Today’s post outlines our family of 3’s annual spend for 2023. It is worth noting that half the year was spent in Ireland and the other half was spent in Canada.

Total spend in 2023 came to:

€63,547

This is almost double last year‘s spend. The increase was largely due to our move to Canada.

Not included in this figure are the costs/proceeds from the sale of our house in Ireland, the sale of our investments, our income tax refund (8k), or the cost of our new car in Canada- offset by the sale of our car in Ireland (17k) and any other income offsets.

Overall Spend

Here is a summary of the main categories with spend over 2,000€.

And all main spend categories summarised by annual and average monthly spend in both Euro and Canadian Dollar.

EURO

CAD

Food

EUR

CAD

Food stayed almost exactly the same as last year at 10.1k.

Our grocery category (8.7k) includes everything you’d buy at the grocery store so can include alcohol, toiletries, cleaning products, the odd centre aisle item like small tools, toys for our son etc.

Grocery spend was about 400€ more than last year but we spent less on take-away and restaurants (600€ less combined).

So even given the rate of inflation this year on food, we don’t seem to be seeing that much of an increase in our grocery bill, this is likely due to our efforts to eat as little processed foods as possible. We also plan our meals and make lists for grocery shopping which helps reduce food waste.

If we convert the full annual food spend of 10.1k into cost per person per week – assuming 2 adults and 1 small fella (I’ll average at 2.75), it comes to 71€/week/person.

For those that are wondering about the food cost difference between Canada and Ireland. We haven’t really noticed much of a difference.

We shop online at Walmart which helps us avoid the shopping when hungry additions you inevitably throw into your cart, and are usually able to find discount codes using this chrome plug-in that knocks off about 20$ each week. As above, we try to eat whole, local, organic, fairly treated foods as much as possible, so even with the added costs for organic, I do think it is less than a lot of pre-made, processed foods would be. We are averaging about 200€/week since moving to Canada.

Monthly Bills

EUR

CAD

Monthly bills came in at just under 10k which is 2,500€ more than last year. The vast majority was mortgage/rent (6.4k). This is higher than last year as we are now renting instead of paying a small mortgage.

Gas was only 100€ more than last year at 1,265€ but we didn’t have a gas bill once we moved to Canada as our rental is heated with Electricity.

Electricity was 80€ less than last year at 457€. Electricity in Quebec is relatively cheap at 7.3¢/kwh.

Internet was 127€ more than last year as we are now paying 44€/month instead of the average 37€/month we were spending in Ireland (due to new customer offers).

Mobile was slightly less than last year at 520€ but this is only because we’ve been sharing a phone. I am very rarely not in a place with wifi so I don’t really need a phone plan. We are now paying about 30€/month for a bring-your-own-device plan of 20GB and unlimited calls/texts in Canada.

Moving Costs

EUR

CAD

As mentioned, we moved back to Canada this year. This is hopefully a once-in-a-decade cost ;). We spent 7,560€ to ship our furniture. It was well worth the cost for us to have all our belongings transplanted into our new home to help us feel at home more quickly. We spent a lot on our furniture and accessories in Ireland and it made sense to ship them rather than sell them off and replace them on this end. The other costs were flights and shipping materials.

Vacation

EUR

CAD

We spent more than double on travel this year than we did last year at 7.6k. The reason it is higher is that we had 2 weeks in Portugal (from Ireland), 3 weeks in Paris (from Canada) and bought our flights from Canada to Portugal and Ireland for early 2024 in Dec of 2023.

So flights came in at 3,356€ which was 310€ for Portugal from Cork for the 3 of us, 1,278€ for Paris/Ireland from Montreal for 2 of us, and 1,766€ for Portugal/Ireland from Montreal for the 3 of us.

Food came to 1,850€ for the 5 weeks so about 370€/week (compared to the average of 200€/week when staying home), due to taking part in restaurants and nights out on holiday.

Despite being abroad for 5 weeks, our accommodation costs only came to 1,912€. This averages out to 54€/night including 3 weeks in Paris. We managed this largely because we used our guest points that we had built up from home-exchange. We managed to stay almost the entire 3 weeks in Paris without paying for accommodation and we still have 2-3 weeks of points left over!

Here are some of the places we stayed.

Home

EUR

CAD

Home costs were significantly more than last year coming in at 6.7k compared to 1.8k. Part of the reason this looks to be so much higher is that our home-related costs last year were probably lower than usual as we knew we would be moving and did not buy anything we didn’t need. Once we moved, we had to buy a lot of new stuff to get set up in Canada. We sold a lot of our electronics and some furniture in Ireland which helped towards some of the costs but I can’t say we didn’t have fun buying new stuff.

We spent 2.4k on electronics including 2 new TVs, a sound system and 2 PS5s.

We spent 1.2k on furniture including dining room chairs, a kitchen island and a headboard.

We spent 900€ on small appliances including an espresso machine and BBQ.

Accessories costs seem very low at 385€ but this is because we offset these purchases with sales of stuff in Ireland. We sold off 2.4k of stuff in Ireland but bought 2.8k of stuff in Canada. Biggest costs here were an inflatable hot tub, new Christmas decorations and blinds. Although we are renting, we did still need a lot of organisational things like towel bars, soap dispensers, storage bins, door mats etc.

Smaller amounts then, were spent on maintenance, renos getting the house ready for sale, plants and insurance.

Our insurance costs seem so low as we got refunds from our cancelled Irish policies.

Medical

EUR

CAD

Medical costs were higher this year, coming in at almost 4k compared to 1.4k last year. Although we only needed health insurance for part of the year it still cost us 1.8k as we had to pay for interim insurance in Canada while we waited for our government insurance plan to kick in.

Doctor costs were also quite a bit higher at 1k. The largest part of this was my autism assessment and diagnosis which I had to pay for privately. Mr. MH also had to go to a private clinic a few times in Canada to get forms completed for his license and to get a prescription as we don’t yet have a family doctor.

Prescription costs were also higher as we had to pay out of pocket for Mr. MH’s diabetic stuff until we could apply for coverage under the provincial plan.

Little MH had a broken tooth which ultimately needed to be extracted, poor guy, so that brought up our dental costs. We should be getting a tax credit against that next year though which should offset that.

These costs should be significantly lower next year once all our tax credits and benefits kick in.

Transportation

EUR

CAD

Transport costs were only slightly higher than last year at 3.4k instead of 2.8k.

Petrol was about the same at 1.3k although I expect this to be lower next year. When in Ireland we had a 2012 hybrid but when we first moved to Canada we borrowed an older car for the first few months which would have cost more in petrol. In October we bought a 2021 hybrid and are seeing a big reduction in fuel costs so this will be an interesting comparison next year.

Car repairs and maintenance came in at 1k and is largely due to the cost of our winter tires. We hope to get a few winters out of them so again, hopefully this will be less next year.

Car insurance appears lower as we got a refund from our Irish policy which offset the costs on the Irish side. Next year this will appear higher. We pay 870€ for car insurance.

Entertainment

EUR

CAD

Entertainment was 1,400€ less than last year. We spent 480€ less on video games and 285€ less on alcohol. Mr. MH also got money back on sporting events as he had spare tickets to the Rugby World Cup which he sold on. In total, we spent 2.1k on entertainment.

Spending across sub-categories was fairly even between 100€ and 400€ on each.

Other

EUR

CAD

The remaining categories were largely between 1,000€ and 2,000€ each.

Misc was the highest at 1.8k. I got my Irish citizenship this year! This was the cost of my certificate and last-minute flight changes to Ireland.

Another 1.8k was spent on personal stuff like clothing, toiletries, haircuts, accessories, winter boots etc.

I had 1.7k of expenses for work, including indemnity insurance and customs on the shipment of my laptop.

Giving includes charity and gifts at 1.7k. Gifts include birthdays, Christmas and a thank-you gift for my parents for minding little MH while we were in Paris.

Kid stuff includes things like, activities, books, clothing, school supplies, and toys. The biggest cost here was a swing set and trampoline.

Blog costs came in at 873€ for insurance and subscriptions to run the website.

Health costs include things like classes and exercise equipment (800€). This year we bought a bike, a paddle board and some weights and I went to a few yoga classes.

Goals for next year

Needless to say, I’m hoping our costs next year will be significantly lower!

I’m going to target 43,000€ (63,000$). This will include 2.5 months in Portugal and Ireland along with our increased costs from renting.

Do you really need a car?

This wouldn’t be a very good financial independence blog if I didn’t pose this question first. Do you really need a car at all? When our car started to become less reliable and cost more money to maintain, we asked ourselves, could we get away with not having a car at all? Or perhaps if you have 2 cars, can you do with only 1?

Looking back at our expenses since moving back to Ireland in 2014, it has cost us on average 350€/month to own 1 car between us. That includes car, petrol, tolls, parking, NCT, taxes, maintenance and license costs.

As we live near the city centre and could walk/bus/train to main amenities like grocery stores, schools, playgrounds, work etc could we get away with alternatives to owning a car like:

• An electric bike/scooter with child carrier
• Renting a car for longer journeys
• Signing up for car-sharing like GoCar or Fleet

For us, we do a lot of longer journeys to Mayo and Dublin and do regularly drive around to different playgrounds and sightseeing with our son so it felt like the cost and hassle of renting a car or car-sharing for each of those journeys on top of the public transportation costs would not be feasible for the time being, nor would it be cheaper. Maybe once our son is older we can make the switch but for now, we feel we need 1 car.

