3
It was easy to get carried away by our dream of financial independence but what about reality? What are the cold hard numbers? Are we any the wiser and have we made a good decision?

Today I am giving you the actual living cost numbers and lifestyle trade offs for your consideration of a Financial Independence Seeking Happiness lifestyle.






  • A look at our current budget (and comparison to national statistics)
  • Future cost reductions
  • What do our investments look like after the house purchase.
  • Lovin’ the new lifestyle 
  • Is it possible for you - a crude calculation and links to financial timeline planning tool?

Expenditure

As some readers are interested in living costs in France. I thought I would outline our hopefully-settled-and-no-surprises FIRE costs here.

  1. We have been spending too much on food. My waistline is a tell-tale sign. It is mainly due to a few parties all summer long (erg every other day) and little indulgences (542 vs budget of 480)
  2. We have more money in the budget for Entertainment than we had initially budgeted for (163 vs budget of 200). Continuous saving can be a means to an end but saving for saving's sake is not fun. This year we will use the savings for entertainment.
  3. Holiday was below budget (202 vs budget of 300) even though we had 5 good trips to the mountains and to Paris.
  4. We used extra fuel (Petrol for clearing the garden and chainsaw work), electricity and water (had to fill the fosse septique for the first time, 5,000 litres of water) when renovating the house.
  5. Clothing has been low as we are currently fully kitted out....for a few months as the kids grow!
  6. We are liable for part of our healthcare costs (averages 34 euros per month including minor surgery, a couple of hospital consultations and numerous visits to the GP).In order to have access to the health system in France it is not just good enough to pay your taxes (aren’t there a lot!). You have to contribute to the system through a job as well otherwise you just have to pay for private cover.

We like “working” a bit. Mrs C is lecturing at the moment. I am looking at options to generate an income as well so we both contribute to the system.

What is not included and National Statistics?

We could take out top up health cover for major medical issues which would require a long stay in hospital. Instead of this we are putting aside 100 Euros per month into an emergency health fund. (see the comment above that we are spending on average 34 Euros per month including visits to the hospital at the moment)
  • House maintenance costs – as we are still renovating - we don’t really include these yet….. estimate 50-100 Euros per month
  • No life insurance – we save and invest in different ways
  • Saving for a new car would need to be about 100 Euros a month
  • Saving for the kids higher education - 100 Euros each per month
Looking at these numbers we can be confident that our underlying costs are around 1,600 Euros per month (~£1,200, ~$1800).
This can be compared to the average monthly expenditure in the UK of £2,336 (3,200 Euros). Source Telegraph and ONS (Office of national Statistics).
Notable differences are Transport £330pm (452 Euros versus our cost of 175 Euros per month) Housing and Fuel £321pm (440 Euros versus our cost of 198 Euros)

A couple of other categories that stand out from the ONS £187 on hotels and restaurants per month and £302 on Recreation and culture. (670 Euros per month versus our cost of  353 Euros).
Just these four areas (Transport, housing, hotels and recreation) the total UK average per month is £1,140 versus our outgoing of £530 a huge difference.
These numbers from the ONS are averages. We know the South East of England is much more expensive than other areas. To this point a comparison of any average can be misleading. The average household has only 2.3 persons in the UK. What about a family with kids which will most likely be the composition of an early financial independence seeker?
The best I have is basic living costs for a couple with two children (deemed essential) from this guardian article and are £1,914 pcm (2,622 Euros)

 Further Cost Reductions

  1. We purchase some seasoned wood each year. I am adding to this with wood from the property. The wood heating will cost considerably less than fuel, electricity or gas heating. The log gassification boiler we have installed is super-efficient and takes all types of seasoned wood.
  2. We should be using less electricity. The solar panels and the wood boiler are replacing the electric water heating we had last year.
  3. We will now reduce our use of the car. We had to travel around a lot to get items for the house renovation. The compact Eco Diesel sips fuel.
  4. Homemade tomato chutney is replacing tomato sauce (it’s a start ;). We have loads of homemade jam, soup and compote from the fruit trees.
  5. We have had a small vegetable patch but will have a very large one next year as we will have the time to plant and maintain one
  6. We have connected the natural spring to the vegetable patch to avoid using metered mains water.
 

NONE of these cost reductions are arduous and many are beneficial to our health.So Is our income sufficient and has adequate safety to pay for the new cat?
Smokey the cat - our chief pest controller

Investment and Income

Three Investment Portfolios
We run 3 portfolios:

PROTECT (Emergency and opportunity portfolio) – Cash related investments > emergency \ opportunity fund and money for the renovation project

HYP (High yield portfolio) – Consists of dividend paying stocks and property REITs > this pays for our living costs

We would like to maintain the capital until we are able to access our pensions. If it works out well, we will be able to help our kids out. The caveat being that they can stand on their own two feet, confidently and independently first!

