Thanks to UK’s higher interest rates, you can make your cash work harder in 2024.

This article explains how Savings accounts work, Money Market Funds, Cash ISAs, Premium bonds, NS&I products, Short-term Gov Bonds, their rewards, risks and their taxes.

Before we dive deeper, here is a summary of the best places to hold cash in 2024:

Let’s dive deeper. By stating the obvious:

Banks are not paying you the full interest

Banks being banks…

The Bank of England rate was 5.00%, but my Santander bank account only paid me 1.98% (gross).

What gives??

No, this is not another ‘switch to this bank’ type of article. Neither is a reason to write a complaint to your high street bank.

We all know banks are here to make a profit and that’s exactly what they’re doing with my hard-earned cash.

They take my money, earn a 4% interest on it and then pay me just under 2%. They bank the difference.

That’s right. The Bank of England pays them to hold my money. Then it’s up to the commercial bank to decide what to do with my cash.

They can lend it out to mortgage buyers, issue a business loan or simply sit tight and earn the difference.

They are in the margin business, like my good old bookmakers. Consumers, as usual, are missing out.

Time to change that.

What if I told you you can earn the Bank of England rate at all times?

Or that there’s a much better way of saving cash?

Without having to switch to the latest “best savings account” every three months. Or lock your money for years.

1. Savings Accounts

Savings accounts are probably the first thing that comes to mind.

So they deserve an honourable mention.

Perhaps the easiest thing to do is to shop around for the best savings account to park your cash.

This savings account will pay you 3% per annum. Unlike high-street banks, they are quick to pass on the Bank of England rates.

However, the ‘Saving accounts’ approach has certain limitations:

• It’s time-consuming (opening an account, KYC, switching etc)
• The rates are not great (3% when the Bank of England base rate is 4%)
• Low limits for really high-interest savings accounts (e.g. 5% only up to £250 per month)
• Sometimes these banks are unknown

You could even boost your returns by locking your cash away for a certain time, say 1 year, and get a higher return. Think 4%.

You would lose access to your cash but fix your money and earn a higher interest. Withdrawals are not normally allowed in fixed-term saving accounts.

High Yield Savings Account for Limited Company

Limited companies don’t miss out. Limited companies can also earn between 2 – 2.6% p.a. for easy-access savings accounts or about 4% p.a. for fixed 1-year or 2-year deals.

See bank comparison sites like Moneyfacts to find the best bank accounts.

Not bad, especially since your money is 100% safe, assuming the bank is covered by the FSCS scheme. You are protected up to the first £85,000 per person per bank.

Check out also the Flagstoneim platform if you have £50k as an individual or £1m as an LTD company. They can offer better rates for a fee.

Problem is, of course, you lock your cash away, or earn a subpar interest rate.

The best easy-access account from “The Cumberland” offers 2.6%.

If you go for the fixed-term option, you won’t normally have access to your cash. Withdrawals are not allowed.

A happy medium (but a more limiting choice) is the Notice savings account. They pay slightly higher rates. But the bank asks you to give notice (usually 3-4 months) before you need your cash to avoid losing the interest you earned.

Do I have to pay tax on the savings account interest I earn?

Yes, you would have to pay tax on the interest you earn from savings accounts.

Basic rate taxpayers (up to £50k annual income) have a £1,000 tax-free interest allowance every year. Higher rate taxpayers (£50,000 – £125,000) have a £500 tax-free interest allowance.

The rest is taxed as income.

Limited companies have to pay corporation tax on the interest they make from savings accounts.

2. Cash ISAs

Cash ISAs are a type of tax-free product to park your cash. You can deposit up to £20,000 in a Cash ISA per tax year.

With Cash ISAs, you don’t pay any tax on your interest. But you trade the contribution you would have made into a Stocks and Shares ISA. And why would you?

Right now, Cash ISAs pay 2.9% for an easy access one, or about 4% fixed for one year with Barclays.

If you’re saving for a first home, consider a lifetime ISA. It pays you a bonus of 25% on your savings if you use it towards buying your first home or retirement. You can only open one if you’re between 18 and 39 years old.

Cash ISAs also benefit from the FSCS protection, £85,000 per person per bank.

Overall, even though savings accounts and Cash ISA are the most popular options, they often are a hassle to deal with.

It’s much easier to switch between funds in a stocks & shares ISA or in your LTD company brokerage account. This is why I like money market funds, as we will see later.

3. Premium Bonds: Feeling Lucky?

Premium bonds are another savings vehicle.

If you like a bit of ‘luck’ involved, Premium bonds are meant to give back an ok savings rate, tax-free!

You can invest a maximum of £50,000 in premium bonds. In total, not per year.

There is no tax to pay when you “win” a prize in premium bonds. There are no interest but “prizes”. You can even win up to £1m prize if you’re the lucky one.

The average earnings are 3.30% per year as per the NS&I premium bonds website.

However, most of the earnings are skewed by the few people who earn the big bucks. So the average is not a great metric of what you will earn.

With a £50,000 premium bond pot, you will earn about 2% per year as the median person, Martin Lewis calculator says.

The more you invest the higher the likelihood you will earn something.

Pros:

• Tax-free savings
• You can buy for your children too (up to 16 years old)
• Cash in anytime
• A fun way to save!

Cons:

• Not keeping up with inflation
• You might win nothing
• OKish average savings rate

Are premium bonds safe?

Yes! Premium bonds are issued by the National Savings & Investment (NS&I), a state-owned savings bank backed by HM Treasury.

I’d say they are as safe as the FSCS protection you get in your Barclays account.

4. NS&I Income or Growth ‘Bond’

NS&I offers two great savings products. They call them ‘bonds’ but they are more like a locked savings account:

• Guaranteed Growth Bond at 4% per year, fixed for 1 year
• Guaranteed Income Bond at 3.9% per year, fixed for 1 year

They are both one-year products.

You can think of the income bond as one that pays you monthly until the end of the term.

Whereas the growth bond will only pay you at the end of the term as a lump sum. Your initial money plus the interest.

Even though the NS&I products are called “bonds”, they don’t suffer from the ups and downs of your capital like a traditional government / corporate bond would.

Traditional bonds suffer from interest rate risk. If interest rates go up their price goes down (and vice versa). Unless you hold them until maturity.

But the NS&I ones don’t suffer from any price fluctuation. You are guaranteed to get your annual return at the end of term.

They are more like savings account in a bank.

The downside is that you cannot take your money out until the bond matures.

Pros:

• Good yield on cash
• Low starting minimum of £500 and max of £1m

Cons:

• No access to your cash before the end of term
• Interest is taxable😞
• You cannot buy these in any ISA

You have 30 days to change your mind after investing in these NS&I products. After that, you cannot access your money until the end of the term!

Honourable mention: If you are one of the lucky ones who hold the old NS&I inflation-linked bonds, you get your cake and eat it too! NS&I inflation-linked bonds were savings products where you could earn the inflation rate each year, without any capital volatility.

5. Money Market Funds: What are they?

Money market funds (MMF) are investment vehicles that aim to provide interest on your cash by holding cash and short-term debt.

They are used by pension funds, institutional investors and companies to manage cash balances.

MMFs pay investors the interest minus some fees. Their fees, however, are typically low. 0.15% per year or so.

The greatest thing about money market funds is that you can expect to earn around the Bank of England rate, automatically.

No bank switching hassle, no locking periods, and even no tax if held inside an ISA or a Pension.

Someone else (the fund manager) has the job of putting your cash in different places and paying you the interest minus fees.

MMFs are the safest instrument you can find in the investment assets spectrum, almost like cash.

These vehicles are not a new phenomenon. They have been around since 1971 and are much more popular in the US.

MMF won’t wait for a month or two until they pass on the Bank of England’s higher rates to you. I’m looking at you, Santander.

How much can I earn in a UK Money Market Fund?

A UK buyer of a money market fund will roughly earn the SONIA rate (Sterling Overnight Index Average).

This is very close to the Bank of England rate. SONIA is what the banks pay to borrow GBP overnight from other financial institutions.

It is the ‘risk-free’ rate, issued by the Bank of England.

At the point of writing (February 2024), the SONIA rate is 5.18%  whereas the Bank of England base rate is 5.25%.

Money market funds could even beat that, as they make cash deposits longer than ‘overnight’.

For example, you can get 4.70% per year by stashing your money in the Blackrock Cash Fund. The 4% rate hike only happened in February, so as older deposits are redeemed, new ones should pay higher rates.

The Royal London Short Term Money Market Fund shows a 3.30% annual yield in its latest fund reporting document which is from December. It should now be closer to 4% given the interest rate hikes.

These yields fluctuate depending on the environment. But a short-term money market fund should pay rates close to the SONIA or Bank of England rate over time.

How to buy a UK money market fund?

You can buy a UK Money market fund from your investment broker platform. For example, you can buy MMF in a stock and shares ISA like Halifax Sharedealing or a general investment account like Interactive Brokers (click for my full review).

It is as if you are buying any other fund.

Now, let’s get to the real question: Are money market funds safe?

Given this is where I put my cash, are MMFs as safe as cash? How risky are UK money market funds?

Are Money Market Funds safe?

UK Money market funds are very low-risk but not zero.

Blackrock puts it at the lowest risk of the risk spectrum 1/7.

The Fitch Rating gives the Royal London cash fund an AAA rating.

AAA’ ratings denote the lowest expectation of default risk. They are assigned only in cases of exceptionally strong capacity for payment of financial commitments. This capacity is highly unlikely to be adversely affected by foreseeable events.

Fitch ratings

But regardless of what these institutes say, it’s probably better to look under the hood to see how the sausage is made.

What do they do with our cash?

Here is Vanguard’s Sterling Short-Term Money Market Fund:

And here is what the Blackrock Cash Fund invests in:

Certificate of deposit and time deposits mean fixed-term cash deposits in other banks. These makeup more than 60% of the fund. This cash is held in other banks to help them with short-term needs.

The Financial Company Commercial Paper is a form of unsecured debt issued by corporations, usually banks, like UBS, NatWest and ING bank. So not exactly cash.

Asset-backed commercial paper is very similar but backed by an asset (not unsecured). A floating rate is again debt with variable interest. UK Treasury bills are very short-term government bonds.

So yeah, as you can tell these are not all cash deposits.

Maturity matters too.

Looking at the maturity tab, more than half of the fund’s deposits mature in less than a week. The Weighted Average Maturity is 52 days.

No, your money is not locked. You can get your money by selling the fund without any lock-in periods. But the fund rolls in and out of fixed-time assets as you hold it.

And finally, the credit quality of the issuer is in the ‘extremely strong’ category of A-1. The short-term credit ratings by S&P range from A-D.

Another thing I’m looking at is history and track record.

Have money market funds ever failed?

Since 1978, three US funds failed to return the full pot to investors. And even in these extreme instances, the value lost was negligible.

One money market fund went below its cash value in 1978. It lost 6% of its value. According to Wikipedia, it was not a true money market fund, because the average maturity of securities in its portfolio exceeded two years.

Then in the doom days of 2008, investors rushed for the exits. They stressed money market funds too, probably to cover margin losses elsewhere.

One US Money market fund, called the Reserve Fund faced a bank run scenario and was forced to liquidate. It distributed payments over the years and it eventually paid 99.1% of the money to investors.

In 2008, the US Treasury stepped in to prevent a run-on-the-bank scenario everywhere. It guaranteed the holdings of any public MMF that paid a fee to participate in this ‘insurance’ program.

It was a nice way for the US treasury to make money too.

In the UK, no money market fund has ever failed to return money to investors.

But even if you are happy to accept the low risk of losing any money, perhaps another question is: ‘Can MMFs guarantee I will be able to get my money back at all times‘?

And the answer is no. MMFs cannot guarantee daily redemption under all circumstances. For example, if a “run on the bank” happens to a fund it cannot guarantee same-day liquidity.

The fund might ‘gate’ them.

Part of the reason is that some of its assets are fixed weekly or monthly. Regulation is there to ensure the proper operation of the fund so that investors actually take all their money back. And that’s a good thing.

During Covid, some MMFs faced increased selling from investors. They didn’t, however, lose any money or prevented any selling.

I’m inclined to say holding cash in a money market fund is extremely safe. But not as safe as the 100% guarantee you get from your bank’s savings account.

Having said that, the FSCS protection DOES apply to UK-domiciled Money market funds, if the provider fails (e.g. BlackRock). So you would get £85,000 per person per provider (not per fund).

As always, the devil is in the details.

Money market funds are not all made equal. For the safest option, you should look at Short-Term Money Market Funds. These are regulated to hold only the highest-quality debt and weighted average maturity under 60 days (see FCA guidance 2022).

See also the four MMF categories here. Basically, the Standard Variable MMF is the more relaxed option that I would avoid. That’s because it allows for assets with a maturity of up to a year. None of the ones I mentioned here is SVMMF.

