April 2022 – Lifestyle creep in the face of inflation

The news is full of horror stories about the ‘cost of living crisis’ (1, 2, 3). People choosing between heating and eating. It’s getting bad for those at the financial margin, and the theory goes once that punished margin hits a tipping point, to a recession we shall head. The prospect of rocketing inflation isn’t a surprise if you’ve had your ear to the ground, it was kind of evident at least a year ago, when Monevator was already talking about it (4).

Fearing such things I locked in a 1.65% mortgage for five years twelve months ago. Should see us through the worst, or at least until we’re ready to move and capitalise on a distressed market. Elsewhere inflation is pushing up our monthly budgets. It has made me realise how much each month was spent on discretionary items, eating out, etc. I thought we were pretty good, but now the amount we’re spending on essentials has gone up, I’m suddenly seeing where we need to, and could have, reined in spending.

I think this was a strong case of insidious lifestyle creep. In the past couple of years we’ve added a baby with associated costs to the family, but we’ve also as a couple had many conversations about how we’re living. For a long time we’ve continued our fairly student lifestyles, not unlike Monevator in his 30s (5). Yes we had a house, but we bought a wreck when we were young, bought tools and did it up, turning a bit of a profit. We lived in cheap parts of the UK, where our mortgage was comparable to rent. Furniture was hand-me-downs, flea market or charity shop bought (BHF FTW). Clothes were bought on sale or from charity shops, from good brands in fairly timeless styles. We avoided most standard lifestyle inflation traps, but at same time we had a habit of buying things that “will do”. So in the last year we started to buy some things which were more than “that’ll do”, to be things we truly liked no matter the cost. Not major stuff, a few bits of furniture, some clothes here, some shoes there.

It’s culminated in a major purchase this month. My daily driver up until now has been a tatty but reliable 20-year old estate. It brought the baby home, it’s helped me move house about eight times, as I’ve shuttled around the country during training. I bought it eight years ago for £2,000. It’s cost me a further £5,700 in repairs over the time I’ve owned it. I’ll do a full run-down of costs in a separate post. In the last six months it’s started generating bills every month of around £150, as various things have gone wrong. So I made a decision to sell it.

It’s been replaced by something very new, very safe and hopefully reliable. I’ve been looking for around six months, and I’m cursing not replacing it sooner. What was £7,000 two years ago is now £10,000. The sort of car we wanted to replace my daily, a family car which can ferry us all in comfort and safety, has dramatically shot up in price.

And this is where the lifestyle inflation comes in (6). We’ve decided to use some of my (overly cautious) emergency fund alongside savings to get a more modern car than we planned from a luxury marque. It’s a lot of car, for a lot of money, that we will hopefully keep for a long time. It’s more than we need. It’s got luxuries, and feeds our sense of entitlement (we deserve it, we work hard), and our sense of status (we’re important people with important jobs) (7, 8). The sensible choice would be another ten year old work-horse, not a four year old show-pony.

I then ran through a list of places where I might have already made subtle inflationary changes (some taken from here and here) (9, 10):

New furniture (as described above; new coffee tables, sideboards, bed and mattress, wardrobes…)
Gym memberships (gone from the council to a fancy gym – this did help with my motivation, but back to the council one I go)
Eating out or takeaway in (went up for a long time, we’re now cutting down)
Holidays (we had a really nice one recently to a resort, but maybe we can go back to cheap AirBnBs with friends)
Brand name foods – we don’t do this
Clothing – yep, as above
Organic foods – we do a lot of this.

We’ve made a lot of changes from needs to wants. And I guess that’s lifestyle inflation. So maybe we’ll do a bit of substitution for a while, and pause our discretionary spend (11). More money to chuck in the markets that way…

April Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved just 5% of my salary in April, as many got moved about and prepared for an impending car purchase. My net worth fell by half a percent thanks to the markets trending down.

Budgets:

As compared to my four year back-calculated mean monthly spend:

Groceries: March £225, April £220, budget £220
Eating out & Takeaway: March £79.62, April £50, budget £50
Transport: March £432, April £158, budget £330
Holiday: Mar £125, Apr £0, budget £40
Personal: Mar £85, Apr £60, budget £120
Health: Mar £47.95, Apr £92, budget £150
Misc: Mar £96.56, Apr £92, budget £215
Work fees: Mar £189, Apr £344, budget £265 (splitting the difference of this lumpy spend)

In the garden:

Grass mown and re-seeded, potatoes sown, lettuces, beans, celery and tomatoes potting on. A bit more time means a bit more growth.

Cheers,

The Shrink

References:

March 2022 spending – quick update

I’ve had a fairly mad couple of months, working what could be conservatively put at 90 hour weeks, with a toddler to care for and sleep to somehow find. Therefore there will follow a flurry of posts covering various financial thoughts and my sitrep.

March Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved another 30.1% of my salary in March, which was all funneled into cash savings ahead of new car purchase and BabyShrink nursery fees. My net worth rose 0.4% (sad reacts only please), as the markets continued to trade sideways and down, and I didn’t add anything further to them.

Budgets:

Budgets based on updated figures using my four year back-calculated monthly average from last month.

Groceries: last month £351, March £260, budget £220 (still work to do)
Eating out & Takeaway: February £34, March £79.62, budget £50
Transport: Feb £573, March £432, budget £330 (my daily driver is increasingly costly)
Holiday: Feb £0, Mar £125, budget £40 (booking things ahead of a trip)
Personal: Feb £91, Mar £85, budget £120
Health: Feb £250, £47.95, budget £150
Misc: Feb £250, £96.56, budget £215
Work fees: Feb £101, £189, budget £265

In the garden:

Sadly neglected due to work commitments.

Watch out for the next update soon…

The Shrink

January & February 2022 – Reviewing 2021’s investing mistakes

I saw an interesting FT article some time in the Christmas/ New Year period (literally the last point I had free time to think), where the author went over the mistakes they made in their portfolio in 2021. It seemed like a good exercise in humility, and running counter to all the Youtube/ Instagram ‘I made hundreds of thousands on crypto, you should too’ type wafflebollocks. Therefore, in that vein, here are my investing mistakes from 2021. If other bloggers are also willing to be humbled before the masses I’ll link to them here. In no particular order…

LON: IQE

Bought in February at 80p/share. This had been going on a bit of a bull run. They’re a semiconductor manufacturer local to me in South Wales. I figured it was a reasonable play on the ongoing semiconductor shortages, and tried a bit of momentum investing. I invested literally at the top. They promptly slumped down, and I sold out in October at 45p/share. They then fell further, and are now about 38p. Luckily it was a small holding, so only lost ~£100, at -43%.

