has risen by 13% since this time last year (3). Figures only tell half of the story, which is why I’d recommend reading last week’s ‘How I spend it’ in the Guardian (4). It’s a human story, the experiences of a mother, an asylum seeker, trafficked to the UK and now forced to live on a £100/week allowance.

As we sit in our warm homes, eating our Christmas dinner and swigging our New Year’s plonk, let’s not forget the message of that classic, A Muppet Christmas Carol. Love and care to our fellow people, lest we all become FIRE Scrooges.

Have a great 2019,

The Shrink

N.B. I’ve had a bit of a restructure of the top menu this week, to make the site easier to navigate. Apologies for RSS spam!

Side Orders

Other News

Opinion/ blogs:

The kitchen garden:

Nothing to report here, as all my usual blog suspects have shut up for the Christmas break.

What I’m reading (now affiliate links):

Rivers of London – Ben Aaronovitch – Absorbing stuff

Starting with Chickens – Kate Thear – A hint to a goal for 2019

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. https://theescapeartist.me/2017/11/08/financial-independence-is-for-everyone/
  2. https://www.theguardian.com/society/2018/sep/16/new-study-finds-45-million-uk-children-living-in-poverty
  3. https://www.trusselltrust.org/news-and-blog/latest-stats/mid-year-stats/
  4. https://www.theguardian.com/money/2018/dec/22/im-an-asylum-seeker-ive-not-been-allowed-to-work-for-three-years
  5. https://www.telegraph.co.uk/news/2018/12/29/240000-nhs-workers-abandon-gold-plated-pension-plan/
  6. https://www.theguardian.com/business/2018/dec/28/exoskeleton-suits-can-superhuman-frames-cross-into-the-mainstream
  7. https://www.trustedreviews.com/news/samsung-s10-hologram-3637674
  8. https://www.morningstar.com/articles/906343/the-price-of-popularity-a-new-stock-market-model.html
  9. https://www.theguardian.com/business/2018/dec/30/the-uks-house-price-boom-is-slowing-and-thats-welcome-news
  10. https://www.bbc.co.uk/news/business-46708075
  11. https://www.bbc.co.uk/news/business-46690452
  12. https://www.theguardian.com/business/2018/dec/28/the-year-in-business-who-were-the-winners-and-losers
  13. https://www.bloomberg.com/opinion/articles/2018-12-27/federal-reserve-is-watching-world-not-just-its-domestic-mandate?srnd=opinion
  14. https://www.theguardian.com/money/2018/dec/29/im-a-knight-and-i-live-by-the-chivalric-code
  15. https://theescapeartist.me/2018/12/26/the-fundamentalists-are-fundamentally-wrong/
  16. https://thefemalemoneydoctor.com/goals-for-2019/
  17. https://ofdollarsanddata.com/kind-or-hostile/
  18. https://theirrelevantinvestor.com/2018/12/27/a-history-of-bear-market-bottoms/
  19. http://www.frugalwoods.com/2018/12/28/tractor-chains-and-other-november-2018-expenditures/
  20. http://www.frugalwoods.com/2018/12/18/this-month-on-the-homestead-snow-power-and-celebrations/
  21. https://littlemissfireblog.wordpress.com/2018/12/29/why-pay-off-the-mortgage/
  22. http://www.thefrugalcottage.com/december-2018-a-month-in-review/
  23. http://diyinvestoruk.blogspot.com/2018/12/portfolio-review-end-2018.html
  24. https://theenglishinvestor.com/the-english-investor-end-of-year-review-2018-edition/
  25. https://www.foxymonkey.com/stock-market-crash-good/
  26. https://www.shoestringcottage.com/frugal-year-shoestring-cottage-review-2018/
  27. https://debtcamel.co.uk/debt-advice-2018-round-up/
  28. https://cashflowcop.com/property-moose-why-property-crowdfunding-is-not-for-me/
  29. http://thecannycontractor.com/my-dress-rehearsal-with-post-fi-life/
  30. https://indeedably.com/take-flight/

 

The Full English Accompaniment – The rise and rise of P2P lending

What’s piqued my interest this week?