MMFs are regulated and have certain rules to avoid putting too much cash in one institute. For example, an MMF shall not hold more than 10 % of holdings issued by a single body.

For example, the Royal London Short-term Money Market Fund has a duration of approximately 20 days. The Blackrock Cash Fund has a Weighted average duration of 52 days. Both are Short-term Money Market Funds.

If you want to torture yourself as I did, you can read more about the European MMF regulations or the more interesting Resilience of Money Market Funds paper issued by the FCA in 2022.

Best UK Money Market Funds

Here are the best short-term UK Money Market funds for UK investors, sorted by highest yield.

1. Blackrock Cash Fund, 4.44% yield, 0.24% fees
2. Royal London Short Term Money Market Fund 3.30% yield (December 22)
3. Legal & General Cash Trust, 3.10% yield (December 22)

Note that the Royal London and the Legal & General funds have not updated their yields since December. They should be generating higher returns by now, as shown in the below section.

The Blackrock Cash Fund (Class A dropdown) started in March 1990! This gives extra credibility.

It has been through the Dotcom crash of 2000-2002 and the Great Financial Crisis of 2008-2009 without a blip.

Can you guess where the zero-interest-rate policy started? 😉

Here’s how to find the Best UK money market fund yourself:

How to find the Best UK Money Market Fund

1. Go to this Morningstar page: Morningstar Financial Research, Analysis, Data and News
2. Select Morningstar Category GBP Money Market – Short Term
3. Click Short Term Performance Tab
4. Sort by highest 1-month return
5. Filter from the top, the highest-yielding GBP money market fund

Here’s what it looks like.

For example, the Blackrock Cash fund tops the list with a 0.37% 1-month return. That’s 4.44% per year.

It’s also top in the 3-month return, behind the Blackrock Cash fund.

Because these funds have cash deposits that are claimed in less than 60 days, the 1-month and 3-months are the best indicators of what the fund will pay in the future.

Notice the difference between the 6-month return of 1.39% (annualised: 2.78%). That’s because the rates were much lower back then. With current rates at 4%, a 1-month 0.37% return is a 4.44% annual return.

Going earlier than 3 months will show returns when the interest rates were 1-2% which would distort the current picture.

The good thing is the money market funds compete with each other to give us the best outcome.

How to calculate the Money Market Fund’s actual yield

Finding the annual yield for a money market fund is challenging.

Why can funds not report the yield to maturity at all times?

Part of the reason is the interest is variable. So they cannot estimate what they will get back down to the penny.

In the Morningstar dashboard aboard I extrapolated the annual returns from the past return. This works ok, but it’s not 100% accurate.

Some funds, like the Royal London one, report an annual yield, but that’s the past 12 months one. In a variable interest rate environment, this is not useful.

At least BlackRock gives a daily yield. If you average it out for a week or two, this will give a good estimate of what the fund pays out. Assuming that every day you reinvest the amount, the annual yield is actually slightly higher.

The 12m trailing yield is almost a worthless indication of this year’s expected performance because the rates have moved so much in between.

How are money market fund payments taxed?

UK Money market funds pay interest that is taxable. If you hold money market funds inside an ISA, they are tax-free.

If you buy a money market fund in a general investment account, then you would have to pay income tax on earnings above your personal savings allowance.

Basic-rate taxpayers have a £1,000 tax-free allowance before they pay any interest though. Higher rate taxpayers (40% tax) have a £500 tax-free allowance on the interest.

The Money market fund payments are of interest type, not dividends. Therefore their tax will sting in a general investment account. 20%, 40% or 45% depending on which tax band you fall into.

Sorry, no tax-free interest for additional rate taxpayers (£125,000+ in gross earnings from April 2023 onwards).

Limited companies would have to pay corporation tax on the interest they earn from money market funds.

You can deduct other expenses or investment losses against your corporate profits.

Bottom line – Money Market Funds

Use money market funds to earn a decent yield on your cash, like banks do when they lend each other money using the interbank SONIA rate.

Money market funds are not 100% risk-free. They are still an investment, of very low risk.

I would put the money market funds risk below bonds and equities but above cash.

They are meant to hold, not grow your capital after you consider inflation.

UK MMFs are FSCS protected if their provider fails, up to £85,000.

Use Short-Term UK-domiciled Money Market Funds to eliminate as much risk as possible but also earn a reasonable yield that beats your bank.

Choose reputable providers with a long track record. For example, Blackrock is the top asset manager with $10tn assets under management. The fund’s track record matters too. The fund existed since 1990.

Money Market Funds can be particularly useful as a higher-rate taxpayer or for holding cash funds in an LTD company. Most FTSE 100 companies use them by the way.

In my view, my 3 months emergency fund should always be in a bank account. But I keep some of my cash for short-term goals in UK short-term money market funds.

The yield is worth the (very low) risk to me. Easy access, solid track record, no switching hassle, and tax-free advantages. It is one of my favourite choices.

6. Short-term Gov Bonds: Another way to play the high-interest rates

Short-term government bonds can provide a good balance between getting a decent yield exchange for some price fluctuation.

The UK or US are extremely unlikely to default on their debt. So you will get your money back (zero credit risk). From a credit perspective, it’s as safe as the FSCS protection!

Your future money might not be worth as much as today though, due to inflation. But this article is about Cash, and you know that already.

How much can you earn in short-term gov bonds?

Take the US 1-3 years Treasury Bond IBTG ETF. It yields 4.70% per year and the US gov bonds are hedged back to GBP.

Foreign bonds have currency risk (e.g. you hold dollar bonds). But some bond funds, like the IBTG above, are hedged so you avoid the currency risk.

The Weighted Average YTM is what you care about here. This metric shows how much you will earn if you hold the fund to its maturity, which is 1.90 years as per the Weighted Avg Maturity metric.

The fund bonds were bought at different times and mature at different times (1-3 years). The Weighted Average YTM takes all of them together and shows what the fund yield would be if you were to hold the fund for its average maturity.

-> Sell it earlier and you might make a bigger profit than the yield if US rates have moved down.

-> Hold it for longer and you might make less money if US rates have moved up.

For example, in the zero rate environment pre-2022, bonds got hammered due to the quick spike in interest rates. Now interest rates are already high and these short-term bonds are way safer from rate rises.

So here’s your guaranteed 4.70% per year backed by the US government and no currency risk. Assuming you hold it for about 2 years.

There’s an even shorter duration fund that holds dollar bonds with 0-1 year maturity, unhedged. IBTU pays 4.76% per year and holds US gov bonds with 0-1 year maturity.

However, this one is not available in ISA/SIPPs. I could buy it in my limited company account using Interactive Brokers.

Here is an Invesco Invesco US Treasury Bond 0-1 Y UCITS ETF (LON: TIGB), yielding 4.76% per year, 0.5 years maturity/duration, that you can hold in an ISA, SIPP or a limited company. Thank you, reader George for pointing that out!

If you prefer the UNhedged version of holding short-term dollar bonds, you can go for the equivalent TREI Invesco US Treasury bond 0-1 UCITS or the PR1T Amundi Prime US Treasury bond 0-1Y UCITS ETF DR – USD.

The IGLS iShares 0-5 years UK Gov bond ETF caught my eye too. The difference here is that it invests in UK government bonds only, not in the US. But the average maturity is 2.5 years, so not quite short-term. Nonetheless, it’s an option if you don’t mind the longer maturity profile and only want to trust the UK government.

Other notable mention:

• XSTR Xtrackers II GBP Overnight Rate Swap UCITS ETF. Tracks the SONIA rate and invests in short-term UK bonds.
• CSH2 Lyxor Smart Cash – Tracks the SONIA rate and is actively managed but low fee 0.07%

7. Ultrashort Corporate Bonds: Feeling more adventurous?

If you’re feeling more adventurous and want to take more risks for a higher yield, have a look at ERNS.

ERNS is a corporate bond fund with a very short duration (3 months) in GBP currency.

Its expense ratio is 0.09%, so very low.

It invests in industrial, financial, and utilities bonds as well as government-like ones. Its holdings are defensive.

For example, its top 5 holdings are

1. European investment bank bonds,
2. International bank for reconstruction and redevelopment,
3. Bank of nova scotia,
4. KFW and
5. Nationwide.

The yield to maturity is 4.60% per annum and the 0.34 duration makes it extremely resilient to interest rate moves. In March 2020 it went down by only -0.4%, temporarily.

However, we are talking about corporate bond funds now, and it’s an entirely different profile from cash. Even if ultrashort, you are taking credit risk and companies like banks can always go bankrupt.

The past 10 years have been smooth sailing despite Covid (-0.4% in March 2020), Brexit, Ukraine etc.

The ultrashort maturity profile combined with its defensive holdings and good track record made me include it in this post.

Even though this is a defensive option, it cannot be compared with cash in the bank. It has a higher risk profile, but it’s worth considering if you want the extra yield.

Choose the UESD if you prefer the ESG option of ERNS.

Another one to check out is JGST by JPM which pays dividends monthly (thanks Neil). So it might be more suitable outside an ISA or when investing as an LTD company.

A slightly riskier option to ERNS is PIMCO QUID ETF.

8. Mortgage interest: Earning Money by NOT paying it

That’s right. Instead of saving your cash in an account, consider putting them into your mortgage account instead.

An extra pound that is NOT going towards your mortgage interest payments, is a tax-free gain of equal measure.

So if you make a £10,000 overpayment and your mortgage interest rate is 4%, that’s £400 savings every year.

Now that mortgages are anywhere between 4-6%, it’s a great way to save. Again, tax-free!

Sometimes, it can be even better to pay down the mortgage than invest or rather than hold bonds.

If your bond is paying 2.5% and your mortgage interest is 3%, you could make an extra mortgage payment in exchange for locking your money away. A bond is more liquid than a mortgage.

The extra mortgage payments are not only helping you ‘earn’ the interest rate, but also unlock better rates when it’s time to remortgage. This is because your future loan-to-value will be lower.

Important: Check for mortgage overpayment extra charges. Many mortgage providers penalise you if you make overpayments above a certain threshold. We are their assets after all, and they want us to continue being so!

That was a much-needed overview of all the best places to hold cash in 2024. But how much cash should we keep?

How much to keep in cash?

We, humans, like cash because it gives us a feeling of safety. So this question can be very different because psychology and emotions play a big role here.

What works for me might not work for you.

However, as long as you have a good emergency fund then there is no reason to keep hoarding cash.

Cash is almost guaranteed to lose out to investment assets like companies and housing over the long term, for the simple reason: inflation.

Personally, I keep 6 months of living expenses in cash. The rest is invested.

Cash, however, is not just for emergencies. For example, you might have a certain life event coming in two years, like buying a house, going on a world trip, or funding a new business.

I’d put these life events in different buckets and keep funds in cash for anything less than 3 years. So instead of keeping it in Barclays at a 0.6% rate, try one of the above products.

For goals longer than 3 years, you can do some liability matching and match certain investments.

Perfect is the enemy of good. Therefore, don’t overthink it because the perfect asset allocation only exists in hindsight. The longer the timeframe the more risk you can afford to take.

One starting rule of thumb for investing is “Place 120 minus your age in aggressive assets and the rest in defensive assets”.

Holding Cash is Exciting Again

This article summarised all the best places to hold cash in the UK in 2024.

UK taxpayers can earn around 4% in various ways. In most cases, risk-free and tax-free too.

We suffered a period of zero interest rates, where governments printed money and assets were inflated. Previously, this rewarded investors and punished savers.

Looks like with higher interest rates come some relief for those who want to see some yield on their cash.

With high inflation, holding cash is not a great situation to be in, but at least you now get something back.

High inflation is the reason I am not changing my investing strategy unless cash returns at least 8%.

What about you? What do you plan to do with your cash?

Thanks for reading.

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Freshly served cold coffee.

Sun’s shining.

People walking past.

Can you picture me writing this post in Greece?

So here I am, writing about Greece as a potential place to live.

You don’t necessarily need to be financially independent to move to Greece. But working remotely or covering at least some living costs from elsewhere would solve many issues.

I have always been a big fan of the Greek / Mediterranean way of living. Obviously, I am biased!

But I present my arguments so you can make your own judgement.

Greece would make for a great place to live, particularly so if you are Financially Independent. Families included.

Here are the main pros and cons before I dive deeper:

Living in Greece is Fun!

What’s FIRE life without fun?

It doesn’t matter what sort of person you are. You will find something fun to do in Greece all year round.

From sports to activities, nightlife or art, Greece is just fun.

Are you a sports person? You can do sea sports: windsurfing, sailing, kite, (or just sunbathing 😉).

Sure the weather attracts people to beach holidays.

But Greece can be fun in the winter too. Skiing, hiking or just relaxing at the chalet.

Do you enjoy family trips to small villages in the mountains? That’s on the menu too.