NYSE: NEE

Bought in April at $77/share. Again after a bit of a bull run. This is a US energy company, with a mix of fossil fuels and renewables. Again, they slumped and I lost my nerve, selling out in June at $72/share. They then went on a massive bull run up to the end of January, topping out at ~$94, before falling back $72, then rising to ~$80. Total loss to me -7%.

NYSE: GME

You’ve heard of it. After making a decent return (160%) on the first r/WSB run, I came back for a second bigger bite of the cherry in August. I bought back in at $214/share, right near the peak of a sustained wave. The price then drifted down and I ended up sitting on it for months, hoping for the price to go back up. Classic loss aversion. Eventually it did in November, and I sold at $217. Not bad given it’s now $97, but I consider this a loss due to the opportunity cost. There was a whole bunch of stuff I wanted to buy but didn’t have liquid cash for in the intervening months, so it was a waste. After FX costs, total loss to me -0.5%, and a whole lot of time.

NYSE: UMWC

A US mortgage company. Had reasonable fundamentals, and I bought on hype. I bought in June at $9.52, and then as it drifted down at $7.36 in August. It continued to drift down, and is now at $4.37/share. I still hold it, although I’m not sure if that’s down to loss aversion (can’t call it a loss if it’s not crystallised), or actual belief in the company (PE currently of 6.6). Either way, total loss to me -46%.

Most of the rest of my active stocks are up, or at least trading sideways. We’ll ignore what’s going on with passive stocks given the general state of the world. I think my losses suggest I suffer strongly from loss aversion, alongside a tendency to get caught up in hype. Some lessons for 2022.

January & February Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I haven’t managed to save much over these months, as I have done little locum work and I’m building a small nursery war chest to cover the gap between BabyShrink starting nursery and MrsShrink returning to full time paid employment. I saved 33% in January, and a paltry 10% in February, with my net worth essentially flatlining for those months. All savings were in cash in a Starling pot, so no fun in investments or crypto.

Budgets:

A focus for the last month has been updating my spreadsheet and budget to better reflect my spending patterns. For the last three years I’ve checked my budgets against the same headings, and this has enabled me to view patterns:

Patterns of spending within budget categories 2019-2021

Standout points for me are:

Groceries have got more expensive particularly in the last year, although this may partially relate to the arrival of BabyShrink
Spending on transport has reduced, mostly driven by working-from-home more, and other COVID effects
My personal spending (clothes, haircuts, toys, gifts) has gradually increased
Spending on miscellaneous stuff (usually household furniture and random bits from Amazon) has also doubled – however this also includes things like baby travel systems
My fees to work have shot up in line with seniority. Deep joy.

Average monthly spends were £220/month for groceries per person, £265/month on work fees, £120/month on personal items, £330/month on transport, and £110/month on entertainment and going out.

Based on this, and also trying to see things which are more useful to me, I’ve updated my budget headings. So here are January and February 2022:

Groceries: January £273, February £351, budget £220 (Overspend)
Eating out & Takeaway: January £40, February £34, budget not previously calculated, aim £50/pp (underspend)
Transport: Jan £186, Feb £573, budget £330 (lumpy!)
Holiday: Jan £0, Feb £0, budget £40 (this will also be lumpy)
Personal: Jan £41, Feb £91, budget £120 (underspend)
Health: Jan £151, Feb £250, budget not previously calculated, no aim
Misc: Jan £15, Feb £250, budget £215 (baby items)
Work fees: Jan £322, Feb £101, budget £265 (this will be about £700/quarter)

In the garden:

General tidy-up ahead of new planting next month.

The Shrink

December 2021 – Future inflation thoughts

Last month I noticed what I think is the beginning of inflation telling on my monthly budget. A gradual creep over the year in the amount we spend each month on food, energy and general household goods. This has been in the news as well, with inflation apparently running at a decade-high 5.1% in November (1, 2, 3). The BoE don’t think this will change in the short term, with forecasts of >5% for 2022, before dropping off into 2023 and beyond (2, 4).

The comment pieces on this news are all over the place. On one hand you get people like Chris Dillow of the Investors Chronicle (5). He reckons the BoE are overstating the risk; the inflation is due to higher gas prices, and gilts and commodities prices do not suggest there is much fear of ongoing inflation, whilst increased price pressure will weaken pressure from spending, and there really is no wage-price spiral as a shortage of decent staff pushes up salaries (5). At the other side of the argument are people like Merryn Somerset Webb (6). She argues surveys (I hesitate to call this data) from the British Chambers of Commerce showed most (66%) of businesses are worried about inflation, and while 30% say this is due to wage growth, 94% blame raw material price increase (6). This is reportedly due to increases in oil and gas prices, and they aren’t going down any time sooner because everyone is going renewable too quickly (6). Hogwash.

While I don’t agree with Merryn Somerset Webb’s “all aboard the coal train” bandwagon, I do agree that inflation isn’t going away. In my naturally bearish state I am concerned that the BoE is under-weighting long-term inflationary causes. Two points on this. First, all the CPI inflation graphs people refer to seem to go back to the late 80s/ early 90s. Inflation isn’t a modern thing, we’re just measuring it with the CPI now. The fairly fun in2013dollars.com reckons since 1920 the pound has had an average inflation rate of 3.86% (7). Actual proper peer-reviewed papers peg inflation since the mid-1950s at median average 4.3% and mean 5.90% (8, 9). So our current 5% looks like a reversion to mean. Five percent inflation (and theoretically associated interest rates) is not something the BoE wants, but might be good for national debt. For the rest of us debtors, 5% mortgage rates could pinch a lot of those stretched salary-multiplier high LTV mortgages, and rid us of some of the zombie companies floating about.