But it’s worth asking yourself the question and thinking outside the box if you can give it a go. If you do need a car then read on.

Determine your search criteria

Do some soul searching about what you want out of your new car.

For me, my main reason for upgrading our car was reliability for as little cost as possible. I also wanted the new car to last us for another 5-6 years minimum before having to dish out again. Your core criteria may be different but it’s important to keep coming back to them when you need to bring yourself back down to earth.

Cost

Budget

How much are you willing to dish out? Like any big purchase, getting a new car is exciting and it can get very hard to stop your emotions from guiding your purchase. If you have very clear criteria for yourself it can help you to stop getting carried away.

We always try to live beneath our means and only buy cars in cash. If we don’t have the cash, we don’t buy the car. Getting loans for things like cars is very easy to do these days and can make it very hard to keep spending in check. Just because you can “afford” it, doesn’t mean you should get the most expensive thing you can. It can end up costing you way more with all the administration and interest.

What we try to aim for is buying a new car every 5-6 years for around 5,000€-7,000€. This means we need to put aside 833€-1,400€/year (or 70€-117€/month) so that we have enough to pay for the new car in cash when it’s time.

For us, financial security is really important and so when we frame a big purchase in this light, it helps us keep our spending down. If you spent 20,000€ on a car, and you typically save/invest 20,000€ a year, then that new car purchase will mean we need to work for an extra year before reaching financial independence. If you feel that is a reasonable exchange of your limited life, then it’s worth it but if not, it can help you prioritise your spending.

If you’re not focusing on your time to financial independence, another way to look a the purchase is how many hours of your life will you spend working to pay for this car? Figure out your real hourly wage after taxes including things like commute time and cost, work clothes etc – take the cost of the car and divide it by your real hourly wage. This shows you how many hours of your life you will spend at work to pay for this car. A good calculator for this is here.

For example: If you earn 50,000€ for 38hours/week for 48 weeks/year – you take home about 36,800€. Say you spend 30 minutes getting ready each morning and spend about 50€/month on new work clothes. You spend 1 hour a day commuting and about 70€/month on fuel (for work alone). You buy your lunch for 4€/day in a subsidised canteen. This means your real hourly wage (including the additional costs in time and money to work) comes to 13.37€. To buy a 20,000€ car you will spend 9.8 months working to pay for it. Imagine going to work every day for almost a year JUST to pay for your car. If you keep the car for 10 years that spreads it a bit more so that 1 entire month for each of the next 10 years will go towards paying for that car. Converting costs to time really helps put things in perspective as it truly is the most limited resource.

Comparison

It also gets hard to compare costs when you have multiple factors to consider. How long can I expect this car to last? How much is the motor tax? How much is the petrol/diesel/electricity? How do these compare to keeping my current car?

To help compare apples to apples, I came up with a calculator that takes all of these criteria into account and boils each car down to an average monthly spend so you can compare the total cost of ownership side by side of each car you are considering. You can find this in my paid member’s area but it’s not hard to calculate yourself in a simple spreadsheet. Again, this helps to take the emotion out of it somewhat when you can see the true cost over the lifetime against all options. Read on to see an example of our full search.

Mileage

To translate mileage into search criteria I took our average annual mileage of 15,000km and multiplied that by 6 years. That comes out to 90,000km. So I would want a car that I could get another 90,000km out of without needing major repairs to keep it going. The mileage range to put in your search criteria will differ depending on the brand of car.

From our experience, we feel that 200,000km is a reasonable mileage to get out of the likes of a reliable brand like Toyota and Honda without needing any major repairs. This may be more or less for other brands, you will have to research car buying guides for a realistic figure for whatever car make you are interested in.

So if we take 200,000km minus 90,000km, that means we’d need a new car with at MOST 110,000km on the clock.

Year

Putting the max price and max mileage criteria into DoneDeal came back with a range of cars from 1994-2017. We felt for the reliability and lifespan we’d be looking for we’d want at least a 2010 so we added that to the criteria.

Make/Model

Seeing the cars that came back in the search we tried to refine our search further again based on our preferred make/model. I’ve personally only ever owned a Toyota and have found them to be very reliable requiring very little maintenance. My perception of Honda comes a close second. I then filtered for Toyota and Honda to further refine the search.

Fuel type

Being concerned for the environment, we really tried to make this next car an electric one but after much research, we felt the used car stock in our price range at the moment does not have the distance range we would be comfortable with. As we do regular trips to Dublin/Mayo with a 3 year old, we weren’t prepared to need a 20-40 minute stop to charge up once or even twice on the already long journey. We felt that by the time we need to trade up next time, the battery charging technology or infrastructure will be much farther along and the range of the batteries will be much better too so we are holding off another while. As a compromise we favoured Hybrid’s in our search so prioritised those in the filters. Petrol would have been our next choice and then Diesel.

Further research

In the end we broadened and narrowed our search criteria out of curiosity for my calculator. It ranged between 2009-2019 and 3,990€-18,900€. From an average of saving 25€/month compared to our current car for a 2018 Kia Soul EV with 32,000km to costing 663€/month for a 2013 Yaris Hybrid with 146,000km.

We looked at Honda’s, Toyota’s, VW’s, Ford’s, Kia’s, BMW’s and Nissan’s.

Once we boiled it down to a handful we dug deeper into the car reports for that year and make. We watched car buying guides and reviews to see if there were any recall’s, safety concerns or other considerations. I even joined a Facebook group for BMW i3’s in the UK to get an idea of what trouble’s owners are experiencing. Mr. MH talked to our mechanic about their take on the model we were considering as well.

The cheapest options per month were the electric vehicle’s where we would actually save money per month (between 11€ and 25€/month) compared to our current car ownership costs but they came with a sticker price of between 17,500€ and 18,900€ which we weren’t prepared to pay this time around. Also as mentioned above, we weren’t ready to commit to 100% EV due to lack of range. The BMW i3 with range extender was a tempting compromise but our additional research into them ruled them out as they can be expensive to fix, which was a strike against my main reliability/low effort criteria.

The next on the list was the Honda Fit Hybrid at a cost of 18€/month on average if we kept it to 200,000km or 8.2 years. This is the one we ended up going with although on the day we were going to collect it, Mr. MH got reading up on the expected battery range and found that we could likely only expect to get 160,000km out of it (180,000max) and replacing the battery would be too costly at that point, so that brought our estimated average monthly cost to 51€ as we could only expect to get 5.5 years out of it.

Detailed research

Here is a list of all the cars we looked at from cheapest monthly cost to highest monthly cost.

The savings were based on our current road tax of 358, current annual petrol costs of 1,596.

We estimated the savings of an EV would be 100% of the 1,596/year (though this should probably have been lowered to 95% assuming electricity will cost something) and 25% savings of the 1,596 for an older Hybrid. From our reading it was optimistic to expect 30% savings in a Hybrid so we took 25% to be conservative.

Now that we have our Hybrid we are seeing about 31% savings (getting 725 km per 40L tank vs 500km in our old Vitz) so that brings our cost per month back down to 41€ if we keep it for 5.5 years.

Expected mileage for petrol or EV was 200k while Hybrid were reduced to 160k.

Japanese import considerations

Low mileage but tired engine

If you’re looking for the above criteria, you will find a lot of almost brand new looking older import cars from Japan with very low mileage for the year. There is a reason for this:

In Japan it is very costly to own a car older than 3 years old due to their high cost of emissions certifications. Ireland is one of limited number of right hand drive counties that they can export these to when no one in Japan wants to pay the high costs of owning them.

The mileage is also low because it takes them much longer to get short distances. So while the mileage is low, the engine may be tired. A bit like you measure tractor use in hours rather than miles. When you are considering the longevity and how may years you may get out of a car, you’ll need to take this into consideration. For example: A non-import Toyota may last 300,000-400,000km but an imported Toyota may only get 200,000km before they start causing you trouble.

Insurance for imports

It can be hard to get insurance for Japanese imports because the replacement parts are not easy to find if needed. Be sure to check with your insurer first before your purchase the car. We have found only Liberty or Aviva will even quote for Japanese imports and you cannot fill out quotes online as they do not have them in their databases so makes shopping around each year more difficult or even pointless. Luckily we have found Liberty to be fairly competitive anyway so we haven’t found sticking with them to be painful from a cost perspective.

Higher spec

Still, we like the imports because the interor’s are impeccable and the spec is typically higher (tinted windows, automatic transmission, windows and mirrors etc). For our last car for example we had a 2005 but it was equivalent to the 2008 Irish models.

Radio limits

The other weird thing is that the radio stations in imports are limited to a different frequency so if you don’t get a range extender/adaptor you will be stuck listening to RTE radio 1 – not all bad as if I hadn’t had this limitation I likely wouldn’t have discovered FIRE when I did as it was an interview on that station where I first heard Kristy from Millennial Revolution talking about their experience retiring early.

You can get radio adaptors relatively cheaply and if you get the car from a dealer, sometimes they will convert the radio/console to an Irish one. Ours put in an android console which catered for the Irish radio stations.