Do you like history or mythology? Visit Knossos, Europe’s oldest city, or the ancient theatre of Epidavros.

Not to mention the all-time classics: Basically the entire Athens (incl. Acropolis), Delphi and Meteora.

Pick any place in Greece and you will find ancient monuments from thousands of years ago.

Weather, obviously!

The mild climate uplifts my mood. That’s probably not the same for everyone. But when the sun is out I am definitely happier.

London weather has changed too, for the better. I’m not rooting for climate change, but I can’t help but observe how much warmer and sunnier London has become.

Now, although Greece is warm, beware that it gets TOO warm for some. Almost unbearable in the summer.

35 or even 40 degrees are not unheard of. Turn on the A/C and wait. It can get hectic.

Right now in spring, it’s perfect. Here is a sunny morning at 25 degrees in the city centre of Patras. A town ~3 hours drive from Athens.

Fun is driven by the people. Greek people crave having a good time. There’s always a reason to go out, which explains why the hospitality industry is always on fire!

Low Cost of Living

Now before this blog turns into a travel or lifestyle blog, time to talk about the usual subject: Money!

The “Crisis Cheesepie”, 0,60 € poster I stumbled upon was half a joke.

The 2010s was one of the toughest decades for the country. Austerity, high taxes and a hostile business environment.

The quality of life worsened for many. House prices crashed big time. Can’t go wrong with bricks and mortar..? Ask those Greeks who are still in negative equity.

Greece is a country where the average income is much lower than in the UK. The cost of living is much lower too.

When it comes to spending, everyone is different. This is why instead of telling you how I see prices through my own lens, I better talk data.

Spending in Greece vs the UK

Numbeo and Nomadlist are some great sources.

Comparing the two capitals, living in Athens costs HALF what London costs.

Now you might say, London is crazy expensive anyway! How does Greece’s cost of living compare to the UK as a whole?

Consumer prices including rent in Greece are 31.52% lower than in the United Kingdom.

Therefore, I see Greece as a potential FI destination if you want to bring your FI date much closer. Long live geo-arbitrage!

If your income comes mainly from investments then choosing a city with a lower cost of living can easily cut your spending in half.

Here are some data comparing London to Athens:

Groceries are a mixed bag and it really depends on what you buy.

Fruits and veggies are cheaper in Greece but milk, chicken, eggs and cheese are actually more expensive. I think your pantry would cost less in the UK.

Transport is good only in Athens. Even there, you’re probably better off using a taxi (cheaper than Uber) or owning a car like most people.

I still cannot comprehend how expensive childcare is in the UK, particularly in London. Both Greece and UK offer free schooling.

But if your child does not speak Greek, an international school is your only choice. Ok, maybe homeschooling too.

When comparing private childcare, London schooling costs £18,246 on average compared to £6,885 (8,194€) for Athens.

All these are averages. If you want to dig deeper, here is the full-scale data comparison of London vs Athens or the UK vs Greece.

Great Food!

I could probably post more than 100 Greek food pics.

Food in Greece is GREAT!

It’s because the primary ingredients (e.g. tomatoes, peppers, meat) are local, fresh and tasty.

But at the same time, Mediterranean cuisine offers a huge variety of recipes.

Stuffed veggies with rice, souvlaki, gyros, Moussaka, Pastitsio (Greek lasagna), local fish and seafood (calamari, octopus, small fish), courgette balls, greek salad, bougatsa, stuffed grapevine leaves, I could go on.

Truth be told, Greece is probably not the place for a foodie though. I mean, you can find the odd sushi or falafel place but that’s as “exotic” as it gets.

Also, eating out misses the “fine dining” aspect that you’ll find in places like London / NYC. But you are compensated (and then some) with taste and view.

Cooking

The typical FIRE person also cooks at home. This fits well within the “Web of Goals” philosophy. This is a powerful strategy which I first read in the Early Retirement Extreme book (a tough read!).

The idea is that you set certain goals. Your activities can be structured around those goals in order to find synergies between goals.

For example, if your goal is to become wealthier and healthier, cooking works better than takeaway food.

That’s because cooking at home is cheaper and usually healthier. You can even consider it light exercise.

Then being healthier has the nice side effect that your health costs will also be lower, therefore strengthening the wealth goal. That’s the “web of goals” strategy in a nutshell.

Time to close this huge parenthesis – but yeah in Greece you can easily cook or learn to cook.

You have the option to buy local produce from the farmer’s market (“Λαϊκή αγορά”). Once a week, local producers sell directly to consumers.

You can basically sort out your week’s veggies and fruits from this place at great prices too. Some markets offer fish and other local products like nuts and honey.

Night Owl Friendly

Are you a night owl? Do you enjoy staying up late working or browsing Reddit til the morning? Then Greece is the perfect place for you.

Food places deliver takeaway way past midnight. Bars and restaurants are open until late.

Honourable mention: You will never wait 45 minutes for a takeaway delivery. Max 15′ 😉

Greece is very friendly to the night owl types. I’m certainly not one but having been there in my early 20s, I can attest.

This comes at a cost though. Noise. Greece is noisy at night and during the day too. Yes, it depends on the neighbourhood, city etc.

But on average, you will hear more motorcycles, alarms going off and dog-barking in Greece than in the UK.

Negativism

This might sound a bit controversial. I’m not sure if people in Greece are actually happier than those in the UK.

The income side of things hurts for sure. Greek income has less purchasing power, therefore you end up with fewer savings or less stuff to buy/do.

Chasing clients for payments is mentally taxing!

But income aside, there is a constant fear and dissatisfaction in the country.

The news has one goal. To spread terror which grabs attention. This applies in other countries too, but in Greece, this is more evident.

Perhaps it’s a cultural thing. Most households watch the TV news at least twice a day.

When I was a kid, I remember having lunch over bad events on the TV. Every single day.

This has not changed and it becomes a point of discussion when you meet people outside.

Please change my mind and tell me it’s just my own experience. But sadly, I doubt it!

Not Business-Friendly

Ask any self-employed person in Greece what’s stopping them from advancing the business.

During my recent trip there, I asked local professionals.

Theodor told me about bureaucracy, high taxes and an ever-changing regulatory framework.

You basically need an accountant for any odd little detail out there.

If you think knowing the tax framework in the UK is hard work, Greece will make it look like child’s play.

I’ve asked 2 accountant friends who are more involved with local businesses. One works at a big hotel chain managing their affairs. The other one operates an accountancy office managing small businesses and individuals.

The amount of tax changes taking place every few months is unbelievable… The tax system is ever-changing in arbitrary ways.

As a result, strategic business planning becomes much harder. And it’s not just that. You have to go back and forth with an accountant to stay compliant with the current regulations.

If your LTD company and your clients are based abroad, then you should be able to dodge most of the Greek tax fun.

Also, thankfully, things are changing for the better in the field of digital tax reporting. It is moving in the right direction. Greece is not, however, close to the destination. Miles behind if we compare the Greek tax system with the UK one.

Businesses thrive in a stable environment that is business-friendly. To give you an example, a new business in Greece needs to pre-pay the VAT for the NEXT year upfront! This kills entrepreneurship.

Investment income enjoys favourable treatment

Even though taxes are high in Greece, let’s give credit where credit is due.

First of all, income from capital is actually treated somewhat favourably.

Dividends, in particular, are taxed at a rate of just 5%. Interest at a rate of 15%. Capital gains at 15% too.

So living on dividends in Greece is very lucrative from a tax point of view.

There are no ISAs, however, and very few private pensions. This reminds me that I am actually spoiled in the UK with all these ISAs and personal allowances!

Further reading on the Greek tax system here and here.

International Schools

If you homeschool, feel free to skip this section!

If you decide to move to Greece with young kids, then what school will you choose?

Assuming you’re not from Greece, you would probably choose an international school where all courses are taught in English.

Options include British schools such as St Lawrence and St Catherine’s British schools.

But international schools are:

1. Private (so not free!)
2. Limited in two cities, Athens and Thessaloniki

International schools in Greece cost between £7,000 – £10,000 per year. That’s a considerable amount! Unless you were planning to go private anyway, in which case they are much cheaper than in the UK.

If you are interested, this platform offers a nice school comparison.

But the cost is somewhat expected. You have to pay for such a private education.

The location aspect is the most worrying. International schools are only located in Athens or Thessaloniki.

Although you could live in Athens, if you want to go to Crete or Rhodes, then the options are very limited.

Is Greece your next Chapter?

You should definitely consider Greece as a place to live, even if you don’t speak the language.

The low cost of living, the fun and the weather are worth a shot!

Local salaries and the business mentality are the two main issues. Better find a way around them.

I have not lived in Greece for more than 10 years. Even if we decide to go back, a test drive of 1-2 years before putting down roots will make or break the case.

What about other places? Have you considered making such a bold move?

Any other place I should look at?

As always, thanks for reading!

If you are a business owner, check out the Company Investing Course.

It includes everything you need to know to invest your company profits!

We focus on the how. How to make money investing, optimize tax, beat inflation, build passive income.

But once in a while, it’s ok to stop, take a breath and ask why we’re doing all these.

Here is the story of the Mexican Fisherman and the American Banker. I hope you enjoy it as much as I did when I first read it!

An American investment banker was taking a much-needed vacation in a small coastal Mexican village when a small boat with just one fisherman docked. The boat had several large, fresh fish in it.

The investment banker was impressed by the quality of the fish and asked the Mexican how long it took to catch them.

The Mexican replied, “Only a little while.”

The banker then asked why he didn’t stay out longer and catch more fish?

The Mexican fisherman replied that he had enough to support his family’s immediate needs.

The American then asked: “But what do you do with the rest of your time?”

The Mexican fisherman replied,

I sleep late, fish a little, play with my children, take siesta with my wife, stroll into the village each evening where I sip wine and play guitar with my amigos: I have a full and busy life, señor.

The investment banker scoffed:

I am an Ivy League MBA, and I could help you. You could spend more time fishing and with the proceeds buy a bigger boat, and with the proceeds from the bigger boat you could buy several boats until eventually, you would have a whole fleet of fishing boats. Instead of selling your catch to the middleman, you could sell directly to the processor, eventually opening your own cannery. You could control the product, processing and distribution.

Then he added: “Of course, you would need to leave this small coastal fishing village and move to Mexico City where you would run your growing enterprise.”

The Mexican fisherman asked, “But señor, how long will this all take?”

To which the American replied: “15–20 years.”

“But what then?” asked the Mexican.

The American laughed and said,

“That’s the best part. When the time is right you would announce an IPO and sell your company stock to the public and become very rich. You could make millions.”

“Millions, señor? Then what?”

To which the investment banker replied:

“Then you would retire. You could move to a small coastal fishing village where you would sleep late, fish a little, play with your kids, take siesta with your wife, stroll to the village in the evenings where you could sip wine and play your guitar with your amigos.”

The End :)

Blast from the past:

• How to FIRE your boss
• How to be happy and enjoy life

True financial independence starts with spending less than you earn. In other words, it starts with saving. Investing is the icing on the cake, at least in the beginning.

I am a strong believer that big mortgages do actually work because they make you a forced saver.

You have no option but to “spend” a good chunk of the paycheque to pay the bank. You pay yourself first. Then 25 years later you own a house, magic!

Budgeting comes to mind as well, particularly if you owe debt or have a specific financial goal in mind (wedding, trip, kids college etc).

I was never a fan of budgeting. I guess psychologically it’s a bit depressing to know you cannot buy or do something because you have to stay within limits.

Noone likes budgets. (thanks Rishi…)!

They’re boring to set up, boring to maintain and stick to. Sometimes they’re necessary.

If you are disciplined enough you can do without a budget. But regardless.

I find it extremely useful, if not necessary, to at least have a rough idea of where your money goes.

This is the main reason I use Money Dashboard.

1. Money Dashboard – See where your money goes

Money Dashboard is a free app that gathers all your bank accounts in one place. You can connect only the ones you want and it will automatically pull the data (using OpenBanking).

It will then give you useful insights into your spending and income. You can:

• Break down your spending by categories (Groceries, Rent, Experiences, Food & Drink, etc)
• See how much you really spend per week, month etc
• Connect multiple bank accounts, including partner accounts
• Set a budget
• Help you stay on track

Basically, it will give you a true picture of your financial life, not what you think it is!

A useful statistic is when it shows the upcoming expenses before they arrive. So you know that you’ve got mortgage and nursery payments coming up before they’re here (note to self).

It might need some tweaking to get it right in the beginning. You get the odd transaction that is tagged incorrectly but it’s mostly right. Or you might want to create custom categories.

For example, “Coffee” is one I could have created. The amount of whole-bean coffee we consume adds up if you drink as we do!

Then you have the more traditional PIE chart showing how much you spend where.

Finally, you can create a ‘Spending Plan’ which is basically budgeting.