Point two. What is in the CPI. Have you ever looked at the basket of goods the ONS uses? It can be bloody weird, but seems like a fairly decent mix of households (10). Wholemeal loaf and dehydrated noodles, fair enough. Liver and canned meats, not round here. Rent costs for housing, materials for maintenance like MDF, bedroom furniture, and a new smartphone. That feels fairly normal. There’s a lot of items, but I’d encourage you to have a look.

The important point here is it’s not just about gas prices or wage growth. This is all the bits of stuff people buy or spend on. The price of laptops, the latest Apple watch, the latest Samsung smartphone, etc have all gone up because of chip shortages. That doesn’t seem to be easing. Same problem applies to new cars, and has driven up the price of second hand cars. Rail prices are going up faster than inflation. Air fares have gone up. Rent prices have gone up – have you spoken to anyone trying to rent recently? In our local area it seems to be almost impossible. One of my junior colleagues has been looking for nine months for somewhere suitable, staying with a friend in the interim. Brexit and COVID has meant fewer people available for hospitality, services and transport work, driving up wages (3). The headlines might be lawyers and lorry drivers, but everyone I’ve spoken to seems to be struggling to get staff.

And add-on the sustainability element. Fast fashion is in for a certain portion of the population, but for many it’s firmly on it’s way out. See the rise of Depop and Vinted, the fashion amongst the generation below me of reuse and recycle. On/re-shoring and difficulties with international shipping (COVID, Suez, Brexit, general fuel cost) means that it’s much more expensive to get stuff to the UK now. People can’t get raw materials or finished goods in. Food prices have continuously fallen over the last decade, meaning even as wages have stagnated many families have not noticed inflation on their food bill (11). It’s got cheaper thanks to cheap labour from abroad for UK farms, and cheap food imported from abroad. Farmers have been squeezed to the point of barely breaking even – watch Clarkson’s Farm. Both of these drivers are disappearing. This affects the poorest in the population most, as food makes up a greater proportion of their total spending (11). Food prices are going to start increasing, because the only way they can get cheaper is if farms become even more commercialized as agri-businesses, with lower welfare standards and quality in the face of fairly paltry Government replacements for EU subsidies (12, 13, 14). The alternative is importing more food, which is harder and more expensive due to Brexit. Or people pay more for better quality, more sustainable produce, the way that some public opinion is blowing.

So that’s my long-winded rant about why I’m adding £50 to my weekly food budget and monthly energy spend rather than a future eating soylent green and ChickieNobs in the dark. We can afford it. I’m going to account for 4% annual inflation in my future calculations. After a decade of low inflation and low interest rates, times they are a-changing.

December Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved (a surprising) 34% of my salary, bolstered by some locum work. I have also finally managed to clear my credit card. I’m not quite unsecured debt free, there’s about £1000 of 0% credit for a kitchen, but not too shabby. Savings this month were in cash and cryptocurrency – more on this in my Q4 review. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

Groceries – Budget £200, spent £297.80, last month £348.68
Entertainment – Budget £100, spent £31.93, last month £206
Transport – Budget £250, spent £258, last month £349
Holiday – £150, spent £0, last month £0
Personal – £100/ £272/ £199 – Christmas gifts
Loans/ Credit – £50/ £512/ £445
Misc – £50/ £207/ £153
Fees – £300 /£233/ £494

In the garden:

Found an old paraffin greenhouse heater in the garage. Played with it. Need more paraffin.

Happy 2022!

The Shrink

References:

November 2021 – Inflation & Energy Prices

In rushing together these few months and quarterly posts I’ve noticed an uptrend in my boring household spending. Nothing dramatic, just a general creep. Some of this is down to added baby costs, and MrsShrink being at home fulltime eating, keeping warm, breathing. I don’t think this can account for everything though. MrsShrink used to spend about £25/week at her work canteen for breakfast and lunch, and baby nappies etc from Aldi/ Lidl aren’t more than a few pounds a week. So why has our monthly grocery spend gone from £300-400/month in 2020 to £500-600/month at the end of 2021? I think most of it is inflation, due to the obvious increased transport and wage costs, increased cost of production etc. ONS has CPI pegged at 4.6% for last month, and I suspect food costs are rising faster (1). It could well account for an extra hundred on our monthly food bill. There’s a lot of concern about the risks of this inflation to households in the media at the moment, but for now we can weather it on my single income (2, 3). We’re lucky as I’m not sure all will.

We’ve also been struck by the collapse of our energy supplier, Bulb (4). We always had good service from them, but it seems that behind the flashy front and customer service they we’re particularly well run, will allegations that they weren’t hedging their energy contracts. We’re now on the supplier of last resort run by Ofgem, from a practical sense still paying through Bulb at the price cap. This means we’re likely to see a fair rise in our energy spend when the supplier of last resort is wound up. Time to tighten the old belt.

November Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved a paltry 19.5% of my salary, which I’m quite content with. Maintaining this whilst also running the house on just my salary feels the sort of thing a family in the 1950s might have been able to do, but rare today. Again this was all saved as cash or in my pension, with no new investment. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

Groceries – Budget £200, spent £348.68, last month £201.48
Entertainment – Budget £100, spent £206.38, last month £113.55 – Going out, eating out, naughty things like the asian bakery round the corner
Transport – Budget £250, spent £349.06, last month £163.98 – MOT time
Holiday – £150, spent £0, last month £0
Personal – £100/ £199.22/ £288.23
Loans/ Credit – £50/ £445/ £159 – extra locum/ overtime pay is getting funnelled here
Misc – £50/ £153.14/ £594.76
Fees – £300 /£494.43/ £311.67

In the garden:

Basically just on life support now, with tender stuff tucked up in the greenhouse or under cloches to over winter.

Hope you’re all having a great Christmas and New Year break!

The Shrink

References:

September 2021 – Reaping what is sown

It’s been a while since the last post here. Turns out infants are time consuming, who knew. There is an increased respect for single parents. As I have sat awake feeding, changing nappies or soothing at 4am I have found myself with more time to ponder. The sleep deprivation has also made me more… cantankerous? Treat this as a trigger warning. Brexit and sustainability rant ahead.