We have the safety net of the PROTECT cash in case of emergencies (and a worst case scenario we can sell the house \ downsize \ rent again).

GROW (Future proofing and speculation) – Consists of our pensions. These are mainly equities UK, EU, WORLD and PRECIOUS METALS and one Final salary scheme. This portfolio is our inflation hedge.

As you can see from the pie chart this (pension) is a significant part of our portfolio. We have been prodigious savers and always maxed out our matching employer contributions (e.g. we added 7% and the employer added a maximum matching 7%). We both started investing in our personal pensions plans very early in our careers.

Due to the rising stock markets the pensions have performed very well averaging 7% per year (after fees).

A notable exception is the lack of bonds. The final salary pension, which we do not control, does hold a substantial proportion in bonds. Any shortfall is made up by the company. It is “inflation” protected meaning the pay-out amount will increase in line with inflation.

As we are close to our 40’s we have time to be aggressive (overweight stocks) before switching to bonds.

Spare income

We have some spare income each month and deploy it in the following way:
  1. Save and invest part of our surplus in a Permanent Portfolio approach in tax efficient savings accounts (PEA in France). The more I learn about investing the more I believe in full diversification and rainy day funds. Sticking to just stocks and bonds I believe would be highly risky for us. There are many financial gurus warning of the drop in the business cycle so we need to prepare for it.
  2. We are going to start a couple of small business which need some money to start up. This will keep the brain cells ticking over and contribute to society. The French government needs all the money it can get its hands on ;)
  3. Have some more fun and interesting trips. We had great holidays this year, spending only just over 2,500 Euros. This included a trips to Paris, Strasbourg, Vulcania (a Volcano Park in the centre of France), visits to the beach (grandparents), a wedding and a trip to the Pyrenees mountains.
    View from the Eiffel Tower, National Volcano Park and Pyrenees Mountains
  4. Spend some money improving the soil quality and irrigation around the new property.

2 Years in and Lovin’ it?

Somehow we have achieved what we were looking for when we decided to ditch the day jobs.
  • We have a more sustainable living arrangement (food, heat and transport)
  • More Freedom and a simpler life (no landlord, no job commitments, less paperwork)
  • Stability – a base with no reasons to move (e.g. job \ landlord wants us out)
  • Healthier – we cook more food (some from our organic veg patch and fruit trees). We are less stressed (no one telling us what to do, no performance reviews, but still the odd nightmares about corporate life). We work outside on a daily basis. The Gers is one of the least populated regions of Europe and hence has fabulous air quality.
  • Time to spend with the kids, new friends and think!
  • Great holidays do not have to be expensive – we have chosen a location where holidays are literally on our doorstop (~2hrs to Atlantic or Mediterranean beaches, the Pyrenees’ mountains and large cities of Bordeaux and Toulouse.)
It has not been all plain sailing:
  • Our income is not as high as expected (dividend cuts).
  • Income tax is higher in France.
  • We could not find a property at a good price in the local area so had to improvise and take on a renovation project.
  • French Paperwork - A major advantage is that Mrs C is French. She has been amazing at cutting through the red tape and paperwork.
  • We see less of of our old friends in the UK(but are making so mnay new friends here).
We can’t complain when we look at a list of Lifestyle improvements:
Was it worth it? Too right. We have never been freer and less stressed. We have learnt new skills, spent quality time as a family and learnt a lot about what makes us tick.

If it has to change in the future so be it. In the meantime we are enjoying the ride.

What about you?

We are spending around £1,200 per month ~$1800 for a family of four. This requires an invested amount of £288,000 @5% return per year. A really nice country house with land can be picked up for £150,000 in France.

A crude calculation of Financial Independence

If we take two young people with salaries of £35,000 each. In the UK ~10,000 is tax free and the rest is taxed around the 28% mark in this example.

Your family after tax income would be £56,000. It should be EASY to save 50% of this per year £28,000.

Considering NO interest, investment gains or salary increases it takes ONLY 15.5 years to accumulate the capital above.

Save 70% and the number of years drops to 11.2 years ((288,000+150,000)/39,200).

Now what if you add in investment gains, emergency funds, employer contributions to a pension, help from parent’s etc? Now financial independence really does seem like a real possibility quite quickly. Why not try some numbers out in the Financial Timeline Planning Tool?

Key Learning's and Considerations 

  • You need to have a good financial buffer \ emergency cash fund
  • Your income should be well above your projected living costs (20%+)
  • Your income must be inflation proof
  • A simpler lifestyle is much less stressful and healthy
  • What we have lost (access to amenities, concerts etc.) we have gained in other areas (access to countryside, quiet).
  • Changing country is a challenge and your financial situation changes dramatically (our tax free ISA’s are not recognised in France).
  • Financial independence can be obtained quickly but it is a discipline and has some costs that may not be negotiable.
Further reading:
Family Financial Independence in 7 Years! Almost FI this is how we got there
How to live off investment income
10 shares you should be able to hold forever

Useful tool:
Financial Timeline Planner

Peace and prosperity,

Contender

* Apologies I have been offline so long - since the move we have not had reliable internet at the house. This is being posted through a mobile phone... We have been promised it will be sorted out soon - all that French paperwork takes time!