Toll card reader

In Japan, they have electronic toll car (ETC) readers in some of the newer cars. If you don’t have a card in the reader or don’t have credit, when you start the car, there is an audio recording in Japanese that will play. These are wired into the car so you will need to get it removed by a mechanic if you don’t want it to sound every time.

Reversing beeping

In both of our imports, when you put the car in reverse, it would beep inside the car. The wires for this were very deep in the car so could not be disconnected easily and was quite annoying. The newer car still has the beeping but it’s a much more pleasant tone and volume.

Irish FIRE event

In other news, there is an Irish FIRE event coming up on Thursday Sept 16 at 5PM for 4 hours. Speakers include Irish FIRE aficionados and even the godfather of the FIRE movement JL Collins. Get the tickets for 10€ here (50% off) using promocode MMH50. You can access the recording for 90 days if you can’t attend at the time. I’ve presented at one of these in the past and the time and effort that goes in to just 1 presentation is massive so the 10€ or even 20€ for the tickets is a steal. These events are great inspiration to keep going and keep thinking outside the box on your own financial independence journey!

Of note:

• I submitted my citizenship application!
• we finished off our back garden renovations which involved a bit more work by us than we had planned
• I ripped up some old carpet and prepped, sanded and stained the floor boards
• we got a “new” car which required a good bit of research
• we took a week off to visit family and have been spending a bit more time catching up with friends now that we are vaccinated

I have plans to write up a bit more on our renos and the car research but this weekend I started researching the security of my investments in terms of where they are held and I wanted to document it so I don’t forget. Hopefully, it’s of use for you too as a consideration for your own long term due diligence. Caveat: I’m in no way an expert and my findings should be taken with a grain of salt and I’m happy to be corrected if my understandings are inaccurate.

Lesson 1: Securities lending

When signing up for a Degiro account you are given the choice of a Basic account or a Custody account. The main difference is that the basic account allows Degiro to lend out your shares which lowers your fees.

But what does this really mean and why do they do it?

This sent me down a rabbit hole.

What is securities lending?

Lending out shares is also known as securities lending. This is where stocks, commodities or other securities are loaned out to other investors or firms.

Benefits of securities lending for the lender (you)

The benefit to the lender (you) is that the borrower is charged interest on what they borrowed. This results in an extra income stream for the fund/investment firm on top of capital gains and fund fees which is usually passed onto you. In the case of a Degiro Basic account, this results in lower fees than the Custody account where securities lending is not done.

Benefits of securities lending for the borrower

The borrower typically borrows securities in order to short stocks. Ultimately they believe that they can make more money by shorting stocks than the cost of the interest from borrowing the stocks.

Risks of securities lending

This practice has different regulations depending on where the investment firm is located. I believe the location of the investment firm determines the regulations rather than the location or domicile of the funds themselves but I’m happy to be corrected. For investment firms regulated within the EU, I believe borrowers need to secure the loan with non-cash collateral of equal value to what they are borrowing. In the US, there is slightly more risk as cash can also be used as collateral which can be easily spent but they also need to put up 102% of the value being borrowed as collateral. The collateral regulation reduces the risk to the lender (you).

Another thing I learned is that most low free brokers operate with something called an omnibus account. What this means is that individual stocks/shares that you purchase are not technically in your name, instead a type of ledger is used to keep track of who owns what but the share remains in the brokers name so that they can loan them out for securities lending. I’m not 100% sure on the true risk here but have seen on reddit forums that some people have had very long delays getting money out of some of these brokers which I can only assume are somewhat related to securities lending through this omnibus structure.

Who does securities lending?

Most low fee brokers do securities lending. Even exchange-traded funds (ETF’s) do securities lending.

Stocks, commodities and other securities

Degiro Basic account, Trading 212, Bux Zero all likely do securities lending.

ETFs

No matter who you buy ETFs through, my understanding is that the firm themselves cannot lend out the underlying funds but the ETF fund manager can and usually does. You can see the level of securities lending done by each fund on their annual report.

From what I can tell, Vanguard do LESS securities lending than other funds like iShares. Additional reading on securities lending in ETFs in the EU here.

As an example: The Vanguard 2020 Annual report here, shows that for the Vanguard S&P 500 there are 24 trillion in net assets and 7.1 million lent out for securities lending. This means that only 0.029% of the net assets are lent for securities lending. On page 557 you can see that of the 7.1 million lent out, there is 7.5 million in collateral held against that mostly in AA and AAA bonds (less volatile). On page 585 you can see that across all the Vanguard funds, only 6-9% (14,000) of the securities lending income (146,000) goes to the lending agent with the rest going into the fund. Only 0.009% of the income for the year came from lending securities (146k of 1.6 trillion).

Who doesn’t do securities lending?

Interactive brokers, Degiro Custody account (for non-ETF securities like stocks and commodities)

Take away

As I’m investing mostly in ETFs through Vanguard, I’m happy to leave my account in a low fee broker as the securities lending is managed and regulated through Vanguard rather than the investment company and I’m comfortable with the level of risk as the level of securities lending done by Vanguard is relatively low.

If I was investing more heavily in individual stocks, I would probably move to an Interactive Brokers tiered account which seems to have lower fees for an account that does NOT do securities lending according to this analysis by the Poor Swiss.

Lesson 2: Delayed withdrawals

In addition to lending shares, most low fee brokers operate in the Stock Exchange with Chi-X (known as Chi square), which allows significant cost savings. As Chi-X’s market share is small, they have less liquidity and volume compared to others, which usually results in delays for both buying and selling as far as I can tell, so it can take longer for you to access your money if you need to sell but I’m not sure how long these delays can take. Degiro’s site for example says it takes 2-5 business days to process withdrawals. I can confirm that I have withdrawn large sums in this time frame with no problems but something else to consider in due diligence for the longer term.

Lesson 3: Security of investment firm

The second rabbit hole I went down was the security of the investment firm themselves. As I eventually plan on having a large portfolio that will fund our livelihood I want to be comfortable that my money is secure in the off chance the broker/investment firm goes into liquidation/bankruptcy or mishandles my money.

While some people may say the chances of this are very slim, it has happened three times in Ireland alone since 1999 with Money Market International, W&R Morrogh stockbrokers and Custom House Capital Limited.

In the W&R Morrogh case, some investors lost between 50,000£ and 500,000£.

Firms that provide investment services are under a statutory obligation to segregate their own capital from their customers’ investment assets. This ensures that such assets are kept safe if anything should go wrong. However, if a failing firm has not sufficiently segregated these assets, it runs the risk of taking investors’ assets down with it. 

If for example, the investment firm owes more in debt than it has in assets and it goes into liquidation its existing assets go towards paying its creditors which include investors (you), but in some cases, there are not enough assets left to repay everyone.

In 1998, the Investor Compensation Scheme was brought into existence. This is an insurance scheme that investment firms pay into in the case they or other firms go into liquidation. If after the creditors are paid, you are still at a loss, you can claim 90% of your net loss up to a maximum of 20,000€ from this compensation scheme.

The ICS only pays you compensation when:

• A firm is put into liquidation by the High Court or
• The Central Bank determines that the firm is unable to meet the claims of clients

The ICS doesn’t pay compensation if:

• You incur losses due to receiving bad investment advice
• Your investment is poorly managed or
• Your investment performs poorly due to market conditions or other economic forces.

Each EU country has its own scheme regulated by its central bank equivalent. I believe Degiro falls under the German scheme, while Bux 0 falls under the Dutch scheme while Interactive Brokers Ireland falls under the Irish scheme. In the UK, their scheme covers up to 85,000£ per person per firm though I’m not sure if as an Irish resident you can open an investment account in the UK?

In Ireland, the scheme is run by the Investor Compensation Company Limited and regulated by the Central Bank of Ireland. I can only assume there is a similar structure in other EU countries. The success of this scheme relies on the successful running of the holding company as well as the contribution into the fund by the investment firms themselves. You can see if your investment firm is covered here. At the moment this seems to be going well per the 2020 annual report, but that may not always be the case and cannot be taken as a given.

Additional CPCC guidance here.

Although I could not confirm this for Ireland, it seems the ICS scheme in other EU countries is per person per firm including if you hold a joint account.

The investment compensation scheme is separate from the Guaranteed Deposit Scheme which covers up to 100,000€ per person per institution in uninvested cash held in bank accounts.

Take away

No matter what you invest in there will be risks, both with the investment themselves but also with who you invest through. To help hedge our risks on the investment firm front, I think both myself and Mr. MH will each hold our own investment accounts or at least hold a joint account in multiple investment firms preferably covered by multiple counties’ investor compensation schemes. This will not only hedge the risk of all of our funds being managed by one company but also the risk of all of our funds being subject to the successful operation of one ICS company.

If we each have our names on 3 different accounts in 3 different investment firms covered by investment compensation schemes in multiple countries we are reducing the overall risk of any one of those companies going into liquidation including the investment compensation scheme operator themselves. We also increase our maximum compensation from 40,000€ (20k each) to 120k (60k each).

The downside to this is managing 3-6 different accounts both in terms of asset allocation and tax reporting but that is a price I am willing to pay for more security on our livelihood longer term.