P2P leaves me puzzled. I understand the premise, I understand the attraction, but where does it fit in a balanced portfolio? Some of my fellow UK finance bloggers have dipped toes in the P2P waters; Monevator, Weenie and the other TFS to name a few (1, 2, 3). For many, including new reader the Obvious Investor, it appears to be separate from the rest of their portfolio, held as an independent entity or in an oddments corner (4). P2P has come a long way since the launch of the first platform, Zopa, in 2005, with 40+ platforms catering to different appetites (5, 6). As it comes of age and into the mainstream how do you classify P2P as an asset class in a mature portfolio? Here’s my amateur synthesis.

Risks

The appeal of P2P appears to be yield, projected at anywhere from 4-10% depending on the platform (6). This complies with the equity risk premium theory, and I’d be interested to find out if research supports this. P2P rose in popularity out of the 2008 recession. Banks clamped down on high risk lending, so those with poor credit histories or weak financial positions had to look elsewhere. P2P was safer for all concerned than loan sharks/ payday lenders. Savers chasing returns followed the risk premium to P2P seeking better rates than the crappy 1% offered by bonds and cash ISAs (7). P2P sits in the ‘Return Engine’.

Inflation Risk

This is primarily the reason for investing in P2P. With inflation running at 2.7% your money is actively being eroded in a Cash ISA. Currently the RateSetter offer will give you 14% for the first year. The 4% thereafter may not look so rosy if inflation jumps to 5% and standard bank interest rates track.

Default Risk 

This is primarily where P2P makes it’s returns over traditional bank loans. The theory argues that the platforms cut out the banks as middle-men and allow savers to loan out their cash to borrowers semi-directly. To attract savers you need decent returns, which means decent interest rates, which means the interest rates for the borrowers are necessarily high. Why would you choose those interest rates? From my laymans point of view there appear three reasons for a business to choose to borrow P2P:

  1. The act of borrowing P2P acts as proxy advertising as you have to attract funders from a pool of individuals who are by definition tech-savvy, cash-rich early adopters. They may well be your target market who are interested in your product.
  2. Your business pitch is disruptive, esoteric or quirky, and therefore relies upon a funding source which capture and project the emotive or story-driven level ignored by banks and other lenders. This is something lost with the move to centralised banks, and away from your friendly local bank manager.
  3. Your personal or business financial history is absent or poor, precluding larger or traditional funding sources.

Point 1 seems a fair trade off for certain industries. Point 2 and 3 seem classical default risk. Your story may be good, your disruptive idea genius, but if your number don’t stack up well… *whomp whomp*. Banks lending criteria became tighter because the numbers tell the score, and the casual lending of the early 00s led to a financial crisis. Plus they were straight up told to by governments. P2P fills the lending pool where banks daren’t or are legislated not to go. I should point out that the counterargument from P2P lenders is that rogue and risky lending continues to occur across all debt instrument markets (8).

Liquidity Risk

Another classic, but appears to depend on the lending platform. Some platforms (Abundance, House Crowd) allow you to pick who you lend to, others select a time period (RateSetter, Zopa) and pool your investment with other (9, 10, 11, 12). Of the options I’d prefer pooled investments as it decreases the above default risk, and diversification is always better. A few platforms offer in house secondary markets for resale if you decide to cash out. Where that’s not possible your P2P investment is tied up either for the time period, or until the project/ business is completed, or can be returned for a fee (13). Both the liquidity risk and the default risk have me making comparisons between P2P and junk bonds. These comparisons are made elsewhere as well, so perhaps P2P is a bit more palatable, or smartly wrapped (14)?