Post a Comment

  1. I am very much impressed. However you are not spending any money on the rental property this is already huge advantage.

    We spent just under $100K a year or $8K a month:
    http://www.niterainbow.com/search/label/Family%20Budget

    To be perfectly honest, unless absolutely have to I do not want to be particularly frugal. I reasonably like what I do and the outcome. I could have saved more money but I am rubbish at investing them at the moment. This would not make much difference to our lives.

    To make income 20% above our expenses...this will require to have almost $4 mln in the bank at the current return rate, which is quite unlikely in the near term, if ever.


    ReplyDelete
    Replies
    1. Rental costs can be huge as you highlight. We were living in London and the sky was the limit for these costs. Likewise buying a property at London Prices would have resulted in a huge mortgage payment each month.

      We have chosen to live somewhere much cheaper where it has been possible to buy a nice property and have a good local school for the kids removing the inflated housing and schooling cost problem.

      Obviously living costs are determined by where you live and largely cannot be avoided (Chicago and Oxford are not cheap!). Additionally where you are has a huge impact on your earning power to pay for that lifestyle and save.

      Continuing to live in a high cost location and retire early requires a very large stash of money as you highlight($4M). Kids do leave and eventually rent is replaced with equity in a house.

      The investment pot can be acquired quickly if you are a very, very high earner providing the person does not succumb to lifestyle inflation \ keeping up with the Joneses. Otherwise a larger pot will mean working for much longer. TIME=MONEY and LIFE=FINITE a clear trade off to consider. OR a person can plan to downshift to a cheaper location \ lifestyle again this can be undesirable.

      Maybe instead of the word frugal replace it with eliminating waste. What is not really needed \ can be done more cheaply. Shopping around for phone plans \ using skype etc. Researching insurance policies. Right sizing living arrangements. Cutting out frequent luxuries that have turned into normalities. It is amazing how much you can cut from a budget without impacting your comfort \ standard of living. We saved huge ammounts by just changing our behaviour.

      In order to make larger savings or a larger income there are trade-offs which are hugely personal (as is a desired standard of living).

      Financial independence planning needs to take all of these personal preferences into consideration and project forward (with all major expenses - those expensive kids ;) to when it is possible. It is then a question; is the date and lifestyle the plan comes up with what the person REALLY wants?

      This can give the epiphany moment (it certainly did for us) when it comes up with a date very far in the future. Then the person can decide to change the plan \ re-evaluate the value (time) dedicated to the desired lifestyle.

      All the best with your plans!

      Delete
  2. Thank you for such a well written article. It’s full of insightful information and entertaining descriptions. Your point of view is the best among many.
    arca crypto

    ReplyDelete

Are you planning for financial independence and wondering what to do with it. If so is any of the content on this blog of use to you? I would appreciate any comments you have. All the best C

Welcome to FISH !
You have come here looking for answers. How to get out of debt? How to save and invest? How to retire early and how you want to live in retirement.

Well this is the right place for you as out tribe has been through all of these steps. We no longer work for a corporate employer and have saved enough to retire early. How we did this is shared here on this site for you.

Our little tribe found out these secrets to financial independence in our late 20’s. Since then we have taken early retirement, in our late 30's, in just 7 years. We now live in the South West of France with our two young children.

Along the way I decided to share everything I learnt. My articles and tips on aggressive saving and compound investing are there to help you meet your financial goals fast. I discuss ways to help you decide what you want by building a life plan. This helps to work out how to get where you want to be whilst avoiding the pitfalls along the way.

My expertise was built up working in blue chip corporate jobs, extensive reading and putting it into practice. I have condensed this knowledge into simple strategies to help you meet your goals and not those of the bank or the place you work.

There are free planning tools on this site that help you make a life plan. A plan for your future. The tools calculate how to reach your financial goals in a timeline that suits you. The tools help set out your life goals, make them happen and how to exceed them.

There are tips on how to simplifying your life to remove day to day headaches. These include ways to pay off debt fast buy eliminating wasteful spending habits. How to reduce your monthly bills through choices that actually improve your health and wellbeing. Identifying things you don’t need that sap your time and wallet.

There are little sustainability projects to reduce your dependence on shops and utilities whilst saving money to spend on things you want.

All of these little steps will show you how save 50%+ of your salary so you can meet your goal whatever it is. This huge saving rate can be compounded for very early retirement. I am sure you will find something here for you.

Darren Lee (A.K.A the Contender as in my blog)

 
Top