Overall, the biggest benefit I see is understanding the “Big Picture” of your spending. For example, I knew we spend a lot on quality groceries compared to other people but that was based on intuition. I didn’t have a clue.

Between FarmDrop deliveries, online grocery shopping, local Sainsbury’s visits, shopping from multiple accounts (wife too) you can lose track.

You can also spot the odd subscription service you had forgotten to cancel.

To sum up, getting the big picture right is key to saving.

As Housel says, the majority of personal finance is

• house
• car
• education
• healthcare
• childcare

The rest is a rounding error for most.

I use Neon which is the newest Money Dashboard remake. The old classic interface is something I have never used.

What about some data privacy?

Good old Excel is old-fashioned but does one thing well: Privacy.

With 3rd party apps, you give away your data in exchange for a service. Therefore, it’s very important to understand how your data is used or to what degree you can be anonymous. Especially if you’re giving away your entire financial picture.

Step 1: The first step with external apps is to check whether they use Open Banking or not. Sometimes you will see the PSD2 acronym too. Open banking is a control that ensures apps can talk to each other (via APIs) and you have the upper hand on what type of info is shared and when to revoke it.

For example, when Money Dashboard asks for my Santander account, I do not provide Money Dashboard with my Santander username and password. Instead, Money Dashboard opens a Santander page, in which Santander asks me if I authorize Money Dashboard to read statements and perform certain actions on my behalf.

When giving my consent, Santander will tell MD they have my permission and redirect me back to their page.

I’m not risking a rogue MD employee making bank transfers using my login credentials!

Careful with apps scraping your data without using Open Banking.

Step 2: Now even with Open Banking, it’s important to understand how your data is used after leaving the nest. One way to be a bit more clever about it is to ask how they make money.

In Money Dashboard’s case,

Money Dashboard makes money by providing insight and market research services to others companies to help them better understand trends in consumer spending. Rest assured that we have strict and robust procedures in place to ensure that we fully anonymise the banking data on the platform and that we never use users’ personal data in these market research products.

In the future, Money Dashboard may offer suggestions for financial products and services (for example credit cards, mortgages or insurances) that can save you money. If you buy something based on our suggestion, Money Dashboard may receive a commission from the product provider.

In short, Money Dashboard sells your anonymised data to 3rd parties who are interested in market trends.

2. Topia app – Your Financial Independence buddy

I have written before about FIRE and making work optional – Working because you want to, not because you have to.

That’s the main idea behind financial independence. Now, what if there’s an app to track your progress and help you along the way?

This is what Topia is all about. As a new entrant in the FIRE space, I like their interface and the work they’ve put in to help all FIRE enthusiasts.

Logan Leckie, who is the founder of the app can explain it better than I do. Here are a few words from him about Topia:

Who Topia is

My name is Logan, having discovered FI over 2 years ago I quickly become a massive believer in everything FIRE stands for and the wide array of positive externalities pursuing FI can have on someone’s life.

However, I quickly found that despite constantly discussing and talking about FI with my close friends and family, they all seemed to really struggle to initially understand what FI was and also really struggled to get started on their own journeys to FI.

It dawned on me that getting on the FIRE journey was actually a real pain in the ass for a lot of people. The core ones are:

• Understanding the numbers under-pinning FIRE as well as the relatively complex calculations needed to build your FIRE roadmap
• Knowing where to start and what to do next
• The custom-built excel spreadsheet needed to track progress (+ the monthly grooming/tweaking of the spreadsheet)

I found all of the above proved to be big enough pain points to prevent a lot of people from pursuing FI. I found it incredibly frustrating that my closest friends and family didn’t understand something I was so sure could have such a positive impact on their lives.

So, out of this frustration, Topia was born; I thought I have apps that make other aspects of my life a lot easier, why couldn’t there be an app to help make pursuing FI easier?

Topia started as a small side project and slowly but surely gained momentum. I have always had a sweet spot for entrepreneurship and so pretty quickly decided to leave my job in finance to crack on with Topia full time.

No more excel spreadsheets or monthly manual data inputs

In Topia, you can connect all your investment, pension, mortgage and debt accounts directly into the app. This enables Topia to track your net worth and progress to FI in real-time.

On top of this Topia will also do all the number crunching – we provide simple inputs which enable you to personalise your roadmap, Topia will then crunch the numbers to produce your very own roadmap to FI.

Tinker + life events

Easily build scenarios to determine how you could get to FI faster. What if you increase your savings rate by 10%, how much sooner will you get to FI?

What if you decided to buy a property? or have a child? How would that impact your journey to FI?

Track your savings rate and get to FI sooner

We all know how important your savings rate is in getting to FI. You can connect your bank account to Topia and track/monitor your savings rate in real-time.

Based on your spending Topia provides hints and tips to turbocharge your savings rate.

Ever wondered how much sooner you’d get to FI if you downsized your house/flat? Or switched over to public transport? What about bulk buying your food? Geo-arbitrage?

Who is topia for?

For advanced FI-ers Topia can complement the spreadsheets you already use by automating the tracking of your portfolio and savings rate in one place that you can check on the go.

But Topia is especially relevant for people at the early stages of their FI journey. Topia is designed to make it really easy to get started on your journey and help you get to that FI goal as soon as possible.

Topia also comes with a community of like-minded people as well as ‘Mentors’ – passionate and knowledgeable people from the FI community to ask questions and/or challenges you have at each stage in the FI journey.

Is my data private and safe in Topia app?

Topia is a brand new app and a startup.

I asked Logan to provide some info about how data privacy works in Topia, who has access to the data and whether my data is sold.

Topia never sell any data to anyone – no 3rd parties have access to any of the financial data. Internally, the only time data can be accessed is if a user reports an issue around the open banking data. If this happens the data is automatically anonymised before developers can then look into the problem which was flagged. See also how Topia manages user data in their video here.

From a security standpoint: We put in place every measure possible to ensure that all data is locked tight and secured at all times. This includes military-grade encryption, regular penetration testing and bi-monthly internal testing. On top of this Topia is registered with the Financial Conduct Authority (FCA) (FRN: 934702) and authorised as a PSD Agent. We are also registered with the Information commissions office (ICO number – ZA778054)

What is the Topia business model?

Topia is a free app and there is no charge anywhere inside the app.

Soon, they will allow users to invest through the app, without leaving Topia. Any users who opt to start their investment journey through Topia will pay Topia a platform fee, similar to how you pay Vanguard/AJBell/HL a platform fee to invest through them.

Give Topia a try and good luck to Logan and the team. Exciting times ahead!

3. Keeping track of your investments

As your investments grow in size, it’s increasingly more important to track your investments, your annual returns and asset allocation.

What gets measured gets managed and all that.

The biggest benefit is understanding your returns, how complex your portfolio is and how it compares versus a benchmark, say Global Equity. If it underperforms for a long time perhaps you should stick to passive investing and stop taking any active punts.

Have your ‘satellite investments’ become too big or perhaps they are a drag on your portfolio returns?

Is your number of holdings unnecessary long? Simplicity trumps complexity in investing.

Moreover, understanding your asset allocation is important because it helps you rebalance. Are you back on track with your 80/20 portfolio? Are you overweight GBP by way too much? If your assets have drifted from your target allocation it’s time to take action.

Last but not least, another reason for tracking your investments is to get a nice momentum when things work out. This should push you to keep going. And let’s be honest, the past 10 years were truly amazing for equity investors.

How can we track our portfolio if we use multiple online brokers?

3.1 Morningstar Portfolio Manager

Morningstar’s Portfolio Manager is a free tool to track your portfolio. It’s old-fashioned, but it just works.

The main screen is a snapshot of your current holdings and their value. Something like this:

It shows you the market value for each of your holdings, its weight and the total sum of your portfolio.

You can build more than one portfolio, particularly useful if you manage investments for the family for example.

This is what I use to track my stocks and funds from different brokers all in one place.

Next, we have the Performance screen which is where you can find your portfolio returns. More importantly, you can compare them to a benchmark during different time periods.

There’s too much on this screen so let’s break it down one by one.

The Personal Return is exactly that: What your portfolio returns are, taking into account the timing of your contributions.

You might own an investment that is up 200% year to date, but if you only bought at the top you might be losing money during the same time. To put it simply, you can actually outperform or underperform a fund’s performance if you bought low and sold high during that period.

This is also called the money-weighted rate of return and it’s mainly the metric I care about the most.

The (Ann.) in the 3-year or 5-year column stands for Annualised – yearly. So in the portfolio above, for the 3 year period, the Personal return was 24.66% per year.

Sometimes, people refer to the performance of their holdings alone, without considering the time they made their trades. This might be useful if you want to see how your portfolio would be doing if not distorted by money coming in and going out.

That’s the Total Return which simply is the return without considering your contributions.

In the industry, you might hear about it as the time-weighted rate of return or sometimes called unitised.

Index Return: This is the benchmark’s return you have selected.

Asset allocation

The free tool is good enough but lacks some important features. I would like to see what my asset allocation is, stocks vs bonds and perhaps property. I would also like to see my currency exposure. How much of my wealth is in GBP vs USD vs EUR?

Morningstar’s paid version (Premium) offers the XRAY tool with more advanced analytics.

Morningstar Premium might be worth the cost if you take a more active approach to investing. It might also be useful if you are a passive investor with too many different funds across different brokers, company pensions etc.

How much does Morningstar Xray cost?

Morningstar Premium costs £159.00 per year at the time of writing (Nov 2021).

Pro tip: If you use the AJ Bell online broker you can actually have all Morningstar Premium features as part of the platform, including XRAY. You can add external transactions from your other brokers. Basically, they whitelabel the Morningstar Premium version. Thanks, Martin for the tip ;) 

Morningstar disadvantages

1. It’s a bit old-fashioned and slow. Developed using old tech and the interface kind of sucks.
2. Morningstar has no support for some currencies. It only supports USD, GBP, EUR, JPY and CHF.
3. Dividends require manual recording. Just go to Edit -> Dividends. It’s a bit frustrating that to record a dividend payment you need to report its reinvestment. What if I didn’t make one?
4. Stock splits need manual recording. Just go to Edit -> Splits.
   A stock split is when a company will increase (or decrease) the number of shares while also decreasing (or increasing) the value per share. They can do it for a number of reasons, but for the end investor, the result is the same. You will still own the same value you owned before the split.
   
   When stock splits happen, Morningstar will just display the new share price without adjusting for the change in the number of shares. That’s bad! Easy to fix, though, just manually record the split.

Obsessive tracking can be counterproductive, so check responsibly.

3.2 TrackMyStack – Net worth tracker

This is a tool developed by George, a blog reader.

It’s a net worth tracker and it does what it says on the tin.

• You add your assets like stocks, funds, crypto, home, cars, and even liabilities (like mortgage)
• You can create different portfolios, like Kids portfolio, Loans only, Crypto portfolio, etc
• Automatically updates the prices of securities
• Full privacy
• Supports both iOS and Android

I like the simplicity of the tool and the fact it is fully private. Not even an email required.

Not everything is perfect, though. It does not support dividend tracking – you need to enter the new shares or cash manually.

Then, the ‘sell’ functionality is not as intuitive as I would have liked. You can reduce your number of shares but if I’m selling everything I need to set it to zero, archive it or delete it. I reached out to George who confirmed this is ok, as you want to track your net worth, not necessarily your portfolio returns. Which is fine.

The pro version costs less than a latte (£2.59/month) and you real-time pricing and priority support while contributing to the app development.

When it comes to privacy and anonymity: No account is required to use the app and no syncing with other providers. Your wallet data belongs to you and can be exported or imported at any time. We don’t sell your data.

Moreover, you can export your data in XML format. If you ask me, owning your data is very important in case you want to do some manual charting, run tax calculations, switch to another tool etc.

Overall, I like TrackMyStack and use it for specific portfolios. My main net worth document is in an Excel spreadsheet.

And that’s about it! I have not been paid to write about any of the above apps.

Hope you liked the tools to help you stay on track and save time too.

With so many tools out there, I’m sure there are other options. What do you use? Please comment below.

Invest your Way to Financial Freedom is a new book by popular Ben Carlson and Robin Powell.

Ben runs the Animal Spirits podcast and has written another great book, A Wealth of Common Sense. Robin is the editor of The Evidence-Based Investor, a highly respected finance website.

The book is an easy read, made of 22 small chapters. I’d say it is particularly useful to young investors in their 20s or 30s trying to achieve financial independence.

It answers some important questions:

Why is investing the best way to build wealth?
What should investors expect from the stock market?
How long does it really take to become a millionaire?
Is it too late if you don’t make an early start to saving and investing?

Below is a short excerpt from the book, a chapter dedicated to the investor’s lifecycle.

Enjoy!