This approach also hedges our risks of there being delays in withdrawing money if one firm has delays as we will have access to money in a different firm if needed.

Did I miss anything?

This analysis was spurred on a comment on a reddit thread that financial independence and early retirement were only attainable for high earners. Challenge accepted.

I wanted to test this theory with my own analysis and have found that early retirement is possible even for low-income families. Of course, this requires some degree of financial literacy on investing and continuously keeping spending in check but this is true for anyone on the path to financial freedom.

Let’s start with a story of the subjects in question.

Let’s call them Mary and John.

Mary and John are the same age. They didn’t go to college and started working full time at a job that paid the living wage at age 20.

“Living Wage is a level of pay recommended by the Living Wage Technical Group. It is not mandatory – just advisory. In 2020 – that advisory body raised its recommended minimum living wage from €11.90 per hour to €12.30. Lidl is one company in Ireland that pays the Living Wage. Someone earning the Living Wage doing 39 hours a week would earn €24,944 gross a year. This would result in take-home pay of €419 a week or 21,788€ a year (After tax, USC and PRSI of €3132 a year)”

Jointly, they take home 43,576€/year. Their joint expenses come to 35,634€. This leaves them 7,942€/year or 18% of their take-home) to invest which they put into a savings account as they have not yet learned about investing.

At age 20, their expenses look something like this. They each rent a room in separate accommodation and pay 400€/month each. They spend a good bit on entertainment and holidays as young single people typically do.

As they are low income earners, they qualify for a medical card and GP visit card, explaining the lack of medical costs in their budget.

At age 20, they each buy a second hand car for cash worth 2,500€ reducing their savings that year.

At age 24, Mary and John meet and fall in love.

At age 25, they jointly have 34,000€ in cash savings and decide to look into how to invest. They discover ETF investing through an online broker. They decide not to put it into a pension at this point as they have plans to use the cash before retirement age for big life events like buying a house.

By age 26, they are living together and have moved to a location which is close one of their workplaces only requiring one car. They decide to scrap their old cars and use their savings to buy one “new” used car to share for 5,000€ cash.

At age 29, they get engaged and have the wedding the following year. At this point, their investments have grown to 110,000€. They withdraw 20k to pay for their wedding.

At age 32, they find a house and make a move to purchase it. At this point their investments have grown to 122,000€, they withdraw 70k to make a 30% downpayment on a 250,000€ house. This brings their monthly payments to 850€/month over a 25-year term at 2.95% interest.

At age 33, their last car needs replacing so they get another “new” car for 5k cash out of their investments.

At age 34, they have a baby and Mary takes 18 months off. As they are sleep deprived, their entertainment budget reduces their overall expenditure by 3,000€ to 32k. Taking the 6,370€ of state maternity cover into consideration along with the 140€/month of child benefit, they only need to withdraw 3,700€ from their investments to cover the time off. Though they stop contributing to their savings for this time as well.

At age 36, they are both back to work full time and have their kid in child care. Their entertainment budget is dramatically reduced and is moved towards child-related costs. As they are low-income workers they are able to avail of government subsidies for childcare. According to this calculator, they are entitled to a subsidy of 118€/week. Their creche costs 850€/month. Taking their subsidy of 6k and child benefit of 1.6k out of the creche costs the child care only adds around 3,000€/year to their costs, which they easily saved by cutting back on their entertainment budget.

Also at age 36, as their big early life expenses are out of the way, they decide to start contributing to a pension which increases their 7,942€/year in pre-tax investments to 9,977€/year due to the tax deferral. They both maximise their contributions in the year they are 36 which is capped at 20% of their gross salary between age 30 and 39.

At age 37, Mary has another baby and takes another 18 months off. They withdraw another 3,700€ from their ETF investments to cover the gap in time off and stop contributing to investments until they are both back to work.

Once they have 2 kids their expenses look like this

Due to the government subsidies for child care, the additional child benefit and the fact that the 1st child will almost be in school by the time Mary goes back to work from her second maternity leave, their expenses for childcare do not increase.

From age 39 onwards, they continue investing 9,977€/year into their pension.

At age 40, they withdraw another 5k from their ETF portfolio to replace their last car (essentially they do this every 7 years). And again at age 47 and 54.

By age 49, their childcare costs are halved to 1,500€/year as their 1st born is now 16 and no longer needs after school care. They invest this difference into their ETF portfolio.

At age 52, their 2nd child is 16 and they have no more childcare costs, this increases their savings to an additional 3k/year going into ETFs on top of their pension contributions.

By age, 57, their mortgage is paid off reducing their annual expenses from by 10,200€/year.

At this point, their original 35k per year in expenses has reduced to 22.5k as they no longer have childcare costs or a mortgage. This means they only need an investment portfolio of 562,000€ to cover their remaining expenses using the safe withdrawal rate of 4%.

Assuming a real rate of return of their ETFs of 7.91% and 6.54% of their pension after fees and inflation, their portfolio actually reaches this value at age 56 but as they still have their mortgage payments for another year it would be safer to continue working 1 more year. They technically could have the option to withdraw more than the 4% for their first year but this may be taking an added risk for the sake of working an extra year.

If they decided to support their kids through college, they could have reduced their savings in previous years and could continue working past 57 and investing the savings from their mortgage into their pension which would still have them retiring comfortably by age 60. Still well before the age they can access the state pension (which will just be a bonus and is not something they will require to cover their cost of living).

While I know this could be picked apart on various points, it simply demonstrates the point that if financial literacy is taught in schools or at an earlier age, and people can learn to keep their spending aligned with the things that bring them the most happiness, they can keep their expenses down, while still living a traditional and fulfilled life and still have money left over to work towards financial security without relying on the government state pension.

Detailed calculations

And for those that want to pick apart the numbers here is the portfolio growth:

ETF Growth

Pension Growth

Total Investments

Upcoming FIRE event

On another note, If you’d like to hear from more Financial Independence enthusiasts please check out this upcoming 4-hour event on March 6. For just 25€ (or 15€ for the early bird), you get to hear 5 different speakers on their money, mindset and lifestyle stories. I have presented at these before and A LOT of time and effort goes into each presentation. Even the 25€ is a steal for the inspiration and insight you get.

If you do sign up, please be sure to select AF1 as the referral link to flag me as the referrer to support the blog with a commission at no additional cost to you.

Happiness is relative

Vicki Robin, author of the New York Times bestseller Your Money or Your Life, began running finance seminars back in the 80’s. In them she would ask the audience “how much would it take to make you happy,” almost everyone, in every income bracket, said “double what I am making now”. Then, when asked to rate their happiness on a scale of 1 to 5 (scale and ratings below), there was no significant difference between the top and bottom earners. You could hear a pin drop as people realized that the person in the row ahead of them probably had the “more” they thought would make them happy—and it made no difference.

Nobel laureate and best-selling author Daniel Kahneman, in his research on money and happiness, found that beyond a certain level of sufficiency (currently about $75,000 a year in the United States), more money doesn’t buy more happiness.

Understanding this can help you to start changing your mindset around money and consumerism, in order to really cut back on spending in a sustainable way and help you to work towards financial security where you will have more freedom to spend time on the more important things in your life.

Recipe for human happiness

Below is a graphic of the main components different psychologists have found to be the recipe for human happiness.

Ask yourself, how many of these things cost any money? Certainly money can help you be more comfortable but once your basic needs are met, instead of spending money on material things, you could invest that money and spend the time it buys you on the real things that bring you happiness.

Also, have a think about your perfect day and the top 10 things you do on a weekly basis that bring you the most happiness. How many of these cost some or any money?

In the documentary Playing with FIRE, a young couple, consumed by the idea of the American dream, lived in an expensive house by the beach, drove expensive cars, had expensive things, but were so stressed and tired they had no time to do the things they loved. They took a step back and did an exercise where they asked each other to write down 10 things that brought them the most joy.

They included things like:

• Hearing their baby laugh
• Having coffee together
• Baby cuddles
• Going for a walk
• Going for a bike ride
• Enjoying a glass of wine
• Good chocolate
• Talking to parents and family
• Family dinners
• Reading to their baby

When they really looked at that list, they realised none of those things:

• included going to the beach (which they pay a premium for)
• included the cars they spend so much of their working lives paying for
• were location-dependent (they could do those things anywhere)

Ultimately, they sold their house and moved somewhere cheaper and the documentary chronicles their experiences on their path to financial independence.

What’s on your list? 

Hedonic treadmill

The hedonic treadmill explains why when you buy something, the joy you experience from that item is short-lived explained further below.

Spending on experiences vs stuff

Ever bought a big ticket luxury item say, a new car? Or even something smaller like a new phone? Did it make you feel good? That’s because your brain detects these purchases as a positive change to your life and releases a hit of dopamine, the pleasure hormone. Then did you notice how your happiness with the new item is short-lived? This is because your brain reacclimatizes it’s baseline and the next time you buy a similar item, your brain expects to feel the same sensation but since you’re expectation has increased, you don’t feel the same level of pleasure. The same thing happens with drug users chasing their first high.

As time goes on, the longer you own the item, the less happiness it brings as you need to insure it and maintain it, and not get any additional hits of dopamine for it. The more stuff you own, the unhappier and more stressed you will be.