Legislation

Speaking of wrappers, the attention of governments is an indication of just how far we’ve come. First IFAs were able to recommend P2P lending options, and then in April 2016 the Innovative Finance ISA was born (6, 15, 16). These operate in parallel to traditional Cash and S&S ISAs, offering a tax-free wrapper for your investments. They have their own pitfalls and complications I won’t go into here.

Legislation is a work-in-progress for P2P, but already as companies have grown they have begun to expand. This month Zopa has been granted a banking license by the FSCS, and declared it’s intention to open a traditional savings arm as a challenger bank which will be protected by the FSCS guarantee (17, 18). The FSCS guarantee won’t cover Zopa’s P2P lending.

No P2P lending/ platform is covered by the FSCS guarantee.

All invested money is at risk.

Returns are not guaranteed. There are plenty of stories in the news of people losing out where their loans default (19). The lines blur with junk bonds further. After all, you can invest directly, P2P, in small companies by buying bonds/ shares/ investments. Monzo recently ran a round of crowdfunding (20, 21)Brewdog continues to run it’s Equity for Punks V, with an eye-watering valuation (22). Those investments would also sit in a little ‘oddments’ pile of your portfolio.

Counterparty Risk

Here’s the nub of my concerns. As we look at the coming bear markets, the rogue wave in our recent trade winds, how will P2P fare. The last week has been the worst since 2008, when Zopa etc were in their infancy (23). Those times place stresses on weak companies, which fold, and default. How will P2P platforms fare? Performances and default rates are entirely based upon the platform (24). Zopa expected a 4.52% default rate in 2017, the last time it approached that was 2008 (4.2%) (15). Some platforms have provision funds to protect savers (5, 13, 15). This hasn’t stopped black holes appearing in the ledger books of lenders such as Ratesetter, forced to buy out the debts of bad investments (25). Some are bullish in their outlook, seeking further institutional investment to expand (26, 27). It remains to be seen how many P2P platforms will succumb to bad loans.

Summary

These are merely an amateur’s thoughts and ramblings on P2P. YFG has also done an analysis from a more professional point of view (28). As always, do your own research.

Have a great Christmas,

The Shrink

Side Orders

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading:

Fools and Mortals – Bernard Cornwell – finished this – good but not Sharpe or Uhtred