The Investor’s Lifecycle

As we write this book, Ben is feeling very sensitive about an imminent landmark birthday. Robin, meanwhile, would love to be 40 again so isn’t as sympathetic as he might be. One thing we can agree on, though, is how quickly the years go by the older you become, so be sure to make the most of life whatever age you are.

Even in retirement, most people tend to have some exposure to the stock market. Depending on the actuarial charts you use, current life expectancy in Britain for someone in their mid-40s in 2020 is somewhere around 84 for men and 87 for women. So, if we live to that sort of age, both of us expect to be investing for several decades yet.

Realistically, Ben will be investing for another 40 years or more. In that time he’s expecting to experience around ten more bear markets, about half of which will constitute a market crash in stocks.

There will also probably be at least seven or eight recessions in that time as well.

Can he be sure of these numbers? You can never be sure of anything when it comes to the markets or economy, but let’s use history as a rough guide on this. Over the 50 years from 1970–2019, there were seven recessions, ten bear markets and four legitimate market crashes with losses in excess of 30% for the US stock market.

Over the previous 50 years from 1920–1969, there were 11 recessions, 15 bear markets, and eight legitimate market crashes with losses in excess of 30% for the US stock market.

The figures for European markets, including the UK, are fairly similar. Bear markets, brutal market crashes and recessions are a fact of life as an investor. They are a feature, not a bug, of the system in which we save and invest our money.

You may as well get used to dealing with them because they’re not going away anytime soon. They can’t go away, because the markets and economy are run by humans and humans always take everything, both good times and bad, too far.

The risk of these crashes and economic downturns is not the same for everyone though. How you view the inevitable setbacks when dealing with your life savings has more to do with your station in life than how scary you think those times are. Risk means different things to different people depending on where they reside in the investor’s lifecycle.

When you’re young, human capital (or lifetime earning potential) is a far greater asset than your investment capital. If you’re in your 20s, 30s or even 40s you still have many years ahead of you as a net saver and earner, meaning market volatility should be welcomed, not feared.

There’s an old saying that

The stock market is the only business where the product goes on sale and all of the customers run out of the store.

Your actions during down markets have a larger say in your success or failure as an investor than how you act during rising markets.

Down markets lead to higher dividend yields, lower valuations and more opportunities to buy stocks at lower price points. It may not feel like it at the time, but if you’re saving money and putting it into the stock market regularly, more opportunities to buy stocks at lower price points is a good thing.

The problem is during a market crash, it will always feel like it’s too late to sell but too early to buy. If time is on your side, you shouldn’t worry about nailing the timing of your investments, especially during down markets.

The good thing about being a young person is you don’t need to worry about timing the market to succeed. You have the ability to wait out bear markets since you have such a long runway in front of you.

The important thing for you is to keep saving and investing regularly, no matter what is happening in the stock market. People who are nearing the end of their working lives, on the other hand, are lacking in human capital, but they should, in theory, be sitting on plenty of
financial capital.

People are living longer, meaning the management of your money isn’t over when you retire.

But you have to be more thoughtful about how your life savings are invested at this stage of life because you don’t have nearly as much time to wait out a down market, nor do you have the earning power to deploy new savings when stocks are down by buying when there’s blood in the streets.

Market risk not only has different connotations depending on where you are in the investor’s lifecycle, but also how your personality is wired. Your risk profile as an investor is determined by some combination of your ability, willingness and need to take risk.

These three forces are rarely in a state of equilibrium so there will always have to be some trade-offs:

1. Your ability to take risk involves your time horizon, liquidity constraints, income profile and financial resources.
2. Your willingness to take risk involves your risk appetite. It’s the difference between your desire to grow your wealth and your desire to protect
   your wealth.
3. Your need to take risk involves determining the required rate of return necessary to reach your goals. Those who are unprepared for retirement may need to take more risk in their portfolio to achieve their goals, but they may not have the willingness or ability. Those who have more than enough money saved may have the ability and willingness to take more risk to grow their wealth, but they may not need to because they have already won the game.

Rarely do the planets align when it comes to figuring out the right investment mix, but the good news is there is no such thing as the perfect portfolio.

The perfect portfolio only exists with the benefit of hindsight. And even if the perfect investment strategy did exist, it would be useless if you couldn’t stick with it over the long term.

A half-decent investment strategy you can stick with is vastly superior to an extraordinary investment strategy you can’t stick with. Discipline and a long time horizon are the big equalisers when it comes to financial success.

Your ability to withstand losses in the market and stay the course with your plan come hell or high water comes down to some combination of time horizon, risk profile, human capital, temperament and ego.

If you don’t understand yourself, your circumstances and your deficiencies when making decisions about money, it’s impossible to truly gauge your tolerance for risk.

Next we’re going to explain why picking stocks is harder than you think.

The book was released on the 28th of September and you can buy it from Amazon here.

Andy is also the founder of Plain English Finance, a company with a great mission: to improve the financial affairs of as many people as possible.

The interview is split into two parts, here is the first one on YouTube: 

https://www.youtube.com/watch?v=w49frSoZk4Q&ab_channel=FoxyMonkey

Part 1

Topics we talked about:

– Investing at all-time highs like today
– Why property is overrated
– How aggressive/defensive you should be depending on your age
– 50k Weddings
– The real inflation behind government numbers
– Crypto
– Biotech
– Plain English Finance

Part 2

Part 2 is all about crypto, biotech and Plain English Finance.

Youtube link: https://www.youtube.com/watch?v=W8uNs8uALUA&ab_channel=FoxyMonkey

Doing your hobbies full-time.

Keeping a job you love but without worrying about money. Exploring interests other than the already specialised 9-5 profession.

Travelling the world or connecting deeply with the local community. Doing the digital nomad thing.

Pick your desired life, that’s what money can do for you! It’s time you FIRE your boss!

The FIRE movement has come a long way. Wikipedia defines it as:

Those seeking to attain FIRE intentionally maximize their savings rate by finding ways to increase income and/or decrease expenses. The objective is to accumulate assets until the resulting passive income provides enough money for living expenses throughout one's retirement years.

Previous generations could only dream of this lifestyle.

Did you know that pensions are a thing of the 20th century? The Old Age Pensions Act was first introduced in 1908 here in the UK. For most of humanity (and even the first half of the century), most people were either just not reaching pension age or had to work until the end.

Obviously, the ability to make work optional in your 30s or 40s is a great luxury. It’s possible thanks to the investment income that things like buy-to-let properties or stocks can provide.

FIRE is something many of us want to reach. But is financial independence possible? And should you really pursue it?

This is a 2-part post. In the first part, I describe the maths behind financial independence and the reasons behind it. I want to analyse what it takes to get there. Part 2 will be about the dangers of early retirement – what can go wrong and how to protect ourselves.

To begin with, let’s have a look at the math. First, I want to highlight what numbers can tell us (and what they cannot). We also have many examples from people who’ve FIRE’d after such a long bull market.

How much do I need to retire early in the UK?

To make work optional, you need to gather enough savings and then invest them in income-producing assets. How much? Let’s call this The FI number.

How much can you withdraw from your portfolio every year without running out of money?

In other words, how much do I need to accumulate in order to ditch the alarm clock? First of all, many clever people have studied the math behind the question.

Assuming the often criticised 4% rule, an FI number of £100,000 can generate £4,000 a year for you, forever, without running out of money. You can lower it down to 3.5% (see SWR series) if you want to be safer.

When your annual living expenses cover more than 3.5% of your invested assets congratulations, you have achieved full financial freedom!

Remember, we cannot just dial up the risk and lower the FI number. That’s because investment returns won’t come just because we need them. We also need to protect our capital from the ups and downs that inevitably come with investing.

For example, a quick rule of thumb is to multiply your annual living expenses by 25 (4% of invested savings) or by 30 (3.3%). So if your living expenses are £2,500 a month, that’s £30,000 a year. As a result, to reach full financial freedom you need £30,000 x 30 = £900,000 in investments.

Whether you use the passive income to FIRE your boss or for other purposes is entirely up to you.

No need to go full FIRE or even abandon your profession. For example, you can use it to go on better holidays, get nicer things or help the kids with the mortgage.

Using the same rules, a £450,000 sum can bring you £1,250 per month!

How do you gather the sum in the first place? Saving is more important than investing in the beginning:

• At a savings rate of 10%, it takes (1-0.1)/0.1 = 9 years of work to save for 1 year of living expenses.
• At a savings rate of 25%, it takes (1-0.25)/0.25 = 3 years of work to save for 1 year of living expenses.
• At a savings rate of 50%, it takes (1-0.5)/0.5 = 1 year of work to save for 1 year of living expenses.
• At a savings rate of 75%, it takes (1-0.75)/0.75 = 1/3 year = 4 months of work to save for 1 year of living expenses.

As you can see, the entire FIRE equation depends mainly on one factor: Your living expenses. That’s the trickiest part.

How confident are you that you are not going to miss your estimate? As someone who is more than halfway there, I think the FI number is really hard to pin down. The biggest challenge I see is finding the right number.

What Is the Average Cost of Living in the UK?

The average cost of living in the UK is £3,479 per month for a family of four or £1,955 for a single person (src: https://www.expatistan.com/cost-of-living/country/united-kingdom)

Obviously, this is just that, an average. A family of four living in London, nice area, private schooling etc would need north of £10,000 a month. Conversely, a single person who’s a hardcore ERE fan, spending just £800 a month would need about 300k to retire early.

The earlier you start the faster the compounding machine will work in your favour. You can even retire in your 30s or 40s if you have a very high income and live like a college grad. Personally, I do have a high income but I do not live like a college grad anymore.

In any case, the main issue with FIRE math is that you have to know your living expenses to solve the equation. As you would expect, the earlier the retirement age the harder the assumptions become.

The Real Issue with FIRE maths

Predicting living expenses for the current year or even the next one is doable. But the FI Number is almost impossible to calculate long term (like 20 years), especially if you want to be on the safe side. 

It suffers from so many different assumptions.

• Will you have kids? How many?
• Public or private education?
• Does your partner work? Or have you even met them? Will they be a big spender or a saver?
• Helping the kids with housing? Will you leave an inheritance and how much?
• Will you need to support your parents later in life?
• Average investment returns? Future tax rates?
• Life expectancy?

It’s not that you cannot make assumptions about these things. It’s that you take a conservative approach about all of them, then you might never reach it!

In other words, life doesn’t happen in a spreadsheet.

Ok, some people will reach their number, and some Foxy Monkey readers I know have a substantial net worth already. But not the majority.

So the aspiring FIRE seeker needs to either limit their future selves or make assumptions that make sense at the time of writing but could be wrong 20 years down the line.

Arghhhh The Number seems too high! Should I abandon the FIRE quest?

Most FIRE seekers are great problem solvers. They are also creative minds. The optional work lifestyle does not mean work is forbidden. But it means focusing on the only work that matters TO YOU.

Cutting the BS at work, the meaningless meetings, going deeper in areas you like and also learning totally different skills, like mastering cooking, hiking or machine learning. Keeping only the work that interests you even if it’s unpaid. Most likely, your post-FI activities will bring some income already. This is a big advantage to the “I don’t know what the living expenses will be like” issue.

Not everyone has to become a lifestyle YouTuber… For example, activities in a FIRE lifestyle like hobbies can actually pay you to teach beginners after a certain level.

I know what you’re thinking: This sounds like a job!! I thought I’ll be retired?

Many people will just call bullshit on the FIRE movement just because the answer to the entire question is

“Go find a job you like then!” 

But I disagree.

A job you like but depend on is a totally different proposition. Assuming you have the income from elsewhere, would you do your current job without getting paid at all?

If the answer is yes, then well done my friend. For most people, even the ones that are fairly happy in their jobs the answer would be straight no. They would perhaps do it part-time or choose to do 30-50% of the work activities.

This is why most of the successful early retirees we will meet in part 2 do some kind of work already.

To sum up, this is part of the solution actually! Having enough money to avoid being forced into doing anything you don’t like while only taking on those tasks you enjoy (even if it means changing jobs, lower pay, etc). Having the insurance that the passive income provides.

And for those of you who love their jobs and would do them for free (that’s me 8 years ago…) have you tested the limits of your freedom?

Finding the right FI number can be hard. So should I abandon the quest? No! I’d say start with a rough estimate of your desired living expenses with some room for error.

Keep learning / being active on things that interest you in FIRE. That will let you have skills that can pay you if you have miscalculated your assumptions. This should also open up other opportunities that you were too busy to explore while in a full-time job.

Also, what if you have actually overestimated what you need? Or what if your investing proves to be very successful (or lucky)? Or that you end up bringing MORE income doing work or things you love? All these paths can give the upper hand to the aspiring FIRE-seeker.

Thanks for reading. In the next part, we will visit the dangers of early retirement and how to protect ourselves. We will also peek into other people’s lives who are on the same journey.

Happy FIREing!

Nothing wrong with trying to reach FI. And it’s great you offer ways to make your earnings worth for people. Everyone with savings needs that advice. So what you write about has huge value.