Experiences are different

Each experience is different, bringing a new high each time, and you create memories that you can look back on and re-experience that same high.

The more you spend on experiences like travel and learning new skills, the happier and more content you will be.

Fulfillment curve

The concept of the fulfillment curve is that once you have enough necessities for our survival, enough niceties for your comforts and pleasures and even enough little “luxuries” we have everything we need. Everything outside of that is excess and actually starts to weigh you down. Taking time, effort and cost to maintain. Having more than “enough” starts to diminish your sense of fulfilment from those items.

Lifestyle inflation

Lifestyle inflation refers to an increase in spending when your income goes up. Lifestyle inflation tends to become greater every time a you get a raise and can make it difficult to get out of debt, save for retirement, or meet other big-picture financial goals.

Being aware of this can help you to avoid falling subject to this.

The way you should look at increases in income is not what other material objects can I buy, a bigger house, a nicer car but instead how much TIME in my future can I buy if I invest this instead.

Personally, we are earning more than we ever have but our expenses have stayed about the same and it has enabled us to live the lifestyle mentioned in earlier posts.

Lifestyle is really well explained by these to graphs as detailed on this post

Average Joe increases his spending with every raise meaning his savings rate never really increases and essentially means that without state aid, will never be able to retire. Extraordinary Joe keeps his expenses the same regardless how much he earns, enabling him to save and grow his spare cash through investments, allowing him to reach retirement or even financial freedom MUCH sooner.

Creating a budget that is sustainable and increases happiness

So how do you use this knowledge to crate a sustainable budget that doesn’t decrease your happiness?

Different types of expenses

First, understand that there are different types of expenses:

1. Baseline expenses (mortgage/rent, groceries, utilities etc) – bring neither happiness nor unhappiness
2. Some baseline expenses decrease happiness like insurance or unexpected maintenance costs
3. Some spending increases happiness – where something new is brought into your life – either stuff or experiences. As we’ve seen, the hit of happiness from things is temporary but much longer-lasting for experiences.

Step 1: Know where your money is going

If you don’t know exactly how much you’re spending and on what you won’t be able to identify areas to best cut back.

There are lots of tools and tricks to help with tracking expenses but it doesn’t have to be laborious. Some people like to track daily but I like to do a retrospective once every 6 months or so. This can be as simple as extracting a CSV from all your bank accounts and credit cards (though some of these only go back 4 months online), compiling them all into one worksheet in excel and categorizing each expense into a set list of main categories and sub-categories (again you could find some samples online to get you started). Once you’ve done this you can use a pivot table to sum up all the categories to really see where your money went.

Some online tools have great visual reporting and budgeting techniques and guidance. I use YNAB (You Need a Budget), Pocketsmith is another one which allows auto-syncing from your bank and credit cards. Note though that syncing your bank with a third party tool exposes you to risk and waives your protections typically covered by the bank for fraud.

Step 2: Then look at the expenses that bring neither happiness or unhappiness

For example: your baseline costs (mortgage/rent, food, utilities, insurance). Cutting down on these costs will not impact your happiness one way or the other, though they will increase your savings rate and speed up your time to financial security.

The biggest expenses in most households are food, accommodation and transport – making up 50% of household expenditure according to the latest CSO household survey in 2015.

Step 3: Next cut costs that temporarily reduce happiness

The next items to look at will be things that reduce your quality of life a little but the beauty of the hedonic treadmill is that just as new purchases temporarily increase your happiness and your baseline expectation rises to expect the same high next time, it also reduces expectations when cutting out expenses and while you will feel a temporary decrease in happiness, your happiness level returns to the lower baseline and you will not experience prolonged decrease in happiness for having cut those expenses.

Things like cooking at home instead of eating out, or buying used things instead of new are good examples.

Step 4: Next TRY to find the expenses that you THINK cannot be cut without permanently affecting your own well-being.

Try cutting them out and if your happiness baseline does not adapt then do not cut those expenses. You won’t know unless you try. You do not need to cut these out completely but even reducing the frequency could make a big impact.

They could be things like:

• Buying lunch at work
• Eating out at restaurants
• Going out with friends
• Going to live sporting, music or theatre events

Step 5: Add back in some luxuries

After cutting expenses in the other steps, you should have freed up some extra money to budget in some splurges or “fun money”. As long as the amount is less than the amount you saved by cutting in the other areas, you will still have money left over to build towards financial security but also increased your happiness, even by spending less money!

You’ll actually find, after a bit of trial and error, that you can live on quite little and actually have increased happiness without the stress of money.

Other tips for justifying expenses

Using the 4% rule, for every 100€ that you continually spend, you will need 2,500€ invested to passively cover this cost. So if you’re looking to spend 100€ on something, ask yourself how long it takes you to save 2,500€ and that is how much time you are adding to your time to financial freedom.

Another way to justify if something is worth spending on, convert costs into the time you spent to pay for it. If you’re a single person earning a salary of 50k, without applying any non-standard tax credits you take home just shy of 37k or just over 3k/month. If you want to spend 2k on a holiday that means you will have spent almost 3 weeks of your life to pay for this. If this feels worth the time you’ve exchanged for it then it’s worth it but if not, it might help you to cut back further on expenses you would have otherwise thought nothing of spending on.

Another good example is a new car: If you buy one for 30,000€ and you take home 37k/year, you’re essentially working for an entire year of your life to pay for that car.

Concept of financial independence

If you’ve been a long time reader, you’re likely well aware of the concept of financial independence. But for those who may just be joining, I’ll give a quick overview. The definition can be different to each person but at the most extreme it’s the ability to invest enough money where the interest alone fully covers your annual expenses.

9 Stages of Wealth

Bout how do you become financially independent? Firstly, you’ll need to understand the different stages of wealth which can be broken down into the below:

Progressing to each stage gives you more and more options and freedom to take more risks with your life and career choices.

Basic Investment principles

Rule of 72

The rule of 72 is a calculation used to figure out how many years it will take for your investments (or debt) to double. You take the number 72 and divide by your interest rate. This will give you the number of years it will take for your investment or debt to double (without any additional contributions/payments).

So, for a credit card charging 21% interest it will take 3.4 years for your debt to double if you don’t make any payments against the principle

For an investment earning 10% it will take 7.2 years for your initial investment to double without additional contributions.

This is a basic guide to help you see the power of compounding, be if for you (investments) or against you (debt).

The 4% rule

If you’ve ever done retirement planning you may have come across the 4% rule. This is based on a study done at Trinity University in 1998 in an attempt to determine the safe withdrawal rate from a retirement portfolio containing assets which perform irregularly over time.

As you may have guessed, the study found that if you only withdraw 4% of your initial portfolio every year, you will be able to sustain your lifestyle for a very long period though of course depends on the performance of your portfolio and something called sequence of return risk.

In order to figure out how much you need in investments to cover your annual expenses you take your current annual expenses and multiply by 25. This can seem like a scary and unattainable number but I will show you how, if you can get your savings/investment rate to 50%, you can get there in about 15 years, even in Ireland without tax free savings accounts and high taxes on investments.

Why you’d want to stop working for money

I’m going to go into the psychology of money and happiness in another post but will dip into it a bit here

Maslow’s hierarchy of needs

Maslow’s hierarchy of needs is a motivational theory of human needs. It states that the needs on the lower levels must first be let before needs on the higher levels can be attended to.

These levels are depicted in the pyramid below:

While you can be touching on a lot of these at any one point, you will not fully progress to the next tier until all lower needs are met. So, if you are living pay check to pay check you cannot feel financially secure, your relationships may struggle or you will not be working to your fullest potential. Money stress results in divorce, health issues, lack of productivity at work and at home. If you don’t need money, you end up doing your best work and can focus on the important relationships in your life.

Now I’m going to paint a picture:

Imagine a life where:

• You no longer stress about money
• You have cash at hand to cover unexpected expenses
• You have cash at hand to pay for annual expenses in full
• You no longer live pay check to pay check
• You no longer feel trapped in a job you don’t love
• You can afford to take time off when stressed or ill
• You can afford to take extended breaks from work to travel, spend time with family and do the things you love most
• You have the freedom to work on projects or jobs that you are passionate about
• You have enough assets to ensure your family won’t need to worry about money if you get sick or pass away (without the need to illness or life insurance).

If you earn enough money to cover your base expenses and have even some money left over, you CAN achieve this lifestyle well before traditional retirement age.

I saw a funny meme that said: “For the first time, on Jan 1 2021, hindsight really will be 2020”. This post is a look back on the crazy year that was 2020. With all of its ups and downs.

Yesterday was Christmas Day in our home, and it was actually kind of nice. We had a slow day, with nowhere to go and nothing to prepare. It was just downtime with our son and calls home to family. We opened gifts and played with our son and his new toys beside the Christmas tree with some Christmas cartoons on the TV. Although we missed our usual traditions of meeting up with friends, eating tons of food, playing board games and actual physical time with family, we also appreciated the downtime and not having to pack up half the house and organise ourselves to be away for the few days over Christmas. Throughout the day our son was saying “happy yup”, so it was hard not to be happy alongside him. I hope that you managed to find some silver linings in this time of isolation as well.

I’m usually a very positive person but I have to admit, 2020 definitely took its toll on my mental health. While we definitely have so much to be thankful for, I think it’s important to acknowledge that it’s ok not to be ok too.