Rivers of London – Ben Aaronovitch – the new bedside fiction

Smarter Investing 3rd edn – Tim Hale – very close to finishing this

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. https://monevator.com/ratesetter-high-interest-offer/
  2. http://quietlysaving.co.uk/2017/06/08/investment-strategy-updated/
  3. http://thefirestarter.co.uk/november-income-expenses-report-well-the-run-had-to-end-somewhere/
  4. https://obviousinvestor.com/p2p-lending-portfolio-update-nov-2018/
  5. https://www.theguardian.com/money/2015/mar/06/peer-to-peer-lending-p2p-returns-investment
  6. https://www.which.co.uk/money/investing/types-of-investment/peer-to-peer-investing/innovative-finance-isas-explained-aq1tx2u2ms9j
  7. https://www.moneywise.co.uk/investing/peer-to-peer/how-p2p-can-be-high-income-kicker-investment-portfolio
  8. https://www.mortgagesolutions.co.uk/specialist-lending/2018/11/20/why-the-recent-criticism-of-p2p-lenders-is-misplaced-assetz-capital/
  9. https://www.abundanceinvestment.com/investments
  10. https://www.thehousecrowd.com/property-investment-opportunities
  11. https://www.ratesetter.com/
  12. https://www.zopa.com/lending
  13. https://www.moneywise.co.uk/investing/peer-to-peer/understanding-the-risks-peer-to-peer-lending
  14. https://www.proplend.com/news/bonds-vs-peer-to-peer-lending/
  15. https://www.moneyobserver.com/should-savers-be-seduced-peer-to-peers-strong-returns
  16. https://www.lendingworks.co.uk/innovative-finance-isa/setting-your-ifisa-what-you-need-know
  17. https://www.thisismoney.co.uk/money/saving/article-6458247/P2P-lender-Zopa-reveals-plans-digital-bank-launch-receiving-banking-licence.html
  18. https://www.bankingtech.com/2018/12/zopa-unleashes-uk-challenger-bank/
  19. https://www.theguardian.com/money/2017/jun/03/peer-to-peer-lending-funding-circle-promised-returns-losing-money
  20. https://monzo.com/invest/
  21. https://www.moneywise.co.uk/blog/edmund-greaves/investing-monzo-and-what-you-could-consider-instead
  22. https://www.brewdog.com/equityforpunks
  23. https://www.bbc.co.uk/news/business-46654064
  24. https://www.ftadviser.com/investments/2017/04/28/six-things-to-know-about-p2p/?page=1
  25. https://www.telegraph.co.uk/business/2018/12/09/ratesetter-falls-deeper-red-acquiring-carcass-motor-finance/
  26. http://www.p2pfinancenews.co.uk/2018/12/13/funding-circle-outlook-risk/
  27. http://www.p2pfinancenews.co.uk/2018/12/07/funding-circle-1bn-waterfall/
  28. https://youngfiguy.com/p2p-lending-a-review-of-the-market/
  29. https://www.theguardian.com/business/2018/dec/20/us-stock-markets-drop-interest-rates-hike-looming-shutdown
  30. https://www.theguardian.com/business/2018/dec/19/federal-reserve-interest-rates-raised-trump
  31. https://www.gov.uk/government/publications/tax-on-cryptoassets/cryptoassets-for-individuals
  32. https://www.which.co.uk/news/2018/12/should-you-consider-getting-a-seven-year-fixed-rate-mortgage/
  33. https://www.autocar.co.uk/car-news/industry/jaguar-land-rover-‘poised-cut-5000-jobs’
  34. https://www.bbc.co.uk/news/business-46590130
  35. https://www.theguardian.com/politics/2018/dec/16/brexit-is-a-business-bankrupter-small-firms-brace-for-no-deal
  36. https://www.bbc.co.uk/news/education-46591500
  37. https://www.moneywise.co.uk/news/2018-11-19/uk-house-prices-fall-more-5000-sharpest-falls-the-south-sellers-lower-expectations
  38. https://www.theguardian.com/society/2018/dec/16/vulnerable-teenagers-helping-hand-finances
  39. https://www.dailymail.co.uk/money/pensions/article-6507381/Im-saving-400-month-projected-pension-65-puny.html
  40. https://www.theguardian.com/commentisfree/2018/dec/18/ivan-rogers-brexit-bombshell-digested-home-truths
  41. https://www.theguardian.com/politics/2018/dec/22/frankie-boyle-review-2018-forget-brexit
  42. https://www.autocar.co.uk/car-news/advice/winter-tyres
  43. https://monevator.com/vanguard-readying-its-personal-pension-sipp/
  44. http://quietlysaving.co.uk/2018/12/18/very-muscular-and-other-things/
  45. https://www.ukvalueinvestor.com/2018/12/how-to-measure-a-companys-growth-rate.html/
  46. https://www.ukvalueinvestor.com/2018/12/why-dividend-investors-should-look-at-free-cash-flow.html/
  47. https://theescapeartist.me/2018/12/15/now-thats-what-i-call-financial-independence-14-2/
  48. https://theescapeartist.me/2016/01/21/the-3-numbers-that-can-make-you-a-millionaire/
  49. https://theescapeartist.me/2018/12/11/reset-how-one-family-changed-their-life/
  50. https://littlemissfireblog.wordpress.com/2018/12/15/the-problem-with-the-traditional-business-model/
  51. https://littlemissfireblog.wordpress.com/2018/12/18/tried-and-tested-can-you-make-money-with-be-my-eye/
  52. http://www.msziyou.com/female-money-doc/
  53. https://youngfiguy.com/healthcare/
  54. http://www.thefrugalcottage.com/dividend-income-november-2018/
  55. https://pursuefire.com/monthly-net-worth-report-6-november/
  56. https://gentlemansfamilyfinances.wordpress.com/2018/12/13/the-dangers-of-double-counting/
  57. https://gentlemansfamilyfinances.wordpress.com/2018/12/21/how-to-survive-a-bear-market-attack/
  58. https://indeedably.com/what-do-you-do-when-you-do-what-you-do/
  59. https://indeedably.com/fire-extinguisher/
  60. http://diyinvestoruk.blogspot.com/2018/12/finsbury-g-i-trust-final-results.html?m=1
  61. https://www.retirementinvestingtoday.com/2018/12/moving-to-cyprus-from-uk-part-1.html
  62. http://twothirstygardeners.co.uk/2018/12/christmas-gift-guide-2019-gin-beer-whisky-stihl-bauble/
  63. https://www.countryliving.com/uk/homes-interiors/gardens/g25624008/garden-trends-2019-society-garden-designers/