It feels like the next twelve months could see a lot of chickens coming home to roost. Metaphorical chickens mind. Chickens for dinner are going to get harder to come by and more expensive (1). Food prices have fallen over the past 20 years, off the back of competition, cheap labour, EU market imports and large-scale agribusinesses (or so says the Chicken King) (1). That is set to end. The cost of energy and supplies like fertiliser has gone up, for a variety of reasons. Cheap labour isn’t coming from Europe anymore, and Brits won’t do it (2). There were those stories of food rotting in the fields because the farms couldn’t get staff to pick them (3). Here’s a good Twitter thread on the labour shortages:

A short 🧵on labour shortages.

Tl;dr: The situation is extremely serious. And without Government action, it is going to get worse, very soon.
Some UK food supply chains are now at breaking point.
And, yes, Christmas is at risk. pic.twitter.com/xIRd7Oj5He
— James Withers (@scotfoodjames) August 27, 2021

Anyone with half an ear to the farming community knew this would happen. I know quite a few farming families, many voted for Brexit, and as far as I can work out they thought they would still be receiving subsidies from the government, and the lack of EU legislation would mean they could go gung-ho for currently banned fertilisers/ pesticides, while still selling into and receiving labour from the EU market. There was a lot of goose that laid the golden egg promises. The Government appears to have viewed the opportunity to set it’s own subsidies as a way to pivot towards sustainable practices (4). Which is great for the planet, but not so good if you’re an agri-business. The upshot is a lot of farmers are going to lose a lot (maybe half) of subsidies (5). If you’ve watched Clarkson’s Farm you know how precarious a lot of farming when you don’t have fame and public buffoonery to fall back on. Farmers are going to go bankrupt.

So, food is getting more expensive. Our monthly food bill has gone up. I’ve mitigated by always buying meat from a local vertically integrated butcher, and seasonal veg from a co-operative organic growing scheme (doncha know). Some people can’t afford that. We get our milk through a milkman who pays the farmer a fair price direct. Talking over the fence to a neighbour they said “oh that sounds too expensive”. I hope the population will start to see the sense in buying very local, very seasonal food, because it’s cheaper. It used to be if you were poor you ate cheap cuts of meat. I worry that people are used to £3 chicken.

And that’s before we get onto gas prices.

Energy bills are going to keep going up for the next 18 months (6). It’s going to put millions into fuel poverty (7). Most people will be £1000s worse off due to the combination of inflation, stagnant or falling wages/ benefits, and increased household bills (8). We may not see the government inflation figures rise much, but we will definitely feel it, and I’ve seen unofficial figures at 4-5%. Not that savings or interest rates will go there. If they did thousands would default on mortgages and loans. Plenty of new energy businesses have gone bust, the competition that was supposed to drive the prices down from the big boys not able to weather the storm (9). The big six remain the most complained about (10). Much like in the water industry, where the big boys keep failing, and suck up the fines as a cost rather than actually fixing the problems (11).

How do you combat the current setup? I quite like the idea of local energy production. Again, in the old days every town and city had it’s own power station. Now with the grid and massive power stations for maximum efficiency we’re reliant on a few providers and a few sites; hence the issue with the Kent interconnector fire (12). There’s a push back as part of sustainability drives to local energy production through Community Energy groups (13). Local investors buy bonds in small projects to supply cheaper energy to the local area. Maybe this could happen with the return of local stock exchanges, where you could buy into local businesses (14). Probably a bit revolutionary. At least in Wales the Government and Community Interest Companies are pushing forward with local energy sustainable energy production (15, 16). Wind and wave power may yet see the Welsh valleys reborn (17, 18). Neither will be cheap.

Taken together, things are going to get more expensive. Brexit and macro-economics seems to be pushing things more locally – “onshoring”. The global labour/ supply chain and just-in-time deliveries have made things cheaper. How would you feel if food returned to costing a third of the average household income (19,20)? Food, energy and basic household items are going to get more expensive, so time to tighten the belts.

September 2021 Dashboard

These are taken, as always, from my Beast Budget spreadsheet. I saved just under 20% of my salary, as I move to cover 90% of our household bills with MrsShrink off on maternity leave. This months S&S ISA money again went into Vanguard’s ex-UK Dev World Acc Fund. More churn in my Freetrade account, buying back into GME and some other hyped nonsense, and out of sensible dividend and environment stocks. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

Groceries – Budget £200, spent £260.03, last month £196.58 – On holiday at the start of this month, with spending correspondingly inflated
Entertainment – Budget £100, spent £95, last month £113.55 – Making the most of the few warm days with babysitters
Transport – Budget £250, spent £210.35, last month £163.98
Holiday – £150, spent £274.65, last month £0
Personal – £100/ £0/ £73.85
Loans/ Credit – £50/ £188/ £159
Misc – £50/ £334.25/ £69 – Made a will, paid some nursery fees
Fees – £300 /£134.57/ £149.57

In the garden:

I love this time of year, reaping rewards of planting. At the same time I’m tinged with melancholy, knowing that my growing season is coming to an end. Mowing the lawn, tidying hedges, sowing winter seed. Lots of pickling of things like tomatoes, beetroot, french beans and gherkins. Soon it’ll be cold again, and it’s time to relish those few last warm days. Just a shame there weren’t many!

Happy October everyone!

The Shrink

References:

July 2021 – Property Planning

We recently signed up to a new five year fixed mortgage. Five years seemed a good time to fix at 1.65% for, with the spectre of inflation lurking (and potential associated interest rate rises). We’ve spent quite a bit (~£20k) on renovating our current house over the past two years, getting it to how we want it. Over that time local house prices have continued to rise. Wales appears to be bucking the trend, as house prices continue to rise here whilst falling or flatlining elsewhere in the UK (1, 2). Zoopla seems to estimate that our house is worth 10-15% more than we paid for it three years ago. The Rightmove estimates have asking prices for our area rising by 15% in one year (1). This seems an overestimate, and more about ambitious sellers. Either way, we would hope to achieve a 10% increase, and the useful leverage of a mortgage makes the equity my most significant asset.

Received wisdom (or what estate agents tell you) is to buy at the absolute upper limit of what you can afford. Borrow to the hilt, as that outsized leverage will boost your equity return.

