The Financial Dashboard – June 2020

The goals for June were:

Tidy the loft and begin to clear
Read three books
Update my investment tracker spreadsheet and sync with allocations
Explore overpaying mortgage

Checking the assets and liabilities:

Assets June Liabilities June

These are taken, as always, from my Beast Budget spreadsheet. My savings rate for this month fell back to 22% thanks to DIY spending, with my total net worth increasing by 1.4%. I’m actually astonished my net worth increased given our spending on the building work (currently at £2k). The usual cash regular savers were topped up (pretty happy about my 5% and 3% now), but my First Direct account is coming to an end, so we’ll start overpaying our mortgage instead.

Goals:

Goal failed: Tidy the loft and begin to clear

This got pushed down the priority list, but remains a goal.

Goal failed: Read three books

Still wading through Intelligent Investor. Currently 350 pages in, but I find myself needing to read it in small chunks to give me time to digest.

Goal achieved: Update my investment tracker spreadsheet and sync with allocations

I’ve moved into the 21st century, and transferred my investment tracker spreadsheet to google sheets, incorporating it’s price lookup function to track my worth in real time. Quite nifty, and I’ll share some images in my Q2 update.

Goal achieved: Explore overpaying mortgage

Having spoken to our mortgage provider we’re going to aim to channel spare cash from our joint account into overpaying our mortgage. It’s a split pot, and part is currently on the standard variable rate while we wait for them both to come out of their teaser rate period. That (much smaller) SVR part is on ~4%, while the rest is on 1.69%. We’re not going to beat that with savings rates, so it makes sense to try to clear down this debt.

Budgets

Groceries – Budget £200, spent £237.31, last month £176.91 – A pricey month, with lots of nice meals in cancelling out our usual eating out.
Entertainment – Budget £100, spent £56.50, last month £16.50
Transport – Budget £460, spent £432.65, last month £237.36
Holiday – £150, spent £0, last month £0
Personal – £100/ £137.18/ £65.74 – Mainly gifts
Loans/ Credit – £0/ £0/ £0
Misc – £50/ £724.15/ £71.45 – Building work
Fees – £70 /£347.17/ £295.49 – Amazon Prime, some other membership fees

In the garden:

I’ve been keeping up with watering, but everything else has gone to pot, so it’s now a riot. I planted far too many courgettes, squashes and pumpkins, and they have exploded to colonise most of the end of the garden. Ditto tomatoes in the greenhouse, which now looks like a tropical rainforest. Lessons for next year.

Goals for next month:

Tidy the loft and begin to clear
Read three books
Audit regular spending ahead of job change
Track building work spending accurately

Happy July everyone, I hope you’re all keeping well,

The Shrink

The Full English Accompaniment – Cold turkey interest rates

A few weeks back I considered the deflationary risk weighing on the global economy. A discussion on the This Is Money podcast, and comments from the BoE have taken me in the other direction this week. Why would we end up with high inflation and high interest rates?

First we need to talk about debt. Consumer debt has actually seen a record fall since the start of Coronavirus, something to do with not being able to spend and no need to keep up with the Jones’ (1). The same can’t be said for Government debt. As I write this The Economist’s Global Debt Clock is rising through $61,594,467,000,000 (2). This was a problem before COVID-19. 2019 saw record global debt to GDP ratios (322%), following slight falls in 2017 and 2018 (3, 4). China’s ballooning debt was of particular concern, with plenty of tenuous business loans supporting growth (4, 5).

The word addiction had been bandied about with reference to debt. Below is a favourite short that I use to explain addiction when doing teaching sessions about the dangers of gambling and drugs. You come to rely on the object of abuse to feel normal. Credit cards and lifestyle anyone?

Credit: Andreas Hykade, Filmbilder & Friends (6)

The reasons for increasing debt woes are country specific. In Europe and the US it’s a combination of household spending, QE and zombie companies. There’s the massive junk bond bubble scare brewing; corporations kept going in 2008/9 through borrowed money now being refinanced, on the verge of reaching junk bond status, at the same time low yields push people to riskier bonds in aid of returns (7, 8, 9). Yet people keep buying bonds (10). China is just straight up building infrastructure projects that are getting abandoned or never used, while Japan can’t get it’s GDP to grow (11). Individual investors continue to seek returns. Interest rates on savings are minimal, with decent returns disappearing (12, 13). Bizarre investment structures, like this Buy-to-Let-Cars scheme, hoover up those desperate for income on their holdings (14).

And then there’s COVID-19. The Government were very happy to deny a massive money tree for the NHS/ social care. Then they’ve opened their metaphorical chequebook and are handing round a whole forest of blank cheques. Which is needed. But the cost could be £298 billion in debt for Apr 2020/21 alone (15). Analysis from the Resolution Foundation suggests that currently £80 billion has been raised with no deterioration in cover ratio (16). Predictions therein suggest a further extension to QE in June (16).