The Full English Accompaniment – Wealth whispers

What’s piqued my interest this week?

This picture, from meta-aggregation site Reddit, triggered me.

The Shrink comes from an old family. We have an extensive family tree taking up many interconnected A1 sheets, and several books have been written about both maternal and paternal ancestors. These families are not rich. They fell from grace long before my parents came around, and many of the extended family survive at the mercy of universal credit. This is one of the reasons for my peculiar attitude to wealth. I have learnt from my family that all that is won can be lost by your children. Attitude is more important than cash. The Shrink’s great x 5 grandfather may have been a Victorian Buffett, but he didn’t teach his grandson not to splash it all on fine wine and pheasants.

This created an underlying distrust of overt displays of wealth. Encounters with people classically defined as aristocrats reinforced this. No lord gives a damn about your 68-plate Landrover. Wealth whispers.

I feel this attitude sits well with financial independence. You don’t maintain great wealth by spending it frivolously. To an extent, I think the financial independence movement needs to credit the millionaire next door concept as part of it’s roots. The original 1996 Millionaire Next Door book found that millionaires were disproportionately clustered in blue-collar neighbourhoods due to white-collar professions spending on luxury goods and status items (1). The follow-up focused on how financial attitudes (and advertising/ cultural shifts) pushed people to live a pseudo-affluent lifestyle of “freedom to consume” (2). Credit and loans means you can consume whatever you want, when you want, and deal with the consequences later. Consumerism and debt props up a stagnating economy by borrowing from future prosperity. Lifestyle magazines and the media focus on self-made stars (footballers, rockstars etc) encourages people to believe that anyone can rise to the top and have everything. And even if you don’t get that million-pound AC Milan contract you can emulate your favourite footballer by buying a Merc C-class. You just have to get finance at 18.9% APR to do it, paid for by your job managing a Vodafone call centre. Other brands are available.

Across the ages debts don’t make a person rich. Greeks and Romans knew the value of saving. Samuel Pepys turned £25 to £10,000 by working hard and saving (3). The core concepts of saving, spending only what you can afford, keeping debts and credit lines small cross-cut history and movements. Modern articles on how to be the millionaire next door could be copy-pasted to FI (4). The lesson is that you can’t get rich by ‘flashing the cash’.