There is no one recipe to fit all people in life management and aspirations, so my view is personal and limited. But I think it’s worth saying, as an alternative philosophy, because I think my goal is not dissimilar: a better life.

Better life depends heavily on the ability to enjoy today. Not just with money but other stuff too. Job, creativity, relationships, volunteering, generosity, protesting for the environment… whatever. Certainly poor money management can lead to misery, that’s another reason your blog is helpful.

Placing focus on reaching a specific point of FI, perhaps too soon, seems a troublesome goal to me because it assumes that life is flat and stable and can continue better when you reach that goal, because you will have less dependancy on money. But to do that one is at risk of missing out on today. For example, you might trap yourself in a well paid but less meaningful job. Or If your work is meaningful and you are happy, you can still limit your true potential by avoiding risks to take on stability. Life is changing all the time and what we find meaningful today we might not find meaningful tomorrow.

Assuming that when we get the right net worth we will be better off, can be misleading. The journey is often more interesting than the destination and compromising on that can lead to trouble. We are only young once and you can’t buy the energy, risk ability, and good health when you grow older. That said, we all need insurance and pension for that reason, to avoid suffering when older. A small fortune can easily get wiped out with a bad disease or other misfortune.

In my view, FI is something much bigger than ability to paying the bills plus savings. It is the power to influence the world around you, being financially strong and mentally eager to make things happen as you wish.
But real financial ambitions involve real risk. The less the risk the smaller the reward. And as you well know, one can afford to take more risk the younger one is. Even an early retirement means wasting productive years for the payout date.

Now, no doubt we all need advice on managing wealth better to reach a better future! And often, this is a rewarding game in its own right.

Spyze

Effectively, Spyze is asking: Does FI come at a high opportunity cost?

So I started writing a reply to this comment and caught myself in almost a 1000 words long comment. Hence this post. Also, since meaning and purpose are quite personal to each individual, I want this post to trigger a discussion if possible. Please write a comment with your views!

The reason I like this comment so much is that it challenges the status quo of FI. I often try to find views different from my own. That’s how I get a better understanding of things and avoid confirmation bias. Also when learning a new domain, it’s often meaningful disagreement that leads to better outcomes. You’re not really learning anything by reading things you already agree 100% with (unless it’s just for fun).

I’d argue social media and the personalised google searches of today have made it even harder to find different opinions. Anyway, I’ve already deviated too much from the topic, somebody please stop me! On to the FI:

First of all, thank you for such an insightful comment. I couldn’t agree more that the journey is more important than the destination. As I’ve mentioned in previous posts, I strongly support the argument that you have to live happily on the journey to financial independence. Depriving yourself until the FIRE point is only going to make you miserable, therefore you should find happiness along the way. 

Trading off experiences, creativity, work etc now to reach a particular money target in the future is pointless. For once, as Spyze has rightly said, you’ll miss out on presence (YOLO..). But more importantly, there’s no magic candy at the end of the journey. FI won’t make you happier.

In fact, people who’ve already done it describe it as a short period of elevated happiness which then just falls back to pre-FI levels. Plenty of examples such as the Young FI Guy blog and Retirement Investing Today who struggled to find purpose after reaching FI and moving to Cyprus.

It’s only when they change their lives to pursue meaningful activities that things get better. That you can do before or after FI. I think it goes without saying that if you can find a job you love (or create one) that also pays very well, then you’ve already won the game. But 1) how many people have this opportunity and 2) how much can you sacrifice in order to pursue more meaningful work (such as building your own company for instance).

This blog is a good example. It takes a lot of my free time and a lot of research to write some of the articles, let alone interact with readers daily over email. I don’t mind spending it as it fills me up with joy and creativity. It’s hard work but it’s good work, not a job. I could postpone writing and sharing my finance knowledge until I have all the time in the world. But that would be postponing happiness.

So I’m squeezing 4-6 hours per week out of my after-work free time to do it. Wouldn’t it be great if I had 4 hours per day to spend on it? Of course it would. But guess what, it doesn’t bring enough money. I wouldn’t be able to support my lifestyle.

As a friend who’s winning the startup game (3rd year, good fundraise etc) recently told me when I asked him why he moans about needing a good salary, his response was: “Yes, I’m building a company, but I cannot eat equity”.

One needs some money to live. On one extreme, a person may work on extremely meaningful work and make close to zero money. Or one can make millions but be miserable day-to-day. Now wouldn’t it be great if one can do what they love while accumulating lots of money? Of course, it would but it’s less common. Find a job you love and you’ll never have to work a day in your life goes without saying.

Even programmers that are generally a very satisfied group of people, have to do less enjoyable things like pointless meetings, file bug reports and do boring work from time to time.

But it’s a matter of risk appetite. At the end of the day, we all have to draw a line in the sand and pick our battles. I believe this is where the risk profile comes in and it’s what makes this question so personal.

No one can predict the future. If one is stuck in a miserable job and counts “9 years to FI” then that’s not a great way to live, is it. Equally, when you have good colleagues, work in a nice environment, a well-paying job that’s good enough, but you decide to quit everything to pursue your passion, I find that equally dangerous.

So I’m openly asking this question: is there a line between meaningful activities and financial independence?

What’s the optimal amount of risk?

In corporate decision making, the optimal amount of risk can be summarised with one word: Enough. The risk a company should take should be enough to meet its goals (maximize shareholders profit, service debt, build a competitive advantage through innovation etc). Take more risk and you’re risking going bust. Take less risk and you’re not strong enough to beat the competition.

Having a goal means that you have a tangible target. By definition moving towards a tangible target means you’re not moving towards different ones (unless they’re on the way). Similarly, pursuing financial independence means you need some income and controlled expenses to create a surplus. Spend less than you earn -> Invest the surplus.

Therefore, one cannot take extreme risks and at the same time pursue FI, not as a primary goal at least. Which is in line with what Spyze is saying.

The opposite is true as well. One cannot just save without taking any investment risks, or they will never manage to create a cashflow that’s high enough to remain independent.

Therefore whether financial independence is troublesome or not, depends on each person’s goals. I place my freedom to do what I want higher than my wish to change the world or become the CEO of a multimillion dollar company. Different people want different things.

I’m quite happy knowing that every year my passive income replaces things I used to have to do with things I choose to do.

Although this blog is usually about money, it may sound strange that accummulating millions of ££s is not the goal. To do so, that would require me to take a higher risk than the one I currently need in order to buy control of my time.

After all, this blog is more about living a lifestyle designed around fulfilment and less about becoming rich. If reaching a particular net worth was the only goal, I would do things very differently (not live in a £600k flat, take expensive holidays or buy lots of gadgets to name a few). Or if making millions was the goal, I wouldn’t be working for someone else, but more likely try to build the next big thing in my private company while also working harder.

People often fantasise about making millions in the next venture only to fall prey to survivorship bias.

It’s not a particular wealth target I’m obsessed with. It’s not really about FI but the lack of FI that annoys me. The need to depend on clients/projects/salaries to support my lifestyle. Time is extremely valuable to me because it is a finite resource and it is essentially mine. I can trade my time away for money by working a job, but I can never buy it back. It is just gone…

I may be quite lucky that FI comes natural to me as part of my high earnings / frugal lifestyle. Most of my happiness has always come from simple things and mostly from creating experiences. And since I get no joy from owning toys such as Louis Vuittons and Aston Martins, becoming financially independent is kind of inevitable.

To sum up, FI is not going to make you happy just by reaching it. But FI is a happiness enabler. Selling my time for money is not the goal. The goal is to be financially able to do the things I do today without having to “rent myself” out.

The power of having options in life is underestimated. For example, I could decide to work for 6 months on my algo-trading bot which I used to build and perhaps release it as a software to the world. Or I can help readers manage their finances better by dedicating myself to blogging full time. On the more recreational side, exploring the world with slow travelling and raising kids come to mind.

All these activities are very meaningful to me but involve a risk higher than my threshold right now. The risk is that they won’t bring enough money to maintain my standard of living let alone secure my future. And it’s one that I cannot afford to take.

I accept the argument that FI limits risk taking to a certain extent while pursuing it. But to play devil’s advocate try to answer this question: Out of 100 people at work, how many would work for free? Continue at their current role but without getting paid anything. 1? Maybe 2? Are the other 98 reading Foxy Monkey and pursuing FI? Probably not. So why are they’re not moving since they’re not perfectly happy?

Some want a good work life balance, are happy enough, some others are lazy, or just incompetent. But most importantly, some people are just not risk takers. Not everyone seeks higher risks and that’s ok. Otherwise capitalism wouldn’t work. I guess that’s human nature too.

Therefore the question still remains: Would a person do something differently if FI wasn’t their primary goal? I think most people wouldn’t but that’s just my view.

Ok, that was a long monologue… Time to hear from you in the comments!

Let’s Meet This Thursday!

This Thursday, 17th of October is our little gathering. Please come along, I’d like to meet as many of you as possible and have some meaningful conversations! You’ll find me in this cosy pub.

A few people already said they’re coming which is great!

Where: The Libertine Pub, 125 Great Suffolk St, London SE1 1PQ
When: 18:00 – 21:00

Please don’t hesitate! Let’s have a drink, share some helpful tips and have meaningful conversations around personal finance, investing, career, etc.

The point where I no longer need to set an alarm in the morning. No longer need to worry about being late or having enough to pay the mortgage, college tuition and holiday getaways. It’s not that I’m sick of the 9-5. I actually like my job which is funny because it seems I’m desperately trying to escape it.

I’m not trying to escape my job. I’m trying to escape the need to depend on my job. That’s entirely different.

So our way of living and working here in London has always reflected that. I’m quite lucky that my partner agreed to shape our life towards this goal. Otherwise, life would’ve been a struggle for sure. But enough of my why of FI. Where do we stand today, September 2019?

We have crossed the halfway point and we’re about 60% there! The green line is staring at me as a lighthouse stares at a ship that’s been travelling for years. Is FI getting real……. for real? :)

Will we defeat the “This will never work” friends comments? Or is the green line a moving target? Will the definition of enough change over time? The good thing about the Work Optional threshold is that it’s set by us. We choose where to set it and how much margin of error to throw into the equation.

I’m starting to believe that reaching financial independence is not just a dream. It’s freakin possible if you put the effort in. It also requires some discipline. I’m also happy that trying to reach for FI has not made our lives miserable.

During this time, we bought (and furnished) a new flat, enjoyed some exotic holidays in the Maldives and Mauritius, went on an amazing US roadtrip while keeping a balanced life when in the UK. Obviously, having a high household income is key to FIREing early. Not spending the majority of your income helps too.

In fact, I believe saving is equally important to having a high income. When you learn how to manage your finances better and run your household like a business, you hone a different skill on the way. I consider the art of frugality to be a very useful one.

The stock market can take your wealth away but not your skills. Therefore being flexible with your spending can be very useful when needed the most in tough times. After all, living paycheck to paycheck leaves zero margin for error really. Get laid off when the boiler breaks down and you’re in trouble.

Managing a growing net worth is a challenge. Being closer to FI than ever, though, brings different questions to mind. Such as, how much can I withdraw from my portfolio every year to never run out of money? I have to rely on protecting my portfolio more than ever. So how do I invest to do that? What if there is no salary to top it up if its value goes down? What is the best asset allocation for my strategy?

Should we purchase private health insurance if we geo-arbitrage our way out of expensive London? What about taxes if I’m no longer a UK resident?

All this matter. But admittedly, they’re good problems to have! :)

How we got there

It would be great to tell you that in 5 years we followed a secret investing strategy that you should follow too. One that can double your money every 3 years and that makes your bank account flex like ‘The Rock’.

But unfortunately, there is no silver bullet. The process we followed to accumulate a good chunk of money in a short amount of time is exactly this:

1. Earn a high income
2. Spend less than you earn
3. Invest the surplus

I wasn’t lucky enough to participate in the UK property boom of the past 20 years. My investment returns were not amazing either given most of our wealth started building up from 2015 onwards. That’s missing half the bull market. But I was lucky enough to invest in bitcoin quickly grow my IT skills and have discipline.

It’s not because we invested in a bull market that brought us closer to FI. It’s because we earned a lot of money and kept most of it.

People will usually focus on how I invest. But high earnings and high savings matter more than investing. If I had to choose between being a good investor vs a good saver I’d always vote for the latter.

Anyway, when you earn 100k a year you’re privileged. But if you earn less than that this doesn’t mean that FI is not possible. It means that it will just take longer. To bring it closer you need to up your skills, ask for a raise or just work more. It’s just math and numbers don’t lie.

That’s it. No silver bullets. Earning a lot of money won’t help though if you spend it on Louis Vuitton and Aston Martins. In fact, depreciating assets will only make things worse as the habit of consumerism kicks in. Focusing on happiness, buying experiences and choosing to DIY instead of outsourcing everything certainly adds up.