Hearing that others are struggling in the same ways somehow helps us feel less alone. Although we are not physically at war, and we have shelter and food and personally are fortunate enough to be in a position not to worry about money, as human’s we need community and safety to be happy and both of those are under serious pressure in a pandemic.

We are isolated from friends and family and every time we leave the house our safety is threatened as we risk getting COVID or risk passing it along to people we care about even if we don’t suffer from it ourselves.

And in this spirit, I’ll start by listing the things I struggled with this year in the hopes that I can finish on a high note with some more positive notes at the end.

Struggles

Return to work from maternity

In March, I went back to work from maternity leave, 100% remotely, which was an experience in itself. I had been looking forward to getting out of the house, getting dressed in my work clothes, going for team lunches and walks. Getting a bit of my old identity back outside of being a full-time mom. Our son also had yet to sleep through the night. Although I was fortunate enough to have had 18 months off with him, I almost cried myself to sleep each night for a month watching videos of him, missing him.

Working remotely with no childcare

Mr. MMH was due back to work in June and due to COVID, we could not find any reasonably priced childcare. We both worked and minded our son for a time until we made the decision for my husband to leave the workforce in order to lead a simpler life.

Lack of interaction for our son

Going down to one part-time income was done partly in the hopes that we would have more time to visit friends and family. To take a long weekend once a month and tour around the country catching up with friends we have hardly seen since moving back to Ireland in 2014. We also wanted more time to get our son involved in play groups and other activities but COVID had other plans. We feel bad for our son who is missing out on his basic human need for social interaction with kids his age. When lockdown allowed we managed to mix with other kids at playgrounds and kids of our friends but I guess we’ll just have to make up for it when it’s safe to do so.

Stressful sale of a property

In July, we posted our apartment in Canada for sale and navigated our way through selling a property remotely during a pandemic. We had a very good realtor who made the selling part of it easy but the stressful part was trying to navigate the Canadian tax side of things when selling a property as a non-resident. Canada has very strict deadlines and penalties if you do not file on time and they do not make it easy for people to figure out themselves. I’d say it took me about 3 full days of my time trying to decipher the tax forms and another 3-4 days since on the final end of year filing. This was still worth it as I was quoted 4,000$ for an accountant to do only one of these filings on my behalf. This was a stressful enough process as, as a non-resident, your lawyer has to withhold 25-50% of the gross sale price in trust until you get a certificate of compliance from the government showing you’ve paid all taxes due, which due to COVID is taking as long as 6 months to process. This means that if you don’t have enough in equity to cover sale costs after clearing down the mortgage, you need to pay out of pocket until the certificate is processed. The 25% or 50% seems to be an arbitrary decision by the lawyer so we weren’t sure if we were going to be caught for an extra 35k or not until late in the process. Luckily our lawyer only withheld 25% so we were ok in the end but still had to have a back up in place in case our lawyer decided to withhold the 50%. This would have meant selling Irish shares/ETFs at a loss and trying to get it transferred to Canada in time for the sale or extending our line of credit and paying interest in between the sale and receipt of the certificate.

Loss

In the autumn, I lost my Grandma in Canada and could not go home to be with my family. I had to say my good bye’s on Facetime. I’m still struggling with processing our loss.

COVID risk struggles

Since October, Mr. MMH has had to go away for 3 days a week every few weeks which put him at greater exposure to contracting COVID and as Mr. MMH is already at risk, this has been scary. It also meant that I was on my own with our son and not able to keep up with my self imposed expectations with the blog and consultations.

All this on top of not being able to see friends and family or have access to a support network to help us cope. Now I know there are plenty of other people in far worse situations and I do count my blessings but just wanted to highlight my own struggles in case it helps someone else feel less isolated or alone.

Bright spots

Luckily, as with everything in life, the bad has been balanced by some good too.

Mini-retirement trial in Portugal

We started off the year with 7 weeks in Portugal which included a weekend visit from Mr. MMH’s sister and a 2-week visit from my sister and her husband from Canada. We were so lucky to have had this time together before the world turned upside down and to have gotten our travel itch satisfied before we were grounded. This feels like a lifetime ago!

Our son

Our son continues to grow, develop and amaze us and makes us laugh on a daily basis.

Weddings, babies and houses oh my!

Mr. MMH’s brother got married in February. Other friends of ours got engaged, announced pregnancies, bought new houses and so on.

Discovering our neighbourhood

We discovered many new nature walks and playgrounds within 2km and 5km radius’ of our home.

Mini-break

We took a week off to visit family and friends in Sligo in the fall.

Keeping in touch

We had many Facetime and zoom calls with friends and family from Ireland to Canada, most of whom we probably wouldn’t have called if we hadn’t been in lockdown.

More work-life balance

As mentioned above, we decided to go down to one part-time income, partially due to not being able to find childcare during COVID but had it not been for COVID, we likely both would have kept working full time and not had the push we needed to make that call. As a result, we have a much simpler routine, with no creche drop-offs and pickups, no false COVID alarms and testing, no rescheduling work to stay home if our son were to get sick, no fighting over who makes dinner or what to eat and so on. Not to mention, our son has both parents at home throughout the day.

Halved our mortgage

Also as mentioned above, by selling our apartment in Canada, we freed up equity which we used to pay down our mortgage here in Ireland. Bringing us within reach of being mortgage-free in 2-3 years time. This is a huge relief and such a great feeling to have our monthly mortgage payments more than halved.

Work from home perks

I was able to work from home which was a huge blessing to be able to keep working. Though working from home has its pros and cons like everything else, ultimately it has allowed us to have more time as a family. I was able to see my son throughout the day and comfort him if he was upset. I had no commute and was home every night for dinner and to put our son to bed. On the one hand, I never worked in the office while having a kid at home so I have nothing to compare it to but I can imagine there would be plenty of times where you would miss bedtime or dinners together. I also find I am a lot more productive working from home as I have fewer interruptions and am able to get more done in less time, keeping my employer happy and allowing me to finish work on time every day. Win-win.

Blog progress

In terms of the blog:

• I wrote 29 articles amounting to almost 56,000 words
• there have been almost 47,000 page views by almost 17,000 unique visitors (not including a 6 week stat gap where I messed up my analytics) – thank you for reading!
• since March, I have provided 35 individual consultations and analysis to readers, just shy of 4/month
• I got to meet Amon and Christina from Our Rich Journey for coffee while we were in Portugal
• I was interviewed on the Superb Diamond Range podcast
• I presented at the online Dublin FIRE meetup on our mini-retirement experience in Portugal and at the FIRE HQ online event on the quickest paths to FI for an average PAYE worker
• I co-hosted the online Cork FIRE Meetup once a month
• I wrote a few articles for the SmartMoney series
• I provided a financial wellness presentation to a small company as well as individual consultations for each employee
• I continued my blog administration education by teaching myself a bit about search engine optimisation, how to write better blog posts, how to speed up the blog load times etc

No wonder I’m tired!

What’s in store for 2021?

Blog related

My main goal with the blog is to help as many people as possible on the path to financial wellness. When I took a step back and looked at the bigger picture, I realised that while the individual consultations were more profitable than any passive income I was getting from the blog, they were taking up all my spare time and becoming a second full-time job on top of my current job. This was also not helping me achieve my goal of helping more people. Although it was rewarding and engaging to work directly with people, it was only helping one person at a time. And so, I have decided to stop offering one on one sessions and analysis and focus more time on widening my reach and increasing my content.

As such, in addition to writing more on the blog, I will be starting a YouTube channel early in the new year. I already have some content recorded and will be editing over the break to try and get some uploaded soon!

Yet another goal is for me to start an etsy store where I will sell excel templates which I have been using in my analysis.

I’d considered branching out into the corporate financial wellness space but will put that on hold until I have more time to dedicate to it.

Finance related

With our mortgage halved, our goal is to continue paying it down as quickly as possible and hopefully halve it again by this time next year.

We also aim to have our annual expenses go from 41k to 30k as a result of not having our investment property expenses, reduced mortgage and reduced travel (we will not be doing 7 weeks in Portugal again next year).

I look forward to delivering more content in the new year. Hope you are all keeping sane, safe and getting some downtime with loved ones over the break. Take care and talk soon.

Firstly, I want to preempt this to say I don’t think all financial advisors are bad and that they need to get paid for the service they provide but I do think that a lot of people, including some advisors, aren’t truly aware of the fees and the impact of them long term which is the purpose of this post.

In this post, I will compare investing in the Zurich Dynamic Prisma Fund through a financial advisor and investing on your own in a simple S&P500 accumulating ETF tracker in a self-directed online broker account.

Some definitions

Life assurance investment product: This is the term used for a post-tax investment account sold by a life assurance company. My understanding is that a company that sells life assurance policies can offer post-tax investment products, typically sold by financial advisors on their behalf, but these products do not carry any life insurance or assurance benefits, they are just called life assurance investment products as they are offered by the company that provides life assurance policies, though I’m happy to be corrected on this.