Image Credit: Resolution Foundation (16)

So we’ve got a mounting pile of government debt as we borrow our way out of trouble. Low, or even negative interest rates are helpful for the Gov here. Favourable to continue borrowing. As TA at Monevator covered this week, we’re seeing some negative UK bond yields (17). The noise from the BoE is that proper negative interest rates are unlikely, but not impossible (18). Certainly there’s no push towards an interest rate rise (19).

Why should there be. Inflation sits at 0.8% for April 2020,(20) well below the BoE’s goal 2.0%. We’re worryingly close to stagflation; rising prices due to rising demand with static growth (21). There’s an argument that there’s a lot of pent up demand due to lockdown, with limited supply also thanks to lockdown. The QE money creation rears it’s head. Deflation is a feedback loop international governments definitely do not want (22). It will only increase their debts.

The magic bullet

So what about inflation. Measures of inflation like the CPI may not have spiked since the 2008/9 financial crisis because Joe Bloggs in his northern terrace has practically seen little inflation of prices. Consumer goods have probably decreased in cost. But the high ticket items like sports car, larger houses in certain postcodes, watches, wine, art and even gold have all risen in price.* The QE wealth got stuck on it’s trickle-down in high net worth owner’s assets. It created a high net worth inflationary micro-environment.

How are we getting out of this mess? A survey of top UK economists suggests that they feel there is no need to tackle public debt soon, and tax increases may the best method in the end (23). We can keep borrowing in the short term. In the long term there is the suggestion that inflation is the only sensible answer (24). QE and other factors are likely to push towards inflation anyway (25). Running inflation higher than 2.0% would reduce that Government debt burden. This method has been used before; after the second world war inflation ran at 4-5% for a good couple of decades (26).

My generation is just not used to that sort of inflation. One of my takeaways from The Intelligent Investor is the change in financial policy/climate. Graham wrote in a period where 4-5% inflation was not unheard of, and savings accounts could yield 5-7%. I vaguely remember those sort of numbers from my childhood building society, but I’ve never been conscious of that financial world. The risk of a 1970s/ Weimar Republic style inflation spike is present (27). The fear of that sort of inflation seems greater than the 1950s 4-5%, maybe due to recency bias, or because those with the most to lose are those who remember the 1970s (28).

Ultimately it seems we’re unlikely to see interest rates or inflation change in the short term. But maybe, in the medium-long term, we’ll see 5% interest rates again. We’re preparing for such eventualities (29). We can tolerate up to 12% on our mortgage with some belt-tightening. I’m sure many can’t. Those zombie companies would go to the wall. The BTLs may struggle. Perhaps a period of 4-5% inflation is the economic reset we need.

Have a great week,

The Shrink

*Gold is slightly more interesting because of just how much the price has rocketed, the argument for it’s use as a hedge, and it generally being the ultimate lesser fool’s gambit (30, 31). No-one wants to be left holding the hottest potato.

N.B. Again, as a more involved speculative post, I would love feedback and opinions on these thoughts.

News:

Comment:

References:

The Financial Dashboard – May 2020

The goals for May were:

Tidy the loft and begin to clear
Read three books
Update my investment tracker spreadsheet and sync with allocations
Strip out kitchen for renovation
Fix minor problems on the modern(ish) car

Checking the assets and liabilities:

May Assets May Liabilities

These are taken, as always, from my Beast Budget spreadsheet. Lockdown is treating my finances well, as a reduction in commuting and socialising means I can squirrel away more cash. My savings rate for this month was a best ever 57% (44% excluding pension), with my total net worth increasing by 3.6%. The usual cash regular savers were topped up (pretty happy about my 5% and 3% now). Two previous Crowdcube offerings, FreeTrade and Cornish Lithium, both opened up pre-emption rounds which I used to increase my speculative investments. A further £350 also went into my FreeTrade ISA, to be deployed on a new passive tracker.

Goals:

Goal failed: Tidy the loft and begin to clear

This has been rate limited by the availability of the loft legs/ stilts we’re installing to add extra storage. Lockdown means they’re not being shipped, so waiting for them to come in.

Goal failed: Read three books

Set myself up to fail here, as one of them was The Intelligent Investor. Making heavy weather of it.

Goal failed: Update my investment tracker spreadsheet and sync with allocations

Continue to work on this, particularly trying to get the googlesheets systems to pull in prices working.

Goal achieved: Strip out kitchen for renovation

Bricks and mortar work starts next month, with floors and walls coming out. DIY naturally.

Goal achieved: Fix minor problems on the modern(ish) car

Going to call this a success as I fixed the worst of the problems. There’s still minor niggles, but on exploring them it seemed impractical (many hours of work and the potential for damage to other systems). As there’s no effect on the daily drivability they can be ignored for now.