I know people on decent salaries that save only 10% because… aren’t you supposed to save 10%? That’s about average. Maybe saving is easier for me thanks to my frugal nature. I don’t subscribe to the cultural norms so it’s kind of intuitive to avoid spending £250 on a Mont Blanc wallet.

No need to show off really, probably because I keep an inner scorecard. Unfortunately, most people like to keep an outer one and that’s an expensive hobby.

So we don’t keep a budget and don’t believe in the latte factor. But we know we can have anything but not everything, and live our lives by this rule. Buying freedom before buying other stuff puts things in perspective. We’re also not afraid of investing regularly, and tapping into the profits of the world’s best businesses as well as property buy-to-lets.

Investing Strategy

I cannot stress enough how important saving is. I always prioritise saving to investing when people ask me for advice. However, there’s only so much you can save plus saving is boring which is why I usually talk about investing. Eventually though, investing is what makes financial freedom possible. Besides, investing is my passion too. So how do I invest?

As the portfolio grows in value, my fear of managing grows with it. I mean… I’m more relaxed about the stock market swings than most people are. I also treated the -20% drop of 2018 as an opportunity to buy shares at a discount. But as the portfolio value increases, the absolute amount of money that can be lost (in £ not % terms) is quite scary!

Plus I did not live the 2009 crash which was probably the worst crash after 1929 in financial history. I am not confident I will stay calm despite the hundreds of articles/books/podcasts I have read on how it feels. Unless you experience it, you cannot know. The answer?

Now that we’ve entered the final 5-year FI window I’m trying to protect our portfolio from the sequence of returns risk. I would definitely want to avoid a scenario where the stock market crashes 6 months after we’ve pulled the trigger and cut our wealth in half! Panic may creep in.

Although there is still a lot more room for the portfolio to grow, I consider protecting what we’ve earned more important than maximizing our return. That said, here’s how our portfolio looks like today:

What’s right for me may not be right for you though. So always consider how risky you want to play it, not just how to earn the most money!

Securities (~60%) is where I invest most of our wealth. That’s a mix of global equities (50%) and bonds(10%). I use a mix of different funds mainly because of early mistakes in picking the simplest one. If I had to start all over again, there would be only 2 funds. One for equities, one for bonds:

• Vanguard FTSE Global All Cap (Equities)
• Vanguard Global Short-term Bond Index Fund (Bonds)

I’ve added a few tilts to capture more of the emerging market’s as well as small-cap companies but these are just the icing on the cake. If you’re interested, iShares EM IMI, KBA China A ETF and Vanguard Global Small-cap are the ones making my portfolio a bit more “exotic”.

My Property Partner investments and my flat’s deposit make up the property equity of my portfolio. Despite the fee changes, I would like to increase my investments there. That’s partly to drop the fee percentage but also to take advantage of the massive discounts going on in the resale market right now.

I believe investors are being very emotional following the recent fee hike as well as Brexit. Does this property look like it deserves a -25% discount because of an annual 1% fee and a drop in rental payments?

Property Partner also helps with tax treatment when investing in property as a limited company. Rent is received in the form of dividends which means I receive rent tax-free. This is how taxes work at Property Partner.

Property aside, I also like to keep some cash on the side. 13% may be too much and I’m probably paying for this ‘safety’.

But what I like about our portfolio is that the money is very liquid. Here’s an interesting graph:

So almost 70% of the portfolio is accessible within 2 months, and 84% within a year.

SIPP is at least 25 years away, and who knows when I will be able to access our pensions given the upward trend! But there are some benefits to having illiquid investments. The main one is that they’re not affecting your behaviour of selling at a loss (or selling at all for that matter)!

How much do I need to retire?

Such a hot question. I plan to answer it in detail as it deserves a post on its own. There are plenty of studies that examine the 100 or so years of stock market history to arrive at one number. The safe withdrawal rate is the maximum amount you can withdraw from your portfolio every year to never run out of money.

For a 30-year or so retirement this is about 4%, although the 4% rule is not very safe. But there are so many variables, such as

• The sequence of market returns (hence the sequence of returns risk)
• Retirement length
• Spending flexibility
• Taxes

Generally speaking, it’s easier to have a variable withdrawal rate that goes up when times are good and down when you need to guard your stock part of the portfolio. Also, contrary to the common belief, the asset allocation should be more conservative when starting retirement and moving to a more aggressive allocation once deeper in retirement.

Anyway, as I said, there’s a post coming on best strategies, withdrawal rates and asset allocation so stay tuned if this boring topic is of interest to you!

So what about us? We’re going to play it risky and depend on a 4% withdrawal rate :O The main idea is that there are always other income avenues such as blogging, matched betting, and perhaps more entrepreneurial hustles down the line that will cover the extra risk.

Knowing myself, why not take advantage of the fact that we will be making a side income as we have always had? We won’t depend on it, but that will act as an extra buffer for splurging or shielding our portfolio even further early on.

I can hear people typing “That’s not retirement Michael!”. Yes, I know it isn’t! I focus more on the FI part of FIRE which gives us options. Certainly, one cannot travel the world for 10 years. Well, not me at least. I want to do stuff, stay creative and help people. Which happens to bring income too.

Plus I don’t plan on stopping the IT work which is both fun and profitable. I just want to have the peace of mind that I don’t have to work if I don’t want to for an undefined period of time.

Being flexible with spending is also key in tough times and I believe we’re comfortable with it.

Share your FI progress in the comments. I’m interested in hearing other people’s opinions.

Foxy Monkey Meetup

I know this is an online blog but there are real people behind all these computers. Which made me think, why not gather everyone at a pub or somewhere and meet each other? This is much better than meeting everyone one-by-one as I’ve done before.

So the first Foxy Monkey meetup is happening, please come along!

Please don’t hesitate! Let’s have a drink, share some helpful tips and have meaningful conversations around personal finance, investing, career, etc.

The beauty of having passive income streams is that you no longer need to trade your time for money. You work once, but you hold on to your “investment employees” as long as you can. These little employees are very productive and over time, they will surely beat you in productivity. Eventually, your money can work harder than you can :)

Generating enough income from your investments sits also at the core of the financial independence (FIRE) philosophy. I still remember how nice I felt when I received my dividends for the first time. It was as little as £12.80 but it didn’t matter. It was money for free! Well, sort of. Nobody likes to talk about how hard we worked to accumulate invested assets and avoid purchasing stupid things for instant gratification.

But how does one choose what the best passive income investments are for them?

There is no one-size-fits-all solution here simply because different people have different risk appetite, tolerance, income needs and investment horizons! The reason I’m writing this post is to compare all the different investment options on a risk/return basis without forgetting some important topics such as liquidity and taxes!

Last but not least, different investment vehicles have different “passiveness”. Managing multiple tenants in a single property (HMO) is much more time-consuming than receiving interest from premium bonds. But HMOs offer a higher return! That sort of thing.

The Passive-o-Meter

Introducing, the Passive-o-Meter! All investments below are ranked by “passiveness” and by the passive income they produce.

1. Stocks and Dividends

In the past 100 years, the stock market has doubled your money every ~7 years. It has returned roughly 10% per year before inflation. It’s a very passive way to create recurring income if you invest in passive index funds. But how can you trust the stock market goes up and why is it one of the best passive income investments?

In a few words, the stock market represents the world’s greatest businesses all in one place. By investing in stocks (shares) companies pay you money for holding a small slice of ownership and trusting your money with them.

This reward comes in two parts. The first part is dividends. Companies will distribute a small part of their profits to attract investments. Currently, for example, Apple will pay me 1.67% per year in the form of dividends if I hold its stock.

The second part is capital growth. Companies earn more over time because they find ways to be more productive and increase their earnings. Not all companies succeed. In fact, most companies go bust or merge with other companies. It’s a living ecosystem. But some companies cover the losses of others, and then some! Therefore, on aggregate, the total earnings per share are positive.

Which is why the best way to invest in stocks is via buying a fund which owns all stocks in the world. This is a low-cost way of owning the majority of the stocks without having to pick winners and losers. Simply owning the world is a great way to get good returns and to avoid the risk of underperforming.

Why do stocks go up?

Have a quick look at this chart. This is the logarithmic chart of the largest US businesses (S&P 500) since 1950. Do you see the trend?

There are three reasons why stocks go up in the long term and why this is unlikely to change. These are:

1. Productivity
2. Inflation
3. Population growth

As workers become more productive, they create more products/services per year. Thanks to the advancing technology, productivity (as measured in GDP) is a steady ride upwards.

Then because of having better products, and also because governments are afraid of deflation, which is bad for the economy, they push for a steady ~2% inflation. And stocks keep up with inflation, as companies raise their product prices and pass on the cost to consumers.

Population growth is the 3rd factor in the equation, although more modest going forward. The crazy growth that we’ve seen in this century is going to stop. For a more detailed analysis, I highly recommend reading the Factfulness book. It sheds some light on global statistics and why humans stop having more than 2 babies as their living standards improve.

Therefore, given our fundamental analysis and the steady growth of the above factors, we should expect a smooth ride when investing in the stock market. But hell no! Human psychology plays a huge role and the price that investors are willing to pay for those earning varies from time to time. This is why we see huge spikes and drops in the stock market. Humans are sometimes greedy sometimes fearful and they tend to go from one extreme to the other, usually at the wrong times too!

Which is why we water our whiskey with other lower risk investments such as bonds, property etc. Watering your whiskey is a great expression taken from the Smarter Investing book of Tim Hale.

Risk/Reward when investing in Stocks

The total annualised return of US stocks since 1970 is 10.53%. Now, this is quite high but it comes at a cost. The cost of riding the ups and downs, or in other words, volatility. Your investments can go down 50% in a year without a warning.

Over the short-term (<5 years) nothing really guarantees that stocks will return a profit. But over the long-term, investing in stocks is one of the best passive income investments you can make. You cannot easily beat the stock market unless you create your own business. But we’re talking passive income here, aren’t we ;)

Therefore to avoid the psychological mistakes of selling at a loss, we have to ride the ups and downs by adding bonds into our investment mix. The most common advice is to split your stock/bond allocation by having your age in bonds. So if you’re 35 years old, have 65% in stocks and 35% in bonds. However, this won’t cut it for the FIRE crowd. We simply want to retire by 40 or 50 which means that we definitely need a higher stock allocation so that our money outlives us, not the other way around :) And we need a strong stomach too or other high-income producing activities.

How liquid are my stock investments? You can buy and sell stock funds pretty much instantly every day. So in that sense, stock investments are really easy to trade if you need the money. That’s a double-edged sword though. Having the option to sell anytime, means that it’s easy to do so at the very moment when you shouldn’t! The worse time to sell is when you do it out of panic because you can’t watch your portfolio go down in value.

How do I buy stocks for passive income?

The best way to invest in stocks is by investing in a global low-cost index fund or ETF. The fund includes stocks from all over the world, charges very low fees (<0.40%) and is managed for you by the investment company. My all-time favourite is Vanguard but there are definitely other options such as HSBC, Blackrock, Fidelity etc.

Here are some index fund options for passive UK investors:

• Vanguard FTSE Global All Cap Index Fund Acc
• HSBC FTSE All-World Index Fund Acc
• Vanguard Lifestrategy 100% Equity Fund Acc

Vanguard Lifestrategy 100% comes in different flavours (80% stocks 20% bonds, 60%/40% etc) which is pretty useful.

Hopefully, I gave you enough confidence that investing in stocks for the long term is very rewarding. The best way to get started is to open an account with an investment platform. Halifax Sharedealing or Interactive Investors are two good ones. See also: The Best Stocks & Shares ISA provider.

One of the biggest benefits when buying stocks/funds is that you can hold them inside an ISA. Investing up to £20k per tax year completely tax-free!

2. Property Crowdfunding

Who doesn’t love bricks and mortar? Not only you can brag in dinner parties but you can also make some serious money by investing in property. All world’s richest people have real estate investments after all.

Property Crowdfunding is a new clever way to invest in property thanks to technology. You pool your money with other investors and buy multiple properties or whole buildings. The returns are similar to property investing (7.3% annually so far). The opportunities come live through a property platform online. Similar to the traditional buy-to-let investments, the property platform will take a mortgage (usually 50% LTV) and will fund the property with investors’money. It will take a cut and manage the property for you.

This is one of the main reasons I love property crowdfunding. You don’t need to manage tenants, roof leaks, maintain the property or even find it in the first place. It’s the definition of PASSIVE INCOME. Here’s an example property:

My favourite property crowdfunding platform is Property Partner. You can invest from as low as £100. I have invested £16,000 so far and gradually increasing my investments to £50,000. Since September 2018, the returns have been pretty good. I’m looking at around 8% per year. Here are some of my investments, mainly in the north:

As you can see, I’ve recently put £4,000 in a Newcastle university accommodation which pays 5.97% rent per year. On top of that, I can sell this property now to other investors in the secondary market for the Buy Price of 206p. That’s an extra 6.8% already. Generally, good primary investments tend to sell for higher in the secondary market after they’re funded.