When we purchased our current property it was following two previous purchases where we were gazumped/ outbid. For one, a property round the corner from our current home, it went to sealed bids and we narrowly lost. I found out later (through discovery of a mutual friend of the owners) that the ‘winner’ could not meet their bid, pulled out, the sale fell through and the owners remain in the property. The other potential purchase was in a different suburb, 15% more expensive than our current home was priced, and was a proper fixer-upper. We were gazumped by an offer 10% over our asking price bid prior to contract exchange. I am still sore about that.

We set a firm limit on our budget when we were buying this house. The mortgage had to serviceable by a single one of our salaries, just in case. Staring down the barrel of statutory maternity pay I am glad of this self-imposed limit. Estate agents and banks offered us 150% of what we spent, on favourable terms. We looked at some much larger houses in the countryside at the time. Houses that are now worth 20% more thanks to the pandemic rural shift. Will all those people who have moved be happy once they realise the internet doesn’t get better than 10Mbps, no takeaway delivers, and they need to do a 15 minute drive for a pint of milk on a Saturday morning.

Both MrsShrink and I were raised in the countryside (a market town and a hamlet respectively). With the new generation here we will return to our roots at some point. We hope that we haven’t missed the boat on rural house prices; I suspect we haven’t and a rejuvenation of city centres with bars, independent stores and activities will once again lure people back.

A shopping list is already being put together for that eventual purchase. Like Simon Lambert of the This Is Money podcast, stamp duty dissuades us from too many further purchases (3). Without stamp duty we would be tempted towards another five year property step up the ladder. As it is we will probably look for another fixer-upper as a forever home. A lifetime timescale means planning for 20 years in the future, and there the recent IPCC report on climate change has me concerned (4). Everything in the report frankly scares me witless, and I have to hope for the inventiveness, altruism and resourcefulness of the human race, even if others don’t (5, 6). Things like using flooded coal mines to heat homes through geothermal waters (7).

The specific bits of the IPCC report that’s got me thinking refers to sea-level rise and water cycles. Large parts of the UK are only a couple of meters above sea level, and the IPCC report suggests a rise of 0.28-0.55m by 2100 on the minimum best-case climate change projection, 0.63-1.02m in the most likely scenario, and up to 5m in the worst case estimates (Box TS4, Technical Summary)(4). It’s difficult to picture this, and the conventional flood risk calculators from the government (England, Wales, etc) used on building surveys and by insurers don’t seem to take it into account (8, 9). Helpfully Climate Central provide two different models, a coastal screening map and the more complex Surging Seas map which includes multiple models and the latest research based on Antarctic melting (10, 11).

Our future home will need to be >20m above sea level and away from active flood zones. How many of those taking ownership of a new build property as a forever home could anticipate annual flooding in the 2030s due to more extreme weather and sea level rise. We’re also aiming to be as off-grid as possible, for resilience and environmental purposes. Solar PV, ground source heat pumps, micro-hydro, and Tesla Powerwalls are all future dreams. Is this overly extreme? A bit prepper? Would welcome thoughts in the comments.

July’s Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved around 33% (28% not including pension) of my salary, which will probably be the last of the big savings months as MrsShrink is moving to statutory maternity pay. This months S&S ISA money again went into Vanguard’s ex-UK Dev World Acc Fund. There’s been a bit of churn in my Freetrade account, moving out of meme stocks into more long term holdings – mostly selling the last of my GME/ PLTR. If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

Groceries – Budget £200, spent £396.02, last month £281.22 – This is hugely over. MrsShrink and I sat down and noticed we had been spending at least £150/week in supermarkets, plus smaller shops. We’re not sure what this is on, which is a worry, so it’s going to be rice and beans for a month to see.
Entertainment – Budget £100, spent £133.45, last month £219.15 – We’ve been hosting a bit this month, which explains this cost
Transport – Budget £250, spent £384.92, last month £445.35 – More car parts. Thanks to my Starling pots and budgeting I’ve still got a little set aside for this
Holiday – £150, spent £0, last month £0
Personal – £100/ £78.71/ £236.81
Loans/ Credit – £50/ £960/ £340 – The main focus this month
Misc – £50/ £145.83/ £535.24 – A baby is an expensive investment
Fees – £300 /£421.85/ £630.26 – My indemnity fees have increased, so I’ll need to revisit this

In the garden:

Full on harvesting now, with lots of green beans, courgettes, cucumbers and squashes. First tomatoes should be this month, and the potatoes are hardening off in the ground ahead of being lifted. The heatwave caused a lot of my lettuce to bolt, so I’ll need to sow some more. I’ve also got some curiosities (luffa, salad burnet, land cress) going in the greenhouse.

Happy August everyone!

The Shrink

References:

June 2021 – FIRE as an expression of self-actualisation

One of the reasons I started blogging about my road to financial independence was to address and discuss the mental health and psychology aspects of the process. What motivates people to seek financial independence? Lots of the personal finance community are interested in their own motivations, and in attempting to understand them and motivate others on a long and often dull investment road they turn to Maslow’s hierarchy of needs. It’s pretty basic; a broad explanation of the intrinsic motivations of people. Why we do what we do, and an approach to build on through life. Like all popularly assimilated psychological frameworks it’s over-simplistic – life just isn’t that easy, but it helps people to think about themselves, so we’ll roll with it. A LOT of FIRE bloggers have takes on Maslow’s product, most of them making various versions to try to frame an FI approach or timescale (1, 2, 3, 4, 5):

Various FIRE-modified Hierarchy of Needs from Money for the modern girl, maple money, squirrelers, Mad Fiestist

There are all useful graphical representations of the route to FI. The steps up the pyramid to the pinnacle that we hope to achieve. But I think they’re all taking a distorted field of vision. They’re conflating motivation with a path. People get into investing and FI for lots of different reasons, to look at why I want to go back to the source material:

Maslow's Hierarchy of Needs | Simply Psychology — Maslow’s Hierarchy of Needs. Source: *https://www.simplypsychology.org/maslow.html* (6)

The classic pyramid argues that your motivations are governed by completion of the lower steps. You need to have food, shelter, water, safety and security before you can think about settling down for an intimate relationship. You can’t fulfill your life dream potential without a home to come sleep in etc (note – can you see where some issues lie here?). Where does your motivation for financial independence, FIRE or whatever form of personal finance interest you have come from?

