This post comes from Erith who blogs at Cracking Retirement about having fun after retiring, making the most of her money, travelling far and wide and enjoying her hobby: bashing metal. Erith is not a financial adviser and recommends you take professional financial advice.
Reaching Financial Independence – 5 things
My path to Financial Independence was not totally straightforward. Hindsight is a wonderful thing. I was lucky. The fact that I had a good salary, protected me from long term financial damage.
5 things I did right
- Saving automatically into my pension. I was putting additional money away for about 15 years, but when I boosted the amount some years later, the returns were amazing.
- Making the most of legitimate tax rules. Using my full ISA allowance each year (A UK tax free savings account), means that all my investment growth is sheltered from tax.
- Getting an MBA for free. (I was sponsored by my employer). I don’t know whether it just increased my confidence, or my negotiating skills, but within a year I had secured a major promotion, and a vastly increased salary.
- Buying my own house and then getting rid of my mortgage early. While it wasn’t a huge amount going out each month, it changed my mindset. I also reckon it made me £440k (£140k saving against rent, and the asset value £300k)
- Taking some good financial advice. Before I resigned, I walked through my financial assumptions with a professional financial adviser. His confirmation that I was taking the correct actions gave me the confidence to act.
5 mistakes I made
- Being financially casual. I knew about compound interest, for many years our accounts were paying good interest, and shares were paying dividends, why did I spend them rather than re-investing them? I didn’t have a long enough horizon. I was too short term focused.
- The really, really, big mistake I made was having all my savings for twenty years in the bank which employed me. I thought it couldn’t fail. It didn’t quite, but it came very close. Not only did I lose a 6 figure sum on the shares, but had the bank failed, I literally would not have been able to eat, as all our money was in accounts with that institution. Opening another account elsewhere was essential.
- Starting far too late. I could and should have started far earlier. I really only started aged 45, and even then really only focused on it aged 53.
- I was earning a great salary but I was also spending a good bit of it. I managed to reach FIRE and retire early at 55. Had I spent less, I could have retired years earlier.
- I bought far too much stuff. At the time, I didn’t think I was extravagant, but I was. My cupboards tell me so.
5 things you should consider doing
- Spend time on your own financial education. Read widely and become more knowledgeable. Don’t rely on chance. It will pay you dividends.
- Put money away automatically. Don’t let it get near your bank account, where you might be tempted to spend it. Just look at the difference that saving $25 a month to $250 a month makes after 30 years, even at 5% interest.
- Set big goals and focus on them. That way they are more likely to happen.
- Stop buying ‘stuff’. How many outfits do you need? How many pairs of shoes?
- Stay out of debt. If you use credit cards, make sure you pay them off automatically each month. Don’t ever borrow for something that will depreciate, you’ll be paying back the loan long after the item has lost its shine …..