London, on the other hand, has been selling at a 10-15% discount since the property market was overheated, plus B____t uncertainty.

Read about my property partner investments in more detail here.

There are obviously risks associated with property crowdfunding. The biggest one being the platform going bust. In the Property Partner case, they have a contingency plan, where PwC real estate will take over the property management in case things go south. We will still own our properties and collect rent but I wouldn’t want to experience that.

But I believe technology is here to change how we invest in property. There are some serious benefits in investing this way. Property Partner investing is 100% passive and hassle-free. This was one of the reasons I didn’t want to invest in property in the first place. Now property as an asset class has a decent position in my portfolio.

The second reason is liquidity. You can buy/sell properties in the secondary market to other investors without selling the underlying property. Some of my primary market investments, increased by 6-7% when they become available in the secondary market. That’s a huge advantage over traditional BTL because we can realise the capital gains of our properties without actually having to sell. However, liquidity is not always great in Property partner but it’s improving.

Tip #1:Property Partner also offer an ISA so that your money can grow tax-free! That’s only available to development loans which they offer from time to time. Development loans differ from property equity, in the sense that you are lending your money to a developer to build properties and return the capital to you for a fixed return (usually 11%). You don’t have any ownership of the property and you simply play the bank here.

Tip #2: Property partner is available to non-UK investors too which is rare.

Tip #3: I am investing as a limited company which offers a nice little tax hack. Property Partner pays the rent in the form of dividends which are exempt from corporation tax! So, I collect rent tax-free. Therefore it makes sense for me to invest in income-heavy properties (such as student accommodation). Sure, I will have to pay the tax on the capital appreciation part when I sell a property that has increased in value but I collect my rent tax-free!

Make sure to check out their Premium Service if you plan to invest £25,000 or more. You get a personal account manager, they can implement a portfolio based on your custom needs and also invite you to property events, meet the team etc. I’ve been to one and it’s quite cool if you like property as an asset class. You also get a fees discount and early access to property deals before they come live.

I have met the PP team before. If you’re serious about investing in Property and want an intro to someone from the inside I’m more than happy to help.

3. Buy-to-let investments

An article like this would be incomplete if it didn’t include one of the best passive income investment: The traditional buy-to-let investing.

Property has historically been a profitable asset class. Some common characteristics include:

1. High returns thanks to leverage (mortgage)
2. Rental passive income
3. Prices that keep up with inflation but are also influenced by supply/demand and psychology
4. Something you can touch!
5. Illiquid investment

Despite all the negative press landlords get, being a landlord is a great way to build and grow your wealth. Here’s a screenshot of UK House prices straight from the Land Registry for the last 30 years. 1989-2019.

That’s a total return of 307% in 30 years. You see the upwards trend. The Great Financial Crisis looks like a small blip in the grand scheme of things. House prices are increasing in line by inflation, but here in the UK they have been increasing at a higher rate thanks to higher demand and shortage of supply.

Speaking of returns, if you buy on a mortgage which is the usual way of investing in property, your gains are amplified. This unique characteristic of property investing makes its returns very lucrative. But careful though. Buying on a mortgage means that any potential losses will be amplified too.

This is one of the best books I’ve read on how to get started in property investing. If you’re interested in the traditional buy-to-let way, then The Complete Guide to Property Investment is where you should start your journey.

Rob Dix is also the host of the Property Podcast which offers tons of info on property investing. Be prepared though. There is so much depth in buy-to-let investing and a lot of work you need to do in order to make it work for you.

The upcoming disadvantage I see when investing in property is… drum roll… drum roll please…………. taxes!

Property Taxes

The government is trying to fight buy-to-let investing because it’s pushing up house prices and making housing unaffordable for first-time buyers. So the biggest measure they took against landlords was to increase taxes on property income.

You will no longer be able to offset your mortgage interest payments against your income. This is a big minus since as a landlord I want my tenants to pay my mortgage payments and make some profit too. As you can see on GOV.UK by 2021 the finance costs deductible from rental income is ZERO.

They are replacing this with a basic rate tax reduction instead. This sucks for higher income tax-payers or even for basic income tax-payers that exceed the £45,000 threshold after property income.

It’s not all doom and gloom though! The new way of buying properties is through a limited company (SPV). These rules do not apply to corporations and you can expense your mortgage the same way as before. However, mortgage rates for SPVs are usually higher and there is some extra paperwork hassle too to manage your SPV.

This is one of the reasons I went with Property Partner as the optimal tax setup is already taken care of. Another route one can consider is REITs (Real estate investment trusts). Although because REITs are listed on a stock exchange, they behave more like stocks when you want them to behave more like property! So REITs to me belong to the stock category.

BTL Pros and Cons

Personally, I quite like DIY investing. I feel a sense of achievement when reaping the rewards of a good investment or when finding a good tax optimisation hack.

In that sense, buy-to-let investing requires some experience before you start investing. Sure, you may open up Rightmove and start bidding but you need to know how to calculate your expected return, which structure to choose for tax savings, upcoming areas, future infrastructure projects etc. Otherwise, you’re throwing darts in the dark and will be in for a surprise.

But buy-to-let investing can be one of the best passive income investments for those willing to do the work. Not only you get paid your rent every month, but your house goes up in value over time. Owning a portfolio of properties may also feel better compared to say £1m of index-fund investments if bragging is your thing ;)

The biggest disadvantage I see is the low rank of passiveness level. Even if you hire a letting agency to find tenants and manage the property, you will still need to do all the sourcing, talk to the agency for approvals, file extra tax returns, renovate when needed, etc. For one or two properties that may be ok, but as you build a serious property portfolio then I can imagine this taking up a lot of my free time.

Then properties are not liquid investments. If you decide you want your money back, selling can be quite time-consuming (2-3 months) plus costly too. This makes property investing an illiquid investment which has its benefits too. You cannot panic and instantly sell your property when all you need to do is weather the storm ;)

Further reading:

• How to tell if the property market is on sale
• Should I pay down my mortgage or invest?

4. Your own Product / Service

Creating your own product is probably one of the best passive income investments you can make. I call it passive, but it only starts being passive AFTER you put in the work to build it first.

Instead of selling your time for money, the idea here is that you work hard in the beginning to build something which will keep paying you for a long time with little or no maintenance. For example, writing a book, creating a blog or a website, making an online course, a YouTube channel or even a mobile app.

Tim Ferris made so much money from the writing of the 4-Hour Work Week book. He didn’t mention though the 80-hour weeks he worked to build a product and a system that allowed him to eventually relax at the beach while his book made money.

In my opinion, passive income from your own product is probably one of the best options out there. Take this blog, for example. It required a lot of work to set up and customise it to my needs. Although it’s quite easy to create a blog these days, it’s not very easy to grow your traffic.

Meet Ali – the Youtuber WoodWorker

I first met Ali about a year ago, and we were discussing property investing together. He briefly mentioned he had recently started a YouTube channel documenting his journey of building a garden room from scratch here in the UK. He is a keen DIY-er and building timber structures is one of his hobbies.

That’s Ali’s page today, one year later. He has nearly 8000 subscribers and as you can see his videos have tens of thousands of views. The videos are in depth yet also a fun watch and his effort is paying off…

My YouTube research tells me that Ali makes around £100 per month from Google Adsense (you know the ads before the videos?) and he has other avenues of income open to him through affiliates, including Amazon Associates. Last time I talked to him, he was surprised people actually find his video series so useful, they sometimes make donations as a thank you using the button on his website.

This shows the value of building a passionate community and the ‘riches in the niches’ as Pat Flynn likes to say. I must put a reminder to interview Ali and have him describe his YouTube experience here on the blog! Whilst any form of content creation will require new material, the back catalogue of Ali’s videos are likely to serve him with passive income indefinitely.

Another example is this blog.

It took months to create a decent number of blog posts that are meaningful and rank well in Google. But now this blog receives about 13,000 unique users a month and this traffic actually generates some money! It definitely took a while, given also that I didn’t promote it at all. But this is now passive income to me, and I can too claim I make money while I sleep. It didn’t come for free. And judging from monster posts like this one, it still requires some effort ;)

But I like the deep work here. It’s rewarding, not financially, but in other ways. I meet new people, enjoy writing and interacting with the personal finance community.

Overall, the passive income you will receive from your own product comes with added benefits. You probably learn tons of valuable skills on the way that are transferrable to other areas of your life. You also learn how to set something up and next time you want to build another asset, it’ll be much easier.

The only risk I see is losing your time and a small amount of money to set it up. But the upside is obvious and the gratification you will get from creating passive income this way is limitless! What are YOU passionate about?

5. Cash Deposits

Cash deposits are at the lowest risk/reward end of the passive income spectrum.

This is the safest option of all, in the sense that you simply cannot lose your capital. You deposit money in a bank savings account and you get paid interest over time. For example, if you deposit money to Goldman’s Marcus online account, you get 1.5% gross per year plus a 0.15% bonus for the first year. So for every £10,000 invested, expect £150 per year (before tax).

The Financial Services Compensation Scheme (FSCS) will cover your deposits up to £85,000 if Goldman Sachs fails to keep your cash safe.

As you can see this is a very low reward investment because there is simply a near-zero risk of holding it. I personally only use cash deposits to hold my emergency fund. Note that different banks offer different incentives. For example, I use TSB’s current account to get a 5% gross up to £1,500. That’s £3,000 with my wife’s account. Then use Santander 1|2|3 to get the 1.5% up to £20,000.

6. Fixed Income

Fixed-income on the other hand, is you lending money to the government (or companies) for a given time period. You’re buying government or corporate bonds. Usually, it requires a high minimum amount to buy individual bonds, and for diversification purposes, people buy bond funds. They simply are a basket of selected bonds and can be bought with no minimum restrictions.

The longer the term you lend your money for, the higher the interest. However, the risk associated with your bond holdings gets higher too. If the interest rates go higher, the price of your bonds will fall, all else being equal. Unless you hold until maturity and don’t care about an early exit.

I won’t go into a deep analysis of bonds, duration, maturity etc. For the purposes of a low-risk passive income, people hold high-quality short-term bonds (1-5 years).

But don’t expect great rewards there. A UK investment-grade bond Index fund of 3.3 years average maturity yields 1.3% per year. A UK government bond fund ETF (VGOV) currently yields 1.54%. The volatility of the price though will be significant in case interest rates change because the maturity (18) and the duration (12.74) of VGOV are much higher!

Here in the UK we also have the concept of Premium bonds which offer the chance of winning some tax-free money. But Premium bonds are not for someone looking for regular passive income or for guaranteed returns.

These bond funds are different in nature to other high-yield bond offerings such as the Raptor bond investment (gold and precious metal streaming and royalty finance).

Usually, fixed income is the water in the whiskey of our stock portfolio and it’s a defensive passive income option.

How to get started with Passive Income

With the exception of your own product, passive income starts with saving. To invest, you need to first save so that you can build an army of little money employees working relentlessly for you.

Nothing beats the joy of passive income. You no longer need to trade your time for money and you can use your precious commodity as you see fit. But to get there, you and I need to make some sacrifices first and save save save. The goal is to find a balance and not deprive yourself. There’s no point in living an unhappy life right now to possibly live better in the future.

The ability to save is the most important step in the passive income route. To ensure you save, you first need to see where you can cut some fat from. Here’s how I see it:

1. Track your spending using a Monzo card or by looking at your bank account in an Excel
2. Find areas where you can improve
3. Focus on cutting down the 4 major expenses: housing, car, holidays and commuting

I like the idea of being macro-frugal. So I’m not tracking my expenses, not sweating the lattes and eating out menu items. But when it comes to big expenses, like housing, car, holidays and commuting, I know I’m doing a good job. If you can optimise these 4 areas of your life, you have already optimised 80% of what you can do.

And there’s a limit. There’s so much you can ultimately save. If you want more, then it’s better to increase your income instead.

Last but not least, if you’re just starting out with passive income, you may be feeling overwhelmed. This is just too much to take on! Where do I start? I suggest you start with the most passive options out there that require little or no skill to invest in.

For example, invest in a global index fund, use Property Partner or RateSetter (p2p lending). Then you can start educating yourself on property investing and buy your first flat. That sort of thing. You don’t go buy a multi-tenant property in a remote town if you don’t have the skills yet. Eventually, nothing is hard and I hope you find the investment mix that’s right for you.

I hope you liked the Best Passive Income Investments article. What’s YOUR favourite way of generating passive income? Let me know in the comments!

Disclaimer: This is not financial advice, just how I invest. Investment carries risk. As always, do your own research. This post may contain affiliate links.