Government levy: As of the 2009 Finance Act, the government apply a 1% levy on all premiums paid to all life assurance companies. The levy applies to most types of life assurance policies including:

• Protection
• Savings
• Investments

Initial commission: When working with a financial advisor, by law, they must now make it clear what commission they make by selling you a product. My understanding is that initial commissions are taken on all contributions made for the first year of holding the product. So if they charge a commission of 5.25% and you invest a lump sum of 100k, they will only invest 93,750€ after 5,250€ commission and 1,000€ government levy are taken out. This can make a significant impact on long term compounding as you’ll see below.

Another note on this is, if your advisor is continually getting you to switch funds, really take a look at the initial commission as they would be getting a HUGE portion of your investments every year. For example: they get an initial commission of 5% in year 1, they change you to another product in year 2 with another initial commission of 5%, and you’re only making 10% in the fund, essentially you are giving them half your gains every year. Though, it should be said that it’s not in the interest of most advisors to switch on the detriment of their clients, just something to question if you have a questionable advisor.

Ongoing charge: This is an annual percentage fee charged on the total value of the fund under management, whether you make money or not. So if they charge 1% and in year 1 your portfolio is worth 100k, they will make 1,000€, by year 30 your portfolio could be worth 500k or 600k and they will make 5k and 6k/year in commission. Again this can have a major impact on your compounding over time.

Clawback: Some advisors have clauses where if you do not stay invested in a certain product for 5 years for example, they can “clawback” any commission they should have made over that timeframe. So if you invest a lump sum in year 1 and, in year 2 hit some financial difficulty and need to sell your investments, the financial advisor could take the commissions they should have made for the remaining 4 years. So if you invest a lump sum of 100k and the ongoing charge is 1%, and the clawback applies to the first 5 years, you could be liable for 4k in early exit fees. Again, I’m happy to be corrected on this but this is what I could deduce from my research. I’ve been advised that Zurich currently also offer no exit contracts, which allows clients to move out with no penalty, often to the detriment of the broker who get all their earnings taken back.

Product comparison

Assumptions:

Zurich Dynamic Prisma Fund shows a performance since inception in November 1989 of 11.1%. This includes reinvestment of dividends and excludes any taxes, initial commissions, government levy’s, or ongoing management charges.

S&P500 performance for the same time frame was 10.39% not including reinvestment of dividends. Dividends averaged about 1.38% for that timeframe coming to a combined performance of 11.77%.

I’m going to look at investing a lump sum of 100,000€ and see the total value of each option after 30 years.

Buying the S&P500 accumulating ETF with dividends automatically reinvested results in a once-off purchase cost on Degiro of 32€. It charges an ongoing annual fee of 0.07%.

Financial advisor 1 doesn’t charge an initial commission and has no clawback clause but charges a slightly higher ongoing charge of 1.25%.

Financial advisor 2 charges an initial commission of 5.25% and has a clawback clause but charges a slightly lower ongoing annual charge of 1%.

Comparison after 30 years:

After 30 years, looking at these 3 scenarios, lumping in 100,000€ in year 1 and taking out the 41% exit tax on gains and dividends every 8 years results in the below portfolios.

This goes to show the impact of initial commissions, ongoing fees, and government levy. It also goes to show that having a higher ongoing commission can actually result in more returns than having a high initial commission.

Considerations:

When you’re starting to invest, putting a large sum of money into anything can be scary and giving your money to someone more qualified than you can feel like a safety net but this can come at a real cost as you can see in the demonstration above.

I would also argue that if you are not comfortable with the risk of investing, then starting with the Dynamic Prisma fund is particularly high risk in terms of the underlying fund asset allocation which your advisor should help educate you on.

The Dynamic Prisma fund is in 93% equities, 4% cash and 3% bonds. This is high risk in nature and explains the high return over the years. High risk means potentially higher rewards in the long run but with ALOT of volatility in the short term.

If you don’t feel confident leaving money in the market when it dips then having the funds “locked” away with an advisor may suit you if you feel like you need an additional barrier to stop yourself from selling when the markets fall. A good advisor would help coach you through leaving your money invested in downfalls, though again, this comes at a real price over the long run.

I hope this gives a bit more clarity on the true cost of investing with a financial advisor in a post-tax savings account. If I have gotten any of the above wrong please do let me know but this is what I could piece together to date.

Going into it I thought, “What could I really learn that I don’t already know?” I’m already well on my way to FI, I track my expenses in detail and have cut my expenditure to almost the core, I’m investing and prioritising a simple life over the rat race without feeling deprived, I realise that time is the most precious resource, not money or status or material goods, what more could there be to learn?

3 questions to transform your relationship with money

While the book reiterates a lot of these things, the heart of the program is where the transformational piece comes in, and it’s about looking at every expense and asking yourself 3 questions:

• Did I receive fulfillment, satisfaction, and value in proportion to life energy spent?
• Is this expenditure of life energy in alignment with my values and life purpose?
• How might this expenditure change if I didn’t have to work for money? and by how much?

For each question in each category, evaluate whether the expense should increase, decrease, or stay the same for your optimal fulfillment.

This is how you reduce (or perhaps increase) your expenses in certain categories to bring the most fulfillment to your life in exchange for the fewest hours at work and time away from family (if that’s what’s important to you). It helps you cut out all the excess without feeling like you are depriving yourself, which would never be a sustainable way to budget.

What is life energy?

As I have gotten older I have slowly evolved to prioritise time over money but this is really driven home by the following extract from the book: “The only real asset you have is your time. The hours of your life. You’re born. You have about eighty-eight hundred hours in a year. Maybe six hundred and fifty thousand hours before you die. You’ll easily spend half of them sleeping and keeping your body fed, clothed, and reasonably comfortable. Maybe you’re already halfway through your life, meaning you’re down to a hundred and fifty thousand hours left to spend. This is your treasure. This is all you have for everything that matters to you—the love of your family, your contribution to society, your enjoyment of the great outdoors, your rising to challenges, your search for meaning, your legacy, your ecstasies [in church or in bed], your life. And you sell some of those precious hours for money —money has no meaning; your time is where all meaning and value lie.

Knowing that money is simply your life energy puts you in the driver’s seat of your money life. How much of my life am I willing to sell to have money in my pocket? Looking around at your accumulation of stuff you can ask, ‘How many hours of my life did I invest to have this . . . chair . . . car . . . matched set of cookware . . . diploma on the wall?’ See what this does to your next purchase.“

Calculating your real hourly wage

Linking to this topic of life energy is the fact that the hourly wage you think you’re being paid isn’t really taking into consideration all of the extra time (life energy) you spend for a specific job. The book guides you on how to figure out your real hourly wage so that you can weigh options with the bigger picture in mind.

It gets you to think about how much time or money you spend:

• getting ready for work
• commuting to and from work
• decompressing from work on evenings, weekends and even holidays where you just want to lie on a beach as you’ve no energy left to do anything else
• alcohol or junk food you consume to de-stress
• ready made meals or take out you buy as you’re to tired to cook
• medications and medical treatments required as a result of stress (mental or physical)
• special clothes or other status items you buy which you wouldn’t need if you weren’t working in that job
• cleaners, landscapers and other services you outsource as you don’t have time
• childcare

and so on.

By figuring out your real hourly wage for a specific job you may realise there are better/less stressful jobs that may pay less or have a shorter commute or have fewer expenses or allow part time work etc which will actually result in the same true hourly wage when you consider all of these things together. When considering a new job, it may help to better see the bigger picture when using your real hourly rate.

There is a calculator on the book’s website but far more detail is given in the book on how to more accurately calculate this.

Finding your “Enough”

The book also talks a lot about the history of materialism, how governments and corporations convinced us that we need more material goods to keep the economy (and their pocket books) thriving and that material goods were the key to happiness when actually, happiness levels in the US have only decreased as consumerism has increased.

In the author’s seminars they asked participants to rate their happiness (from 1 to 5, 1 being miserable to 5 being joyous) along with their level of income and to identify how much more money they would need to be happier. Of the 1,000 participants over the US and Canada, the average happiness rating was between 2.6 and 2.8 regardless if they earned less than 1,500$/month or over 6,000$/month and no matter what they earned, they all said they needed at least 50 to 100% more than they have now to be happy or satisfied!

Enter the fulfillment curve. Once your survival needs, comforts and a few luxuries are met, you have reached peak fulfillment. Any money you throw at external things after you reach that point has diminishing returns on fulfillment and ultimately happiness. They key of following the program outlined in the book is to identify your own personal level of enough. The below chart depicts the fulfillment curve.

Enough is not the minimum amount for survival; it is the exact amount that gives you fulfillment without excess.

“Enough” has 4 common components and qualities:

1. Accountability—knowing how much money is flowing into and out of your life—is basic Financial Intelligence. Clearly, if you never know how much you have or where it’s all going, you can never have enough.
2. An internal yardstick for fulfillment. As we pointed out earlier, you can never have enough if you are measuring by what others have or think. It’s like trying to go up a down escalator. Other people’s opinions are fickle. Other people’s stuff is ever changing, and just when you have the stuff you think achieves that coveted parity with the Joneses, along comes the craze of tidying up and the Joneses are now minimalists. Self-awareness is key.
3. A purpose in life higher than satisfying your own wants and desires, because you can never have enough if every desire becomes a need that must be filled. What is a purpose higher than getting what we want? The opposite of getting is giving—and therein lies a secret to fulfillment. Beyond the point of enough, we achieve happiness by expressing our natural desire to offer our gifts and talents to others.
4. Responsibility, living for more than just “me, myself, and I.” If we don’t give a hoot about anyone but ourselves, we can never have enough until we have it all.