Have a great week,

The Shrink

Side Orders

Other News

Opinion/ blogs:

The kitchen garden:

What I’m reading:

Fools and Mortals – Bernard Cornwell

Smarter Investing 3rd edn – Tim Hale – hu-bloody-rah

Enchiridion by Epictetus – Bedside reading for a bad day

References:

  1. https://en.wikipedia.org/wiki/The_Millionaire_Next_Door
  2. https://thinksaveretire.com/the-next-millionaire-next-door/
  3. https://www.independent.co.uk/arts-entertainment/books/features/samuel-pepys-diary-a-decade-worth-recording-5515913.html
  4. https://www.marketwatch.com/story/heres-how-you-can-be-the-millionaire-next-door-2015-07-14
  5. https://www.bbc.co.uk/news/business-46505692
  6. https://www.bbc.co.uk/news/business-46502650
  7. https://www.bbc.co.uk/news/business-46505688
  8. https://www.independent.co.uk/life-style/gadgets-and-tech/news/bitcoin-price-collapse-cryptocurrency-latest-value-prediction-analysis-a8675766.html
  9. https://www.independent.co.uk/travel/news-and-advice/crossrail-delay-opening-latest-update-london-underground-elizabeth-line-tfl-sadiq-khan-a8676076.html
  10. https://www.reuters.com/article/us-usa-stocks-bears/almost-half-of-sp-500-stocks-in-a-bear-market-idUSKBN1O928G
  11. https://www.bbc.co.uk/news/business-46530860
  12. https://www.reuters.com/article/us-imf-economy-lipton/imf-warns-storm-clouds-gathering-for-global-economy-idUSKBN1OA0SG
  13. https://www.telegraph.co.uk/news/2018/12/11/commuter-victory-rail-firm-ditches-ironing-board-seats-new-trains/
  14. https://www.theguardian.com/us-news/2018/dec/12/as-climate-change-bites-in-americas-midwest-farmers-are-desperate-to-ring-the-alarm
  15. https://www.dailymail.co.uk/money/investing/article-6484131/The-best-worst-performing-funds-investment-trusts-2018-far-revealed.html
  16. https://www.telegraph.co.uk/business/2018/12/09/ratesetter-falls-deeper-red-acquiring-carcass-motor-finance/
  17. https://www.cnbc.com/2018/12/13/richard-branson-the-9-to-5-workday-and-5-day-work-week-will-die-off.html
  18. https://simplelivingsomerset.wordpress.com/2018/12/12/odd-christmas-sales-and-consumerism/
  19. https://monevator.com/weekend-reading-can-we-take-back-control-from-brexit/
  20. https://monevator.com/money-is-power/
  21. https://youngfiguy.com/mrs-yfg-how-my-poor-self-worth-costs-me-10000-a-year/
  22. http://www.msziyou.com/overlooked-slovenia-bulgaria/
  23. https://www.pragcap.com/3-reasons-hold-long-bonds-short-rates-rise/
  24. https://humbledollar.com/2018/12/first-impressions/
  25. https://www.financialsamurai.com/patient-capital-is-the-key-to-long-term-wealth/
  26. http://www.retirementinvestingtoday.com/2018/12/is-visible-fire-movement-changing-for.html
  27. http://quietlysaving.co.uk/2018/12/09/restarting/
  28. https://littlemissfireblog.wordpress.com/2018/12/11/november-side-hustle-report/
  29. https://littlemissfireblog.wordpress.com/2018/12/13/monthly-catch-november-to-december-18/
  30. https://littlemissfireblog.wordpress.com/2018/12/08/diversification-isnt-only-for-your-portfolio/
  31. https://gentlemansfamilyfinances.wordpress.com/2018/12/04/how-i-learned-to-stop-worrying-and-love-the-calm/
  32. https://gentlemansfamilyfinances.wordpress.com/2018/12/07/stocks-and-shares-more-like-shocks-and-scares/
  33. https://gentlemansfamilyfinances.wordpress.com/2018/12/11/graphs-i-like-income-vs-outgoings/
  34. http://www.thefinancezombie.com/2018/11/still-ere.html
  35. https://inspiringlifedesign.com/posts/2018-goals-review.html
  36. https://indeedably.com/financial-planning/
  37. https://indeedably.com/opportunity-cost/
  38. https://sharpenyourspades.com/2018/12/06/10-highlights-from-the-grow-your-own-blogs-november-2018/