My reading of the personal finance community is that there is a wide variety of intrinsic reasons, but a lot of people fall into two camps. Those who are seeking FIRE in response to their basic needs (the bottom two rungs of Maslow), and those seeking the pinnacle of self-actualization. The former camp seem to be people who seek FIRE to ensure they never have to worry about their safety, security, bills, food or housing again. FIRE is the ultimate safety net, that means a perceived failure – poverty, unemployment or homelessness, can never occur. I think this is often learned from debt, or fear of debt. Debt is terrible for your mental health – ergo no debt ever means perfect mental health? As MedFI lays out, FIRE is no mental health panacea (7). If you are aiming for FIRE in the hope of not being anxious about debt, then you may well end up being anxious about something else when you get to be debt-free. Being anxious you’re not saving enough? Being anxious that even though you’ve saved to live without work, have you saved enough and will it last?

Then there are those seeking self-actualization. The pinnacle of this period ties in nicely to FIRE rhetoric, creating an environment where you are free to seek any pursuits which might help you achieve your full potential and receive feelings of accomplishment. I’ve spoken about the concept of using FIRE as a target when running from work, but what are you running to? Work often forms a core part of a person’s identity, and much as we don’t like the idea of being a ‘wage-slave’, your role can be part of that definition. Maybe following the financial independence community is a part of that identity, but it isn’t an end in itself. There are recurring themes in the personal finance media around this; people who have achieved financial independence and then think ‘…now what?’

For those seeking financial independence to get out of a crappy job and into a fulfilling early retirement, that future needs a plan too. You will need an identity, an idea of the person you want to be, else you will end up bored and suffering (8, 9). You have to have a purpose, and this can take A LOT of thought… the Mad Fientist wrote a long post about his process, and so did MMM (4). For some, like Young FI Guy, it might mean returning to work on your terms as part of your identity. It might mean spending more time travelling like M&S at Fire and Wide, with friends, family and all the things that matter to you (10).

Where is your fulfillment? You may be at the top of the financial pile, but you’re still not at the top of Maslow’s pyramid, and you might have just taken a knock back because you’re not receiving the FIRE-target feelings of accomplishment. There needs to be a final step.

So to be a typical shrink, I ask you, why are you doing this?

June’s Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved around 46% (42% not including pension) of my salary, continuing last months good run. New invested money has gone into my old friend Vanguard’s ex-UK dev world fund. This can’t and won’t continue.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

Groceries – Budget £200, spent £281.22, last month £200.77 – Back to spending too much, must rein this in
Entertainment – Budget £100, spent £219.15, last month £99.95 – Going out to eat too much again
Transport – Budget £250, spent £445.35, last month £177.91 – Car parts, insurance, serious mileage this month
Holiday – £150, spent £0, last month £0
Personal – £100/ £236.81/ £143.68
Loans/ Credit – £50/ £340/ £60
Misc – £50/ £535.24/ £52.50 – Furniture and birthday gifts
Fees – £300 /£630.26/ £33.27 – Amazon, GMC and various others taking their pound of flesh

In the garden:

It’s all gone bonkers with this humidity and warmth. Harvesting plenty of peas, lettuces, radishes, rocket, sweet peas and various other bits. Planted out tomatoes and beans. Generally looking lush.

Happy July everyone!

The Shrink

References:

May 2021 – r/wallstreetbets, Gamestop and millennial investors

I am feeling very torn of late. MrsShrink calls me an eternal optimist, and worries I get ripped off by hustlers looking for their next mark. I must admit I am hopeful about life (and finances), but that hope hides a deep-seated cynical miserable bastard. Said miserable bastard is stirring, moved by the sight of the markets and inflation. But let’s start at the beginning.

GME

I started following r/wallstreetbets in 2019, mostly for the memes if we’re honest. There has always been some decent analysis (DD in the parlance) on there, although since the GME prompted flood of interest in January it’s mostly drown out by noise. I’ve never really invested based on r/WSB info, though I have read along with interest. This applied to when /u/DeepFuckingValue posted some analysis in mid-2020 about the long term view on GameStop (GME).

A lot of the media take on the subsequent GME squeeze in January and March has been of a collection of millennial neckbeards sitting in darkened basements “sticking it to the man” and organising themselves into groups to game the market. Troll armies swarming the walls of Minas Walls Street.

Have you tried to organise people online? It makes herding cats look easy.

GME took off because enough people read the analyses on r/WSB relating to institutionally oversold short float to be able to put pressure on the price. There might be a lot of apes on r/WSB, but there’s also enough smart private investors with decent portfolio weight to lend power to this. This lead to ‘gamma squeeze’ and further price movement. Forbes actually did a great analysis of this (1, 2). As the price began to move it added to the narrative of the little guy making the institutions pay, leading to narratives like this (3). It’s worth a read for the emotive angle. The actual owners attempting a restructuring of GME towards a new sustainable business aren’t about to knock it (4). As a generation millennials spent formative years around the time of the 2008 financial crisis, and to many, the institutional banks just carried right on with no repercussions. This was not helped by institutional weight and alleged attempts at market manipulation (e.g. pressure on Robinhood to stop retail purchases of GME) which ultimately led to that weird congress hearing.

Times Square right now from wallstreetbets

WSB nonsense (5)

Millennial Investors

The footsoldiers in the media-spun frontline of this war are my generation, millennials, investing via the free-to-use apps like Freetrade (plug below), Robinhood, Trading212 etc. This appears to have garnered disdain from some corners, the suggestion that investing is something better done late in life with the addition of wisdom and grey hair, or a string of letters after your name. My grey hair argues otherwise. Previous generations could get a simple savings account that offered >3% annually if they wanted to save for a big purchase and beat inflation. Those products no longer exists, so thousands of young people saving up for their first home are looking for places to put their money. When NS&I, the last bastion of savings rates >1%/inflation, pulled the plug last year savers removed billions (6). Where do you think that money went?

The removal of friction and democratization of stocks and shares opened the floodgates (7, 8). We’re all on board with equities beating inflation in the long run averages (9). Passive trackers make it easy. If you want to dabble in the casino based on your hopes for growth, companies you love might make you millions (10, 11). Where does accurate price discovery sit in this?