Tips on finding your purpose

If you, like most of us, have been too busy making a living (or making a dying as they say in the book) to stop and question what your life’s purpose might be, the book also gives a few directions you may take in order to identify this.

1. Work with your passion, on projects you care deeply about. What was your dream before you stopped dreaming? What’s the work you would do even if you weren’t paid to do it? You’re not looking for those superficial preferences depicted on bumper stickers, like “I’d rather be surfing.” You’re looking for something you’d give your life to, not something you use to get away from your life.
2. Work with your pain, with people whose pain touches your heart. Have you “been there so you know how it feels”—in grief, sorrow, despair, hunger, terror? Can you offer others the wisdom and compassion you gained from this experience? Is there an aspect of suffering in the world that calls you to action? If you are in such pain that you’ve lost touch with your ability to help others, then now is the perfect time to extend your hand to others in pain. It’s healing.
3. Work with what is at hand, with the opportunities that arise daily for responding to the simple needs of others. Finding your purpose has often been equated with discovering the perfect job or service project that will galvanize you to be as saintly as Mother Teresa. This suggestion to work with what’s at hand is a reminder that in an interconnected world all acts of service contribute to the good of the whole. If you remember that there is no single act of greatness, just a series of small acts done with great passion or great love, then in doing what you see needs to be done—taking dinner to a sick neighbor, helping a child learn to read, writing a letter to the editor of your newspaper, being an advocate for the homeless in your city—you will discover a life filled with the experience of having a purpose worth living for.

Life’s purpose is a chosen dedication of your life energy to something you believe is more important than your individual existence. It becomes your identity and can become more important than life itself.

For some it can be working at something they enjoy and raising a family, others find purpose being engaged in and giving back to their community.

Purpose can change over time so keep this in mind when aligning your spending with your purpose.

The difference between natural and national wealth

The book also talks about the difference between national currency and natural currency.

“National currency is the money we all use to trade and invest. Natural currency is the endless shuttling of giving and receiving between people (and all living things) who recognize one another as kin.

National currency is a relatively recent human invention, controlled by financial institutions like banks, doled out by people and institutions we don’t control.

Natural currency came into being with the first living organism, which created a mutually beneficial exchange with other organisms. For any life-form to continue, it needs to provide some benefit for the life-forms around it.“

The ABCs of natural wealth

Abilities includes your skills and knowledge—what you know how to do.

Belonging is who walks with you in life.

Community is the society you live in (in real life and even online)—your neighbors, your city, your environment—and nature.

Abilities, Belonging, and Community are the three forms of natural wealth you build intuitively in the process of aligning how you earn, spend, and save money with your purpose and fulfillment. As you take your eyes off the false prize (of more, better, and different stuff), you put them on the real prizes: friends, family, sharing, caring, learning, meeting challenges, intimacy, rest, and being present, connected, and respected.

Build natural wealth during your financial accumulation phase and your FI may come sooner, last longer, and be happier by far.

Redefining your definition of work

The book also looks at our cultural and historical definition of work and how to look at it differently. This is particularly interesting for people looking to “retire early” but also extremely useful for all working people to shift their mindset around what work is and should be.

In history, hunter gatherer tribes used to work about 15 hours a week to provide for themselves, the rest of the time would be spent resting, playing games, socializing and planning rituals – a far cry from the minimum 40 hour week we have now, for a lot of us just to “get by” often at the expense of our most important relationships.

It talks of two different functions of work: material, financial function (i.e., getting paid) and the personal function (emotional, intellectual, psychological, and even spiritual).

Also that growth potential, communication channels, interest in work, and recognition are what make a job satisfying—not pay. All of these things can be achieved in unpaid activities. So once your basic needs are being met by working as few hours as possible (or eventually by passive investment income), the rest (the fulfilling/satisfying parts) could be done in other activities.

Once you’ve gotten your spending aligned with your peak fulfillment, any excess is just that. Perhaps you could cut back your hours at work and do activities that provide more meaning and purpose for you.

And for those wondering about what to do with retirement – Retirement doesn’t mean you stop working. It means you can stop working for money. We all want to be useful, to be recognized by others for the contribution we make. If we think paid employment is our only admirable, respectable, and consequential way to contribute, then who’d want to retire? Nobody wants to be a has-been, washed up, put out to pasture. Disconnecting work from wages means that you are valuable in every role, task, activity—and it might free you to retire a lot earlier so you can give a lot more of yourself to others.

So much of our society has us defining ourselves by what we do. One of the first questions you ask someone is “What do you do for a living?” If you say you’re retired or unemployed people switch off and don’t know what else to say, or make assumptions that you spend your days golfing, but if we can break the link between work and wages then we can start to shift this perception (if even for ourselves so that we don’t have an identity crisis once we “retire” early).

For the Greeks, leisure was the highest good, the essence of freedom—a time for self-development and for higher pursuits. Yet here we are in the early twenty-first century unable to really relax and enjoy our leisure. Even our language betrays us by calling it “time off,” as though leisure were just a few minutes of recuperation before we’re back “on,” a once-again productive (i.e., real) human being. If we did not identify so strongly with what we do for money, we might honor and enjoy our leisure more. It’s OK to play. It’s OK to relax in the shade and listen to the birds. It’s OK to take a walk to nowhere in particular. It’s OK to leave your technology at home and go camping. There is no shame in taking time to do activities alone either. It’s OK to take pleasure in just being rather than always doing. Leisure is not an identity crisis if you know you are not your job.

Other nuggets from the book

On frugality: Waste lies not in the number of possessions but in the failure to enjoy them.

On materialism: People don’t need enormous cars; they need respect. They don’t need closets full of clothes; they need to feel attractive and they need excitement and variety and beauty. People don’t need electronic equipment; they need something worthwhile to do with their lives. People need identity, community, challenge, acknowledgement, love, joy. To try to fill these needs with material things is to set up an unquenchable appetite for false solutions to real and never-satisfied problems. The resulting psychological emptiness is one of the major forces behind the desire for material growth.

On saving money (a whole chapter on innovative ways to rethink bigger costs): These days, a babysitter for a date night (even a sitter who’s barely older than the child he or she is taking care of) can easily cost more than the dinner out. Find another couple with similar-aged children and try doing a weekly date-night swap. One night a week you watch their kid(s), and the next week they watch yours. You get a date every other week, pay nothing for babysitting, and the kids will likely love playing with their friends every week. Another option is to join a babysitting coop.

A tip on what to do when you no longer need to work: Lifelong learning is a key to happiness. Invest in your ability to survive and thrive and help others and you will never be bored.

On the perfect work life: Even though some people really like their jobs, very few of us can say with honesty that our work lives are perfect. The perfect work life would offer enough challenge to be interesting. Enough ease to be enjoyable. Enough camaraderie to be nourishing. Enough solitude to be productive. Enough hours at work to get the job done. Enough leisure to feel refreshed. Enough contribution to feel needed. Enough silliness to have fun. And enough money to pay the bills . . . and then some.

A summary of the program

These were the most interesting elements of the book for me as I feel I already have a pretty decent handle on the budgeting and investing bits but for anyone that feels they need to start at the beginning, the rest of the book provides an excellent program for anyone to follow no matter what your starting point and current level of financial literacy.

In summary, the 9 step program gets you to:

1. Make peace with the past by: calculating how much money you have earned in your lifetime to date as well as figuring out your current net worth (be it positive or negative)
2. Be in the present by: calculating your real hourly wage to figure out how much of your life energy you are actually exchanging for your particular job and starting to track all money that enters and leaves your pockets
3. Each month, categorise all expenses and convert them into the amount of life energy spent using your real hourly wage calculated in step 2
4. Beside each category, each month, ask yourself the 3 questions I mentioned in the first paragraph around fulfillment, life’s purpose, and whether you’d have that expense if you didn’t need to work
5. Make life energy visible by: charting your overall income and expenses onto a graph each month. Put it somewhere you can see it everyday. It may serve as a reminder that you are spending more than you are bringing in or vice versa.
6. Value your life energy and minimise expenses creating greater fulfillment and alignment in your life – a whole chapter is dedicated to innovative ways to cut back on the typical biggest expenses
7. Value your life energy and maximise income – this chapter gives you ideas on how to increase your income
8. Each month, in addition to charting your income and expenses, as you start to accumulate capital or passive income from investments, start to also chart this. Once your passive income surpasses your expenses line, you will be financially independent
9. Investing for financial independence. A chapter with an intro to investing and how others are generating income in retirement

If this was enough to pique your interest and you can’t find a copy at your local library (I checked the Irish national database and while they have a few of the old version they don’t currently have the 2018 version) then please use this link to buy a copy as a small token of appreciation for my posts as I will get a small commission at no cost to you

I personally feel the program in this book has the ability to transform many more people’s lives (as it already has). The author’s toured North America for years running these workshops and then through the book. I’m actually reaching out to the author to see if they have a train the trainer type model as I’d love to provide this as an interactive workshop to people looking to change their financial situation as well as their lives in my corner of the world.