Author Topic: CASE STUDY: New to MMM: Where do I start (UK)  (Read 1574 times)

adam_devon

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CASE STUDY: New to MMM: Where do I start (UK)
« on: October 20, 2014, 07:51:21 AM »
What a great community you have here!! I only just found the site over the weekend, but have previously read posts over at Get Rich Slowly, and things from Ramit Sethi. I'm a self confessed luxury/status addict, who has got caught up in an endless cycle of keeping up with the Jones'. I'm an apple fan-boy, who just waits for the new i this, that or the other!

Having said that, I've landed fortunately, and have no debts other than my mortgage. This means as much as there is no student loan, credit debt etc - there is also no emergency fund, no savings - and the monthly budget needs a ton of work. At present, my wife and I spend everything we earn without savings - but we are both on board with planning for the future and creating a more meaningful life, beyond gadgets and short-term luxuries, to ensure that we raise a family in the way we want to.

I'm 27, and my wife is 30 - we have a two year old daughter. I have a 10mile commute to work, and hold a good job with a successful high-flying, driven crowd - where the culture of work hard, play hard is often taken to the extreme.

My current thoughts and queries are as follows:

1) Can someone point me in the right direction to learn the basics of saving / investing for those in the UK? I see a lot of talk about 401k's, and ROTH IRA which doesn't mean anything to me. Further, taking a search online it's difficult to separate the overly salesy - "how to beat the market in 3 easy steps" sort of material, from the credible, accurate information.

2) Secondly, can anyone point in the direction of, or share some comments on budgeting for two adults and a toddler in terms of figures which one should aspire to. I think the issue I have (income is approx £2700) is that I'm so used to spending what I earn, that I almost need exponential rather than incremental change to my budget - there are £000's which could be saved monthly, rather than £0's.

3) I currently have a 35 year mortgage (2 years into the term) for £128k against a £195k house. The current interest rate is 2.39% - although this expires in March, upon which time I can then re-mortgage and should be able to secure a similar rate for a further 3 years (fixed terms for mortgages are quite different in the UK, and tend to be for 2-5 years, and then are variable rate). What focus would you give to aggressively paying this down - obviously I'd rather not still be paying when I turn 60, but at the same time interest rate even with my understanding is lower than I would expect from my investment return.

4) I will shortly have a lump sum to invest/'use' - approximately £30-40k - now, my wife is keen to extend our house with a conservatory, to "future-proof" if our family were to grow, this would take about half the amount, but she is open to negotiation. What would people suggest I do, given I have no emergency fund, savings, investments - nothing at this stage, starting with a clean slate. I'm reluctant to mindlessly follow the "6 months of expenses emergency fund" school of thought, as my job is particularly stable and therefore there is no risk of redundancy. If I were to lose job for any reason, I could find another in weeks. As such, I wondered if maybe a lower multiple - maybe 3 months of expenses would be appropriate to cover appliances / household repairs etc should they arise.

5) Given that I'm at a blank slate, and with a small sum to invest, plus once the budget is scaled down somewhere in the region of £500 per month - what order should I tackle things in - should I start with an ISA, then index funds (read this term, don't necessarily understand though ;) ); rental property; paying down my mortgage? I understand the concepts of asset allocation as I work broadly in the finance space - but have no practical experience and therefore no points of reference.

Are there any other UK posters out there - I'd love to hear more about people trying to be frugal over this side of the pond!

Trying my best to keep this brief as a first post - but would be ever so grateful if people could share some wisdom, or give me a steer towards where I may find useful information. Anyway, off to work out how I can stop spending £600 a month on food, for two adults and a toddler!
« Last Edit: October 20, 2014, 08:50:27 AM by adam_devon »

Nickyd£g

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Re: New to MMM: Where do I start (UK)
« Reply #1 on: October 20, 2014, 08:35:51 AM »
Hi AdamDevon, welcome to the boards from not so sunny Glasgow :)

First of all, take a deep breath!  I'm fairly new at this mustachian stuff myself but I'll give you the basics:

1. Figure out what your outgoing are and where you are bleeding money.  Track your spending for a month or so [I use a pad and pen, old school] and see where you can cut. Groceries/clothing/eating out are the usual biggies.  Check your bills - can you switch deals for insurance/gas/electric/mobile?  Are you paying for Sky?  Get rid, use Netflix.  You need to know where your money is going firstly.

2. Once you have figured out what your spending where, and what can be cut, figure out how much you have left over each month and start saving and investing.  Does your company have a pension?  Speak to the pension guy and see what your options are.  Open an ISA - there are stocks and shares ISAs ["riskier" as you're playing the market but that doesn't matter if it's a long term investment plan].  Disclaimer: this is how far I've gotten, someone else may be able to advise you on other investment strategies.

3. I wouldn't worry too much about repaying the mortgage as it's quite a low rate at the moment.  Instead, get an emergency fund - 3 months is fine if you feel comfortable with that.

4. £30-40K lumpsum...I would be inclined to save and invest all of it.  Do you really need a conservatory?  If you have another kid, will they need their own bedroom within the next 5 years?

Get the basics right - spend much less than you earn, save and invest the rest, and you will be FIREd in no time at all.  However, be prepared for temptation/resistance from those around you, it sounds like you are in a very spendy environment and you may be derided when you say "that's not in the budget".  If you and your wife are onboard together, fuck 'em, you will be retiring 7-15 years from now and they will still be living paycheck to paycheck.

Good luck!

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Re: CASE STUDY: New to MMM: Where do I start (UK)
« Reply #2 on: October 20, 2014, 10:59:47 AM »
Congratulations on the lack of debt, and the new-found impetus to an MMM financial lifestyle.

With a stable job and living in the UK, I think you have less need of an emergency fund than many here.  For instance, you have no real concern about unexpected medical costs, your chances of being summarily sacked without redundancy pay are limited, and you have a more certain access to statutory sick pay and unemployment benefits.  What your emergency fund does need to cover is -
1) uninsured repairs to your house
2) uninsured repairs to any car you rely on for work or essential personal journeys
3) costs of any emergency travel you might need to take (eg to visit sick/dying relatives or attend a funeral)

You can put your emergency fund into a cash ISA, so that you get a decent interest rate without paying tax on it.  Don't worry if you have to take money out in an emergency - taking money out means you have lost a tax-free investment, but that doesn't really count as a loss until you have reached the stage of investing £15,000 a year on top of your pension contributions.

For savings over and above your emergency fund, you need to be looking first at a pension, because anything you contribute to a pension is tax-free (ie if you put 10% of your income into a pension, you will be paying tax on only 90% of it).  Check out https://www.gov.uk/workplace-pensions-employers and follow the links to find general official info on your pension options (generally, any site with the suffix "gov.uk" is a sound starting point on financial stuff), and then ask your employer/HR for details of what is specifically on offer at your workplace.

Re your house: a 35 year mortgage is a very long one, and you will be paying a lot of interest even at current low rates, and practically all your current payments will be interest rather than principal.  You could look at shortening the term when you re-finance in the spring, using your lump sum to reduce the amount you borrow.  You need to do the sums to see whether this is worth it.

Speaking as someone who did put a conservatory on a house in the UK, I don't recommend it if what you want is additional living space for a family with 2 kids: even with modern standards of glazing it is difficult/expensive to keep at a comfortable room temperature all year round, and if you have kids running in and out (as kids do) it will affect the rest of the house as well.  Better options are a proper roofed construction complying with building regs (eg a garden room) or cutting the clutter and living with what you have got.