The roaring twenties

The COVID-19 related recession/correction in the stock market of Feb/March last year taught us a few things. The market fell by a eye-watering sum, but had reverted back to it’s previous level in <6 months. Turns out borrowing and injecting funds at infinite limits into the market will do this sort of thing. The Spanish Flu epidemic of 1919 knocked back stock markets briefly, before they surged upwards into the roaring twenties (12, 13). So maybe we’re seeing the same, a fall, an adjustment to new normal, and the acceleration of changes that were likely to happen anyway but have now been precipitated by force; home-working, online project management, a reduction in the high-street mainstream business economy and move to online sales, a reduction in commuting and the move of wealth from London to the provinces.

We also learnt that bonds aren’t a great hedge for stocks anymore. We’ve seen bond returns go negative, and central rates hover above the 0% mark. This has mapped to nice cheap mortgages, but bugger all return on savings or bonds. As people fled the market in Feb-March 2020 it put more pressure on returns. Many FIRE followers work on the 4% rule; long run averages suggest withdrawing 4% from your portfolio annually will allow growth and prevent depletion. Safe options for the 4% return become more challenging in a 0.5% bond environment, meaning you push to stocks and shares (14). Increased risk. At the same time stocks and bonds are becoming positively correlated; when stocks fall bonds fall, when stocks rise bonds rise (15). Timing the market and pre-empting a crash, then watching your bond holdings rise in value no longer works. When the market goes down, everything goes down. This is probably ok, it just makes your asset allocation decisions harder (16).

Play the game

So let’s play this thought experiment out. Passive tracker options have grown in popularity, and cheap frictionless methods to buy them have proliferated. Passive tracker growth means more big funds buying the same stuff with no thought to price discovery (Michael Bury’s new bubble prediction (17)), and while active funds are cutting prices many are also buying similar portfolios to the trackers in an effort to be the least worst. Meanwhile ‘meme stonks’ and general growth focus has pushed PE ratios to silly levels, and weird investment vehicles like SPACs have emerged (7, 18). See the image of the S&P 500 P/E ratio from the fantastic Banker on FIRE (18).

S&P 500 PE Ratio — S&P Historical P/E Ratio, shamelessly stolen from bankeronfire.com (18)

So is the efficient market still efficient? Assuming it somehow is, we’re still all trying to beat inflation, but as Banker on FIRE points out, there’s a lot of reasons why the outlook of a 10% annualised market return for the future isn’t rosy (18). But what other option do you have? Bonds, with yields at 1% and correlated to the market anyway. Property and BTL seems to be one option, but the market there looks frothy. REITs, when the high street is shut and companies are moving to slash overheads by a working-from-home and hotdesk hybrid?

There’s inflationary pressures too. The US continues to pump money and there appear to be blips. In China there’s the combo of a rampant sub-prime lending shadow lurking, and pressure on the increasingly weather and middle-class populace to knuckle down and shut up, else you end up like Jack Ma (19). I think the UK is particularly poorly positioned for future inflation. Anyone watching the housing market in the UK can voice for a spike in prices. There are also issues with import/ export costs due to (pick one) Brexit, COVID, Suez, and actually finding workers since we cut off the cheap European labour supply. But as Monevator says, someone is always crying “inflation, inflation” (9).

How do you plan for the uncertainty? You could do an ermine, VWRL and bags of gold (20). Or what the mega-rich are doing; buy shitloads of farmland (21, 22, 23). Personally, I’m going to keep doing what I’ve been doing, buy passive ex-UK equities. And maybe dabble in a bit of GME and BTC on the side. Because as Keynes said “the market can remain irrational longer than you can remain solvent”.

May’s Finances

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved around 49% (42% not including pension) of my salary, a return to form. New invested money has gone into a new cryptocurrency holding.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Budgets:

Groceries – Budget £200, spent £200.77, last month £243.91 – Better
Entertainment – Budget £100, spent £99.95, last month £100
Transport – Budget £250, spent £177.91, last month £233.97
Holiday – £150, spent £0, last month £0
Personal – £100/ £143.68/ £246.48
Loans/ Credit – £50/ £60/ £250
Misc – £50/ £52.50/ £191.14
Fees – £300 /£33.27/ £476.77

In the garden:

I have to agree with Monty Don off Gardener’s World, our garden is about two weeks behind last year. Having said that, potatoes are well up and early peas are cropping. Getting huge amounts of salad in the form of various lettuce leaves, sorrel, radishes, spring onions and the tail end of land cress. Courgettes, squashes and pumpkins are almost ready to plant out, tomatoes are getting bigger and the french beans have started climbing their poles. Grass hasn’t quite recovered from last years building work, so will need some more re-sowing and watering.

Happy June everyone!

The Shrink

N.B. After all that doom and gloom, here’s a list of a load of ways in which we’re making the world a better place (24).

References:

April 2021 – Political Realignment and Class

A very late Financial Dashboard this month, and a bit of a crossover post. For the last couple of years I’ve used the Financial Dashboard posts to track my budget, bills and set myself goals. I feel I’m fairly well into my financial planning now, and as such posting and sharing my goals each month doesn’t make particularly interesting reading. I’ve not had time to write the Full English posts since the start of COVID, and it’s unlikely to make a return any time soon. To an extent it’s also been superseded, by Indeedably’s fabulous Sovereign Quest featuring automated daily/weekly curation (1), and Dr Fire’s Wednesday Reads (2) (as well as Monevator of course). Instead for the future the musings which used to occupy the Full English will sometimes appear here.

Some time ago Indeedably suggested I read Slate Star Codex, now Astral Codex Ten, a US-based blog about… well… most things (3). SSC/ACT has had a huge impact on my thinking (mostly for codifying some underlying cognitive trends), and I truly appreciate the recommendation. Before going any further, I would recommend reading the Book Review: Fussell on Class, and their post A Modest Proposal For Republicans: Use The Word “Class” (4, 5). In it Scott Alexander suggests the US Republican party should start using the word “class”. Here in the UK we’re already obsessed with class, so that’s less of an issue, but do the old class boundaries still apply?