Budgets

Groceries – Budget £200, spent £176.91, last month £238.77
Entertainment – Budget £100, spent £16.50, last month £55
Transport – Budget £460, spent £237.36, last month £429.79
Holiday – £150, spent £0, last month £0
Personal – £100/ £65.74/ £156.85
Loans/ Credit – £0/ £0/ £0
Misc – £50/ £71.45/ £3.25 – Bought a refurbished vacuum
Fees – £70 /£295.49/ £522.94 – The punishment continues

In the garden:

Everything is going great guns now. I’ve avoided most root veg this year as it takes up a lot of space, but the leafy greens, potatoes and alliums are all doing well. I companion planted sunflowers, climbing french beans and pumpkins/courgettes, which are starting to create a nice little jumble of green. Greenhouse full of tomato plants too.

Goals for next month:

Tidy the loft and begin to clear
Read three books
Update my investment tracker spreadsheet and sync with allocations
Explore overpaying mortgage

Happy June everyone, I hope you’re all keeping well,

The Shrink

The Full English – Why did Buffett sell his airline stocks?

This week, whilst avoiding infection in my daily work, I’ve been thinking macro. I kept coming back to that Buffett selling BH airline stock news (1). Something about it doesn’t hang right.

Market Insider reckons he bought in against his own advice, anticipating that more people would fly and airlines would maintain value and continue stock buybacks (2). He sold out at a $50bn loss (2, 3). Most of the articles reckon this is because Coronavirus has off-the-cage smackdowned flying. They quote Buffett’s “The world has changed” (1). Plenty of airlines are staring into a debt pit and begging governments for handouts. So of course Buffett sold out at a loss, better to lose some rather than all.

So is the Sage of Omaha just a normal investor who called it wrong?

I can’t help but feel someone of Buffett’s experience, who normally play the ultra-long/ value/ invest and hold game, wouldn’t sell out because of profit warnings. There was already talk of government bailouts. Yes those airlines aren’t going to be profitable in the short-medium term, and will probably suck cash at the same rate as oxygen and Jet A-1, but people will still need to fly. Are our choices and habits really going to change that much? Is our society really going to stop the daily business return flights, or the stag weekends in Budapest?

So what’s he seeing?

The market and it’s FOMO rally appears to be convinced of the V-shaped recovery. The NASDAQ has climbed back to where it was pre-COVID (4). Record numbers of investors are buying back in (5). People called January the melt-up, but this feels suspiciously bubbly again (6). Buffett didn’t give much away in this years Berkshire Hathaway AGM (7). Perhaps most intriguing is that $130 billion cash pile.

To try and gain some sense, I went to other unprecedented times; specifically the Great Depression and Stagflation. To be clear, I’m not thinking we’re in a repeat of either, each major crisis is different, but I’m looking to learn.

The Great Depression

Split between Keynesian and monetarist theories. Keynesian’s (demand-driven) believe loss of confidence led to reduction in investment and spending. Holding money becomes profitable as economic deflation sets in. The monetarist theory suggests this was a normal recession that tipped in severity due to scarcity of money supply. These then follow Irving Fishers debt deflation theorem (8).

A third school of thought, the Austrian School of Economics, argues the FED drove the Great Depression. Expansion of money supply in the 1920s (hence the roaring twenties) led to an unsustainable credit boom (9).

To quote Ludwig von Mises:

“Credit expansion cannot increase the supply of real goods. It merely brings about a rearrangement. It diverts capital investment away from the course prescribed by the state of economic wealth and market conditions. It causes production to pursue paths which it would not follow unless the economy were to acquire an increase in material goods. As a result, the upswing lacks a solid base. It is not a real prosperity. It is illusory prosperity. It did not develop from an increase in economic wealth, i.e. the accumulation of savings made available for productive investment. Rather, it arose because the credit expansion created the illusion of such an increase. Sooner or later, it must become apparent that this economic situation is built on sand.” (10)

During the period there was massive deflation, falls in GDP, and high unemployment. The CPI began the decade at 17.1, and had fallen to 14.0 by 1939 (9)

CPI and Inflation 1930- 1939

Image Credit: Inflationdata.com

Stagflation

Up until the ’70s it was believed there was a stable inverse relationship between inflation and unemployment. The US economy slowed, in part due to the Arab Oil Crisis. Rapid rises in the price of oil made some companies uneconomic, leading them to sack workers. Rising unemployment was accompanied by rising price inflation. Monetary policy in the late-60s and early-70s period was also expansive, contributing to inflation (11).

The normal response of increasing interest rates to reduce the speed with which money changes hands doesn’t work (12). Annual inflation ran at 7.25%, but in some months touched 13%. The CPI rose from 37.8 to 76.7 (13).

Image Credit: Inflationdata.com

To summarise:

Both periods preceded by expansionist monetary policy
Both periods have high unemployment
Great Depression – economic deflation, low interest rates, fall in aggregate demand
Stagflation – price inflation, reactionary interest rates, fall in aggregate supply

Application

Concerns about the future are widely shared. The Bank of England is predicting the sharpest recession on record (14). TI in this weeks Weekend Reading covers a bit of the GDP expectations (15). Iona at Young Money Blog takes it further, covering GDP and drawing comparisons with the Great Depression (16). She goes so far as another event-driven collapse, the Great Frost of 1709. The Ermine has also looked to Buffet and seen bad news (and as an ardent Asimov fan, I particularly like his Trump-Mule comparison) (17).

Plumbing the depths of some thought experiments and potential outcomes, what are the current conditions?

This period has been preceded by expansionist monetary policy (QE).

Though bond/gilt yields and limits on futures lending suggests there remains fear in the market (18).

We’re about to see high unemployment.

This New York Times front page showing how many jobs were lost due ...

Image Credit: Reddit/ NYT

To some extent the Coronavirus job retention scheme, or whatever name the Government is currently calling it’s buy-itself-out-of-jail card is going by now, has helped. The Gov is footing the bill, and most people will receive an income. This has maintained peoples spending, and therefore aggregate demand in the economy.

This is not infinite. The furlough scheme is due to end in July, at the same time as mortgage holidays (19). It is unlikely we’ll be fully back to normal until autumn at the earliest. Not all companies will start back. Our heavily service-sector dependent economy will probably be the most affected. Services account for 80% of total UK economic output. The purchasing index data for those services is a fifth of what it was pre-Coronavirus (20).

To quote Ermine quoting ZXSpectrum on the Monevator thread (21).

“The high street was obsolete anyway, airlines should go bust, the petroleum industry needs massive downsizing. The FTSE is not coming back because it full of crap companies with obsolete business models. The S&P and Nasdaq are not.

I’m also more relaxed about higher unemployment. The UK made a sort of Faustian bargain: low unemployment for high underemployment and low skill base.

[…]

Machine learning and AI is going to make many middle class people unemployed. We might start getting used to it now and stop stigmatizing those who don’t have jobs. A generation or two from now being unemployed might well be the norm.” (17)

So we’ve got mass unemployment, largely of those working in the service industry, most affecting those on zero-hours, casual contracts, or those with minimal qualifications.

Interest rates have been dropped to record lows

Which, coupled with QE, is putting more money into the market. Again helping perk current demand.

Supply or demand?

The great fear when this kicked off was the supply side. All the factories in China were shut, companies going under because they can’t source product etc. Plenty of anecdotal evidence. This led to various fears that Coronavirus would lead to stagflation through flat economic growth and spiking prices from the supply side shock (22). This could still well be the case.

This article on Econlib makes a good argument for it (23). We’ve seen a fall in aggregate supply. We’re seeing a fall in aggregate demand. If there’s more demand then supply we’ll see stagflation.

I think they’ve got it the wrong way round though.

The aggregate supply has returned through global supply chains. Deliveries happen, and the companies that supply are making bank. Looking at you Amazon.

Demand is the question.

The government has kept aggregate demand going through the furlough scheme etc. That is not indefinite. Will, or even can, companies restart with their employees?

If they can’t, and we see mass unemployment, then what happens to demand?

This could coincide with the end of a Kondratiev wave, such as the transition from a supply/ IT/ service predominance to one of green technologies and an internet of things (24). Ably supported by the rise of home-working through improved IT. Goodbye commercial REITs.

We could see mortgage refinancing risk rear it’s ugly head, coinciding with decreased bank lending due to deflationary concerns, as laid out in this masterful piece by Finumus (25). It has me worried about my rate.

If aggregate demand falls but supply doesn’t, then oversupply drives deflation and job losses. Basic economics. Decreasing supply costs have helped maintain standard of living and low inflation for years – all that offshoring. In days of deflation, oversupply and job losses then cash in the bank is king. Is the governments current demand prop enough to see us through?

Or did Buffett just call it wrong on airlines?

Have a great week,

The Shrink

N.B. I would truly appreciate others thoughts in the comments on posts like this. They are my attempts to reason through processes, and balancing counter-argument is most welcome.

…

COVID – I advise the use of BMJs information hub for evidence-based updates:

News:

Opinion:

References:

The Financial Dashboard – April 2020

The goals for April were:

Review target asset allocations
Get the project car back on the road
Tidy the garage, sell anything unnecessary
Tidy the loft and begin to clear

Checking the assets and liabilities:

Assets Liabilities

These are taken, as always, from my Beast Budget spreadsheet. Long time readers will again notice a change in how I’m expressing my net worth. I’ve removed my pension and student loan numbers from my overall calculation. My numbers are always ‘what would be left if I died’, and the figures above now represent this. My pension is recalculated every tax year as well, and is generally a bit lumpy for calculation uses. My net worth increased a tasty 3.7%, in part due to a 48% savings rate. New investment positions were opened in my FreeTrade account for TRIG and UKW.

Goals:

Goal achieved: Review target asset allocations

Completed, updated post scheduled. Led to me rewriting my investment tracker spreadsheet… again.

Goal achieved: Get the project car back on the road

This was a nice little success too. Had some work done at a good new garage I’m trying, got a clean MOT and I’m now using it to get to work. If lockdown continues I’ll be doing more tinkering and improvements to hopefully bring it’s worth up. I’m still commuting but my fuel spend has dramatically dropped.

Goal failed: Tidy the loft and begin to clear

Started to do this, but found I need to buy some loft struts/legs to lift the boards clear of the insulation. These are currently sold out in Screwfix/ B&Q, so I’m held up. Hopefully I can get this completed this month.

Goal achieved: Tidy the garage, sell anything unnecessary

Tidied, but found little to sell. I’m planning to move more to the loft so I can tidy further. There’s a load to go to the local tip as well, but they’re all shut.

Budgets

Groceries – Budget £200, spent £238.77, last month £175.55 – The nice dinners in have replaced the dinners out
Entertainment – Budget £100, spent £55, last month £106.75
Transport – Budget £460, spent £429.79, last month £401.48
Holiday – £150, spent £0, last month £317.33
Personal – £100/ £156.85/ £25 – New threads
Loans/ Credit – £0/ £0/ £0
Misc – £50/ £3.25/ £15.12
Fees – £70 /£522.94/ £267.50 – Bloody GMC/ Royal College!

In the garden:

This is perhaps my favourite month in the garden, I love seeing everything come back to life. I’ve been sowing seeds left, right and centre. Potatoes and raspberrys shooting up. The apple tree is in blossom. Succession sowings of lettuce, radishes, lambs lettuce, pak choi and rocket are accompanied by tomatoes, cucumbers, pumpkins and courgettes in the greenhouse.

Goals for next month:

Tidy the loft and begin to clear
Read three books
Update my investment tracker spreadsheet and sync with allocations
Strip out kitchen for renovation
Fix minor problems on the modern(ish) car

Happy May everyone, I hope you’re all keeping well,

The Shrink

The Financial Dashboard – February 2020

The goals for February were:

Set up standing order for investments
Rationalise credit cards
Repair or replace daily driver
Review pet and car insurance
Review progress towards long term goals

Checking the assets and liabilities:

Assets Feb Liabilities Feb

These are taken, as always, from my Beast Budget spreadsheet. This month my net worth grew by a solid 3.61%, thanks to a best ever savings rate of 53.81%. No massive changes to my expenses, just a large payday due to some extra locum work. Surplus was used to top up my emergency funds and open a new investment holding in my ISA of Vanguard’s Emerging Markets Index Fund (Acc) (1). This was chosen due to it’s relatively low OCF (0.23%), wide EM exposure and the inclusion of Korea thanks to the MSCI index.

Goals:

Goal achieved: Set up standing order for investments

A nice easy win here, but one I’ve been meaning to do for ages. When I initially set up my ISA I intended to put in as much each month as I could afford. In practice I would dither deciding how much to invest, and it led to fluctuations and lack of consistency. Setting up the standing order to go out on the day I am paid makes sure I ‘pay myself first’.

Goal achieved: Rationalise credit cards

After clearing down my debt I was left with two credit cards with not inconsiderable credit limits but no promotional bonuses. I have closed both, and opened a new account with a 27 month interest-free purchase promotion. This will allow me to purchase a car or home improvements in the future with Section 75 protection and no interest.

Goal achieved: Repair or replace daily driver

I was fairly set on purchasing a new car, and the new credit card would have enabled me to. Attempts to sell my current daily driver met with minimal success. As the insurance loomed two weeks were spent travelling locally looking at cars. There was nothing worth putting myself back into debt for. Instead I spent a fairly hefty sum (>£500) on repairs and pro-active maintenance. The old daily has 135k on the clock, and the intention is to run it into the ground, saving further into my emergency fund for a (slight) upgrade in the future. Lifestyle inflation – not today!

Goal achieved: Review pet and car insurance

Our pet insurance came due and, frustratingly, our local vets won’t deal with quite a few of the cheaper insurers. Apparently they’re cheap for a reason. The usual price comparison sites turned up a solution for ~£8/month. Meanwhile I’ve also used the benefits of classic car insurance to get the project car insured with restricted mileage (5,000) including commuting at the useful sum of £180 for the year. Classic cars are definitely cheaper in fees, if not in wear and tear.

Goal failed(ish): Review progress towards long term goals

I’ve been mulling over my long term goals recently. When I first wrote some just under 18 months ago, I was deliberately vague in places, and didn’t include my state or NHS pension for various reasons. I’ve been back and updated my progress, but the goals themselves really need a hard look. Rather than posting that here, I’ve decided to do it as a seperate post this month.

Budgets

Groceries – Budget £200, spent £169.83, last month £143.32
Entertainment – Budget £100, spent £1143.33, last month £157.64
Transport – Budget £460, spent £283.37, last month £195.80
Holiday – £150, spent £60, last month £0
Personal – £100/ £15.88/ £341.73
Loans/ Credit – £0/ £0/ £0
Misc – £50/ £94.59/ £27.89
Fees – £70 /£648.50/ £457 – further gristle for the GMC mill

In the garden:

Very little sadly. Just too busy.

Goals for next month:

Review progress towards long term goals
Review emergency fund accounts
Plan for 2020s ISA
Get the project car back on the road
Gardening

Happy March everyone,
The Shrink

References:

https://www.vanguardinvestor.co.uk/investments/vanguard-emerging-markets-stock-index-fund-accumulation-shares

The Financial Dashboard – January 2020

The goals for December were:

Continue to exercise 4x a week
Keep a record of all dietary intake
Sell 5 items
Fix my car

Checking the assets and liabilities:

Assets Jan Liabilities Jan

These are taken, as always, from my Beast Budget spreadsheet. This month my net worth grew by only 0.83%, though my savings rate was 25.16%. This is because I’ve recalculated how I include our joint savings and also the worth of some my other assets. This measly percentage was still enough to take me over the 50k net worth milestone!

Goals:

Goal achieved: Continue to exercise 4x a week

Happy to report I kept this up, and it’s almost becoming a habit now. I’m paying through the nose for gym memberships to enable me to stay motivated, and it’s starting to grate. I’ll see how I feel at the end of the month, but I may drop one set of classes.

Goal achieved: Keep a record of all dietary intake

Success here too. I tried just noting stuff down, but was crap at it, so went for the high tech app option. Initially this was with an app called Nutracheck which was really good; you could search for food/meals by name or barcode and it would bring up the manufacturer and full calorie/ fibre/ protein breakdown. However, after a weeks free trial it demanded I pay a subscription. It got deleted and replaced with a similar app called Lifesum. It’s less polished, but still allows search by barcode and name, automatically assigns calories, and more importantly operates a freemium model. I’m happy enough with the free version and if someone wants to sell my dietary habits for advertising good on them.

Goal failed: Sell 5 items

This was intended to be part of my spring clean, but all the things I found weren’t worth selling and instead I took a car load to the dump and a car load to the charity shop. House is tidier and less cluttered.

Goal achieved: Fix my car

At the back end of last year my daily car developed an irritating coolant problem which didn’t prevent me driving it but meant it was using more costing more to run. I spent one dry evening in the middle of the month in the garage diagnosing the problem, and for the costs of a £12 part it’s working fine again. More issues remain and as I’m commuting a fair distance it’s probably time to replace rather than repair. Expect a big effect on my liquid cash some time soon!

Budgets

Groceries – Budget £200, spent £143.32, last month £195.46
Entertainment – Budget £100, spent £157.64, last month £242.95
Transport – Budget £460, spent £195.80, last month £406.16
Holiday – £150, spent £0, last month £0
Personal – £100/ £341.73/ £56.99 – Bought some new workwear
Loans/ Credit – £0/ £0/ £0
Misc – £50/ £27.89/ £25.50
Fees – £70 /£457/ £109.49 – The annual pound of flesh to be able to work

In the garden:

We’re still tidying and making ready. Potatoes were bought and are now chitting in a dark box. An apple tree was purchased from a local nursery and planted to provide some shade in one area and variety for wildlife.

Goals for next month:

Set up standing order for investments
Rationalise credit cards
Repair or replace daily driver
Review pet and car insurance
Review progress towards long term goals

Happy February everyone,
The Shrink

Thought Experiment – Your best or worst decade?

Following on from the reasons to be cheerful or fearful post rather than offer one solution, I’m going to offer ~~four~~ five thought experiments; ways in which world events might hit your finances. How would you feel if each played out, and how confident are you that it will or won’t?

Scenario 1: Deep Doom

Driven by cultural nostalgia for the 1920s, the world markets continue their growth into a new ‘roaring twenties’. After three further years fuelled by tech stocks and IPOs, consumer purchasing falters. The West stops buying new IPhones or leasing cars, as people attempt to control their debt. As global consumerism falls off, global economic output follows. Falls in Chinese production lead to an internal banking crisis, as companies are unable to service their debt and require huge bailots. Simultaneously, consecutive quarters of poor returns to the FAANG stocks leads their share price to collapse by 50%. Companies pull investment as they attempt to balance books, which leads to a spiral of decreased corporate spending, job losses, and decreased consumer spending. Over a period of a year global markets lose half their value. Central interest rates, already low, cannot provide stimulus. Reposessions lead to global property price falls. Bond prices collapse as once top-rated companies go under. Government tax receipts cannot cover half of spending, and radical steps are taken. In the UK, the pension is means-tested. The NHS is means-tested. Unemployment benefit is replaced by a ration system. Unemployment rises to 30%, homelessness to 10%. Shanty towns spring up across the country, and crime rates rise dramatically. The world experiences a new Great Depression.

Scenario 2: Local gloom

The UK population enjoys a period of honeymoon euphoria after Brexit occurs. The pound and FTSE100 rise to levels not seen since the mid-00s. People spend the cash they’ve hoarded. The government invests in building swathes on houses on the greenbelt and big infrastructure projects. The honeymoon cannot last, and the economic stimulus leads to inflation and increased government debt. Growth is not stimulated, and the Bank of England is forced to increase interest rates to reduce inflation. People, used to cheap loans and credit, struggle to pay their bills. Repossessions rise, and companies which were just about managing with their debt burden, go under. Tax receipts to the treasury fall, leading to swingeing cuts to the NHS, police and social services. The pension age rises to 70. Income tax goes up 5% across the board. The housing market is flooded with repossessed homes, leading to a 25% drop in prices and negative equity. Globally, markets experience a 20% correction, before continuing their march onwards fuelled by growth in tech and green technologies. The UK is unable to capitalise on this growth, and increasingly sidelined, only sees a return to stability by the end of the decade.

Scenario 3: Wiggle room

The UK population enjoys a period of honeymoon euphoria after Brexit occurs. The pound and FTSE100 rise to levels not seen since the mid-00s. This financial rebound coincides with a global slowdown, prompting the UK to become a counter-cyclical anomaly. Global companies, seeing it’s growth and position as a stepping stone to the EU without tight regulatory control, invest into the UK. UK companies on the back of a stronger pound, stretch abroad. Wages rise, whilst interest rates remain low, leading property to become more affordable. UK domestic stocks show strong growth over the decade – >10% a year, while global stocks hobble along <5%. UK bonds and property remain flat. Increased tax receipts enable the government to focus on reducing national debt.

Scenario 4: Global boom

Driven by cultural nostalgia for the 1920s, the world markets continue their growth into a new ‘roaring twenties’. Tech growth continues, and as new companies rise on the back of radical inventions, older established companies pivot their business models to capitalise on new areas of growth. Tobacco, oil, gas and pharmaceutical companies invest into clean energy and renewables. Mining companies see boosted returns as once-waste metals become sought after for manufacturing. The BRICS nations embrace the new green revolution, and increase their growth by spreading manufacturing into developing nations. Periodic <20% corrections do not dampen stock growth, with 10%+ yearly returns average, and some years seeing 20%. Interest rates gradually creep up, with global bonds achieving 5-10%. Strong wage growth also leads to increasing property prices, at least 5% a year. The world settles into a new normal, with a globally integrated industrial stream and international co-operation.

Late addition – Scenario 5: Wuhan Pandemic

The novel 2019 Coronavirus (one word people) continues it’s inexorable march across the globe. Following the Wuhan pattern, there is approximately a one month lag in each location before the true extent of spread is known, made up of incubation period and asymptomatic spread. By May 2020 the Wuhan virus has spread across the globe, and the numbers of infected in western counties is growing at an exponential rate. In June the number infected has crossed 100 million. The most severely affected are the old, weak and frail. 2% of those infected die. In the UK this numbers over half a million, mainly 1% of the UK population over 65 (18% of the general population). Nobody is spared. Everybody loses someone they know. The global economy staggers but continues, given that working aged people are predominantly spared. In the UK there is a glut of property put on the market, as empty homes are sold by bereaved relatives. Money concentrates into the hands of those left, reducing debt burden and leading to a surplus of cash. The government receives a windfall of inheritance tax receipts and reduced pension/ social care expenses. Society continues onwards, but never quite forgets the potential of a pandemic.

Bangernomics 2019

I preach, but do not devoutly practice, Bangernomics; do as I say not as I do being a common mantra among the medical profession as they down their sixth pint surrounded by a cloud of cigarette smoke. For the past five years I’ve kept spreadsheets tracking every cost from my motley parade of shonky motors. Inspired by a recent JL Collins post, I thought I would share my yearly running costs here (1).

The current fleet stands at the 15-year old daily driver, and the classic, which MrsShrink never tires of telling me is older than her. There’s also MrsShrink’s car, but I don’t include that in the numbers as it’s entirely her property. This fleet is much reduced compared to recent years, generally more reliable and responsible, and less of an environmental waste hazard. At one point I had vehicles and parts scattered across several counties, and inhabited by a surprising variety of flora and fauna.

The reduction in general tat has come with the realisation that owning said tat is less a joy, and more a millstone. My head hung heavy with the weight of untouched projects. I can only physically drive one car at a time, so better to make it one really good one, than lots of good-ish ones.

The daily driver is a good-ish one, bought at 11 years old on 80,000 miles for £2,000. Four and a half years later it’s ticked round 135,000. Here’s the vitals for 2019:

Completed 14,000 miles
Required £1,052 in repairs and pro-active maintenance
Cost 16.54p/ mile in petrol, for a total of £2,316 (I use the fuelly app to track my fill-ups and spending (2))
Plus ~£300/year in tax
And £350/year in insurance
£0 depreciation – it’s old!

For a total annual cost of £4,020, or 28.7p/mile.

It’s been an expensive year for repairs, with a new clutch costing £650. Beyond servicing and perishable parts there was nothing else out of the ordinary. Unfortunately the old girl is starting to reach the age where lots of things go wrong every year, and it’s time to evaluate the trade-off of ‘better the devil you know’ versus ‘shiny new thing’.

Now I would never buy a shiny new car. My favoured choice is buying something ten years old and running it for five years, hitting my own personal sweet spot of depreciation vs reliability. As for data to back that up, well the clever spreadsheet jockeys over at r/UKPersonalFinance have come up trumps.

Seven months ago, /u/tirboki posted this thread (3). They wrote a python script which scraped data from Autotrader on price, age and mileage, and then compared it to data the DVLA publishes on MOT failure rate. This produced some fantastic results:

But was also largely based on summary data, and therefore wasn’t nuanced. Their suggestion was that:

If you want to own a car for 1 year, buy a 5 year old car. If you want to own a car for 3 years, buy a 4 year old car. If you want to own a car for 8 years, but a 2 year old car. If you want to own a car for more than 8 years, wait for the right month (August, February) and buy a brand new car. (3)

Now I’m not going to buy a brand new car. Nor am I going to buy a base model car. /u/tirboki went on to publish a further analysis thread recently, breaking down the DVLA MOT statistics further (4). This looked at the time it took for cars to go from peak volume (i.e. the most number of the road), to 5% of peak volume, as a marker of life expectancy. There’s a great variety here, a bimodal distribution where high end marques outlast lower quality manufacturers by five years (4). Top spec models also outlast base models.

So where does your car fit? /u/adam-a has the answer for you, developing a website rate my ride which produces MOT survival curves for popular car models (5, 6). It allows you to navigate MOT pass rates as a proxy for reliability (but actually for maintenance and quality, but close enough).

My buying criteria have been <£2,000, around ten years old, high end manufacturer, high spec model, regular servicing and few failed MOTs, moderate mileage (aiming for 6-8,000/year). Cars that spend years inactive tend to come with their own problems, and are often a worse bet than something high mileage but cared for. Ten year old models of my current daily have 80% MOT pass rates, compared to 72% for a Vauxhall Astra. At 15 years the daily is still 68%, the Astra 62%. Worse when mileage is factored in.

So is it time to buy something new(er)?

Bangernomics says it’s time to get rid when the cars value is less than remedial work. I’m anticipating another £1,000 year of maintenance, and with that the cars value will be £750. Being averse to debt, I’m planning to save up for the replacement. When it comes round to it I’ll document the sums here with reasoning (like Mr & Miss Way) (7). I’ll also make use of the excellent UK vehicle stats website (8). For the time being the old girl will continue to see service, but the chop beckons.
References:

The Financial Dashboard – December 2019

The goals for December were:

Continue to exercise 4x a week
Keep a record of all dietary intake (what gets measured gets managed)
Sell 5 items (need to get back on my de-clutter)
Save 30% of my salary

Checking the assets and liabilities:

Dec 2019 Assets Dec 2019 Liabilities

These are taken, as always, from my Beast Budget spreadsheet. This month my net worth grew by 14.42%, though not due to any stonking savings rate. Instead it was down to a house revaluation, which brought our equity up in our home up by £20k. My savings rate missed my goal at a measly 23.85%, leaving my average for the 12 months at 23.52%.

Goals:

Goal failed: Continue to exercise 4x a week

Work, Christmas parties and a break away to stay with family meant that I only managed three times a week. There’s a recurring theme this month…

Goal failed: Keep a record of all dietary intake

Failed at this too. I’ve downloaded an app to try for January.

Goal failed: Sell 5 items

Nope. Next…

Goal failed: Save 30% of my salary

Not even close. Should and could have been, however we had a plumbing emergency the week before Christmas, requiring a dip into the emergency fund. A couple of years ago this would have gone on a credit card, and hung around my head like a noose for the following year. Now the £2k could be paid immediately, without breaking a sweat, and the emergency fund topped straight back up at the end of the month.

Budgets

Groceries – Budget £200, spent £195.46, last month £157.76 – This probably should have been more, but we ate out a lot and didn’t host for Christmas
Entertainment – Budget £100, spent £242.95, last month £119 – Christmas parties, breaks away, beers, beers and prosecco!
Transport – Budget £460, spent £406.16, last month £394.05 – More work to the daily, and it needs further if I’m not to replace it soon
Holiday – £150, spent £0, last month £0
Personal – £100/ £56.99/ £102.90
Loans/ Credit – £0/ £0/ £0
Misc – £50/ £25.50/ £109.16
Fees – £70 /£109.49/ £135.40

In the garden:

Harvesting root veg, and now tidying up in preparation for planting next year.

Goals for next month… take 2:

Continue to exercise 4x a week
Keep a record of all dietary intake
Sell 5 items
Fix my car

Happy New Year everyone,

The Shrink