The upper class is still (probably) distinct, though oil oligarchs, millionaire footballers and bitcoin influencers are blurring the view from below. For an interesting take on this, read this Reddit post (6). The middle class has allegedly been hollowed out, but I feel the old definitions of white-collar, moderately wealthy, moderately educated middle class has expanded. University educations are widespread, home ownership has been driven to the core of our political ideologies, and most people expect a few holidays a year, a modern car, and all the accoutrements of modern living. Where are the working class? With the disappearance of the industrial manufacturing sector from the UK’s landscape, the loss of DB pensions and general move away from the honourable lifetime spent working at the same company, cared for and honest, the old-working class definition no longer seems to apply. Plenty of builders, plumbers, electricians earn more than the average HR manager. Skilled manufacturing operators also earn more than the office temp.

Assuming that the old definition of the working class is kaput set me wondering how you could now classify groups, with an eye on the political spectrum. Historically the upper classes voted Tory, the working classes voted Labour. The Tories supported the upper class economic moat, whilst Labour were the voices of unions and the working class. Labour still markets itself as the voice of the working man, yet culture has moved as evidenced by the loss of the ‘red wall’ and traditionally safe Labour seats. How do we now divide up the voting public? The Republicans, and more specifically Trump through populism, has appealed to and cemented a base in the working class in America. This may be a harbinger of a political realignment – the theory that sharp changes in party ideology, power base, demographic base etc result in shifts in establish political parties on a roughly generational basis leading to entirely new power structures (7). Other authors have suggested populism, Brexit and Trump are symptoms of this event (8). The last major realignment we experienced here in the UK was in the 1970s, with Thatcher and the interventions industry and home ownership that have ultimately resulted in neoliberalism.

Working with a realignment hypothesis, I set to trying to identify for my own purposes where the new divides fell. The US working class isn’t so clear in the UK, so who are the populists appealing to? Farage and Boris Johnson are opportunistic (I won’t call them smart) enough to hitch themselves to a bandwagon towards a specific voter. That voter is typically older, less well-educated, and less-liberal. They were less likely to be working. They were more likely to either own their own home, or be in council or housing association rental (9). Odd dichotomy that.

Brexit vote by demographic, from lordashcroftpolls.com (9)

Leave voters were also more likely to perceive external and internal threats to their quality of life and standard of living. They were more likely to think life would be worse in the future, and better in the past.

Social attitudes of Brexit voters, again from lordashcroftpolls.com (9)

My conclusion was that the new system of class is based not on qualification or income, but on quality of life and financial security. The upper class remain the upper class, generationally wealthy and able to cross borders and financial rules without issue; they are the financially invulnerable. The old middle class are now the financially secure with minimal risk to their future quality of life and lifestyle; liberal, well educated or trained, in secure employment fields where they are able to look beyond their current situation to the experiences of others and wider society. The new financially insecure class are the populist target. Underemployed or not working altogether, in temporary or insecure work, looking to try and build security in their employment, home and personal environment. Boris Johnson appeals to this insecure class, offering rhetoric of job, border and house security. He’s been quick to drag the Tories to a new working-class heartland. This new financial security class system is actually by-product of neoliberalism; right-to-buy, defined contribution pensions and raids on existing pension schemes, creeping privatisation, and changes to the broader societal contract. The ‘what does society do for me’ mentality.

That working class heartland, now hollowed out into an insecure class, has shifted from Labour to the Tories. How do Labour adapt? They continue to sell themselves as the party of a working class that no longer exists, even as they split apart as the old unions collide with the socialist-leaning environmentally conscious members in their midst. Can they shift to be a party of the middle, financially secure class? It will mean shedding their old image and tag-lines, and maybe too many of the old guard remain. Certainly I have family members who self-define as working-class Labour-supporting people, and aren’t too sure about being defined as a liberal intelligentsia.

And finally, does this make FIRE a class-rebellion? The ultimate social-climb scene? Forget the ambassador’s parties young fellows, get thee to the FI Chautauqua.

We live, as always, in interesting times.

Goals

The goals for April were:

Simplify and improve flexibility of online investment tracker
16/8 fasting
Set up new ISA
Final repainting and touches to downstairs rooms

Checking the assets and liabilities:

These are taken, as always, from my Beast Budget spreadsheet. I saved around 30% of my salary, which isn’t bad considering it was a surprisingly expensive month. My net worth took a 4.5% jump as we had our property revalued for a new mortgage. New invested money went into a Vanguard account, and where it has gone into my old favourite, the FTSE Developed World ex-UK Acc Fund.

If you fancy a free share, sign up to Freetrade with this link (I also get one).

Goals:

Goal failed: Simplify and improve flexibility of online investment tracker

Just didn’t get the time to do this, and am unlikely to in the short term.

Goal passed: 16/8 fasting

I did this for about a week, and it worked fairly well but was a struggle around some of my work/ life commitments. Planning to use it flexibly for the future, aiming to not eat between 8pm and the following midday.

Goal passed: Set up new ISA

Cheated a bit by going back to Vanguard, but it’s nice and easy to just add into a new ISA there. Easy to visualise, track and minimal faff.

Goal passed: Finish repainting and touches to downstairs rooms

As part of a big reshuffle ahead of an impending arrival, the downstairs rooms of our house have been touched up, and my office is in the process of moving downstairs. Said impending arrival also incurring some expenses with new furniture.

Budgets:

Groceries – Budget £200, spent £243.91, last month £274.70 – Same rules apply as last month, too much excitement in the middle of Lidl
Entertainment – Budget £100, spent £100, last month £127.98
Transport – Budget £250, spent £233.97, last month £294.80
Holiday – £150, spent £0, last month £0
Personal – £100/ £246.48/ £54.62
Loans/ Credit – £50/ £250/ £200
Misc – £50/ £191.14/ £325.34
Fees – £300 /£476.77/ £103.62 – GMC/ RCPsych, various others

In the garden:

Everything has been bloody slow with the cold, and I’m very glad for our greenhouse. Various cucumber/ squashes seeds have been sown under cover. Companion plants, beans and next round of leafy veg coming along nicely. Potatoes sown. Everything else just ticking over, but we avoided any frosts, so no death.

Happy May everyone!

The Shrink

References: